Document Fernley_doc_7de088002c

CITY OF FERNLEY, NEVADA Comprehensive Annual Financial Report For the fiscal year ended June 30, 2005 Prepared By: Administrative Services Department Office of the City Treasurer ---PAGE BREAK--- CITY OF FERNLEY, NEVADA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2005 TABLE OF CONTENTS INTRODUCTORY SECTION Letter of Transmittal i-v Organization Chart vi List of Principal Officials vii FINANCIAL SECTION Independent Auditor’s Report 1-2 Management’s Discussion and Analysis (required supplementary information) 3A-3H Basic Financial Statements: Government-Wide Financial Statements: Statement of Net Assets 4 Statement of Activities 5 Fund Financial Statements: Balance Sheet – Governmental Funds 6 Reconciliation of the Balance Sheet to the Statement of Net Assets – Governmental Funds 7 Statement of Revenues, Expenditures and Changes in Fund Balances – Governmental Funds 8 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances to the Statement of Activities – Governmental Funds 9 Statement of Revenues, Expenditures and Changes in Fund Balances – Budget and Actual for the General Fund 10-12 Statement of Revenues, Expenditures and Changes in Fund Balances – Budget and Actual for the Residential Construction Tax District #1 Special Revenue Fund 13 Statement of Revenues, Expenditures and Changes in Fund Balances – Budget and Actual for the Streets and Storm Drains Special Revenue Fund 14 Statement of Net Assets – Proprietary Funds 15 Statement of Revenues, Expenses and Changes in Net Assets – Proprietary Funds 16 Statement of Cash Flows – Proprietary Funds 17 Statement of Fiduciary Assets and Liabilities 18 Notes to Financial Statements 19-36 ---PAGE BREAK--- CITY OF FERNLEY, NEVADA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2005 TABLE OF CONTENTS (Continued) Combining and Individual Fund Statements and Schedules: Governmental Funds: Nonmajor Special Revenue Funds Combining Balance Sheet 37 Nonmajor Special Revenue Funds Combining Statement of Revenues, Expenditures and Changes in Fund Balances 38 Schedule of Revenues, Expenditures and Changes in Fund Balances – Budget and Actual: Municipal Court Administrative Fee Special Revenue Fund 39 Municipal Court Facilities Fee Special Revenue Fund 40 Residential Construction Tax District #2 Special Revenue Fund 41 Grants Special Revenue Fund 42 Capital Projects Fund 43 Proprietary Funds: Schedule of Revenues, Expenses and Changes in Net Assets – Budget and Actual: Water Utility Enterprise Fund 44 Sewer Utility Enterprise Fund 45 Non-Potable Water Enterprise Fund 46 Fiduciary Funds: Municipal Trust Fund Statement of Changes in Assets and Liabilities 47 Table No. Page STATISTICAL SECTION Government-Wide Information: Government-Wide Expenses by Function 1 48 Government-Wide Revenues 2 49 Fund Information: General Governmental Expenditures by Function – Last Four Fiscal Years 3 50 General Governmental Revenues by Source – Last Four Fiscal Years 4 51 General Fund Tax and Intergovernmental Revenues by Source - Last Four Fiscal Years 4A 52 Property Tax Levies and Collections - Last Four Fiscal Years 5 53 Assessed and Estimated Actual Value of Taxable Property - Last Four Fiscal Years 6 54 ---PAGE BREAK--- CITY OF FERNLEY, NEVADA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2005 TABLE OF CONTENTS (Continued) Table No. Page Property Tax Rates - Direct and Overlapping Governments (Per $100 of Assessed Value) - Last Four Fiscal Years 7 55 Ratio of Net General Obligation Bonded Debt to Assessed Value and Net General Obligation Bonded Debt Per Capita - Last Four Fiscal Years 8 56 Computation of Legal Debt Margin 9 57 Computation of General Obligation Direct and Overlapping Debt 10 58 Water and Sewer Funds Revenue Bond Coverage - Combined - Last Four Fiscal Years 11 59 Demographic Statistics - Last Four Fiscal Years 12 60-61 Property Value and Construction - Last Four Fiscal Years 13 62 Principal Property Owners 14 63 Major Employers 15 64 COMPLIANCE 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 65 AUDITOR’S COMMENTS Statute Compliance 66 Progress on Prior Year Statute Compliance 66 Prior Year Recommendations 66 Current Year Recommendations 66 Schedule of Fees Imposed Subject to the Provisions of NRS 354.5989 Limitation of Fees for Business Licenses 67 Independent Accountant’s Report on NRS 354.6241 68 ---PAGE BREAK--- INTRODUCTORY SECTION ---PAGE BREAK--- City of Fernley Administrative Services Department Utility Billing Accounting Budgeting Treasury Animal Control Municipal Court Adm. Public Works Adm. 595 Silver Lace Blvd. Fernley NV 89408 Telephone: (775) 784-9843 Fax: (775) 784-9843 i November 11, 2005 To the Honorable Mayor, Members of the City Council, and Citizens of the City of Fernley Nevada: The comprehensive annual financial report (CAFR) for the City of Fernley for the fiscal year ended June 30, 2005 is hereby submitted. State law requires that local governments provide for an annual audit by independent certified public accountants of its financial statements in accordance with auditing standards generally accepted in the United States of America. This report consists of management’s representations concerning the finances of the City of Fernley. Consequently, management assumes full responsibility for the completeness and reliability of all the information presented in the report. To provide a reasonable basis for making these representations, management of the City of Fernley has established a comprehensive internal control framework that is designed both to protect the City’s assets from loss, theft, or misuse and to compile sufficient reliable information for the preparation of the City of Fernley’s financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP). Because the cost of internal controls should not outweigh their benefits, the City of Fernley’s 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, we assert that, to the best of our knowledge and belief, this financial report is complete and reliable in all material respects. The City of Fernley’s financial statements have been audited by Kafoury, & Co., 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 Fernley for the fiscal year ended June 30, 2005 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 Fernley’s financial statements for the fiscal year ended June 30, 2005, are fairly presented in conformity with GAAP. The independent auditor’s report is presented as the first component of the financial section of this report. ---PAGE BREAK--- City of Fernley Administrative Services Department Page ii of v ii Because the City of Fernley did not expend more that $500,000 in federal financial assistance during the fiscal year ended June 30, 2005, the City of Fernley was not required to have the federally mandated “Single Audit” designed to meet the special needs of federal grantor agencies. The standards governing Single Audit engagements would have required the independent auditors 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. Because a Single Audit was not required, a Single Audit Report is not available. GAAP require that management provide a narrative introduction, overview, and analysis to accompany the basis financial statements in the form of a Management’s Discussion and Analysis (MD&A). This letter of transmittal is designed to complement the MD&A and should be read in conjunction with it. The City of Fernley’s MD&A can be found immediately following the report of the independent auditors. Profile of the Government The City of Fernley, incorporated in 2001, is located in western Nevada and is experiencing rapid growth. The City of Fernley currently occupies a land area of approximately160 square miles and serves a population of approximately 15,000. The City of Fernley is empowered to levy a property tax on both real and personal properties located within its boundaries. The City of Fernley is also empowered by state statute to extend its corporate limits by annexation, which occurs periodically when deemed appropriate by the City Council. The City of Fernley operates under the council-manager form of government. Policy- making and legislative authority are vested in a governing council consisting of the mayor and five City Council members. The City Council is responsible, among other things, for passing ordinances, adopting the budget, appointing committees, and establishing the organizational structure of the City. Pursuant to state statutes, the Mayor is the Chief Executive Officer of the City. The City Manager is responsible for carrying out the policies and ordinances of the City Council, for overseeing the day-to-day operations of the City, and for supervising the heads of various departments. The City Manager is the Chief Administrative Officer of the City. The City Council members are elected to serve four year staggered terms. The mayor is elected to serve a four-year term. The City of Fernley provides a wide range of services, including construction and maintenance of streets and infrastructure; water and sewer services, recreational activities and events; community development services and general administrative services. The City of Fernley contracts with the Lyon County Sheriff for police protection services. Fire ---PAGE BREAK--- City of Fernley Administrative Services Department Page iii of v iii protection services are provided through the legally separate North Lyon County Fire Protection District and through a separate Volunteer Fire Department. A separate legal entity, the Fernley Swimming Pool District, operates a swimming pool in Fernley. Lyon County and the Lyon County School District also provide services in Fernley. The annual budget serves as the foundation for the City of Fernley’s financial planning and control. All departments of the City of Fernley are required to submit requests for appropriation to the City Manager in February 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 City Council for review and a series of City Council workshops are held to discuss the budget. The City Council is required to hold a public hearing on the proposed budget and adopt a final budget by no later than June 1 of each year. The appropriated budget is prepared by fund, function, and department. Department heads may make transfers of appropriations within a department. Transfers of appropriations between departments, however, require the special approval of the City Council. Budget-to actual comparisons are provided in this report for each individual governmental fund for which an appropriated budget has been adopted. 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 Fernley operates. Local economy: The City of Fernley currently enjoys a favorable economic environment and is the fastest growing city (in percentage terms) in Nevada. Connections to the water and sewer system and population have virtually doubled in the last four years. Fernley experienced growth due to its location near the Reno-Sparks metropolitan area and its excellent transportation systems that provide access to west coast markets. Fernley is situated on Interstate 80, approximately 28 miles east of Reno, and at the intersection of U. S. Highways 40, 50, and alternate 95. Fernley also has rail (freight) access. Northern and Central California markets are reached overnight, while Los Angeles, San Francisco, Portland, Salt Lake City, and Las Vegas are all within a 500 mile radius. The growth led to increased demand for services as residential development increased in response to the industrial development. Several companies have located facilities in Fernley, benefiting the community and leading the way into the future. Companies that have recently moved to, or opened facilities in Fernley include, Amazon.com, Trex Inc., Quebecor Printing, MSC Industrial Supply, Allied Signal, UPS Worldwide Logistics (Honeywell), ARE Campers, Johns Manville, Sherwin Williams, and Feldmeir Corporation, just to name a few. ---PAGE BREAK--- City of Fernley Administrative Services Department Page iv of v iv The City of Fernley has a tax rate of $0.1528 per $100 of assessed valuation. This property tax has remained unchanged for the past several years and is one of the lowest in the State of Nevada. Long-term financial planning: The City of Fernley has many long range plans. These plans include the following: • Development of at least three parks utilizing proceeds from the recently enacted Residential Construction Tax • Expansion of the sewer treatment plant • Development of a surface water treatment plant • Planning and development of treatment facilities for arsenic removal to comply with more stringent standards by 2009 • Development of an alternative water system to deliver non-potable water for irrigation (thus conserving treated water) • Expansion of City Hall • Development of a community center • Implementing the new Development Code and Comprehensive Plan Update • Continuing to invest in technology to enhance service delivery to customers • Improving streets and storm drains • Enhancing record management policies and developing record management systems • Analyzing and financing the operation and maintenance costs of expanded services The City of Fernley annually updates the Capital Improvement Plan required by state statutes and continues to prepare the necessary facilities plans for ultimate development of a more comprehensive Capital Improvement Plan. Cash Management Policies and Practices. Cash temporarily idle during the year was invested in money market accounts and the State Treasurer’s investment pool. The average yield on investments was approximately The City’s investment objective is to minimize credit and market risks while maintaining a competitive yield on its portfolio. The City’s bank deposits are covered by FDIC insurance and collateralized by the Office of the State Treasurer/Nevada Collateral Pool. Risk Management. As authorized by state law, the City does not self-insure its unemployment insurance benefits but participates in the State unemployment