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2020-026 FY 2018-19 Annual Financial Report and Annual AuditDate: March 20, 2020 Report No. 2020-026       INFORMAL STAFF REPORT TO MAYOR AND CITY COUNCIL SUBJECT: FY 2018-19 Comprehensive Annual Financial Report and annual audit. BACKGROUND: Attached are documents related to the 2018-19 Comprehensive Annual Financial Report and annual audit. These items were presented to the Audit and Finance Committee on March 17, 2020. Each year, the City hires an independent accounting firm to conduct an audit of the City's basic financial statements. The purpose of the audit is to express an opinion as to whether the City's financial statements present fairly, in all material respects, the financial position of the City. The annual audit report is comprised of four major components: 1) the Comprehensive Annual Financial Report (CAFR), 2) Management Letter (when appropriate), 3) Single Audit, and 4) Auditor's Communication to the Audit Committee. The CAFR represents the entire financial position of the City, specifically for the fiscal year ending September 30, 2019. The document includes the independent auditor's opinion of management's representations within the annual report. The auditors have provided the City a clean opinion (unmodified), which means that in the opinion of Pattillo, Brown & Hill, L.L.P., the City's financial statements present fairly, in all material respects, the financial position of the City. A clean or unmodified opinion is the best opinion that may be rendered in an audit of the financial statements. The audit specifically included the following items: • Audit of the City's CAFR in accordance with generally accepted auditing standards. • Performance of a Single Audit, which is an audit of the City's expenditures of State and Federal grant awards. • An evaluation of the City's internal control over financial reporting. The auditor's examination of internal controls was conducted at a level sufficient to gain an understanding of the internal control structure to determine the nature, timing, and extent of audit procedures. The auditors did not perform an audit of internal controls, but performed limited tests of internal controls for the purpose of providing an opinion on the financial statements. Additionally, the auditors examined, on a test basis, evidence supporting amounts and disclosures in the combined financial statements. The City did not receive a management letter as there were no material weaknesses or recommendations for strengthening controls identified. The following points are highlighted as key financial information from the CAFR: 1. Overall positive financial results 2. Unassigned General Fund balance Date: March 20, 2020 Report No. 2020-026        $30.6 million  23.7% of FY 2018-19 final budgeted expenditures  $1,659,557 increase from prior year. 3. Unrestricted Net Position of Enterprise Funds (Utilities, Solid Waste, and Airport)  $164.1 million  $2.1 million decrease from prior year. Representatives from Pattillo, Brown & Hill, L.L.P. presented the attached presentation to the Audit and Finance Committee. ATTACHMENT(S): 1. FY 2018-19 CAFR 2. Single Audit Report 3. Auditor’s Communication 4. Auditor’s Presentation STAFF CONTACT: David Gaines, Director of Finance (940)-349-8260 David.Gaines@cityofdenton.com REQUESTOR: Regular report PARTICIPATING DEPARTMENTS: Finance COMPREHENSIVE ANNUAL FINANCIAL REPORT FISCAL YEAR ENDING SEPT. 30, 2019 TEXAS VISION “Destination Denton” Denton is an identifiable and memorable destination and a community of opportunities. We achieve this by providing high quality of life through excellence in education, entertainment, and employment; neighborhood vitality and sustainability; environmental and financial stewardship; and superior public facilities and services. MISSION “Dedicated to Quality Service” The City of Denton will foster an environment that will deliver extraordinary quality service and products through stakeholder, peer group, and citizen collaboration; leadership and innovation; and sustainable and efficient use of resources. VALUES “We Care” We care about our people, our community, and our work. We do this with integrity, respect, and fairness. CORE VALUES INTEGRITY Making sure that with every decision we make, our actions match our values. FISCAL RESPONSIBILITY Ensuring that people can trust that we use public funds conscientiously, with the community’s best interest in mind. TRANSPARENCY Building an environment of trust by interacting with others honestly as well as collecting and sharing clear and concise information. OUTSTANDING CUSTOMER SERVICE Employing a holistic approach to problem-solving and providing responsive service that goes above and beyond expectations. + CITY OF DENTON, TEXAS COMPREHENSIVE ANNUAL FINANCIAL REPORT For the fiscal year ended September 30, 2019 CITY MANAGER Todd Hileman CHIEF FINANCIAL OFFICER Antonio Puente, Jr. Prepared by: David Gaines Director of Finance Harvey Jarvis Controller Brian Hogan, CPA Assistant Controller Cody Wood Assistant Controller Mary Dickinson Electric Business Manager Ed Lane, CPA Senior Accountant Kurt Breyfogle Senior Accountant Catherine Bai, CPA Senior Accountant Cindy Liang, CPA Senior Accountant Katy Magee, CPA Accountant Jenny Wang, CPA Accountant Lori Allen Accountant Nicholas Vincent Assistant Director of Finance Nancy Towle Treasury Manager City of Denton, Texas Comprehensive Annual Financial Report For Year Ended September 30, 2019 TABLE OF CONTENTS Page INTRODUCTORY SECTION (UNAUDITED): Transmittal Letter ................................................................................................................................................. i Organizational Chart ........................................................................................................................................ viii Certificate of Achievement ................................................................................................................................. ix List of Principal Officials..................................................................................................................................... x FINANCIAL SECTION: Independent Auditor’s Report.............................................................................................................................. 1 Management’s Discussion and Analysis ............................................................................................................. 5 Basic Financial Statements: Government-wide Financial Statements: Statement of Net Position ..................................................................................................................... 17 Statement of Activities .......................................................................................................................... 18 Fund Financial Statements: Governmental Fund Financial Statements: Balance Sheet ................................................................................................................................. 20 Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Position .... 21 Statement of Revenues, Expenditures and Changes in Fund Balances .......................................... 22 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities .............................................................. 23 Statement of Revenues, Expenditures and Changes in Fund Balance – Budget to Actual General Fund............................................................................................................................... 25 Proprietary Fund Financial Statements: Statement of Net Position ............................................................................................................... 26 Statement of Revenues, Expenses and Changes in Fund Net Position .......................................... 30 Statement of Cash Flows ................................................................................................................ 32 Agency Fund Financial Statements: Statement of Assets and Liabilities ................................................................................................ 34 Notes to Basic Financial Statements ........................................................................................................... 35 Required Supplementary Information: Schedule of Changes in Net Pension Liability and Related Ratios – Texas Municipal Retirement System – Last Four Fiscal Years .................................................................................................... 87 Schedule of Contributions – Texas Municipal Retirement System – Last Ten Fiscal Years ...................... 88 Schedule of Changes in Net Pension Liability and Related Ratios – Denton Firemen’s Relief and Retirement Fund – Last Four Fiscal Year................................................................................ 89 Schedule of Contributions – Denton Firemen’s Relief and Retirement Fund – Last Ten Fiscal Years ...... 90 Schedule of Changes in Total OPEB Liability and Related Ratios – Medical – Last Fiscal Year.............. 91 Schedule of Changes in Total OPEB Liability and Related Ratios – Texas Municipal Retirement System . Supplemental Death Benefit Fund – Last Fiscal Year ................................................................... 92 Combining and Individual Fund Financial Statements and Schedules: Schedule of Revenues, Expenditures and Changes in Fund Balances – Budget to Actual: Debt Service Fund ................................................................................................................................ 93 Combining Balance Sheet – Nonmajor Governmental Funds..................................................................... 96 Combining Statement of Revenues, Expenditures and Changes in Fund Balances Nonmajor Governmental Funds ............................................................................................................ 98 City of Denton, Texas Comprehensive Annual Financial Report For Year Ended September 30, 2019 TABLE OF CONTENTS (Continued) Page FINANCIAL SECTION (continued): Combining and Individual Fund Financial Statements and Schedules (continued): Schedule of Revenues, Expenditures and Changes in Fund Balances – Budget to Actual: Recreation..................................................................................................................................... 100 Police Confiscation ...................................................................................................................... 101 Tourist and Convention ................................................................................................................ 102 Street Improvement Fund ............................................................................................................. 103 Gas Well Revenues Fund ............................................................................................................. 104 Citizens’ Park Trust ...................................................................................................................... 105 Combining Statement of Net Position – Internal Service Funds ............................................................... 108 Combining Statement of Revenues, Expenses and Changes in Fund Net Position - Internal Service Funds ........................................................................................................................ 110 Combining Statement of Cash Flows – Internal Service Funds ................................................................ 112 Combining Statement of Changes in Assets and Liabilities – Agency Funds .......................................... 114 STATISTICAL SECTION (UNAUDITED): Table 1 Net Position by Component .................................................................................................................... 116 2 Changes in Net Position .......................................................................................................................... 118 3 Fund Balances of Governmental Funds .................................................................................................. 122 4 Changes in Fund Balances of Governmental Funds ................................................................................ 124 5 Assessed Value and Estimated Actual Value of Taxable Property ......................................................... 126 6 Property Tax Rates (Per $100 of Assessed Value) – Direct and Overlapping Governments .................. 128 7 Principal Property Taxpayers .................................................................................................................. 130 8 Property Tax Levies and Collections ...................................................................................................... 132 9 Ratio of Outstanding Debt by Type......................................................................................................... 134 10 Ratio of General Bonded Debt Outstanding ............................................................................................ 136 11 Direct and Overlapping Governmental Activities Debt .......................................................................... 138 12 Pledged Revenue Coverage ..................................................................................................................... 140 13 Demographic and Economic Statistics .................................................................................................... 142 14 Principal Employers ................................................................................................................................ 143 15 Full-Time Equivalent City Government Employees by Function/Program ............................................ 144 16 Operating Indicators by Function/Program ............................................................................................. 146 17 Capital Asset Statistics by Function/Program ......................................................................................... 148 OTHER SUPPLEMENTAL INFORMATION: Schedule of Expenditures – Budget and Actual – General Fund .............................................................. 151 Finance Department 215 E. McKinney St., Denton, TX 76201  (940) 349-8531 OUR CORE VALUES Integrity  Fiscal Responsibility  Transparency  Outstanding Customer Service ADA/EOE/ADEA www.cityofdenton.com TDD (800) 735-2989 March 13, 2020 The Honorable Mayor and Members of the City Council City of Denton Denton, Texas It is with great pleasure that we present to you a copy of the Comprehensive Annual Financial Report (CAFR) of the City of Denton (the City) for the fiscal year ended September 30, 2019. The purpose of the report is to provide the City Council, management, citizens, and other interested parties with detailed information concerning the City’s financial condition. THE REPORT The Texas Local Government Code (§ 103.001) requires an annual audit for municipalities. In addition, the City Charter (Section 2.13) requires a Certified Public Accountant who, as of the end of the fiscal year, shall make an “independent audit of accounts” and prepare a report to the City Council and the City Manager. This document fulfills the above-mentioned requirements, and the independent auditor’s opinion is included in the report for the fiscal year ended September 30, 2019. The CAFR is presented in three main sections: Introductory, Financial, and Statistical. The Introductory Section includes this transmittal letter, the City’s organizational chart, and a list of principal officials. The Financial Section includes the Management’s Discussion and Analysis (MD&A), Basic Financial Statements, Required Supplementary Information, Combining and Individual Fund Financial Statements, along with the independent auditors’ report. The Statistical Section and Other Supplementary Information include selected financial and demographic information, generally presented on a multi-year basis. The responsibility for both the accuracy of the presented information and the completeness and fairness of the presentation of the data, including all disclosures, rests with the City, and is based upon a comprehensive framework of internal control established for this purpose. Because the cost of internal control should not exceed anticipated benefits, the objective is to provide reasonable, rather than absolute, assurance the financial statements are free of any material misstatements. To the best of our knowledge and belief, the enclosed data is accurate in all material respects and is reported in a manner designed to fairly present the results of our operations in each of the various funds reported by the City. All disclosures necessary to enable the reader to gain an understanding of the City’s financial activities have been included. The accounting firm of Pattillo, Brown & Hill L.L.P. has issued an unmodified opinion on the City of Denton’s financial statements for the period ended September 30, 2019. As a recipient of federal and state grant awards, a separate audit is prepared to meet the requirements of the Single Audit Act Amendments of 1996 and related Uniform Guidance. As a part of the City’s single audit, tests are conducted to determine that the City has complied with applicable laws and regulations related to federal awards. Management’s Discussion and Analysis (MD&A) immediately follows the independent auditors’ report and provides a narrative introduction, overview, and analysis of the basic financial statements. The MD&A complements this letter of transmittal and should be read in conjunction with it. PROFILE OF THE GOVERNMENT Originally incorporated on September 26, 1866, the City of Denton is now 98.818 square miles and has an estimated population of 129,635. The City is a home rule city and operates under the Council-Manager form of government. The elected seven-member council consists of a Mayor and six Council Members. The Mayor and two Council Members are elected at large, while the remaining representatives are elected from single member ii districts. The City Council enacts local laws, determines policy, and adopts the annual budget, and the City Manager is the chief executive officer for the City. The City of Denton is in the northern portion of the Dallas/Fort Worth Consolidated Metropolitan Statistical Area (CMSA). The City is a part of the Dallas/Fort Worth Metroplex and is situated at the apex of a triangle based by Dallas (37 miles to the southeast) and Fort Worth (35 miles to the southwest) providing excellent access to and from all parts of the area. The City provides a full range of general government services to its citizens including: public safety (police and fire protection); public works (construction and maintenance of highways, streets and infrastructure); parks and recreation; library; planning and zoning; economic development; and general administrative services. The City’s enterprise fund operations consist of a utility system, solid waste, and airport operations. The City’s utility system provides electric, water, and wastewater services. The internal service operations consist of the Materials Management, Fleet Services, Risk Retention, Health Insurance, Engineering Services, Technology Services, and Customer Service funds. The Materials Management Fund accounts for the financing of Warehouse and Purchasing services which are provided to other City departments. The Fleet Services Fund accounts for the financing of goods and services provided by the municipal garage to other departments within the City. The Risk Retention Fund accounts for the accumulation of resources for the payment of workers’ compensation, general liability claims, and insurance policies. The Health Insurance Fund accounts for administration of the self-insurance program for health coverage in the City. The Engineering Services Fund accounts for the provision of internal engineering services to various City operations and capital projects. The Technology Services Fund provides support for the various information and computer systems within the City. The Customer Service Fund accounts for the financing of customer service activities provided to the residents and businesses of the City on behalf of other departments within the City. The financial statements presented include all government activities, organizations, and functions for which the City is financially accountable as defined by the Governmental Accounting Standards Board (GASB). LOCAL ECONOMY The City of Denton’s tax base continues to grow with an average growth rate of 7.39% over the last 10 years. Recently, the City’s tax base grew by 13.57% in FY 2017-18, 9.70% in FY 2018-19, and 11.92% in FY 2019-20. After property tax revenues, the second largest source of revenue in the General Fund is sales tax. Representing approximately 33% of overall revenue in the General Fund, sales tax is a significant revenue source that is dependent upon a variety of economic factors. For FY 2018-19, total sales tax revenues equaled $38,330,825, which is $60,799 or 0.16%, more than the prior year collections of $38,270,026. Increased strength in employment and growth in new residential and commercial construction are leading indicators of continued growth in the City’s property tax base and sales tax collections. The City of Denton’s not seasonally adjusted annual unemployment average rate remains below state and national levels at an average 2.9 percent in 2019. The City of Denton has issued 1,976 new residential and commercial building permits for FY2018-19, with an estimated value of $543 million. This compares to a total of 1,749 commercial and residential permits issued for FY2017-18 and an estimated value of $566 million. The following two charts highlight the strength of the local economy over the last ten years by displaying the City of Denton’s unemployment rate compared to Texas and the United States and the taxable property values per capita in the City of Denton. iii 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00% 8.00% 9.00% 10.00% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019PercentAnnual Unemployment Rate for U.S., Texas, and Denton (Not Seasonally Adjusted) Denton Texas United States $0 $20,000 $40,000 $60,000 $80,000 $100,000 $120,000 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Taxable Property Value Per Capita (City of Denton) iv Fiscal year 2018-19 brought exciting news in economic development. Listed below are just a few of the highlights:  The Rayzor Ranch mixed-use development is located on both the north and south sides of US Highway 380 in Denton. Rayzor Ranch Marketplace, on the north side of the development, has constructed over 500,000 square feet of retail and commercial space. Sam’s Club and Wal-Mart anchor the development. New tenants at the Marketplace include: James Avery, TJ Maxx, and Tuesday Morning. The southern Town Center continues to expand. New tenants include: IHOP, Chase Bank, Zoës Kitchen, Cotton Patch Café, Massage Envy, Alamo Drafthouse, Rooms To Go, Cheddars Scratch Kitchen, and Andy B’s Entertainment and Bowling Center. These new tenants surround the Embassy Suites Hotel and Convention Center described in more detail below. In addition, new multifamily units are under construction and will open in early 2020.  O’Reilly Hotel Partners Denton (OHPD) opened the 70,000-square-foot Convention Center, 318-room Embassy Suites Hotel, and Houlihan’s restaurant project in January 2018. The Embassy Suites by Hilton is LEED Gold Certified. The Denton Embassy Suites was also designated as a “2019 AAA Inspector’s Best of Housekeeping Hotel,” which ranks the hotel in the top 25% of 27,000 inspected hotels. As a major anchor for the Rayzor Ranch Town Center, the project capitalizes on the shopping, entertainment, and restaurants located nearby. The privately managed convention center is also expected to expand the City’s convention business and overall tourism industry.  The Buc-ee’s Travel Center, which opened in October 2018, is a commercial development that includes an approximately 53,000-square-foot retail store, fuel sales, car wash, and outparcels for future development. The main retail store and the associated fuel sales are open 24 hours a day, seven days a week. The development has resulted in the Texas Department of Transportation (TxDOT) advancing several mobility improvements to the intersections of Loop 288/Lillian Miller and I-35E, Mayhill Road and I-35E, and Brinker Road and I-35E.  The City’s airport has expanded by adding a 5,000 foot long, 75-foot wide second runaway. This project was funded by the City and a grant by the Texas Department of Transportation – Aviation Division. The $6.3 million parallel runway was completed in November 2019. This significantly expands the capacity of the Denton airport which is currently the eighth busiest airport in Texas and the number one general aviation airport in the state.  The North Central Texas College (NCTC) completed the construction of a new campus, the First State Bank Exchange, in downtown Denton that opened in Fall 2019. The facility is approximately 45,000 square feet with classrooms for 2,500 students including two lecture classrooms and a lecture hall. The four-story parking garage includes 300 spaces. NCTC has a partnership with the University of North Texas and Texas Woman’s University that allows students to transfer without losing credits and gives student the opportunity to be concurrently enrolled at all three institutions. The renovated building also includes retail and restaurant spaces that are rapidly filling up.  Denton was ranked number 6 by City Lab as one of America's Top 25 High-Tech Hotspots. One of the catalysts for this growth in high-tech is Stoke, Denton’s coworking space and entrepreneurial center. Hickory & Rail Ventures took over the management of the coworking space in 2018. Their vision for Stoke is to make it the first of many places Denton entrepreneurs can call home. The center currently has 98-members from 74 member companies. Sixty-seven events were hosted by Stoke in 2019. Some recent examples of their success include:  Team of Defenders – Team of Defenders is an IT platform company established in 2018. They currently operate out of Stoke and estimate that they will hire 56 tech employees with a payroll of $7M in the next ten years.  Flyp – An app that allows users to operate multiple phone numbers from a single smart phone. Users can then text and make/receive calls from those numbers, which each have a unique ringtone and voicemail box.  Upventur – Upventur is a social startup that gives outdoor enthusiasts and hobbyists a place to connect with fellow explorers, service providers, and experts.   Kubos – Kubos is a satellite software company targeting the emerging commercial space industry. It combines quality engineering, modern software development, and mission-critical services to serve the satellite industry. v  Denton Municipal Electric (DME) has invested in infrastructure with the Denton Energy Center (DEC), composed of twelve fast start electricity generating engines and ancillary equipment, which are able to achieve full output in just five minutes. The DEC generates 225 megawatts of electricity and began commercial operation in June 2018. The DEC will provide reliable energy at reduced costs for industries that are significant consumers of electric utility services. United States Cold Storage, detailed below, is an example of one of these industries.  United States Cold Storage (USCS), held its grand opening in September 2019, provides its clients with refrigerated and frozen food warehousing and transportation with 38 facilities in 13 states and 2,500 employees. In 2018, USCS closed on a 40-acre site in the Westpark Tax Increment Reinvestment Zone (TIRZ). USCS offers storage, re-pack, case pick, distribution and transportation solutions for production facilities in the United States and Mexico. The company estimates that it will invest $34 million in the project and create approximately $28 million in new ad valorem value in Denton. The estimated electric demand is 1.5 megawatts annually, which will make USCS a Top 25 customer for DME. The company plans to create 67 new jobs by Year 3 of operations with an average salary of $36,074. In 2018, USCS received a grant of a 50% cost share of the sales and use taxes for the construction of their new distribution facility on a 40-acre site in the Westpark TIRZ. LONG-TERM FINANCIAL PLANNING In conjunction with this document, interested parties are encouraged to read the City of Denton’s FY 2019-20 Annual Budget document. This document details the City’s strategic plan, long-term financial policies, program accomplishments, and other key initiatives. The document also includes the long-term financial forecasts for each of the major funds, and a summary of the assumptions that are included in these plans. In addition, the budget document provides an overview of the adopted Capital Improvement Program and planned future debt issuances. The Annual Budget can be accessed through the City’s web site at www.cityofdenton.com and selecting Financial Transparency under the “Open Government” link. RELEVANT FINANCIAL POLICIES The City of Denton maintains reserve balances for emergencies. In the General Fund, the target reserve level is a minimum of 20% of budgeted expenditures with an additional 5% resiliency reserve for a combined total of 25% to provide stability and flexibility for the organization. As described in the accompanying CAFR document, the unassigned fund balance is $30.6 million, or 23.67%, of the budgeted General Fund expenditures for the fiscal year ended September 30, 2019. Beginning in FY 2011-12, the City adopted a policy which requires a minimum ending working capital balance (current assets minus current liabilities) of at least 8% of budgeted expenditures for the Electric, Water, Wastewater and Solid Waste Funds. If the working capital level should fall below the desired minimum, the City will implement necessary corrective action with a five-year plan to restore the working capital balance to 8% of budgeted expenditures. Additionally, rate reserve levels were established for the Electric, Water, Wastewater, and Solid Waste Funds in FY 2011-12 according to the unique operational aspects of each utility. The rate reserve levels were most recently revised in FY 2015-16 based on the factors of revenue stability, expense and demand volatility, infrastructure age, debt levels and management plans for the use of these reserves. The rate reserve level is established at a range of 8% to 12% of expenses for the Electric Fund, at a range of 20% to 31% of expenses for the Wastewater Fund, at a range of 25% to 42% of expenses for the Water Fund, and at a range of 6% to 10% of expenses for the Solid Waste Fund. If the rate reserve level falls below the range, the City will implement necessary corrective action within a five-year plan to restore the balances to the levels outlined above. The City of Denton has adopted an Investment Policy which guides the investment of all City funds. In accordance with State law, the policy is reviewed annually by the City Council to ensure that public funds are being invested in a conservative and prudent fashion. In addition, the City also annually reviews and approves a Debt Management policy. The purpose of this policy is to provide general guidelines regarding the issuance of City vi debt and the use and limitation of such debt. The City complied with all aspects of the Investment and Debt Management policies during FY 2018-19. MAJOR INITIATIVES In FY 2018-19, the City continued to emphasize street maintenance and repair activities as funding in the Street Improvement Fund increased by $1.3 million. This additional funding was used for concrete pavement, curb and gutter, and sidewalk repairs along with additional crack and micro seal repairs. In addition to improving the City’s street infrastructure, the enhancement of public safety is also identified in the Strategic Plan as a major initiative. Accordingly, the FY 2018-19 General Fund budget included $1,748,399 in funding enhancements for public safety programs. Overall, the budget included the funding of 7 new positions in the Police Department, 3 new Fire Fighters for Station 8, various equipment in the Fire Department, and 3 new positions in public safety communication. Employee compensation remained a continuing priority in FY 2017-18 with an average 3% merit increase provided to all employees along with eligible step increases for all police and fire civil service personnel. AWARDS AND ACKOWLEDGEMENTS The Government Finance Officers’ Association (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the City for its Comprehensive Annual Financial Report for the fiscal year ended September 30, 2018, for the thirty-fourth consecutive year. In order to be awarded the Certificate of Achievement in Financial Reporting, the City must publish an easily readable and efficiently organized Comprehensive Annual Financial Report. This report satisfies both generally accepted accounting principles and applicable legal requirements. The Certificate of Achievement is held for a period of one year only. We believe our current Comprehensive Annual Financial Report continues to meet the Certificate of Achievement requirements, and we are submitting it to GFOA to determine its eligibility for another certificate. The City also received the GFOA award for Distinguished Budget Presentation for its fiscal year 2018-19 Annual Budget for the thirty-third consecutive year. In order to qualify for the Distinguished Budget Presentation Award, the City’s budget document was judged according to its compliance with specific guidelines established by GFOA. These guidelines help ensure that Denton’s budget is distinguished as an operations guide, financial plan, policy document, and communications device. The City has submitted its fiscal year 2019-20 Annual Budget to GFOA to determine its eligibility for another certificate. We believe it continues to meet the Distinguished Budget Presentation Award criteria. In 2019, the City’s Purchasing Department earned the Excellence in Procurement Award from the National Purchasing Institute, Inc. (NPI) for the twentieth-first year in a row. This award is achieved by those organizations that demonstrate excellence in procurement by achieving a high score on standardized criteria designed to measure innovation, professionalism, productivity, and leadership. NPI represents purchasing officials employed by national, state, and local governments; educational institutions; and tax-supported and public entities throughout the country. We would like to thank the City Council for their strong leadership and support that helped make the presentation of this report possible. We would also like to thank the City Manager, Finance staff, department directors, division heads and especially the Accounting Division staff for their diligent efforts in the preparation of the annual financial report. Antonio Puente, Jr. David Gaines Chief Financial Officer Director of Finance ORGANIZATIONAL CHART   Boards, Commissions, & Committees City Attorney Municipal Judge Internal Auditor Capital Projects Engineering Development Review Traffic Operations Engineering Drainage Fleet Services Solid Waste Operations Streets Public Works Environmental Services Gas Well Review Sustainability Wastewater Operations Water Operations Utilities Deputy City Manager Animal Services City Manager's Office City Secretary Community Development /Homelessness Initiatives Community Improvement Services Public Affairs / IGR Chief of Staff / Director Facilities Management Human Resources Library Parks & Recreation Risk Management Safety Assistant City Manager Accounting / Budget / Treasury Customer Service Business Process Improvement Performance Management Strategic Planning Finance Airport Economic Development Electric Operations Municipal Court Procurement/ Compliance Chief Financial Officer Planning Building Inspections Development Services Fire Police Public Safety Dispatch Technology Services City Manager City Council Citizens CITY OF DENTON, TEXAS List of Principal Officials ELECTED OFFICIALS Title Name Mayor Chris Watts Councilmember, District 1, Mayor Pro Tem Gerard Hudspeth Councilmember, District 2 Keely G. Briggs Councilmember, District 3 Jesse Davis Councilmember, District 4 John Ryan Councilmember, At Large Place 5 Deb Armintor Councilmember, At Large Place 6 Paul Meltzer CITY OFFICIALS Title Name City Manager Todd Hileman Deputy City Manager Mario Canizares Assistant City Manager Sara Hensley City Attorney Aaron Leal Municipal Judge Holly Fox City Secretary Rosa Rios x INDEPENDENT AUDITOR’S REPORT Honorable Mayor and Members of the City Council City of Denton, Texas Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Denton, Texas, as of and for the year ended September 30, 2019, and the related notes to the financial statements, which collectively comprise the City of Denton, Texas’ basic financial statements as listed in the table of contents. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. 1 2 Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Denton, Texas, as of September 30, 2019, and the respective changes in financial position and, where applicable, cash flows thereof and the respective budgetary comparison for the General Fund for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis and pension and OPEB information be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City of Denton, Texas’ basic financial statements. The introductory section, combining and individual fund financial statements and schedules, capital assets schedules, and the statistical section are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining and individual fund financial statements and schedules and the capital assets schedules are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining and individual fund financial statements and schedules and the capital assets schedules are fairly stated, in all material respects, in relation to the basic financial statements as a whole. The introductory and statistical sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on them. 3 Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated March 13, 2020 on our consideration of the City of Denton, Texas’ internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is solely 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 effectiveness of the City of Denton, Texas’ 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 of Denton, Texas’ internal control over financial reporting and compliance. Waco, Texas March 13, 2020 CITY OF DENTON, TEXAS MANAGEMENT’S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2019 The Management’s Discussion and Analysis is designed to (a) assist the reader in focusing on significant financial issues, (b) provide an overview of the City’s financial activity, (c) identify changes in the City’s financial position (its ability to address the next and subsequent years’ challenges), (d) identify any material deviations from the financial plan (the approved budget), and (e) identify individual fund issues or concerns. Since the Management’s Discussion and Analysis (MD&A) is designed to focus on the current year’s activities, resulting changes and currently known facts, please read it in conjunction with the Transmittal Letter (beginning on page i) and the City’s financial statements (beginning on page 17). FINANCIAL HIGHLIGHTS  The assets and deferred outflows of the City exceeded its liabilities and deferred inflows at the close of the fiscal year ended September 30, 2019 by $1,029,307,671 (net position). Of this amount, $133,829,918 (unrestricted net position) may be used to meet the government’s ongoing obligations to citizens and creditors.  The City’s total net position increased by $94,031,286 in fiscal year 2019.  As of September 30, 2019, the City’s governmental funds reported combined fund balances of $181,544,210, a decrease of $557,733 in comparison with the prior fiscal year. Compared to the prior year, revenues were higher by $1.8 million due primarily to higher property tax of $4.2 million, investment revenue of $4.2 million, fees for services of $1.0 million, hotel occupancy tax of $0.3 million, building permits of $0.2 million, franchise fees of $0.2 million, and sales tax of $0.1 million. The higher revenues were offset by decreases in intergovernmental revenues of $8.0 million and lower fines and forfeitures of $0.4 million. The decline in intergovernmental revenue was due to decreased spending rates on grant funded road construction projects. Expenditures reflect higher costs for public safety of $4.9 million, higher costs for general government of $2.8 million, higher costs for parks and recreation of $0.5 million, higher capital expenditures of $11.3 million, and higher debt service interest costs of $1.6 million. Total expenditures of the City’s combined governmental funds are $21.0 million higher than the prior year. New proceeds from the issuance of long-term debt added $25.9 million in new funding. Net transfers in increased by $10.9 million, from a net transfer out of $6.7 million in fiscal year 2018, to a net transfer in of $4.2 million in fiscal year 2019. Approximately 16.4% of the $181,544,210, or $29,795,554, is available for spending at the government’s discretion (unassigned fund balance).  