Document Millcreek_doc_8657085d51

MILLCREEK Basic Financial Statements and Independent Auditor’s Report Year Ended June 30, 2021 ---PAGE BREAK--- MILLCREEK Table of Contents Page FINANCIAL SECTION Independent Auditor’s Report 1-3 Management's Discussion and Analysis 4-10 Basic Financial Statements: Government-wide Financial Statements: Statement of Net Position 11 Statement of Activities 12 Fund Financial Statements: Balance Sheet - Governmental Funds 13 Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Position 14 Statement of Revenues, Expenditures, and Changes in Fund Balance - Governmental Funds 15 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balance of Governmental Funds to the Statement of 16 Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual - General Fund 17 Statement of Revenues, Expenditures, and Changes in Fund Balance – Budget to Actual – Community Reinvestment Agency – Special Revenue Fund 18 Statement of Net Position – Proprietary Fund 19 Statement of Revenues, Expenses, and Changes in Fund Net Position – Proprietary Fund 20 Statement of Cash Flows – Proprietary Fund 21 Notes to Financial Statements 22-46 Supplemental Information: Schedule of Revenues, Expenditures, and Changes in Fund Balance – Budget to Actual – Capital Projects 47 Schedule of Revenues, Expenditures, and Changes in Fund Balance – Budget to Actual – Capital Projects 48 Required Supplementary Information: Schedule of the Proportionate Share of Net Pension Liability 49 Schedule of Pension Contributions 50 Notes to the Required Supplementary Information 51 ---PAGE BREAK--- MILLCREEK Table of Contents COMPLIANCE SECTION Independent Auditor’s 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 52-53 Independent Auditor’s Report on Compliance and on Internal Control Over Compliance in Accordance with the State of Utah Legal Compliance Audit Guide 54-56 ---PAGE BREAK--- 1 INDEPENDENT AUDITOR’S REPORT Honorable Mayor and Members of the City Council Millcreek, Utah Report on the Audit of the Financial Statements Opinions We have audited the financial statements of the governmental activities, the business-type activities, the aggregate discretely presented component unit, each major fund, and the aggregate remaining fund information of Millcreek, Utah (the City), as of and for the year ended June 30, 2021, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements as listed in the table of contents. In our opinion, the accompanying financial statements present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, the aggregate discretely presented component unit, each major fund, and the aggregate remaining fund information of the City, as of June 30, 2021, and the respective changes in financial position, and where applicable, cash flows thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. Basis for Opinions We conducted our audit in accordance with auditing standards generally accepted in the United States of America (GAAS) and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the City and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Responsibilities of Management for the Financial Statements The City’s management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. C O M M I T T E D . E X P E R I E N C E D . T R U S T E D CERTIFIED PUBL IC ACCOUN TAN TS E. LYNN HANSEN, CPA CLARKE R. BRADSHAW, CPA GARY E. MALMROSE, CPA EDWIN L. ERICKSON, CPA MICHAEL L. SMITH, CPA JASON L. TANNER, CPA ROBERT D. WOOD, CPA AARON R. HIXSON, CPA TED C. GARDINER, CPA JEFFREY B. MILES, CPA SHAWN F. MARTIN, CPA H B M E , L L C I S A C E R T I F I E D P U B L I C A C C O U N T I N G F I R M 5 5 9 W E S T 5 0 0 S O U T H B O U N T I F U L , U T 8 4 0 1 0 O : 8 0 1 . 2 9 6 . 0 2 0 0 H B M E . C O M ---PAGE BREAK--- 2 In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the City’s ability to continue as a going concern for one year after the date that the financial statements are issued. Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinions. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements. In performing an audit in accordance with GAAS, we: • Exercise professional judgment and maintain professional skepticism throughout the audit. • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, no such opinion is expressed. • Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements. • Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the City’s ability to continue as a going concern for a reasonable period of time. We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control–related matters that we identified during the audit. Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management's discussion and analysis on pages 4 through 10 and the pension schedules on pages 49 through 51 be presented to supplement the basic financial statements. Such information is the responsibility of management and, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied ---PAGE BREAK--- 3 certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 3, 2021, on our consideration of the City's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City’s internal control over financial reporting and compliance. December 3, 2021 ---PAGE BREAK--- 4 MANAGEMENT’S DISCUSSION AND ANALYSIS This document is a narrative overview and analysis of the financial activities of Millcreek for the fiscal year ending June 30, 2021. Millcreek was incorporated as of January 1, 2017. Millcreek management encourages readers to consider the information presented here in conjunction with the financial statements which follow this section. To help the reader with navigation of this report, the city's activities are classified in the following manner: government activities refers to general administration, parks, streets, police, planning etc. and business-type activities (this is a new category) which includes the Storm Water Utility Fund. This fund was established in fiscal year 2021 to account for storm sewer utility fees and expenses related to the City’s storm water system. Fees are collected by Rocky Mountain Power through their current billing system and then remitted to the City. FINANCIAL HIGHLIGHTS • The total net position of Millcreek City increased from $165,085,550 to $177,603,465. The total net position is a combination of $158,314,853 from governmental activities and $19,288,612 from business activities. • The total net position of governmental activities is made up of $144,576,786 in capital assets, such as land, infrastructure and equipment and $13,738,067 in other net position. The $13,738,067 in other net position is made up of $479,219 which is restricted for capital projects; the remaining $13,258,848 is unrestricted assets. • The total net position of business-type activities is made up of $18,861,314 in capital assets, such as equipment and infrastructure and $427,298 which is considered unrestricted assets. • Total liabilities of the City increased by $5,743,755. This increase is due to a large increase in accounts payable and unearned revenue of $3,989,825, which is federal funds received by the City from the Department of Treasury’s State & Local Fiscal Recovery program which had not been budgeted on June 30, 2021. In addition, the City issued and redeemed Tax Anticipation Notes in the amount $6,035,000 for the purpose of funding the contract with Unified Police Department. The net pension liability decreased by $550,845. Deferred Inflows of Property taxes increased by $246,260. REPORTING THE CITY AS A WHOLE This discussion and analysis is intended to serve as an introduction to Millcreek’s basic financial statements. Millcreek City’s basic financial statements are comprised of three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also includes other supplementary information in addition to the basic financial statements. The government-wide financial statements are designed to provide readers with a broad overview of Millcreek City’s finances, in a manner similar to a private-sector business. • The statement of net position presents information on all of Millcreek’s assets and liabilities, with the difference between the two reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of Millcreek is improving or deteriorating. However, you will also need to consider other nonfinancial factors. ---PAGE BREAK--- 5 • The statement of activities presents information showing how the City’s net position changed during the fiscal year reported. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, all the current year’s revenues and expenses are taken into account regardless of when cash is received or paid. The government-wide financial statements distinguish functions of Millcreek that are principally supported by taxes and intergovernmental revenues (governmental activities). The government-wide financial statements can be found on pages 11-12 of this report. REPORTING THE CITY’S MOST SIGNIFICANT FUNDS 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. Millcreek also uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All the funds of the City can be divided into three categories: governmental funds, proprietary funds, and fiduciary funds. • Governmental funds - These funds are used to account for the same functions reported as governmental activities in the government-wide financial statements. These fund statements focus on how money flows into and out of these funds and the balances left at year-end that are available for spending. These funds are reported using an accounting method called modified accrual accounting, which measures cash and other financial assets that can be readily converted to cash. The governmental fund statements provide a detailed short-term view of the City’s general government operations and the basic services it provides. Governmental fund information helps users determine whether there are more or fewer financial resources that can be spent in the near future to finance the City’s programs. We describe the relationship (or differences) between governmental activities (reported in the Statement of Net Position and the Statement of Activities) and governmental funds in a reconciliation included with the fund financial statements. The City maintains four individual governmental funds, three of which are major funds. The funds include the General Fund, the Capital Projects Fund, the Park Impact Fee Fund (non-major) and the Community Reinvestment Agency Special Revenue Fund. Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures, and changes in fund balances for each one of these funds. The basic governmental fund financial statements can be found on pages 13-16 of this report. The City 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. • Proprietary funds - The City also maintains one proprietary fund to account for the storm water utility. Information for this fund is listed in the financial statements as a business-type activity and can be found on pages 19-21. GOVERNMENT-WIDE FINANCIAL ANALYSIS As noted earlier, net position may serve over time as a useful indicator of a government’s financial position. In the case of Millcreek, assets exceed liabilities by $177,603,465. ---PAGE BREAK--- 6 By far the largest portion of Millcreek’s net position (92%) reflects its investment in capital assets land, buildings, infrastructure assets, machinery, and equipment). The City uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the City’s investment in its capital assets is reported net of related debt. STATEMENT OF NET POSITION Governmental Business-type Activities Activities Total 2021 2020 2021 2020 2021 2020 Current and other assets 44,257,629 $ 35,466,807 $ 497,973 $ - $ 44,755,602 $ 35,466,807 $ Capital assets 155,821,222 164,926,168 18,861,314 - 174,682,536 164,926,168 Total assets 200,078,851 200,392,975 19,359,287 - 219,438,138 200,392,975 Deferre outflows of resources Deferred related to pensions 530,357 760,483 58,929 - 589,286 760,483 Other liabilities 9,199,543 20,997,544 35,041 - 9,234,584 20,997,544 Long-term liabilities outstanding 20,244,851 2,745,354 7,218 - 20,252,069 2,745,354 Total liabilities 29,444,394 23,742,898 42,259 - 29,486,653 23,742,898 Deferred inflows of resources Deferred property tax revenue 12,225,860 11,979,600 - - 12,225,860 11,979,600 Deferred related to pensions 624,101 345,410 69,345 - 693,446 345,410 Total deferred inflows of resources 12,849,961 12,325,010 69,345 - 12,919,306 12,325,010 Net position: Invested in capital assets, net of related debt 144,576,786 151,622,208 18,861,314 - 163,438,100 151,622,208 Restricted 479,219 7,504,204 - - 479,219 7,504,204 Unrestricted 13,258,848 5,959,138 