system. The City participates in the Nevada Public Agency Insurance Pool for risk of loss related to ---PAGE BREAK--- City of Fernley Administrative Services Department Page v of v v torts, property damage/loss, errors and omissions, and natural disasters. The City participates in the Public Agency Compensation Trust for workers’ compensation coverage. The City provides employee health and dental insurance through the Nevada Public Employees Benefits Program. Management believes such coverage is sufficient to preclude any significant losses to the City. Pension Information. The City contributes to the Public Employees’ Retirement System of Nevada (“PERS”), a cost sharing multiple-employer pension plan administered by the Retirement Board of PERS. The City has no obligation in connection with employee benefits offered through these plans beyond its annual contractual payments to PERS. Additional information regarding the City of Fernley defined benefits plan can be found in the notes to the financial statements. The preparation of this report could not have been accomplished without the efficient and dedicated staff of the Administrative Services Department. Our auditors, Kafoury, & Co. provided the expert support and guidance that made the preparation of this report possible. I would also like to express my thanks to the Mayor, City Council, City Manager, the department heads and employees of the City of Fernley, and the citizens of Fernley whose continued cooperation, support, and assistance have contributed greatly to the financial stability of the City of Fernley. Respectfully submitted, Bonnie Duke, CPA City Treasurer Administrative Services Director ---PAGE BREAK--- vi City of Fernley Organizational Chart Voters of Fernley Mayor/City Council Municipal Court Judge City Manager City Attorney Planning Commission Office of the City Clerk Adm Serv Dept Community Dev. Dept Public Works Dept Office of the City Manager Elections Business License Records Accounting/Budgeting Administration Muni Court Utility Billing Investments Financial Reporting Building Insp./Permits Planning Code Enforcement Economic Development Animal Control Services Plans Review/Examination Water Utility Sewer Utility Streets & Storm Drains Engineering / GIS Plan Check General Administration Risk Management Human Resources Police (Lyon Co.) Contracts City Treasury Parks Dept Park Development Park Maintenance Buildings & Grounds Minutes/Agendas Human Res/Payroll Non-Potable Water Capital Projects Vector Control Maint Dist Admin ---PAGE BREAK--- vii City Council Mayor David Stix, Jr. Council Member Ward 1 Richard Jones Council Member Ward 2 Joe Mortensen Council Member Ward 3 Monte Martin Council Member Ward 4 Curt Chaffin Council Member Ward 5 Ralph Menke The Fernley City Council meets in regular session the first and third Wednesday of the month in the Council Chambers in City Hall located at 595 Silver Lace Boulevard, Fernley, Nevada. Planning Commission Bill Amerman Bill Clegg Marty Hardie Bruce Maxwell Bert McCoy Jim Petersen Robert Smith The City of Fernley Planning Commission meets in regular session the second Wednesday of the month in the Council Chambers in City Hall located at 595 Silver Lace Boulevard, Fernley, Nevada. Staff Gary Bacock, City Manager Bonnie Duke Patricia Norman Lowell Patton Keith Penner Peter Wysocki Administrative Services Director (City Treasurer) City Clerk Public Works Director Parks and Recreation Director Community Development Director Paul Taggart, Law Offices of King and Taggart , City Attorney Daniel Bauer, Municipal Court Judge Sid Smith, Chief of Police ---PAGE BREAK--- FINANCIAL SECTION ---PAGE BREAK--- ---PAGE BREAK--- ---PAGE BREAK--- 3-A Management’s Discussion and Analysis As management of the City of Fernley, we offer readers of the City of Fernley’s financial statements this narrative overview and analysis of the financial activities of the City of Fernley for the fiscal year ended June 30, 2005. We encourage readers to consider the information presented here in conjunction with additional information that we have furnished in our letter of transmittal. Financial Highlights • The assets of the City of Fernley exceeded its liabilities at the close of the most recent fiscal year by $78,443,347 (net assets). Of this amount, $23,321,483 (unrestricted net assets) may be used to meet the government’s ongoing obligations to citizens and creditors. • The government’s total net assets increased by $17,349,721. The increase is attributable primarily to purchase and donation of capital assets, increases in ending fund balances of governmental fund types, and revenues in excess of projections. • As of the close of the current fiscal year, the City of Fernley’s governmental funds reported combined ending fund balances of $5,680,123, an increase of $1,700,495 in comparison with the prior year. These amounts are available for spending at the government’s discretion (unreserved fund balance). • At the end of the current fiscal year, fund balance for the general fund was $875,022 or 45% of general fund expenditures. This ending fund balance is higher than the targeted ending fund balance of 8% to 17% of general fund expenditures due to unexpended appropriations during the year and revenues higher than projected. • The City of Fernley’s total bonded debt decreased by $248,173 during the fiscal year due to scheduled debt repayment. No new bonded debt was incurred during the fiscal year. Overview of the Financial Statements The discussion and analysis are intended to serve as an introduction to the City of Fernley’s basic financial statements. The City of Fernley’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 of Fernley’s finances, in a manner similar to a private-sector business. The Statement of Net Assets presents information on all of the City of Fernley’s assets and liabilities, with the differences 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 Fernley is improving or deteriorating. The Statement of Activities presents information showing how the government’s net assets changed during the most recent fiscal year. All changes in net assets are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. ---PAGE BREAK--- 3-B Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods uncollected taxes and earned but unused vacation leave). Both of the government-wide financial statements distinguish functions of the City of Fernley 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 Fernley include general government, judicial, public works, culture and recreation, community development, and health. The business-type activities of the City of Fernley include water and sewer operations. 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 Fernley, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the City of Fernley can be divided into three categories: governmental funds, proprietary funds, and fiduciary 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 balance provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The City of Fernley maintains eight individual governmental funds. Information 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 and the three funds, which are considered major funds. Data for the other four governmental funds are combined into a single, aggregated presentation. Individual fund data for each of these nonmajor governmental funds is provided in the form of combining statements elsewhere in this report. The City of Fernley adopts an annual appropriated budget for its general fund. A budgetary comparison statement has been provided for the general fund to demonstrate compliance with this budget. ---PAGE BREAK--- 3-C Proprietary funds. The City of Fernley maintains three proprietary funds as enterprise funds to account for its water, alternative water and sewer operations. Enterprise funds are used to report the same functions presented as business-type activities in the government-wide financial statements. 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 operations, both of which are considered to be major funds of the City of Fernley. Fiduciary funds. Fiduciary funds are used to account for resources held for the benefit of parties outside the government. Fiduciary funds are not reflected in the government-wide financial statements because the resources of those funds are not available to support the City of Fernley’s own programs. The accounting used for fiduciary funds is much like that used for proprietary funds. 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 combining statements referred to earlier in connection with nonmajor governmental funds are presented immediately following the notes to the financial statements. 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 Fernley, assets exceeded liabilities by $78,443,347 at the close of the most recent fiscal year. By far the largest portion of the City of Fernley’s net assets reflects its investment in capital assets land, buildings, machinery, and equipment); less any related debt used to acquire those assets that is still outstanding. The City of Fernley uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the City of Fernley’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. ---PAGE BREAK--- 3-D City of Fernley’s Net Assets Governmental Activities Business-Type Activities Government Total FY05 FY04 FY05 FY04 FY05 FY04 Current & other assets $ 6,688,784 $ 4,446,540 $18,390,159 $13,548,551 $25,093,954 $18,015,091 Capital 15,883,001 11,913,896 41,141,319 34,604,907 56,999,911 46,518,803 Total Assets 22,571,785 16,380,436 59,507,069 48,153,458 82,093,866 64,533,894 Long-term liabilities 62,629 52,299 1,909,777 2,164,900 1,972,406 2,217,199 Other liabilities 741,251 486,912 921,850 736,157 1,678,113 1,223,069 Total liabilities 803,880 539,211 2,831,627 2,901,057 3,650,519 3,440,268 Net assets: Invested in capital assets, net of related debt 15,883,001 11,913,896 39,238,863 32,471,737 55,121,864 44,385,633 Unrestricted 5,884,904 3,927,329 17,436,579 12,780,664 23,321,483 16,707,993 Total net assets $21,767,905 $15,841,225 $56,675,442 $45,252,401 $78,443,347 $61,093,626 The balance of unrestricted net assets at June 30, 2005 ($23,321,483) 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 Fernley is able to report positive balances in all three categories of net assets; 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. Governmental activities. In FY05, governmental activities increased the City of Fernley’s net assets by $5,926,680, thereby accounting for 34% of the total growth in the net assets of the City of Fernley. Included in governmental assets is donated infrastructure and purchased infrastructure for streets and storm drains. Property tax rates did not increase in FY04 or FY05, however, assessed value of property increased resulting in increased revenue from property taxes. The City also received more revenue than the prior year for the residential construction tax, a tax collected with each building permit that is segregated in special revenue funds for use in park development. The City also transferred money into its capital fund for future capital projects that resulted in an increase in fund balance of that fund. The major sources of program revenues for general government activities are business licenses and public utility license/franchise fees. The major source of program revenues for community development activities is building permits and fees. The major sources of program revenues for public works activities are donations from developers, regional transportation commission distributions, and shared county property tax revenues. The major sources of general revenues are property taxes, consolidated taxes, fuel taxes and interest earnings. ---PAGE BREAK--- 3-E The following table summarizes the change in net assets for the current and prior fiscal year: City of Fernley’s Change in Net Assets Governmental Activities Business-type activities Total FY05 FY04 FY05 FY04 FY05 FY04 Revenues Program revenues Charges for services $ 3,162,272 $ 2,354,400 $ 3,548,206 $ 2,981,642 $ 6,710,478 $ 5,336,042 Operating grants and contributions 268,632 276,701 286,632 276,701 Capital grants and contributions 4,232,398 8,112,137 11,157,733 10,829,870 15,390,131 18,942,007 General revenues Property taxes 496,207 427,738 506,832 427,738 Shared revenues 468,148 429,361 457,523 429,361 Other 134,369 58,101 360,964 124,114 495,333 182,215 Total revenues 8,762,026 11,658,438 15,066,903 13,935,626 23,828,929 25,594,064 Expenses: General government 595,912 587,873 595,912 587,873 Judicial 173,804 156,796 173,804 156,796 Public works 642,480 463,188 642,480 463,188 Culture & recreation 458,828 362,983 458,828 362,983 Community development 861,555 434,627 861,555 434,627 Health 102,768 50,560 102,768 50,560 Water 2,134,429 2,035,646 2,134,429 2,035,646 Sewer 1,509,433 1,347,388 1,509,433 1,347,388 Total expenses 2,835,347 2,056,027 3,643,862 3,383,034 6,479,209 5,439,061 Increase in net assets 5,926,680 9,602,411 11,423,041 10,552,592 17,349,721 20,155,003 Net assets July 1 15,841,225 6,238,814 45,252,401 34,699,809 61,093,626 40,938,623 Net assets June 30 $21,767,905 $15,841,225 $56,675,442 $45,252,401 $78,443,347 $61,093,626 Business-type activities. Business-type activities increased the City of Fernley’s net assets by $11,423,041, accounting for 66% of the total growth in the government’s net assets. Key elements of this increase are donations and purchase of capital assets, collection of money from developers for future capital expenses, and positive cash flow from operations before depreciation. Financial Analysis of the Government’s Funds As noted earlier, the City of Fernley uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. Governmental funds: The focus of the City of Fernley’s governmental funds is to provide information on the near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the City of Fernley’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. ---PAGE BREAK--- 3-F As of the end of