The City’s total noncurrent liabilities, including other noncurrent liabilities, increased by $48,665,610 during the fiscal year. The primary reasons for the changes are the issuance of $28.8 million of certificates of obligation and $44.3 million of general obligation bonds, which were offset by the scheduled pay down of general obligation bonds and certificates of obligation of $87.7 million and the amortization of related premium and discounts of $4.4 million. The Electric fund recorded a liability of $22.7 million due to decommissioning of the City’s share of the Gibbons Creek Power Plant assets by the Texas Municipal Power Agency. Unfavorable market conditions relative to actual plan performance versus actuarial assumptions contributed to an increase of $44.0 million in pension liabilities. The City’s liability for other post- employment benefits increased $0.7 million. Other changes include an increase of $0.1 million for the City’s landfill closure and post closure liability, a decrease of claims payable of $0.2 million, and an increase in compensated absences of $0.4. Additional information on the City’s long-term debt can be found in note IV.G. on pages 56 - 60 of this report. Additional information on the City’s agreement with TMPA can be found in note V.E. on pages 78-80 of this report. OVERVIEW OF THE FINANCIAL STATEMENTS The Management’s Discussion and Analysis is intended to serve as an introduction to the City of Denton’s basic financial statements. The 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 contains other supplementary information in addition to the basic financial statements themselves. 5 CITY OF DENTON, TEXAS MANAGEMENT’S DISCUSSION AND ANALYSIS (continued) SEPTEMBER 30, 2019 Government-wide Financial Statements. The government-wide financial statements are designed to provide readers with a broad overview of the City’s finances in a manner similar to a private-sector business. The statement of net position presents information on all of the City’s assets, liabilities, deferred inflows, and deferred outflows with the difference reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the City is improving or deteriorating. The statement of activities presents information showing how the City’s net position changed during the most recent fiscal year. All of the current year’s revenues and expenses are taken into account regardless of when cash is received or paid. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes and earned but not used vacation leave). Both the statement of net position and the statement of activities are prepared using the accrual basis of accounting as opposed to the modified accrual basis. In the Statement of Net Position and the Statement of Activities, the City is divided between two kinds of activities:  Governmental activities. Most of the City’s basic services are reported here, including police, fire, libraries, development, public services and operations, public works, building inspection, technology services and general administration. Property taxes, sales taxes, and franchise fees finance most of these activities.  Business-type activities. The City charges a fee to customers to cover the cost of services it provides. The City’s utility systems (electric, water and wastewater), solid waste, and airport activities are reported here. The government-wide financial statements can be found on pages 17 - 19 of the report. Fund Financial Statements. A fund is a grouping of related accounts used to maintain control over resources that have been segregated for specific activities or objectives. Fund financial statements provide detailed information about the most significant funds, not the City as a whole. Some funds are required to be established by state law or bond covenants. However, the City Council establishes many other funds to help it control and manage money for particular purposes or to show that it is meeting legal responsibilities for using certain taxes, grants and other monies. The following illustration summarizes the major features the City’s financial statements. 6 CITY OF DENTON, TEXAS MANAGEMENT’S DISCUSSION AND ANALYSIS (continued) SEPTEMBER 30, 2019 Government-wide Statements Governmental Funds Proprietary Funds Scope Entire City government Activities of the City that are not proprietary, such as police, fire and parks Activities the City operates similar to private businesses: electric, water, wastewater utilities, solid waste and airport operations Required financial statements Statement of net position Statement of activities Balance Sheet Statement of revenues, expenditures and changes in fund balances Statement of net position Statement of revenues, expenses and changes in net position Statement of cash flows Accounting basis and measurement focus Accrual accounting and economic resources focus Modified accrual accounting and current financial resources focus Accrual accounting and economic resources focus Types of asset/liability information All assets and liabilities, both financial and capital, short-term and long-term Only assets expected to be used up and liabilities that come due during the year or soon thereafter; no capital assets included All assets and liabilities, both financial and capital, short- term and long-term Type of inflow/outflow information All revenues and expenses during year, regardless of when cash is received or paid Revenues for which cash is received during or soon after the end of the year; expenditures when goods or services have been received and payment is due during the year of soon thereafter All revenues and expenses during year, regardless of when cash is received or paid Major Features of City of Denton's Government-wide and Fund Financial Statements Fund Statements All of the funds of the City can be divided into three categories: governmental funds, proprietary funds and fiduciary funds.  Governmental funds. The majority of the City’s basic services are reported in governmental funds, which focus on how money flows into and out of those funds and the balances left at year-end that are available for spending. These funds are reported using an accounting method identified as the modified accrual basis of accounting, which measures cash and all other financial assets that can readily be 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 the reader determine whether there are more or fewer financial resources that can be spent in the near future to finance the City’s programs. By comparing information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements, readers may better understand the long-term impact of the government’s near-term financing decisions. The relationship or differences between governmental activities (reported in the Statement of Net Position and the Statement of Activities) and governmental funds are detailed in a reconciliation following the fund financial statements. The City of Denton maintains twelve governmental funds. Information is presented separately in the governmental funds balance sheet and in the governmental funds statement of revenues, expenditures and changes in fund balances for the general fund, debt service fund and capital projects fund, all of which are considered to be major funds. Data from the other nine governmental funds are combined into a single, aggregated presentation. Individual fund data for eight of these non-major governmental funds, along with an aggregate of all other governmental funds, is provided in the form of combining statements elsewhere in this report.  Proprietary funds. The City charges customers for certain services it provides, whether to outside customers or to other units within the City. These services are generally reported in proprietary funds. 7 CITY OF DENTON, TEXAS MANAGEMENT’S DISCUSSION AND ANALYSIS (continued) SEPTEMBER 30, 2019 Proprietary funds are reported in the same manner that all activities are reported in the Statement of Net Position and the Statement of Activities. The City’s enterprise funds are similar to the business-type activities that are reported in the government-wide statements but provide more detail and additional information, such as cash flows. The City’s internal service funds are used to accumulate and allocate costs internally among the City of Denton’s various functions. Both enterprise funds and internal service funds are components of proprietary funds. The City of Denton maintains five enterprise funds. The City uses enterprise funds to account for its electric, water, wastewater, solid waste, and airport operations. The individual funds provide the same type of information as the government-wide financial statements only in more detail. The City considers all enterprise funds to be major funds. The City of Denton maintains seven internal service funds. The City uses internal service funds to account for materials management, fleet services, health insurance, risk retention, technology services, engineering services, and customer service. Because these services benefit both governmental and business-type functions, they have been included in both the governmental and business-type activities in the government- wide financial statements. Individual fund data for the internal service funds are provided in the form of combining statements in the combining and individual fund statements and schedules section of this report.  Fiduciary funds. Fiduciary funds are used to account for resources held for the benefit of parties outside the government. Fiduciary funds are not reflected in the government-wide financial statement because the resources of those funds are not available to support the City’s own programs. The accounting used for fiduciary funds is much like that used for proprietary funds. Agency funds are a component of fiduciary funds. Agency funds differ from other fiduciary funds in that they do not typically involve a formal trust agreement. Agency funds are used to account for situations where the City’s role is purely custodial, such as receipt, temporary investment and remittance of fiduciary resources to individuals, private organizations, or other governments. The City maintains one fiduciary fund, an agency fund. The City uses agency funds to account for the collection and payment of property and evidence, temporary developer holdings and other similar relationships. Notes to the financial statements. The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. The notes to the financial statements can be found on pages 35 - 85 of this report. GOVERNMENT-WIDE FINANCIAL ANALYSIS As of September 30, 2019, the City’s combined net position were $1,029,307,671, of which $233,781,032 can be attributed to governmental activities and $795,526,639 attributed to business-type activities. This analysis focuses on the net position (Table 1) and changes in net position (Table 2) of the City’s governmental and business-type activities. The largest portion of the City’s net position (80.9%) reflects its investment in capital assets (e.g., land, building, machinery and equipment), less any related debt used to acquire those assets that is still outstanding. 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, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. 8 CITY OF DENTON, TEXAS MANAGEMENT’S DISCUSSION AND ANALYSIS (continued) SEPTEMBER 30, 2019 Governmental activities increased the City’s net position by $37,247,961. Business-type activities increased the City’s net position by $56,783,325. The key elements of these increases are contained in Table 2. 2019 2018 2019 218 2019 2018 Current and other assets $ 274,125 $ 289,367 $ 433,830 $ 426,310 $ 707,955 $ 715,677 Capital assets, net of accumulated depreciation 372,413 310,971 1,264,559 1,224,104 1,636,972 1,535,075 Total assets 646,538 600,338 1,698,389 1,650,414 2,344,927 2,250,752 Deferred outflows of resources 46,876 26,043 22,482 13,973 69,358 40,016 Long-term liabilities outstanding 363,657 319,898 894,424 889,517 1,258,081 1,209,415 Other liabilities 80,975 92,018 23,460 27,357 104,435 119,375 Total liabilities 444,632 411,916 917,884 916,874 1,362,516 1,328,790 Deferred inflows of resources 15,001 17,932 7,460 8,770 22,461 26,702 Net position: Net investment in capital assets 242,958 194,211 589,492 540,697 832,450 734,908 Restricted 30,348 21,655 32,680 20,209 63,028 41,864 Unrestricted (39,525) (19,333) 173,355 177,837 133,830 158,504 Total net position $ 233,781 $ 196,533 $ 795,527 $ 738,743 $1,029,308 $ 935,276 Total Table 1 Net Position (in thousands) Governmental Activities Business-type Activities 9 CITY OF DENTON, TEXAS MANAGEMENT’S DISCUSSION AND ANALYSIS (continued) SEPTEMBER 30, 2019 Governmental activities. Expenses for governmental activities reflect an increase of $7.5 million over the prior year. Increases include $1.0 million in general government expenses and $5.9 million for public safety. These increases were offset by a decrease of $1.2 million in public works. The most significant governmental activities expense was in providing public safety, which incurred expenses of $77,883,435. The largest expense for public safety is the cost of personnel, which totaled $61,504,011. Governmental activities expense also includes general government, which incurred $39,051,942 in expenses, of which $17,991,562 represented personnel charges. These expenses were funded by revenues collected from a variety of sources, with the largest being from property taxes, which are $71,351,314 for the fiscal year ended September 30, 2019. The $5.4 million decrease in the governmental program revenues are mainly due to a decrease of $5.3 million in capital grants and contributions for public works. Parks and recreation also decreased $0.6 million. The slight increase in charges for services compared to the prior year was less than $0.1 million. Within this category, increases for parks and recreation 2019 2018 2019 2018 2019 2018 Revenues: Program Revenues: Charges for services 20,276$ 20,212$ 359,434$ 318,471$ 379,710$ 338,683$ Operating grants and contributions 4,093 3,698 - - 4,093 3,698 Capital grants and contributions 28,085 33,991 16,039 20,520 44,124 54,511 General Revenues: Property tax 71,351 67,186 - - 71,351 67,186 Sales tax 38,331 38,270 - - 38,331 38,270 Franchise tax 26,161 26,007 - - 26,161 26,007 Hotel occupancy tax 3,040 2,734 - - 3,040 2,734 Beverage tax 662 632 - - 662 632 Bingo tax 11 11 - - 11 11 Investment Income 6,093 1,938 9,027 4,083 15,120 6,021 Miscellaneous 4,026 4,889 - 241 4,026 5,130 Total revenues 202,129 199,568 384,500 343,315 586,629 542,883 Expenses: General government 39,052 37,969 - - 39,052 37,969 Public safety 77,883 71,945 - - 77,883 71,945 Public works 24,503 25,684 - - 24,503 25,684 Parks and recreation 17,711 17,422 - - 17,711 17,422 Interest on long-term debt 6,751 5,379 - - 6,751 5,379 Electric - - 236,131 168,111 236,131 168,111 Water - - 29,690 27,481 29,690 27,481 Wastewater - - 28,317 26,284 28,317 26,284 Solid waste - - 30,542 29,028 30,542 29,028 Airport - - 2,017 1,803 2,017 1,803 Total expenses 165,900 158,399 326,697 252,707 492,597 411,106 Increase in net position before transfers 36,229 41,169 57,803 90,608 94,032 131,777 Transfers 1,019 (1,104) (1,019) 1,104 - - Increase in net position 37,248 40,065 56,784 91,712 94,032 131,777 Net position at beginning of year 196,533 173,429 738,743 659,509 935,276 832,938 Prior period adjustment - (16,961) - (12,478) - (29,439) Net position at beginning of year 196,533 156,468 738,743 647,031 935,276 803,499 Net position at end of year 233,781$ 196,533$ 795,527$ 738,743$ 1,029,308$ 935,276$ Activities Activities Total Table 2 Changes in Net Position (in thousands) Governmental Business-type 10 CITY OF DENTON, TEXAS MANAGEMENT’S DISCUSSION AND ANALYSIS (continued) SEPTEMBER 30, 2019 of $1.0 million and $0.1 for public works were offset by a decrease of $1.0 million for public safety. Operating grants and contributions increased $0.4 million compared to the prior year. Increases of $0.7 million for public safety and $0.1 million for parks and recreation were offset by a decrease of $0.4 million for general government. Governmental general revenues included an increase of $4.2 million for property tax due to rising values and new construction. Transfers reflect a net $4.2 million transfer in for governmental activities for the current year as compared to a net transfer out of $6.6 million for the prior fiscal year. Business-type activities. Business-type activities increased the City’s net position by $56,783,325. This accounts for 60.4% of the growth in the entity-wide net position. All Utility service revenues increased by a total of $37.3 million. Electric charges for services increased by $39.8 million. Water charges for services decreased by $2.8 million as compared to the service charges from prior year. Wastewater charges decreased $0.9 million compared to the prior year. Solid Waste charges for service provided an increase $1.2 million compared to the prior year. Airport charges for goods and services were unchanged from the prior year. Water and Wastewater collected $7.5 million and $4.4 million in impact fees, respectively, reflecting a $0.1 million increase over the prior year. Capital contributions, which arise from new property development within the City, represent a major revenue source for the Water and Wastewater funds during the current fiscal year. Capital contributions were $16.0 million during the year and represent a $4.5 million decrease from the prior year. The Airport gas well revenues contributed an additional $0.3 million to the increase in net position, a decrease of $0.1 million from the prior year. Total enterprise funds operating costs, before depreciation, increased $59.3 million. Electric expenses account for $56.0 million (94.5%) of this increase. Cost increases over the prior fiscal year include purchased power costs of $25.4 million, decommissioning of TMPA assets of $22.7 million, administrative costs of $5.5 million, salaries and wages of $2.7 million, and insurance costs of $0.1 million. These increases were slightly offset by a decrease in material and supplies expenses of $0.3 million. Water expenses increased $1.5 million from the prior year. Increased expenses of $3.7 million for administrative costs and $0.2 million for maintenance and repairs were offset by decreases of $2.1 million for personnel services and $0.3 million for materials and supplies. Wastewater expenses increased by $1.8 million from the prior year. Increases in administrative costs of $1.0 million and personnel services of $0.8 million that were offset by a decrease in maintenance and repair costs of $0.1 million. Solid Waste operations expenses reflect increased costs for administrative costs of $0.6 million and decreased closure/post closure costs of $0.8 million compared to the prior year. Airport operations expenses reflect a combined $0.2 million increase for personnel services, maintenance and repairs, and operations. FINANCIAL ANALYSIS OF THE GOVERNMENT’S FUNDS As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. Governmental funds. The focus of the City’s governmental funds is to provide information on near-term inflows, outflows, and balances of resources available to spend. Such information is useful in assessing the City’s financing requirements. In particular, unassigned fund balance may serve as a useful measure of a government’s net resources available for spending at the end of the fiscal year. As of the end of the current fiscal year, the City’s governmental funds reported a combined ending fund balance of $181.5 million, a decrease of $0.6 million in comparison with the prior year. $29,795,554 constitutes unassigned fund balance, which is available for spending at the government’s discretion. The remainder of the fund balance has been classified to indicate that it is not available for new spending because it has already been classified as restricted ($121.5 million), committed ($10.3 million), and assigned ($19.9 million). The General Fund is the chief operating fund of the City. At September 30, 2019, the unassigned fund balance of the General Fund was $30.6 million, or 23.7% of budgeted general fund expenditures. The General Fund’s ending fund balance increased by $0.4 million during the current fiscal year. The change in fund balance is due to expenditures, including other financing uses, of $116.7 million, and revenues, including other financing sources, of $117.1 million. Revenues were $3.7 million higher compared to the previous year primarily due to increases in taxes of $1.5 million, investment income of $0.6 million, intergovernmental revenue of $0.3 million, 11 CITY OF DENTON, TEXAS MANAGEMENT’S DISCUSSION AND ANALYSIS (continued) SEPTEMBER 30, 2019 and both licenses and permits and franchise fees of $0.2 million. These increases were offset by a decrease in revenue of $0.2 million for fees for services. The net change in expenditures was $1.9 million higher as compared to the previous year primarily due to increased costs related to personal services and operations. The increased personnel costs were $2.8 million. Public safety increased $3.2 million over the prior year while general government increased $1.0 million. These increases were offset by a decrease in parks and recreation of $1.4 million. The increase in operations, services costs of $1.4 million is due to increases in general government of $0.9 million and public safety in the amount of $1.0 million. These increases were offset by a reduction in parks and recreation expenditures in the amount of $0.5 million. Transfers out decreased $2.8 million from the prior year primarily due to a decrease in funding of capital projects. Personnel costs, on a year over year comparison, were higher due to an average merit increase of 3% for non- civil service employees, a pay adjustment for civil service employees to reach the market average plus 5% and continued step raises for public safety civil service employees. During the fiscal year, a net of 20 FTE’s were added to public safety. At the end of the fiscal year, the capital projects fund has a total fund balance of $120.9 million, a decrease of $4.6 million. The total fund balance is made up of $98.4 million in restricted funds, $2.7 million in committed funds, and $19.8 million in assigned funds, all for capital construction and acquisition. In 2019, the City received $27.9 million of proceeds from the issuance of debt and recognized $17.9 million of regional toll revenues from the Texas Department of Transportation, while expending $63.2 million on construction and acquisition. In addition, the capital projects fund received $3.9 million in interest income and $8.8 million of transfers from other funding sources. The City also received approximately $8.6 million in developer’s contributed capital recorded in the government-wide financial statements. This is $0.5 million more than in the prior year. The debt service fund has a total fund balance of $5.5 million, all of which is restricted for the payment of debt service. As compared with the prior year results, the overall decrease in the debt service fund balance of $0.1 million resulted from an increase of $2.8 million in tax revenue offset by an increase of $3.1 million in principal and interest costs. Additional amounts include an increase in investment revenue of $0.2 million and a reduction of transfers in by $0.2 million. Proprietary funds. The City’s proprietary funds provide the same type of information found in the government- wide financial statements, but in more detail. Unrestricted net position at September 30, 2019 in proprietary funds are $57.8 million for Electric, $59.1 million for Water, $38.8 million for Wastewater, $5.2 million for Solid Waste, and $3.2 million for the Airport fund. The results reflect increases of the unrestricted net position in the Water fund of $7.3 million, the Wastewater fund of $0.3 million, and the Solid Waste fund of $3.5 million. The unrestricted net position decreased $13.0 million in the Electric Fund and $0.1 million in the Airport fund. Other factors concerning the finances of these funds have already been addressed in the discussion of the City of Denton’s business-type activities. GENERAL FUND BUDGETARY HIGHLIGHTS During fiscal year 2019, three formal amendments to adjust the City of Denton’s Annual Program of Services were approved by Council for the General Fund. Council approved funding to provide for additional improvements and other administrative expenses. The additional funds increased the Roadway Impact Fee Fund by $4.3 million to fund roadway improvements, the Fleet Service Fund by $0.5 million for funding fuel purchases and outsourced vehicle and equipment repairs, the Risk Retention Fund by $0.3 million to fund additional claims, and the Animal Donations Fund by $0.1 million for funding Denton Animal Support Foundation donations. Council also increased funding for two Chapter 380 agreements. The Westpark TIRZ received $0.2 million and the Tourist and Convention Fund received $0.4 million. 12 CITY OF DENTON, TEXAS MANAGEMENT’S DISCUSSION AND ANALYSIS (continued) SEPTEMBER 30, 2019 GENERAL FUND BUDGET TO ACTUAL HIGHLIGHT For fiscal year 2019, General Fund actual expenditures (including transfers) on a budgetary basis were $126.5 million compared to the final budget of $129.2 million. The $2.7 million positive expenditure variance was primarily due to reduced costs of $0.4 million in personnel services, $0.2 million in materials and supplies, $0.4 in maintenance and repairs, $0.8 million in service operations, and $1.1 million in transfers. These positive variances were offset by an increase in spending for fixed assets of $0.2 million. The personnel savings is due to reduced costs of $0.2 million in public works and $0.2 million in parks and recreation. Public safety personnel costs did increase $1.0 million but were offset by $1.0 million in savings from general government. In addition to personnel savings, general government had a positive variance to budget of $0.2 million in materials and supplies. Maintenance and repair costs were favorable to budget by $0.1 million for general government, $0.1 million for public works, and $0.2 million for parks and recreation. The net favorable variance in service operations was due to general government savings of $1.2 million that was offset by increased costs for public safety of $0.5 million. Capital project expenditures were favorable to budget by $0.1 million for both general government and parks and recreation. Actual revenues for the General Fund (including transfers and sale of capital asset) on a budgetary basis were $126.9 million compared to the final budget of $127.7 million. Included in the $0.8 unfavorable revenue variance was a sales tax revenue shortfall of $3.0 million and fees for services for $1.0 million. Favorable variances for franchise fees of $0.7 million, investment income of $0.7, and miscellaneous income of $0.1 million helped offset these declines. Administrative transfers into the general fund were favorable by $1.9 million compared to budget. This included a $1.1 million transfer from capital projects per a reimbursement ordinance and cost of service adjustments from electric for $0.5 million, water for $0.2 million, and $0.1 million for wastewater. The City of Denton’s General Fund unassigned fund balance at September 30, 2019 is $30.6 million, or 23.7% of budgeted expenditures. Below is a listing of the ending unassigned balances for the prior year, as well as the fiscal year 2019 unassigned fund balance. The largest revenue source of the General Fund’s budget was the ad valorem tax. Denton’s ad valorem tax rate is comprised of two components. The first is the operations and maintenance component that is used to calculate revenue for the City’s General Fund operations. The second component is the debt portion that is used to calculate revenue to pay the City’s general debt service obligations. The Denton Central Appraisal District’s certified appraisal roll shows an increase of 9.53% compared to the prior year certified value, which showed an increase of 13.32%. The current property tax year included $318.8 million of new growth and construction that was added to the tax rolls in Tax year 2018 as compared to Tax year 2017. The fiscal year 2019 ad valorem tax rate decreased to $0.620477 as compared to the prior years’ rate of $0.637856 per $100 of valuation. Actual Actual 9/30/2019 9/30/2018 Unassigned balance $30,578,238 $28,918,681 % of final budgeted expenditures 23.7%23.1% Policy level 20% plus up to a 5% resiliency reserve 20% plus up to a 5% resiliency reserve 13 CITY OF DENTON, TEXAS MANAGEMENT’S DISCUSSION AND ANALYSIS (continued) SEPTEMBER 30, 2019 CAPITAL ASSET AND DEBT ADMINISTRATION Capital assets. At the end of fiscal year 2019, the City had $1,636,971,411 invested in a broad range of capital assets, including police and fire equipment, buildings, park facilities, roads, bridges, electrical infrastructure, and water and sewer lines (see Table 3 below). This amount represents a net increase (including additions and deductions) of $186,973,859 or 13.9% over the prior fiscal year. This year’s major asset additions included: Additional information on the City’s capital assets can be found in note IV. D. on pages 51 - 53 of this report. 2019 2018 2019 2018 2019 2018 Land 22,244$ 22,244$ 61,462$ 49,287$ 83,706$ 71,531$ Landfill improvements - - 4,231 2,170 4,231 2,170 Building and improvements 49,490 43,986 30,401 17,852 79,891 61,838 Plant, machinery and equipment 45,318 42,981 539,361 336,017 584,679 378,998 Water rights - - 48,743 49,439 48,743 49,439 Infrastructure 122,713 114,902 395,167 380,315 517,880 495,217 Construction in progress 132,648 86,858 185,194 389,024 317,842 475,882 Total capital assets 372,413$ 310,971$ 1,264,559$ 1,224,104$ 1,636,972$ 1,535,075$ Table 3 Capital Assets at Year-end (Net of Accumulated Depreciation, in Thousands) Governmental Activities Business-type Activities Totals Description Amount Denton Energy Center 226,180,048$ Eagle Farms and Porter Land Acquistion (Airport / DEC) 7,144,873 Cooper Creek Interceptor / Sewer Line Improvements 7,003,677 Fire Station #4 4,387,223 Landfill Cell Improvements 3,707,828 Westpark TIRZ Improvements 3,669,165 Harvest Hill Subdivision Infrastructure 3,377,908 Woodrow Substation Upgrade (Electric)3,260,241 Enterprise Data Center 2,872,486 Beaver Creek Subdivision Infrastructure 2,858,439 Fire Training Facility 2,848,182 Brentwood Place Infrastructure Improvements 2,708,694 Fort Worth Substation Addition / Expansion (Electric) 2,467,878 Evers Way Subdivision Infrastructure 2,259,548 Total 274,746,190$ 14 CITY OF DENTON, TEXAS MANAGEMENT’S DISCUSSION AND ANALYSIS (continued) SEPTEMBER 30, 2019 Debt. At year-end, the City had $9675 million in bonds and notes outstanding as compared to $982.1 million at the end of the prior fiscal year, a decrease of 1.49%, as shown in Table 4. These amounts do not include net unamortized premiums/ (discounts) of $69,626,525 or net deferred gain/ (loss) on refunding of ($3,940,228). During the current fiscal year, the City issued debt two times, both in July 2019. The first debt issuance included $28.8 million in certificates of obligation, of which $19.4 million was for enterprise operations. The second debt issuance included $44.3 million in general obligation refunding and improvement bonds, of which $26.3 million for enterprise operations. Proceeds from both issues were used to pay for various capital improvements. Normal pay down in debt was $29.1 million in general obligation bonds and $58.6 million in certificates of obligation. Moody’s Investor’s Service, Inc. has given the City’s General Obligation Bonds and the Certificates of Obligation a rating of “Aa1.” Moody’s did not rate the City’s Utility System Revenue Bonds. Standard and Poor’s Corporation has given both the City’s General Obligation Bonds and Certificates of Obligation an “AA+” rating. Standard and Poor’s Corporation has given the City’s Utility System Revenue Bonds a rating of “AA-”. Fitch has given the City’s General Obligation Bonds and the Certificates of Obligation a rating of “AA+.” Fitch has given the City’s Utility System Revenue Bonds a rating of “A+”. The City is permitted by Article XI, Section 5 of the State of Texas Constitution to levy taxes up to $2.50 per $100 of assessed valuation for general governmental services including the payment of principal and interest on general obligation long-term debt. The current ratio of tax-supported debt to certified assessed value of all taxable property is 2.28%. Other long-term liabilities. The City maintains a self-insurance program for general liability, auto liability, public officials’ liability, errors and omission liability, police professional liability, and workers’ compensation. Private insurance companies cover claims for property loss over $50,000 per occurrence, except for specific perils, these deductibles vary depending on location and property values, for workers’ compensation losses over $600,000 per occurrence, and for liability over $500,000 per occurrence. The Risk Retention Fund has a reserve for claims and judgments of $2.8 million outstanding at year-end. This reserve was slightly reduced ($.05 million) from the end of the prior fiscal year. Other obligations include pension liabilities, accrued vacation pay and sick leave. More detailed information about the City’s long-term liabilities is presented in Note IV. G., on pages 56 - 60 of this report. ECONOMIC FACTORS AND NEXT YEAR’S BUDGETS AND RATES While growth for the Denton community is expected to be moderate in the short term, demands for city services are expected to remain strong over the long term. As a result, the fiscal year 2020 Budget includes an ad valorem tax rate of $0.590454/$100 valuation, a decrease of $0.030023/$100 in comparison to the prior year. While sales tax collections were relatively flat compared to the prior year (0.2% increase), the fiscal year 2020 Budget projects an increase of 2.5% over actual fiscal year 2019 sales tax revenue. Budgeted funding enhancements for fiscal year 2020 include $2.8 million for public safety, $2.4 million for neighborhood services, $0.2 million for administrative and community services, and $0.2 million for transportation services in accordance with priorities established through the Strategic Plan. Public safety enhancements include 18.5 new positions, technology improvements, professional development programs, and overtime funding for communications. Neighborhood 2019 2018 2019 2018 2019 2018 General obligation bonds 135,508$ 127,648$ 118,682$ 111,347$ 254,190$ 238,995$ Certificates of obligation 83,560 81,200 414,890 447,050 498,450 528,250 Revenue bonds - - 214,890 214,890 214,890 214,890 Total 219,068$ 208,848$ 748,462$ 773,287$ 967,530$ 982,135$ Table 4 Outstanding Debt at Year-end (in thousands) Governmental Activities Business-type Activities Totals 15 CITY OF DENTON, TEXAS MANAGEMENT’S DISCUSSION AND ANALYSIS (continued) SEPTEMBER 30, 2019 services enhancements include funding for new and existing park maintenance, comprehensive plan studies, and homeless initiatives. The fiscal year 2020 budget includes no rate changes for electric, water, or wastewater customers. Solid waste rates also remain unchanged for 2020, however, the City will introduce a monthly subscription rate for yard waste service. REQUESTS FOR INFORMATION This financial report is designed to provide a general overview of the City’s finances for all those with an interest in the City’s finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the City of Denton Finance Department, 215 E. McKinney, Denton, Texas 76201. 16 CITY OF DENTON, TEXAS Exhibit I STATEMENT OF NET POSITION AS OF SEPTEMBER 30, 2019 Primary Government Governmental Business-type Activities Activities Total ASSETS: Cash, cash equivalents and investments, at fair value 80,681,162$ 196,134,986$ 276,816,148$ Receivables, net of allowances: Taxes 8,830,102 - 8,830,102 Accounts - 19,553,455 19,553,455 Unbilled utility service - 18,293,710 18,293,710 Interest 327,606 794,840 1,122,446 Other 2,442,200 7,343,165 9,785,365 Internal balances (15,844,022) 15,844,022 - Due from other governments 3,196,946 - 3,196,946 Inventory 8,273,896 - 8,273,896 Prepaid items 256,273 9,561,808 9,818,081 Other Assets - 31,581,238 31,581,238 Restricted assets: Cash, cash equivalents and investments, at fair value 184,934,098 134,179,202 319,113,300 Escrow deposits 201,000 - 201,000 Accrued interest 749,478 543,783 1,293,261 Other receivables 76,868 - 76,868 Capital assets not being depreciated: Land 22,243,771 61,462,065 83,705,836 Construction in progress 132,647,539 185,193,966 317,841,505 Capital assets, net of accumulated depreciation: Buildings 49,489,541 30,401,329 79,890,870 Plant, machinery and equipment 45,318,209 539,360,446 584,678,655 Infrastructure 122,713,481 395,167,217 517,880,698 Landfill improvements - 4,231,122 4,231,122 Water rights - 48,742,725 48,742,725 Total assets 646,538,148 1,698,389,079 2,344,927,227 DEFERRED OUTFLOWS OF RESOURCES: Deferred loss on refundings 1,210,989 2,729,239 3,940,228 Deferred pension balances 43,887,663 18,918,370 62,806,033 Deferred other post-employment benefit balances 1,777,674 833,897 2,611,571 Total deferred outflows of resources 46,876,326 22,481,506 69,357,832 LIABILITIES: Accounts payable 9,847,567 10,305,292 20,152,859 Retainage payable 174,160 95,245 269,405 Deposits - 3,917,164 3,917,164 Accrued interest 7,929 - 7,929 Other liabilities 441,811 - 441,811 Unearned revenue 59,058,764 - 59,058,764 Payable from restricted assets: Accounts payable 8,763,023 2,193,041 10,956,064 Retainage payable 1,601,670 626,567 2,228,237 Accrued interest 1,079,965 6,323,191 7,403,156 Noncurrent liabilities: Noncurrent liabilities due within one year 28,948,456 63,227,872 92,176,328 Noncurrent liabilities due in more than one year 334,708,308 831,196,249 1,165,904,557 Total liabilities 444,631,694 917,884,621 1,362,516,315 DEFERRED INFLOWS OF RESOURCES: Deferred charges on refundings - 754,467 754,467 Deferred pension balances 13,731,906 6,101,163 19,833,069 Deferred other post-employment benefit balances 1,269,842 603,695 1,873,537 Total deferred inflows of resources 15,001,748 7,459,325 22,461,073 NET POSITION: Net investment in capital assets 242,957,674 589,492,414 832,450,088 Restricted for: Debt service 4,627,301 10,060,625 14,687,926 Parks and recreation 7,156,908 - 7,156,908 Capital acquisition 11,393,397 22,618,292 34,011,689 Other grants and purposes 7,171,142 - 7,171,142 Unrestricted (39,525,390) 173,355,308 133,829,918 Total net position 233,781,032$ 795,526,639$ 1,029,307,671$ The notes to the basic financial statements are an integral part of this statement. 17 CITY OF DENTON, TEXAS Exhibit II STATEMENT OF ACTIVITIES FOR THE YEAR ENDED SEPTEMBER 30, 2019 Program Revenues Operating Capital Charges for Grants and Grants and Functions/Programs Expenses Services Contributions Contributions Primary government: Governmental activities: General government 39,051,942$ 6,460,483$ 1,395,984$ 30,000$ Public safety 77,883,435 7,233,973 2,086,518 274,732 Public works 24,502,864 712,953 - 27,641,794 Parks and recreation 17,710,634 5,868,619 610,030 139,065 Interest expense 6,750,917 - - - Total governmental activities 165,899,792 20,276,028 4,092,532 28,085,591 Business-type activities: Electric system 236,131,640 242,437,211 - - Water system 29,689,758 45,886,900 - 6,018,228 Wastewater system 28,317,484 35,042,110 - 10,020,848 Solid waste 30,541,859 34,670,519 - - Airport 2,017,380 1,397,581 - - Total business-type activities 326,698,121 359,434,321 - 16,039,076 Total primary government 492,597,913$ 379,710,349$ 4,092,532$ 44,124,667$ (continued on the following page) The notes to the basic financial statements are an integral part of this statement. 