427,298 - 13,686,146 5,959,138 Total net position 158,314,853 $ 165,085,550 $ 19,288,612 $ - $ 177,603,465 $ 165,085,550 $ ---PAGE BREAK--- 7 Governmental activities. Governmental activities decreased the City’s net position by $6,770,697. The City had a transfer from the governmental activities to the business-type activities during the year for $18,447,736, which resulted in the significant decrease in net position in the governmental activities. The City had significant increases in charges for services, operating grants, capital grants, and property taxes over the prior year. Business-type activities. This was the first year with business-type activities as the City started a storm water fund. The City collected $1,868,447 from charges for services with expenses of $1,028,727. In addition to the transfer from the governmental activities for $18,447,736, the business-type activities increased the City’s net position by $19,288,612. CHANGES IN NET POSITION Governmental Business-type Activities Activities Total 2021 2020 2021 2020 2021 2020 Revenues: Program revenues Charges for services 3,721,059 $ 2,419,849 $ 1,868,447 $ - $ 5,589,506 $ 2,419,849 $ Operating grants and contributions 7,434,385 3,116,658 - - 7,434,385 3,116,658 Capital grants and contributions 3,147,755 862,813 - - 3,147,755 862,813 General revenues: Property taxes 11,902,199 11,262,340 - - 11,902,199 11,262,340 General sales taxes 13,227,389 11,211,027 - - 13,227,389 11,211,027 Franchise taxes 553,957 560,514 - - 553,957 560,514 Interest income 128,506 575,273 1,156 - 129,662 575,273 Transfers, net (18,447,736) - 18,447,736 - - - Gain on sale of assets - - - - - - Other 264,348 215,831 - - 264,348 215,831 Total revenues 21,931,862 30,224,305 20,317,339 - 42,249,201 30,224,305 Expenses: General government 7,426,768 6,229,633 - - 7,426,768 6,229,633 Public safety 12,213,011 11,374,782 - - 12,213,011 11,374,782 Streets and public works 8,426,540 8,172,979 - - 8,426,540 8,172,979 Parks and recreation - - - - - - Cemetery - - - - - - Garbage - - - - - - Interest on long-term debt 636,240 920,492 - - 636,240 920,492 Storm water - - 1,028,727 - 1,028,727 - Total expenses 28,702,559 26,697,886 1,028,727 - 29,731,286 26,697,886 Increase in net position (6,770,697) 3,526,419 19,288,612 - 12,517,915 3,526,419 Net position, beginning 165,085,550 161,559,131 - - 165,085,550 161,559,131 Net position, ending 158,314,853 $ 165,085,550 $ 19,288,612 $ - $ 177,603,465 $ 165,085,550 $ ---PAGE BREAK--- 8 ANALYSIS OF GOVERNMENT’S FUNDS The focus of the City’s governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the City’s financing requirements. As of June 30, 2021, the City’s governmental funds’ equity is $22,892,376, an increase of $2,090,373 from the prior year. The General Fund is the chief operating fund of the City. All activities which are not required to be accounted for in separate funds either by state or local ordinance or by a desire to maintain a matching of revenues and expenses are accounted for in this fund. At the end of the current fiscal year, unassigned fund balance of the general fund was $12,011,114 while total fund balance was $12,533,376. As a measure of the general fund’s liquidity, it may useful to compare both unreserved fund balance and total fund balance to total fund expenditures. Unassigned fund represents 47% of total general fund expenditures. The City’s proprietary fund provides the same type of information found in the government-wide financial statements business-type activities, but in more detail. Net position of the storm water fund at the end of the year was $19,288,612. Net position increased by $19,288,612 from the preceding year as the fund was new during the fiscal year. GENERAL FUND BUDGETARY HIGHLIGHTS During the fiscal year, the General Fund was amended resulting in an increase from the original budget of $23,857,0000 to $35,521,135. Most of the increase is due to higher than originally anticipated sales tax revenues and funds received from the federal government’s Coronavirus Aid, Relief, and Economic Security Act. CAPITAL ASSET AND DEBT ADMINISTRATION Capital assets – Millcreek’s investment in capital assets for its governmental activities as of June 30, 2021, amounts to $155,821,222 (net of accumulated depreciation). This investment in capital assets includes land, infrastructure (streets, sidewalks, curb and gutter, bridges, etc.), and equipment. Millcreek’s investment in capital assets for its business-type activities as of June 30, 2021, equals $18,861,314 (net of accumulated depreciation). This investment in capital assets includes infrastructure and equipment. The City’s total capital asset additions (includes both governmental and business-type activities) during fiscal year 2021 include the following: • Infrastructure, streets, parks and storm drain in the amount of $732,769. • Land & building additions (related to the purchase of properties & buildings within the City Center Community Reinvestment Area (CRA) in the amount of $6,219,836. ---PAGE BREAK--- 9 MILLCREEK’S CAPITAL ASSETS Governmental Business-type Activities Activities Total 2021 2020 2021 2020 2021 2020 Land 92,067,824 $ 85,847,988 $ - $ - $ 92,067,824 $ 85,847,988 $ Buildings 1,082,828 1,105,813 - - 1,082,828 1,105,813 Improvements 6,227,745 1,741,593 - - 6,227,745 1,741,593 Infrastructure 56,212,570 75,947,436 18,810,129 - 75,022,699 75,947,436 Machinery and equipment 230,255 283,338 51,185 - 281,440 283,338 Total 155,821,222 $ 164,926,168 $ 18,861,314 $ - $ 174,682,536 $ 164,926,168 $ Additional information on the City’s capital assets can be found in the footnotes to this financial report and the supplemental section. Long-term debt - At June 30, 2021, the City had $17,345,000 in long term debt due to issuing bonds in June of 2019 to fund the acquisition of real property and construction of public space within the City Center Community Reinvestment Area (CRA). In fiscal year 2021 the City paid interest on those bonds in the amount of $721,729. Subsequently, on August 5, 2021, the City issued Sales Tax Revenue Bonds Series 2021 in the amount of $36,265,000. Proceeds from the sale of these bonds will be used to finance expenses associated with building a new city hall. MILLCREEK’S LONG-TERM DEBT Governmental Business-type Activities Activities Total 2021 2020 2021 2020 2021 2020 Sales tax revenue bonds 17,345,000 $ 17,345,000 $ - $ - $ 17,345,000 $ 17,345,000 $ Premium 2,616,188 2,758,244 - - 2,616,188 2,758,244 Net pension liability 196,077 648,162 9,731 - 205,808 648,162 Vacation payable 87,586 246,138 25,310 - 112,896 246,138 Total 20,244,851 $ 20,997,544 $ 35,041 $ - $ 20,279,892 $ 20,997,544 $ ECONOMIC FACTORS AND NEXT YEAR’S BUDGET AND RATES • The Unemployment rate for Salt Lake County (of which Millcreek is part) was 3.2% compared with the State unemployment rate of 2.7% as of June 30, 2021. • In spite of the COVID-19 pandemic, the City continues to receive increased sales tax revenues. However, the City will continue to monitor economic trends to insure expenditures do not outpace revenues. • The City continues to contract for the following services: o Police protection (Unified Police Department) o Animal services (Salt Lake County Animal Services) o Park Maintenance (Salt Lake County Parks Department) o Public works services (Salt Lake County Public Works) ---PAGE BREAK--- 10 REQUESTS FOR INFORMATION This financial report is designed to provide a general overview of Millcreek’s finances for all those with an interest in the City’s finances. Questions concerning any information provided in this report or requests for additional financial information should be addressed to: Millcreek Finance Director 3330 South 1300 East Millcreek, UT 84106 ---PAGE BREAK--- MILLCREEK Statement of Net Position June 30, 2021 The accompanying notes are an integral part of this financial statement. 11 Governmental Business-type Activities Actitities Total ASSETS Cash and cash equivalents 28,362,842 $ 258,488 $ 28,621,330 $ Receivables: Property and other taxes 15,349,418 - 15,349,418 Accounts - 221,485 221,485 Due from other governments 516,262 - 516,262 Prepaid expenses 6,000 - 6,000 Restricted cash 23,107 - 23,107 Capital assets: Land 92,067,824 - 92,067,824 Buildings 1,149,259 - 1,149,259 Improvements 6,283,925 - 6,283,925 Machinery and equipment 563,154 63,499 626,653 Infrastructure 62,360,925 20,812,815 83,173,740 Accumulated depreciation (6,603,865) (2,015,000) (8,618,865) Total assets 200,078,851 19,341,287 219,420,138 DEFERRED OUTFLOWS OF RESOURCES Deferred outflows related to pensions 530,357 58,929 589,286 Total deferred outflows of resources 530,357 58,929 589,286 LIABILITIES Accounts payable 3,306,640 7,218 3,313,858 Accrued interest payable 60,150 - 60,150 Accrued liabilites 338,657 - 338,657 Construction bonds 1,504,271 - 1,504,271 Unearned revenue 3,989,825 - 3,989,825 Non-current liabilities: Due within one year 166,665 21,514 188,179 Due in more than one year 19,990,600 3,796 19,994,396 Net pension liability 87,586 9,731 97,317 Total liabilities 29,444,394 42,259 29,486,653 DEFERRED INFLOWS OF RESOURCES Deferred property tax revenue 12,225,860 - 12,225,860 Deferred inflows relating to pensions 624,101 69,345 693,446 Total deferred inflows of resources 12,849,961 69,345 12,919,306 NET POSITION Net investment in capital assets 144,576,786 18,861,314 163,438,100 Restricted for: Capital projects 479,219 - 479,219 Unrestricted 13,258,848 427,298 13,686,146 Total net position 158,314,853 $ 19,288,612 $ 177,603,465 $ ---PAGE BREAK--- MILLCREEK Statement of Activities For the Year Ended June 30, 2021 The accompanying notes are an integral part of this financial statement. 12 Operating Capital Charges for Grants and Grants and Governmental Business-type Expenses Services Contributions Contributions Activities Activities Total GOVERNMENTAL ACTIVTITIES General government 7,426,768 $ 3,721,059 $ - $ - $ (3,705,709) $ (3,705,709) $ Public safety 12,213,011 - - - (12,213,011) (12,213,011) Streets and public works 8,426,540 - 7,434,385 2,985,552 1,993,397 1,993,397 Parks and recreation - - - 162,203 162,203 162,203 Debt service - interest and fiscal charges 636,240 - - - (636,240) (636,240) Total governmental activities 28,702,559 3,721,059 7,434,385 3,147,755 (14,399,360) (14,399,360) BUSINESS TYPE ACTIVITIES Storm Water 1,028,727 1,868,447 - - 839,720 839,720 Total business-type activities 1,028,727 1,868,447 - - 839,720 839,720 GENERAL REVENUES Taxes: Property taxes 11,902,199 - 11,902,199 Franchise taxes 553,957 - 553,957 General sales taxes 13,227,389 - 13,227,389 Interest income 128,506 1,156 129,662 Miscellaneous 264,348 - 264,348 Transfers, net (18,447,736) 18,447,736 - Total general revenues 7,628,663 18,448,892 26,077,555 Change in net position (6,770,697) 19,288,612 12,517,915 Net position - beginning 165,085,550 - 165,085,550 Net position - ending 158,314,853 $ 19,288,612 $ 177,603,465 $ Net (Expense) Revenues and Changes in Net Position Program Revenues ---PAGE BREAK--- MILLCREEK Balance Sheet – Governmental Funds June 30, 2021 The accompanying notes are an integral part of this financial statement. 13 Special Revenue Capital Special Revenue Totals Community Projects Park Impact Governmental General Reinvestment Fund (non-major) Funds ASSETS Cash and cash equivalents 15,761,613 $ 758,338 $ 11,680,688 $ 162,203 $ 28,362,842 $ Restricted cash and investments - 23,107 - - 23,107 Receivables: Sales, property and franchise taxes 14,198,542 1,150,876 - - 15,349,418 Class C road funds 516,262 - - - 516,262 Prepaid expenditures 6,000 - - - 6,000 Total assets 30,482,417 $ 1,932,321 $ 11,680,688 $ 162,203 $ 44,257,629 $ LIABILITIES Liabilities: Accounts payable 1,040,428 $ 1,640 $ 2,264,572 $ - $ 3,306,640 $ Accrued liabilities 338,657 - - - 338,657 Construction bonds 1,504,271 - - - 1,504,271 Unearned revenue 3,989,825 3,989,825 Total liabilities 6,873,181 1,640 2,264,572 - 9,139,393 DEFERRED INFLOWS OF RESOURCES Deferred property tax revenue 11,075,860 1,150,000 - - 12,225,860 Total deferred inflows of resources 11,075,860 1,150,000 - - 12,225,860 FUND BALANCE Nonspendable 6,000 6,000 Restricted Class C road projects 516,262 - - - 516,262 Capital projects - 23,107 - - 23,107 Total restricted 516,262 23,107 - - 539,369 Assigned to: Special revenue fund - 757,574 - 162,203 919,777 Capital projects fund - - 9,416,116 - 9,416,116 Total assigned - 757,574 9,416,116 162,203 10,335,893 Unassigned 12,011,114 - - - 12,011,114 Total fund balance 12,533,376 780,681 9,416,116 162,203 22,892,376 Total liabilities, deferred inflows of resources, and fund balances 30,482,417 $ 1,932,321 $ 11,680,688 $ 162,203 $ 44,257,629 $ ---PAGE BREAK--- MILLCREEK Reconciliation to the Balance Sheet of Governmental Funds To the Statement of Net Position June 30, 2021 The accompanying notes are an integral part of this financial statement. 