the current fiscal year, the City of Fernley’s governmental funds reported combined ending fund balances of $5,680,123, an increase of $1,700,495 in comparison with the prior year balance of $3,979,628. Virtually all of this total amount constitutes unreserved fund balance, which is available for spending at the government’s discretion. The general fund is the chief operating fund of the City of Fernley. At the end of the current fiscal year, unreserved fund balance of the general fund was $869,817, while total fund balance reached $875,022. As a measure of the general fund’s liquidity, it may be useful to compare unreserved fund balance to total fund expenditures both before and after transfers. Unreserved fund balance represents 44% of total general fund expenditures before transfers or approximately five months of operating expenditures. Unreserved fund balance represents 24% of total general fund expenditures, including transfers, or approximately 3 months of operating expenditures. The fund balance of the City of Fernley’s general fund increased by $82,702 during the fiscal year. Key factors in this growth are as follows: • Increase property taxes due to increased assessed values (no increase in rates) • Increase in building permit fees and public utility license/franchise fees • Unexpended appropriations • Other Proprietary funds. The City of Fernley’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 Fund at the end of the year amounted to $8,919,786, those for the sewer fund amounted to $7,843,822, and those in the Non-Potable Water Fund amounted to $132,290, resulting in total unrestricted assets of $16,895,898. These amounts are available, primarily for capital replacements, capital expansion, and water rights acquisition/protection. General Fund Budgetary Highlights Differences between the original budget and the final amended budget can be briefly summarized as follows: • The fund balance for FY04 was higher than originally projected and the higher balance was available for appropriation. The City Council increased transfers to the Capital Projects Fund to appropriate the available resources. • Revenue estimates for FY05 for licenses and permits were increased based on actual activity through the first six months of FY05. The increased revenue estimates resulted in increased appropriations for the community development department and for the new vector control function. Capital Asset and Debt Administration Capital assets: The City of Fernley’s investment in capital assets for its governmental and business-type activities as of June 20, 2005 amounts to $56,999,911 (net of accumulated ---PAGE BREAK--- 3-G depreciation). This investment in capital assets includes land, buildings, improvements, machinery, equipment, park facilities, streets, bridges, and other capital assets. The total increase in the City of Fernley’s investment in capital assets, net of depreciation, for the current fiscal year was 23%. Major capital asset events during the current fiscal year included the following: • Donation of capital assets from developers • Well improvements • Street improvements The following table provides a comparison of capital assets as of the end of the current and prior fiscal years. All figures are net of accumulated depreciation. Governmental Activities Business-type activities Total FY05 FY04 FY05 FY04 FY05 FY04 Land $ 3,151,254 $ 3,121,254 268,810 273,810 3,420,064 3,395,064 Buildings 777,114 783,678 6,980 9,487 784,094 793,165 Improvements other than buildings 1,079,018 756,254 31,141,165 28,106,400 32,220,183 28,862,654 Machinery and equipment 396,998 156,068 106,926 188,965 503,924 345,033 Infrastructure 9,516,130 6,708,503 9,516,130 6,708,503 Other capital assets 1,245,127 1,154,670 1,245,127 1,154,670 Water rights 8,164,658 4,429,082 8,164,658 4,429,082 Construction in progress 962,487 388,139 183,244 442,492 1,145,731 830,631 Total $15,883,001 $11,913,896 $41,116,910 $34,604,906 $56,999,911 $46,518,802 Additional information on the City of Fernley’s capital assets can be found in the notes to the financial statements. Long-term debt. At the end of the current fiscal year, the City of Fernley had total bonded debt outstanding of $1,823,027. Of this amount, $815,000 comprises debt backed by the full faith and credit of the government and additionally secured by water fund revenues and $1,008,027 secured by sewer fund revenues. No bonded debt is outstanding in governmental funds. FY05 FY04 General obligation bonds/revenue 815,000 950,000 Revenue bonds 1,008,027 1,121,200 Total 1,823,027 2,071,200 The City of Fernley’s total debt decreased by $248,173 during the current fiscal year for scheduled debt repayments. The City did not issue any new bonds during the fiscal year. ---PAGE BREAK--- 3-H State statutes limit the amount of general obligation debt a governmental entity may issue to 30% of its total assessed valuation. The current debt limitation for the City of Fernley is over $90 million, which is significantly in excess of the City of Fernley’s outstanding general obligation debt. Economic Factors and Next Year’s Budget and Rates Both water and sewer rates need to be increased because operating expenses, including depreciation, exceed operating revenues. The City is in the process of analyzing necessary capital expenditures and operating expenditures to determine rates that will result in recovery of costs from the appropriate users. The alternative water system is not currently operational. When the alternative water system is put into operation, rates will need to be established to charge users with appropriate fees to cover costs. The City continues to face the challenges presented by rapid growth. Although the City is in good financial condition, new revenue sources or increases in existing revenue sources will need to be implemented to pay for the cost of providing services to more people. In addition, financial planning for expansion of water and sewer facilities will be a high priority. All of these factors were considered in preparing the City of Fernley’s budget for the 2006 fiscal year. Requests for Information This financial report is designed to provide a general overview of the City of Fernley’s finances for all those with an interest in the City’s finances. Questions concerning any of the information provided in this report or requests for additional information should be addressed to the City Treasurer and Administrative Services Director, 595 Silverlace Blvd, Fernley NV 89408. ---PAGE BREAK--- BASIC FINANCIAL STATEMENTS ---PAGE BREAK--- BUSINESS- GOVERNMENTAL TYPE ACTIVITIES ACTIVITIES TOTAL Current assets: Cash and investments 6,026,262 $ 17,069,852 $ 23,096,114 $ Cash held for customer deposits - 535,237 535,237 Interest receivable 14,179 42,281 56,460 Taxes receivable 4,387 - 4,387 Accounts receivable, net 246,870 494,003 740,873 Accounts receivable, other 248,011 88,891 336,902 Internal balances (10,397) 10,397 - Due from other governments 154,266 - 154,266 Inventories - 120,089 120,089 Prepaid expenses 5,205 5,000 10,205 Total Current Assets 6,688,783 18,365,750 25,054,533 Noncurrent assets: Deferred charges - 24,409 24,409 Capital assets: Land and construction in progress 4,113,741 8,616,712 12,730,453 Other capital assets, net of depreciation 11,769,260 32,500,198 44,269,458 Total Capital Assets 15,883,001 41,116,910 56,999,911 Total Noncurrent Assets 15,883,001 41,141,319 57,024,320 Total Assets 22,571,785 59,507,069 82,078,854 Current liabilities: Accounts payable and accrued expenses 471,180 360,277 831,457 Accrued interest - 26,336 26,336 Refundable deposits - 535,237 535,237 Due to developers 198,328 - 198,328 Unearned revenue 71,743 - 71,743 Total Current Liabilities 741,251 921,850 1,663,101 Noncurrent liabilities: Due within one year - 275,139 275,139 Due in more than one year 62,629 1,634,638 1,697,267 Total Noncurrent Liabilities 62,629 1,909,777 1,972,406 Total Liabilities 803,880 2,831,627 3,635,507 NET ASSETS Invested in capital assets, net of related debt 15,883,001 39,238,863 55,121,864 Restricted for customer deposits - 535,237 535,237 Unrestricted 5,884,904 16,901,342 22,786,246 Total Net Assets 21,767,905 $ 56,675,442 $ 78,443,347 $ ASSETS LIABILITIES CITY OF FERNLEY STATEMENT OF NET ASSETS JUNE 30, 2005 See accompanying notes. 4 ---PAGE BREAK--- CHARGES OPERATING CAPITAL BUSINESS- FOR GRANTS AND GRANTS AND GOVERNMENTAL TYPE FUNCTIONS/PROGRAMS EXPENSES SERVICES CONTRIBUTIONS CONTRIBUTIONS ACTIVITIES ACTIVITIES TOTAL Governmental Activities: General government 595,912 $ 887,827 $ - $ - $ 291,915 $ - $ 291,915 $ Judicial 173,804 423,178 - - 249,375 - 249,375 Public works 642,480 31,278 213,620 3,362,679 2,965,098 - 2,965,098 Culture and recreation 458,828 13,400 54,882 869,719 479,173 - 479,173 Community development 861,555 1,804,978 - - 943,423 - 943,423 Health 102,768 1,611 130 - (101,027) - (101,027) Total Governmental Activities 2,835,347 3,162,272 268,632 4,232,398 4,827,956 - 4,827,956 Business-type Activities: Water 2,134,429 1,975,451 - 7,890,442 - 7,731,464 7,731,464 Sewer 1,509,433 1,441,455 - 3,267,291 - 3,199,313 3,199,313 Other - 131,300 - - - 131,300 131,300 Total Business- type Activities 3,643,862 3,548,206 - 11,157,733 - 11,062,077 11,062,077 Total 6,479,209 $ 6,710,478 $ 268,632 $ 15,390,131 $ 4,827,956 11,062,077 15,890,033 General Revenues: Property taxes 496,207 - 496,207 Consolidated taxes 163,429 - 163,429 Fuel taxes 233,448 - 233,448 Gaming licenses 71,271 - 71,271 Unrestricted interest income 97,729 295,730 393,459 Miscellaneous revenue 36,640 65,234 101,874 Total General Revenues 1,098,724 360,964 1,459,688 Change in Net Assets 5,926,680 11,423,041 17,349,721 NET ASSETS, July 1 15,841,225 45,252,401 61,093,626 NET ASSETS, June 30 21,767,905 $ 56,675,442 $ 78,443,347 $ PROGRAM REVENUES AND CHANGES IN NET ASSETS CITY OF FERNLEY STATEMENT OF ACTIVITIES FOR THE FISCAL YEAR ENDED JUNE 30, 2005 NET (EXPENSE) REVENUES See accompanying notes. 5 ---PAGE BREAK--- STREETS RESIDENTIAL AND CONSTRUCTION STORM CAPITAL OTHER TOTAL GENERAL TAX DISTRICT DRAINS PROJECTS GOVERNMENTAL GOVERNMENTAL FUND #1 FUND FUND FUND FUNDS FUNDS Cash and investments 1,089,722 $ 139,367 $ 1,309,033 $ 2,525,987 $ 962,153 $ 6,026,262 $ Interest receivable 3,883 213 2,420 4,887 2,776 14,179 Taxes receivable 4,387 - - - - 4,387 Accounts receivable 232,444 - 12,750 - 1,676 246,870 Prepaid items 5,205 - - - - 5,205 Due from other governments 30,643 40,949 63,429 - 4,233 139,254 Total Assets 1,366,284 $ 180,529 $ 1,387,632 $ 2,530,874 $ 970,838 $ 6,436,157 $ Liabilities: Accounts payable 129,742 $ 2,108 $ 158,803 $ 28,745 $ 2,128 $ 321,526 $ Due to other funds 10,396 - - - - 10,396 Accrued liabilities 145,666 - 3,988 - - 149,654 Deferred revenue 76,130 - - - - 76,130 Due to developers 129,328 - - - 69,000 198,328 Total Liabilities 491,262 2,108 162,791 28,745 71,128 756,034 Fund Balance: Reserved for prepaid items 5,205 - - - - 5,205 Unreserved - reported in: General Fund 869,817 - - - - 869,817 Special revenue funds - 178,421 1,224,841 - 899,710 2,302,972 Capital projects funds - - - 2,502,129 - 2,502,129 Total Fund Balance 875,022 178,421 1,224,841 2,502,129 899,710 5,680,123 Total Liabilities and Fund Balance 1,366,284 $ 180,529 $ 1,387,632 $ 2,530,874 $ 970,838 $ 6,436,157 $ BALANCE LIABILITIES AND FUND ASSETS CITY OF FERNLEY GOVERNMENTAL FUNDS BALANCE SHEET JUNE 30, 2005 See accompanying notes. 6 ---PAGE BREAK--- Total Fund Balances - Governmental Funds 5,680,123 $ 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 in the governmental funds: Capital assets 17,066,347 $ Less: Accumulated depreciation 1,183,346 15,883,001 Revenues in the statement of activities that do not provide current financial 267,410 resources are not reported as revenues in the fund. Certain liabilities are not reported in the governmental funds because they are not due and payable in the current period: Compensated absences (62,629) Total Net Assets - Governmental Activities 21,767,905 $ CITY OF FERNLEY RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS JUNE 30, 2005 See accompanying notes. 7 ---PAGE BREAK--- STREETS RESIDENTIAL AND CONSTRUCTION STORM CAPITAL OTHER TOTAL GENERAL TAX DISTRICT DRAINS PROJECTS GOVERNMENTAL GOVERNMENTAL FUND #1 FUND FUND FUND FUNDS FUNDS REVENUES Taxes 491,820 $ 381,140 $ - $ - $ 443,866 $ 1,316,826 $ Licenses and permits 2,765,687 - 31,278 - - 2,796,965 Intergovernmental 203,299 - 1,151,222 - - 1,354,521 Fines and forfeits 144,407 - - - 30,760 175,167 Miscellaneous 124,430 1,320 14,973 30,176 21,714 192,613 Total Revenues 3,729,643 382,460 1,197,473 30,176 496,340 5,836,092 EXPENDITURES Current: General government 595,297 - - - - 595,297 Judicial 170,595 - - - 1,273 171,868 Public works - - 420,500 - - 420,500 Culture and recreation 378,300 3,662 - - - 381,962 Community development 669,105 - - - - 669,105 Health 96,876 - - - - 96,876 Total Current 1,910,173 3,662 420,500 - 1,273 2,335,608 Capital outlay: General government - - - - - - Judicial - - - - - - Public works - - 860,568 - - 860,568 Culture and recreation 19,553 604,468 - - 21,507 645,528 Community development - - - 167,229 99,449 266,678 Health 27,215 - - - - 27,215 Total Capital Outlay 46,768 604,468 860,568 167,229 120,956 1,799,989 Total Expenditures 1,956,941 608,130 1,281,068 167,229 122,229 4,135,597 Excess (Deficiency) of Revenues over Expenditures 1,772,702 (225,670) (83,595) (137,053) 374,111 1,700,495 OTHER FINANCING SOURCES (USES) Transfers out (1,690,000) - - - - (1,690,000) Transfers in - 400,000 450,000 1,140,000 (300,000) 1,690,000 Total Other Financing Sources (Uses) (1,690,000) 400,000 450,000 1,140,000 (300,000) - Net Change in Fund Balance 82,702 174,330 366,405 1,002,947 74,111 1,700,495 FUND BALANCE, JULY 1 792,320 4,091 858,436 1,499,182 825,599 3,979,628 FUND BALANCE, JUNE 30 875,022 $ 178,421 $ 1,224,841 $ 2,502,129 $ 899,710 $ 5,680,123 $ CITY OF FERNLEY GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES FOR THE YEAR ENDED JUNE 30, 2005 See accompanying notes. 