18 CITY OF DENTON, TEXAS Exhibit II STATEMENT OF ACTIVITIES (concluded) FOR THE YEAR ENDED SEPTEMBER 30, 2019 Primary Government Governmental Business-type Functions/Programs Activities Activities Total Primary government: Governmental activities: General government (31,165,475)$ -$ (31,165,475)$ Public safety (68,288,212) - (68,288,212) Public works 3,851,883 - 3,851,883 Parks and recreation (11,092,920) - (11,092,920) Interest expense (6,750,917) - (6,750,917) Total governmental activities (113,445,641) - (113,445,641) Business-type activities: Electric system - 6,305,571 6,305,571 Water system - 22,215,370 22,215,370 Wastewater system - 16,745,474 16,745,474 Solid waste - 4,128,660 4,128,660 Airport - (619,799) (619,799) Total business-type activities - 48,775,276 48,775,276 Total primary government (113,445,641) 48,775,276 (64,670,365) (continued on the following page) General revenues: Taxes: Property tax 71,351,314 - 71,351,314 Sales tax 38,330,825 - 38,330,825 Franchise fees 26,160,639 - 26,160,639 Hotel occupancy tax 3,039,747 - 3,039,747 Beverage tax 661,823 - 661,823 Bingo tax 11,445 - 11,445 Investment income 6,093,100 9,026,713 15,119,813 Gain on sale of capital assets 95,760 - 95,760 Miscellaneous 3,930,285 - 3,930,285 Transfers 1,018,664 (1,018,664) - Total general revenues and transfers 150,693,602 8,008,049 158,701,651 Change in net position 37,247,961 56,783,325 94,031,286 Net position at beginning of year 196,533,071 738,743,314 935,276,385 Net position at end of year 233,781,032$ 795,526,639$ 1,029,307,671$ The notes to the basic financial statements are an integral part of this statement.(concluded) Net (Expense) Revenue and Changes in Net Position 19 CITY OF DENTON, TEXAS Exhibit III BALANCE SHEET GOVERNMENTAL FUNDS AS OF SEPTEMBER 30, 2019 Capital Other Total General Debt Service Projects Governmental Governmental Fund Fund Fund Funds Funds ASSETS: Cash, cash equivalents and investments, at fair value 26,064,281$ 5,315,397$ 189,031,769$ 24,878,126$ 245,289,573$ Receivables, net of allowances for uncollectibles: Taxes 8,139,673 378,256 - 312,173 8,830,102 Accrued interest 107,660 21,542 766,082 100,820 996,104 Other 2,352,163 - 23,868 26,739 2,402,770 Interfund receivables 892,529 - - - 892,529 Due from other governments 1,379,881 - 409,329 1,407,736 3,196,946 Total assets 38,936,187$ 5,715,195$ 190,231,048$ 26,725,594$ 261,608,024$ LIABILITIES: Accounts payable 4,793,800 - 8,115,254 1,280,846 14,189,900 Retainage payable - - 1,748,075 19,304 1,767,379 Interfund payables - - - 211,221 211,221 Due to other governments 41 - - - 41 Other liabilities 441,811 - - - 441,811 Unearned revenues - - 59,032,893 25,871 59,058,764 Total liabilities 5,235,652 - 68,896,222 1,537,242 75,669,116 DEFERRED INFLOWS OF RESOURCES: Unavailable revenue - property taxes 543,041 262,015 - - 805,056 Unavailable revenue - general services 1,811,819 - - - 1,811,819 Unavailable revenue - intergovernmental 606,831 - 409,329 761,663 1,777,823 Total deferred inflows of resources 2,961,691 262,015 409,329 761,663 4,394,698 FUND BALANCES: Restricted for: Debt service - 5,453,180 - - 5,453,180 Parks and recreation - - 5,668,582 7,054,495 12,723,077 Streets and drainage projects - - 72,508,710 3,389,244 75,897,954 Other capital projects - - 20,271,843 - 20,271,843 Other grants and purposes - - - 7,171,142 7,171,142 Committed to: Streets - - 2,524,083 3,441,732 5,965,815 Parks and recreation - - 176,660 372,755 549,415 Other purposes - - - 3,779,944 3,779,944 Assigned to: Streets and drainage projects - - 10,867,803 - 10,867,803 Use of reserves 160,606 - - - 160,606 Capital projects - - 8,907,816 - 8,907,816 Other purposes - - 61 61 Unassigned 30,578,238 - - (782,684) 29,795,554 Total fund balances 30,738,844 5,453,180 120,925,497 24,426,689 181,544,210 Total liabilities, deferred inflows of resources and fund balances 38,936,187$ 5,715,195$ 190,231,048$ 26,725,594$ 261,608,024$ The notes to the basic financial statements are an integral part of this statement. 20 CITY OF DENTON, TEXAS Exhibit IV RECONCILIATION OF THE BALANCE SHEET OF GOVERNMENTAL FUNDS TO THE STATEMENT OF NET POSITION AS OF SEPTEMBER 30, 2019 Total fund balances - governmental funds (Exhibit III)181,544,210$ Amounts reported for governmental activities in the statement of net position are different because: Capital assets used in governmental activities are not financial resources and therefore are not reported as assets in governmental funds. Includes capital assets of internal service funds.372,412,541 Certain receivables will be collected next year but are not available soon enough to pay for the current period's expenditures and therefore are reported as deferred inflows of resources in the funds.4,394,698 Deferred outflows of resources are not reported in the governmental funds. Includes deferred outflows of internal service funds: Deferred loss on refundings 1,210,989$ Deferred pension balances 43,887,663 Deferred other post-employment benefits contributions 1,777,674 46,876,326 An internal charge to business-type activities is not recorded at the fund level.(9,225,330) Several internal service funds are used by the City's management to charge the costs of certain activities, such as insurance and fleet management, to individual funds. The assets, liabilities, deferred outflows, and deferred inflows of the internal service funds are included with governmental activities. Internal service fund balances not included in other reconciling items listed above or below: Current assets 29,254,134$ Liabilities (16,323,432) 12,930,702 Long-term balances, including bonds payable, are not due and payable in the current period and therefore are not reported as liabilities in the funds. Includes balances of internal service funds. Long-term liabilities and related balances at year-end consist of: General obligation bonds payable (135,507,957)$ Certificates of obligation payable (83,560,000) Bond (premiums)/discounts (12,749,386) Accrued interest on the bonds (1,087,894) Capital leases payable - Net Pension Liability (84,815,577) Total other post-employment benefits liability (29,130,676) Compensated absences (13,298,877) (360,150,367) Deferred inflows of resources are not reported in the governmental funds. Includes deferred outflows of internal service funds: Deferred pension balances (15,001,748) Deferred other post-employment benefits contributions Total net position of governmental activities (Exhibit I)233,781,032$ The notes to the basic financial statements are an integral part of this exhibit. 21 CITY OF DENTON, TEXAS Exhibit V STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2019 Capital Other Total General Debt Service Projects Governmental Governmental Fund Fund Fund Funds Funds REVENUES: Taxes 85,149,284$ 24,316,086$ -$ 3,971,866$ 113,437,236$ Licenses and permits 3,889,820 - - - 3,889,820 Franchise fees 13,443,408 - - 12,717,231 26,160,639 Fines and forfeitures 3,651,697 - - 1,495,506 5,147,203 Fees for services 6,981,182 - - 4,602,561 11,583,743 Investment revenue 1,114,348 525,796 3,939,768 513,188 6,093,100 Intergovernmental 1,339,188 - 18,140,308 2,997,696 22,477,192 Miscellaneous 470,502 - 1,233,844 3,339,306 5,043,652 Total revenues 116,039,429 24,841,882 23,313,920 29,637,354 193,832,585 EXPENDITURES: Current: General government 29,967,473 - 34,962 5,525,628 35,528,063 Public safety 68,174,782 - 146,343 2,936,533 71,257,658 Public works 3,035,748 - 102,611 11,440,859 14,579,218 Parks and recreation 9,786,783 - 37,151 5,397,158 15,221,092 Capital outlay 737,271 - 63,159,529 939,085 64,835,885 Debt service: Principal retirement 4,171 16,900,466 - - 16,904,637 Bond issuance costs - - 142,226 - 142,226 Interest and other charges - 8,146,969 - - 8,146,969 Total expenditures 111,706,228 25,047,435 63,622,822 26,239,263 226,615,748 Excess (deficiency) of revenues over (under) expenditures 4,333,201 (205,553) (40,308,902) 3,398,091 (32,783,163) OTHER FINANCING SOURCES (USES): Issuance of long-term debt - - 25,870,000 - 25,870,000 Premium on debt issuance - - 2,006,343 - 2,006,343 Insurance recoveries - - 88,954 - 88,954 Sale of capital assets 17,033 - - - 17,033 Transfers in 1,100,000 129,250 8,797,645 4,450,849 14,477,744 Transfers out (5,028,775) - (1,102,091) (4,103,778) (10,234,644) Total other financing sources (uses)(3,911,742) 129,250 35,660,851 347,071 32,225,430 Net change in fund balances 421,459 (76,303) (4,648,051) 3,745,162 (557,733) Fund balance at beginning of year 30,317,385 5,529,483 125,573,548 20,681,527 182,101,943 Fund balances at end of year 30,738,844$ 5,453,180$ 120,925,497$ 24,426,689$ 181,544,210$ The notes to the basic financial statements are an integral part of this statement. 22 CITY OF DENTON, TEXAS Exhibit VI RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED SEPTEMBER 30, 2019 Net change in fund balances - total governmental funds (Exhibit V) (557,733)$ Amounts reported for governmental activities in the statement of activities are different because: Governmental funds report capital outlays as expenditures. However, in the statement of activities the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. This is the amount by which capital outlay ($64,835,885) is different from depreciation and retirement of assets ($18,611,023 = $20,678,309 total governmental minus $2,067,286 internal service portion) in the current period. 46,224,862 Revenues in the statement of activities that do not provide current financial resources are not reported as revenues in the funds. Such amounts are recorded in the funds when considered available.(393,898) The net effect of various miscellaneous transactions involving capital assets (i.e., sales, trade-ins and donations) is to increase net position.8,549,557 Bond proceeds provide current financial resources to governmental funds, but issuing debt increases long-term liabilities in the statement of net position. Repayment of bond principal is an expenditure in the governmental funds, but the repayment reduces long-term liabilities in the statement of net position. This is the amount by which payments exceeded proceeds.(8,965,364) Fund-level financials report costs related to bonds as expenditures; however, these are deferred and amortized on the government-wide financials.(552,287) Certain 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. (5,550,318) Internal service funds are used by management to charge the costs of certain activities, such as insurance and technology services, to individual funds. A portion of the net revenue (expense) of certain internal service funds is reported with governmental activities. The amount reported with business-type activities is $2,389,856.(1,506,858) Change in net position of governmental activities (Exhibit II)37,247,961$ The notes to the basic financial statements are an integral part of this statement. 23 24 CITY OF DENTON, TEXAS Exhibit VII STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET TO ACTUAL GENERAL FUND FOR THE YEAR ENDED SEPTEMBER 30, 2019 Variance with Adjustments -Actual on a Final Budget - Actual Budgetary Budgetary Positive Original Final Amounts Basis Basis (Negative) REVENUES: Taxes 88,191,500$ 88,191,500$ 85,149,284$ -$ 85,149,284$ (3,042,216)$ Licenses and permits 3,863,524 3,863,524 3,889,820 - 3,889,820 26,296 Franchise fees 12,790,058 12,790,058 13,443,408 - 13,443,408 653,350 Fines and forfeitures 3,723,000 3,723,000 3,651,697 - 3,651,697 (71,303) Fees for services 8,154,879 8,154,879 6,981,182 203,739 7,184,921 (969,958) Investment revenue 460,000 460,000 1,114,348 - 1,114,348 654,348 Intergovernmental 1,280,810 1,280,810 1,339,188 - 1,339,188 58,378 Miscellaneous 363,388 363,388 470,502 - 470,502 107,114 Total revenues 118,827,159 118,827,159 116,039,429 203,739 116,243,168 (2,583,991) EXPENDITURES: Current: General government 35,780,957 35,012,870 29,967,473 4,587,091 34,554,564 458,306 Public safety 65,282,346 65,274,931 68,174,782 (3,666,233) 64,508,549 766,382 Public works 3,143,679 3,143,679 3,035,748 (125,079) 2,910,669 233,010 Parks and recreation 10,101,019 10,032,609 9,786,783 (294,528) 9,492,255 540,354 Capital outlay 589,553 548,911 737,271 - 737,271 (188,360) Debt service: Principal retirement - - 4,171 - 4,171 (4,171) Total expenditures 114,897,554 114,013,000 111,706,228 501,251 112,207,479 1,805,521 Excess (deficiency) of revenues over (under) expenditures 3,929,605 4,814,159 4,333,201 (297,512) 4,035,689 (778,470) OTHER FINANCING SOURCES (USES): Sale of capital assets 141,000 141,000 17,033 - 17,033 (123,967) Transfer in 8,733,146 8,733,146 1,100,000 9,531,697 10,631,697 1,898,551 Transfers out (14,286,882) (15,171,436) (5,028,775) (9,234,185) (14,262,960) 908,476 Total other financing sources (uses)(5,412,736) (6,297,290) (3,911,742) 297,512 (3,614,230) 2,683,060 Excess (deficiency) of revenues and other sources over (under) expenditures and other uses (1,483,131) (1,483,131) 421,459 - 421,459 1,904,590 Fund balances at beginning of year 30,317,385 30,317,385 30,317,385 - 30,317,385 - Fund balance at end of year 28,834,254$ 28,834,254$ 30,738,844$ -$ 30,738,844$ 1,904,590$ Adjustments - Budgetary Basis are expenditures allocated to and reimbursed by other funds. These expenditures are recorded in the other funds' financials. The notes to the basic financial statements are an integral part of this statement. Budgeted Amounts 25 CITY OF DENTON, TEXAS Exhibit VIII STATEMENT OF NET POSITION PROPRIETARY FUNDS AS OF SEPTEMBER 30, 2019 Electric Water Wastewater Fund Fund Fund ASSETS: Current assets: Cash, cash equivalents and investments, at fair value 73,862,439$ 61,978,738$ 44,821,921$ Receivables, net of allowances: Accounts 13,740,818 2,632,280 1,465,399 Unbilled utility service 11,286,978 3,476,604 1,862,164 Accrued interest 299,340 251,153 181,647 Other 7,258,831 - - Interfund receivables 5,500,830 912,180 205,682 Merchandise inventory - - - Prepaid items 9,561,808 - - Other Assets 31,581,238 - - Total current assets 153,092,282 69,250,955 48,536,813 Noncurrent assets: Restricted assets: Cash, cash equivalents and investments, at fair value 53,028,990 32,065,094 22,707,007 Escrow deposit - - - Accrued interest 214,909 129,949 92,024 Total restricted assets 53,243,899 32,195,043 22,799,031 Capital assets, net of accumulated depreciation 687,422,490 272,569,480 235,042,875 Total noncurrent assets 740,666,389 304,764,523 257,841,906 Total assets 893,758,671 374,015,478 306,378,719 DEFERRED OUTFLOWS OF RESOURCES: Deferred charges on refunding 955,692 1,578,138 97,531 Deferred pension balances 8,766,431 3,120,541 3,158,070 Deferred other post employment benefit balances 325,427 126,528 181,747 Total deferred outflows of resources 10,047,550 4,825,207 3,437,348 LIABILITIES: Current liabilities: Accounts payable 6,479,873 1,670,624 1,448,503 Retainage payable - 12,253 82,992 Claims payable - - - Compensated absences payable 1,106,970 382,979 359,743 Deposits 3,294,311 305,148 103,009 Accrued interest - - - Interfund payables - - - Asset retirement obligation 2,766,190 - - Payable from restricted assets: Accounts payable 1,433,842 660,694 74,036 Retainage payable 577,718 41,301 - Accrued interest 5,464,562 409,732 229,467 Certificate and general obligation bonds 33,700,571 10,930,972 6,187,288 Total current liabilities paid from restricted assets 41,176,693 12,042,699 6,490,791 Total current liabilities 54,824,037 14,413,703 8,485,038 (continued on the following page) Utility System Business-type Activities - Enterprise Funds 26 CITY OF DENTON, TEXAS Exhibit VIII STATEMENT OF NET POSITION PROPRIETARY FUNDS AS OF SEPTEMBER 30, 2019 Governmental Activities - Total Internal Solid Waste Airport Enterprise Service Fund Fund Funds Funds ASSETS: Current assets: Cash, cash equivalents and investments, at fair value 11,798,831$ 3,673,057$ 196,134,986$ 18,622,454$ Receivables, net of allowances: Accounts 1,657,579 57,379 19,553,455 - Unbilled utility service 1,667,964 - 18,293,710 - Accrued interest 47,814 14,886 794,840 74,077 Other - 84,334 7,343,165 116,298 Interfund receivables - - 6,618,692 - Merchandise inventory - - - 8,273,896 Prepaid items - - 9,561,808 256,273 Deferred charges - - 31,581,238 - Total current assets 15,172,188 3,829,656 289,881,894 27,342,998 Noncurrent assets: Restricted assets: Cash, cash equivalents and investments, at fair value 23,583,092 2,795,019 134,179,202 1,703,233 Escrow deposit - - - 201,000 Accrued interest 95,574 11,327 543,783 6,903 Total restricted assets 23,678,666 2,806,346 134,722,985 1,911,136 Capital assets, net of accumulated depreciation 53,596,277 15,927,748 1,264,558,870 15,128,483 Total noncurrent assets 77,274,943 18,734,094 1,399,281,855 17,039,619 Total assets 92,447,131 22,563,750 1,689,163,749 44,382,617 DEFERRED OUTFLOWS OF RESOURCES: Deferred charges on refunding 97,878 - 2,729,239 10,930 Deferred pension balances 3,681,758 191,570 18,918,370 7,213,809 Deferred other post employment benefit balances 189,595 10,600 833,897 364,617 Total deferred outflows of resources 3,969,231 202,170 22,481,506 7,589,356 LIABILITIES: Current liabilities: Accounts payable 680,348 25,944 10,305,292 4,416,484 Retainage payable - - 95,245 - Claims payable - - - 2,285,831 Compensated absences payable 375,388 21,764 2,246,844 925,424 Deposits 195,687 19,009 3,917,164 - Accrued interest - - - 7,929 Interfund payables - - - 7,300,000 Asset retirement obligation - - 2,766,190 - Payable from restricted assets: Accounts payable 24,469 - 2,193,041 4,206 Retainage payable 7,548 - 626,567 8,451 Accrued interest 219,430 - 6,323,191 - Certificate and general obligation bonds 7,396,007 - 58,214,838 413,269 Total current liabilities paid from restricted assets 7,647,454 - 67,357,637 425,926 Total current liabilities 8,898,877 66,717 86,688,372 15,361,594 (continued on the following page)(continued on the following page) Business-type Activities - Enterprise Funds 27 CITY OF DENTON, TEXAS Exhibit VIII STATEMENT OF NET POSITION PROPRIETARY FUNDS AS OF SEPTEMBER 30, 2019 Electric Water Wastewater Fund Fund Fund Noncurrent liabilities: General obligation bonds payable 54,061,521$ 38,922,098$ 5,995,882$ Certificates of obligation 316,883,454 31,177,002 35,069,756 Revenue bonds payable 230,578,841 - - Asset retirement obligation 19,897,527 - - Compensated absences payable 239,744 42,961 59,093 Claims payable - - - Net pension liability 17,533,262 6,042,284 6,470,272 Total other post-employment benefits liability 5,197,784 2,845,691 3,106,974 Landfill closure/postclosure costs - - - Total noncurrent liabilities 644,392,133 79,030,036 50,701,977 Total liabilities 699,216,170 93,443,739 59,187,015 DEFERRED INFLOWS OF RESOURCES: Deferred charges on refundings 754,467 - - Deferred pension balances 2,871,371 941,436 984,975 Deferred other post employment benefit balances 224,004 116,379 121,949 Total deferred inflows of resources 3,849,842 1,057,815 1,106,924 NET POSITION: Net investment in capital assets 132,924,431 212,237,058 203,919,697 Restricted for debt service 10,060,625 - - Restricted for capital acquisition - 13,045,131 6,766,815 Unrestricted 57,755,153 59,056,942 38,835,616 Total net position 200,740,209$ 284,339,131$ 249,522,128$ (continued on the following page) The notes to the basic financial statements are an integral part of this statement. Utility System Business-type Activities - Enterprise Funds 28 CITY OF DENTON, TEXAS Exhibit VIII STATEMENT OF NET POSITION (concluded) PROPRIETARY FUNDS AS OF SEPTEMBER 30, 2019 Governmental Activities - Total Internal Solid Waste Airport Enterprise Service Fund Fund Funds Funds Noncurrent liabilities: General obligation bonds payable 2,887,168$ -$ 101,866,669$ 186,556$ Certificates of obligation 31,548,622 - 414,678,834 1,370,077 Revenue bonds payable - - 230,578,841 - Asset retirement obligation - - 19,897,527 - Compensated absences payable 97,826 638 440,262 125,139 Claims payable - - - 2,308,460 Net pension liability 7,747,408 473,357 38,266,583 13,106,440 Total other post-employment benefits liability 3,166,875 179,827 14,497,151 5,254,893 Landfill closure/postclosure costs 10,970,382 - 10,970,382 - Total noncurrent liabilities 56,418,281 653,822 831,196,249 22,351,565 Total liabilities 65,317,158 720,539 917,884,621 37,713,159 DEFERRED INFLOWS OF RESOURCES: Deferred charges on refundings - - 754,467 1,934,738 Deferred pension balances 1,243,818 59,563 6,101,163 1,934,738 Deferred other post employment benefit balances 133,934 7,429 603,695 244,991 Total deferred inflows of resources 1,377,752 66,992 7,459,325 4,114,467 NET POSITION: Net investment in capital assets 24,483,480 15,927,748 589,492,414 13,169,511 Restricted for debt service - - 10,060,625 - Restricted for capital acquisition - 2,806,346 22,618,292 1,710,136 Unrestricted 5,237,972 3,244,295 164,129,978 (2,800,562) Total net position 29,721,452$ 21,978,389$ 786,301,309$ 12,079,085$ Adjustment to reflect inclusion of internal service fund activities related to enterprise funds.9,225,330 Net position of business-type activities (Exhibit I)795,526,639$ The notes to the basic financial statements are an integral part of this statement.(concluded) Business-type Activities - Enterprise Funds 29 CITY OF DENTON, TEXAS Exhibit IX STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET POSITION PROPRIETARY FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2019 Electric Water Wastewater Fund Fund Fund OPERATING REVENUES: Utility services 233,248,967$ 37,057,130$ 29,193,400$ Charges for goods and services - - - Other fees 9,188,244 1,305,976 1,427,097 Miscellaneous - - - Total operating revenues 242,437,211 38,363,106 30,620,497 OPERATING EXPENSES: Operating expenses before depreciation 197,841,218 19,181,820 19,720,085 Depreciation 22,712,226 8,302,616 8,399,869 Total operating expenses 220,553,444 27,484,436 28,119,954 Operating income (loss)21,883,767 10,878,670 2,500,543 NON-OPERATING REVENUES (EXPENSES): Investment revenue 3,649,893 2,504,272 1,698,530 Interest expense and fiscal charges (13,439,903) (1,934,582) (722,099) Impact fee revenue - 7,523,794 4,421,613 Gain (loss) on disposal of capital assets (1,012,532) - (154,438) Gas well revenues - - - Other non-operating revenues (expenses)- 119,711 1,031,660 Total non-operating revenues (expenses)(10,802,542) 8,213,195 6,275,266 Income (loss) before contributions and transfers 11,081,225 19,091,865 8,775,809 CONTRIBUTIONS AND TRANSFERS: Capital contributions - 6,018,228 10,020,848 Transfers in - 2,403,614 347,187 Transfers out (762,234) (1,495,614) (1,227,107) Total contributions and transfers (762,234) 6,926,228 9,140,928 Change in net position 10,318,991 26,018,093 17,916,737 Net position at beginning of year 190,421,218 258,321,038 231,605,391 Total net position at end of year 200,740,209$ 284,339,131$ 249,522,128$ (continued on the following page) The notes to the basic financial statements are an integral part of this statement. Business-type Activities - Enterprise Funds Utility System 30 CITY OF DENTON, TEXAS Exhibit IX STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET POSITION (concluded) PROPRIETARY FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2019 Governmental Activities - Total Internal Solid Waste Airport Enterprise Service Fund Fund Funds Funds OPERATING REVENUES: Utility services 34,431,364$ -$ 333,930,861$ -$ Charges for goods and services - 1,068,476 1,068,476 78,134,093 Other fees 239,155 - 12,160,472 - Miscellaneous - 15,780 15,780 1,226,534 Total operating revenues 34,670,519 1,084,256 347,175,589 79,360,627 OPERATING EXPENSES: Operating expenses before depreciation 22,508,634 1,399,610 260,651,367 78,550,034 Depreciation 6,300,870 603,769 46,319,350 2,067,286 Total operating expenses 28,809,504 2,003,379 306,970,717 80,617,320 Operating income (loss)5,861,015 (919,123) 40,204,872 (1,256,693) NON-OPERATING REVENUES (EXPENSES): Investment revenue 935,346 238,672 9,026,713 594,071 Interest expense and fiscal charges (1,178,483) - (17,275,067) (23,976) Impact fee revenue - - 11,945,407 - Gain (loss) on disposal of capital assets (58,653) - (1,225,623) - Gas well revenues - 313,325 313,325 - Other non-operating revenues (expenses)11,354 417 1,163,142 14,320 Total non-operating revenues (expenses)(290,436) 552,414 3,947,897 584,415 Income (loss) before contributions and transfers 5,570,579 (366,709) 44,152,769 (672,278) CONTRIBUTIONS AND TRANSFERS: Capital contributions - - 16,039,076 - Transfers in 112,677 - 2,863,478 29,626 Transfers out (347,187) (50,000) (3,882,142) (3,254,062) Total contributions and transfers (234,510) (50,000) 15,020,412 (3,224,436) Change in net position 5,336,069 (416,709) 59,173,181 (3,896,714) Net position at beginning of year 24,385,383 22,395,098 727,128,128 15,975,799 Total net position at end of year 29,721,452$ 21,978,389$ 786,301,309$ 12,079,085$ Change in fund net position of proprietary funds 59,173,181 Adjustment to reflect inclusion of internal service fund activities related to enterprise funds.(2,389,856) Change in net position of business-type activities (Exhibit II)56,783,325$ The notes to the basic financial statements are an integral part of this statement.(concluded) Business-type Activities - Enterprise Funds 31 CITY OF DENTON, TEXAS Exhibit X STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2019 Electric Water Wastewater Fund Fund Fund CASH FLOWS FROM OPERATING ACTIVITIES: Cash received from customers 233,791,131$ 36,129,340$ 30,906,766$ Cash paid to employees for services (17,795,822) (7,626,693) (7,829,614) Cash paid to suppliers (152,190,715) (9,457,981) (11,027,455) Net cash provided (used) by operating activities 63,804,594 19,044,666 12,049,697 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES: Transfers out (762,234) (1,495,614) (1,114,429) Transfers in - - - Proceeds from issuance of non-capital debt 28,738,939 - - Principal payments on non-capital debt (34,745,000) - - Interest and fiscal charges on non-capital debt (1,967,313) - - Net cash provided (used) by noncapital financing activities:(8,735,608) (1,495,614) (1,114,429) CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Proceeds from issuance of debt 7,620,917 3,011,168 9,842,962 Principal payments on capital debt (14,200,000) (9,290,000) (5,190,000) Interest and fiscal charges (16,245,238) (2,906,010) (1,134,981) Proceeds from gas wells - - - Proceeds from impact fees - 7,523,794 4,421,613 Proceeds from sale or reimbursement of capital assets - - - Acquisition and construction of capital assets (47,237,458) (9,971,433) (7,554,932) Net cash provided (used) by capital financing activities (70,061,779) (11,632,481) 384,662 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale and maturities of investment securities 74,112,973 38,028,013 19,335,847 Purchase of investment securities (86,858,675) (58,843,559) (38,994,173) Interest received on investments 3,810,498 2,541,449 1,691,320 Net cash provided (used) by investing activities (8,935,204) (18,274,097) (17,967,006) Net increase in cash and cash equivalents (23,927,997) (12,357,526) (6,647,076) Cash and cash equivalents at beginning of year 44,321,467 27,477,404 17,500,300 Cash and cash equivalents at end of year 20,393,470 15,119,878 10,853,224 Investments, at fair value (Note IV.A.)106,497,959 78,923,954 56,675,704 Cash, cash equivalents and investments, at fair value 126,891,429$ 94,043,832$ 67,528,928$ RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES: Operating income (loss)21,883,767$ 10,878,670$ 2,500,543$ Adjustments: Depreciation expense 22,712,226 8,302,616 8,399,869 Decrease (Increase) in receivables (2,813,061) (1,987,375) 290,959 Increase in interfund receivables (1,727,377) (246,391) (4,690) Increase in inventories - - - Decrease in prepaid items 12,922,056 - - Increase in other assets (8,312,798) - - Increase in escrow deposits - - - Increase (Decrease) in accounts payable (612,368) 1,627,584 345,694 Decrease in unearned revenue (4,105,642) - - Increase (Decrease) in compensated absences payable (86,546) (70,403) (13,271) Increase in net municipal pension balances 929,894 334,054 334,251 Increase in other post-employment benefit balances 350,726 205,911 196,342 Increase in closure/postclosure liability - - - Increase in interfund payables - - - Increase in asset retirement obligations 22,663,717 - - Total adjustments 41,920,827 8,165,996 9,549,154 Net cash provided (used) by operating activities 63,804,594$ 19,044,666$ 12,049,697$ NONCASH CAPITAL, INVESTING AND FINANCING ACTIVITIES: Increase in fair value of investments 1,030,792 684,921 459,122 Increase in equity due to non-cash transfers - 2,403,614 - Capital asset contributions - 6,018,228 10,020,848 The notes to the basic financial statements are an integral part of this statement.(continued on the following page) Utility SystemBusiness-type Activities - Enterprise Funds 32 CITY OF DENTON, TEXAS Exhibit X STATEMENT OF CASH FLOWS (concluded) PROPRIETARY FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2019 Governmental ActivitiesTotalInternal Solid Waste Airport Enterprise Service Fund Fund Funds Funds CASH FLOWS FROM OPERATING ACTIVITIES: Cash received from customers 34,633,510$ 1,075,303$ 336,536,050$ 79,352,267$ Cash paid to employees for services (9,616,893) (501,861) (43,370,883) (19,568,967) Cash paid to suppliers (13,240,703) (855,582) (186,772,436) (54,594,789) Net cash provided (used) by operating activities 11,775,914 (282,140) 106,392,731 5,188,511 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES: Transfers out - (50,000) (3,422,277) (850,448) Transfers in - - - 29,626 Proceeds from issuance of non-capital debt - - 28,738,939 - Principal payments on non-capital debt - - (34,745,000) - Interest and fiscal charges on non-capital debt - - (1,967,313) - Net cash provided (used) by noncapital financing activities:- (50,000) (11,395,651) (820,822) CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Proceeds from issuance of debt - - 20,475,047 1,603,317 Principal payments on capital debt (7,090,020) - (35,770,020) (284,512) Interest and fiscal charges (1,831,899) - (22,118,128) (26,566) Proceeds from gas wells - 409,704 409,704 - Proceeds from impact fees - - 11,945,407 - Proceeds from sale or reimbursement of capital assets - 346,218 346,218 - Acquisition and construction of capital assets (6,192,247) (259,343) (71,215,413) (8,647,664) Net cash provided (used) by capital financing activities (15,114,166) 496,579 (95,927,185) (7,355,425) - CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale and maturities of investment securities 18,971,482 2,945,587 153,393,902 12,598,995 Purchase of investment securities (23,038,817) (4,258,339) (211,993,563) (14,152,763) Interest received on investments 976,433 242,086 9,261,786 622,623 Net cash provided (used) by investing activities (3,090,902) (1,070,666) (49,337,875) (931,145) Net increase in cash and cash equivalents (6,429,154) (906,227) (50,267,980) (3,918,881) Cash and cash equivalents at beginning of year 12,116,095 1,945,750 103,361,016 7,474,323 Cash and cash equivalents at end of year 5,686,941 1,039,523 53,093,036 3,555,442 Investments, at fair value (Note IV.A.)29,694,982 5,428,553 277,221,152 16,770,245 Cash, cash equivalents and investments, at fair value 35,381,923$ 6,468,076$ 330,314,188$ 20,325,687$ RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES: Operating income (loss)5,861,015$ (919,123)$ 40,204,872$ (1,256,693)$ Adjustments: Depreciation expense 6,300,870 603,769 46,319,350 2,067,286 Decrease (Increase) in receivables (22,698) (8,953) (4,541,128) (8,360) Decrease (Increase) in interfund receivables - - (1,978,458) - Decrease in inventories - - - (1,690,298) Increase in prepaid items - - 12,922,056 27,490 Decrease in other assets - - (8,312,798) - Increase in escrow deposits - - - (12,000) Increase (Decrease) in accounts payable (974,791) 16,026 402,145 2,438,342 Decrease in unearned revenue - - (4,105,642) - Increase (Decrease) in compensated absences payable (44,946) (5,170) (220,336) 250,420 Decrease in net municipal pension balances 386,192 19,527 2,003,918 845,193 Increase in other post-employment benefit balances 211,278 11,784 976,041 292,131 Increase in closure/postclosure liability 58,994 - 58,994 - Decrease in interfund payables - - - 2,235,000 Increase in asset retirement obligations - - 22,663,717 - Total adjustments 5,914,899 636,983 66,187,859 6,445,204 Net cash provided (used) by operating activities 11,775,914$ (282,140)$ 106,392,731$ 5,188,511$ NONCASH CAPITAL, INVESTING AND FINANCING ACTIVITIES: Increase in fair value of investments 283,851 47,937 2,506,623 165,466 Increase in equity due to non-cash transfers - - 2,403,614 (2,403,614) Capital asset contributions - - 16,039,076 - The notes to the basic financial statements are an integral part of this statement.(concluded) Business-type Activities - Enterprise Funds 33 CITY OF DENTON, TEXAS Exhibit XI STATEMENT OF ASSETS AND LIABILITIES AGENCY FUNDS AS OF SEPTEMBER 30, 2019 Agency Fund ASSETS: Cash, cash equivalents and investments, at fair value 160,031$ Total assets 160,031$ LIABILITIES: Accounts payable 160,031$ Total liabilities 160,031$ The notes to the basic financial statements are an integral part of this statement. 34 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2019 I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The City of Denton is a municipal corporation governed by an elected seven-member council consisting of a mayor elected at large and six councilpersons, four representing specific geographical districts and two elected at large. The City receives funding from state and federal government sources and must comply with the requirements of these funding source entities. However, the City is not included in any other governmental “reporting entity,” as defined in pronouncements by the Governmental Accounting Standards Board (GASB), as council members are elected by the public and have decision-making authority, the authority to levy taxes, the power to designate management, the ability to significantly influence operations, and primary accountability for fiscal matters. The financial statements of the City have been prepared to conform to accounting principles generally accepted (GAAP) in the United States of America as applicable to state and local governments. Generally accepted accounting principles for local governments include principles prescribed by GASB, the accepted standard-setting body for establishing governmental accounting and financial reporting principles. The following is a summary of the more significant policies. A. Reporting Entity An elected seven-member council consisting of a mayor and six councilpersons govern the City. As required by accounting principles generally accepted in the United States of America, these financial statements present the City (the primary government) and its component units, which are entities for which the City is considered to be financially accountable. Blended component units, although legally separate entities, are, in substance, part of the City's operations, and so data from these units are combined with data of the primary government. A discretely presented component unit, on the other hand, is reported in a separate column in the government-wide financial statements to emphasize it is legally separate from the City. The City had no component units, discretely presented or blended, at September 30, 2019. B. Government-wide and Fund Financial Statements The basic financial statements include both government-wide (based on the City as a whole) and fund financial statements. The reporting focus is either the City as a whole (government-wide financial statements) or major individual funds (within the fund financial statements). The government-wide financial statements (i.e., the statement of net position and the statement of activities) report information on all non-fiduciary activities of the primary government. For the most part, the effect of inter-fund activity has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support. The government-wide statement of activities demonstrates the degree to which the direct expenses of a functional category (public safety, public works, etc.) or 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; (2) grants and contributions that are restricted to meeting operational requirements of a particular function or segment; and (3) grants and contributions that are restricted to meeting the capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues. The net cost (by function or business-type activity) is normally covered by general revenue (property taxes, sales taxes, franchise fees, interest income, etc.). Separate fund financial statements are provided for governmental funds, proprietary funds, and fiduciary funds, even though the latter are excluded from the government-wide financial statements. Major governmental funds and major enterprise funds are reported as separate columns in the fund financial statements. GASB Statement No. 34 sets forth minimum criteria (percentage of assets, liabilities, revenues or expenditures/expenses of either fund category and for the governmental and enterprise funds combined) 35 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2019 for the determination of major funds. Non-major funds are combined in a column in the fund financial statements. Internal service funds, which traditionally provide services primarily to other funds of the government, are presented in summary form as part of the proprietary fund financial statements. The financial statements of internal service funds are allocated (based on the percentage of goods or services provided) between the governmental and business-type activities when presented at the government-wide level. The City’s fiduciary funds are presented in the fund financial statements. By definition these assets are being held for the benefit of a third party (other local governments, individuals, etc.) and cannot be used to address activities or obligations of the government, and as such, these funds are not incorporated into the government- wide statements. The government-wide focus is more on the sustainability of the City as an entity and the change in aggregate financial position resulting from the activities of the fiscal period. The focus of the fund financial statements is on the major individual funds of the governmental and business-type categories, as well as the fiduciary funds (by category). Each presentation provides valuable information that can be analyzed and compared to enhance the usefulness of the information. C. Measurement Focus, Basis of Accounting and Financial Statement Presentation The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the proprietary fund statements. Revenues are recorded when earned, and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. Governmental fund-level financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized, and susceptible to accrual, 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. For this purpose, the government considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Any amounts collected beyond the 60 days are recorded as deferred revenues. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due. The City reports the following major governmental funds: The general fund is the City’s primary operating fund. All general tax revenues and other receipts that are not allocated by law or contractual agreement to some other fund are accounted for in this fund. From the fund are paid general operating costs, fixed charges and capital improvement costs that are not paid through other funds. The debt service fund accounts for the accumulation of financial resources for the payment of principal, interest and related costs on general long-term debt, paid primarily by taxes levied by the City. On a budgetary-basis, the debt service fund also accounts for pass-through debt service payments from the self-supporting proprietary funds. The capital projects fund accounts for financial resources used for the acquisition or construction of capital other than those recorded in the enterprise funds and internal service funds. Other governmental funds are a summarization of all of the non-major governmental funds. 