14 Amounts reported for governmental activities in the Statement of Net Position are different because: Total Fund Balances - Total Governmental Funds (page 13) 22,892,376 $ Capital assets used in governmental activities are not financial resources and therefore, are not reported in the funds. 155,821,222 Net pension assets and liabilities are not available to pay for current period expenditures and, therefore, are either deferred or not applicable to funds. (181,330) Long-term liabilities, including bonds payable, are not due and payable in the current period and, therefore, are not reported in the funds. (20,217,415) Net Position - Governmental Activities (page 11) 158,314,853 $ ---PAGE BREAK--- MILLCREEK Statement of Revenues, Expenditures, and Changes in Fund Balance – Governmental Funds For the Year Ended June 30, 2021 The accompanying notes are an integral part of this financial statement. 15 Special Revenue Capital Special Revenue Totals Community Projects Park Impact Governmental General Reinvestment Fund (non-major) Funds REVENUES Taxes 25,532,250 $ 151,295 $ - $ - $ 25,683,545 $ Special assessments - - - 162,203 162,203 Licenses and permits 3,475,595 - - - 3,475,595 Charges for services 227,435 10,514 - - 237,949 Intergovernmental 7,434,385 1,084,763 1,900,789 - 10,419,937 Fines and forfeitures 7,515 - - - 7,515 Interest 83,670 23,785 21,051 - 128,506 Miscellaneous 260,113 4,235 - - 264,348 Total revenues 37,020,963 1,274,592 1,921,840 162,203 40,379,598 EXPENDITURES General government 7,399,128 - - - 7,399,128 Public safety 12,213,011 - 12,213,011 Streets and public works 5,764,475 1,418,166 - - 7,182,641 Capital outlay - 6,219,836 5,272,313 11,492,149 Debt service: Interest and fiscal charges 21,067 721,729 - - 742,796 Debt issuance costs 35,500 - - - 35,500 Total expenditures 25,433,181 8,359,731 5,272,313 - 39,065,225 Excess of revenues over (under) expenditures 11,587,782 (7,085,139) (3,350,473) 162,203 1,314,373 OTHER FINANCING SOURCES (USES) Transfers in - - 6,931,183 - 6,931,183 Transfers out (6,155,183) - - - (6,155,183) Total other financing sources (uses) (6,155,183) - 6,931,183 - 776,000 Net change in fund balance 5,432,599 (7,085,139) 3,580,710 162,203 2,090,373 Fund balance, beginning of year 7,100,777 7,865,820 5,835,406 - 20,802,003 Fund balance, end of year 12,533,376 $ 780,681 $ 9,416,116 $ 162,203 $ 22,892,376 $ ---PAGE BREAK--- MILLCREEK Reconciliation of the Statement of Revenues, Expenditures, and Change in Fund Balance of Governmental Funds To the Statement of Activities For the Year Ended June 30, 2021 The accompanying notes are an integral part of this financial statement. 16 Amounts reported for governmental activities in the statement of activities (page 12) are different because: Net change in fund balances - total governmental funds (page 15) 2,090,373 $ Governmental funds report capital outlays as expenditures. However, in the statement of activities the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. This is the amount by which depreciation and asset transfers exceed capital outlays and contributions in the current period. (9,104,946) The issuance of long-term debt bonds, leases) provides current financial resources to governmental funds, while the payment of the principal of long-term debt consumes the current financial resources of governmental funds. Neither transaction, however, has any effect on net position. Repayment of principal on debt is an expenditure in the governmental funds, but the repayment reduces long-term liabilities in the Statement of Net Position. This amount is the net effect of these differences in the treatment of long-term debt and related items. 192,117 Some expenses reported in the statement of activities do not require the use of current financial resources and, therefore, are not reported as expenditures in governmental funds. 51,759 Change in net position - governmental activities (page 12) (6,770,697) $ ---PAGE BREAK--- MILLCREEK Statement of Revenues, Expenditures, and Changes in Fund Balance – Budget to Actual – General Fund For the Year Ended June 30, 2021 The accompanying notes are an integral part of this financial statement. 17 Variance With Final Budget - Original Final Positve Budget Budget Actual (Negative) REVENUES Taxes 20,145,500 $ 25,752,750 $ 25,532,250 $ (220,500) $ Licenses and permits 1,636,500 3,270,150 3,475,595 205,445 Charges for service 55,000 230,000 227,435 (2,565) Intergovernmental 1,745,000 6,019,776 7,434,385 1,414,609 Fines and forfeitures - 7,500 7,515 15 Interest 275,000 110,000 83,670 (26,330) Miscellaneous - 130,959 260,113 129,154 Total revenues 23,857,000 35,521,135 37,020,963 1,499,828 EXPENDITURES General government Mayor and city council 351,500 374,000 351,114 22,886 City management 231,500 169,500 147,923 21,577 Recorder 121,700 119,200 105,733 13,467 Building services 973,500 1,049,000 977,505 71,495 Comunications and programs 415,950 439,750 386,158 53,592 Emergency management 112,750 129,250 106,867 22,383 Justice court 215,000 215,000 208,664 6,336 Legal 482,250 502,250 414,889 87,361 Information center 274,900 286,000 243,685 42,315 IT management 467,000 627,500 563,591 63,909 Economic development 340,200 1,530,300 1,500,812 29,488 Business licenses 152,750 164,750 156,118 8,632 Finance 332,500 380,750 348,007 32,743 Human resources 52,000 54,000 33,271 20,729 Nondepartmental 135,000 188,000 170,679 17,321 Facilities administration 346,500 332,500 309,414 23,086 Facilities 342,500 355,000 290,229 64,771 Fleet 30,500 60,029 53,092 6,937 Planning and zoning 797,500 928,500 893,625 34,875 Promise program 100,000 146,935 137,752 9,183 Public safety 12,055,954 12,221,671 12,213,011 8,660 Streets and public works 6,351,500 6,219,500 5,764,475 455,025 Debt service 211,000 56,567 56,567 - Transfers 61,000 6,221,183 6,155,183 66,000 Total expenditures 24,954,954 32,771,135 31,588,364 1,182,771 Net change in fund balance (1,097,954) 2,750,000 5,432,599 2,682,599 Fund balance, beginning of year 7,100,777 7,100,777 7,100,777 - Fund balance, end of year 6,002,823 $ 9,850,777 $ 12,533,376 $ 2,682,599 $ ---PAGE BREAK--- MILLCREEK Schedule of Revenues, Expenditures, and Changes in Fund Balance – Budget and Actual – Community Reinvestment Agency – Special Revenue Fund For the Year Ended June 30, 2021 The accompanying notes are an integral part of this financial statement. 18 Variance With Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Taxes - $ - $ 151,295 $ 151,295 $ Charges for services - 10,514 10,514 - Intergovernmental 950,000 1,236,058 1,084,763 (151,295) Interest 5,000 200 23,785 23,585 Miscellaneous - 3,358 4,235 877 Total revenue 955,000 1,250,130 1,274,592 24,462 EXPENDITURES Public works 658,000 1,486,916 1,418,166 68,750 Capital outlay 6,139,423 6,219,838 6,219,836 2 Debt service 721,800 721,729 721,729 - Total expenditures 7,519,223 8,428,483 8,359,731 68,752 Excess of revenues over expenditure (6,564,223) (7,178,353) (7,085,139) 93,214 Net change in fund balance (6,564,223) (7,178,353) (7,085,139) 93,214 Fund balance, beginning of year 7,865,820 7,865,820 7,865,820 - Fund balance, end of year 1,301,597 $ 687,467 $ 780,681 $ 93,214 $ ---PAGE BREAK--- MILLCREEK Statement of Net Position – Proprietary Fund June 30, 2021 The accompanying notes are an integral part of this financial statement. 19 Storm Water ASSETS Current assets: Cash and cash equivalents - unrestricted 258,488 $ Receivables: Accounts, net 221,485 Total current assets 479,973 Property, plant and equipment: Infrastructure 20,812,815 Machinery and equipment 63,499 Accumulated depreciation (2,015,000) Net property, plant and equipment 18,861,314 Total assets 19,341,287 DEFERRED OUTFLOWS OF RESOURCES Deferred outflows related to pensions 58,929 Total deferred outflows of resources 58,929 LIABILITIES Current liabilities: Accounts payable 7,218 Compensated absences, current 21,514 Total current liabilities 28,732 Noncurrent liabilities: Compensated absences 3,796 Net pension liability 9,731 Total noncurrent liabilities 13,527 Total liabilities 42,259 DEFERRED INFLOWS OF RESOURCES Deferred inflows related to pensions 69,345 Total deferred inflows of resources 69,345 NET POSITION Net investment in capital assets 18,861,314 Unrestricted 427,298 Total net position 19,288,612 $ ---PAGE BREAK--- MILLCREEK Statement of Revenues, Expenses, and Changes in Fund Net Position – Proprietary Fund For the Year Ended June 30, 2021 The accompanying notes are an integral part of this financial statement. 20 Storm Water OPERATING REVENUES Charges for services 1,858,770 $ Miscellaneous 9,677 Total operating revenues 1,868,447 OPERATING EXPENSES Wages and fringe benefits 355,440 Operations 26,974 Professional services 106,972 Depreciation and amortization 425,921 Other 113,420 Total operating expenses 1,028,727 Operating income 839,720 NON-OPERATING REVENUES (EXPENSES) Interest income 1,156 Total non-operating revenues 1,156 Income before transfers and contributions 840,876 Transfers out (776,000) Capital contributions 19,223,736 Change in net position 19,288,612 Total net position, beginning of year - Total net position, end of year 19,288,612 $ ---PAGE BREAK--- MILLCREEK Statement of Cash Flows – Proprietary Fund For the Year Ended June 30, 2021 The accompanying notes are an integral part of this financial statement. 21 Storm Water Cash flows from operating activities: Cash received from customers (including cash deposits) 1,646,962 $ Cash paid to suppliers (240,148) Cash paid to employees (309,983) Net cash provided by operating activities 1,096,831 Cash flow from capital and related financing activities: Interest income received 1,156 Payments to general fund (776,000) Purchase of capital assets (63,499) Net cash used by capital and related financing activities (838,343) Net increase in cash and cash equivalents 258,488 Cash and cash equivalents at beginning of year - Cash and cash equivalents at end of year 258,488 $ Reconciliation of operating income to net cash provided by operating activities: Operating income 839,720 $ Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation and amortization expense 425,921 Changes in assets and liabilities: Increase in accounts receivable (221,485) Increase in deferred ouflows (58,929) Increase in accounts payable 7,218 Increase in accrued liabilities 25,310 Increase in deferred inflows 69,345 Increase in net pension liability 9,731 Total adjustments 257,111 Net cash provided by operating activities 1,096,831 $ Capital and related financing activities not affecting cash: Contributions of capital assets 19,223,736 $ ---PAGE BREAK--- MILLCREEK Notes to the Financial Statements June 30, 2021 22 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Millcreek, Utah (the City) was incorporated in 2017 under the laws of the State of Utah. The City operates under a Mayor-Council form of government. The City is a municipal corporation governed by an elected five-member Council, which includes the Mayor. The City provides the following services: public safety, highway and streets, public improvements, planning and zoning, and general administrative services. The City’s financial statements are prepared in accordance with generally accepted accounting principles (GAAP). The Governmental Accounting Standards Board (GASB) is responsible for establishing GAAP for state and local governments through its pronouncements (Statements and Interpretations). The accounting policies of the City conform to accounting principles generally accepted in the United States of America as applicable to governmental units. The more significant accounting policies established in GAAP and used by the City are discussed below. Reporting Entity In evaluating how to define the City for financial reporting purposes, management has considered all potential component units. The decision to include a potential component unit in the reporting entity was made by applying the criteria set forth in the related GASB pronouncement. The basic, but not the only, criterion for including a potential component unit within the reporting entity is the governing body's ability to exercise oversight responsibility. The most significant manifestation of this ability is financial interdependency. Other manifestations of the ability to exercise oversight responsibility include, but are not limited to, the selection of governing authority, the designation of management, the ability to significantly influence operations and accountability of fiscal matters. The other criterion used to evaluate potential component units for inclusion or exclusion from the reporting entity is the existence of special financing relationships, regardless of whether the City is able to exercise oversight responsibilities. Component units that do not meet the criteria for being blended into the City’s primary government are reported discretely. Government-Wide Financial Statements and Fund Financial Statements The City’s basic financial statements include both government-wide (reporting the City as a whole) and fund financial statements. The City’s general administrative services, public safety, highways and streets, planning and engineering, and parks are all classified as governmental activities. Storm water collection services are classified as business-type activities. The government-wide financial statements the Statement of Net Position and the Statement of Activities) report information on all activities of the City and its component units. As a general rule, the effect of inter-fund activity has been eliminated from the government-wide financial statements. ---PAGE BREAK--- MILLCREEK Notes to the Financial Statements (Continued) June 30, 2021 23 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Government-Wide Financial Statements and Fund Financial Statements (Continued) The Statement of Activities demonstrates the degree to which the direct expenses of a given function or a segment are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. 