8 ---PAGE BREAK--- Net Change if Fund Balances - Governmental Funds 1,700,495 $ Amounts reported for governmental activities in the statement of activities are different because: Governmental funds report capital outlay as expenditures and the proceeds from the sale of assets as other financing sources. However, in the statement of activities, the cost of those assets is depreciated over their useful lives and only the gain or loss is recorded when assets are sold. Expenditures for capital assets 1,799,988 $ Less: Current year depreciation 489,408 1,310,580 Revenues in the statement of activities that do not provide current financial resources are not reported as revenues in the governmental fund statements: Donated capital assets 2,658,525 Fine and forfeitures 267,410 Generally expenditures recognized in the fund financial statements are limited to only those that use current financial resources but expenses are recognized in the statement of activities when incurred: Change in long-term compensated absences payable (10,330) $ Change in Net Assets - Governmental Activities 5,926,680 $ CITY OF FERNLEY RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, JUNE 30, 2005 EXPENDITURES, AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES See accompanying notes. 9 ---PAGE BREAK--- ORIGINAL FINAL ORIGINAL FINAL ACTUAL TO FINAL TO ACTUAL REVENUES Taxes: Ad valorem 463,000 $ 463,300 $ 491,820 $ 300 $ 28,520 $ Licenses and permits: Business licenses 87,000 95,000 96,718 8,000 1,718 Franchise fees 425,000 673,500 765,184 248,500 91,684 Liquor licenses 20,000 23,000 25,925 3,000 2,925 City gaming licenses 65,000 65,000 71,271 - 6,271 Building permits and fees 1,200,000 1,600,000 1,724,012 400,000 124,012 Planning and zoning permits and fees 55,000 70,000 80,966 15,000 10,966 Other permits 1,500 1,500 1,611 - 111 1,853,500 2,528,000 2,765,687 674,500 237,687 Intergovernmental revenues: Consolidated tax distribution 143,700 143,700 148,417 - 4,717 Fernley park agreement 54,800 54,800 54,882 - 82 198,500 198,500 203,299 - 4,799 Fines and forfeits: Town code violations 1,000 1,000 665 - (335) Municipal court fines 120,000 120,000 119,863 - (137) Municipal court fees 13,500 13,500 23,879 - 10,379 134,500 134,500 144,407 - 9,907 Miscellaneous: Interest 7,500 18,000 29,547 10,500 11,547 Building rental 20,000 20,000 20,000 - - Park development 15,000 15,000 13,400 - (1,600) Developer agreements - - 3,402 - 3,402 Special Assessment - 7,300 41,311 7,300 34,011 Miscellaneous 1,000 9,000 16,770 8,000 7,770 43,500 69,300 124,430 25,800 55,130 Total Revenues 2,693,000 3,393,600 3,729,643 700,600 336,043 EXPENDITURES General government: Administration: Salaries and wages 209,970 209,970 202,500 - 7,470 Employee benefits 91,400 91,400 72,224 - 19,176 Services and supplies 265,100 265,100 214,874 - 50,226 Total Administration 566,470 566,470 489,598 - 76,872 BUDGET VARIANCE WITH FOR THE YEAR ENDED JUNE 30, 2005 (Page 1 of 3) CITY OF FERNLEY STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET (GAAP BASIS) AND ACTUAL GENERAL FUND See accompanying notes. 10 ---PAGE BREAK--- ORIGINAL FINAL ORIGINAL FINAL ACTUAL TO FINAL TO ACTUAL Finance: Salaries and wages 57,200 $ 57,200 $ 55,287 $ - $ 1,913 $ Employee benefits 29,800 29,800 23,968 - 5,832 Services and supplies 43,700 43,700 26,444 - 17,256 Total Finance 130,700 130,700 105,699 - 25,001 Total General Government 697,170 697,170 595,297 - 101,873 Judicial: Municipal court: Salaries and wages 72,000 72,000 71,687 - 313 Employee benefits 35,360 35,360 23,472 - 11,888 Services and supplies 77,000 77,000 75,436 - 1,564 Total Judicial 184,360 184,360 170,595 - 13,765 Culture and Recreation: Parks: Salaries and wages 195,000 195,000 170,655 - 24,345 Employee benefits 105,000 105,000 59,567 - 45,433 Services and supplies 137,800 137,800 148,078 - (10,278) Capital outlay 23,500 23,500 19,553 - 3,947 Total Judicial 461,300 461,300 397,853 - 63,447 Community development: Building and planning: Salaries and wages 372,500 388,500 388,780 (16,000) (280) Employee benefits 212,300 192,300 145,305 20,000 46,995 Services and supplies 103,620 133,520 135,020 (29,900) (1,500) Total Community Development 688,420 714,320 669,105 (25,900) 45,215 Health: Animal control: Salaries and wages 33,500 33,500 33,431 - 69 Employee benefits 19,900 19,900 12,996 - 6,904 Services and supplies 14,560 14,560 10,310 - 4,250 Total Animal Control 67,960 67,960 56,737 - 11,223 Vector control: Salaries and wages - 27,000 9,355 (27,000) 17,645 Employee benefits - 4,670 1,404 (4,670) 3,266 Services and supplies - 15,000 29,380 (15,000) (14,380) Capital outlay - 40,000 27,215 (40,000) 12,785 Total Vector Control - 86,670 67,354 (86,670) 19,316 Total Health 67,960 154,630 124,091 (86,670) 30,539 Total Expenditures 2,099,210 2,211,780 1,956,941 (112,570) 254,839 Excess of Revenues Over Expenditures 593,790 1,181,820 1,772,702 588,030 590,882 BUDGET STATEMENT OF REVENUES, EXPENDITURES, AND FOR THE YEAR ENDED JUNE 30, 2005 (Page 2 of 3) CHANGES IN FUND BALANCE - BUDGET (GAAP BASIS) AND ACTUAL VARIANCE WITH See accompanying notes. 11 ---PAGE BREAK--- ORIGINAL FINAL ORIGINAL FINAL ACTUAL TO FINAL TO ACTUAL OTHER FINANCING SOURCES (USES) Capital Projects Fund (490,000) $ (1,690,000) $ (1,690,000) $ (1,200,000) $ - $ Net Change in Fund Balance 103,790 (508,180) 82,702 (611,970) 590,882 FUND BALANCE, July 1 205,461 208,578 792,320 3,117 583,742 FUND BALANCE, June 30 309,251 $ (299,602) $ 875,022 $ (608,853) $ 1,174,624 $ BUDGET STATEMENT OF REVENUES, EXPENDITURES, AND FOR THE YEAR ENDED JUNE 30, 2005 (Page 3 of 3) CHANGES IN FUND BALANCE - BUDGET (GAAP BASIS) AND ACTUAL VARIANCE WITH See accompanying notes. 12 ---PAGE BREAK--- ORIGINAL FINAL ORIGINAL FINAL ACTUAL TO FINAL TO ACTUAL REVENUES Taxes: Residential construction tax 432,000 $ 432,000 $ 381,140 $ - $ (50,860) $ Miscellaneous: Interest 1,000 1,000 1,320 - 320 Total Revenues 433,000 433,000 382,460 - (50,540) EXPENDITURES Culture and recreation: Service and supply - 3,662 - (3,662) Capital outlay 430,000 830,000 604,468 (400,000) 225,532 Total Expenditures 430,000 830,000 608,130 (400,000) 221,870 Excess (Deficiency) of Revenues Over Expenditures 3,000 (397,000) (225,670) (400,000) 171,330 OTHER FINANCING SOURCES (USES) Transfers out: Grants Fund - 400,000 400,000 400,000 - Net Change in Fund Balance 3,000 3,000 174,330 - 171,330 FUND BALANCE, July 1 600 831 4,091 231 3,260 FUND BALANCE, June 30 3,600 $ 3,831 $ 178,421 $ 231 $ 174,590 $ BUDGET VARIANCE WITH FOR THE YEAR ENDED JUNE 30, 2005 CITY OF FERNLEY STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET (GAAP BASIS) AND ACTUAL RESIDENTIAL CONSTRUCTION TAX DISTRICT #1 FUND See accompanying notes. 13 ---PAGE BREAK--- ORIGINAL FINAL ORIGINAL FINAL ACTUAL TO FINAL TO ACTUAL REVENUES Licenses and permits: Public works fees 16,000 $ 26,000 $ 31,278 $ 10,000 $ 5,278 $ Intergovernmental revenues: Road Department ad valorem 212,800 212,800 213,620 - 820 Motor vehicle fuel tax 219,500 219,500 233,448 - 13,948 Regional transportation commission 1,050,000 650,000 704,154 (400,000) 54,154 1,482,300 1,082,300 1,151,222 (400,000) 68,922 Miscellaneous: Interest 500 8,000 14,973 7,500 6,973 Total Revenues 1,498,800 1,116,300 1,197,473 (382,500) 81,173 EXPENDITURES Public works: Salaries and wages 118,000 118,000 99,889 - 18,111 Employee benefits 60,450 60,450 39,372 - 21,078 Services and supplies 432,000 329,500 281,239 102,500 48,261 Capital outlay 1,431,600 1,034,600 860,568 397,000 174,032 Total Expenditures 2,042,050 1,542,550 1,281,068 499,500 261,482 Excess (Deficiency) of Revenues Over Expenditures (543,250) (426,250) (83,595) 117,000 342,655 OTHER FINANCING SOURCES (USES) Transfers in: General Fund 250,000 450,000 450,000 200,000 - Net Change in Fund Balance (293,250) 23,750 366,405 317,000 342,655 FUND BALANCE, July 1 164,350 664,350 858,436 500,000 194,086 FUND BALANCE, June 30 (128,900) $ 688,100 $ 1,224,841 $ 817,000 $ 536,741 $ BUDGET VARIANCE WITH FOR THE YEAR ENDED JUNE 30, 2005 CITY OF FERNLEY STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET (GAAP BASIS) AND ACTUAL STREETS AND STORM DRAINS FUND See accompanying notes. 14 ---PAGE BREAK--- WATER SEWER OTHER TOTAL UTILITY UTILITY ENTERPRISE ENTERPRISE FUND FUND FUND FUNDS Current assets: Cash and cash equivalents 8,856,297 $ 8,081,562 $ 131,993 $ 17,069,852 $ Cash - refundable deposits 251,592 283,645 - 535,237 Interest receivable 21,871 20,112 297 42,280 Accounts receivable, net 348,294 145,709 - 494,003 Accounts receivable, other 73,439 15,452 - 88,891 Due from other funds 9,498 899 - 10,397 Inventories 105,142 14,947 - 120,089 Prepaid expenses 5,000 - - 5,000 Total Current Assets 9,671,133 8,562,326 132,290 18,365,749 Noncurrent assets: Deferred charges 24,409 - - 24,409 Capital assets: Not being depreciated 8,313,239 303,473 - 8,616,712 Depreciable assets 23,027,973 18,290,418 - 41,318,391 31,341,212 18,593,891 - 49,935,103 Less: Accumulated depreciation 4,811,855 4,006,338 - 8,818,193 Total Capital Assets 26,529,357 14,587,553 - 41,116,910 Total Noncurrent Assets 26,553,766 14,587,553 - 41,141,319 Total Assets 36,224,899 23,149,879 132,290 59,507,068 Current liabilities: Accounts payable 232,371 100,636 - 333,007 Accrued liabilities 15,382 11,887 - 27,269 Refundable deposits 251,592 283,645 - 535,237 Accrued interest 6,175 20,161 - 26,336 Debt due within one year 145,000 117,745 - 262,745 Total Current Liabilities 650,520 534,074 - 1,184,594 Noncurrent liabilities: Compensated absences payable 18,644 18,530 - 37,174 Notes payable, due after one year - 890,282 - 890,282 Bonds payable, due after one year 719,576 - - 719,576 Total Noncurrent Liabilities 738,220 908,812 - 1,647,032 Total Liabilities 1,388,740 1,442,886 - 2,831,626 NET ASSETS Invested in capital assets, net of related debt 25,664,781 13,579,526 - 39,244,307 Restricted for customer deposits 251,592 283,645 - 535,237 Unrestricted 8,919,786 7,843,822 132,290 16,895,898 Total Net Assets 34,836,159 $ 21,706,993 $ 132,290 $ 56,675,442 $ ASSETS LIABILITIES CITY OF FERNLEY STATEMENT OF NET ASSETS PROPRIETARY FUNDS JUNE 30, 2005 BUSINESS-TYPE ACTIVITIES - ENTERPRISE FUNDS See accompanying notes. 15 ---PAGE BREAK--- WATER SEWER OTHER TOTAL UTILITY UTILITY ENTERPRISE ENTERPRISE FUND FUND FUND FUNDS User fees 1,975,451 $ 1,441,455 $ - $ 3,416,906 $ Salaries and wages 319,708 308,789 - 628,497 Employee benefits 135,878 131,224 - 267,102 Services and supplies 944,090 499,040 - 1,443,130 Depreciation 701,678 528,916 - 1,230,594 Total Operating Expenses 2,101,354 1,467,969 - 3,569,323 Operating Loss (125,903) (26,514) - (152,417) Interest earned on investments 149,709 145,033 990 295,732 In lieu of water rights fees 693,236 - - 693,236 Sale of fixed assets 2,210 - - 2,210 Miscellaneous 63,024 - - 63,024 Interest expense (33,077) (41,464) - (74,541) Total Nonoperating Revenue (Expense) 875,102 103,569 990 979,661 Income (Loss) Before Capital Contributions 749,199 77,055 990 827,244 Customer connection fees 2,026,164 2,182,969 131,300 4,340,433 Developer agreements 122,988 18,799 - 141,787 Developer contributed infrastructure 1,432,404 1,065,523 - 2,497,927 Developer contributed water rights 3,615,650 - - 3,615,650 Total Capital Contributions 7,197,206 3,267,291 131,300 10,595,797 Change in Net Assets 7,946,405 3,344,346 132,290 11,423,041 NET ASSETS, July 1 26,889,754 18,362,647 - 45,252,401 NET ASSETS, June 30 34,836,159 $ 21,706,993 $ 132,290 $ 56,675,442 $ CAPITAL CONTRIBUTIONS OPERATING REVENUES NONOPERATING REVENUE (EXPENSE) CITY OF FERNLEY STATEMENT OF REVENUES, EXPENSES, AND CHANGE IN NET ASSETS PROPRIETARY FUNDS FOR THE YEAR ENDED JUNE 30, 2005 BUSINESS-TYPE ACTIVITIES - ENTERPRISE FUNDS OPERATING EXPENSES See accompanying notes. 16 ---PAGE BREAK--- WATER SEWER OTHER TOTAL UTILITY UTILITY ENTERPRISE ENTERPRISE FUND FUND FUND FUNDS Cash received from customers 1,857,837 $ 1,414,528 $ - $ 3,272,365 $ Cash paid for employees services (316,079) (305,748) - (621,827) Cash paid to vendors for services and supplies (1,027,005) (495,372) - (1,522,377) Net Cash Provided by Operating Activities 514,753 613,408 - 1,128,161 ACTIVITIES: Other - - - - CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Principal payments on debt (135,000) (113,173) - (248,173) Interest paid on debt (34,203) (43,729) - (77,932) Deferred charges (6,107) - - (6,107) In lieu of water rights fees 693,236 - - 693,236 Acquisition of capital assets (738,508) (895,510) - (1,634,018) Disposition of land 7,030 - - 7,030 Developer agreements 122,988 18,799 - 141,787 Connection fees 2,026,164 2,182,969 131,300 4,340,433 Miscellaneous 63,024 - - 63,024 Net Cash Provided by Capital and Related Financing Activities 1,998,624 1,149,356 131,300 3,279,280 CASH FLOWS FROM INVESTING ACTIVITIES: Interest received on investments 132,032 129,157 693 261,882 Net Increase in Cash and Cash Equivalents 2,645,409 1,891,921 - 131,993 4,669,323 6,462,480 6,473,286 - 12,935,766 9,107,889 $ 8,365,207 $ 131,993 $ 17,605,089 $ REPRESENTED BY: Cash and cash equivalents 8,856,297 $ 8,081,562 $ 131,993 $ 17,069,852 $ Cash - refundable deposits 251,592 283,645 - 535,237 9,107,889 $ 8,365,207 $ 131,993 $ 17,605,089 $ RECONCILIATION OF OPERATING LOSS TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Operating loss (125,903) $ (26,514) $ - $ (152,417) $ Adjustments to reconcile operating loss to net cash provided by operating activities: Depreciation 701,678 528,916 - 1,230,594 Changes in assets and liabilities: (Increase) decrease in: Accounts receivable (117,614) (26,927) - (144,541) Prepaid expenses - - - - Inventories - - - - Increase (decrease) in: Accounts payable (34,522) 56,876 - 22,354 Accrued liabilities 3,629 3,041 - 6,670 Compensated absences payable 2,779 2,665 - 5,444 Refundable deposits 84,706 75,351 - 160,057 Total Adjustments 640,656 639,922 - 1,280,578 Net Cash Provided by Operating Activities 514,753 $ 613,408 $ - $ 1,128,161 $ SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND CAPITAL AND RELATED FINANCING ACTIVITIES Contribution of capital assets from developers 5,048,054 $ 1,065,523 $ - $ 6,113,577 $ CASH AND CASH EQUIVALENTS, June 30 CASH FLOWS FROM OPERATING ACTIVITIES: CASH AND CASH EQUIVALENTS, July 1 CITY OF FERNLEY STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE YEAR ENDED JUNE 30, 2005 BUSINESS-TYPE ACTIVITIES - ENTERPRISE FUNDS CASH FLOWS FROM NONCAPITAL FINANCING See accompanying notes. 