36 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2019 The City reports the following major proprietary funds: The City utility system is made up of three separate funds as follows: The electric fund accounts for electrical utility services to the residents and commercial establishments of the City. Activities necessary to provide such services are accounted for in the fund, including, but not limited to, administration, operations, maintenance, finance and related debt service. The water fund accounts for water utility services to the residents and commercial establishments of the City. Activities necessary to provide such services are accounted for in the fund, including, but not limited to, administration, operations, maintenance, finance and related debt service. The wastewater fund accounts for sewer and storm water services to the residents and commercial establishments of the City. Activities necessary to provide such services are accounted for in the fund, including, but not limited to, administration, operations, maintenance, finance and related debt service. The City provides additional services through the following funds: The solid waste fund accounts for the provision of solid waste services to the residents of the City. Activities necessary to provide such services are accounted for in the fund, including, but not limited to, administration, operations, maintenance, finance and related debt service. The airport fund accounts for the airport services to the public and is funded through operational and gas well revenues. Activities necessary to provide such services are accounted for in the fund, including, but not limited to, administration, operations, maintenance, and finance. The City additionally reports the following funds: Internal service funds are used to account for the financing of materials and services provided by one department of the City to other departments of the City on a cost-reimbursement basis. The materials management fund accounts for the financing of the goods and services of the purchasing department as well as the management and inventory of the City warehouse activities. The fleet services fund accounts for the financing of goods and services provided by the activities of the City garage and machine shop to other departments. The health insurance fund accounts for the accumulation of resources for the self-insurance activities of the City for employee medical insurance as well as other employee insurance benefits including long-term disability, short-term disability, and dental and vision insurances. The risk retention fund accounts for the accumulation of resources for the payment of activities associated with providing general liability insurance coverage and self-funded activities for City departments. The technology services fund accounts for financing and management of technology equipment, software, and services such as programming, support, training, maintenance, and office services to City departments. The engineering services fund accounts for providing engineering, real estate, public works inspection, and development review services primarily to City departments although some services are provided to and paid by external entities. The customer service fund accounts for providing customer service activities to residents and businesses for City departments. Services include bill pay, utility service requests, connect/disconnect 37 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2019 services, maintenance of customer accounts, utility billing, operator calls, collections, accounts receivable, and cash handling. Agency funds are used to account for the payment of developers’ escrow funds and other similar liabilities. The City holds the assets in an agency capacity for individuals, private organizations or other governments. Proprietary funds distinguish operating revenues and expenses from non-operating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund’s principal ongoing operations. The principal operating revenues of the City’s electric, water, wastewater, solid waste, and airport funds are charges to customers for services. Operating expenses for the enterprise funds and internal service funds include the cost of sales and services, administrative expenses and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses. When both restricted and unrestricted resources are available for use, it is the City’s policy to use restricted resources first, then unrestricted resources as they are needed. D. Budgetary Information The City Council follows these procedures, as prescribed by City Charter, in establishing the budgets reflected in the financial statements: 1. Within the time period required by law, the City Manager submits to the City Council a proposed budget for the fiscal year beginning on the following October 1. The operating budget includes proposed expenditures and the means of financing them. 2. Public hearings are conducted prior to the adoption of the budget in order to obtain taxpayer comments. 3. The annual budget adopted by the City Council covers the general fund, non-major special revenue funds (Recreation Fund, Police Confiscation Fund, Tourist and Convention Fund, Gas Well Revenues Fund, Street Improvement Fund, and the Citizens’ Park Trusts), the debt service fund, the enterprise funds, and internal service funds. The budget is legally enacted by the City Council through passage of an ordinance prior to the beginning of the fiscal year. The basic financial statements reflect the legal level of control, (i.e. the level at which expenditures cannot legally exceed the appropriated amount) which is established at the total fund level as approved by City Council. 4. The City Charter provides for the City Manager to transfer any part of the unencumbered appropriation balance or the entire balance thereof between programs or general classifications of expenditures within an office, department, agency or organizational unit. (The City Council defines an organizational unit as set forth in Article VIII, Section 8.07 of the City Charter, to be a fund that has been appropriated by the City Council.) City Council approval is not required up to the fund level. The Charter also provides that at any time during the year, at the request of the City Manager, City Council may by resolution transfer any part of the unencumbered appropriation balance or the entire balance thereof from one office, department, agency, or organizational unit to another, as well as make any increases in fund appropriations. Budgets are adopted on a basis for the governmental funds and the budgeted special revenue funds that is generally consistent with generally accepted accounting principles. Budgets for enterprise funds are prepared on the full accrual basis, except certain noncash transactions such as depreciation expense and amortization on debt issuance costs where it is not budgeted, and debt service payments where it is budgeted. Also, during the budgetary process, amounts are included in all fund budgets to recognize administrative transfers between funds for goods or services. These amounts are not included in the reporting of actual activity for the funds. For funds reporting required budget-to-actual comparisons, these administrative transfers are included as adjustments – budgetary basis. 38 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2019 Appropriations in all budgeted funds lapse at the end of the fiscal year even if they have related encumbrances. Encumbrances are commitments related to unperformed contracts for goods or services (i.e., purchase orders and contracts). While all appropriations and encumbrances lapse at year end, valid outstanding encumbrances are re-appropriated against the subsequent year’s budget, reducing the available appropriations for additional expenditures. E. Assets, Liabilities and Net Position or Equity 1. Cash, cash equivalents and investments The City’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. Investments are carried at fair value, except for the position in local government investment pools. Fair value is determined as the price at which two willing parties would complete an exchange. The City uses a pooled cash and investment fund to hold and account for all of the City’s investments. For financial reporting purposes, the investment balances in the pooled fund are allocated back to the individual funds based on their respective share of the pooled total. Interest earned on investments is also allocated back and recorded directly to the individual funds on a monthly basis. 2. Receivables Outstanding balances between funds are reported as “interfund receivables/payables.” Any residual balances between governmental activities and business-type activities are reported in the government- wide statements as “internal balances.” Trade, property tax receivables, and municipal court receivables are shown net of an allowance for uncollectible accounts. The City accrues amounts for utility services provided in September, but not billed at September 30, 2019. 3. Inventories Inventories of supplies are maintained at the City warehouse for use by all City funds and are accounted for by the consumption method. Cost is determined using a moving average method. No inventories exist in the governmental fund types. 4. Prepaid items Certain costs applicable to future accounting periods are recorded as prepaid items. Most of these balances are due to payments into an account for energy settlements in the Electric Fund and health claims in the Employee Insurance Fund. 5. Other Assets Certain costs applicable to future accounting periods are recorded as other assets. In the prior fiscal year the City partially impaired its TMPA prepaid purchase power due to a change in seasonality generation, and in the current fiscal year the remainder was fully impaired due to a permanent closure in generation. The impaired amount was recorded as an Other Asset (regulatory) to be amortized over 7.5 years in the electric fund, of which 5.5 years is remaining in the electric fund to be recovered through rate revenues. See note V.E. Agreement with TMPA for further information regarding TMPA. 6. Restricted assets Certain proceeds of the City’s governmental and proprietary fund general obligation bonds and certificates of obligation, as well as certain resources set aside for their repayment, are classified as restricted assets on the balance sheet because their use is limited by applicable bond covenants. Assets collected from impact fees are limited by state statute in use and also shown as restricted on the balance sheet of the Water and Wastewater funds. 39 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2019 7. Capital assets Capital assets, which include property, plant, equipment and infrastructure assets (e.g., roads, bridges, sidewalks and similar items) are reported in applicable governmental or business-type activities columns in the government-wide financial statements and in the proprietary fund financial statements. The City defines capital assets as assets with an initial, individual cost of more than $5,000 and an estimated useful life in excess of one year. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at acquisition value, which is the price that would be paid to acquire an asset with equivalent service potential at the acquisition date. Major outlays for capital assets and improvements are capitalized as projects are constructed. Net interest incurred during the construction phase of capital assets of business-type activities and enterprise funds is included as part of the capitalized value of the assets constructed. For 2019, net interest capitalization of $8,613,379 was recorded for electric fund projects, $518,435 for water fund projects, $573,579 for wastewater fund projects, and $73,534 for solid waste fund projects. Capital assets are depreciated using the straight-line method over the following useful lives: Assets Years Buildings 40 Infrastructure 20 – 40 General improvements 10 Machinery and equipment 10 – 20 Furniture and office equipment 10 Computer equipment/software 3 – 10 Plant and equipment 5 Underground pipe 40 Water storage rights 50 – 100 Water recreation rights 50 Communication equipment 5 Vehicles 3 – 10 Renewals and betterments of property and equipment are capitalized, whereas normal repair and maintenance are charged to expense as incurred. 8. Compensated absences The City allows full-time employees to accumulate unused vacation up to 320 hours (480 for Civil Service Fire employees.) Upon termination, any accumulated vacation time will be paid to an employee. Generally, sick leave is not paid upon termination except for civil service fire fighters and police officers. Firefighters and police officers accumulate for payout unused sick leave up to a maximum of 1080 hours and 720 hours, respectively. All other employees are paid only upon illness while employed by the City. Accumulated vacation and sick leave is accrued when incurred in the government-wide and proprietary fund financial statements. A liability for these amounts is reported in governmental funds only if they have matured, for example, as a result of employee resignations and retirements but have not been paid this amount at the end of the fiscal year. The General Fund and Other Governmental Funds are used to record any payout expenditures of the governmental funds’ employees and related liability, while proprietary fund payouts for their employees are recorded as reductions to the liabilities in those funds. 9. Arbitrage Arbitrage involves the investment of the proceeds from the sale of tax-exempt bonds in taxable instruments and securities authorized by the Public Funds Investment Act (Texas Government Code, Chapter 2256) that yield a higher rate, resulting in interest revenue in excess of interest costs. Federal tax 40 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2019 code requires that these excess earnings be rebated to the federal government. The Capital Projects Fund has been used in prior years to liquidate governmental funds’ related liability. There were no arbitrage payments in the current fiscal year. 10. Pensions For purposes of measuring the net pension liability, pension-related deferred outflows and inflows of resources, and pension expense, information about the Fiduciary Net Position of the Texas Municipal Retirement System (TMRS) and the Firemen’s Relief and Retirement Fund (FRRF) and additions to/deductions from TMRS’s and the FRRF’s Fiduciary Net Position have been determined on the same basis as they are reported by TMRS and the FRRF. For this purpose, plan contributions are recognized in the period that compensation is reported for the employee, which is when contributions are legally due. Benefit payments and refunds are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. 11. Other post-employment benefits The City participates in a single-employer, unfunded, defined benefit group-term life insurance plan operated by the Texas Municipal Retirement System (TMRS) known as the Supplemental Death Benefit Fund (SDBF). The City elected, by ordinance, to provide group-term life insurance coverage to both current and retired employees. The funding policy for the SDBF program is to assure that adequate resources are available to meet all death benefit payments for the upcoming year rather than prefunding. Benefit payments are treated as being equal to the City’s yearly contribution for retirees. For purposes of measuring the total SDBF OPEB liability, related deferred outflows and inflows of resources, and expense, City specific information about its total SDBF liability and additions to/deductions from the City’s total SDBF liability have been determined on the same basis as they are reported by TMRS. The SDBF expense and deferred (inflows)/outflows of resources related to SDBF, primarily result from changes in the components of the total SDBF liability. Most changes in the total SDBF liability will be included in SDBF expense in the period of the change. For example, changes in the total SDBF liability resulting from current-period service cost, interest on the Total OPEB Liability, and changes of benefit terms are required to be included in SDBF expense immediately. Changes in the total SDBF liability that have not been included in SDBF expense are required to be reported as deferred outflows of resources or deferred inflows of resources related to SDBF. The City provides post-employment medical care (Medical OPEB) for retired employees through a single-employer defined benefit medical plan. The plan provides medical benefits for eligible retirees, their spouses, and their dependents through the City’s group health insurance plans. By providing retirees with access to the City’s healthcare plans based on the same rates it charges to active employees, the City is in effect providing a subsidy to retirees. This implied subsidy exists because, on average, retiree healthcare costs are higher than active employee healthcare costs. By the City not contributing anything toward the plan in advance, the City employs a pay-as-you-go method through paying the higher rate for active employees each year. The City also contributes up to $200 per month, based on years of service, toward the cost of retiree coverage. As an irrevocable trust has not been established, the plan is not accounted for as a trust fund. For this purpose, plan contributions are recognized in the period that the direct and indirect subsidies are paid by the City. Total OPEB liability, OPEB-related deferred outflows and inflows of resources, and OPEB expense is based on the actuarial measurement dates. 12. Long-term obligations In the government-wide financial statements and proprietary fund types in the fund financial statements, long-term obligations are reported as liabilities. Bond premiums and discounts are deferred and amortized over the life of the bonds. Bonds payable are reported net of the applicable bond premium or discount. Gain/loss on refunding are reported as deferred outflow/inflow and recognized as a component of interest expense over the remaining life of the old debt or life of the new debt, whichever is shorter. 41 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2019 In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. 13. Fund equity The City follows GASB Statement No. 54, “Fund Balance Reporting and Governmental Fund Type Definitions”, and in accordance with the statement, the classifications of governmental fund balances are presented as follows: Nonspendable fund balances – includes amounts not in a spendable form or are legally or contractually required to be maintained intact. Examples include inventory or endowments. Restricted fund balance – includes amounts that can be spent only for the specific purposes stipulated by external resource providers, creditors, grantors, and contributors or through enabling legislation. Committed fund balance – includes amounts that can be used only for the specific purposes determined by the City Council through an ordinance and may only be changed or lifted through another ordinance. The ordinance must either adopt or rescind the commitment, as applicable, prior to the last day of the fiscal year for which the commitment is made. The amount subject to the constraint may be determined in the subsequent period. Assigned fund balance - comprises amounts intended to be used for specific purposes. Intent can be expressed by the City Council, or per the policy adopted by an ordinance by the City Council, the City Manager or the City Manager’s designee (assistant city manager) may also make an assignment. In governmental funds other than the general fund, assigned fund balance represents the amount that is not restricted or committed and, at a minimum, is intended for the purpose of that fund. Unassigned fund balance – is the residual classification of the general fund and includes all amounts not constrained in the other classifications. Unassigned amounts are technically available for any purpose. The General Fund is the only fund to report a positive unassigned fund balance amount. However, other governmental funds may report a negative unassigned fund balance as necessary if expenditures incurred for specific purposes exceed the amounts restricted, committed, or assigned for those purposes. When multiple categories of fund balance are available for expenditure and approved for use by the City Council, the City will start with the most restricted category and spend those funds first before moving down to the next category with available funds. Normally this would result in the use of restricted, then committed, then assigned, and lastly, unassigned fund balance. 14. Minimum fund balance policy It is the goal of the City to achieve and maintain an unassigned fund balance in the General Fund equal to 20% of budgeted expenditures. An additional 5% resiliency reserve (25% combined total) may be maintained to safeguard against unusual financial circumstances or economic downturns. 15. Net position Net position represents the difference between assets, deferred inflows, deferred outflows, and liabilities. Net investment in capital assets consists of capital assets net of accumulated depreciation and the outstanding balances of any borrowing spent for the acquisition, construction or improvements of those assets. Net position is reported as restricted when there are limitations imposed on their use either through the enabling legislation adopted by the City or through external restrictions imposed by creditors, grantors or laws or regulations of other governments. 42 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2019 16. Deferred outflows and inflows of resources In addition to assets, the statement of net position and/or balance sheet will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position applying to a future period and will not be recognized as an outflow of resources, either expenses or expenditures, until that time. The City reports the following items qualifying for this category:  Deferred charges on refunding reported in the statements of net position - A deferred charge on refunding results from the difference in the carrying value of refunded debt and its reacquisition price and is amortized over the shorter of the life of the refunded or refunding debt.  Deferred pension deficit earnings reported in the statement of net position – A deferred charge is recorded for the difference between actual investment earnings and expected investment earnings during the period and is amortized over future periods.  Deferred pension actuarial losses reported in the statement of net position – A deferred charge is recorded for the difference between actual experience and expected experience during the period between two actuarial valuations and is amortized over future periods.  Deferred pension and other postemployment benefit plan contributions reported in the statement of net position – A deferred charge is recorded for pension contribution amounts paid by the City after the current year’s measurement date (December 2018) and will be fully recognized in the next period on the next measurement date (December 2019).  Deferred pension and other postemployment benefit plan actuarial assumption changes – A deferred charge is recorded for the difference due to assumption changes and amortized over future periods. In addition to liabilities, the statement of net position and/or balance sheet will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position applying to a future period and will not be recognized as an inflow of resources, or revenues, until that time. The City reports the following items qualifying for reporting in this category:  Deferred charges on refunding reported in the statements of net position - A deferred charge on refunding results from the difference in the carrying value of refunded debt and its reacquisition price and is amortized over the shorter of the life of the refunded or refunding debt.  Deferred pension excess earnings reported in the statement of net position – A deferred charge is recorded for the difference between actual investment earnings and expected investment earnings during the period and is amortized over future periods.  Deferred pension and other postemployment benefit plan actuarial gains reported in the statement of net position – A deferred charge is recorded for the difference between actual experience and expected experience during the period between two actuarial valuations and is amortized over future periods.  Deferred pension and other postemployment benefit plan actuarial assumption changes – A deferred charge is recorded for the difference due to assumption changes and amortized over future periods.  Deferred unavailable revenues reported on the balance sheet of the governmental funds – A deferred amount is recorded for the billed revenues not yet collected or available. These amounts are deferred and recognized as inflow of resources in the period the amounts become available. F. Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial 43 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2019 statements and the reported amounts of revenues and expenses/expenditures during the reporting period. Actual results could differ from those estimates. II. RECONCILIATION OF GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS Explanation of certain differences between the governmental fund statement of revenues, expenditures and changes in fund balances and the government-wide statement of activities An element of that reconciliation states, “Bond proceeds provide current financial resources to governmental funds, but issuing debt increases long-term liabilities in the statement of net position. Repayment of bond principal is an expenditure in the governmental funds, but the repayment reduces long-term liabilities in the statement of net position. This is the amount by which payments exceeded proceeds.” The details of this ($8,965,364) difference are as shown on the following page: Another element of that reconciliation states, “The net effect of various miscellaneous transactions involving capital assets (i.e., sales, trade-ins and donations) is to decrease net position.” The details of this $8,549,557 difference are as follows: Another element of that reconciliation states, “Certain 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.” The details of the ($5,550,318) difference are as follows: Debt issued or incurred: Issuance of general obligation debt $(18,015,000) Issuance of certificates of obligation (7,855,000) Principal repayments: General obligation debt principal retirement 9,905,466 Certificates of obligation principal retirement 6,995,000 Lease obligations principal retirement 4,170 Net adjustment to decrease net changes in fund balances – total governmental funds to arrive at changes in net position of governmental activities $ (8,965,364) Net effect of transactions involving asset retirements/disposals $ (45,086) Donations of capital assets increase net position in the statement of activities but do not appear in the governmental funds because they are not financial resources 8,594,643 Net adjustment to increase net changes in fund balances - total governmental funds $ 8,549,557 44 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2019 III. STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY A. Deficit Fund Equity The Criminal Justice fund had deficit fund balances of ($1,127) at September 30, 2019. The deficit was a result of reimbursement timing and clears in fiscal year 2019-2020. The Risk Retention, Engineering Services, and Customer Service internal service funds had deficit net positions of ($761,116), ($2,255,282), and ($2,575,702), respectively, due to the implementation of GASB Statement No. 68 “Accounting and Financial Reporting for Pensions-an amendment of GASB Statement No. 27” and GASB Statement No.75 “Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions”(OPEB) which resulted in an increase in the net pension liability and the total OPEB liability in the prior years during implementation. IV. DETAILED NOTES ON ALL FUNDS A. Deposits and Investments In order to facilitate effective cash management practices, the operating cash of all funds is pooled into a common account for the purpose of increasing income through combined investment activities. At year-end, the City had $95,811,405 in cash and cash equivalents of which $160,031 is included in the agency funds and $12,318 in petty cash. The Public Funds Investment Act (Texas Government Code) authorizes the City to invest in obligations of the U.S. Treasury, U.S. agencies, fully collateralized repurchase agreements, public fund investment pools, SEC-registered no-load money market mutual funds, municipal securities of any state rated A or better, certificates of deposit (fully collateralized, insured, and standby letters of credit backed), and commercial paper rated not less than A-1 or P-1 with a stated maturity of no more than 270 days. The City’s investment policy may further restrict those investment options. The investments reported on September 30, 2019 were similar to those held during the fiscal year. The City reports all investments in the financial statements at fair value. At September 30, 2019, the City’s investments carried a fair value of $594,887,658, of which $94,609,584 is in a local governmental investment pool which the City classifies in the financial statements as cash equivalents. The City categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. GASB Statement No. 72, Fair Value Measurement and Application establishes an authoritative definition of fair value, sets a framework for measuring fair value, and requires Compensated absences $ (360,236) Net pension liability (23,870,625) Municipal pension deferred actuarial gains/losses 19,475,874 Municipal pension deferred contributions 636,078 Municipal pension deferred assumption changes (196,113) Municipal pension deferred economic differences 429,406 Total OPEB liability (390,602) OPEB deferred contributions (104,361) OPEB deferred assumption changes (1,100,026) OPEB deferred economic differences (11,709) Accrued interest (58,004) Net adjustment to decrease net changes in fund balances - total governmental funds to arrive at changes in net position of governmental activities $ (5,550,318) 45 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2019 additional disclosures about fair value measurements. The fair value hierarchy categorizes the inputs to valuation techniques used to measure fair value into three levels.  Level 1 inputs are quoted prices (unadjusted) for identical assets or liabilities in active markets a government can access at the measurement date.  Level 2 inputs are inputs, other than quoted prices included within Level 1, observable for an asset or liability, either directly or indirectly.  Level 3 inputs are unobservable inputs for an asset or liability. The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. If a price for an identical asset or liability is not observable, a government should measure fair value using another valuation technique maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs. If the fair value of an asset or a liability is measured using inputs from more than one level of the fair value hierarchy, the measurement is considered to be based on the lowest priority level input significant to the entire measurement. At September 30, 2019, the City had the following recurring fair value investments: Of the investments recorded at fair value, $329,526,648 used the documented trade history in exact security pricing model, $24,785,000 used the option-adjusted discounted cash flow pricing model, and $140,966,426 used the present value of expected future cash flow pricing model. Interest rate risk. In accordance with its investment policy, the City manages its exposure to declines in fair values due to interest rate fluctuations by limiting the weighted average maturity of its investment portfolio to less than eighteen months. Credit risk. The City’s investment policy limits investments to obligations of the United States of America and its agencies, investment quality obligations of the State of Texas (including agencies, municipalities, counties, and other political subdivisions) with a rating not less than AA, certificates of deposits and savings deposits (fully insured, collateralized, or standby letter of credit backed), fully collateralized repurchase agreements, local public fund investment pools with a dollar weighted average maturity of 60 days or less, U.S. government money market mutual funds with a dollar weighted average maturity of 60 days or less and a stable net asset value of $1 for each share, and commercial paper that has a maturity of 270 days or less and 9/30/2019 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Percent of Total Investments Weighted Average Maturity (Days) Investments Measured at Amortized Cost: TexSTAR - Investment Pool 69,555,390 11.69%1 TexPool - Investment Pool 25,054,194 4.21%1 Certificates of Deposit 5,000,000 0.84%128 Investments by Fair Value Level: Debt Securities: U.S. Treasury Securities 160,421,080 160,421,080 - 26.97%420 U.S. Agency Securities 293,474,372 110,958,425 182,515,947 49.34%330 Commercial Paper 37,382,622 - 37,382,622 6.28%90 Municipal Bonds - Coupon 4,000,000 - 4,000,000 0.67%1 Total Investments 594,887,658$ 271,379,505$ 223,898,569$ Portfolio Weighted Average Maturity 283 Fair Value Measurement Method 46 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2019 a minimum rating of A-1, P-1, or an equivalent rating by at least two nationally recognized rating agencies. The City’s investments in TexSTAR were rated “AAAm” by Standard & Poor’s. Custodial credit risk. This is the risk that in the event of a bank or counterparty failure, the City’s deposits may not be returned. The policy states that all bank deposits of City funds shall be secured by pledged collateral with a market value equal to no less than 102 percent of the principal plus accrued interest less an amount insured by FDIC. As of September 30, 2018, the bank balance for deposits was $2,690,087 and was fully collateralized by the City’s third party custodian, BNY Mellon. Concentration of Credit Risk. The City’s investment policy minimizes the risk of potential loss by diversifying investment types according to the following limitations based on value: U.S. Treasury bills/notes/bonds (100%), U.S. Agencies and Instrumentalities (100%), State of Texas Obligations – including agencies and local governments (15%), local government investment pools (50% in government securities and 15% in prime securities), repurchase agreements (20%), certificates of deposit (35%), savings deposits (15%), U.S. Money Market Mutual Funds (50%), callable U.S. Agencies and Instrumentalities (20%), and commercial paper (15%). Local Government Investment Pools. During the year, the City invested in two public fund investment pools, TexSTAR and TexPool. The fair value of the position of TexSTAR is measured at net asset value, and the fair value of the position of TexPool is measured at amortized cost. Each pool's governing body is comprised of individuals who are employees, officers, or elected officials of participants in the funds or who do not have a business relationship with the fund and are qualified to advise. Investment objective and strategies of the pools are to seek preservation of principal, liquidity and current income through investment in a diversified portfolio of short-term marketable securities. Pools offer same day access to investment funds, which may be redeemed daily. As the redemption period is only one day or less, the City classifies these balances in the financials as cash equivalent. The pools may only impose restrictions on redemptions in the event of a general suspension of trading on major securities markets, a general banking moratorium, or a national state of emergency affecting the pool’s liquidity. The City has no unfunded commitments related to the investment pool. Cash, cash equivalents and investments, at fair value are reported together on the financial statements. Investments, at fair value, by fund were as follows: 47 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2019 B. Property Tax Revenue Property taxes attach as an enforceable lien on property as of January 1st. Taxes are levied on October 1st and are due and payable at that time; therefore, the legally enforceable claim arises on October 1st. A receivable is recorded at that time. All unpaid taxes levied October 1st become delinquent February 1st of the following year. Property taxes at the fund level are recorded as receivables and revenue in the period they become available. Current-year revenues recognized are those Ad valorem taxes collected within the current period or soon enough thereafter to pay current liabilities, which is sixty days after year-end. All other outstanding receivables are adjusted from revenue and recognized as deferred inflows of resources for future collections. Current tax collections for the year ended September 30, 2019 were 99.19% of the tax levy. An allowance is provided for delinquent taxes not expected to be collected in the future. At September 30, 2019, the City had a tax rate of $0.620477 per $100 valuation. Based upon the maximum Ad valorem tax of $2.50 per $100 valuation imposed by Texas Constitutional law, the City had a tax rate margin of $1.879523. Additional revenues up to $212,660,404 could be raised per year based on the current year's certified assessed value of $11,314,594,406 before the limit is reached. On December 7, 2010, the City Council approved a Tax Increment Financing Reinvestment Zone (TIRZ #1) for the purpose of dedicating the increase in tax revenues generated within the TIRZ district for development in the downtown area of the City for a total of 30 years. The tax increment to be paid is 100% of the increment in years 1-5, 95% in years 6-10, 90% in years 11-20, and 85% in years 21-30. In fiscal year 2019, the total assessed value of $170,678,753 after supplemental adjustments for TIRZ #1 was an increase of $91,321,899 General Fund Debt Service Capital Projects Other Governmental Funds Unrestricted investments $ 22,216,189 $ 4,445,231 $ 158,085,967 $ 20,804,142 Change in fair value 79,453 15,897 565,390 74,408 Restricted investments - - - - Change in fair value - - - - Total $ 22,295,642 $ 4,461,128 $ 158,651,357 $ 20,878,550 Electric Water Wastewater Solid Waste Unrestricted investments $ 61,770,649 $ 51,826,872 $ 37,484,013 $ 9,866,780 Change in fair value 220,921 185,357 134,061 35,288 Restricted investments 44,347,779 26,815,818 18,989,714 19,722,377 Change in fair value 158,610 95,907 67,916 70,537 Total $ 106,497,959 $ 78,923,954 $ 56,675,704 $ 29,694,982 Airport Internal Service Funds Total City Investments Unrestricted investments $ 3,071,752 $ 15,286,080 $ 384,857,675 Change in fair value 10,986 54,669 1,376,430 Restricted investments 2,337,455 1,424,402 113,637,545 Change in fair value 8,360 5,094 406,424 Total $ 5,428,553 $ 16,770,245 $ 500,278,074 48 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2019 over the base fiscal year 2011 assessed value and resulted in $538,300 of property tax revenue recorded in the TIRZ Fund as part of All Other Special Revenue Funds. On December 18, 2012, the City Council approved a Tax Increment Financing Reinvestment Zone (TIRZ #2) for the purpose of dedicating 40% of the increase in tax revenues generated within the TIRZ district for development in the Westpark Industrial District for a total of 25 years. In fiscal year 2019, the assessed value of $72,165,650 after supplemental adjustments was an increase of $72,046,192 over the base fiscal year 2014 assessed value and resulted in $178,812 of property tax revenue recorded in the TIRZ Fund as part of All Other Special Revenue Funds. Denton County participates in the zone and based on their tax rate and a participation contribution of 40% of the County’s tax rate, $65,007 of property tax revenue was generated for Fiscal Year 2019. The City created the Rayzor Ranch Public Improvement District No. 1 in 2014 for the undertaking and financing of public improvements authorized by Chapter 372 of the Texas Local Government Code. The project is located on the City’s northern sector, east of Interstate 35, and encompasses approximately 229.693 contiguous acres. The estimated costs of the proposed public improvements total $40 million. The authorized improvement costs will be apportioned 100% to the District. The method of assessment will impose equal shares of the costs of the proposed public improvements on parcels that are similarly benefited. No City property will be assessed, and the City will not be obligated to pay any assessments. 