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 segment and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues. Separate financial statements are provided for governmental funds and proprietary funds. Major individual governmental funds and proprietary funds are reported as separate columns in the fund financial statements. 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. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. The use of financial resources to acquire capital assets are capitalized as assets in the governmentwide financial statements, rather than reported as expenditure. Proceeds of long-term debt are recorded as a liability in the government-wide financial statements, rather than other financing source. Amounts paid to reduce long-term debt of the City are reported as a reduction of the related liability, rather than an expenditure in the government-wide financial statements. The governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, expenditures related to claims and judgments are recorded only when payment is due. Sales taxes, franchise taxes, and earned but unreimbursed state and federal grants 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. Property taxes are measurable as of the date levied (assessed) and are recognized as revenues when they become available. Available means when due, or past due, and received within the current period or collected soon enough thereafter (within 60 days) to be used to pay liabilities of the current period. All other revenues are considered to be measurable and available only when cash is received by the City. ---PAGE BREAK--- MILLCREEK Notes to the Financial Statements (Continued) June 30, 2021 24 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Measurement Focus, Basis of Accounting, and Financial Statement Presentation (Continued) The accounts of the City are organized on the basis of funds, each of which is considered a separate accounting entity. The operations of each fund are accounted for with a separate set of self-balancing accounts that comprise its assets, liabilities, reserves, fund balance, revenues, and expenditures or expenses as appropriate. The various funds are summarized by type in the financial statements. The following fund types are used by the City: The City reports the following major governmental funds: • The General Fund is the City’s primary operating fund. It accounts for all financial resources of the general government, except those required to be accounted for in another fund. • The Capital Projects Fund accounts for the acquisition and construction of the government’s major capital facilities. • The CRA special revenue fund is used to account for financial resources to be used for the revitalization of blighted areas within the City. This fund is a blended component unit. The City reports the following major proprietary fund: • The Storm Water Fund accounts for the operation and maintenance of the storm water system and capital projects for the storm water system. Additionally, the City reports the following fund type: • Special revenue fund: The City accounts for park impact fees in a special revenue fund. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund’s principal ongoing operations. The principal operating revenues of all enterprise funds are charges to customers for sales and services. Operating expenses for enterprise funds include the cost of sales, services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. When both restricted and unrestricted resources are available for use, it is the government’s policy to use restricted resources first, then unrestricted resources as they are needed. ---PAGE BREAK--- MILLCREEK Notes to the Financial Statements (Continued) June 30, 2021 25 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Budgets Annual budgets are prepared and adopted by ordinance by total for each department, in accordance with State law, by the Mayor and City Council on or before June 22 for the following fiscal year, beginning July 1. Estimated revenues and appropriations may be increased or decreased by resolution of the City Council at any time during the year. A public hearing must be held prior to any proposed increase in a fund's appropriations. Budgets include activities in the General Fund and Special Revenue Funds. Annual budgets are also adopted for Capital Projects Fund which may include activities that overlap several fiscal years. The level of the City's budgetary control (that is, the level at which the City's expenditures cannot legally exceed the appropriated amounts) is established at the department level. Each department head is responsible to the Mayor and City Council for operating within the budget for their department. All annual budgets lapse at fiscal yearend. Utah State law prohibits the appropriation of the sum of unassigned, assigned, and committed General Fund balance until it exceeds 5% of the General Fund revenues. Until the sum of the stated categories of fund balance is greater than the above amount, it cannot be budgeted, but is used to provide working capital until tax revenue is received, to meet emergency expenditures, and to cover unanticipated deficits. Utah State law prohibits the accumulation of the stated fund balance categories in any amount greater than 35% of the current year’s actual revenues. Once adopted, the budget can be amended by subsequent City Council action. The City Council can amend the budget to any extent, provided the budgeted expenditures do not exceed budgeted revenues and appropriated fund balance, in which case a public hearing must be held. With the consent of the Mayor, department heads may reallocate unexpended appropriated balances from one expenditure account to another within that department during the budget year. Budgets for the General Fund, Special Revenue Funds, and Capital Projects Fund are prepared on the modified accrual basis of accounting. Encumbrance accounting is not used by the City. Expenditures in the Capital Projects Fund are budgeted annually on a project-by-project basis. Although it is the intention of the City that each project be funded by a specific revenue source, the adopted budget reflects only total anticipated revenues by source. Since it is not practicable or appropriate to separate revenues and fund balance on a project-by-project basis, the Capital Projects Fund is reported as an individual fund in the accompanying financial statements. Assets, Liabilities, Deferred Outflows/Inflows of Resources, and Net Position/Fund Balance Cash and Cash Equivalents The government’s cash and cash equivalents are considered to be cash on hand, demand deposits, and short-term investments with original maturities of three months or less from the date of acquisition. ---PAGE BREAK--- MILLCREEK Notes to the Financial Statements (Continued) June 30, 2021 26 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Assets, Liabilities, Deferred Outflows/Inflows of Resources, and Net Position/Fund Balance (Continued) Investments City policy allows for the investment of funds in time certificates of deposit with federally insured depositories, investment in the Utah Public Treasurer’s Investment Fund and other investments allowed by the State of Utah’s Money Management Act. Investments are reported at fair value. The State Treasurer’s Investment Fund operates in accordance with state laws and regulations. The reported value of the Fund is the same as the fair value of the Fund shares. 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 or due from other funds”. Advances between funds as reported in the fund financial statements, are offset by a fund balance reserve account in applicable governmental funds to indicate they are not available for appropriation and are not available financial resources. Tax, intergovernmental and other receivables at June 30, 2021, consisted of property tax, sales tax, franchise tax, grants, utility billings, and other miscellaneous items. The utility billings for charged services are billed to customers on a basis. Taxes, grants, and utility charges are deemed collectible in full, so no allowance for uncollectibles is recorded. Restricted Assets Certain assets are classified as restricted because their use is restricted by an independent third party, enabling legislation, or other laws and statutes. These restrictions may include future debt service payments, unexpended portions of bonds issued for capital construction, and other agreements with third parties. Prepaid Items 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. Capital Assets Capital assets, which include property, plant, equipment, and infrastructure assets roads, bridges, sidewalks, and similar items), are reported in the applicable governmental or business-type activities columns in the government-wide financial statements. Capital assets are defined by the City as assets with an individual cost of more than $5,000 and an estimated useful life in excess of three years. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair market value at the date of donation. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets lives are not capitalized. Capital assets are depreciated using the straight-line method over the following estimated useful lives: Infrastructure 50 years Buildings 50 years Machinery and equipment 5 years ---PAGE BREAK--- MILLCREEK Notes to the Financial Statements (Continued) June 30, 2021 27 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Assets, Liabilities, Deferred Outflows/Inflows of Resources, and Net Position/Fund Balance (Continued) Compensated Absences For governmental funds, amounts of vested or accumulated personal time off (PTO) are not expected to be liquidated with expendable available financial resources are reported as liabilities in the government-wide statement of net position and as expenses in the government- wide statement of activities. No expenditures are reported for these amounts in the fund financial statements. Accumulated PTO may be paid to employees upon termination or retirement if approved by the City Manager. Taxes On or before June 22 of each year, the City sets the property tax rate for various municipal purposes. If the City intends to increase property tax revenues above the tax rate of the previous year, state law requires the City to provide public notice to property owners and hold public hearings. When these special public hearings are necessary, the adoption of the final budget is made subsequent to June 22. All property taxes levied by the City are assessed and collected by Salt Lake County. Taxes are levied as of January 1 and due November 30; any delinquent taxes are subject to a penalty. Unless the delinquent taxes and penalties are paid before January 15, a lien is attached to the property, and the amount of taxes and penalties bears interest from January 1 until paid. If after five years, delinquent taxes have not been paid, the County sells the property at a tax sale. Tax collections are remitted to the City from the County on a basis. Sales taxes are collected by the Utah State Tax Commission and remitted to the City Franchise taxes are collected by utility companies and remitted to the City periodically. Pensions For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the Utah Retirement Systems Pension Plan (URS) and additions to/deductions from URS's fiduciary net position have been determined on the same basis as they are reported by URS. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. Deferred Outflows and Inflows of Resources Deferred outflows of resources represent a consumption of net position that applies to a future period, and is, therefore, deferred until that time. A deferred loss on refunding results from the difference in the carrying value of the refunded debt and the reacquisition price. Deferred inflows of resources represent an acquisition of net position that applies to a future period, and is, therefore, deferred until that time. Governmental funds report unavailable revenue from property taxes as deferred inflows of resources until such time they can be recognized as revenue in the period that they become available. ---PAGE BREAK--- MILLCREEK Notes to the Financial Statements (Continued) June 30, 2021 28 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Long-term Obligations In the government-wide financial statements and proprietary fund types, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities, business-type activities, or proprietary fund type statement of net assets. Bond premiums and discounts are deferred and amortized over the life of the applicable debt. In the fund financial statements, governmental fund types recognize bond premiums and discounts as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. Fund Balance Governmental fund balance is reported in five separate categories: Nonspendable, restricted, committed, assigned, and unassigned. When both restricted and unrestricted fund balance is available for use, it is the City’s policy to use restricted fund balance first. When expenditures qualify for more than one unrestricted fund balance classification, it is the City’s policy to use resources in the following order: Committed, assigned, and then unassigned. Inter-fund Transactions During the course of normal operations, the City has transactions between funds to construct assets, to distribute grant proceeds, etc. These transactions are generally reflected as transfers, which are transfers from a fund authorized to receive certain revenues to the fund through which the resources are to be expended. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues, expenditures and expenses during the reporting period. Actual results could differ from those estimates. 2. RECONCILIATION OF GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS Explanation of Certain Differences Between the Governmental Funds Balance Sheet and the Government-Wide Statement of Net Position The governmental fund balance sheet includes a reconciliation between total governmental fund balances and net position of governmental activities as reported in the government-wide statement of net position. This difference primarily results from the long-term economic focus of the statement of net position versus the current financial resources focus of the governmental funds balance sheet. ---PAGE BREAK--- MILLCREEK Notes to the Financial Statements (Continued) June 30, 2021 29 2. RECONCILIATION OF GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS (CONTINUED) Explanation of Certain Differences Between the Governmental Funds Balance Sheet and the Government-Wide Statement of Net Position (Continued) Capital related items: When capital assets (property, plant and equipment) that are to be used in governmental activities are purchased or constructed, the costs of those assets are reported as expenditures in governmental funds. However, the statement of net position includes those capital assets among the assets of the City as a whole. Cost of capital assets 162,425,087 $ Accumulated depreciation (6,603,865) Capital assets, net 155,821,222 $ Long-term debt transactions: Long-term liabilities applicable to the City’s governmental activities are not due and payable in the current period and accordingly are not reported as fund liabilities in the fund financials. All liabilities (both current and long-term) are reported in the statement of net position. Balances at June 30, 2021 were: Sales Tax Revenue bonds 17,345,000 $ Premiums 2,616,188 Interest payable on long-term debt 60,150 Compensated absences 196,077 20,217,415 $ ---PAGE BREAK--- MILLCREEK Notes to the Financial Statements (Continued) June 30, 2021 30 2. RECONCILIATION OF GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS (CONTINUED) Explanation of Certain Differences Between Governmental Funds Operating Statements and the Statement of Net Activities The governmental funds statement of revenues, expenditures, and change in fund balances includes a reconciliation between net change in fund balances - total governmental funds and change in net position of governmental activities as reported in the government-wide statement of activities. The first element of this reconciliation states that capital outlays and contributions are reported in the governmental fund as expenditures while the government-wide statement of activities allocates these costs over the useful lives of the assets as depreciation. While shown in the reconciliation as the net difference, the elements of this difference are as follow: Capital outlays and contributions 11,546,764 $ Transfer of assets to storm water fund (19,223,736) Depreciation expense (1,423,132) Loss on disposal of assets (4,842) Net difference, as reported (9,104,946) $ 3. DEPOSITS AND INVESTMENTS The City maintains a cash and investment pool that is available for use by all funds. Cash includes amounts in demand deposits and cash on hand. Investments are stated at cost, which approximates fair value. Each fund’s portion of this pool is displayed on the combined balance sheet as “cash and cash equivalents,” which also includes cash accounts that are separately held by several of the City’s funds. As of June 30, 2021, the City’s demand deposits and cash on hand amounted to $28,644,437. Deposits – Utah State law requires that City funds be deposited with a "qualified depository" as defined by the Utah Money Management Act. "Qualified depository" includes any depository institution which has been certified by the Utah State Commissioner of Financial Institutions as having met the requirements as defined in Rule 11 of the Utah Money Management Act. Rule 11 establishes the formula for determining the amount of public funds which a qualified depository may hold in order to minimize risk of loss and defines capital requirements which an institution must maintain to be eligible to accept public funds. Investments – The State of Utah Money Management Council has the responsibility to advise the State Treasurer about investment policies, promote measures and rules that will assist in strengthening the banking and credit structure of the state, and review the rules adopted under the authority of the State of Utah Money Management Act (UMMA) that relate to the deposit and investment of public funds. ---PAGE BREAK--- MILLCREEK Notes to the Financial Statements (Continued) June 30, 2021 31 3. DEPOSITS AND INVESTMENTS (CONTINUED) The City follows the requirements of UMMA (Utah Code, Title 51, Chapter 7) in handling its depository and investment transactions. The Act requires the depositing of City funds in a qualified depository, which is defined as a financial institution whose deposits are insured by an agency of the Federal Government and which has been certified by the State Commissioner of Financial Institutions as meeting the requirements of the Act and adhering to the rules of the Utah Money Management Council. UMMA defines types of securities authorized as appropriate investments for the City’s funds and the conditions for making investment transactions. Investment transactions may be conducted only through qualified depositories, certified dealers, or directly with issuers of the investment securities. Statutes authorize the City to invest in negotiable or nonnegotiable deposits of qualified depositories and permitted negotiable depositories; repurchase and reverse repurchase agreements; commercial paper that is classified as “first tier” by two nationally recognized statistical rating organizations; bankers’ acceptances; obligations of the United States Treasury including bills, notes, and bonds; obligations, other than mortgage derivative products, issued by U.S. government sponsored enterprises (U.S. Agencies) such as the Federal Home Loan Bank System, Federal Home Loan Mortgage Corporation (Freddie Mac), and Federal National Mortgage Association (Fannie Mae); bonds, notes, and other evidence of indebtedness of political subdivisions of the State; fixed rate corporate obligations and variable rate securities rated or higher, or the equivalent of or higher, by two nationally recognized statistical rating organizations; shares or certificates in a money market mutual fund as defined in UMMA; and the Utah State Public Treasurers’ Investment Fund. The City has complied with the UMMA and rules of the Money Management Council with regard to deposits and investments. The City has a separate deposit and investment policy which requires City to follow UMMA. The Utah State Treasurer’s Office operates the Public Treasurers’ Investment Fund (PTIF). The PTIF is available for investment of funds administered by any Utah public treasurer and is not registered with the SEC as an investment company. The PTIF is authorized and regulated by UMMA. The Act established the Money Management Council which oversees the activities of the State Treasurer and the PTIF and details the types of authorized investments. Deposits in the PTIF are not insured or otherwise guaranteed by the State of Utah, and participants share proportionally in any realized gains or losses on investments. The PTIF operates and reports to participants on an amortized cost basis. The income, gains, and losses of the PTIF, net of administration fees, are allocated based upon the participant’s average daily balance. The fair value of the PTIF investment pool is approximately equal to the value of the pool shares. ---PAGE BREAK--- MILLCREEK Notes to the Financial Statements (Continued) June 30, 2021 32 3. DEPOSITS AND INVESTMENTS (CONTINUED) Fair Value of Investments The City measures and records its investments using fair value measurement guidelines established by generally accepted accounting principles. These guidelines recognize a three-tiered fair value hierarchy, as follows: • Level 1: Financial instruments with unadjusted, quoted prices listed on active market exchanges. • Level 2: Financial instruments lacking unadjusted, quoted prices from active market exchanges, including over-the-counter traded financial instruments. The prices for the financial instruments are determined using prices for recently traded financial instruments with similar underlying terms as well as directly or indirectly observable inputs, such as interest rates and yield curves that are observable at commonly quoted intervals. • Level 3: Financial instruments that are not actively traded on a market exchange. This category includes situations where there is little, if any, market activity for the financial instruments. The prices are determined using significant unobservable inputs or valuation techniques. Quoted prices for identical investments in active markets. At June 30, 2021, the City had the following recurring fair value measurements. 