17 ---PAGE BREAK--- AGENCY FUND Cash and cash equivalents 8,908 $ Bail bond deposits held for others 8,908 $ ASSETS LIABILITIES CITY OF FERNLEY STATEMENT OF FIDUCIARY ASSETS AND LIABILITIES FIDUCIARY FUND JUNE 30, 2005 See accompanying notes. 18 ---PAGE BREAK--- CITY OF FERNLEY, NEVADA NOTES TO FINANCIAL STATEMENTS JUNE 30, 2005 35 The following schedule reflects debt service requirements to maturity of the City's long-term debt: Debt Supported by Debt Supported by Total Requirements Sewer Fund Revenues Water Fund Revenues to Maturity Fiscal Year Principal Interest Principal* Interest* Principal Interest 2006 $ 117,745 $ 39,155 $145,000 $ 33,425 $ 262,745 $ 72,580 2007 122,502 34,398 155,000 25,925 277,502 60,323 2008 127,451 29,449 160,000 18,050 287,451 47,499 2009 132,600 24,300 170,000 9,800 302,600 34,100 2010 137,957 18,943 185,000 2,775 322,957 21,718 2011 143,531 13,370 - - 143,531 13,370 2012 149,329 7,571 - - 149,329 7,571 2013 76,912 1,538 - - 76,912 1,538 Total $1,008,027 $ 168,724 $ 815,000 $ 89,975 $1,823,027 $ 258,699 * Exclusive of unamortized premium and issuance costs. NOTE 7 - Risk Management The City, like any governmental entity, is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries of employees; and natural disasters. The City has joined together with similar public agencies (cities, counties and special districts) throughout the State of Nevada to create a pool under the Nevada Interlocal Cooperation Act. The Nevada Public Agency Pool Insurance (Pool) is a public entity risk pool currently operating as a common risk management and insurance program for its members. The City pays an annual premium and specific deductibles, as necessary, to the Pool for its general insurance coverage. The Pool is considered a self-sustaining risk pool that will provide coverage for its members for up to $200,000/$350,000 per insured event. The Pool obtains independent coverage for insured events in excess of these limits. The City has also joined together with similar public agencies, under the Nevada Interlocal Cooperation Act, to create an intergovernmental self-insured association for workers compensation insurance, the Public Agency Compensation Trust (PACT). The City continues to carry commercial insurance for other risks of loss, including ---PAGE BREAK--- CITY OF FERNLEY, NEVADA NOTES TO FINANCIAL STATEMENTS JUNE 30, 2005 19 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: The financial statements of the City of Fernley, Nevada (“the City”) have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) as applied to governmental units. The Government Accounting Standards Board (“GASB”) is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. A summary of the more significant accounting policies consistently applied in the preparation of the accompanying general purpose financial statements follows. A. Reporting Entity: The City of Fernley, Nevada was incorporated on July 1, 2001. The City operates under a Council-Manager form of government and provides the following services as authorized by law: water and sewer utilities, streets, culture and recreation, planning and zoning, animal control, and general administrative services. Prior to July 1, 2001, the entity was organized as an unincorporated town in accordance with Nevada Revised Statutes 269. The financial statements present the financial position and results of operations and changes in fund balances for those funds under the direct jurisdiction of the Mayor and City Council of the City of Fernley for which the Mayor and City Council are financially accountable. B. Government-wide and Fund Financial Statements: The government-wide financial statements report information on all of the non- fiduciary activities of the City of Fernley, Nevada. 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. Eliminations have been made to minimize the double counting of internal activities. The statement of activities demonstrates the degree to which the direct expenses of a given function or business-type activity are offset by program revenues. Direct expenses are those that are specifically associated with a specific function or business-type activity. Program revenues include 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or business-type activity and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or business-type activity. Taxes and other items properly not included among program revenues are reported instead as general revenues. The fund financial statements provide information about the City’s funds, including its fiduciary funds. Separate statements for each fund category – governmental, proprietary ---PAGE BREAK--- CITY OF FERNLEY, NEVADA NOTES TO FINANCIAL STATEMENTS JUNE 30, 2005 20 and fiduciary – are presented. The emphasis of fund financial statements is on major governmental and enterprise funds, each displayed in a separate column. All remaining governmental and enterprise funds are aggregated and reported as nonmajor funds. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from an exchange transaction such as providing services and producing and delivering goods in connection with a proprietary fund’s principal ongoing operations. Nonoperating revenues and nonoperating expenses result from nonexchange transactions and ancillary services. C. Measurement Focus, Basis of Accounting and Financial Statement Presentation: The government-wide financial statements are reported using the economic resources measurement focus, and the accrual basis of accounting, as are the proprietary funds and fiduciary fund financial statements. Revenues are recorded when earned and expenses are recorded when liabilities are 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 revenues 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 measurable when the amount of the transaction can be determined and available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the government considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. When revenues are due, but will not be collected within this 60 day period, the receivable is recorded and an offsetting deferred revenue account is established. Deferred revenues also arise when the government receives resources before it has legal claim to them, and thus in subsequent periods, when both revenues recognition criteria are met, or when the government has a legal claim to the resources, the liability for deferred revenue is removed and revenue is recognized. Expenditures generally are recorded when liabilities are incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgment are recorded only when payment is due. Property taxes, consolidated tax revenue (sales tax, cigarette taxes, business services tax, liquor taxes), gaming taxes, gasoline taxes, grants 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 the City receives cash. ---PAGE BREAK--- CITY OF FERNLEY, NEVADA NOTES TO FINANCIAL STATEMENTS JUNE 30, 2005 21 In accordance with GASB Statement No. 20 “Accounting and Financial Reporting for Proprietary Funds and other Governmental Entities That Use Proprietary Fund Accounting”, the City applied all applicable FASB pronouncements issued on or before November 30, 1989 unless those pronouncements conflict with or contradict GASB pronouncements. The City has elected not to apply FASB pronouncements issued after November 30, 1989. When both restricted and unrestricted resources are available for use, it is the City’s policy to use restricted resources first, and then unrestricted resources as they are needed. The City reports the following major governmental funds: The General Fund is the City’s general operating fund and is used to account for all financial resources except those required to be accounted for in other funds. The Residential Construction Tax District #1 Special Revenue Fund is used to account for a tax to be used for park development in the District #1 identified in the City of Fernley park plan. The Streets and Storm Drains Special Revenue Fund is used to account for gas taxes that must be used for street maintenance and capital expenditures as well as other revenues that may be used for projects associated with streets and storm drains. The Capital Project Capital Projects Fund is used to accrue funds under a “pay as you go” program to provide funding for future projects involving replacement of equipment or buildings or new facilities and equipment. The City reports the following major enterprise funds: The Water Utility Fund is used to account for the provision of water services to the residents of the City and some residents of Lyon County. All activities necessary to provide services are accounted for in this fund, including, but not limited to, administration, operations, maintenance, financing and related debt. The Sewer Utility Fund is used to account for the provision of sewer services to the residents of the City and some residents of Lyon County. All activities necessary to provide services are accounted for in this fund, including, but not limited to, administration, operations, maintenance, financing and related debt. Additionally, the City reports the following fund types: Agency funds are custodial in nature and do not present results of operations or have a measurement focus. Agency funds are accounted for using the accrual basis of accounting. These funds are used to account for assets that the City holds for others in an agent capacity. ---PAGE BREAK--- CITY OF FERNLEY, NEVADA NOTES TO FINANCIAL STATEMENTS JUNE 30, 2005 22 D. Assets, Liabilities and Net Assets or Equity: Cash and Investments: Cash resources of the individual funds are combined to form a pool of cash and investments, which is managed by the City Treasurer. The City invests in the State of Nevada Local Government Pooled Investment Fund, which is reported at fair value. Interest income earned is distributed to the appropriate funds based on each fund’s equity in the investment. Pursuant to NRS 355 and NRS 355.170, the City of Fernley may only invest in the following types of securities: • Certain rated notes and bonds purchased by a registered broker-dealer that are issued by corporations organized and operating in the United States and that mature within five years from the date of purchase; asset-backed securities and collateralized mortgage obligations rated “AAA” or higher by a nationally recognized rating service. These investments must not, in the aggregate, exceed 20 percent of the total portfolio at the time of purchase, nor include notes and bonds issued by any one corporation in excess of 25 percent of such investments • United States bonds and debentures maturing within ten (10) years from the date of purchase • Certain farm loan bonds • Bills and notes of the United States Treasury, maturing within ten (10) years from the date of purchase • Obligations of an agency of the United States or a corporation sponsored by the government, maturing within ten (10) years from the date of purchase • Obligations of state and local governments if, the interest is exempt for federal income tax purposes and the obligations have been rated or higher by a nationally recognized bond credit rating agency • Negotiable and nonnegotiable certificates of deposit from commercial banks and insured savings and loan associations • State of Nevada Local Government Pooled Investment Fund • Certain securities issued by local governments of the State of Nevada • Certain bankers’ acceptances • Certain short-term paper issued by a corporation organized and operating in the United States • Other securities expressly provided by other statutes, including repurchase agreements ---PAGE BREAK--- CITY OF FERNLEY, NEVADA NOTES TO FINANCIAL STATEMENTS JUNE 30, 2005 23 • Certain “AAA” rated mutual funds that invest in securities issued by the Federal Government or agencies of the Federal Government, Master, bank notes or other short-term commercial paper rates as “A-1” or “P-1” issued by a corporation or depository institution organized, licensed and operating in the United States and/or Repurchase agreements that are fully collateralized by and above. Cash Equivalents: Cash equivalents include short-term highly liquid investments (with maturities of 3 months or less when purchased) that are both readily convertible to known amounts of cash, and so near their maturity that they present insignificant risk in changes in value. Based on the nature of the investment policies, all amounts are available on demand and are, therefore, classified as cash equivalents on the Statements of Cash Flows. Receivables and Payables: Activity between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as “due to/from other funds.” Any residual balances outstanding between governmental activities and business- type activities are reported in the government-wide financial statements as “internal balances.” Significant receivable balances not expected to be collected within one year are classified as notes receivable on the government-wide financial statements. Real property taxes result in a lien on the property and attach on July 1 (the levy date) of the year for which the taxes are levied. Taxes may be paid in four installments payable on the third Monday in August, and the first Mondays in October, January and March to the County Clerk/Treasurer of Lyon County in which the City of Fernley is located. Penalties are assessed if a taxpayer fails to pay an installment within ten days of the installment due date. After a two year waiting period, if taxes remain unpaid, a tax deed is issued conveying the property to Lyon County with a lien for back taxes and accumulated charges. Redemption may be made by the owner and such persons as described by statute by paying all back taxes and accumulated penalties, interest and costs before sale. As such, real property taxes receivable reflect only those taxes receivable from the delinquent roll years, and current taxes collected within 60 days of year end and delinquent taxes from all roll years prior to 2003-2004 have been written off. No provision for uncollectible accounts has been established, as management does not anticipate any material collection losses with respect to the remaining balances. ---PAGE BREAK--- CITY OF FERNLEY, NEVADA NOTES TO FINANCIAL STATEMENTS JUNE 30, 2005 24 Taxes on personal property are collected currently. Personal property declarations are mailed out annually and the tax is computed using percentages of taxable values established by the Department of Taxation at the tax rates described above. Receivables in proprietary fund types have arisen in the ordinary course of business, and are shown net of an allowance for uncollectible accounts, if applicable. Inventories and Prepaids: All inventories are valued at cost using the first in/first out (FIFO) method. Inventories of governmental funds in the fund financial statements are considered consumable supplies and as such are recorded as expenditures at the time of purchase. 