49 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2019 C. Receivables Receivables at September 30, 2019 for the City’s individual major funds and other funds (non-major funds, internal service funds and fiduciary funds), including the applicable allowances for uncollectible accounts, are as follows: General Fund Debt Service Capital Projects Other Governmental Funds Electric Receivables: Taxes 8,549,881$ 530,696$ -$ 312,172$ -$ Accounts 224,911 - - 33,179 14,672,678 Accrued interest 107,660 21,542 766,082 100,820 514,249 Unbilled utility service - - - - 11,286,978 Other - EMS Services 6,217,205 - - - - Other 2,918,309 - 23,868 11,992 7,258,831 Gross receivables 18,017,966 552,238 789,950 458,163 33,732,736 Less: Allowance for uncollectibles (7,418,470) (152,440) - (18,431) (931,860) Net total receivables 10,599,496$ 399,798$ 789,950$ 439,732$ 32,800,876$ Water Wastewater Solid Waste Airport Internal Service Funds Total Receivables: Taxes -$ -$ -$ -$ -$ 9,392,749$ Accounts 2,810,792 1,564,778 1,769,992 61,270 33,818 21,171,418 Accrued interest 381,102 273,671 143,388 26,213 80,980 2,415,707 Unbilled utility service 3,476,604 1,862,164 1,667,964 - - 18,293,710 Other - EMS Services - - - - - 6,217,205 Other - - - 84,334 84,628 10,381,962 Gross receivables 6,668,498 3,700,613 3,581,344 171,817 199,426 67,872,751 Less: Allowance for uncollectibles (178,512) (99,379) (112,413) (3,891) (2,148) (8,917,544) Net total receivables 6,489,986$ 3,601,234$ 3,468,931$ 167,926$ 197,278$ 58,955,207$ 50 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2019 D. Capital Assets Capital asset balances and transactions for the year ended September 30, 2019 are summarized below and on the following page. (continued) Governmental activities: Balance at October 1, 2018 Increases Transfers and Decreases Balance at September 30, 2019 Capital assets not being depreciated: Land 22,243,771$ -$ -$ 22,243,771$ Construction in progress 86,858,308 73,132,501 (27,343,270) 132,647,539 Total capital assets not being depreciated 109,102,079 73,132,501 (27,343,270) 154,891,310 Capital assets being depreciated: Buildings 72,342,584 7,289,662 - 79,632,246 Infrastructure 286,723,512 18,144,663 - 304,868,175 Machinery, equipment, and other improvements 114,218,006 10,834,097 (2,161,112) 122,890,991 Total capital assets being depreciated 473,284,102 36,268,422 (2,161,112) 507,391,412 Less accumulated depreciation for: Buildings 28,356,630 1,786,075 - 30,142,705 Infrastructure 171,821,518 10,333,176 - 182,154,694 Machinery, equipment, and other improvements 71,236,609 8,559,058 (2,222,885) 77,572,782 Total accumulated depreciation 271,414,757 20,678,309 (2,222,885) 289,870,181 Total capital assets, being depreciated, net 201,869,345 15,590,113 61,773 217,521,231 Governmental activities capital assets, net 310,971,424$ 88,722,614$ (27,281,497)$ 372,412,541$ 51 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2019 Transfers and decreases include $412,646 ($340,646 in related accumulated depreciation) transferred from Business-Type to Governmental Activities Equipment. Business-type activities: Balance at October 1, 2018 Increases Transfers and Decreases Balance at September 30, 2019 Capital assets not being depreciated: Land 49,287,184$ 12,174,881$ -$ 61,462,065$ Construction in progress 389,024,110 74,135,500 (277,965,644) 185,193,966 Total capital assets not being depreciated 438,311,294 86,310,381 (277,965,644) 246,656,031 Capital assets being depreciated: Buildings 26,487,889 13,683,213 - 40,171,102 Landfill improvements 25,951,948 3,849,957 (1,628,314) 28,173,591 Water rights 69,883,098 - - 69,883,098 Infrastructure 548,888,068 28,391,189 - 577,279,257 Plant, machinery, equipment, and other improvements 538,858,133 233,802,317 (2,654,780) 770,005,670 Total capital assets being depreciated 1,210,069,136 279,726,676 (4,283,094) 1,485,512,718 Less accumulated depreciation for: Buildings 8,635,757 1,134,016 - 9,769,773 Landfill improvements 23,781,934 1,730,196 (1,569,661) 23,942,469 Water rights 20,444,384 695,989 - 21,140,373 Infrastructure 168,573,240 13,538,800 - 182,112,040 Plant, machinery, equipment, and other improvements 202,840,684 29,220,349 (1,415,809) 230,645,224 Total accumulated depreciation 424,275,999 46,319,350 (2,985,470) 467,609,879 Total capital assets, being depreciated, net 785,793,137 233,407,326 (1,297,624) 1,017,902,839 Business-type activities capital assets, net 1,224,104,431$ 319,717,707$ (279,263,268)$ 1,264,558,870$ 52 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2019 Depreciation expense was charged to activities of funds/functions/programs as follows: Construction commitments: The City has several major construction/capital projects planned or in progress as of September 30, 2019. These projects are evidenced by contractual commitments with contractors and include: Governmental activities: General government 2,532,208$ Public Safety 3,704,807 Public Works 10,073,672 Parks & Recreation 2,300,336 Capital assets held by the internal service funds are charged to the various functions based upon usage 2,067,286 Total depreciation expense - governmental activities 20,678,309$ Business-type activities: Electric 22,712,226$ Water 8,302,616 Wastewater 8,399,869 Solid Waste 6,300,870 Airport 603,769 Total depreciation expense - business-type activities 46,319,350$ Project Spent-to-Date Remaining Commitment Lake Lewisville Water Treatment Plant Solids Handling $ 615,559 $ 8,124,640 Mayhill Phase 4 Construction 30,774,881 7,667,783 North/South Water Main, Phase 2 2,140,964 6,570,021 Bonnie Brae South Construction 11,663,868 5,646,923 Hickory Creek Widening, FM2181 to Riverpass 1,033,140 5,273,620 Water Line - Allred to John Pain Rd 612,899 4,950,832 Hickory Creek Lift Station Upgrade 311,146 3,131,810 Drainage PEC 4 - Phase 2 96 2,355,064 Drainage PEC 4 - Locust and Highland 2,837,277 2,107,977 McKinney Street Widening 3,834,606 1,858,071 Radio Communications System 3,872,773 1,659,760 Locust Street and Drainage Project (Wastewater Utilities) 467,078 1,567,015 Bonnie Brae Widening - Phase 6 2nd Arterial (University to Windsor) 882,423 1,550,284 Elm Street and Drainage Project (Wastewater Utilities) 285,599 1,333,450 Bonnie Brae Widening - Phase 6 2nd Arterial (I-35 to Scripture) 7,337,321 1,121,403 Computer Aided Dispatch System Replacement 1,053,364 1,089,648 Locust Street and Drainage Project (Water Utilities) 260,758 1,082,014 53 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2019 E. Interfund Receivables, Payables and Transfers A summary of interfund receivables and payables (in thousands) at September 30, 2019, is as follows: The more significant interfund receivables and payables include the following: The outstanding balances between the Electric, Water, Wastewater, and General Fund related to the Materials Management Fund are a result of the cash position in the Materials Management Fund due to inventory purchases. The outstanding balance between the General Fund and the Non-Major Governmental Funds is due to reimbursement timing from outside sources. Transfers between funds (in thousands) during the year were as follows: Governmental Major Funds Interfund Payables:General Fund Electric Water Wastewater Total Non-Major Governmental Funds 211$ -$ -$ -$ 211$ Internal Service Funds 681 5,501 912 206 7,300 Total 892$ 5,501$ 912$ 206$ 7,511$ Interfund Receivables: Business-Type Major Funds Interfund receivables Interfund payables Amount Electric fund Internal service funds-materials management $ 5,500,830 Water fund Internal service funds-materials management 912,180 General fund Non-Major Governmental Funds 211,221 General fund Internal service funds-materials management 681,308 Wastewater fund Internal service funds-materials management 205,682 Transfers In:General Fund Capital Projects Fund Non-Major Governmental Funds Electric Fund Water Fund Wastewater Fund Solid Waste Airport Fund Internal Service Funds Total Governmental Major Funds: General Fund -$ 1,100$ -$ -$ -$ -$ -$ -$ -$ 1,100$ Debt Service Fund - - 129 - - - - - - 129 Capital Projects Fund 1,657 - 3,974 27 1,296 1,013 - - 831 8,798 Non-Major Governmental Funds 3,366 - - 735 200 100 - 50 - 4,451 Water Fund - - - - - - - - 2,404 2,404 Wastewater Fund - - - - - - 347 - - 347 Solid Waste Fund - - - - - 113 - - - 113 Internal Service Funds 6 2 1 - - 1 - - 19 29 Total 5,029$ 1,102$ 4,104$ 762$ 1,496$ 1,227$ 347$ 50$ 3,254$ 17,371$ Transfers Out: Governmental Major Funds Business-Type Major Funds 54 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2019 The more significant transfers include the following: Transfers from the General Fund to the Non-Major Governmental Fund – Recreation were an operating subsidy as part of centralizing Park recreation programs all in the Recreation Fund. Transfers from the General Fund, from the Non-Major Governmental Fund – Other Special Revenue Funds, from the Water Fund, and from the Wastewater Fund to the Capital Projects Fund were to fund capital projects such as streets and building renovations. Transfers from the Internal Service – Customer Service Fund to the Water Fund were part of moving customer service activities out of the Water Fund and establishing them in the new Internal Service Fund for customer service, mainly due to moving related long-term liabilities. Transfers from the Capital Projects Fund to the General Fund were to reimburse the General Fund for projects previously funded in fiscal year 2017-18. F. Leases Leases payable for the acquisition of equipment under lease purchase agreements the fiscal year ending September 30, 2019 are zero. During the current fiscal year, the last payment under these leases in the amount of $4,171 were made in the General Fund. Transfers from fund Transfers to fund Amount General Fund Non-Major Gov’t – Recreation $3,076,517 Non-Major Gov’t – Other Special Revenue Funds Capital Projects 2,994,737 Internal Service - Customer Service Water 2,403,614 General Fund Capital Projects 1,657,222 Water Capital Projects 1,295,751 Capital Projects General Fund 1,100,000 Wastewater Capital Projects 1,013,000 55 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2019 G. Long-term Debt Long-term liabilities transactions for the year ended September 30, 2019 are summarized as follows below and on the following pages: For Internal Service funds, long-term liabilities are included as part of the above totals for governmental activities. Compensated absences payables and net pension liability balances and payments are based on the assignment of an employee within a fund. Other postemployment benefits are liquidated from the Health Insurance internal service fund, with the retiree subsidy amounts paid predominantly by the General Fund. Claims payable represents an estimate of self-insured claims liability outstanding in the Health Insurance and Risk Retention internal service funds. Long-term liabilities include a transfer of balances ($1,472,981 for net pension liability and $1,017,680 for other post-employment benefits) for the customer service department out of business-type activities from the Water Fund and into governmental activities for the internal service Customer Service Fund established in the current fiscal year. Balance at October 1, 2018 Increases Decreases / Transfers Balance at September 30, 2019 Due Within One Year Governmental Activities: General obligation bonds 127,647,935$ 18,015,000$ 10,154,978$ 135,507,957$ 10,475,424$ Certificates of obligation 81,200,000 9,390,000 7,030,000 83,560,000 7,840,000 Obligations under capital leases 4,171 - 4,171 - - Compensated absences payable 12,578,005 8,489,312 7,768,440 13,298,877 6,544,774 Claims payable 4,783,518 22,904,121 23,093,348 4,594,291 2,285,831 Net pension liability 53,542,658 29,799,938 (1,472,981) 84,815,577 - Other post employment benefits 27,625,731 487,265 (1,017,680) 29,130,676 - Unamortized premium/(discounts)12,515,724 2,074,660 1,840,998 12,749,386 1,802,427 Total governmental long-term liabilities 319,897,742$ 91,160,296$ 47,401,274$ 363,656,764$ 28,948,456$ Balance at October 1, 2018 Increases Decreases / Transfers Balance at September 30, 2019 Due Within One Year Business-type Activities: Revenue bonds 214,890,000$ -$ -$ 214,890,000$ 7,580,000$ General obligation bonds 111,347,065 26,325,000 18,990,022 118,682,043 23,864,576 Certificates of obligation 447,050,000 19,365,000 51,525,000 414,890,000 19,695,000 Compensated absences payable 3,017,658 2,189,760 2,520,312 2,687,106 2,246,844 Net pension liability 25,521,789 14,217,775 1,472,981 38,266,583 - Other post employment benefits 15,275,152 239,679 1,017,680 14,497,151 - Asset retirement obligation - 22,663,717 - 22,663,717 2,766,190 Landfill closure/post-closure 10,911,388 58,994 - 10,970,382 - Unamortized premium/(discounts)61,504,481 2,673,275 7,300,617 56,877,139 7,075,262 Total business-type activities 889,517,533 87,733,200 82,826,612 894,424,121 63,227,872 Total long-term liabilities 1,209,415,275$ 178,893,496$ 130,227,886$ 1,258,080,885$ 92,176,328$ 56 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2019 General Bonded Debt - General bonded debt at September 30, 2019, is comprised of the following: [These amounts do not include net unamortized premiums/ (discounts) of $12,749,386 nor net deferred gain/ (loss) on refunding of ($1,210,989).] Proceeds of general obligation bonded debt are restricted to the uses for which they were approved in the bond elections or, in the case of a refunding issuance, to the uses for which the certificates of obligation were originally issued. The City Charter expressly prohibits the use of bond proceeds to fund operating expenses. The general obligations are collateralized by the full faith and credit of the City and, primarily, payable from property taxes. In July 2019, the City issued $28,755,000 ($19,365,000 of which is included as part of business-type activities) in certificates of obligation. The debt was issued to pay the costs of various capital improvements in the Capital Projects Fund ($7,855,000), the Technology Services Fund (1,535,000), the Electric Fund ($7,370,000), the Water Fund ($2,810,000), and the Wastewater Fund ($9,185,000). In July 2019, the City issued $44,340,000 ($26,325,000 of which is included as part of business-type activities) of general obligation refunding and improvement bonds. The $18,015,000 for the improvement portion of the bonds was issued to pay the costs of various capital improvements in the Capital Projects Fund. The refunding portion of the bonds’ reacquisition price fell below the net carrying amount of the old debt by $833,459, all of which is reported as a deferred gain in business-type activities for the Electric Fund. This General Obligation Bonds and Certificates of Obligation Debt Interest Rate (%)Issue Date Final Maturity Original Amount of Issue Gross Amount Outstanding at September 30, 2019 General obligation 3.8 to 4.3 2010 2030 4,115,000$ 2,715,000$ General obligation refunding 2.0 to 4.75 2011 2031 2,225,000 1,560,000 General obligation refunding 2.0 to 5.0 2012 2032 14,358,739 8,190,000 General obligation refunding 2.0 to 4.0 2013 2033 10,221,023 6,847,957 General obligation refunding 2.0 to 3.5 2014 2034 7,165,000 3,515,000 General obligation refunding 3.0 to 5.0 2015 2035 36,110,000 30,590,000 General obligation refunding 3.0 to 5.0 2016 2036 27,635,000 24,710,000 General obligation refunding 3.0 to 5.0 2017 2037 27,825,000 20,670,000 General obligation 3.0 to 5.0 2018 2038 19,235,000 18,695,000 General obligation 3.0 to 5.0 2019 2039 18,015,000 18,015,000 Total general obligation bonds 166,904,762 135,507,957 Certificates of obligation 2.0 to 5.0 2010 2030 2,790,000 540,000 Certificates of obligation 2.0 to 5.0 2011 2031 3,455,000 600,000 Certificates of obligation 2.0 to 5.0 2012 2032 4,490,000 765,000 Certificates of obligation 3.0 to 4.0 2013 2033 10,805,000 7,105,000 Certificates of obligation 2.0 to 5.0 2014 2039 8,635,000 6,445,000 Certificates of obligation 2.0 to 5.0 2015 2034 7,420,000 4,080,000 Certificates of obligation 3.0 to 5.0 2016 2036 7,190,000 5,055,000 Certificates of obligation 3.0 to 5.0 2017 2037 17,000,000 13,850,000 Certificates of obligation 3.0 to 5.0 2018 2038 9,555,000 8,740,000 Certificates of obligation 3.375 to 5.0 2018 2038 28,170,000 26,990,000 Certificates of obligation 3.0 to 5.0 2019 2049 9,390,000 9,390,000 Total certificates of obligation 108,900,000 83,560,000 Total general bonded debt 275,804,762$ 219,067,957$ 57 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2019 amount is being amortized over the remaining life of the refunded debt, which is the same as the life of the new debt issued. This current refunding was undertaken to reduce total debt service payments over 6 years by $2,318,499 and resulted in a net present value savings of $2,213,647. Business-type Revenue Bonds – Revenue bond debt at September 30, 2019, is comprised of the following issues: [These amounts do not include net unamortized premiums/ (discounts) of $25,638,922.] The revenue bonds are collateralized by the revenue of the Denton utility system funds (System) and the related interest and sinking fund. The ordinance provides that the revenue of the System is to be used first to pay operating and maintenance expenses of the System and second to establish and maintain the revenue bond funds. Any remaining revenues may then be used for any lawful purpose. The ordinance also contains provisions, which among other items restrict the issuance of additional revenue bonds unless certain financial ratios are met. Management believes the City is in compliance with all significant requirements. The interest and sinking fund had a net position balance of $10,060,625 as of September 30, 2019 and is restricted for debt service. On September 30, 2019, the City had no revenue bonds considered defeased but still outstanding. Revenue Bonds Interest Rate (%)Issue Date Final Maturity Original Amount of Issue Gross Amount Outstanding at September 30, 2019 Utility system 3.25 to 5.0 2017 2037 214,890,000$ 214,890,000$ Total revenue bonds 214,890,000$ 214,890,000$ 58 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2019 Business-type General Obligation Bonds and Certificates of Obligation – General obligation bonds and certificates of obligation issued for electric, water, wastewater, and solid waste funds at September 30, 2019, is comprised of the following: [These amounts do not include net unamortized premiums/ (discounts) of $31,238,217 nor net deferred gain/ (loss) on refunding of ($1,974,772).] General Obligation Bonds and Certificates of Obligation Debt Interest Rate (%)Issue Date Final Maturity Original Amount of Issue Gross Amount Outstanding at September 30, 2019 General obligation refunding 3.0 to 5.0 2010 2022 35,815,000$ 10,760,000$ General obligation refunding 2.0 to 4.75 2011 2031 8,620,000 1,105,000 General obligation refunding 2.0 to 5.0 2012 2032 19,231,261 9,425,000 General obligation refunding 2.0 to 4.0 2013 2033 513,977 312,043 General obligation refunding 3.0 to 5.0 2014A 2039 27,155,000 19,885,000 General obligation refunding 3.0 to 5.0 2015 2035 1,530,000 840,000 General obligation refunding 4.0 to 5.0 2015A 2026 33,945,000 16,190,000 General obligation refunding 3.0 to 5.0 2016 2028 1,295,000 1,130,000 General obligation refunding 3.0 to 5.0 2016A 2030 38,425,000 31,955,000 General obligation refunding 3.0 to 5.0 2017 2022 1,280,000 755,000 General obligation refunding 3.0 to 5.0 2019 2039 26,325,000 26,325,000 Total general obligation bonds 194,135,238 118,682,043 Certificates of obligation 2.0 to 5.0 2010 2030 58,295,000 35,075,000 Certificates of obligation 2.0 to 5.0 2011 2031 28,645,000 17,160,000 Certificates of obligation 2.0 to 5.0 2012 2032 40,185,000 26,275,000 Certificates of obligation 3.0 to 4.0 2013 2033 52,715,000 36,400,000 Certificates of obligation 2.0 to 5.0 2014 2039 80,545,000 67,615,000 Certificates of obligation 2.0 to 5.0 2015 2034 85,595,000 74,605,000 Certificates of obligation 3.0 to 5.0 2016 2046 76,115,000 68,835,000 Certificates of obligation 3.0 to 5.0 2017 2047 73,800,000 68,300,000 Certificates of obligation 3.375 to 5.0 2018 2028 1,375,000 1,260,000 Certificates of obligation 3.0 to 5.0 2019 2049 19,365,000 19,365,000 Total certificates of obligation 516,635,000 414,890,000 Total business-type G.O./C.O. 710,770,238$ 533,572,043$ 59 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2019 Schedule of Long-term Debt Maturities Aggregate maturities of the long-term debt (principal and interest) for the years subsequent to September 30, 2019 are shown below: [These amounts do not include net unamortized premiums/ (discounts) of $69,626,525 nor net deferred gain/ (loss) on refunding of ($3,185,761).] Bonds Authorized and Unissued General obligation bonds authorized but unissued as of September 30, 2019 amounted to $14,665,000. When issued, the proceeds will be allocated to the applicable street and parks projects. All bonds were issued publicly through negotiated or competitive terms with no direct placements. There is no acceleration of maturity of the bonds in the event of default, and the City has never defaulted on the payment of bonds. H. Landfill Closure and Post-closure Cost State and federal laws and regulations require the City to place a final cover on its Mayhill Road landfill site upon closure and to perform certain maintenance and monitoring functions at the site for thirty years after closure. Although closure and post-closure care costs will be paid only upon anticipated closure, the City reports a portion of these costs as an operating expense in each period based on landfill capacity used as of each balance sheet date. Based on an updated model created by a 2017 engineering study, total landfill closure and post-closure cost increased from $20,819,218 at September 30, 2018 to $21,019,586 at September 30, 2019. The $10,970,382 reported as landfill closure and post-closure care liability as of September 30, 2019 is a $58,994 increase from the $10,911,388 liability reported on September 30, 2018. This liability represents the cumulative amount incurred to date based on the use of 52.04% of the estimated capacity of the entire landfill at September 30, 2019. Based on this estimate, the remaining potential estimated liability for closure and post-closure care of the entire landfill is $18,625,793. The City will recognize the remaining estimated cost of closure and post- Governmental Activities: Fiscal Year Principal Interest Principal Interest Principal Interest Principal Interest 2020 10,475,424$ 5,028,763$ 7,840,000$ 3,370,244$ -$ -$ 18,315,424$ 8,399,007$ 2021 10,580,678 4,586,657 7,375,000 3,049,881 - - 17,955,678 7,636,538 2022 10,125,878 4,131,214 6,915,000 2,730,494 - - 17,040,878 6,861,708 2023 9,261,262 3,703,009 5,730,000 2,446,244 - - 14,991,262 6,149,253 2024 9,121,703 3,300,809 5,140,000 2,200,594 - - 14,261,703 5,501,403 2025-2029 37,803,012 11,464,464 20,490,000 7,900,391 - - 58,293,012 19,364,855 2030-2034 30,365,000 5,487,461 18,540,000 3,778,260 - - 48,905,000 9,265,721 2035-2039 17,775,000 1,074,785 11,530,000 781,734 - - 29,305,000 1,856,519 Total 135,507,957$ 38,777,162$ 83,560,000$ 26,257,842$ -$ -$ 219,067,957$ 65,035,004$ Business-Type Activities: Fiscal Year Principal Interest Principal Interest Principal Interest Principal Interest 2020 23,864,576$ 4,788,888$ 19,695,000$ 16,749,172$ 7,580,000$ 10,495,500$ 51,139,576$ 32,033,560$ 2021 21,074,322 3,832,364 18,745,000 15,864,794 7,970,000 10,106,750 47,789,322 29,803,908 2022 19,344,122 2,901,245 18,385,000 14,994,056 8,375,000 9,698,125 46,104,122 27,593,426 2023 14,948,738 2,089,413 17,110,000 14,178,681 8,805,000 9,268,625 40,863,738 25,536,719 2024 13,228,297 1,448,397 17,530,000 13,382,482 9,260,000 8,817,000 40,018,297 23,647,879 2025-2029 24,316,988 2,034,390 97,650,000 54,563,809 53,695,000 36,684,625 175,661,988 93,282,824 2030-2034 1,905,000 28,575 86,715,000 33,924,764 68,840,000 21,540,250 157,460,000 55,493,589 2035-2039 - - 57,015,000 21,054,506 50,365,000 3,861,375 107,380,000 24,915,881 2040-2044 - - 60,670,000 10,105,719 - - 60,670,000 10,105,719 2045-2049 - - 21,375,000 1,005,716 - - 21,375,000 1,005,716 Total 118,682,043$ 17,123,272$ 414,890,000$ 195,823,699$ 214,890,000$ 110,472,250$ 748,462,043$ 323,419,221$ General Obligation Certificates of Obligation Capital Leases Total General Obligation Certificates of Obligation Revenue Total 60 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2019 closure care as the remaining capacity is filled. These amounts are based on what it would cost to perform closure and post-closure care in 2019. Actual cost may fluctuate due to inflation, changes in technology, or changes in regulations. The landfill has a remaining life of 15 years, and the City expects to close the landfill in fiscal year 2034. The solid waste fund has provided for a reservation and designation of cash and investments of $11,057,545 at September 30, 2019, and anticipates increasing the reserve in future periods as the closure and post-closure activities are carried out. I. Asset retirement obligation The electric fund has recorded an asset retirement obligation of $22,663,717 as of September 30, 2019. This entire amount is payable to Texas Municipal Power Agency (TMPA) as the City’s portion of TMPA’s asset retirement obligation for the Gibbons Creek power generation facility. See footnote V.E. on TMPA for more details. V. OTHER INFORMATION A. Pension Plans Employee Retirement Plans The City of Denton participates in two pension plans; Texas Municipal Retirement System (TMRS), an agent- multiple employer traditional, joint contributory, hybrid defined benefit pension plan; and the Denton Firemen’s Relief and Retirement Fund (FRRF), a single employer, contributory, defined benefit plan. Both plans are described in detail below. Aggregate amounts for the two pension plans are as follows: Texas Municipal Retirement Plan Plan Description The City of Denton participates as one of 887 plans in the nontraditional, joint contributory, hybrid defined benefit pension plan administered by the Texas Municipal Retirement System (TMRS). TMRS is an agency created by the State of Texas and administered in accordance with the TMRS Act, Subtitle G, Title 8, Texas Government Code (the TMRS Act) as an agent multiple-employer retirement system for municipal employees in the State of Texas. The TMRS Act places the general administration and management of the System with a six-member board of Trustees. Although the Governor, with the advice and consent of the Senate, appoints the Board, TMRS is not fiscally dependent on the State of Texas. TMRS’s defined benefit pension plan is a tax-qualified plan under Section 401(a) of the Internal Revenue Code. TMRS issues a publicly-available comprehensive annual financial report (CAFR) obtainable at www.tmrs.com. All eligible employees of the city are required to participate in TMRS. Benefits Provided TMRS provides retirement, disability, and death benefits. Benefit provisions are adopted by the governing body of the City, within the options available in the state statutes governing TMRS. At retirement, the benefit is calculated as if the sum of the employee’s contributions, with interest, and the city-financed monetary credits with interest were used to purchase an annuity. Members may choose to TMRS FRRF Total Pension liability 497,298,775$ 109,454,828$ 606,753,603$ Pension assets 396,837,219 86,834,224 483,671,443 Net pension liability 100,461,556$ 22,620,604$ 123,082,160$ Deferred outflows of resources 50,582,605$ 12,223,428$ 62,806,033$ Deferred inflows of resources 15,480,204 4,352,865 19,833,069 Pension expense 21,401,730 4,535,861 25,937,591 61 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2019 receive their retirement benefit in one of seven payments options. Members may also choose to receive a portion of their benefit as a Partial Lump Sum Distribution in an amount equal to 12, 24, or 36 monthly payments, which cannot exceed 75% of the member’s deposits and interest. Upon retirement, benefits depend on the sum of the employee’s contributions, with interest, and the city- financed monetary credits, with interest. City-financed monetary credits are composed of three sources: prior service credits, current service credits, and updated service credits. Prior service credit, granted by each city joining TMRS, is a monetary credit equal to the accumulated value of the percentage of prior service credit adopted times and employee’s deposits that would have been made, based on the average salary prior to participation, for the number of months the employee has been employed, accruing 3% annual interest, and including the matching ratio adopted by the City. Monetary credits for service since the plan began (or current service credits) are a percent (200%) of the employee's accumulated contributions. In addition, the City grants on an annually repeating basis, another type of monetary credit referred to as an updated service credit. This monetary credit is determined by hypothetically recomputing the member’s account balance by assuming the current member deposit rate of the City (7%) has always been in effect. The computation also assumes the member’s salary has always been the member’s average salary – using a salary calculation based on the 36- month period ending a year before the effective date of calculation. This hypothetical account balance is increased by 3% each year, and increased by the city match currently in effect (200%). The resulting sum is then compared to the member’s actual account balance increased by the actual city match and actual interest credited. If the hypothetical calculation exceeds the actual calculation, the member is granted a monetary credit (or Updated Service Credit) equal to the difference between the hypothetical calculation and the actual calculation times the percentage adopted. The plan provisions also include an annually repeating basis cost of living adjustments for retires equal to 70% of the change in the consumer price index. Members can retire at ages 60 and above with 5 or more years of service or with 20 years of service regardless of age. A member is vested after five years. Employees Covered by Benefit Terms At the December 31, 2018 valuation and measurement date, the following employees were covered by the benefit terms: Contributions The contribution rates for employees in TMRS are either 5%, 6%, or 7% of employee gross earnings, and the city matching percentages are either 100%, 150%, or 200%, both as adopted by the City Council. Under the state law governing TMRS, the contribution rate for each city is determined annually by the actuary, using the Entry Age Normal (EAN) actuarial cost method. The actuarially determined rate is the estimated amount necessary to finance the cost of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. Employees for the City were required to contribute 7% of their annual gross earnings during the fiscal year. The contribution rates for the City were 17.13% and 17.00% in calendar years 2018 and 2019, respectively. The City’s contributions to TMRS for the year ended September 30, 2019 were $16,055,560 and were equal to the required contributions. Net Pension Liability The City’s Net Pension Liability (NPL) was measured as of December 31, 2018, and the Total Pension Liability (TPL) used to calculate the Net Pension Liability was determined by an actuarial valuation as of that date. Inactive employees or beneficiaries currently receiving benefits 644 Inactive employees entitled to but not yet receiving benefits 613 Active employees 1,265 Total 2,522 62 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2019 Actuarial Assumptions The Total Pension Liability in the December 31, 2018 actuarial valuation was determined using the following actuarial assumptions: Inflation 2.5% per year Overall payroll growth 3.0% per year Investment Rate of Return 6.75%, net of pension plan investment expense, including inflation Salary increases were based on a service-related table. Mortality rates for active members, retirees, and beneficiaries were based on the gender-distinct RP2000 Combined Healthy Mortality Tables with Blue Collar Adjustment, with male rates multiplied by 109% and female rates multiplied by 103%. The rates are projected on a fully generational basis by scale BB to account for future mortality improvements. For disabled annuitants, the gender-distinct RP2000 Combined Healthy Mortality Tables with Blue Collar Adjustment are used with male rates multiplied by 109% and female rates multiplied by 103% with a 3-year set-forward for both males and females. In addition, a 3% minimum mortality rate is applied to reflect the impairment for younger members who become disabled. The rates are projected on a fully generational basis by scale BB to account for future mortality improvements subject to the 3% floor. The actuarial assumptions were developed primarily from the actuarial investigation of the experience of TMRS over the four year period from December 31, 2010 to December 31, 2014. They were adopted in 2015 and first used in the December 31, 2015 actuarial valuation. The post-retirement mortality assumption for healthy annuitants and Annuity Purchase Rate (APRs) are based on the Mortality Experience Investigation Study covering 2009 through 2011 and dated December 31, 2013. In conjunction with these changes first used in the December 31, 2013 valuation, the System adopted the Entry Age Normal actuarial cost method and a one-time change to the amortization policy. Plan assets are managed on a total return basis with an emphasis on both capital appreciation as well as the production of income, in order to satisfy the short-term and long-term funding needs of TMRS. The long-term expected rate of return on pension plan investments was determined using a building-block method in which best estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. In determining their best estimate of a recommended investment return assumption under the various alternative asset allocation portfolios, TMRS’s actuary focused on the area between (1) arithmetic mean (aggressive) without an adjustment for time (conservative) and (2) the geometric mean (conservative) with an adjustment for time (aggressive). The target allocation and best estimates of real rates of return for each major asset class in fiscal year 2019 are summarized in the following table: 63 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2019 Discount Rate The discount rate used to measure the Total Pension Liability was 6.75%. The projection of cash flows used to determine the discount rate assumed that employee and employer contributions will be made at the rates specified in statute. Based on that assumption, the pension plan’s Fiduciary Net Position was projected to be available to make all projected future benefit payments of current active and inactive employees. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the Total Pension Liability. Changes in the Net Pension Liability Asset Class Target Allocation Long-Term Expected Real Rate of Return (Arithmetic) Domestic Equity 17.5%4.30% International Equity 17.5%6.10% Core Fixed Income 10.0%1.00% Non-Core Fixed Income 20.0%3.39% Real Return 10.0%3.78% Real Estate 10.0%4.44% Absolute Return 10.0%3.56% Private Equity 5.0%7.75% Total 100.0% Total Pension Plan Fiduciary Net Pension Liability Net Position Liability (a)(b) (a) - (b) Balance at 12/31/2017 467,822,431$ 406,215,629$ 61,606,802$ Changes for the year: Service cost 14,990,529 - 14,990,529 Interest 31,468,411 - 31,468,411 Difference between expected and actual experience 1,255,443 - 1,255,443 Contributions - employer - 15,107,443 (15,107,443) Contributions - employee - 6,175,407 (6,175,407) Net investment income - (12,175,765) 12,175,765 Benefit payments, including refunds of employee contributions (18,238,039) (18,238,039) - Administrative expense - (235,169) 235,169 Other changes - (12,287) 12,287 Net changes 29,476,344 (9,378,410) 38,854,754 Balance at 12/31/2018 497,298,775$ 396,837,219$ 100,461,556$ Increase (Decrease) 64 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2019 Sensitivity of the Net Pension Liability to Changes in the Discount Rate The following presents the net pension liability of the City, calculated using the discount rate of 6.75%, as well as what the City’s net pension liability would be if it were calculated using a discount rate that is 1- percentage-point lower (5.75%) or 1-percentage-point higher (7.75%) than the current rate: Pension Plan Fiduciary Net Position Detailed information about the pension plan’s Fiduciary Net Position is available in a separately-issued TMRS financial report. That report may be obtained on the Internet at www.tmrs.com. Pension Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions For the year ended September 30, 2019, the City recognized pension expense of $21,401,730. This amount is included as part of personal services expenses. At September 30, 2019, the City reported deferred outflows of resources and deferred inflows of resources related to TMRS pension from the following sources: $12,328,531 reported as deferred outflows of resources related to pensions resulting from contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability for the City’s fiscal year ending September 30, 2020. Other amounts reported as deferred outflows and inflows of resources related to pensions will be recognized in pension expense as follows: 1% Decrease in Current 1% Increase in Discount Rate Discount Rate Discount Rate (5.75%)(6.75%)(7.75%) City's net pension liability 174,477,764$ 100,461,556$ 40,126,277$ Deferred Outflows Deferred Inflows of Resources of Resources Differences between projected and actual investment earnings 36,036,676$ (15,088,984)$ Contributions subsequent to the measurement date 12,328,531 - Differences between expected and actual economic experience 2,217,398 (306,151) Difference in assumption changes - (85,069) Total 50,582,605$ (15,480,204)$ For the Year Ended September 30, 2020 7,570,408$ 2021 3,601,210 2022 3,470,098 2023 8,132,154 2024 - Total 22,773,870$ 65 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2019 Denton Firemen's Relief and Retirement Plan Plan Description The City contributes to the retirement plan for firefighters in the Denton Fire Department known as the Denton Firemen’s Relief and Retirement Fund (the Fund). The Fund is a single employer, contributory, defined benefit plan. The benefit provisions of the Fund are authorized by the Texas Local Fire Fighters’ Retirement Act (TLFFRA). TLFFRA provides the authority and procedure to amend benefit provisions. The plan is administered by the Board of Trustees of the Denton Firemen’s Relief and Retirement Fund. The City does not have access to nor can it utilize assets within the retirement plan trust. The Fund issues a stand-alone report pursuant to GASB Statement No. 67, which may be obtained by writing the Denton Firemen’s Relief and Retirement Fund at P.O. Box 2375, Denton, Texas 76202. See that report for all information about the plan fiduciary net position. Benefits Provided Firefighters in the Denton Fire Department are covered by the Denton Firemen’s Relief and Retirement Fund which provides service retirement, death, disability, and withdrawal benefits. These benefits fully vest after 20 years of credited service. Firefighters may retire at age 50 with 20 years of service. A partially-vested benefit is provided for firefighters who terminate employment with at least 10 but less than 20 years of service. If a terminated firefighter has a partially vested benefit, the firefighter may retire starting on the date they would have both completed 20 years of service if they had remained a Denton firefighter and attained age 50. The present plan effective January 1, 2011 provides a monthly normal service retirement benefit, payable in a Joint and Two-Thirds to Spouse form of annuity, equal to 2.59% of Highest 36-Month Average Salary for each year of service. A retiring firefighter who is at least age 52 with at least 22 years of service has the option to elect the Retroactive Deferred Retirement Option Plan (RETRO DROP) which will provide a lump sum benefit and a reduced monthly benefit. The reduced monthly benefit is based on the service and Highest 36-Month Average Salary as if the firefighter had terminated employment on their selected RETRO DROP benefit calculation date, which is no earlier than the later of the date the firefighter meets the age 52 and 22 years of service requirements and the date four years prior to the date the firefighter actually retires. Upon retirement, the member will receive, in addition to the monthly retirement benefit, a lump sum equal to the sum of (1) the amount of monthly contributions the member has made to the Fund after the RETRO DROP benefit calculation date plus (2) the total of the monthly retirement benefits the member would have received between the RETRO DROP benefit calculation date and the date retired under the plan. There are no account balances. The lump sum is calculated at the time of retirement and distributed as soon as administratively possible. There is no provision for automatic postretirement benefit increases. The Fund has the authority to provide, and has periodically in the past provided, ad hoc postretirement benefit increases. Employees Covered by Benefit Terms In the December 31, 2017 actuarial valuation, the following numbers of members were covered by the Fund: Contributions The contribution provisions of the Fund are authorized by TLFFRA. TLFFRA provides the authority and procedure to change the amount of contributions determined as a percentage of pay by each firefighter and a percentage of payroll by the City. Inactive employees or beneficiaries currently receiving benefits 84 Inactive employees entitled to but not yet receiving benefits 3 Active employees 189 Total 276 66 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2019 The funding policy of the Denton Firemen’s Relief and Retirement Fund requires contributions equal to 12.6% of pay by the firefighters, the rate elected by the firefighters according to TLFFRA. The City began contributing