06/30/21 Level 1 Level 2 Level 3 Debt Securities PTIF 28,257,414 $ - $ 28,257,414 $ - $ Total debt securities 28,257,414 $ - $ 28,257,414 $ - $ Fair Value Measurements Using The City’s cash and cash equivalents and investments are exposed to certain risks as outlined below: Custodial credit risk – deposits is the risk that in the event of a bank failure, the City’s deposits may not be returned. As of June 30, 2021, $113,916 of the City’s $363,916 balance of deposits was exposed to custodial credit risk because it was uninsured and uncollateralized. UMMA does not require deposits to be insured or collateralized and the City has no formal policy regarding deposit credit risk. UMMA requires that the City keep deposits in a qualified depository, which the City has done. Custodial credit risk – investments is the risk that in the event of the failure of the counterparty, the City will not be able to recover the value of its investments that are in the possession of an outside party. Of the City’s investment in the PTIF of $28,257,414, the City has no custodial credit risk exposure as the PTIF is an external investment pool managed by the Utah State Treasurer and is not categorized as to custodial credit risk. ---PAGE BREAK--- MILLCREEK Notes to the Financial Statements (Continued) June 30, 2021 33 3. DEPOSITS AND INVESTMENTS (CONTINUED) Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The City’s policy for limiting the credit risks of investments is to comply with UMMA. Interest rate risk is the risk that changes in the interest rates will adversely affect the fair value of an investment. The City has no formal policy relating to specific investment-related interest rate risk. The City manages its exposure by investing mainly in the PTIF and by adhering to UMMA. The Act requires that the remaining term to maturity may not exceed the period of availability of the funds to be invested. The Act further limits the remaining term to maturity on all investments in commercial paper, bankers’ acceptances, fixed rate negotiable deposits, and fixed rate corporate obligations to 270 days - 15 months or less. The Act further limits the remaining term to maturity on all investments in obligations of the United States Treasury; obligations issued by U.S. government sponsored enterprises; and bonds, notes, and other evidence of indebtedness of political subdivisions of the State to 5 years. In addition, variable rate negotiable deposits and variable rate securities may not have a remaining term to final maturity exceeding 3 years. As of June 30, 2021, the City’s investments had the following maturities and ratings: Investment Type Fair Value Less Than 1 1-5 Quality Ratings PTIF 28,257,414 $ 28,257,414 $ - $ Unrated 28,257,414 $ 28,257,414 $ - $ Investment Maturities (in Years) Concentration of credit risk is the risk of loss attributed to the magnitude of a City’s investment in a single issuer. The City’s policy for reducing this risk of loss is to comply with the rules of the Money management Council. Rule 17 of the Money Management Council limits investments in a single issuer of commercial paper and corporate obligations to 5-10% depending upon the total dollar amount held in the portfolio. The City’s investment in the PTIF has no concentration of credit risk as the PTIF is an external investment pool managed by the Utah State Treasurer. The PTIF invests in high-grade securities which are delivered to the custody of the Utah State Treasurer, assuring a perfected interest in the securities, and, therefore, there is very little credit risk except in the most unusual and unforeseen circumstances. The maximum weighted average life of the portfolio does not exceed 90 days. Twice a year, at June 30 and December 31, which are the accounting periods for public entities, the investments are valued at fair value and participants are informed of the fair value valuation factor. Additional information is available at the Utah State Treasurers’ Office. The City did not enter into any reverse repurchase agreements during the year. Bond deposits are held by an appointed trustee in accordance with the Bond Resolutions. Repurchase agreements are secured by uninsured, unregistered securities held by the counter party but not in the City’s name. ---PAGE BREAK--- MILLCREEK Notes to the Financial Statements (Continued) June 30, 2021 34 4. ACCOUNTS RECEIVABLE Receivables as of June 30, 2021 for the City’s individual major funds, including the applicable allowances for uncollectible accounts, are as follows: Special General Revenue Fund Storm Water Fund Total Receivables: Taxes 14,198,542 $ 1,150,876 $ - 15,349,418 $ Accounts and others - - 221,485 221,485 Intergovernmental 516,262 - - 516,262 Gross receivables 14,714,804 1,150,876 221,485 16,087,165 Less: allowance for uncollectibles - - - - Net total receivables 14,714,804 $ 1,150,876 $ 221,485 $ 16,087,165 $ Governmental funds report deferred revenue as deferred inflows of resources in connection with receivables for revenues that are not considered to be available to liquidate liabilities of the current period. Governmental funds also defer revenue recognition in connection with resources that have been received, but not yet earned. At June 30, 2021, the various components of deferred revenue and unearned revenue reported in the government funds were as follows: Deferred Inflows of Resources Unearned Property taxes receivable 11,075,860 $ - $ Property taxes receivable (CRA) 1,150,000 - ARPA funds - 3,989,825 Total deferred inflows of resources/ unearned revenue, governmental funds 12,225,860 $ 3,989,825 $ ---PAGE BREAK--- MILLCREEK Notes to the Financial Statements (Continued) June 30, 2021 35 5. CAPITAL ASSETS Capital asset activity for the year ended June 30, 2021 was as follows: 7/1/20 Increases Transfers Decreases 6/30/21 Governmental activities Capital assets: Land 85,847,988 $ 6,219,836 $ - $ - $ 92,067,824 $ Buildings 1,149,259 - - - 1,149,259 Improvements 1,756,065 4,527,860 - - 6,283,925 Infrastructure 82,440,971 732,769 (20,812,815) - 62,360,925 Machinery and equipment 513,313 66,299 - (16,458) 563,154 Total capital assets 171,707,596 11,546,764 (20,812,815) (16,458) 162,425,087 Accumulated depreciation: Buildings (43,446) (22,985) - - (66,431) Improvements (14,472) (53,324) - 11,616 (56,180) Infrastructure (6,493,535) (1,243,899) 1,589,079 - (6,148,355) Machinery and equipment (229,975) (102,924) - - (332,899) Total accumulated depreciation (6,781,428) (1,423,132) 1,589,079 11,616 (6,603,865) Net governmental capital assets 164,926,168 $ 10,123,632 $ (19,223,736) $ (4,842) $ 155,821,222 $ 7/1/20 Increases Transfers Decreases 6/30/21 Business-type activities Capital assets: Storm water infrastructure - $ - $ 20,812,815 $ - $ 20,812,815 $ Equipment - 63,499 - - 63,499 Total capital assets - 63,499 20,812,815 - 20,876,314 Accumulated depreciation: Storm water infrastructure - (413,607) (1,589,079) - (2,002,686) Equipment - (12,314) - - (12,314) Total accumulated depreciation - (425,921) (1,589,079) - (2,015,000) Net business-type capital assets - $ (362,422) $ 19,223,736 $ - $ 18,861,314 $ In the government-wide financial statements depreciation was charged as follows by program or activity: Governmental activities: General government 179,233 $ Highways and public improvements 1,243,899 Total depreciation expense - governmental activities 1,423,132 $ Business-type activities: Storm water 425,921 $ ---PAGE BREAK--- MILLCREEK Notes to the Financial Statements (Continued) June 30, 2021 36 6. SHORT-TERM DEBT – TAX AND REVENUE ANTICIPATION NOTES The City issues tax and revenue anticipation notes in advance of property tax and other revenue collections, depositing the proceeds in its general fund. These notes are necessary because the City’s payments for contract services are made throughout the year, whereas property tax collections are received primarily in November and December. Short-term debt activity for the year ended June 30, 2021 was as follows: 7/1/20 Issued Redeemed 6/30/21 Tax and revenue anticipation notes - $ 6,035,000 $ (6,035,000) $ - $ The City does not plan on issuing any additional tax and revenue anticipation notes going forward. 7. LONG-TERM DEBT Changes in Long-Term Liabilities Long-term liability activity for the year ended June 30, 2021 was as follows: 7/1/20 Additions Reductions 6/30/21 Due in One Year Governmental activities Bonds payable: Sales tax revenue 17,345,000 $ - $ - $ 17,345,000 $ - $ Premium 2,758,244 - (142,056) 2,616,188 - Total bonds payable 20,103,244 - (142,056) 19,961,188 - Compensated absences 246,138 218,025 (268,086) 196,077 166,665 Net pension liability 648,162 - (560,576) 87,586 - Governmental activity long-term liabilities 20,997,544 $ 218,025 $ (970,718) $ 20,244,851 $ 166,665 $ 7/1/20 Additions Reductions 6/30/21 Due in One Year Business-type activities Compensated absences - $ 29,941 $ (4,631) $ 25,310 $ 21,514 $ Net pension liability - 9,731 - 9,731 - Business-type activity long-term liabilities - $ 39,672 $ (4,631) $ 35,041 $ 21,514 $ ---PAGE BREAK--- MILLCREEK Notes to the Financial Statements (Continued) June 30, 2021 37 7. LONG-TERM DEBT (CONTINUED) Revenue Bonds Bond Description Original Issue Annual Principal Interest Rate Final Due Date Outstanding as of 6/30/21 Sales Tax Revenue $140,000 to Bonds, Series 2019 17,345,000 $ $1,770,000 4% to 5% 12/1/39 17,345,000 $ 17,345,000 $ 17,345,000 $ On July 30, 2019, the City issued Sales Tax Revenue Bonds Series 2019 in the amount of $17,345,000. The bonds were sold at a premium of $2,888,462 with an underwriter’s discount and bond issuance costs totaling $233,462, resulting in total proceeds of $20,000,000. The bonds were issued for the acquisition and improvement of property within the City’s reinvestment area. Revenue bond debt service requirements to maturity are as follows: Principal Interest Total - $ 721,800 $ 721,800 $ - 721,800 721,800 - 721,800 721,800 140,000 718,300 858,300 280,000 707,800 987,800 2027 - 2031 3,385,000 3,161,400 6,546,400 2032 - 2036 6,860,000 2,054,000 8,914,000 2037 - 2040 6,680,000 547,800 7,227,800 17,345,000 $ 9,354,700 $ 26,699,700 $ 2022 2023 2024 2025 2026 8. RETIREMENT SYSTEMS AND PENSION PLANS General Information About the Pension Plan Plan Description Eligible plan participants are provided with pensions through the Utah Retirement Systems. The Utah Retirement Systems are comprised of the following pension trust funds: Public Employees Noncontributory Retirement System (Noncontributory System); is a multiple employer, cost sharing, public employee retirement system. Tier 2 Public Employees Contributory Retirement System (Tier 2 Public Employees System) is a multiple employer, cost sharing, public employee retirement system. ---PAGE BREAK--- MILLCREEK Notes to the Financial Statements (Continued) June 30, 2021 38 8. RETIREMENT SYSTEMS AND PENSION PLANS (CONTINUED) The Tier 2 Public Employees System became effective July 1, 2011. All eligible employees beginning work on or after July 1, 2011, who has no previous service credit with any of the Utah Retirement Systems, are members of the Tier 2 Retirement System. The Utah Retirement Systems (Systems) are established and governed by the respective sections of Title 49 of the Utah Code Annotated 1953, as amended. The Systems’ defined benefit plans are amended statutorily by the State Legislature. The Utah State Retirement Office Act in Title 49 provides for the administration of the Systems under the direction of the Board, whose members are appointed by the Governor. The Systems are fiduciary funds defined as pension (and other employee benefit) trust funds. URS is a component unit of the State of Utah. Title 49 of the Utah Code grants the authority to establish and amend the benefit terms. URS issues a publicly available financial report that can be obtained by writing Utah Retirement System, 560 E 200 S, Salt Lake City, Utah 84102 or visiting the website: www.urs.org/general/publications. Summary of Benefits by System URS provides retirement, disability, and death benefits. Retirement benefits are as follows: System Final Average Salary Years of Service Required and/or Age Eligible for Benefit Benefit Percent Per Year of Service COLA** Noncontributory System Highest 3 years 30 years any age 25 years any age* 20 years age 60* 2.0% per year all years Up to 4% 10 years age 62* 4 years age 65 Tier 2 Public Employees System Highest 5 years 35 years any age 20 years any age 60* 1.5% per year all years Up to 10 years age 62* 2.50% 4 years age 65 *with actuarial reductions **All post-retirement cost-of-living adjustments are non-compounding and are based on the original benefit except for Judges, which is a compounding benefit. The cost-of-living adjustments are also limited to the actual Consumer Price Index (CPI) increase for the year, although unused CPI increases not met may be carried forward to subsequent years. Contribution Rate Summary As a condition of participation in the Systems, employers and/or employees are required to contribute certain percentages of salary and wages as authorized by statute and specified by the URS Board. Contributions are actuarially determined as an amount that, when combined with employee contributions (where applicable), is expected to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded actuarial accrued liability. Contribution rates as of June 30, 2021 are as follows: ---PAGE BREAK--- MILLCREEK