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. Restricted Assets: City policy requires that certain resources be set aside for various purposes in the City’s water and sewer utility funds. These amounts are reported as restricted assets. Capital Assets: Capital assets, which include land, construction in progress, water rights, property, plant, equipment and infrastructure, are capitalized and reported in the applicable governmental activities and business-type activities columns of the government- wide financial statements. For governmental fund types, outlays for capital assets are expensed during the current period. The City defines capital assets as assets with an initial, individual cost of more than $5,000 for non-infrastructure assets and $100,000 for infrastructure assets and an estimated useful life in excess of two years. Capital assets are recorded at cost for purchased or constructed assets. Interest incurred during the construction phase of capital assets of business-type activities is included as part of the capitalized value of the assets constructed. Donated capital assets are recorded at estimated fair value at the date of donation. ---PAGE BREAK--- CITY OF FERNLEY, NEVADA NOTES TO FINANCIAL STATEMENTS JUNE 30, 2005 25 Depreciation is computed using the straight-line method over the following estimated useful lives: Buildings 25-40 years Improvements other than buildings 10-20 years Machinery and equipment 5-10 years Other capital assets 25 – 40 years Infrastructure 20-40 years GASB Statement No. 34 requires the City to report and depreciate new infrastructure assets effective fiscal year June 30, 2004, the initial year of implementation. Infrastructure assets include roads, bridges, underground pipe (other then related to utilities), traffic signals, etc. These infrastructure assets are likely to be the largest asset class of the City. Neither their historical cost nor related depreciation has been reported in prior years’ financial statements. The retroactive reporting of infrastructure is subject to an extended implementation period and is first effective for fiscal years ending June 30, 2008. The City will implement the retroactive infrastructure provisions for major assets acquired between July 1, 1980 and June 30, 2003, by or before fiscal year ending June 30, 2008. Long-Term Liabilities: In the government-wide financial statements and the proprietary fund types in the fund financial statements, long-term debt and other long-term liabilities are reported as liabilities in the applicable government activities, business-type activities, or proprietary fund type statement of net assets. It is the City’s policy to permit employees to accumulate earned but unused vacation and sick pay benefits. The liability for compensated absences is calculated under the provisions of GASB Statement No. 16, “Accounting for Compensated Absences.” All vacation and sick pay is accrued when incurred in the government-wide and proprietary fund statements. Bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds using the effective interest method. For current and advance refundings resulting in a defeasance of debt, the difference between the reacquisition price and the net carrying amount of the old debt is deferred and amortized as a component of interest expense using the straight-line method. ---PAGE BREAK--- CITY OF FERNLEY, NEVADA NOTES TO FINANCIAL STATEMENTS JUNE 30, 2005 26 Bond issuance costs are reported as deferred charges and amortized over the term of the related debt. A liability for compensated absences is reported in the governmental funds, primarily the General Fund, only if they have matured as a result of employee resignations, terminations and retirements. For governmental fund types, bond premiums and discounts, as well as issuance costs, are recognized during the current period. The face amount of bonds is reported as other financing sources, as are bond premiums. Bond discounts are recorded as other financing uses. Issuance costs, even if withheld from the actual net proceeds received, are reported as debt service expenditures. Equity Classification: In the government-wide financial statements, equity is classified as net assets and displayed in three components: • Invested in Capital Assets, Net of Related Debt – Consists of capital assets, net of accumulated depreciation and reduced by outstanding balances of any bonds, notes, or other borrowings that are attributable to the acquisition, construction or improvement of those assets. • Restricted Net Assets – Consists of net assets with constraints placed on their use either by external groups such as creditors, grantors, contributors, or laws and regulations or other governments; law through constitutional provisions or enabling legislation. • Unrestricted Net Assets – All other net assets that do not meet the definition of “restricted” or “invested in capital assets, net of related debt.” In the fund financial statements, governmental fund equity is reported as fund balances and is displayed as reserved, unreserved/designated and unreserved/undesignated. Reservations of fund balance are established for amounts that are not available for appropriation or are legally restricted by outside parties for use for a specific purpose. Unreserved/designated fund balance represents amounts that are designated by management for a specific purpose. ---PAGE BREAK--- CITY OF FERNLEY, NEVADA NOTES TO FINANCIAL STATEMENTS JUNE 30, 2005 27 NOTE 2 – STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY: A. Budgetary Information: The City of Fernley adheres to the Local Government Budget and Finance Act (Act) incorporated within the statutes of the State of Nevada, in which annual budgets are legally adopted for all funds except Agency funds. The Act and City policy include the following procedures to establish the budgetary data, which is reflected in these financial statements: 1. On or before April 15, the City Manager submits to the Fernley City Council a tentative budget for the fiscal year commencing the following July 1, to be filed with the Nevada Department of Taxation. 2. Public hearings on the tentative budget are held on the third Tuesday in May to obtain taxpayer comments. 3. Prior to June 1, at a public hearing, the Council indicates changes, if any, to be made to the tentative budget and adopts a final budget by the favorable vote of a majority of the members of the Council. The final budget must then be forwarded to the Nevada Tax Commission for final approval. 4. The City may not amend the budget without approval by the City Council. The City Manager is authorized to transfer appropriations between accounts within any department, with notification to the City Council. Any revisions that alter the total appropriations of a function or fund must be approved in advance by the City Council. Formal budgetary integration in the financial records of all funds is employed to enhance management control during the year. The City does not use the encumbrance method of accounting. 5. Budgets for all fund types are adopted on a basis consistent with accounting principles generally accepted in the United States of America (GAAP). Appropriations lapse at year end. 6. In accordance with State statute, actual expenditures may not exceed budgeted appropriations of the various governmental functions of the General, Special Revenue, and Capital Project Funds. Per NRS 354.626, expenditures over budgeted appropriations are allowed for bond repayments, medium term obligation repayments, and other long-term contracts expressly ---PAGE BREAK--- CITY OF FERNLEY, NEVADA NOTES TO FINANCIAL STATEMENTS JUNE 30, 2005 28 authorized by law. The sum of operating and nonoperating expenses in Proprietary Funds also may not exceed total appropriations. The budget reflected in the financial statements has been amended from the original budget amounts in accordance with State statute. Such amendments included augmentations for prior obligations, as well as supplemental appropriations needed for grants, contingencies, and other uses. B. Excess of Expenditures/Expenses Over Appropriations: There were no potential violations of NRS 354.626. NOTE 3 – CASH AND INVESTMENTS: A summary schedule of cash and investments for the City of Fernley at June 30, 2005 is as follows: Cash Balances Held by: Governmental Funds $6,026,262 Fiduciary Funds 8,908 Proprietary Funds Unrestricted 17,069,852 Restricted 535,237 Total Cash and Investments $23,640,259 Restricted cash in the Proprietary Funds consists of refundable customer deposits. Balances Classified by: On hand $400 Wells Fargo Bank: Checking 962,755 Money Market – cash and cash equivalent 4,456,194 Local Government Investment Pool 18,220,910 Total Cash and Investments $23,640,259 ---PAGE BREAK--- CITY OF FERNLEY, NEVADA NOTES TO FINANCIAL STATEMENTS JUNE 30, 2005 29 As of June 30, 2005, the City of Fernley had the following investments and maturities: Investments Maturities Fair Value State of Nevada Local Government Investment Pool 40 Days* $ 18,220,910 Total Investments 18,220,910 Total Cash and cash equivalents 5,419,349 Total Cash and Investments $ 23,640,259 * represents average weighted maturity The City is a voluntary participant in the State of Nevada Local Government Investment Pool (LGIP), which has regulatory oversight from the Board of Finance of the State of Nevada. The City’s investment in the LGIP is equal to its original investment plus allocation of interest income, and realized and unrealized gains and losses, which is the same as the value of the pool shares. The City’s investment in the LGIP is reported at fair value. Nevada Revised Statutes (NRS 355.170) set forth acceptable investments for Nevada local governments. The City has not adopted a formal investment policy that would further limit its investment choices nor further limit its exposure to certain risks as set forth below. Interest Rate Risk. Interest rate risk is the risk of possible reduction in the value of a security, especially a bond, resulting from a rise in interest rates. As noted above, the City does not have a formal investment policy that limits investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates beyond those specified in the statute. Credit Risk. Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligation and is a function of the credit quality ratings of its investments. The LGIP is an unrated external investment pool and as noted above, the City does not have a formal investment policy that specifies minimum acceptable credit ratings. Custodial Credit Risk- Deposits. Custodial credit risk is the risk that in the event of a bank failure, the City’s deposits may not be returned. The City’s bank deposits are covered by FDIC insurance and collateralized by the Office of the State Treasurer/ Nevada Collateral Pool. ---PAGE BREAK--- CITY OF FERNLEY, NEVADA NOTES TO FINANCIAL STATEMENTS JUNE 30, 2005 30 NOTE 4 – CAPITAL ASSETS: Capital asset activity for the year ended June 30, 2005 was as follows: Balance July 1, 2004 Additions or Transfers In Deletions or Transfers Out Completed Construction Balance June 30, 2005 Governmental Activities: Capital assets, not being depreciated Land $ 3,121,254 $ 30,000 $ - $ - $ 3,151,254 Construction in progress 388,139 941,991 367,643 962,487 Total capital assets, not being depreciated 3,509,393 971,991 - 367,643 4,113,741 Capital assets, being depreciated Buildings 1,197,326 41,907 - - 1,239,233 Improvements other than buildings 844,700 369,627 - - 1,214,327 Machinery and Equipment 234,099 339,728 - - 573,827 Infrastructure 6,822,316 3,102,903 - - 9,925,219 Total capital assets, being depreciated 9,098,441 3,854,165 12,952,606 Less accumulated depreciation for: Buildings (413,648) (48,471) - - (462,119) Improvements other than buildings (88,446) (46,863) - - (135,309) Machinery and Equipment (78,031) (98,798) - - (176,829) Infrastructure (113,813) (295,276) - - (409,089) Total accumulated depreciation (693,938) (489,408) - - (1,183,346) Total capital assets, being depreciated, net 8,404,503 3,364,757 - - 11,769,260 Governmental activities capital assets, net $ 11,913,896 $ 4,336,748 $ - $ 367,643 $ 15,883,001 ---PAGE BREAK--- CITY OF FERNLEY, NEVADA NOTES TO FINANCIAL STATEMENTS JUNE 30, 2005 31 Balance July 1, 2004 Additions or Transfers In Deletions or Transfers Out Completed Construction Balance June 30, 2005 Business-Type Activities: Capital assets, not being depreciated Land $ 273,809 $ - $ 4,999 $ - $268,810 Water rights 4,429,083 3,735,575 - - 8,164,658 Construction in progress 442,492 966,152 - (1,225,400) 183,244 Total capital assets, not being depreciated 5,145,384 4,701,727 4,999 (1,225,400) 8,616,712 Capital