in December 2017 according to a new City funding policy. The ordinance defining it includes an actuarially determined contribution rate over a closed 25-year amortization period, a contribution rate of 18.5% for several years, a minimum rate standard, and City review and approval of each actuarial valuation. The December 31, 2017 actuarial valuation includes the assumption the City contribution rate will be 18.5% over the unfunded liability amortization period. The costs of administering the plan are paid from the Fund assets. The City’s contributions to the Fund for the year ended September 30, 2019 were $3,610,711 Ultimately, the funding policy also depends upon the total return of the Fund’s assets, which varies from year to year. Investment policy decisions are established and maintained by the board of trustees. The board selects investments and employs investment managers with the advice of their investment consultant who is completely independent of the investment managers. For the calendar year ending December 31, 2018, the money-weighted rate of return on pension plan investments was -0.21%. This measurement of the investment performance is net of investment-related expenses, reflecting the effect of the timing of the contributions received and the benefits paid during the year. While the contribution requirements are not actuarially determined, state law requires that each change in plan benefits adopted by the Fund must first be approved by an eligible actuary, certifying the contribution commitment by the firefighters and the assumed city contribution rate together provide an adequate contribution arrangement. Using the entry age actuarial cost method, the plan’s normal cost contribution rate is determined as a percentage of payroll. The excess of the total contribution rate over the normal cost contribution rate is used to amortize the plan’s unfunded actuarial accrued liability (UAAL). The number of years needed to amortize the plan’s UAAL is actuarially determined using an open, level percentage of payroll method. Net Pension Liability The City of Denton’s net pension liability was measured as of December 31, 2018, and the total pension liability used to calculate the net pension liability was determined based on the actuarial valuation as of December 31, 2017 and rolled forward to December 31, 2018. Actuarial Assumptions The total pension liability in the December 31, 2017 actuarial valuation was determined using the following actuarial assumptions, applied to all periods included in the measurement: Inflation 2.50% per year Overall payroll growth 3.00% per year, plus promotion, step and longevity increases that vary by service Investment Rate of Return 6.75%, net of pension plan investment expense, including inflation Mortality rates were based on the RP-2000 Combined Healthy Mortality Tables for males and for females (sex distinct) projected to 2024 by scale AA. The long-term expected rate of return on pension plan investments is reviewed for each biennial actuarial valuation and was determined using a building-block method in which expected future net real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. These components are combined to produce the long-term expected rate of return by weighting the Total pension liability 109,454,828$ Plan fiduciary net position 86,834,224 City's net pension liability 22,620,604$ Plan fiduciary net position as a percentage of the total pension liability 79.3% 67 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2019 expected future net real rates of return by the target asset allocation percentage (currently resulting in 5.1%) and by adding expected inflation (2.5%). In addition, the final 6.75% assumption was selected by “rounding down” and thereby reflects a reduction of 0.85% for adverse deviation. The target allocation and expected arithmetic net real rates of return for each major asset class are summarized in the following table: Discount Rate The discount rate used to measure the total pension liability was 6.75%. No projection of cash flows was used to determine the discount rate because the December 31, 2017 actuarial valuation showed expected contributions would pay the normal cost and amortize the unfunded actuarial accrued liability (UAAL) in 15 years. Because of the 15-year amortization period of the UAAL, the pension plan’s fiduciary net position is expected to be available to make all projected future benefit payments of current active and inactive members. Therefore, the long-term expected rate of return on pension plan investments of 6.75% was applied to all periods of projected benefit payments as the discount rate to determine the total pension liability. Asset Class Target Allocation Long-Term Expected Real Rate of Return (Arithmetic) Equities Large Cap Domestic 40.0%6.00% Small/Mid Cap Domestic 10.0%6.50% International Developed 10.0%6.50% Alternatives Master Limited Partnerships 8.0%8.00% Real Estate 15.0%4.50% Fixed Income 10.0%1.00% Cash 7.0%0.00% Total 100.0% 68 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2019 Changes in the Net Pension Liability Sensitivity of the Net pension Liability to Changes in the Discount Rate The following presents the net pension liability of the City of Denton, calculated using the discount rate of 6.75%, as well as what the city’s net pension liability would be if it were calculated using a discount rate that is 1-percentage-point lower (5.75%) or 1-percentage-point higher (7.75%) than the current rate: Pension Plan Fiduciary Net Position The plan fiduciary net position reported above is the same as reported by the Fund. Detailed information about the plan fiduciary net position is available in the Fund’s separately issued audited financial statements, which are reported using the economic resources measurement focus and the accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America. Revenues are recorded when earned, and expenses are recorded when a liability is incurred, regardless of the timing of the related cash flows. Investments are reported at fair value, the price that would be recognized to sell an asset in an orderly transaction between market participants at the measurement date. Pension Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions For the year ended September 30, 2019, the City recognized pension expense of $4,535,861. Amounts recognized in the fiscal year represent changes between the current and prior year measurement dates. This amount is included as part of personnel services expenses. At September 30, 2019, the City reported deferred outflows of resources and deferred inflows of resources related to the Fund from the following sources: Total Pension Plan Fiduciary Net Pension Liability Net Position Liability (a)(b) (a) - (b) Balance at 12/31/2017 102,845,928$ 85,388,283$ 17,457,645$ Changes for the year: Service cost 3,615,495 - 3,615,495 Interest 7,049,261 - 7,049,261 Difference between expected and actual experience - - - Contributions - employer - 3,434,007 (3,434,007) Contributions - employee - 2,338,837 (2,338,837) Net investment income - (183,148) 183,148 Benefit payments, including refunds of employee contributions (4,055,856) (4,055,856) - Administrative expense - (87,899) 87,899 Net changes 6,608,900 1,445,941 5,162,959 Balance at 12/31/2018 109,454,828$ 86,834,224$ 22,620,604$ Increase (Decrease) 1% Decrease in Current 1% Increase in Discount Rate Discount Rate Discount Rate (5.75%)(6.75%)(7.75%) City's net pension liability 36,371,583$ 22,620,604$ 11,023,429$ 69 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2019 Deferred outflows of resources related to pensions resulting from contributions subsequent to the measurement date of $2,770,867 will be recognized as a reduction of the net pension liability for the measurement year ending December 31, 2019 and the City’s fiscal year ending September 30, 2020. Other amounts reported as deferred outflows and inflows of resources related to pensions will be recognized in pension expense as follows: B. Post-employment Benefits Other than Pensions (OPEB) The City of Denton provides for two post-employment benefit (OPEB) plans; one provides for post- employment medical care through a single-employer defined benefit medical plan (Medical OPEB), and the other is the Texas Municipal Retirement System Supplemental Death Benefits Fund (TMRS SDBF), a single- employer defined benefit OPEB plan. Both plans are described in detail below. Aggregate amounts for the two OPEB plans are as follows: Medical Benefits Plan Description The City of Denton provides post-employment medical care (OPEB) for retired employees through a single- employer defined benefit medical plan. The plan provides medical benefits for eligible retirees, their spouses and dependents though the City’s group health insurance plans, which covers both active and retired Deferred Outflows Deferred Inflows of Resources of Resources Differences between projected and actual investment earnings 6,454,881$ (3,133,380)$ Contributions subsequent to the measurement date 2,770,867 - Differences between expected and actual economic experience 1,619,516 (1,219,485) Difference in assumption changes 1,378,164 - Total 12,223,428$ (4,352,865)$ For the Year Ended September 30, 2020 1,891,803$ 2021 238,391 2022 705,096 2023 1,438,419 2024 238,052 Thereafter 587,935 Total 5,099,696$ Medical OPEB TMRS SDBF Total Total OPEB liability 40,182,078$ 3,445,749$ 43,627,827$ Deferred outflows of resources 2,169,267$ 442,304$ 2,611,571$ Deferred inflows of resources 1,666,243 207,294 1,873,537 OPEB expense 3,346,412 316,328 3,662,740 70 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2019 members. The benefits, benefit levels, and contribution rates are recommended annually by the City management as part of the budget process. Any changes in rate subsidies for retirees are approved by the City Council. Since an irrevocable trust has not been established, the plan is not accounted for as a trust fund. The plan does not issue a separate financial report. Benefits Provided The City provides post-employment medical, dental, and vision care benefits to its retirees. To be eligible for benefits, an employee must qualify for retirement under the Texas Municipal Retirement System or the Denton Firemen’s Relief and Retirement Plan. Retirees must make a one-time irrevocable decision to choose benefits at the time of retirement, after that their eligibility for the benefits ceases. However, retirees can move between plans and can add and drop dependents based on qualifying events. All medical care benefits are provided through the City’s self-insured health plan. The benefit levels are the same as those afforded to active employees. Employees Covered by the Benefit Terms In the December 31, 2017 actuarial valuation, the following number of employees were covered by the benefit terms: Funding Policy The plan premium rates are recommended annually by City management and approved by the City Council as part of the annual budget. The retiree’s contribution is the full amount of the actuarially determined blended premium rate less a subsidy dependent upon years of service at retirement. By providing retirees with access to the City’s healthcare plans based on the same rates it charges to active employees, the City is in effect providing a subsidy to retirees. This implied subsidy exists because, on average, retiree health care costs are higher than active employee healthcare costs. By the City not contributing anything toward this plan in advance, the City employs a pay-as-you-go method through paying the higher rate for active employees each year. The City contributes $40 per month for each five-year increment of service, up to $200 per month, toward the cost of retiree coverage. The full cost for dental and vision is paid by the retiree. Retirees are required to enroll in Medicare Part B once eligible (age 65) and are moved into a fully-insured Medicare Supplement plan at that time. The same City contribution level applies to the supplement. Medical OPEB Liability The City’s medical OPEB liability of $40,182,078 was measured as of December 31, 2018 and determined by rolling forward the actuarial valuation as of December 31, 2017. Actuarial Methods and Assumptions The medical OPEB liability in the December 31, 2017 actuarial valuation was determined using the following actuarial assumptions and other inputs, applied to all periods included in the measurement date, unless otherwise specified. Significant method and assumptions used for this fiscal year valuation were as follows: Inactive employees or beneficiaries currently receiving benefits 123 Inactive employees entitled to but not yet receiving benefits 0 Active employees 1,402 Total 1,525 71 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2019 Actuarial Assumptions 12/31/2017 Valuation date December 31, 2017 Actuarial cost method Individual Entry-Age Normal Method Discount Rate 3.31% as of December 31, 2017 3.71% as of December 31, 2018 Inflation rate 2.50% per annum Projected salary increases 3.50% to 10.50% for TMRS, including inflation 3.00% to 9.18% for Fire, including inflation Healthcare trend rates Initial rate of 7.50% declining to an ultimate rate of 4.25% after 15 years Mortality TMRS: For healthy retirees, the gender-distinct RP-2000 Combined Healthy Mortality Tables with Blue Collar Adjustment are used with male rates multiplied by 109% and female rates multiplied by 103%. The rates are projected on a fully generational basis by scale BB to account for future mortality improvements. Firefighters: The gender-distinct RP-2000 Combined Healthy Mortality Tables projected to 2024 with Scale AA. No additional provision is made for future improvements in mortality after the measurement date other than the margins described above. Participation Rates 60% for retirees age 65 or older at retirement: 45% for retirees between the ages of 50 and 64 at retirement; 0% for retirees under age 50 at retirement Changes in the Medical OPEB Liability Total Medical OPEB Liability Balance at 12/31/2017 39,631,890$ Changes for the year: Service cost 1,995,008 Interest 1,329,949 Difference between expected and actual experience 150,485)( Changes of assumptions 1,724,923)( Benefit payments (899,361) Net changes 550,188 Balance at 12/31/2018 40,182,078$ 72 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2019 Sensitivity of the Medical OPEB Liability to Changes in the Discount Rate The following schedule shows the impact of the medical OPEB liability if the discount rate used was 1% less than (2.71%) and 1% greater than (4.71%) the discount rate that was used (3.71%) in measuring the medical OPEB liability: Sensitivity of the Medical OPEB Liability to Changes in the Healthcare Cost Trend Rate Assumption The following schedule shows the impact of the medical OPEB liability if the healthcare trend cost rate used was 1% less than (6.50%) and 1% more than (8.50%) the healthcare cost trend rate that was used (7.50%) in measuring the medical OPEB liability: Medical OPEB Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Medical OPEB For the year ended September 30, 2019, the City recognized medical OPEB expense of $3,346,412. At September 30, 2019, the City reported deferred outflows of resources and deferred inflows of resources related to medical OPEB from the following sources: Amounts reported as deferred outflows of resources related to the medical OPEB will be recognized in OPEB expense as follows: Current 1% Decrease Discount Rate 1% Increase (2.71%)(3.71%)(4.71%) Total medical OPEB liability 44,667,400$ 40,182,078$ 36,238,525$ Current Healthcare 1% Decrease Cost Trend Rate 1% Increase (6.50%)(7.50%)(8.50%) Total medical OPEB liability 36,377,186$ 40,182,078$ 44,699,758$ Deferred Outflows Deferred Inflows of Resources of Resources Differences between expected and actual economic experience -$ 133,701$ Changes in actuarial assumptions 1,606,547 1,532,542 Contributions subsequent to the measurement date 562,720 - Totals 2,169,267$ 1,666,243$ Year Ending Net Deferred September 30, Outflows/(Inflows) 2020 21,455$ 2021 21,455 2022 21,455 2023 21,455 2024 21,455 Thereafter (166,971) Total (59,696)$ 73 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2019 TMRS Supplemental Death Benefit Fund Plan Description The City of Denton voluntarily participates in the Texas Municipal Retirement System Supplemental Death Benefits Fund (TMRS SDBF). The SDBF is a defined benefit group-term life insurance Other Postemployment Benefit (OPEB) plan as defined by GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions. No assets are accumulated in a trust that meets the criteria in paragraph 4 of GASB Statement No. 75. It is established and administered in accordance with the TMRS Act identically to the City’s pension plan. Benefits Provided The SDBF provides group-term life insurance to City employees who are active members in TMRS, including or not including retirees. The City Council opted into this system via an ordinance, and may terminate coverage under, and discontinue participation in, the SDBF by adopting an ordinance before November 1st of any year to be effective the following January 1st. Payments from this fund are similar to group-term life insurance benefits, and are paid to the designated beneficiaries upon the receipt of an approved application for payment. The death benefit for active employees provides a lump-sum payment approximately equal to the employee’s annual salary (calculated based on the employee’s actual earnings for the 12-month period preceding the month of death). The death benefit for retirees is considered an “other postemployment benefit” (OPEB) and is a fixed amount of $7,500. As the SDBF covers both active and retiree participants with no segregation of assets, the SDBF is considered to be an unfunded OPEB plan. Employees Covered by the Benefit Terms In the December 31, 2018 actuarial valuation, the following number of employees were covered by the benefit terms: Contributions The City contributes to the SDBF at a contractually required rate as determined by an annual actuarial valuation, which was 0.18% for both 2019 and 2018, of which 0.03% and 0.02%, respectively represented the retiree-only portion for each year, as a percentage of annual covered payroll. The rate is equal to the cost of providing one-year term life insurance. The funding policy for the SDBF program is to assure that adequate resources are available to meet all the death benefit payments for the upcoming year; the intent is not to prefund retiree term life insurance during employees’ entire careers. The City’s contribution to the SDBF for two years ended September 30, 2019 and 2018 were $169,702 and $156,539 respectively, representing contributions for both active and retiree coverage, which equaled the required contribution each year. Actuarial Methods and Assumptions The SDBF OPEB liability in the December 31, 2018 actuarial valuation was determined using the following actuarial assumptions: Inactive employees or beneficiaries currently receiving benefits 504 Inactive employees entitled to but not yet receiving benefits 176 Active employees 1,265 Total 1,945 12/31/2018 Inflation rate 2.50% per annum Discount rate 3.71% Actuarial cost method Entry Age Normal Method Projected salary increases 3.50% to 10.5% including inflation 74 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2019 Salary increases were based on a service-related table. Mortality rates for active members, retirees, and beneficiaries were based on the following: Mortality rates for active members, retirees, and beneficiaries were based on the gender-distinct RP2000 Combined Healthy Mortality Tables with Blue Collar Adjustment, with male rates multiplied by 109% and female rates multiplied by 103%. The rates are projected on a fully generational basis by scale BB to account for future mortality improvements. For disabled annuitants, the gender-distinct RP2000 Combined Healthy Mortality Tables with Blue Collar Adjustment are used with male rates multiplied by 109% and female rates multiplied by 103% with a 3-year set forward for both males and females. In addition, a 3% minimum mortality rate is applied to reflect the impairment for younger members who became disabled. The rates are projected on a fully generational basis by scale BB to account for the future mortality improvements subject to the 3% floor. Administrative expenses for the SDBF are paid through the TMRS Pension Trust Fund and are wholly accounted for under the provisions of GASB Statement No. 68. Changes in assumptions reflect the annual change in the municipal bond rate. The actuarial assumptions used in the December 31, 2018 valuation were based on the results of an actuarial experience study for the period December 31, 2010 to December 31, 2014. Discount Rate The SDBF program is treated as an unfunded OPEB plan because the SDBF trust covers both actives and retirees and the assets are not segregated for these groups. As such, a single discount rate of 3.71% was used to measure the SDBF OPEB Liability. Because the plan is essentially a “pay-as-you-go” plan, the single discount rate is equal to the prevailing municipal bond rate. The source of the municipal bond rate was fixed- income municipal bonds with 20 years to maturity that include only federally tax-exempt municipal bonds as reported in Fidelity Index’s “20-year Municipal GO AA Index” as of December 31, 2018. Sensitivity of the SDBF OPEB Liability to Changes in the Discount Rate The following schedule shows the impact of the SDBF OPEB liability if the discount rate used was 1% less than (2.71%) and 1% greater than (4.71%) the discount rate that was used (3.71%) in measuring the medical OPEB liability: OPEB Liabilities, OPEB Expense, and Deferred Outflows of Resources Related to OPEBs At September 30, 2019 the City reported a liability of $3,445,749 for its Total SDBF OPEB liability. The total SDBF liability was determined by an actuarial valuation as of December 31, 2018. For the year ended September 30, 2019, the City recognized SDBF OPEB expense of $316,328. There were no changes of benefit terms that affected measurement of the Total SDBF Liability during the measurement period. Current 1% Decrease Discount Rate 1% Increase (2.71%) (3.71%) (4.71%) Total SDBF OPEB liability 4,117,352$ 3,445,749$ 2,924,926$ 75 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2019 Changes in the SDBF OPEB Liability At September 30, 2019, the City reported deferred outflows of resources and deferred inflows of resources related to other SDBF post-employment benefits from the following sources: The $130,755 reported as deferred outflows of resources related to SDBF OPEB resulting from contributions subsequent to the measurement date will be recognized as a reduction of the Total SDBF Liability for the year ending September 30, 2020. Other amounts reported as deferred outflows of resources related to SDBF OPEB will be recognized in OPEB expense as follows: Total SDBF OPEB Liability Balance at 12/31/2017 3,268,993$ Changes for the year: Service cost 176,359 Interest 110,831 Difference between expected and actual experience 155,143 Changes of assumptions (247,941) Benefit payments (17,636) Net changes 176,756 Balance at 12/31/2018 3,445,749$ Deferred Outflows Deferred Inflows of Resources of Resources Differences between expected and actual economic experience 129,710$ -$ Changes in actuarial assumptions 181,839 207,294 Contributions subsequent to the measurement date 130,755 - Totals 442,304$ 207,294$ Year Ending Net Deferred September 30 Outflows/(Inflows) 2020 29,138$ 2021 29,138 2022 29,138 2023 29,138 2024 (10,778) Thereafter (1,519) Total 104,255$ 76 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2019 C. Deferred Compensation Plan The City offers its employees a deferred compensation plan created in accordance with Internal Revenue Code Section 457. For the calendar years 2018 and 2019, the plan, available to all permanent City employees, permitted them to defer, until future years, up to $18,500 and $19,000, respectively. Employees who are age 50 or older may contribute an additional amount of $6,000, the total not to exceed $25,000 in 2019. Employees who are within three years of retirement eligibility may elect to participate in a catch-up provision allowed by Section 457, which has an annual maximum contribution amount of $37,000 in 2018 and $38,000 in 2019. The withdrawal of deferred compensation funds is only available to employees by loan, termination, retirement, death, or unforeseeable emergency. All amounts of compensation deferred under the plan, all property and rights purchased with those amounts, and all income attributable to those amounts, property or rights are, until paid or made available to the employee or other beneficiary, solely the property and rights of the employees. Accordingly, the assets and associated liability of the plan are not included in the City’s financial statements. It is the opinion of the City's legal counsel that the City has no liability for losses under the plan. D. Self-insurance Plan The City has established a self-insurance plan for liability and workers' compensation claims in the Risk Retention Fund. Accrued claims payable include provisions for claims reported and claims incurred but not reported. The provision for reported claims is determined by estimating the amount which will ultimately be paid for each claimant. The provision for claims incurred but not yet reported is estimated based on actuarial studies. It is the policy of the City of Denton not to purchase commercial insurance for workers' compensation claims or general liability. Commercial liability insurance coverage is purchased for airport operations, emergency medical services, take-home vehicles, and employee theft and dishonesty. Additionally, excess insurance is purchased for general liability, auto liability, public officials, and workers’ compensation exposures. The City reports liabilities when it is probable that a loss has occurred and the amount of that loss can be reasonably estimated. Liabilities include an amount for claims that have been incurred but not reported. Because actual claim liabilities depend on such complex factors as inflation, changes in legal doctrines, and damage awards, the process used in computing claims liability does not necessarily result in an exact amount. In January 2008, the City started a self-insured group employee health insurance plan. Claims are paid from the Health Insurance Fund, which has an annually negotiated stop loss provision. The City’s costs associated with the self-insurance plans are interfund transactions. Accordingly, they are treated as operating revenues of the Internal Service Risk Retention Fund and Health Insurance Fund and operating expenditures (expenses) of the other funds and employee payroll deductions. Claims liabilities are re-evaluated periodically to take into consideration settlement of claims, new claims and other factors. As of September 30, 2019 the estimated value of these liabilities was $4,594,291. Changes in balances of claims liabilities during fiscal years 2019 and 2018 were as shown as follows: 77 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2019 On September 30, 2019, the City of Denton had a negative unrestricted net position of $761,116 in the Risk Retention Fund and an additional positive net position of $2,457,122 in the Health Insurance Fund for payment of claims, both in addition to the liability balances recorded. There were no significant reductions in insurance coverage from coverage in the prior year, and the amount of settlements did not exceed insurance coverage in the current year or in any of the past three fiscal years. E. Commitments and Contingencies Agreement with TMPA In 1976, the City, along with the cities of Bryan, Greenville, and Garland, Texas (the Cities) entered into a Power Sales Contract with the Texas Municipal Power Agency (TMPA). TMPA was created through concurrent ordinances of the Cities and is governed by a Board of Directors consisting of eight members, two appointed by the governing body of each city. Under the terms of the agreement, TMPA agreed to construct or acquire electric generating plants to supply energy and power to the Cities for a period of not less than 35 years. The Cities in turn agreed to purchase all future power and energy requirements in excess of the amounts generated by their systems from TMPA at prices intended to cover operating costs and retirement of debt. In the event that revenues were insufficient to cover all costs and retire the outstanding debt, each of the cities guaranteed a portion of the unpaid debt based, generally, upon the pro rata share. TMPA, a municipal corporation, is governed by a Board of Directors consisting of eight members. The governing body of each of the four Cities appoints two members to the Board. An affirmative vote of five Directors, plus a weighted majority vote based on the respective energy usage of the Cities, is required for major decisions. The City pays TMPA a pro-rated monthly charge based on the City’s contractual portion of TMPA’s annual fixed operating costs and debt service payments, which is currently 21.3%. As of September 30, 2019, total TMPA long-term debt outstanding was approximately $217,658,000, all of which was transmission debt and has no effect on the term of the contract. All outstanding generation debt was paid off on September 1, 2018. In 2016 and 2017, TMPA issued requests for proposals (RFPs) regarding the proposed sale of the agency’s generation assets and a portion of the transmission assets. Certain proposals received in connection with the 2016 and 2017 RFPs were pursued, but negotiations were ultimately discontinued. In 2019, TMPA issued an RFP involving only the sale of generation assets. Proposals were received in August 2019 and are currently undergoing evaluation. Claims Liability Beginning of Fiscal Year Claims and Change in Estimates Claims Payments Claims Liability End of Fiscal Year Workers' Compensation 2019 1,790,669$ 594,989$ 349,834$ 2,035,824$ 2018 1,661,902 1,040,854 912,087 1,790,669 General Liability 2019 1,017,886$ 398,268$ 696,018$ 720,136$ 2018 844,772 440,089 266,975 1,017,886 Health Insurance 2019 1,974,963$ 21,910,864$ 22,047,496$ 1,838,331$ 2018 1,827,339 23,276,627 23,129,003 1,974,963 78 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2019 Effective September 1, 2016, TMPA and the Member Cities entered into a Joint Operating Agreement (JOA). In general, the purposes of the JOA include: (i) funding TMPA operations such as mine reclamation, transmission service, and plant decommissioning following expiration of the Power Sales Contract (PSC); (ii) subject to certain exceptions, requiring Member City approval for the issuance of new debt, the execution of certain significant contracts, and the sale of property exceeding $10 million in value; (iii) specifying provisions for determining how costs of TMPA and proceeds from the sale of assets are to be allocated among the Member Cities; (iv) providing for the establishment by TMPA of reserve funds for the decommissioning of the plant and the indemnification of TMPA Board Members and Member City officials, employees, contractors, and agents; and (v) dividing the operations of TMPA into three business functions (mine, generation, and transmission) and requiring separate budgets and books for each business function. The PSC provides upon dissolution of TMPA, the assets of TMPA automatically being transferred to the Member Cities, with each Member City receiving an undivided interest in the assets of TMPA in proportion to the amount paid by the Member City to TMPA. The JOA requires TMPA to periodically make this calculation for each business unit, and sets out formulas for making these calculations. Under the JOA, these ownership calculations are relevant not only to the allocation of assets upon dissolution of TMPA, but also to the allocation of certain proceeds from the sale of assets, and in some cases, the allocation of TMPA costs. At the request of a majority of the Member Cities, TMPA is required by the JOA to transfer a divided interest in the transmission system to each Member City. Under this partition process, the objective is for each City to receive ownership of transmission facilities in the vicinity of the Member City, and in proportion to the Member City’s ownership interest in the transmission business. Any such transfer of transmission assets must be in compliance with relevant bond covenants, including those requiring defeasance of all or a portion of transmission debt. The JOA included a reclamation plan for the mine, required the development of a decommissioning plan, and set out standards for environmental remediation. TMPA is required to comply with these plans and standards. Under the JOA, in discharging its contractual obligations, including mine reclamation, decommissioning, transmission service, environmental remediation, indemnification, and other obligations, TMPA is rendering services to the Member Cities. The JOA obligates each Member City to pay the cost of these services, and to collect rates and charges for electric service sufficient to enable it to pay to TMPA all amounts due under the JOA for these services. The City’s payment obligations under the JOA are payable exclusively from such electric utility revenues, and constitute an operating expense of the electric system. Unless terminated earlier through the mutual consent of all parties, the JOA remains in effect until the dissolution of TMPA and the winding up of its affairs. Effective September 1, 2016, the JOA was amended (Amendment No. 1). The primary purposes of the amendment were to authorize the sale of Gibbons Creek and the sale of the Southern 345 kV Transmission System and to authorize the issuance of refunding bonds in connection with such sales. As the sale contemplated by Amendment No. 1 did not occur, by its own terms, Amendment No. 1 ceased to have any force or effect. Effective September 22, 2017, the JOA was amended a second time (Amendment No. 2). The purposes of this amendment are to: continue TMPA’s authority to issue mine reclamation bonds as had been contemplated in Amendment No. 1; revise the dates on which the separate budgets of the JOA become effective; authorize TMPA to sell certain mining and transmission assets, provided the sales do not exceed in value certain financial thresholds, and provided the sales comply with bond covenants; and allow for an extension to the term of the PSC, applicable only to the cities notifying TMPA of the extension, in order to complete a period of seasonal operation in 2018, or such other period of time as desired by the notifying cities. Pursuant to this provision, the City extended the PSC from September 1, 2018 to September 30, 2018, in order to complete the period of 2018 seasonal operation. As of September 30, 2018, the PSC had expired for all member cities. On September 17, 2019 the JOA was amended (Amendment No. 3). The amendment defined portions specific to the generation business that had been tied to the expired PSC and clarified all board members may vote on matters involving decommissioning and the sale of the plant. It exempted financial commitments related to 79 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2019 bonding from the requirement to obtain approval of all Member Cities relating to certain budget increases. This is to address concerns by the Attorney General of Texas that a potential situation could arise where a Member City could interfere with TMPA’s existing bond deposit requirement obligations (“bond reserve equivalent”) should that obligation require a 20% increase over the previous year’s budget. The amendment also allows for the sale of mine tracts only after the completion of mine reclamation. This would permit the sale of a mine tract subject to bonding provided that the conveyance reserves easements, leases, or other property rights are reserved to enable TMPA to complete reclamation. On November 12, 2019 the JOA was amended (Amendment No. 4). This amendment modified the agreement to make it unambiguous that in the event that all mining assets are sold, all Member Cities shall remain responsible for the costs of closing the mining operation according to each’s percentage share and that these are included: “all obligations are discharged with respect to mine reclamation bonds, surety bonds, banking agreements, letters of credit, and other financial commitments related to providing financial security or assurance for TMPA’s mine reclamation responsibilities.” Additionally, it modified the agreement by removing the cap on sales of the mining assets. The restriction that sales must be of fair market value remains. Effective October 17, 2017, Gibbons Creek entered into a seasonal operations mode, operating during the summer months only (June-September). Due to the significant decline in service utility of the generation assets, such assets were deemed largely impaired as of September 30, 2017. On June 6, 2019, the TMPA Board of Directors voted to permanently retire the generation facility. The City also wholly impaired its TMPA prepaid purchase power due to the retirement. The City has recorded $31,581,238 in Other Assets in the Electric fund to be amortized over the remaining 5.5 remaining years. Selected financial statement information of TMPA is as follows: Financial statements for TMPA are available from the TMPA website www.texasmpa.org. Power Purchase Agreements Following is a list of power purchase agreements in effect as of the publication date of these financial statements as well as agreements entered into subsequent to year. The information provided is all that is allowed under the confidentiality provision(s) of the particular agreements. Denton Power, Landfill-Gas Combustor - In 2008, the City entered into a 16 year power purchase agreement with Denton Power, LLC. Under the agreement, the City purchases 1.6 MW of output from a landfill gas- fired electric generating facility located at the City’s landfill. NextEra - In 2009, the City entered into a power purchase agreement for firm energy and associated renewable energy credits with NextEra Energy Power Marketing, LLC. 2019 2018 (000s)(000s) Operating revenues $ 53,306 $ 175,471 Operating expenses 152,062 68,769 Operating income (98,756) 106,702 Other non-operating sources (uses) 107,438 6,785 Current unrestricted assets 47,559 54,506 Total assets and deferred outflows 366,203 269,423 Long-term debt – Noncurrent 213,298 214,487 Total liabilities 381,676 255,208 Total net position (15,473) 14,215 September 30 (Unaudited) 80 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2019 Santa Rita, Wind - In 2016, the City entered into a 20 year power purchase agreement for wind energy, capacity, and environmental attributes with Santa Rita Wind Energy, LLC. NextEra - In 2015, the City entered into a 20 year power purchase agreement with Bluebell Solar Energy, LLC, a subsidiary of NextEra Energy, Inc. Under the agreement, the City purchases solar energy, capacity, and environmental attributes commencing from the commercial operation date which was November 2018. Engie - In 2018, the City entered into a 15 year power purchase agreement with Engie Long Draw Solar, LLC. Under the agreement, which is scheduled to end June 2035, the City will purchase 75 MW of solar generation and environmental attributes. Projected in-service date is June 30, 2020. NextEra - In 2018, the City entered into a 15 year power purchase agreement with Bluebell Solar II Energy, LLC, a subsidiary of NextEra Energy, Inc. Under the agreement, the City will purchase 100 MW of solar generation and environmental attributes commencing from the commercial operation date projected for December 31, 2020. Samson Solar - In 2018, subsequent to year-end, the City of Denton entered into a 15 year power purchase agreement with Samson Solar Energy, LLC. Under the agreement, which is scheduled to end in 2037, the city will purchase 75 MW of solar generation and environmental attributes. Projected in-service date is summer 2022. Encumbrances As discussed in note I.D., Budgetary information, encumbrances are utilized to the extent necessary to assure effective budgetary control and accountability and to facilitate effective cash planning and control. At year end the amount of encumbrances in governmental funds expected to be honored upon performance by the vendor in the next year were as follows: F. Tax Abatements The City enters into economic development incentive agreements with entities to promote development and redevelopment within the City, stimulate commercial activity, generate additional sales tax, and enhance the property tax base and economic vitality of the City. Some agreements provide for an abatement of property taxes, while others provide for a rebate of a portion of sales and use tax or a portion of ad valorem (property) tax, as established per the agreements. The incentives are performance-based, and the City generally expects to receive increased revenue as a result of the agreements. These incentive agreements require approval by a City Council ordinance and are authorized under Chapter 312 (Property Redevelopment and Tax Abatement Act) of the Texas Tax Code and Chapter 380 of the Texas Local Government Code. Property Tax Abatements Tax abatements under Chapter 312 of the Texas Tax Code allow the City to designate tax reinvestment zones and negotiate tax abatement agreements with applicants. In 1990, the City Council adopted a resolution setting guidelines and criteria for granting abatements in the reinvestment zones which specifically notes incentives are limited to companies which create new wealth and do not adversely affect existing businesses operating within the City. The City is required to renew/adopt a Tax Abatement Policy every two years in accordance with Chapter 312 of the Texas Tax Code. The last policy was adopted in March of 2018. The abatement agreements authorize the appraisal districts to reduce the assessed value of the taxpayer’s property by a percentage specified in the agreement, and the taxpayer will pay taxes on the lower assessed value during the term of the agreement. For the fiscal year ended September 30, 2019, the City abated property taxes totaling $37,603 under this program, as detailed in the following agreements: General Fund 778,267$ Capital Projects Fund 49,459,216 Nonmajor Governmental Funds 1,550,016 Total 51,787,499$ 81 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2019  Tetra Pak – In 2013, a 65% tax abatement agreement for a term of four years was granted to Tetra Pak Materials LP on new capital investments, including a 32,000 square foot expansion of their facility and relocating their corporate headquarter operations from Chicago to Denton. In the event of a failure to meet the conditions of the agreement, an increased assessed value of real property of at least $5 million, the agreement provides for a full refund all abatements previously granted plus interest. The abatement amount for the current fiscal year was $37,603, which was the final abatement under this agreement. The City has three additional abatement agreements not listed above becoming effective in future fiscal years should the grantees meet the obligations of the agreements. The two agreements are for West Gate Business Park and Tyson Sales and Distribution. Peterbilt Motors was granted a tax abatement, however, they did not meet the threshold, and therefore the abatement was not granted. Chapter 380 Agreements The City Council has the authority under Chapter 380 of the Texas Local Government Code to grant or loan City funds in order to accomplish specific economic development goals. These incentives are considered on a case-by-case basis. The City has target industry sectors for recruitment that will be given priority consideration: aviation/aerospace, advanced manufacturing, renewable energy, research and development, information technology, supply chain for existing primary employers, and significant consumers of municipal utilities. Consideration may also be given for projects causing infill redevelopment or other desirable development objectives and/or any other activity which the City Council determines meets a specific public purpose for economic development. Each agreement is based on the contribution in sales or property tax or both. For the fiscal year ended September 30, 2019, the City rebated sales taxes totaling $3,020,138 and property taxes totaling $747,395 ($198,991 of which was paid out of the Westpark TIRZ No. Two), and hotel occupancy taxes totaling $1,066,868 as detailed in the following agreements:  Denton Crossing – In 2001, an agreement was approved for the 500,000 square foot, $50 million Denton Crossing retail center. The grantee receives one-third of the City sales tax, or 0.5%, generated by the project for a maximum of fifteen years as reimbursement for public improvement costs related to the project not to exceed $7,250,000 plus accrued interest. The tax rebates initiated in 2005 and will terminate in 2020. The tax rebate amount for the current fiscal year was $594,838.  