Notes to the Financial Statements (Continued) June 30, 2021 39 8. RETIREMENT SYSTEMS AND PENSION PLANS (CONTINUED) Contribution Rate Summary (Continued) Employer Employer Employee Contribution Rate for Paid Rates 401(k) Plan Contributory System 111- Local Governmental Division Tier 2 N/A 15.80% 0.89% Noncontributory System 15- Local Governmental Division Tier 1 N/A 18.47% N/A Tier 2 DC Only 211 - Local Government N/A 6.69% 10.00% Tier 2 rates include a statutory required contribution to finance the unfunded actuarial accrued liability of the Tier 1 plans. For fiscal year ended June 30, 2021, the employer and employee contributions to the System were as follows: Employer Employee System Contributions Contributions y y , Tier 2 Public Employees System 142,376 - Tier 2 DC Only System 24,831 N/A Total Contributions 420,451 $ - $ Contributions reported are the URS Board-approved required contributions by System. Contributions in the Tier 2 Systems are used to finance the unfunded liabilities in the Tier 1 Systems. Combined Pension Assets, Liabilities, Expense, and Deferred Outflows and Inflows of Resources Relating to Pensions At June 30, 2021, the City reported a net pension asset of $0 and a net pension liability of $97,317. Net Net Proportionate Pension Pension Proportionate Share Asset Liability Share December 31, 2019 Change Noncontributory System - $ 89,870 $ 0.1752062% 0.1684213% 0.0067849% Tier 2 Public Employees System - 7,447 0.0517776% 0.0595987% -0.0078211% Total Net Pension Asset / Liability - $ 97,317 $ (Measurement Date): December 31, 2020 ---PAGE BREAK--- MILLCREEK Notes to the Financial Statements (Continued) June 30, 2021 40 8. RETIREMENT SYSTEMS AND PENSION PLANS (CONTINUED) Combined Pension Assets, Liabilities, Expense, and Deferred Outflows and Inflows of Resources Relating to Pensions (Continued) The net pension asset and liability was measured as of December 31, 2020, and the total pension liability used to calculate the net pension asset and liability was determined by an actuarial valuation as of January 1, 2020 and rolled-forward using generally accepted actuarial procedures. The proportion of the net pension asset and liability is equal to the ratio of the employer’s actual contributions to the Systems during the plan year over the total of all employer contributions to the System during the plan year. For the year ended June 30, 2021, the City recognized pension expense of $388,306. At June 30, 2021, the City reported deferred outflows of resources and deferred inflows of resources relating to pensions from the following sources: Deferred Deferred Outflows of Inflows of Resources Resources Differences between expected and actual experience 127,423 $ 3,410 $ Changes in assumptions 9,420 12,027 Net difference between projected and actual earnings on pension plan investments - 678,009 Changes in proportion and differences between contributions and proportionate share of contributions 237,545 - Contributions subsequent to the measurement date 214,898 - Total 589,286 $ 693,446 $ $214,898 reported as deferred outflows of resources related to pensions results from contributions made by the City prior to the fiscal year end, but subsequent to the measurement date of December 31, 2020. These contributions will be recognized as a reduction of the net pension liability in the upcoming fiscal year. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions, will be recognized in pension expense as follows: Year Ended December 31, Net Deferred Outflows (Inflows) of Resources 2021 27,758 $ 2022 (23,076) 2023 (230,715) 2024 (110,077) 2025 2,732 Thereafter 14,320 ---PAGE BREAK--- MILLCREEK Notes to the Financial Statements (Continued) June 30, 2021 41 8. RETIREMENT SYSTEMS AND PENSION PLANS (CONTINUED) Noncontributory System Pension Expense and Deferred Outflows and Inflows of Resources For the year ended June 30, 2021, the City recognized pension expense of $315,203. At June 30, 2021, the City reported deferred outflows of resources and deferred inflows of resources relating to pensions from the following sources: Deferred Deferred Outflows of Inflows of Resources Resources Differences between expected and actual experience 120,568 $ - $ Changes in assumptions - 11,756 Net difference between projected and actual earnings on pension plan investments - 656,241 Changes in proportion and differences between contributions and proportionate share of contributions 222,979 - Contributions subsequent to the measurement date 128,804 - Total 472,351 $ 667,997 $ $128,804 reported as deferred outflows of resources related to pensions results from contributions made by the City prior to the fiscal year end, but subsequent to the measurement date of December 31, 2020. These contributions will be recognized as a reduction of the net pension liability in the upcoming fiscal year. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions, will be recognized in pension expense as follows: Year Ended December 31, Net Deferred Outflows (Inflows) of Resources 2021 31,281 $ 2022 (21,082) 2023 (225,853) 2024 (108,796) 2025 - Thereafter - ---PAGE BREAK--- MILLCREEK Notes to the Financial Statements (Continued) June 30, 2021 42 8. RETIREMENT SYSTEMS AND PENSION PLANS (CONTINUED) Tier 2 Public Employees System Pension Expense and Deferred Outflows and Inflows of Resources For the year ended June 30, 2021, the City recognized pension expense of $73,102. At June 30, 2021, the City reported deferred outflows of resources and deferred inflows of resources relating to pensions from the following sources: Deferred Deferred Outflows of Inflows of Resources Resources Differences between expected and actual experience 6,855 $ 3,410 $ Changes in assumptions 9,420 271 Net difference between projected and actual earnings on pension plan investments - 21,768 Changes in proportion and differences between contributions and proportionate share of contributions 14,567 - Contributions subsequent to the measurement date 86,094 - Total 116,936 $ 25,449 $ $86,094 reported as deferred outflows of resources related to pensions results from contributions made by the City prior to the fiscal year end, but subsequent to the measurement date of December 31, 2020. These contributions will be recognized as a reduction of the net pension liability in the upcoming fiscal year. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions, will be recognized in pension expense as follows: Year Ended December 31, Net Deferred Outflows (Inflows) of Resources 2021 (3,523) $ 2022 (1,994) 2023 (4,863) 2024 (1,281) 2025 2,732 Thereafter 14,320 ---PAGE BREAK--- MILLCREEK Notes to the Financial Statements (Continued) June 30, 2021 43 8. RETIREMENT SYSTEMS AND PENSION PLANS (CONTINUED) Actuarial Assumptions The total pension liability in December 31, 2020 actuarial valuation was determined using the following actuarial assumptions, applied to all periods included in the measurement: Inflation 2.50 percent Salary increases 3.25 - 9.75 percent, average, including inflation Investment rate of return 6.95 percent, net of pension plan investment expense, including inflation Mortality rates were developed from actual experience and mortality tables based on gender, occupation and age as appropriate, with adjustments for future improvement in mortality based on Scale AA, a model developed by the Society of Actuaries. The actuarial assumptions used in the January 1, 2020 valuation were based on the results of an actuarial experience study for the five-year period ending December 31, 2019. The long-term expected rate of return of pension plan investments was determined using a building- block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. The target allocation and best estimates of arithmetic real rates of return or each major asset class are summarized in the following table: Real Return Long-Term Expected Target Asset Arithmetic Portfolio Real Asset Class Allocation Basis Rate of Return Equity securities 37% 6.30% 2.33% Debt securities 20% 0.00% 0.00% Real assets 15% 6.19% 0.93% Private equity 12% 9.50% 1.14% Absolute return 16% 2.75% 0.44% Cash and cash equivalents 0% 0.00% 0.00% Totals 100% 4.84% Inflation 2.50% Expected arithmetic nominal return 7.34% Expected Return Arithmetic Basis The 6.95% assumed investment rate of return is comprised of an inflation rate of 2.50% and a real return of 4.45% that is net of investment expense. ---PAGE BREAK--- MILLCREEK Notes to the Financial Statements (Continued) June 30, 2021 44 8. RETIREMENT SYSTEMS AND PENSION PLANS (CONTINUED) Discount Rate The discount rate used to measure the total pension liability was 6.95 percent. The projection of cash flows used to determine the discount rate assumed that employee contributions will be made at the current contribution rate and that contributions from all participating employers will be made at contractually required rates that are actuarially determined and certified by the URS Board. Based on those assumptions, the pension plan’s fiduciary net position was projected to be available to make all projected future benefit payments of current active and inactive employees. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. The discount rate does not use the Municipal Bond Index Rate. The discount rate was of 6.95 percent was unchanged from the prior measurement period. Sensitivity to the Proportionate Share of the Net Pension Asset and Liability to Changes in the Discount Rate The following presents the proportionate share of the net pension liability calculated using the discount rate of 6.95 percent, as well as what the proportionate share of the net pension liability would be if it were calculated using a discount rate that is 1-percentage-point lower (5.95 percent) or 1-percentage-point higher (7.95 percent) than the current rate: 1% Discount 1% Decrease Rate Increase System (5.95%) (6.95%) (7.95%) Noncontributory System 1,558,092 $ 89,870 $ (1,134,113) $ Tier 2 Public Employees System 125,312 7,447 (82,716) Total 1,683,404 $ 97,317 $ (1,216,829) $ Defined Contribution Savings Plans The Defined Contribution Savings Plans are administered by the Utah Retirement Systems Board and are generally supplemental plans to the basic retirement benefits of the Retirement Systems but may also be used as a primary retirement plan. These plans are voluntary tax-advantaged retirement savings programs authorized under sections 401(k), 457(b) and 408 of the Internal Revenue Code. Detailed information regarding plan provisions is available in the separately issued URS financial report. Millcreek City participates in the following Defined Contribution Savings Plans with Utah Retirement Systems: • 401(k) Plan • 457(b) Plan • Roth IRA Plan ---PAGE BREAK--- MILLCREEK Notes to the Financial Statements (Continued) June 30, 2021 45 8. RETIREMENT SYSTEMS AND PENSION PLANS (CONTINUED) Defined Contribution Savings Plans (Continued) Employee and employer contributions to the Utah Retirement Defined Contribution Savings Plans for fiscal year ended June 30 were as follows: 2021 2020 2019 401(k) Plan* Employer contributions 261,357 $ 260,538 $ 214,189 $ Employee contributions 193,126 174,862 143,063 457 Plan Employer contributions - - - Employee contributions 34,700 28,400 12,552 Roth IRA Plan Employer contributions N/A N/A N/A Employee contributions 4,810 5,510 7,405 * The employer paid 401(k) contributions include the totals paid for employees in the Tier 2 Defined Contribution 401(k) Plan. 9. COMMITMENTS The City has entered into several contracts with other governmental agencies to provide various services. These services include Public Safety (police and animal services) and Public Works. The term of each of these contracts is one year or less. 10. CONTINGENT LIABILITIES The City is involved in various claims and legal actions arising in the ordinary course of events. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the City’s financial position or results of operations. 