assets, being depreciated Buildings 17,530 - - - 17,530 Improvements other than buildings 34,865,483 2,832,687 - 1,225,400 38,923,570 Machinery and Equipment 766,442 46,638 - - 813,080 Other capital assets 1,397,667 166,544 - - 1,564,211 Total capital assets, being depreciated 37,047,122 3,045,869 - 1,225,400 41,318,391 Less accumulated depreciation for: Buildings (8,042) (2,508) - - (10,550) Improvements other than buildings (6,759,083) (1,023,322) - - (7,782,405) Machinery and Equipment (577,477) (128,677) - - (706,154) Other capital assets (242,997) (76,087) - - (319,084) Total accumulated depreciation (7,587,599) (1,230,594) - - (8,818,193) Total capital assets, being depreciated, net 29,459,523 1,815,275 - 1,225,400 32,500,198 Business-type activities capital assets, net $ 34,604,907 $ 6,517,002 $ 4,999 $ - $ 41,116,910 ---PAGE BREAK--- CITY OF FERNLEY, NEVADA NOTES TO FINANCIAL STATEMENTS JUNE 30, 2005 32 NOTE 4 – CAPITAL ASSETS (continued): Depreciation expense was charged to functions/programs of the City as follows: Governmental Activities: General government $ 72,525 Judicial 721 Public works 328,090 Culture and recreation 77,480 Health 4,924 Community development 5,668 Total depreciation expense – governmental activities $ 489,408 Business-type Activities: Water $ 701,678 Sewer 528,916 Total depreciation expense – business-type activities $ 1,230,594 NOTE 5 - Defined Benefit Pension Plan: Plan Description. The City of Fernley contributes to the Public Employees Retirement System of the State of Nevada (PERS), a cost sharing, multiple employers, defined benefit plan administered by the Public Employees Retirement System of the State of Nevada. PERS provides retirement benefits, disability benefits, and death benefits, including annual cost of living adjustments, to plan members and their beneficiaries. Chapter 286 of the Nevada Revised Statutes establishes the benefit provisions provided to the participants of PERS. These benefit provisions may only be amended through legislation. The Public Employees Retirement System of the State of Nevada issues a publicly available financial report that includes financial statements and required supplementary information for PERS. That report may be obtained by writing to the Public Employees Retirement System of the State of Nevada, 693 West Nye Lane, Carson City, NV 89703-1599 or by calling (775) 687-4200. Funding Policy. Benefits for plan members are funded under one of two methods; the employer (ER) pay contribution plan or the employer/employee (ER/EE) paid contribution plan. Under the ER contribution plan, the City is required to contribute all amounts due under the plan. Under the ER/EE contribution plan, employees are required to contribute a percentage of their compensation to the plan, while the City is required to match that contribution. The contribution requirements of the City are established by Chapter 286 of Nevada Revised Statutes. The funding mechanism may only be amended through legislation. The City's contribution rates and amounts contributed (equal to the required contributions for the year) for ---PAGE BREAK--- CITY OF FERNLEY, NEVADA NOTES TO FINANCIAL STATEMENTS JUNE 30, 2005 33 the last three years are as follows: Fiscal Year Contribution Rate ER Contribution Rate ER/EE Total Contribution 2004-05 20.25% 10.50% $ 271,684 2003-04 20.25% 10.50% 237,940 2003-02 18.75% 9.75% 202,634 ---PAGE BREAK--- CITY OF FERNLEY, NEVADA NOTES TO FINANCIAL STATEMENTS JUNE 30, 2005 34 NOTE 6 – LONG TERM DEBT: A. The City was, in accordance with Nevada Revised Statutes, within the legal debt limit at June 30, 2005. B. The bonded following schedule summarizes the changes in long-term debt: Issue Date Interest Rate Maturity Date Authorized and Issued Outstanding July 1, 2004 Additions (Deletions) Outstanding June 30, 2005 Due in 2005- 2006 Governmental Activities: Compensated absences payable - - - - $ 52,299 $10,330 $62,629 $ - Total governmental activities 52,299 10,330 62,629 - Business-type Activities: State Water Pollution Control Revolving Fund 10/28/92 4.00% 6/30/2012 $2,000,000 1,121,200 (113,173) 1,008,027 117,745 2003 Refunding Bonds 11/25/03 3% - 5% 5/01/2010 $950,000 950,000 (135,000) 815,000 145,000 Subtotal-bonded debt 2,071,200 (248,173) 1,823,027 262,745 Unamortized Bond Premium 61,970 (12,394) 49,576 12,394 Compensated Absences payable 31,730 5,444 37,174 - Total business-type activities 2,164,900 (255,123) 1,909,777 275,139 Total Long Term Debt $2,217,199 $(244,793) $1,972,406 $275,139 ---PAGE BREAK--- CITY OF FERNLEY, NEVADA NOTES TO FINANCIAL STATEMENTS JUNE 30, 2005 35 The following schedule reflects debt service requirements to maturity of the City's long-term debt: Debt Supported by Debt Supported by Total Requirements Sewer Fund Revenues Water Fund Revenues to Maturity Fiscal Year Principal Interest Principal* Interest* Principal Interest 2006 $ 117,745 $ 39,155 $145,000 $ 33,425 $ 262,745 $ 72,580 2007 122,502 34,398 155,000 25,925 277,502 60,323 2008 127,451 29,449 160,000 18,050 287,451 47,499 2009 132,600 24,300 170,000 9,800 302,600 34,100 2010 137,957 18,943 185,000 2,775 322,957 21,718 2011 143,531 13,370 - - 143,531 13,370 2012 149,329 7,571 - - 149,329 7,571 2013 76,912 1,538 - - 76,912 1,538 Total $1,008,027 $ 168,724 $ 815,000 $ 89,975 $1,823,027 $ 258,699 * Exclusive of unamortized premium and issuance costs. NOTE 7 - Risk Management The City, like any governmental entity, is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries of employees; and natural disasters. The City has joined together with similar public agencies (cities, counties and special districts) throughout the State of Nevada to create a pool under the Nevada Interlocal Cooperation Act. The Nevada Public Agency Pool Insurance (Pool) is a public entity risk pool currently operating as a common risk management and insurance program for its members. The City pays an annual premium and specific deductibles, as necessary, to the Pool for its general insurance coverage. The Pool is considered a self-sustaining risk pool that will provide coverage for its members for up to $200,000/$350,000 per insured event. The Pool obtains independent coverage for insured events in excess of these limits. The City has also joined together with similar public agencies, under the Nevada Interlocal Cooperation Act, to create an intergovernmental self-insured association for workers compensation insurance, the Public Agency Compensation Trust (PACT). The City pays premiums based on payroll costs to the PACT. The PACT is considered a ---PAGE BREAK--- CITY OF FERNLEY, NEVADA NOTES TO FINANCIAL STATEMENTS JUNE 30, 2005 36 self-sustaining pool that will provide coverage up to $350,000/$700,000 per insured event. The PACT obtains independent coverage for events in excess of these limits. The City continues to carry commercial insurance for other risks of loss, including specific risks of loss not covered by the Pool, including bonding and employee health and accident insurance. Settled claims resulting from these risks have not exceeded commercial coverage for the past three years. NOTE 8 – Commitments and Contingencies There are lawsuits and unresolved disputes involving the city or its employees in which the City is represented by outside counsel. However, in the opinion of the outside counsel, these actions will not, in aggregate, have a material adverse effect upon the operations or financial position of the City. NOTE 9– Subsequent Events Subsequent to year-end the City closed its investment account with Wells Fargo. Shortly thereafter, the City opened a NVEST account with Wells Fargo Capital Management Services. On October 3, 2005, a $10,000,000 transfer was made to this account. ---PAGE BREAK--- COMBINING AND INDIVIDUAL FUND STATEMENTS AND SCHEDULES ---PAGE BREAK--- MUNICIPAL RESIDENTIAL MUNICIPAL COURT COURT CONSTRUCTION ADMINISTRATIVE FACILITIES TAX DISTRICT GRANTS FEES FUND FEES FUND #2 FUND FUND TOTAL Cash and investments 26,205 $ 46,103 $ 383,732 $ 506,113 $ 962,153 $ Accounts receivable 630 1,046 - - 1,676 Due from other governments - - 4,233 - 4,233 Interest receivable 62 109 1,366 1,239 2,776 Total Assets 26,897 $ 47,258 $ 389,331 $ 507,352 $ 970,838 $ Liabilities: Accounts payable - $ - $ 2,128 $ - $ 2,128 $ Due to Developers - - 69,000 - 69,000 Total Liabilities - - 71,128 - 71,128 Fund Balance: Designated for subsequent year's expenditures 26,897 - 318,203 - 345,100 Undesignated - 47,258 - 507,352 554,610 Total Fund Balance 26,897 47,258 318,203 507,352 899,710 Total Liabilities and Fund Balance 26,897 $ 47,258 $ 389,331 $ 507,352 $ 970,838 $ ASSETS LIABILITIES AND FUND BALANCE CITY OF FERNLEY NONMAJOR SPECIAL REVENUE FUNDS COMBINING BALANCE SHEET JUNE 30, 2005 37 ---PAGE BREAK--- MUNICIPAL RESIDENTIAL MUNICIPAL COURT COURT CONSTRUCTION ADMINISTRATIVE FACILITIES TAX DISTRICT GRANTS FEES FUND FEES FUND #2 FUND FUND TOTAL REVENUES Taxes: Residential construction tax - $ - $ 443,866 $ - $ 443,866 $ Fines and forfeits: Municipal administrative fees 12,698 18,062 - - 30,760 Miscellaneous: Interest earnings 879 712 10,891 9,232 21,714 Total Revenues 13,577 - - 18,774 - - 454,757 - - 9,232 - 496,340 EXPENDITURES Services and supplies: Judicial 1,273 - - - 1,273 Capital outlay: Culture and recreation - - 21,507 - 21,507 Community support - - - 99,449 99,449 Total Capital Outlay - - 21,507 99,449 120,956 Total Expenditures 1,273 - - - - - 21,507 - - 99,449 - 122,229 Excess (Deficiency) of Revenues over Expenditures 12,304 18,774 433,250 (90,217) 374,111 OTHER FINANCING SOURCES (USES) Transfers in (out) - - (400,000) 100,000 (300,000) Net Change in Fund Balance 12,304 18,774 33,250 9,783 74,111 FUND BALANCE, JULY 1 14,593 28,484 284,953 497,569 825,599 FUND BALANCE, JUNE 30 26,897 $ 47,258 $ 318,203 $ 507,352 $ 899,710 $ CITY OF FERNLEY NONMAJOR SPECIAL REVENUE FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES FOR THE YEAR ENDED JUNE 30, 2005 38 ---PAGE BREAK--- BUDGET ACTUAL VARIANCE REVENUES Fines and forfeits: Municipal administrative fees 11,200 $ 12,698 $ 1,498 $ Miscellaneous: Interest earnings 1,000 879 (121) Total Revenues 12,200 13,577 1,377 EXPENDITURES Judicial Services and supplies 12,000 1,273 10,727 Net Change in Fund Balance 200 12,304 12,104 FUND BALANCE, July 1 12,750 14,593 1,843 FUND BALANCE, June 30 12,950 $ 26,897 $ 13,947 $ FOR THE YEAR ENDED JUNE 30, 2005 CITY OF FERNLEY SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET (GAAP BASIS) AND ACTUAL MUNICIPAL COURT ADMINISTRATIVE FEES FUND 39 ---PAGE BREAK--- BUDGET ACTUAL VARIANCE REVENUES Fines and forfeits: Municipal administrative fees 16,000 $ 18,062 $ 2,062 $ Miscellaneous: Interest earnings 400 712 312 Total Revenues 16,400 18,774 2,374 FUND BALANCE, July 1 27,361 28,484 1,123 FUND BALANCE, June 30 43,761 $ 47,258 $ 3,497 $ FOR THE YEAR ENDED JUNE 30, 2005 CITY OF FERNLEY SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET (GAAP BASIS) AND ACTUAL MUNICIPAL COURT FACILITY FEES FUND 40 ---PAGE BREAK--- BUDGET ACTUAL VARIANCE REVENUES Taxes: Residential construction tax 450,000 $ 443,866 $ (6,134) $ Miscellaneous: Interest earnings 6,000 10,891 4,891 Total Revenues 456,000 454,757 (1,243) EXPENDITURES Culture and recreation: Capital outlay 110,000 21,507 88,493 OTHER FINANCING SOURCES Transfers Out (400,000) (400,000) 3,648 Net Change in Fund Balance (54,000) 33,250 87,250 FUND BALANCE, July 1 191,537 284,953 93,416 FUND BALANCE, June 30 137,537 $ 318,203 $ 180,666 $ FOR THE YEAR ENDED JUNE 30, 2005 CITY OF FERNLEY SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET (GAAP BASIS) AND ACTUAL RESIDENTIAL CONSTRUCTION TAX DISTRICT #2 FUND 41 ---PAGE BREAK--- BUDGET ACTUAL VARIANCE REVENUES Miscellaneous: Interest earnings 6,000 $ 9,232 $ 3,232 $ EXPENDITURES Capital outlay 105,000 99,449 (5,551) Excess (Deficiency) of Revenues Over Expenditures (99,000) (90,217) 8,783 OTHER FINANCING SOURCES Transfers in: General Fund 100,000 100,000 - Net Change in Fund Balance 1,000 9,783 8,783 FUND BALANCE, July 1 474,569 497,569 23,000 FUND BALANCE, June 30 475,569 $ 507,352 $ 31,783 $ FOR THE YEAR ENDED JUNE 30, 2005 CITY OF FERNLEY SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET (GAAP BASIS) AND ACTUAL GRANTS FUND 42 ---PAGE BREAK--- BUDGET ACTUAL VARIANCE REVENUES Miscellaneous: Interest earnings 20,000 $ 30,176 $ 10,176 $ EXPENDITURES Community development: Capital outlay 334,000 167,229 166,771 Excess (Deficiency) of Revenues Over Expenditures (314,000) (137,053) 176,947 OTHER FINANCING SOURCES Transfers in: General Fund 1,140,000 1,140,000 - Net Change in Fund Balance 826,000 1,002,947 176,947 FUND BALANCE, July 1 1,451,225 1,499,182 47,957 FUND BALANCE, June 30 2,277,225 $ 2,502,129 $ 224,904 $ FOR THE YEAR ENDED JUNE 30, 2005 CITY OF FERNLEY SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET (GAAP BASIS) AND ACTUAL CAPITAL PROJECTS FUND 43 ---PAGE BREAK--- BUDGET ACTUAL VARIANCE User fees 2,063,000 $ 1,975,451 $ (87,549) $ Salaries and wages 337,000 319,708 17,292 Employee benefits 179,900 135,878 44,022 Services and supplies 1,102,273 944,090 158,183 Depreciation 662,400 701,678 (39,278) Total Operating Expenses 2,281,573 2,101,354 180,219 Operating Loss (218,573) (125,903) 92,670 Interest earned on investments 100,000 149,709 49,709 In lieu of water rights fees 500,000 693,236 193,236 Sale of fixed assets - 2,210 2,210 Miscellaneous 30,000 63,024 33,024 Interest expense (33,013) (33,077) (64) Total Nonoperating Revenue (Expense) 596,987 875,102 278,115 Income (Loss) Before Capital Contributions 378,414 749,199 370,785 Customer connection fees 1,550,000 2,026,164 476,164 Developer agreements 215,000 122,988 (92,012) Developer contributed infrastructure - 1,432,404 1,432,404 Developer contributed water rights - 3,615,650 3,615,650 Total Capital Contributions 1,765,000 7,197,206 5,432,206 Change in Net Assets 2,143,414 7,946,405 5,802,991 NET ASSETS, July 1 11,585,978 26,889,754 15,303,776 NET ASSETS, June 30 13,729,392 $ 34,836,159 $ 21,106,767 $ CAPITAL CONTRIBUTIONS OPERATING REVENUES NONOPERATING