Unicorn Lake – In 2004, an agreement was approved for Unicorn Lake, an urban-style mixed-use development. The grantee receives one-third of the City sales tax, or 0.5%, generated by the project for a maximum of fifteen years as reimbursement for public improvement costs related to the project not to exceed $6,664,901 plus accrued interest. The tax rebates initiated in 2010 and will terminate in 2025. The tax rebate amount for the current fiscal year was $72,714.  Rayzor Ranch – In 2007, an agreement was approved for the Rayzor Ranch mixed-use development. The 410-acre project will have over one million square feet of retail and will be built in two phases. The agreement provides a sales tax reimbursement of one half of the City sales tax, or 0.75%, generated by the project for public improvement costs, which include the widening of a state highway bisecting the project. The grantee will receive a maximum of $20 million over a 15 year term for phase one and a maximum of $48 million over a term of 20 years for phase two. An additional 15% of the City sales tax, or 0.225%, was added to both phases to offset the hotel and convention center costs until $5 million is reached. As of the current fiscal year, the tax rebate amount for phase one was $1,297,602 and the tax rebate amount for phase two was $799,680.  Golden Triangle Mall – In 2011, an agreement was approved for a major renovation of the Golden Triangle Mall. A threshold of a minimum $45 to $65 million was required as an investment into the property to receive a one half share of the sales tax resulting from the renovations, less a monthly mall 82 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2019 baseline amount established at $95,898. The total grant payments may not exceed 15.83% of the required investment. GTM Development has invested $49.5 million in the development. Tenant investments in the property amounted to $8.8 million, for a total invest of $58.3 million. Based on this total investment the total grant payment should not exceed $9.2 million. The tax rebates initiated in 2016 and will terminate in 2035. The tax rebate amount for the current fiscal year was $33,140. It should be noted the rebate decreased due to the closure of Sears in September 2018 and DSW in August of 2019. A Conn’s and Fitness Connection are planned for the two anchor sites.  Schlumberger – In 2010, an agreement was granted to Grand Mesa for the renovation and equipping of the building for Schlumberger. The agreement was assigned to Schlumberger Technology Corporation in 2012 equal to one half of new property tax revenue generated for their 150,000 square foot regional maintenance facility. Agreement thresholds require maintaining $5 million in real property improvements and business personal property valuation and the creation of 80 jobs with an average wage of $45,000. The term of the agreement is seven years and will terminate in 2018. In the event of a failure to meet the conditions of the agreement, the agreement provides for a full refund of all rebates previously granted plus interest. The tax rebate amount for the current fiscal year was $28,823.  Mayday Manufacturing – In 2012, an agreement was approved for Mayday Manufacturing/Tailwind Technologies for the relocation of the business and expansion of a manufacturing facility. The agreement provides a 75% tax rebate on the increment of property tax revenue generated above the base valuation for a period of ten years. In the event of a failure to meet the conditions of the agreement, an increased assessed value of real property of at least $3 million, the agreement provides for a 50% refund of all rebates previously granted. The tax rebate amount for the current fiscal year was $31,618.  West Gate Business Park – In 2015, an agreement was approved for West Gate Business Park (WGBP) for industrial development and provided for a 70% rebate of increased City property tax revenue generated for a period of ten years. WGBP includes three multi-tenant buildings totaling 413,000 square feet of new industrial/manufacturing space in the City. In 2016 the agreement was amended to include a 70% rebate on building 1 improvements and to add a one-time grant payment in the amount of $50,000. A separate tax abatement agreement for building 2 and 3 was also approved so WGBP could be eligible to apply for a tax abatement from Denton County. The terms of the agreement include a 60% abatement of City property taxes attributable to new capital investments resulting in an increased assessed value of real property improvements. The amount of the abatement may be increased by an additional 5% for a national headquarters and/or 10% for a supplier in support of major employers in Denton. The tax rebate amount for the current fiscal year was $34,792.  WinCo Foods – In 2015, an agreement was approved for WinCo Foods for a $135 million, 800,000 square foot distribution facility expected to create 165 jobs with an annual payroll of around $7.2 million. In the event of a failure to meet the conditions of the agreement, the agreement provides for a 20-50% refund of all rebates previously granted, depending on the timing of a failure. Winco received reimbursement for infrastructure financing from Water and Wastewater funds and a local sales and use tax grant for the construction and equipping of the facility in prior fiscal years, completing those portions of the agreement. The active portion of the agreement provides for the following:  A grant equal to 100% of the incremental property tax generated by the property and paid into the Tax Increment Fund by both the City and the County, paid annually until the full reimbursement of the project costs for public improvements is reached. The tax rebate amount out of the Westpark TIRZ No. Two for the current fiscal year was $198,991, with 83 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2019 $145,936 being the City portion of the tax rebate and $53,055 being the County portion of the tax rebate.  A grant equal to 60% of City property taxes attributable to improvements resulting in an increase of assessed value of real property improvements and tangible personal property, paid annually until full reimbursement of the project costs for public improvements is reached. Once this full reimbursement is reached, the 60% property tax rebate will continue for a period of four years as long as the increase in investment in improvements is $50 million excluding purchase price of the property. The tax rebate amount for the current fiscal year was $288,477.  O’Reilly Hotel Partners Denton – In 2015, an agreement was approved for O’Reilly Hotel Partners Denton for a convention center with a hotel and restaurant located in the Rayzor Ranch Town Center. The agreement includes a 100% rebate of the property tax (excluding land, inventory, vehicles, and supplies), hotel occupancy tax, and sales tax generated by the project. The term is for a maximum of 25 years or a combined principal ($28 million) and interest ($26 million) amount of $54 million is reached, whichever comes first. The agreement also includes 100% rebate of the construction sales tax up to $850,000, then 50% thereafter. The construction sales tax rebate portion of the agreement was completed last fiscal year. In the event of a failure to meet the conditions of the agreement, the agreement provides for a 100% refund of all rebates granted in the previous year. The sales tax, property tax, and hotel occupancy tax rebate amounts for the current fiscal year were $123,122, $164,152, and $1,066,868, respectively.  Buc-ee’s Travel Center – In 2015, an agreement was approved for Buc-ee’s Travel Center. The agreement provides a sales tax reimbursement of one half of the City sales tax, or 0.75%, generated from businesses located within the property boundaries for a five year period. At the conclusion of the sales tax reimbursement term, the City has agreed to a one-time cash grant payment of $2 million minus the total sales tax previously reimbursed, only if the grantee has not received a full $2 million in sales tax reimbursements. In addition, at the conclusion of the sales tax reimbursement term, the agreement provides a sales tax reimbursement infrastructure grant of one half of the City sales tax, or 0.75%, generated by the Buc-ee’s Travel Center and developed outparcels that contain sit-down restaurants or retail establishments for a period of twenty years. The City has also agreed to pay the grantee one quarter of the City sales tax, or 0.375%, generated by outparcels not included in the previously mentioned infrastructure grant, including fast food restaurants and drive-through uses. The tax rebate amount for the current fiscal year was $99,042. The City has one additional Chapter 380 agreement not listed above becoming effective in future fiscal years should the grantees meet the obligations of the agreement. The agreement is for United States Cold Storage. Sally Beauty closed its 3900 Morse Street location, thereby terminating the related incentive agreement. The tax rebate amount prior to termination was $542. G. Litigation Various claims and lawsuits are pending against the City. In accordance with GAAP, those judgments considered “probable” are accrued, while those claims and judgments considered “reasonably possible” are disclosed but not accrued. In the opinion of City management and legal counsel, the maximum amount of all significant claims considered reasonably possible, excluding condemnation proceedings and the item described following, is approximately $500,000 as of September 30, 2018. Potential losses after insurance coverage on all probable claims and lawsuits will not have a material effect on the City's financial position as of September 30, 2019. 84 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2019 H. Subsequent Events The City has evaluated all events or transactions that occurred after September 30, 2019 up through March 13, 2020, the date the financial statements were issued. There were no significant subsequent events to disclose. I. New Accounting Pronouncements The Governmental Accounting Standards Board (GASB) issued the following statements which became effective for the fiscal year 2019. Statement No. 83 “Certain Asset Retirement Obligations” – This Statement addresses accounting and financial reporting for certain asset retirement obligations, a legally enforceable liability associated with the retirement of a tangible capital asset. Criteria are established for determining the timing and pattern of recognition of a liability and a corresponding deferred outflow of resources for these obligations. See note V.E. on TMPA for more information on the City’s asset obligation to TMPA regarding asset retirement obligations. Statement No. 88 “Certain Disclosures Related to Debt, including Direct Borrowing and Direct Placements” – This statement is to improve the information that is disclosed in notes to government financial statements related to debt, including direct borrowings and direct placements. It clarifies which liabilities should be disclosed, defines debt in regards to this pronouncement, and requires additional essential information related to debt be disclosed, if applicable. This Statement has no financial impact. See note IV.G. for disclosure requirements. The following statements for the GASB are effective for future fiscal years ending as listed below. The City is in the process of reviewing and evaluating these statements and their potential impact on the City’s financial statements. Statement No. 84 “Fiduciary Activities” – This Statement improves guidance regarding the identification of fiduciary activities for accounting and financial reporting purposes and how those activities should be reported. The focus is generally on whether a government is controlling the assets of the fiduciary activity and on the beneficiaries with whom a fiduciary relationship exists. This Statement will become effective for the City in fiscal year 2020. Statement No. 87 “Leases” – This Statement is to improve the accounting and financial reporting for leases by governments by requiring recognition of certain lease assets and liabilities previously classified as operating leases. It establishes a single model for lease accounting based on the principle that leases are financing the right to use an underlying asset. Under this Statement, a lessee is required to recognize a lease liability and an intangible right-to-use lease asset, and a lessor is required to recognize a lease receivable and a deferred inflow of resources, enhancing the relevance and consistency of information about leasing activities. This Statement will become effective for the City in fiscal year 2021. Statement No. 89 “Accounting for Interest Cost Incurred before the End of a Construction Period” – This Statement establishes accounting requirements for interest cost incurred before the end of a construction period. This Statement requires these interest costs be recognized as an expense in the period in which the cost is incurred instead of being included in the cost of capital assets reported in a business-type activity or enterprise fund. This Statement will become effective for the City in fiscal year 2021. Statement No. 90 “Majority Equity Interests – an amendment of GASB Statements No. 14 and No. 61” – This Statement defines a majority equity interest in a legally separate organization, establishes financial consistency and comparability of reporting a government’s majority equity interest, and improve the relevance of financial statement information for certain component units. This Statement will become effective for the City in fiscal year 2020. **** 85 86 CITY OF DENTON, TEXAS Exhibit XII REQUIRED SUPPLEMENTARY INFORMATION TEXAS MUNICIPAL RETIREMENT SYSTEM SCHEDULE OF CHANGES IN NET PENSION LIABILITY AND RELATED RATIOS LAST FIVE FISCAL YEARS (PREVIOUS YEARS ARE NOT AVAILABLE)1 Measurement Measurement Measurement Measurement Measurement Year Year Year Year Year 2014 2015 2016 2017 2018 Total pension liability: Service Cost 10,667,694$ 12,615,957$ 13,925,238$ 14,514,171$ 14,990,529$ Interest (on the total pension liability)25,182,941 26,905,700 27,656,654 29,543,513 31,468,411 Difference between expected and actual experience (171,241) (1,525,911) 763,589 1,514,980 1,255,443 Change of assumptions - (428,789) - - - Benefit payments, including refunds of employee contributions (11,387,617) (12,697,735) (13,023,330) (16,349,644) (18,238,039) Net change in total pension liability 24,291,777 24,869,222 29,322,151 29,223,020 29,476,344 Total pension liability - beginning 360,116,261 384,408,038 409,277,260 438,599,411 467,822,431 Total pension liability - ending (a)384,408,038$ 409,277,260$ 438,599,411$ 467,822,431$ 497,298,775$ Plan fiduciary net position: Contributions - employer 13,065,763$ 13,615,410$ 14,046,860$ 14,821,752$ 15,107,443$ Contributions - employee 4,991,415 5,365,231 5,712,464 6,014,227 6,175,407 Net investment income 16,867,596 469,530 21,947,635 48,954,660 (12,175,765) Benefit payments, including refunds of employee contributions (11,387,617) (12,697,735) (13,023,330) (16,349,644) (18,238,039) Administrative expense (176,083) (285,957) (247,766) (253,578) (235,169) Other (14,477) (14,123) (13,349) (12,851) (12,287) Net change in plan fiduciary net position 23,346,597 6,452,356 28,422,514 53,174,566 (9,378,410) Plan fiduciary net position - beginning 294,819,596 318,166,193 324,618,549 353,041,063 406,215,629 Plan fiduciary net position - ending (b)318,166,193$ 324,618,549$ 353,041,063$ 406,215,629$ 396,837,219$ Net pension liability - ending (a) - (b)66,241,845$ 84,658,711$ 85,558,348$ 61,606,802$ 100,461,556$ Plan fiduciary net position as a percentage of total pension liability 82.77%79.32%80.49%86.83%79.80% Covered-employee payroll 71,025,494$ 76,646,157$ 81,481,789$ 85,227,078$ 88,179,581$ Net pension liability as a percentage of covered payroll 93.26%110.45%105.00%72.29%113.93% 1Schedule is intended to present information for ten years. Additional years of information will be presented as they become available. 87 CITY OF DENTON, TEXAS Exhibit XIII REQUIRED SUPPLEMENTARY INFORMATION TEXAS MUNICIPAL RETIREMENT SYSTEM SCHEDULE OF CONTRIBUTIONS LAST TEN FISCAL YEARS (Unaudited) (a)(b)(c)(d) Contributions Contributions in Relation to Contribution as a Percentage Actuarially the Actuarially Excess of Covered Fiscal Determined Determined (Deficiency)Covered Payroll Year Contributions Contributions (b) - (a)Payroll (b)/(d) 2010 11,194,086 8,849,577 (2,344,509) 59,457,345 14.88% 2011 11,580,085 9,579,358 (2,000,727) 58,139,688 16.48% 2012 11,475,702 10,435,001 (1,040,701) 60,340,212 17.29% 2013 12,174,640 12,171,482 (3,158) 64,940,234 18.74% 2014 12,912,746 12,911,461 (1,285) 69,872,024 18.48% 2015 13,507,272 13,507,272 - 75,379,632 17.92% 2016 14,435,638 14,435,638 - 83,127,601 17.37% 2017 14,648,606 14,648,606 - 84,753,377 17.28% 2018 14,931,800 14,931,800 - 86,832,074 17.20% 2019 16,055,560 16,055,560 - 94,158,313 17.05% Notes to Schedule: Methods and assumptions used to determine contribution rate for 2019: Actuarial Cost Method Entry Age Normal Amortization Method Level Percentage of Payroll, Closed Remaining Amortization Period 27 Years (Equivalent Single Amortization Period of 16.4 years) Asset Valuation Method 10 Year Smoothed Market; 15% Soft Corridor Inflation 2.50% Salary Increases 3.50% to 10.50% including inflation Investment Rate of Return 6.75% Retirement Age Mortality Other There were not benefit changes during the year Actuarial determined contribution rates are calculated as of December 31st and become effective in January, 13 months later. Contributions above do not include contributions into the supplemental death benefit fund. Experience-based table of rates that are specific to the City's plan of benefits. Last updated for the 2015 valuation pursuant to an experience study of the period 2010 - 2014. RP2000 Combined Mortality Table with Blue Collar Adjustment with male rates multiplied by 109% and female rates multiplied by 103% and projected on a fully generational basis with scale BB. 88 CITY OF DENTON, TEXAS Exhibit XIV REQUIRED SUPPLEMENTARY INFORMATION DENTON FIREMEN'S RELIEF AND RETIREMENT FUND SCHEDULE OF CHANGES IN NET PENSION LIABILITY AND RELATED RATIOS LAST FIVE FISCAL YEARS (PREVIOUS YEARS ARE NOT AVAILABLE)1 Measurement Measurement Measurement Measurement Measurement Year Year Year Year Year 2014 2015 2016 2017 2018 Total pension liability: Service Cost 2,747,253$ 2,836,263$ 3,089,911$ 3,182,608$ 3,615,495$ Interest (on the total pension liability)5,685,396 5,998,959 6,135,588 6,493,255 7,049,261 Difference between expected and actual experience - (2,063,421) - 2,040,716 - Change of assumptions - 2,331,908 - - - Benefit payments, including refunds of employee contributions (4,036,009) (4,048,358) (4,270,006) (3,768,829) (4,055,856) Net change in total pension liability 4,396,640 5,055,351 4,955,493 7,947,750 6,608,900 Total pension liability - beginning 80,490,694 84,887,334 89,942,685 94,898,178 102,845,928 Total pension liability - ending (a)84,887,334$ 89,942,685$ 94,898,178$ 102,845,928$ 109,454,828$ Plan fiduciary net position: Contributions - employer 2,566,875$ 2,567,219$ 2,759,844$ 2,979,807$ 3,434,007$ Contributions - employee 1,745,419 1,803,064 1,997,155 2,142,990 2,338,837 Net investment income 4,411,066 (3,287,188) 6,935,215 8,793,234 (183,148) Benefit payments, including refunds of employee contributions (4,036,009) (4,048,358) (4,270,006) (3,768,829) (4,055,856) Administrative expense (81,005) (76,538) (94,175) (63,669) (87,899) Net change in plan fiduciary net position 4,606,346 (3,041,801) 7,328,033 10,083,533 1,445,941 Plan fiduciary net position - beginning 66,412,172 71,018,518 67,976,717 75,304,750 85,388,283 Plan fiduciary net position - ending (b)71,018,518$ 67,976,717$ 75,304,750$ 85,388,283$ 86,834,224$ Net pension liability - ending (a) - (b)13,868,816$ 21,965,968$ 19,593,428$ 17,457,645$ 22,620,604$ Plan fiduciary net position as a percentage of total pension liability 83.66%75.58%79.35%83.03%79.33% Covered payroll 14,238,486$ 14,310,032$ 15,850,437$ 17,007,857$ 18,562,198$ Net pension liability as a percentage of covered payroll 97.40%153.50%123.61%102.64%121.86% 1Schedule is intended to present information for ten years. Additional years of information will be presented as they become available. 89 CITY OF DENTON, TEXAS Exhibit XV REQUIRED SUPPLEMENTARY INFORMATION FIREMEN'S RELIEF AND RETIREMENT FUND SCHEDULE OF CONTRIBUTIONS LAST TEN FISCAL YEARS (Unaudited) (a)(b)(c)(d) Contributions Contributions in Relation to Contribution as a Percentage Annual the Annual Excess of Covered Fiscal Required Required (Deficiency)Covered Payroll Year Contributions Contributions (b) - (a)Payroll (b)/(d) 2010 1,976,419 1,976,419 - 13,070,041 15.12% 2011 2,141,662 2,141,662 - 12,828,446 16.69% 2012 2,253,667 2,253,667 - 12,899,800 17.47% 2013 2,579,453 2,579,453 - 13,629,825 18.93% 2014 2,576,652 2,576,652 - 13,828,070 18.63% 2015 2,535,719 2,535,719 - 14,029,051 18.07% 2016 2,819,046 2,819,046 - 15,540,826 18.14% 2017 2,924,757 2,924,757 - 16,747,217 17.46% 2018 3,310,248 3,310,248 - 18,080,014 18.31% 2019 3,610,711 3,610,711 - 19,517,358 18.50% Notes to Schedule: Actuarial Cost Method Entry Age Amortization Method Level Percentage of Payroll, Open Remaining Amortization Period 15 Years Asset Valuation Method 5-year smoothing Inflation 2.50% Salary Increases 3.00% annual general compensation increase plus promotion, step, and longevity increases which average 1.98% per year over a 30-year career Investment Rate of Return 6.75%, net of pension plan investment expense, including inflation Retirement Age Mortality Annual required contributions are not actuarially determined. According to a City ordinance, since December 2017 the City contributes to the Firemen's Relief and Retirement Fund at the rate of 18.5%, the assumed actuarial valuation rate over the unfunded liability amortization period. Average expected age at retirement of 57 RP-2000 Combined Healthy Mortality Tables projected to 2024 for males and for females (sex distinct) While the contribution requirements are not actuarially determined, state law requires an actuary certify the assumed City contribution rate is adequate. Methods and assumptions used to contribution adequacy in the December 31, 2017 actuarial valuation (rolled forward for fiscal year 2019): 90 CITY OF DENTON, TEXAS Exhibit XVI REQUIRED SUPPLEMENTARY INFORMATION MEDICAL OTHER POST-EMPLOYMENT BENEFITS SCHEDULE OF CHANGES IN TOTAL OPEB LIABILITY AND RELATED RATIOS LAST TWO FISCAL YEARS (PREVIOUS YEARS ARE NOT AVAILABLE)1 Measurement Measurement Year Year 2017 2018 Total OPEB liability: Service Cost 1,750,172$ 1,995,008$ Interest (on the total OPEB liability)1,360,179 1,329,949 Difference between expected and actual experience - (150,485) Change of assumptions or other inputs 2,067,787 (1,724,923) Benefit payments (742,818) (899,361) Net change in total OPEB liability 4,435,320 550,188 Total OPEB liability - beginning 35,196,570 39,631,890 Total OPEB liability - ending 39,631,890$ 40,182,078$ Covered-employee payroll 104,783,403$ 109,480,718$ Net pension liability as a percentage of covered-employee payroll 37.82%36.70% 1Schedule is intended to present information for ten years. Additional years of information will be presented as they become available. Methods and assumptions used to determine contribution rate for 2019: Actuarial cost method Individual Entry-Age Normal Discount rate Inflation rate 2.50% Projected salary increases 3.5% to 10.5% for TMRS and 3.00% to 9.18% for Fire, including inflation Demographic assumptions Healthcare trend rates Mortality Participation rates 60% for retirees age 65 or older at retirement 45% for retirees between the ages of 50 and 64 at retirement 0% for retirees under age 50 at retirement 3.71% (Based on the Fidelity Index's "20-Year Municipal GO AA Index" rates as of December 31, 2018.) The prior year discount rate was 3.31%. Initial rate of 7.50% declining to an ultimate rate of 4.25% after 15 years. TMRS: For healthy retirees, the gender-district RP-2000 Combined Healthy Mortality Tables with Blue Collar Adjustment are used with male rates multiplied by 109% and female rates multiplied by 103%. The rates are projected on a fully generational basis by scale BB to account for future mortality improvements. Based on the experience study covering the four-year period ending December 31, 2014 as conducted for the Texas Municipal Retirement System (TMRS) and the assumptions used in the December 31, 2017 actuarial valuation for the Denton Firemen's Relief and Retirement Fund. Firefighters: The gender-district RP-2000 Combined Healthy Mortality Tables projected to 2014 with scale AA. No additional provision is made for future improvements in mortality after the measurement date other than the margins described above. 91 CITY OF DENTON, TEXAS Exhibit XVII REQUIRED SUPPLEMENTARY INFORMATION TEXAS MUNICIPAL RETIREMENT SYSTEM - SUPPLEMENTAL DEATH BENEFIT FUND SCHEDULE OF CHANGES IN TOTAL OPEB LIABILITY AND RELATED RATIOS LAST TWO FISCAL YEARS (PREVIOUS YEARS ARE NOT AVAILABLE)1 Measurement Measurement Year Year 2017 2018 Total OPEB liability: Service Cost 144,886$ 176,359$ Interest (on the total OPEB liability)106,885 110,831 Difference between expected and actual experience - 155,143 Change of assumptions or other inputs 270,541 (247,941) Benefit payments (17,045) (17,636) Net change in total OPEB liability 505,267 176,756 Total OPEB liability - beginning 2,763,726 3,268,993 Total OPEB liability - ending 3,268,993$ 3,445,749$ Covered-employee payroll 85,227,078$ 88,179,581$ Net pension liability as a percentage of covered-employee payroll 3.84%3.91% 1Schedule is intended to present information for ten years. Additional years of information will be presented as they become available. Methods and assumptions used to determine contribution rate for 2019: Inflation rate 2.50% per annum Discount rate Actuarial cost method Entry Age Normal Projected salary increases 3.5% to 10.5% including inflation $0 Administrative expenses Mortality rates - service retirees Mortality rates - disabled retirees RP2000 Combined Mortality Table with Blue Collar Adjustment with male rates multiplied by 109% and female rates multiplied by 103% with a 3 year set-forward for both males and females. The rates are projected on a fully generational basis with scale BB to account for future mortality improvements subject to the 3% floor. 3.71% (Based on the Fidelity Index's "20-Year Municipal GO AA Index" rates as of December 31, 2018.) The prior year discount rate was 3.31%. RP2000 Combined Mortality Table with Blue Collar Adjustment with male rates multiplied by 109% and female rates multiplied by 103% and projected on a fully generational basis with scale BB. Retirees' share of benefit-related costs All administrative expenses are paid through the Pension Trust and accounted for under reporting requirements under GASB No. 68. 92 CITY OF DENTON, TEXAS Exhibit XVIII SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET TO ACTUAL DEBT SERVICE FUND FOR THE YEAR ENDED SEPTEMBER 30, 2019 Variance with Adjustments -Actual on a Final Budget - Actual Budgetary Budgetary Positive Original Final Amounts Basis Basis (Negative) REVENUES: Taxes 24,293,126$ 24,293,126$ 24,316,086$ -$ 24,316,086$ 22,960$ Investment revenue 50,000 200,000 525,796 - 525,796 325,796 Total revenues 24,343,126 24,493,126 24,841,882 - 24,841,882 348,756 EXPENDITURES: Debt service: Principal, interest and fiscal charges 90,278,691 90,278,691 25,047,435 65,172,382 90,219,817 58,874 Total expenditures 90,278,691 90,278,691 25,047,435 65,172,382 90,219,817 58,874 Excess (deficiency) of revenues over (under) expenditures (65,935,565) (65,785,565) (205,553) (65,172,382) (65,377,935) 407,630 OTHER FINANCING SOURCES (USES): Transfers in 65,283,240 65,283,240 129,250 65,172,382 65,301,632 18,392 Total other financing sources (uses)65,283,240 65,283,240 129,250 65,172,382 65,301,632 18,392 Net change in fund balance (652,325) (502,325) (76,303) - (76,303) 426,022 Fund balance at beginning of year 5,529,483 5,529,483 5,529,483 - 5,529,483 - Fund balance at end of year 4,877,158$ 5,027,158$ 5,453,180$ -$ 5,453,180$ 426,022$ Adjustments - Budgetary Basis are pass-through debt service payments budgeted as transfers in from enterprise and internal service funds. Other Financing Sources (Uses) related to refunding are adjusted out as they are non-budgeted items reducing future debt service payments. Budgeted Amounts 93 94 NONMAJOR GOVERNMENTAL FUNDS SPECIAL REVENUE FUNDS Special revenue funds are used to account for specific revenues that are legally restricted to expenditures for particular purposes. Community Development Block Grant (CDBG) – to account for the operations of projects utilizing Community Development Block Grant Funds. Such revenues are restricted to expenditures for specified projects by the Department of Housing and Urban Development. Recreation – to account for the revenues and expenditures for the recreation programs that are self-supporting. All expenditures will be reimbursed 100%. Various business operations, such as concessions, fall into this account. Criminal Justice – to account for revenue received from the State of Texas Criminal Justice Division and other grants administered by the police department. Police Confiscation – to account for revenues received from confiscated goods. Expenditures are restricted to enhancing law enforcement. Tourist and Convention – to account for taxes received from hotel and motel occupancy for the purpose of promoting tourism. Street Improvement – to account for street maintenance and improvement activities. Gas Well Revenues – to account for the receipt of royalty, pooling, tax, and lease revenue related to park gas wells. Citizens’ Park Trusts – to account for several small trust funds that are for park development. All Other – to account for miscellaneous special revenue sources that are required to finance specific activities. 95 CITY OF DENTON, TEXAS Exhibit XIX COMBINING BALANCE SHEET NONMAJOR GOVERNMENTAL FUNDS AS OF SEPTEMBER 30, 2019 Community Tourist Development Criminal Police and Block Grant Recreation Justice Confiscation Convention ASSETS Cash, cash equivalents and investments, at fair value -$ 559,528$ -$ 394,762$ 2,006,686$ Receivables (net of allowances): Taxes - - - - 247,298 Accrued interest - 2,262 - 1,600 8,132 Other - 14,746 - - - Due from other governments 421,307 - 62,357 - - Total assets 421,307$ 576,536$ 62,357$ 396,362$ 2,262,116$ LIABILITIES AND FUND BALANCES LIABILITIES: Accounts payable 70,951 192,145 11,661 - 229,503 Interfund payables 160,525 - 50,696 - - Retainage payable - - - - - Unearned revenues - - - - - Total liabilities 231,476 192,145 62,357 - 229,503 DEFERRED INFLOWS OF RESOURCES: Unavailable revenue - intergovernmental - 11,636 1,127 - - Total deferred inflows of revenues - 11,636 1,127 - - FUND BALANCES (DEFICIT): Restricted for: Parks and recreation - - - - - Streets and drainage projects - - - - - Other grants and purposes 189,831 - - 396,362 2,032,613 Committed to: Streets - - - - - Parks and recreation - 372,755 - - - Other purposes - - - - - Assigned to: Other purposes - - - - - Unassigned - - (1,127) - - Total fund balance (deficit)189,831 372,755 (1,127) 396,362 2,032,613 Total liabilities, deferred inflows of resources, and fund balances (deficit)421,307$ 576,536$ 62,357$ 396,362$ 2,262,116$ (continued on the following page) Special Revenue Funds 96 CITY OF DENTON, TEXAS Exhibit XIX COMBINING BALANCE SHEET NONMAJOR GOVERNMENTAL FUNDS (concluded) AS OF SEPTEMBER 30, 2019 Total Citizens'Nonmajor Street Gas Well Park All Governmental Improvement Revenues Trusts Other Funds ASSETS Cash, cash equivalents and investments, at fair value 3,626,244$ 135,827$ 6,789,498$ 11,365,581$ 24,878,126$ Receivables (net of allowances):- Taxes - - - 64,875 312,173 Accrued interest 14,696 550 27,516 46,064 100,820 Other - 11,993 - - 26,739 Due from other governments - - - 924,072 1,407,736 Total assets 3,640,940$ 148,370$ 6,817,014$ 12,400,592$ 26,725,594$ LIABILITIES AND FUND BALANCES LIABILITIES: Accounts payable 199,208 - 16,157 561,221 1,280,846 Interfund payables - - - - 211,221 Retainage payable - - 19,304 - 19,304 Unearned revenues - - - 25,871 25,871 Total liabilities 199,208 - 35,461 587,092 1,537,242 DEFERRED INFLOWS OF RESOURCES: Unavailable revenue - intergovernmental - - - 748,900 761,663 Total deferred inflows of revenues - - - 748,900 761,663 FUND BALANCES (DEFICIT): Restricted for: Parks and recreation - 148,370 6,781,553 124,572 7,054,495 Streets and drainage projects - - - 3,389,244 3,389,244 Other grants and purposes - - - 4,552,336 7,171,142 Committed to: Streets 3,441,732 - - - 3,441,732 Parks and recreation - - - - 372,755 Other purposes - - - 3,779,944 3,779,944 Assigned to: Other purposes - - - 61 61 Unassigned - - - (781,557) (782,684) Total fund balance (deficit)3,441,732 148,370 6,781,553 11,064,600 24,426,689 Total liabilities, deferred inflows of resources, and fund balances (deficit)3,640,940$ 148,370$ 6,817,014$ 12,400,592$ 26,725,594$ (continued on the following page)(concluded) Special Revenue Funds 97 CITY OF DENTON, TEXAS Exhibit XX COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NONMAJOR GOVERNMENTAL FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2019 Community Tourist Development Criminal Police and Block Grant Recreation Justice Confiscation Convention REVENUES: Tax revenue -$ -$ -$ -$ 3,039,747$ Franchise fees - - - - - Fines and forfeitures - - - 116,861 - Fees for services - 2,174,204 - - - Investment revenue - 17,982 - 7,082 67,454 Intergovernmental 1,165,591 - 367,273 - - Miscellaneous 218,519 40,672 - 5,252 - Total revenues 1,384,110 2,232,858 367,273 129,195 3,107,201 EXPENDITURES: Current: General government 1,211,951 - - - 3,460,906 Public safety - - 320,074 51,966 - Public works - - - - - Parks and recreation - 5,273,247 - - - Capital outlay - - - - - Total expenditures 1,211,951 5,273,247 320,074 51,966 3,460,906 Excess (deficiency) of revenues over (under) expenditures 172,159 (3,040,389) 47,199 77,229 (353,705) OTHER FINANCING SOURCES (USES): Transfers in - 3,076,517 5,046 - - Transfers out - (24,380) - - (63,477) Total other financing sources (uses)- 3,052,137 5,046 - (63,477) Net change in fund balances 172,159 11,748 52,245 77,229 (417,182) Fund balance (deficit) at beginning of year 17,672 361,007 (53,372) 319,133 2,449,795 Fund balance (deficit) at end of year 189,831$ 372,755$ (1,127)$ 396,362$ 2,032,613$ (continued on the following page) Special Revenue Funds 98 CITY OF DENTON, TEXAS Exhibit XX COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NONMAJOR GOVERNMENTAL FUNDS (concluded) FOR THE YEAR ENDED SEPTEMBER 30, 2019 Total Citizens'Nonmajor Street Gas Well Park All Governmental Improvement Revenues Trusts Other Funds REVENUES: Tax revenue -$ -$ -$ 932,119$ 3,971,866$ Franchise fees 12,717,231 - - - 12,717,231 Fines and forfeitures - - - 1,378,645 1,495,506 Fees for services 192,014 101,617 1,893,019 241,707 4,602,561 Investment revenue 50,522 - 171,958 198,190 513,188 Intergovernmental - - - 1,464,832 2,997,696 Miscellaneous - - - 3,074,863 3,339,306 Total revenues 12,959,767 101,617 2,064,977 7,290,356 29,637,354 EXPENDITURES: Current: General government - - - 852,771 5,525,628 Public safety - - - 2,564,493 2,936,533 Public works 11,204,859 - - 236,000 11,440,859 Parks and recreation - - 20,885 103,026 5,397,158 Capital outlay - - 643,662 295,423 939,085 Total expenditures 11,204,859 - 664,547 4,051,713 26,239,263 Excess (deficiency) of revenues over (under) expenditures 1,754,908 101,617 1,400,430 3,238,643 3,398,091 OTHER FINANCING SOURCES (USES): Transfers in 1,034,581 - - 334,705 4,450,849 Transfers out (971,184) (50,000) - (2,994,737) (4,103,778) Total other financing sources (uses)63,397 (50,000) - (2,660,032) 347,071 Net change in fund balances 1,818,305 51,617 1,400,430 578,611 3,745,162 Fund balance (deficit) at beginning of year 1,623,427 96,753 5,381,123 10,485,989 20,681,527 Fund balance (deficit) at end of year 3,441,732$ 148,370$ 6,781,553$ 11,064,600$ 24,426,689$ (continued on the following page)(concluded) Special Revenue Funds 99 CITY OF DENTON, TEXAS Exhibit XXI SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET TO ACTUAL SPECIAL REVENUE FUNDS: RECREATION FUND FOR THE YEAR ENDED SEPTEMBER 30, 2019 Variance with Adjustments -Actual on a Final Budget - Actual Budgetary Budgetary Positive Original Final Amounts Basis Basis (Negative) REVENUES: Fees for services 