11. RISK MANAGEMENT The City is exposed to various risks of loss related to torts; theft of; damage to and destruction of assets; errors and omissions and natural disasters. The City participates in the Utah Local Government Insurance Trust, a public entity risk pool to manage its risk of loss. The City pays an annual premium to the trust for its general insurance coverage. The Trust was created to be self- sustaining through member premiums and will reinsure through commercial companies for claims in excess of one million dollars for each insured event. As of June 30, 2021, there were no outstanding unpaid claims for the City. Also, the City had no claim settlements during the three years ending June 30, 2021 which exceeded its insurance coverage. The City also has fidelity bond coverage with a private carrier. ---PAGE BREAK--- MILLCREEK Notes to the Financial Statements (Continued) June 30, 2021 46 12. TRANSFERS RECONCILIATION Transfers among the funds for the year ended June 30, 2021 are described below. Transfers are made to meet the ongoing needs of the City to complete various projects. In Out General Fund - $ 6,155,183 $ Capital Projects Fund 6,931,183 - Storm Water Fund - 776,000 Totals 6,931,183 $ 6,931,183 $ 13. FEDERAL FUNDING RELATED TO COVID-19 In response to the COVID-19 Pandemic, the federal government provided several funding opportunities to local government entities. Specifically, the City has received allocations from the Coronavirus Aid, Relief, and Economic Security (CARES) Act and the American Rescue Plan Act (ARPA). During fiscal year 2021, the City received $3,770,034 from the CARES Act Coronavirus Relief Fund (CRF) via Salt Lake County. The funds were used to pay for public safety service expenses, to help support local businesses, and to facilitate a safe working environment for City employees. Additionally, the City received $3,989,825 from the ARPA State and Local Fiscal Recovery Fund during fiscal year 2021. The entire amount has been reported as unearned revenue as none of the funds were spent in fiscal year 2021. 14. SUBSEQUENT EVENTS On August 5, 2021, the City issued Sales Tax Revenue Bonds Series 2021 in the amount of $36,265,000. The bonds were sold at a premium of $3,105,424 with an underwriter’s discount and bond issuance costs totaling $370,424, resulting in total proceeds of $39,000,000. The bonds were issued to finance the cost of new City offices and a community building, including land acquisition and construction, and all other related improvements. ---PAGE BREAK--- MILLCREEK Schedule of Revenues, Expenditures, and Changes in Fund Balance – Budget and Actual – Capital Projects Fund For the Year Ended June 30, 2021 47 Variance With Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Interest 25,000 $ 5,000 $ 21,051 $ 16,051 $ Miscellaneous - 1,900,789 - (1,900,789) Total revenues 25,000 1,905,789 1,921,840 16,051 EXPENDITURES Capital outlay 3,924,597 11,736,569 5,272,313 6,464,256 Total expenditures 3,924,597 11,736,569 5,272,313 6,464,256 Excess (deficiency) of revenues over (under) expenditures (3,899,597) (9,830,780) (3,350,473) 6,480,307 OTHER FINANCING SOURCES Transfers in - 6,931,183 6,931,183 - Transfers out - (1,000,000) - 1,000,000 Total other financing sources - 5,931,183 6,931,183 1,000,000 Net change in fund balance (3,899,597) (3,899,597) 3,580,710 7,480,307 Fund balance at beginning of year 5,835,406 5,835,406 5,835,406 - Fund balance at end of year 1,935,809 $ 1,935,809 $ 9,416,116 $ 7,480,307 $ ---PAGE BREAK--- MILLCREEK Schedule of Revenues, Expenditures, and Changes in Fund Balance – Budget and Actual – Park Impact Special Revenue Fund For the Year Ended June 30, 2021 48 Variance With Final Budget Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Special assessments - $ - $ 162,203 $ 162,203 $ Total revenues - - 162,203 162,203 Net change in fund balance - - 162,203 162,203 Fund balance at beginning of year - - - - Fund balance at end of year - $ - $ 162,203 $ 162,203 $ ---PAGE BREAK--- MILLCREEK Schedule of the Proportionate Share of the Net Pension Liability Last Ten Fiscal Years 49 Proportionate Share Plan Fiduciary Proportionate of the Net Pension Net Position as Proportion of Share of the Liability (Asset) as a Percentage As of Net Pension Net Pension Covered a Percentage of its of its Covered December 31, Liability (Asset) Liability (Asset) Payroll Covered Payroll Payroll Noncontributory System 2018 0.1140939% 840,156 $ 920,290 $ 91.29% 87.00% 2019 0.1684213% 634,758 1,297,950 48.90% 93.70% 2020 0.1752062% 89,871 1,329,498 6.76% 99.20% Tier 2 Public Employees System 2018 0.0350169% 14,997 $ 406,399 $ 3.69% 90.80% 2019 0.0595987% 13,404 828,342 1.62% 96.50% 2020 0.0517776% 7,447 827,639 0.90% 98.30% Note: * This schedule usually covers the 10 most recent fiscal years; however, this is the information available as of the implementation year of GASB 68. ---PAGE BREAK--- MILLCREEK Schedule of Pension Contributions Last Ten Fiscal Years 50 Contributions in Relation to the Contributions As of fiscal Actuarial Contractually Contribution as a Percentage year ended Determined Required Deficiency Covered of Covered June 30, Contributions Contribution (Excess) Payroll Payroll Noncontributory System 2018 83,431 $ 83,431 $ - $ 451,711 $ 18.47% 2019 214,893 214,893 - 1,165,396 18.44% 2020 246,160 246,160 - 1,332,755 18.47% 2021 253,244 253,244 - 1,371,109 18.47% Tier 2 Public Employees System* 2018 28,752 28,752 - 190,281 15.11% 2019 103,052 103,052 - 663,143 15.54% 2020 128,272 128,272 - 819,108 15.66% 2021 142,376 142,376 - 901,108 15.80% Tier 2 Public Employees DC Only System* 2018 942 942 - 14,080 6.69% 2019 5,844 5,844 - 87,351 6.69% 2020 15,459 15,459 - 228,177 6.78% 2021 24,831 24,831 - 369,975 6.71% Note: This schedule usually covers the 10 most recent fiscal years; however, this is the information available as of the implementation year of GASB 68. Contributions as a percentage of covered-employee payroll may be different than the Board certified rate due to rounding or other administrative issues. * Contributions in Tier 2 include an amortization rate to help fund the unfunded liabilities in the Tier 1 systems. Tier 2 systems were created effective July 1, 2011. ---PAGE BREAK--- MILLCREEK Notes to the Required Supplementary Information June 30, 2021 51 1. ACTUARIALLY DETERMINED PENSION CONTRIBUTIONS Contribution rates include an amount for normal cost, the estimated amount necessary to finance benefits earned by the members during the current year, and an amount for amortization of the unfunded or excess funded actuarial accrued liability over a closed 20-year amortization period. The rates are determined using the entry age actuarial cost method. Contributions made were in accordance with actuarially computed funding requirements. For contribution rate purposes, the actuary evaluates the assets of the plan based on a 5-year smoothed expected return wherein 20 percent of a year’s excess or shortfall of expected return is recognized each year for five years. 2. CHANGE IN ASSUMPTIONS There were a number of demographic assumptions (e.g. rates of termination, disability, retirement, as well as an updated mortality and salary increase assumption) updated for use in the January 1, 2020 actuarial valuation. These assumption updates were adopted by the Utah State Retirement Board as a result of an Actuarial Experience Study performed for the Utah Retirement Systems. In aggregate, those assumption changes resulted in a $201 million increase in the total Pension Liability, which is about 0.50% of the Total Pension Liability as of December 31, 2019 for all systems combined. The Actuarial Experience Study report as of December 31, 2019 provides detailed information regarding those assumption changes, which may be accessed online at newsroom.urs.org under the “Retirement Office” column using the “Reports and Stats” tab. ---PAGE BREAK--- 52 INDPENDENT AUDITOR’S 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 Mayor and City Council Millcreek, Utah We have audited, in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the governmental activities and each major fund of Millcreek, Utah (the City), as of and for the year ended June 30, 2021, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements and have issued our report thereon dated December 3, 2021. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered City’s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of City’s internal control. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. C O M M I T T E D . E X P E R I E N C E D . T R U S T E D CERTIFIED PUBL IC ACCOUN TAN TS E. LYNN HANSEN, CPA CLARKE R. BRADSHAW, CPA GARY E. MALMROSE, CPA EDWIN L. ERICKSON, CPA MICHAEL L. SMITH, CPA JASON L. TANNER, CPA ROBERT D. WOOD, CPA AARON R. HIXSON, CPA TED C. GARDINER, CPA JEFFREY B. MILES, CPA SHAWN F. MARTIN, CPA H B M E , L L C I S A C E R T I F I E D P U B L I C A C C O U N T I N G F I R M 5 5 9 W E S T 5 0 0 S O U T H B O U N T I F U L , U T 8 4 0 1 0 O : 8 0 1 . 2 9 6 . 0 2 0 0 H B M E . C O M ---PAGE BREAK--- 53 Compliance and Other Matters As part of obtaining reasonable assurance about whether the City’s financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. December 3, 2021 ---PAGE BREAK--- 54 INDEPENDENT AUDITOR’S REPORT IN ACCORDANCE WITH THE STATE COMPLIANCE AUDIT GUIDE ON COMPLIANCE WITH GENERAL STATE COMPLIANCE REQUIREMENTS, AND INTERNAL CONTROL OVER COMPLIANCE Mayor and City Council Millcreek, Utah Report On Compliance with General State Compliance Requirements We have audited Millcreek, Utah's (the City) compliance with general and major State program compliance requirements described in the State Compliance Audit Guide issued by the Office of the Utah State Auditor, that could have a direct and material effect on the City for the year ended June 30, 2021. General state compliance requirements were tested for the year ended June 30, 2021 in the following areas: Budgetary Compliance Fraud Risk Assessment Government Fees Impact Fees Fund Balance Restricted Taxes and Related Revenues Enterprise Fund Transfers and Services Management’s Responsibility Management is responsible for compliance with the general state requirements referred to above. Auditor’s Responsibility Our responsibility is to express an opinion on the City’s compliance based on our audit of the compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States; and the State Compliance Audit Guide. Those standards and the State Compliance Audit Guide require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the compliance requirements referred to above that could have a direct and material effect on the City occurred. An audit includes examining, on a test basis, evidence about the City’s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. C O M M I T T E D . E X P E R I E N C E D . T R U S T E D CERTIFIED PUBL IC ACCOUN TAN TS E. LYNN HANSEN, CPA CLARKE R. BRADSHAW, CPA GARY E. MALMROSE, CPA EDWIN L. ERICKSON, CPA MICHAEL L. SMITH, CPA JASON L. TANNER, CPA ROBERT D. WOOD, CPA AARON R. HIXSON, CPA TED C. GARDINER, CPA JEFFREY B. MILES, CPA SHAWN F. MARTIN, CPA H B M E , L L C I S A C E R T I F I E D P U B L I C A C C O U N T I N G F I R M 5 5 9 W E S T 5 0 0 S O U T H B O U N T I F U L , U T 8 4 0 1 0 O : 8 0 1 . 2 9 6 . 0 2 0 0 H B M E . C O M ---PAGE BREAK--- 55 We believe that our audit provides a reasonable basis for our opinion on compliance with general state compliance requirements. However, our audit does not provide a legal determination of the City’s compliance. Opinion on General State Compliance Requirements In our opinion, Millcreek, Utah complied, in all material respects, with the compliance requirements referred to above that could have a direct and material effect on the City for the year ended June 30, 2021. Report on Internal Control Over Compliance Management of the City is responsible for establishing and maintaining effective internal control over compliance with the compliance requirements referred to above. In planning and performing our audit of compliance, we considered the City’s internal control over compliance with the state compliance requirements referred to above to determine the audit that are appropriate in the circumstances for the purpose of expressing our opinion on compliance with those state compliance requirements and to test and report on internal control over compliance in accordance with the State Compliance Audit Guide, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a state compliance requirement on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a state compliance requirement will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a state compliance requirement that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be deficiencies, significant deficiencies, or material weaknesses in internal control over compliance. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above. However, material weaknesses may exist that have not been identified. ---PAGE BREAK--- 56 Purpose of Report The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control and compliance and the results of that testing based on the requirements of the State Compliance Audit Guide. Accordingly, this communication is not suitable for any other purpose. December 3, 2021