REVENUE (EXPENSE) CITY OF FERNLEY SCHEDULE OF REVENUES, EXPENSES, AND CHANGE IN NET ASSETS - BUDGET (GAAP BASIS) AND ACTUAL WATER UTILITY FUND FOR THE YEAR ENDED JUNE 30, 2005 OPERATING EXPENSES 44 ---PAGE BREAK--- BUDGET ACTUAL VARIANCE User fees 1,251,000 $ 1,441,455 $ 190,455 $ Salaries and wages 339,900 308,789 31,111 Employee benefits 182,200 131,224 50,976 Services and supplies 599,000 499,040 99,960 Depreciation 561,900 528,916 32,984 Total Operating Expenses 1,683,000 1,467,969 215,031 Operating Loss (432,000) (26,514) 405,486 Interest earned on investments 100,000 145,033 45,033 Interest expense (41,464) (41,464) - Total Nonoperating Revenue (Expense) 58,536 103,569 45,033 Income (Loss) Before Capital Contributions (373,464) 77,055 450,519 Customer connection fees 1,848,000 2,182,969 334,969 Developer agreements 29,500 18,799 (10,701) Developer contributed infrastructure - 1,065,523 1,065,523 Total Capital Contributions 1,877,500 3,267,291 1,389,791 Change in Net Assets 1,504,036 3,344,346 1,840,310 NET ASSETS, July 1 10,141,632 18,362,647 8,221,015 NET ASSETS, June 30 11,645,668 $ 21,706,993 $ 10,061,325 $ CAPITAL CONTRIBUTIONS OPERATING REVENUES NONOPERATING REVENUE (EXPENSE) CITY OF FERNLEY SCHEDULE OF REVENUES, EXPENSES, AND CHANGE IN NET ASSETS - BUDGET (GAAP BASIS) AND ACTUAL SEWER UTILITY FUND FOR THE YEAR ENDED JUNE 30, 2005 OPERATING EXPENSES 45 ---PAGE BREAK--- BUDGET ACTUAL VARIANCE Interest earned on investments 350 $ 990 $ 640 $ Customer connection fees 100,000 131,300 31,300 Change in Net Assets 100,350 132,290 31,940 NET ASSETS, July 1 - - - NET ASSETS, June 30 100,350 $ 132,290 $ 31,940 $ CAPITAL CONTRIBUTIONS NONOPERATING REVENUE (EXPENSE) CITY OF FERNLEY NON-POTABLE WATER ENTERPRISE FUND SCHEDULE OF REVENUES, EXPENSES, AND CHANGE IN NET ASSETS - BUDGET (GAAP BASIS) AND ACTUAL FOR THE YEAR ENDED JUNE 30, 2005 46 ---PAGE BREAK--- BALANCE BALANCE JULY 1, 2004 ADDITIONS DELETIONS JUNE 30, 2005 Cash and cash equivalents 6,653 $ 46,331 $ 44,076 $ 8,908 Bail bond deposits held for others 6,653 $ 46,331 $ 44,076 $ 8,908 ASSETS LIABILITIES CITY OF FERNLEY SCHEDULE OF CHANGES IN ASSETS AND LIABILITIES AGENCY FUND - MUNICIPAL TRUST FUND JUNE 30, 2005 47 ---PAGE BREAK--- STATISTICAL SECTION ---PAGE BREAK--- TABLE 1 CITY OF FERNLEY, NEVADA GOVERNMENT-WIDE EXPENSES BY FUNCTION LAST TWO FISCAL YEARS JUNE 30, JUNE 30, 2004 2005 General government $ 587,873 $ 595,912 Judicial 156,796 173,804 Public works 463,188 642,480 Culture and recreation 362,983 458,828 Community deelopment 434,627 861,555 Health 50,560 102,768 Water 2,035,646 2,134,429 Sewer 1,347,388 1,509,433 Total $ 5,439,061 $ 6,479,209 48 ---PAGE BREAK--- TABLE 2 CITY OF FERNLEY, NEVADA GOVERNMENT-WIDE REVENUES LAST TWO FISCAL YEARS PROGRAM REVENUES GENERAL REVENUES Operating Capital Fiscal Charges for Grants, Interest, Grants, Interest, Investment Year Services Contributions Contributions Earnings Miscellaneous Taxes Total 2004 $ 5,336,042 $ 276,701 $ 18,942,007 $ 109,413 $ 147,817 $ 782,084 $ 25,594,064 2005 $ 6,710,478 $ 268,632 $ 15,390,131 $ 393,459 $ 173,145 $ 893,084 $ 23,828,929 49 ---PAGE BREAK--- TABLE 3 CITY OF FERNLEY, NEVADA GENERAL GOVERNMENTAL EXPENDITURES BY FUNCTION LAST FOUR FISCAL YEARS* Fiscal General Public Culture & Community Animal Debt Year Government Judicial Works Recreation Development Control Service Health Total 2002 $ 456,368 $ 61,567 $ 274,324 $ 168,945 $ 230,386 $ 4,111 $ 94,822 $ $ 1,290,523 2003 $ 457,190 $ 131,074 $ 324,346 $ 212,378 $ 297,649 $ - $ 95,431 $ 35,343 $ 1,553,411 2004 $ 528,906 $ 154,514 $ 331,318 $ 324,629 $ 405,298 $ - $ - $ 48,395 $ 1,793,060 2005 $ 595,297 $ 171,868 $ 420,500 $ 381,962 $ 669,105 $ - $ - $ 96,876 $ 2,335,608 Note: Includes General, Special Revenue, and Capital Projects; excludes capital outlay *Information presented from City incorporation on July 1, 2001 forward 50 ---PAGE BREAK--- TABLE 4 CITY OF FERNLEY, NEVADA GENERAL GOVERNMENTAL REVENUES BY SOURCE LAST FOUR FISCAL YEARS* Licenses Fines Fiscal Property and Intergov- and Miscel- Year Taxes Permits ernmental Forfeits laneous Total 2002 359,112 $ 936,421 $ 494,110 $ 17,643 $ 40,306 $ 1,847,592 $ 2003 585,458 1,724,743 772,510 104,330 55,149 3,242,190 2004 1,190,598 2,241,629 1,415,460 170,836 199,081 5,217,604 2005 1,316,826 2,796,965 1,354,521 175,167 192,613 5,836,092 Note: Includes General, Special Revenue, and Capital Projects Funds *Information presented from City incorporation on July 1, 2001 forward 51 ---PAGE BREAK--- TABLE 4A CITY OF FERNLEY, NEVADA GENERAL FUND TAX AND INTERGOVERNMENTAL REVENUES BY SOURCE LAST FOUR FISCAL YEARS* Other Consolidated Intergov- Fiscal Property Franchise Road Dept. Motor Fuel RTC Shared Tax ernmental Year Tax Fees Ad Valorem(1) Tax(1) Revenue(1) Revenues(1) Revenues(1) Total 2002 359,112 156,475 133,273 178,290 - 110,549 54,882 992,581 2003 374,654 628,305 194,964 185,205 152,633 120,652 54,882 1,711,295 2004 427,738 632,996 - - - 137,610 54,882 1,253,226 2005 491,820 765,184 - - - 148,417 54,882 1,460,303 Note: Included as intergovernmental revenues in the General Fund *Information presented from City incorporation on July 1, 2001 forward 52 ---PAGE BREAK--- TABLE 5 CITY OF FERNLEY, NEVADA PROPERTY TAX LEVIES AND COLLECTIONS LAST FOUR FISCAL YEARS* Percent of Current Percent Delinquent Total Tax Outstanding Fiscal Total Tax of Levy Tax Total Tax Collection Delinquent Year Tax Levy Collections Collected Collections Collections to Tax Levy Taxes 2002 275,789 268,161 97.23% - 268,161 97.23% 7,628 2003 309,207 301,459 97.49% 5,431 306,890 99.25% 9,945 2004 351,932 346,642 98.50% 7,915 354,557 100.75% 7,320 2005 424,053 417,685 98.50% 5,687 423,372 99.84% 8,001 Source: Lyon County Comptroller's Office *Information presented from City incorporation on July 1, 2001 forward 53 ---PAGE BREAK--- TABLE 6 Ratio of Total Total Assessed To Total Estimated Estimated Fiscal Assessed Actual Actual Year Value Value Value 2002 233,552,164 667,291,897 35.0 2003 246,640,476 704,687,074 35.0 2004 279,452,986 798,437,103 35.0 2005 303,180,006 866,228,589 35.0 Source: Lyon County Assessor's Office *Information presented from City incorporation on July 1, 2001 forward CITY OF FERNLEY, NEVADA ASSESSED AND ESTIMATED ACTUAL VALUE OF TAXABLE PROPERTY LAST FOUR FISCAL YEARS* 54 ---PAGE BREAK--- TABLE 7 CITY OF FERNLEY, NEVADA PROPERTY TAX RATES - DIRECT AND OVERLAPPING GOVERNMENTS (PER $100 OF ASSESSED VALUE) LAST FOUR FISCAL YEARS* Fiscal City of State of School Special Year Fernley Nevada District County Districts Total 2002 0.1528 0.1500 1.3367 0.7577 0.3431 2.7403 2003 0.1528 0.1500 1.3367 0.7839 0.3544 2.7778 2004 0.1528 0.1700 1.3367 0.8350 0.3627 2.8572 2005 0.1528 0.1700 1.3367 0.8644 0.3726 2.8965 Source: State of NV Department of Taxation's "Local Government Finance Redbook" *Information presented from City incorporation on July 1, 2001 forward 55 ---PAGE BREAK--- TABLE 8 CITY OF FERNLEY, NEVADA RATIO OF NET GENERAL OBLIGATION BONDED DEBT TO ASSESSED VALUE AND NET GENERAL OBLIGATION BONDED DEBT PER CAPITA LAST FOUR FISCAL YEARS* Debt Payable Net Bonded Assessed Gross Service From Net Debt to Net Bonded Fiscal Value in Bonded Monies Enterprise Bonded Assessed Debt Per Year Population(1) Thousands Debt(2) Available Revenues Debt Value Capita 2002 9,529 233,552 2,644,266 - 2,553,952 90,314 0.04 9.48 2003 10,440 246,640 2,339,778 - 2,339,778 - - - 2004 11,718 279,453 2,071,200 - 2,071,200 - - - 2005 13,775 303,180 1,823,027 - 1,823,027 - - - Source: Nevada Demographer's Office Note: Includes all Long-Term General Obligation Debt *Information presented from City incorporation on July 1, 2001 forward 56 ---PAGE BREAK--- TABLE 9 CITY OF FERNLEY, NEVADA COMPUTATION OF LEGAL DEBT MARGIN JUNE 30, 2005 Estimated Assessed Value $ 303,180,006 Debt Limit - 30 Percent of Total Assessed Value 90,954,002 Total Amount of Debt Applicable to Debt Limit 1,823,027 Legal Debt Margin $ 89,130,975 Note: Legal debt margin as set forth in NRS 266.600 57 ---PAGE BREAK--- TABLE 10 CITY OF FERNLEY, NEVADA COMPUTATION OF GENERAL OBLIGATION DIRECT AND OVERLAPPING DEBT June 30, 2005 Total Less Debt General Service Obligation Fund Net Debt % Applicable Debt Balance Outstanding Net Debt Direct: City of Fernley $ 1,823,027 $ - $ 1,823,027 100.00% $ 1,823,027 Overlapping: State of Nevada 2,550,952,966 1,495,930,000 1,055,022,966 0.44% 4,646,126 Lyon County 7,285,000 - 7,285,000 35.88% 2,613,617 Lyon County School District 52,740,000 9,528,563 43,211,437 35.88% 15,502,832 Total Overlapping debt 22,762,575 Total Direct and Overlapping Debt $ 24,585,602 Source: Lyon County School District Applicable 58 ---PAGE BREAK--- TABLE 11 CITY OF FERNLEY, NEVADA WATER AND SEWER FUNDS REVENUE BOND COVERAGE - COMBINED LAST FOUR FISCAL YEARS* Net Revenue Available Debt Service Requirements Fiscal Operating Operating For Debt Year Revenue Expenses(1) Service Principal Interest Total Coverage 2002 2,201,361 1,645,441 555,920 283,405 107,847 391,252 142% 2003 2,501,125 1,815,858 685,267 243,778 97,428 341,206 201% 2004 2,981,642 2,096,056 885,586 248,173 84,152 332,325 266% 2005 3,416,906 2,338,729 1,078,177 262,745 72,580 335,325 322% Note: Total operating expenses exclusive of depreciation *Information presented from City incorporation on July 1, 2001 forward 59 ---PAGE BREAK--- TABLE 12 CITY OF FERNLEY, NEVADA DEMOGRAPHIC STATISTICS LAST FOUR FISCAL YEARS* Fiscal School Unemployment Year Population Enrollment Rate 2002 9,529 7,046 5.60% 2003 10,440 7,266 5.40% 2004 11,718 7,677 5.20% 2005 13,775 7,910 5.00% Sources: Nevada Demographer's Office Lyon County School District Nevada Employment Security Department- Lyon County Data *Information presented from City incorporation on July 1, 2001 forward 60 ---PAGE BREAK--- TABLE 12 (Cont.) Income Characteristics - % Income Category Percent Under - $15,000 20% $ 15,000 - $ 24,999 20% $ 25,000 - $ 34,999 17% $ 35,000 - $ 49,999 18% $ 50,000 - $ 74,999 18% $ 75,000 - $100,000 5% Over $100,000 3% Median 31,411 $ Age Characteristics of Adults - % Adult Ages 18 - 24 7% 25 - 34 12% 35 - 44 14% 45 - 54 14% 55 - 64 11% 65 + 16% Sources: Nevada Demographer's Office - Lyon County Data CITY OF FERNLEY, NEVADA DEMOGRAPHIC STATISTICS January 0, 1900 61 ---PAGE BREAK--- CITY OF FERNLEY, NEVADA PROPERTY VALUE AND CONSTRUCTION LAST FOUR FISCAL YEARS* Fiscal Number of Year Permits Value 2002 715 32,689,716 2003 1,096 103,554,164 2004 1,608 187,709,803 2005 1,206 118,716,291 Sources: City of Fernley Building Division of the Community Development Department. *Information presented from City incorporation on July 1, 2001 forward 62 ---PAGE BREAK--- TABLE 14 CITY OF FERNLEY, NEVADA PRINCIPAL PROPERTY OWNERS June 30, 2005 Taxable Approximate Estimated Taxable Percentage of Appraised Assessed Taxable Assessed Taxpayer Product/Service Value Value Valuation Amazon.com Electronic Shopping $ 48,099,271 $ 16,834,745 5.553% BMO Leasing US Inc (Quebecor) Printing 35,713,483 12,499,719 4.123% Nevada Cement Company Cement Manufacturer 20,023,943 7,008,380 2.312% MSC Industrial Supply Co. Machinery Merchant Wholesale 13,870,603 4,854,711 1.601% Honeywell International Inc. Electronic Manufacturer 10,766,029 3,768,110 1.243% TREX Company Wood Product Manufacturer 6,994,389 2,448,036 0.807% Fortifiber Corporation Product Manufacturer 6,328,549 2,214,992 0.731% A.R.E. Inc Motor Vehicle Body Manufacturer 6,287,811 2,200,734 0.726% John Manville International Inc. Siding/Roofing Manufacturer 5,409,997 1,893,499 0.625% Paramount-Nevada Asphalt Co. LLC Asphalt 4,820,780 1,687,273 0.557% Totals 55,410,199 $ 18.275% Source: Lyon County Assessor's Office Note: Estimated appraised value is based on assessed value at 35% of appraised value 63 ---PAGE BREAK--- TABLE 15 CITY OF FERNLEY, NEVADA MAJOR EMPLOYERS January 0, 1900 Name Product/Service Employees Amazon.com Electronic Shopping 700-799 BMO Leasing US Inc (Quebecor) Printing 200-299 MSC Industrial Supply Co. Machinery Merchant Wholesale 100-199 TREX Company Wood Product Manufactoring 100-199 A.R.E. Inc Motor Vehicle Body Manufactorer 100-199 Nevada Cement Company Cement Manufactorer 100-199 Silverado Casino Casino 90-99 Manpower Temporary Services Temporary Help Service 90-99 Scolaris Warehouse Markets, Inc. Supermarket 90-99 Fernley Truck Inn Hotel & Casino 90-99 Source: Nevada Department of Employement, Training and Rehabilitation 64 ---PAGE BREAK--- COMPLIANCE SECTION ---PAGE BREAK--- ---PAGE BREAK--- AUDITOR’S COMMENTS ---PAGE BREAK--- 66 AUDITOR'S COMMENTS June 30, 2005 Statute Compliance The required disclosure on compliance with Nevada Revised Statutes and the Nevada Administrative Code is contained in Note 2 to the financial statements. Progress on Prior Year Statute Compliance The City monitored expenditures during the current year in order to prevent over expenditures. Prior Year Recommendations There were no specific recommendations made in the audit report for the fiscal year ended June 30, 2004. Current Year Recommendations We did not find any financial weaknesses of a magnitude to justify inclusion within our audit report. However, our audit activity did identify recommendations to improve procedures and accountability that have been include in our current management letter. ---PAGE BREAK--- 67 Schedule of Fees Imposed Subject to the Provisions of NRS 354.5989 – Limitation of Fees for Business Licenses Flat Fixed Fees: Business license revenue for the year ended June 30, 2004 $79,480 Adjustment to Base: Base year: 1. Percentage decrease in population of the local government 17.55% 2. Percentage increase in the Consumer Price Index for the year ending on December 31, next preceding the year for which the limit is being calculated 3.3% Adjusted Base at June 30, 2005 20.85% 96,052 Actual Revenue 96,718 Actual Amount over (under) Allowable Amount $666 Fee calculated on a Percentage of Gross Revenue: Adjusted base at June 30, 2004 $632,996 Percentage change in CPI 1.033 Adjust base at June 30, 2005 653,885 Actual Revenue 765,184 Actual Amount over (under) Allowable Amount $111,299 ---PAGE BREAK---