2,144,708$ 2,144,708$ 2,174,204$ -$ 2,174,204$ 29,496$ Investment revenue 6,500 6,500 17,982 - 17,982 11,482 Miscellaneous 46,000 46,000 40,672 - 40,672 (5,328) Total revenues 2,197,208 2,197,208 2,232,858 - 2,232,858 35,650 EXPENDITURES: Current: Parks and recreation 4,861,801 4,837,421 5,273,247 (637,441) 4,635,806 201,615 Total expenditures 4,861,801 4,837,421 5,273,247 (637,441) 4,635,806 201,615 Excess of revenues over expenditures (2,664,593) (2,640,213) (3,040,389) 637,441 (2,402,948) 237,265 OTHER FINANCING USES: SOURCES (USES): Transfers in 3,076,517 3,076,517 3,076,517 - 3,076,517 - Transfers out (608,391) (632,771) (24,380) (637,441) (661,821) (29,050) Total other financing uses 2,468,126 2,443,746 3,052,137 (637,441) 2,414,696 (29,050) Net change in fund balance (196,467) (196,467) 11,748 - 11,748 208,215 Fund balance at beginning of year 361,007 361,007 361,007 - 361,007 - Fund balance at end of year 164,540$ 164,540$ 372,755$ -$ 372,755$ 208,215$ Adjustments - Budgetary Basis are expenditures allocated from and reimbursed to other funds. These expenditures are recorded as operating expenditures but budgeted as cost of service transfers. Budgeted Amounts 100 CITY OF DENTON, TEXAS Exhibit XXII SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET TO ACTUAL SPECIAL REVENUE FUNDS: POLICE CONFISCATION FUND FOR THE YEAR ENDED SEPTEMBER 30, 2019 Variance with Adjustments -Actual on a Final Budget - Actual Budgetary Budgetary Positive Original Final Amounts Basis Basis (Negative) REVENUES: Fines and forfeitures 200,000$ 200,000$ 116,861$ -$ 116,861$ (83,139)$ Investment revenue 3,500 3,500 7,082 - 7,082 3,582 Miscellaneous 50,000 50,000 5,252 - 5,252 (44,748) Total revenues 253,500 253,500 129,195 - 129,195 (124,305) EXPENDITURES: Current: Public safety 255,000 255,000 51,966 - 51,966 203,034 Capital outlay 135,000 135,000 - - - 135,000 Total expenditures 390,000 390,000 51,966 - 51,966 338,034 Net change in fund balance (136,500) (136,500) 77,229 - 77,229 213,729 Fund balance at beginning of year 319,133 319,133 319,133 - 319,133 - Fund balance at end of year 182,633$ 182,633$ 396,362$ -$ 396,362$ 213,729$ Budgeted Amounts 101 CITY OF DENTON, TEXAS Exhibit XXIII SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET TO ACTUAL SPECIAL REVENUE FUNDS: TOURIST AND CONVENTION FUND FOR THE YEAR ENDED SEPTEMBER 30, 2019 Variance with Adjustments -Actual on a Final Budget - Actual Budgetary Budgetary Positive Original Final Amounts Basis Basis (Negative) REVENUES: Taxes 3,207,406$ 3,207,406$ 3,039,747$ -$ 3,039,747$ (167,659)$ Investment revenue - - 67,454 - 67,454 67,454 Total revenues 3,207,406 3,207,406 3,107,201 - 3,107,201 (100,205) EXPENDITURES: Current: General government 3,249,863 3,619,572 3,460,906 - 3,460,906 158,666 Total expenditures 3,249,863 3,619,572 3,460,906 - 3,460,906 158,666 Excess (deficit) of revenues over (under) expenditures (42,457) (412,166) (353,705) - (353,705) 58,461 OTHER FINANCING SOURCES: Transfers out - - (63,477) - (63,477) (63,477) Total other financing sources - - (63,477) - (63,477) (63,477) Net change in fund balance (42,457) (412,166) (417,182) - (417,182) (5,016) Fund balance at beginning of year 2,449,795 2,449,795 2,449,795 - 2,449,795 - Fund balance at end of year 2,407,338$ 2,037,629$ 2,032,613$ -$ 2,032,613$ (5,016)$ Budgeted Amounts 102 CITY OF DENTON, TEXAS Exhibit XXIV SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET TO ACTUAL SPECIAL REVENUE FUNDS: STREET IMPROVEMENT FUND FOR THE YEAR ENDED SEPTEMBER 30, 2019 Variance with Adjustments -Actual on a Final Budget - Actual Budgetary Budgetary Positive Original Final Amounts Basis Basis (Negative) REVENUES: Franchise fees 13,519,911$ 13,519,911$ 12,717,231$ -$ 12,717,231$ (802,680)$ Fees for services 364,140 364,140 192,014 - 192,014 (172,126) Investment revenue 10,000 10,000 50,522 - 50,522 40,522 Total revenues 13,894,051 13,894,051 12,959,767 - 12,959,767 (934,284) EXPENDITURES: Current: Public Works 14,526,722 13,607,208 11,204,859 (121,569) 11,083,290 2,523,918 Debt service: Principal retirement 59,165 59,165 - - - 59,165 Total expenditures 14,585,887 13,666,373 11,204,859 (121,569) 11,083,290 2,583,083 Excess (deficit) of revenues over (under) expenditures (691,836) 227,678 1,754,908 121,569 1,876,477 1,648,799 OTHER FINANCING SOURCES (USES): Transfers in 1,196,404 1,196,404 1,034,581 - 1,034,581 (161,823) Transfers out (482,118) (1,401,632) (971,184) (121,569) (1,092,753) 308,879 Total other financing sources (uses)714,286 (205,228) 63,397 (121,569) (58,172) 147,056 Net change in fund balance 22,450 22,450 1,818,305 - 1,818,305 1,795,855 Fund balance at beginning of year 1,623,427 1,623,427 1,623,427 - 1,623,427 - Fund balance at end of year 1,645,877$ 1,645,877$ 3,441,732$ -$ 3,441,732$ 1,795,855$ Adjustments - Budgetary Basis are expenditures allocated from and reimbursed to other funds. These expenditures are recorded as operating expenditures but budgeted as cost of service transfers. Budgeted Amounts 103 CITY OF DENTON, TEXAS Exhibit XXV SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET TO ACTUAL SPECIAL REVENUE FUNDS: GAS WELL REVENUES FUND FOR THE YEAR ENDED SEPTEMBER 30, 2019 Variance with Adjustments -Actual on a Final Budget - Actual Budgetary Budgetary Positive Original Final Amounts Basis Basis (Negative) REVENUES: Fees for service 29,200$ 29,200$ 101,617$ -$ 101,617$ 72,417$ Investment revenue 800 800 - - - (800) Total revenues 30,000 30,000 101,617 - 101,617 71,617 Excess of revenues over expenditures 30,000 30,000 101,617 - 101,617 71,617 OTHER FINANCING USES: Transfers out (50,000) (50,000) (50,000) - (50,000) - Total other financing uses (50,000) (50,000) (50,000) - (50,000) - Net change in fund balance (20,000) (20,000) 51,617 - 51,617 71,617 Fund balance at beginning of year 96,753 96,753 96,753 - 96,753 - Fund balance at end of year 76,753$ 76,753$ 148,370$ -$ 148,370$ 71,617$ Budgeted Amounts 104 CITY OF DENTON, TEXAS Exhibit XXVI SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET TO ACTUAL SPECIAL REVENUE FUNDS: CITIZENS' PARK TRUSTS FOR THE YEAR ENDED SEPTEMBER 30, 2019 Variance with Adjustments -Actual on a Final Budget - Actual Budgetary Budgetary Positive Original Final Amounts Basis Basis (Negative) REVENUES: Fees for service 215,000$ 215,000$ 1,893,019$ -$ 1,893,019$ 1,678,019$ Investment revenue 45,000 45,000 171,958 - 171,958 126,958 Total revenues 260,000 260,000 2,064,977 - 2,064,977 1,804,977 EXPENDITURES: Current: Parks and recreation - - 20,885 - 20,885 (20,885) Capital outlay - - 643,662 - 643,662 (643,662) Total expenditures - - 664,547 - 664,547 (664,547) Deficit of revenues under expenditures 260,000 260,000 1,400,430 - 1,400,430 1,140,430 OTHER FINANCING USES: Transfers out (2,000,000) (2,000,000) - - - 2,000,000 Total other financing uses (2,000,000) (2,000,000) - - - 2,000,000 Net change in fund balance (1,740,000) (1,740,000) 1,400,430 - 1,400,430 3,140,430 Fund balance at beginning of year 5,381,123 5,381,123 5,381,123 - 5,381,123 - Fund balance at end of year 3,641,123$ 3,641,123$ 6,781,553$ -$ 6,781,553$ 3,140,430$ Budgeted Amounts 105 106 INTERNAL SERVICE FUNDS Internal Service Funds account for the financing of goods or services provided by one department for another. The City has the following Internal Service Funds: Materials Management Fund – to account for the financing of goods and services provided by the Materials Management operations of purchasing and warehouse to other City departments. Purchasing is responsible for procuring goods and services for City departments, and the warehouse maintains an inventory of materials and supplies used by City departments. Warehouse items are billed to other departments. Fleet Services Fund – to account for the financing of goods and services provided by the Municipal Garage and Machine Shop to other City departments. Municipal Garage and Machine Shop billings include cost of parts plus 25 percent and labor charges. Actual costs include depreciation on the building, improvements, machinery, and equipment used to provide the service. Health Insurance Fund – to account for the accumulation of resources for the self-insurance activities of the City for employee medical insurance as well as other employee insurance benefits including long-term disability, short-term disability, dental insurance, and vision insurance. Risk Retention Fund – to account for the accumulation of resources for the payment of activities associated with providing general liability insurance coverage and self-funded activities for City operations. Technology Services Fund – to account for the accumulation of resources to provide computer services such as programming, support, training, maintenance, and office services to City departments. Engineering Services Fund – to account for providing engineering, real estate, public works inspection, and development review services primarily to internal City departments although some services are provided to external entities. Customer Service Fund – to account for providing customer service activities to residents and businesses for City departments. Services include bill pay, utility service requests, connect/disconnect services, maintenance of customer accounts, utility billing, operator calls, collections, accounts receivable, and cash handling. 107 Exhibit XXVII COMBINING STATEMENT OF NET POSITION INTERNAL SERVICE FUNDS AS OF SEPTEMBER 30, 2019 Materials Fleet Health Risk Management Services Insurance Retention Fund Fund Fund Fund ASSETS: Current assets: Cash, cash equivalents and investments, at fair value 344,079$ 2,225,445$ 4,042,240$ 3,030,596$ Receivables, net of allowances: Accrued interest - 9,019 16,382 12,282 Other - 114,092 - - Merchandise inventory 8,173,718 100,178 - - Prepaid items 10,522 - 156,533 - Total current assets 8,528,319 2,448,734 4,215,155 3,042,878 Noncurrent assets: Restricted assets: Cash, cash equivalents and investments, at fair value - - - - Accrued interest - - - - Escrow deposit - - 201,000 - Capital assets, net of accumulated depreciation 734,271 4,522,727 - - Total noncurrent assets 734,271 4,522,727 201,000 - Total assets 9,262,590 6,971,461 4,416,155 3,042,878 DEFERRED OUTFLOWS OF RESOURCES: Deferred charges on refunding 8,231 2,699 - - Deferred pension balances 733,411 801,015 - 469,636 Deferred other post employment benefits balances 38,469 41,442 - 19,825 Total deferred outflows of resources 780,111 845,156 - 489,461 LIABILITIES: Current liabilities: Accounts payable 318,504 1,222,696 120,702 137,245 Claims payable - - 1,838,331 447,500 Compensated absences payable 58,318 119,763 - 75,361 Accrued interest 937 1,001 - - Interfund payables 7,300,000 - - - Payable from restricted assets: Accounts payable - - - - Retainage payable - 8,451 - - Certificate and general obligation bonds 45,169 57,570 - - Total current liabilities 7,722,928 1,409,481 1,959,033 660,106 Noncurrent liabilities: Payable from restricted assets: General obligation bonds payable 140,493 46,063 - - Certificates of obligation - 82,880 - - Compensated absences payable 1,278 43,268 - 29,765 Claims payable - - - 2,308,460 Net pension liability 1,310,675 1,529,165 - 845,585 Total other post-employment benefits liability 651,658 686,036 - 329,614 Total noncurrent liabilities:2,104,104 2,387,412 - 3,513,424 Total liabilities 9,827,032 3,796,893 1,959,033 4,173,530 DEFERRED INFLOWS OF RESOURCES: Deferred pension balances 179,635 203,694 - 106,817 Deferred other post employment benefits balances 26,458 32,268 - 13,108 Total deferred inflows of resources 206,093 235,962 - 119,925 NET POSITION: Net investment in capital assets 556,840 4,338,913 - - Restricted for capital acquisition - - - - Unrestricted (547,264) (555,151) 2,457,122 (761,116) Total net position 9,576$ 3,783,762$ 2,457,122$ (761,116)$ (continued on the following page) 108 CITY OF DENTON, TEXAS Exhibit XXVII COMBINING STATEMENT OF NET POSITION (concluded) INTERNAL SERVICE FUNDS AS OF SEPTEMBER 30, 2019 Total Technology Engineering Customer Internal Services Services Service Service Fund Fund Fund Funds ASSETS: Current assets: Cash, cash equivalents and investments, at fair value 6,763,146$ 2,067,755$ 149,193$ 18,622,454$ Receivables, net of allowances: Accrued interest 27,409 8,380 605 74,077 Other 2,206 - - 116,298 Merchandise inventory - - - 8,273,896 Prepaid items 89,218 - - 256,273 Total current assets 6,881,979 2,076,135 149,798 27,342,998 Noncurrent assets: Restricted assets: Cash, cash equivalents and investments, at fair value 1,703,233 - - 1,703,233 Accrued interest 6,903 - - 6,903 Escrow deposit - - - 201,000 Capital assets, net of accumulated depreciation 9,733,030 75,979 62,476 15,128,483 Total noncurrent assets 11,443,166 75,979 62,476 17,039,619 Total assets 18,325,145 2,152,114 212,274 44,382,617 DEFERRED OUTFLOWS OF RESOURCES: Deferred charges on refunding - - - 10,930 Deferred pension balances 2,358,301 1,730,784 1,120,662 7,213,809 Deferred other post employment benefits balances 94,143 66,890 103,848 364,617 Total deferred outflows of resources 2,452,444 1,797,674 1,224,510 7,589,356 LIABILITIES: Current liabilities: Accounts payable 1,108,383 1,360,814 148,140 4,416,484 Claims payable - - - 2,285,831 Compensated absences payable 334,975 244,844 92,163 925,424 Accrued interest 5,991 - - 7,929 Interfund payables - - - 7,300,000 Payable from restricted assets: Accounts payable 4,206 - - 4,206 Retainage payable - - - 8,451 Certificate and general obligation bonds 310,530 - - 413,269 Total current liabilities 1,764,085 1,605,658 240,303 15,361,594 Noncurrent liabilities: Payable from restricted assets: General obligation bonds payable - - - 186,556 Certificates of obligation 1,287,197 - - 1,370,077 Compensated absences payable 26,577 10,266 13,985 125,139 Claims payable - - - 2,308,460 Net pension liability 4,079,150 3,048,300 2,293,565 13,106,440 Total other post-employment benefits liability 1,527,045 1,025,394 1,035,146 5,254,893 Total noncurrent liabilities:6,919,969 4,083,960 3,342,696 22,351,565 Total liabilities 8,684,054 5,689,618 3,582,999 37,713,159 DEFERRED INFLOWS OF RESOURCES: Deferred pension balances 606,097 454,725 383,770 1,934,738 Deferred other post employment benefits balances 66,713 60,727 45,717 244,991 Total deferred inflows of resources 672,810 515,452 429,487 2,179,729 NET POSITION: Net investment in capital assets 8,135,303 75,979 62,476 13,169,511 Restricted for capital acquisition 1,710,136 - - 1,710,136 Unrestricted 1,575,286 (2,331,261) (2,638,178) (2,800,562) Total net position 11,420,725$ (2,255,282)$ (2,575,702)$ 12,079,085$ (continued on the following page)(concluded) 109 CITY OF DENTON, TEXAS Exhibit XXVIII COMBINING STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET POSITION INTERNAL SERVICE FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2019 Materials Fleet Health Risk Management Services Insurance Retention Fund Fund Fund Fund OPERATING REVENUES: Charges for goods and services 8,826,292$ 11,051,373$ 26,095,341$ 3,515,867$ Miscellaneous 113,011 3,383 888,501 107,617 Total operating revenues 8,939,303 11,054,756 26,983,842 3,623,484 OPERATING EXPENSES: Operating expenses before depreciation 9,569,701 10,880,034 27,919,215 4,164,254 Depreciation 20,459 230,066 - - Total operating expenses 9,590,160 11,110,100 27,919,215 4,164,254 Operating income (loss)(650,857) (55,344) (935,373) (540,770) NONOPERATING REVENUES (EXPENSES): Investment revenue 7,125 46,382 131,229 90,655 Interest expense and fiscal charges (9,572) (7,374) - - Other non-operating expenses - - - - Total non-operating revenues (expenses)(2,447) 39,008 131,229 90,655 Income (loss) before contributions and transfers (653,304) (16,336) (804,144) (450,115) Transfers in - - - - Transfers out (564) - - (16,978) Change in net position (653,868) (16,336) (804,144) (467,093) Net position at beginning of year 663,444 3,800,098 3,261,266 (294,023) Total net position at end of year 9,576$ 3,783,762$ 2,457,122$ (761,116)$ (continued on the following page) 110 CITY OF DENTON, TEXAS Exhibit XXVIII COMBINING STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET POSITION (concluded) INTERNAL SERVICE FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2019 Total Technology Engineering Customer Internal Services Services Service Service Fund Fund Fund Funds OPERATING REVENUES: Charges for goods and services 15,916,144$ 7,516,103$ 5,212,973$ 78,134,093$ Miscellaneous 81,493 - 32,529 1,226,534 Total operating revenues 15,997,637 7,516,103 5,245,502 79,360,627 OPERATING EXPENSES: Operating expenses before depreciation 13,370,642 7,224,976 5,421,212 78,550,034 Depreciation 1,792,380 14,857 9,524 2,067,286 Total operating expenses 15,163,022 7,239,833 5,430,736 80,617,320 Operating income (loss)834,615 276,270 (185,234) (1,256,693) NONOPERATING REVENUES (EXPENSES): Investment revenue 243,124 62,410 13,146 594,071 Interest expense and fiscal charges (7,030) - - (23,976) Other non-operating expenses 14,320 - - 14,320 Total non-operating revenues (expenses) 250,414 62,410 13,146 584,415 Income (loss) before contributions and transfers 1,085,029 338,680 (172,088) (672,278) Transfers in 29,626 - - 29,626 Transfers out - (832,906) (2,403,614) (3,254,062) Change in net position 1,114,655 (494,226) (2,575,702) (3,896,714) Net position at beginning of year 10,306,070 (1,761,056) - 15,975,799 Total net position at end of year 11,420,725$ (2,255,282)$ (2,575,702)$ 12,079,085$ (continued on the following page)(concluded) 111 CITY OF DENTON, TEXAS Exhibit XXIX COMBINING STATEMENT OF CASH FLOWS INTERNAL SERVICE FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2019 Materials Fleet Health Risk Management Services Insurance Retention Fund Fund Fund Fund CASH FLOWS FROM OPERATING ACTIVITIES: Cash received from customers 8,939,303$ 11,048,602$ 26,983,842$ 3,623,484$ Cash paid to employees for services (2,023,495) (2,196,108) - (1,261,028) Cash paid to suppliers (6,809,671) (7,893,556) (27,955,221) (2,746,658) Net cash provided (used) by operations 106,137 958,938 (971,379) (384,202) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES: Transfers out (564) - - (16,978) Transfers in - - - - Net cash provided (used) by noncapital financing activities (564) - - (16,978) CASH FLOWS FROM CAPITAL FINANCING ACTIVITIES: Principal payments on capital debt (41,052) (233,460) - - Interest and fiscal charges (8,287) (11,570) - - Proceeds from issuance of debt - - - - Proceeds from capital contributions and transfers in - - - - Acquisition and construction of capital assets - (353,509) - - Net cash provided (used) by capital financing activities (49,339) (598,539) - - CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale and maturities of investment securities - 719,361 2,762,143 1,860,293 Purchase of investment securities - (1,352,178) (2,844,636) (2,137,933) Interest received on investments 7,125 46,253 138,674 94,683 Net cash provided (used) by investing activities 7,125 (586,564) 56,181 (182,957) Net increase in cash and cash equivalents 63,359 (226,165) (915,198) (584,137) Cash and cash equivalents at beginning of year 280,720 583,830 1,564,850 1,071,202 Cash and cash equivalents at end of year 344,079 357,665 649,652 487,065 Investments, at fair value - 1,867,780 3,392,588 2,543,531 Cash, cash equivalents and investments, at fair value 344,079$ 2,225,445$ 4,042,240$ 3,030,596$ RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES: Operating income (loss)(650,857)$ (55,344)$ (935,373)$ (540,770)$ Adjustments: Depreciation expense 20,459 230,066 - - Increase in receivables - (6,154) - - Decrease in inventories (1,695,513) 5,215 - - Decrease (Increase) in prepaid items 915 - (8,076) - Increase in escrow deposits items - - (12,000) - Increase (Decrease) in accounts payable 70,634 626,474 (15,930) 40,687 Increase (decrease) in compensated absences 3,305 22,932 - 43,588 Increase in interfund payables 2,235,000 - - - Increase in net pension balances 80,250 86,603 - 51,464 Increase in other post-employment benefit balances 41,944 49,146 - 20,829 Total adjustments 756,994 1,014,282 (36,006) 156,568 Net cash provided (used) by operating activities 106,137$ 958,938$ (971,379)$ (384,202)$ NONCASH CAPITAL AND RELATED FINANCING ACTIVITIES: Increase in fair value of investments - 15,235 35,084 24,804 Increase (Decrease) in equity due to non-cash transfers - - - - (continued on the following page) 112 CITY OF DENTON, TEXAS Exhibit XXIX COMBINING STATEMENT OF CASH FLOWS (concluded) INTERNAL SERVICE FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2019 Total Technology Engineering Customer Internal Services Services Service Service Fund Fund Fund Funds CASH FLOWS FROM OPERATING ACTIVITIES: Cash received from customers 15,995,431$ 7,516,103$ 5,245,502$ 79,352,267$ Cash paid to employees for services (6,228,789) (4,784,045) (3,075,502) (19,568,967) Cash paid to suppliers (6,288,784) (867,551) (2,033,348) (54,594,789) Net cash provided (used) by operations 3,477,858 1,864,507 136,652 5,188,511 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES: Transfers out - (832,906) - (850,448) Transfers in 29,626 - - 29,626 Net cash provided (used) by noncapital financing activities 29,626 (832,906) - (820,822) CASH FLOWS FROM CAPITAL FINANCING ACTIVITIES: Principal payments on capital debt (10,000) - - (284,512) Interest and fiscal charges (6,709) - - (26,566) Proceeds from issuance of debt 1,603,317 - - 1,603,317 Proceeds from capital contributions and transfers in - - - - Acquisition and construction of capital assets (8,294,155) - - (8,647,664) Net cash provided (used) by capital financing activities (6,707,547) - - (7,355,425) CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale and maturities of investment securities 6,136,958 1,004,321 115,919 12,598,995 Purchase of investment securities (5,500,747) (2,076,135) (241,134) (14,152,763) Interest received on investments 264,540 58,807 12,541 622,623 Net cash provided (used) by investing activities 900,751 (1,013,007) (112,674) (931,145) Net increase in cash and cash equivalents (2,299,312) 18,594 23,978 (3,918,881) Cash and cash equivalents at beginning of year 3,659,994 313,727 - 7,474,323 Cash and cash equivalents at end of year 1,360,682 332,321 23,978 3,555,442 Investments, at fair value 7,105,697 1,735,434 125,215 16,770,245 Cash, cash equivalents and investments, at fair value 8,466,379$ 2,067,755$ 149,193$ 20,325,687$ RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES: Operating income (loss)834,615$ 276,270$ (185,234)$ (1,256,693)$ Adjustments: Depreciation expense 1,792,380 14,857 9,524 2,067,286 Decrease (Increase) in receivables (2,206) - - (8,360) Decrease in inventories - - - (1,690,298) Decrease (Increase) in prepaid items 34,651 - - 27,490 Increase in escrow deposits items - - - (12,000) Increase (Decrease) in accounts payable 353,310 1,215,027 148,140 2,438,342 Increase (decrease) in compensated absences 102,885 81,778 (4,068) 250,420 Decrease in interfund payables - - - 2,235,000 Decrease in net pension balances 258,839 249,993 118,044 845,193 Increase in other post-employment benefit balances 103,384 26,582 50,246 292,131 Total adjustments 2,643,243 1,588,237 321,886 6,445,204 Net cash provided (used) by operating activities 3,477,858$ 1,864,507$ 136,652$ 5,188,511$ NONCASH CAPITAL AND RELATED FINANCING ACTIVITIES: Decrease in fair value of investments 79,102 10,795 446 165,466 Increase (Decrease) in equity due to non-cash transfers - - (2,403,614) (2,403,614) (continued on the following page)(concluded) 113 CITY OF DENTON, TEXAS Exhibit XXIX COMBINING STATEMENT OF CHANGES IN ASSETS AND LIABILITIES AGENCY FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2019 Balance Balance October 1, 2018 Additions Deductions September 30, 2019 OTHER AGENCY FUNDS ASSETS Cash, cash equivalents and investments, at fair value 189,999$ 1,155,121$ 1,185,089$ 160,031$ Total assets 189,999$ 1,155,121$ 1,185,089$ 160,031$ LIABILITIES Accounts payable 189,999$ 1,155,121$ 1,185,089$ 160,031$ Total liabilities 189,999$ 1,155,121$ 1,185,089$ 160,031$ 114 STATISTICAL SECTION This part of the City of Denton’s comprehensive annual financial report presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the city’s overall financial health. Contents Financial Trends These schedules contain trend information to help the reader understand how the city’s financial performance and well-being have changed over time. (Tables 1 – 4) Revenue Capacity These schedules contain information to help the reader assess the city’s most significant local revenue source, the property tax. These tables do not include the Electric fund information due to confidentiality of information necessary for competitive rates. (Tables 5 – 8) Debt Capacity These schedules present information to help the reader assess the affordability of the city’s current level of outstanding debt and the city’s ability to issue additional debt in the future. (Tables 9 – 12) Demographic and Economic Information These schedules offer demographic and economic indicators to help the reader understand the environment within which the city’s financial activities take place. (Tables 13 – 14) Operating Information These schedules contain service and infrastructure data to help the reader understand how the information in the city’s financial report relates to the services the city provides and the activities it performs. (Tables 15 – 17) Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. 115 CITY OF DENTON, TEXAS Table 1 NET POSITION BY COMPONENT LAST TEN FISCAL YEARS (accrual basis of accounting) 2010 2011 2012 2013 2014 Governmental activities Net investment in capital assets 104,636,239$ 103,073,465$ 101,784,929$ 116,146,838$ 128,915,116$ Restricted 2,894,676 2,839,556 3,460,027 4,116,256 12,233,226 Unrestricted 46,480,569 34,590,673 35,005,109 35,136,072 28,096,148 Total governmental activities net position 154,011,484 140,503,694 140,250,065 155,399,166 169,244,490 Business-type activities Net investment in capital assets 277,356,195 296,006,601 315,479,026 347,780,207 383,678,313 Restricted 30,598,923 30,454,314 28,559,731 28,654,879 28,056,605 Unrestricted 131,497,936 158,120,736 169,653,341 158,145,443 139,515,508 Total business-type activities net position 439,453,054 484,581,651 513,692,098 534,580,529 551,250,426 Primary government Net investment in capital assets 381,992,434 399,080,066 417,263,955 463,927,045 512,593,429 Restricted 33,493,599 33,293,870 32,019,758 32,771,135 40,289,831 Unrestricted 177,978,505 192,711,409 204,658,450 193,281,515 167,611,656 Total primary government net position 593,464,538$ 625,085,345$ 653,942,163$ 689,979,695$ 720,494,916$ (continued on the following page) Source: Comprehensive Annual Financial Reports 116 CITY OF DENTON, TEXAS Table 1 NET POSITION BY COMPONENT (concluded) LAST TEN FISCAL YEARS (accrual basis of accounting) 2015 2016 2017 2018 2019 Governmental activities Net investment in capital assets 141,914,877$ 145,309,987$ 165,408,284$ 194,210,730$ 242,957,674$ Restricted 13,215,421 13,736,624 14,530,908 21,654,948 30,348,748 Unrestricted (8,775,520) (3,620,580) (6,509,698) (19,332,607) (39,525,390) Total governmental activities net position 146,354,778 155,426,031 173,429,494 196,533,071 233,781,032 Business-type activities Net investment in capital assets 421,894,337 460,330,063 502,801,204 540,697,505 589,492,414 Restricted 25,356,458 8,892,547 11,516,207 20,209,408 32,678,917 Unrestricted 122,542,446 151,234,604 145,191,889 177,836,401 173,355,308 Total business-type activities net position 569,793,241 620,457,214 659,509,300 738,743,314 795,526,639 Primary government Net investment in capital assets 563,809,214 605,640,050 668,209,488 734,908,235 832,450,088 Restricted 38,571,879 22,629,171 26,047,115 41,864,356 63,027,665 Unrestricted 113,766,926 147,614,024 138,682,191 158,503,794 133,829,918 Total primary government net position 716,148,019$ 775,883,245$ 832,938,794$ 935,276,385$ 1,029,307,671$ (continued on the following page) (concluded) Source: Comprehensive Annual Financial Reports 117 CITY OF DENTON, TEXAS Table 2 CHANGES IN NET POSITION LAST TEN FISCAL YEARS (accrual basis of accounting) 2010 2011 2012 2013 2014 EXPENSES Governmental activities: General government $29,569,535 $28,198,604 $29,421,275 $27,686,735 $30,476,840 Public safety 47,998,906 49,154,371 52,496,010 52,906,985 56,893,859 Public works 15,767,926 16,089,302 18,662,029 18,663,884 16,950,280 Parks and recreation 12,854,336 12,421,893 12,968,426 13,714,245 14,543,461 Interest expense 5,121,329 5,046,724 4,755,938 4,464,309 4,339,154 Total governmental activities expenses 111,312,032 110,910,894 118,303,678 117,436,158 123,203,594 Business-type activities: Electric system 114,903,831 117,769,599 122,428,808 146,246,880 157,906,294 Water system 27,219,944 28,293,109 26,822,690 26,814,020 24,023,392 Wastewater system 20,560,600 20,455,424 20,890,614 21,467,088 22,176,191 Solid waste 18,028,832 20,008,746 21,695,322 21,730,796 23,844,055 Airport - 1,326,397 1,472,155 1,608,989 2,435,446 Total business-type activities expenses 180,713,207 187,853,275 193,309,589 217,867,773 230,385,378 Total primary government expenses 292,025,239 298,764,169 311,613,267 335,303,931 353,588,972 PROGRAM REVENUES Governmental activities: Charges for services: General government 3,551,733 4,108,687 3,873,349 4,105,648 4,645,655 Public safety 6,431,007 7,075,328 7,069,770 7,767,083 7,064,927 Public works 1,425,683 525,024 1,086,269 1,159,605 885,010 Parks and recreation 3,372,579 3,964,517 3,951,433 4,059,383 5,833,238 Operating grants and contributions 3,407,085 4,270,697 2,598,157 3,118,105 4,788,149 Capital grants and contributions 15,206,424 7,497,908 4,292,468 14,671,571 11,127,695 Total governmental activities program revenues 33,394,511 27,442,161 22,871,446 34,881,395 34,344,674 Business-type activities: Charges for services: Electric system 119,156,314 131,435,554 132,352,950 136,655,892 150,362,507 Water system 28,407,954 36,790,720 36,265,061 37,586,306 34,865,803 Wastewater system 21,917,651 23,338,841 24,570,095 26,588,179 28,629,754 Solid waste 18,432,245 20,979,967 22,944,272 24,468,976 25,980,914 Airport - 3,203,426 1,909,619 1,880,812 1,925,825 Capital grants and contributions 5,153,568 5,053,024 4,317,463 9,877,185 5,656,622 Total business-type activities program revenues 193,067,732 220,801,532 222,359,460 237,057,350 247,421,425 Total primary government program revenues 226,462,243 248,243,693 245,230,906 271,938,745 281,766,099 NET (EXPENSE)/REVENUE Governmental activities (77,917,521) (83,468,733) (95,432,232) (82,554,763) (88,858,920) Business-type activities 12,354,525 32,948,257 29,049,871 19,189,577 17,036,047 Total primary government program net expense (65,562,996)$ (50,520,476)$ (66,382,361)$ (63,365,186)$ (71,822,873)$ 118 CITY OF DENTON, TEXAS Table 2 CHANGES IN NET POSITION LAST TEN FISCAL YEARS (accrual basis of accounting) 2015 2016 2017 2018 2019 EXPENSES Governmental activities: General government $31,260,126 $33,847,052 $40,761,972 $37,968,945 $39,051,942 Public safety 58,132,146 63,118,516 68,546,557 71,945,219 77,883,435 Public works 20,331,934 24,557,482 24,994,628 25,683,779 24,502,864 Parks and recreation 14,982,742 16,043,697 16,792,417 17,422,273 17,710,634 Interest expense 4,384,973 4,664,608 4,970,968 5,379,149 6,750,917 Total governmental activities expenses 129,091,921 142,231,355 156,066,542 158,399,365 165,899,792 Business-type activities: Electric system 158,106,661 145,963,753 174,900,860 168,110,899 236,131,640 Water system 25,870,489 26,000,734 28,202,500 27,481,058 29,689,758 Wastewater system 24,307,305 23,921,154 26,730,157 26,284,049 28,317,484 Solid waste 26,766,890 29,435,101 34,532,856 29,028,299 30,541,859 Airport 2,100,281 2,536,460 1,930,767 1,802,703 2,017,380 Total business-type activities expenses 237,151,626 227,857,202 266,297,140 252,707,008 326,698,121 Total primary government expenses 366,243,547 370,088,557 422,363,682 411,106,373 492,597,913 PROGRAM REVENUES Governmental activities: Charges for services: General government 5,364,405 6,015,305 5,266,777 6,489,438 6,460,483 Public safety 7,276,024 9,827,784 8,773,221 8,221,314 7,233,973 Public works 707,604 729,528 879,453 649,293 712,953 Parks and recreation 4,926,465 5,268,637 4,414,379 4,852,322 5,868,619 Operating grants and contributions 3,380,119 2,855,501 4,667,791 3,697,696 4,092,532 Capital grants and contributions 10,443,220 5,885,033 17,180,091 33,991,306 28,085,591 Total governmental activities program revenues 32,097,837 30,581,788 41,181,712 57,901,369 52,454,151 Business-type activities: Charges for services: Electric system 167,696,288 166,290,498 172,027,080 198,748,366 242,437,211 Water system 37,572,331 38,181,034 41,332,006 48,912,059 45,886,900 Wastewater system 30,790,885 31,900,885 33,360,603 35,594,624 35,042,110 Solid waste 29,091,216 31,236,506 33,847,593 33,590,463 34,670,519 Airport 1,277,402 1,183,661 1,495,619 1,625,672 1,397,581 Capital grants and contributions 8,593,699 7,705,101 20,347,889 20,519,510 16,039,076 Total business-type activities program revenues 275,021,821 276,497,685 302,410,790 338,990,694 375,473,397 Total primary government program revenues 307,119,658 307,079,473 343,592,502 396,892,063 427,927,548 NET (EXPENSE)/REVENUE Governmental activities (96,994,084) (111,649,567) (114,884,830) (100,497,996) (113,445,641) Business-type activities 37,870,195 48,640,483 36,113,650 86,283,686 48,775,276 Total primary government program net expense (59,123,889)$ (63,009,084)$ (78,771,180)$ (14,214,310)$ (64,670,365)$ (continued on the following page) 119 CITY OF DENTON, TEXAS Table 2 CHANGES IN NET POSITION LAST TEN FISCAL YEARS (accrual basis of accounting) 2010 2011 2012 2013 2014 GENERAL REVENUES AND OTHER CHANGES IN NET POSITION Governmental activities: Taxes: Property tax $43,144,645 $44,144,844 $45,174,160 $47,275,552 $48,833,077 Sales tax1 20,484,954 22,871,282 25,886,940 26,522,473 27,764,114 Franchise tax 17,457,994 19,324,244 19,336,701 19,901,459 21,001,427 Hotel occupancy tax 1,302,617 1,513,468 1,555,347 1,910,125 1,982,643 Beverage tax 347,940 359,671 345,032 392,192 419,498 Bingo tax 22,611 21,963 20,889 20,774 20,684 Investment income 684,709 459,615 581,849 354,089 563,236 Gain on sale of capital assets - - - - - Miscellaneous 5,690,969 2,370,682 1,390,398 1,428,907 1,980,545 Transfers 482,801 (10,430,082) 887,287 (101,707) 876,525 Total governmental activities 89,619,240 80,635,687 95,178,603 97,703,864 103,441,749 Business-type activities: Investment income 1,653,515 1,472,078 1,638,830 1,085,856 1,355,730 Gain on sale of capital assets - - - - - Miscellaneous 257,379 278,180 (690,967) 511,291 521,013 Transfers (482,801) 10,430,082 (887,287) 101,707 (876,525) Total business-type activities 1,428,093 12,180,340 60,576 1,698,854 1,000,218 Total primary government 91,047,333 92,816,027 95,239,179 99,402,718 104,441,967 CHANGE IN NET POSITION Governmental activities 11,701,719 (2,833,046) (253,629) 15,149,101 14,582,829 Business-type activities 13,782,618 45,128,597 29,110,447 20,888,431 18,036,265 Total primary government 25,484,337$ 42,295,551$ 28,856,818$ 36,037,532$ 32,619,094$ (continued on the following page) Source: Comprehensive Annual Financial Reports 1 Sales tax figures in fiscal years 2010 and prior present amounts net of economic incentive payments. 120 CITY OF DENTON, TEXAS Table 2 CHANGES IN NET POSITION LAST TEN FISCAL YEARS (accrual basis of accounting) 2015 2016 2017 2018 2019 GENERAL REVENUES AND OTHER CHANGES IN NET POSITION (concluded) Governmental activities: Taxes: Property tax $54,174,965 $58,788,255 $64,348,754 $67,185,610 $71,351,314 Sales tax1 30,601,965 32,624,297 36,841,137 38,270,026 38,330,825 Franchise tax 21,996,031 22,659,014 24,211,081 26,007,002 26,160,639 Hotel occupancy tax 2,156,294 2,243,264 2,374,221 2,733,720 3,039,747 Beverage tax 573,758 597,284 617,662 632,217 661,823 Bingo tax 20,380 18,910 13,633 11,244 11,445 Investment income 759,334 1,019,594 1,330,008 1,937,579 6,093,100 Gain on sale of capital assets 707,966 498,265 192,583 188,958 95,760 Miscellaneous 1,220,060 1,087,504 2,042,274 4,700,466 3,930,285 Transfers 1,140,938 1,184,433 916,940 (1,104,290) 1,018,664 Total governmental activities 113,351,691 120,720,820 132,888,293 140,562,532 150,693,602 Business-type activities: Investment income 1,692,971 2,010,008 3,471,635 4,083,560 9,026,713 Gain on sale of capital assets 42,455 1,197,915 383,741 240,740 - Miscellaneous - - - - - Transfers (1,140,938) (1,184,433) (916,940) 1,104,290 (1,018,664) Total business-type activities 594,488 2,023,490 2,938,436 5,428,590 8,008,049 Total primary government 113,946,179 122,744,310 135,826,729 145,991,122 158,701,651 CHANGE IN NET POSITION Governmental activities 16,357,607 9,071,253 18,003,463 40,064,536 37,247,961 Business-type activities 38,464,683 50,663,973 39,052,086 91,712,276 56,783,325 Total primary government 54,822,290$ 59,735,226$ 57,055,549$ 131,776,812$ 94,031,286$ (continued on the following page)(concluded) Source: Comprehensive Annual Financial Reports 1 Sales tax figures in fiscal years 2010 and prior present amounts net of economic incentive payments. 121 CITY OF DENTON, TEXAS Table 3 FUND BALANCES OF GOVERNMENTAL FUNDS LAST TEN FISCAL YEARS (modified accrual basis of accounting) 2010 20111 2012 2013 2014 General fund Committed to streets -$ 921,779$ -$ -$ -$ Assigned to use of reserves - 668,116 664,894 1,377,039 661,545 Unreserved, undesignated, unassigned 21,526,779 22,834,108 25,171,186 24,378,139 25,176,737 Total general fund 21,526,779 24,424,003 25,836,080 25,755,178 25,838,282 All other governmental funds Reserved for: Debt service 3,354,535 - - - - Capital projects 44,970,571 - - - - Unreserved, undesignated reported in: Special revenue funds 13,838,425 - - - - Restricted for: Debt Service - 3,279,080 3,824,438 4,572,807 4,726,841 Parks and recreation - 9,561,244 10,496,887 9,220,953 11,584,890 Streets and drainage projects - 21,857,670 22,004,377 23,759,574 25,790,648 Other capital projects - 5,907,877 8,444,073 12,231,061 11,925,978 Other grants and purposes - 1,223,822 1,789,241 2,223,626 2,465,093 Committed to: Streets - - 991,942 1,330,184 916,613 Parks and recreation - 1,427,717 570,534 590,062 573,429 Other purposes - 1,867,639 1,468,837 1,801,661 3,560,159 Assigned to: Streets and drainage projects - 724,241 - 144,485 423,152 Other capital projects - 1,332,105 3,003,344 2,599,101 2,868,390 Other purposes - 77,341 49,026 56,900 34,847 Unassigned - (758,734) (91,145) (8,901) (144,084) Total all other governmental funds 62,163,531$ 46,500,002$ 52,551,554$ 58,521,513$ 64,725,956$ (continued on the following page) Source: Comprehensive Annual Financial Reports 1The City adopted GASB Statement No. 54 which changed the classification of governmental fund balances to nonspendable, restricted, committed, assigned, and unassigned. 122 CITY OF DENTON, TEXAS Table 3 FUND BALANCES OF GOVERNMENTAL FUNDS (concluded) LAST TEN FISCAL YEARS (modified accrual basis of accounting) 2015 2016 2017 2018 2019 General fund Committed to streets -$ -$ -$ -$ -$ Assigned to use of reserves - 99,365 - 1,398,704 160,606 Unreserved, undesignated, unassigned 27,365,168 28,070,483 31,770,773 28,918,681 30,578,238 Total general fund 27,365,168 28,169,848 31,770,773 30,317,385 30,738,844 All other governmental funds Reserved for: Debt service - - - - - Capital projects - - - - - Unreserved, undesignated reported in: Special revenue funds - - - - - Restricted for: Debt Service 4,791,880 4,893,032 5,409,144 5,529,483 5,453,180 Parks and recreation 14,288,659 13,553,834 10,599,568 9,153,654 12,723,077 Streets and drainage projects 42,537,941 46,511,509 51,149,305 82,702,916 75,897,954 Other capital projects 10,603,695 13,512,733 18,544,086 21,984,608 20,271,843 Other grants and purposes 3,218,466 3,319,230 4,104,036 7,158,843 7,171,142 Committed to: Streets 1,388,223 1,798,624 1,158,667 4,495,971 5,965,815 Parks and recreation 513,484 498,150 439,825 520,852 549,415 Other purposes 4,430,392 5,500,983 6,889,093 3,150,491 3,779,944 Assigned to: Streets and drainage projects 2,214,613 3,430,681 7,897,077 10,591,478 10,867,803 Other capital projects 1,666,029 3,728,955 6,945,492 7,440,133 8,907,816 Other purposes 49,630 74,558 59 59 61 Unassigned (73,857) (242,338) (2,942,377) (943,930) (782,684) Total all other governmental funds 85,629,155$ 96,579,951$ 110,193,975$ 151,784,558$ 150,805,366$ (continued on the following page)(concluded) Source: Comprehensive Annual Financial Reports 1The City adopted GASB Statement No. 54 which changed the classification of governmental fund balances to nonspendable, restricted, committed, assigned, and unassigned. 123 CITY OF DENTON, TEXAS Table 4 CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS LAST TEN FISCAL YEARS (modified accrual basis of accounting) 2010 2011 2012 2013 2014 REVENUES: Taxes: Property tax 43,326,427$ 44,147,706$ 45,116,485$ 47,330,522$ 48,872,016$ Sales tax1 20,484,954 22,871,282 25,886,940 26,522,473 27,764,114 Hotel occupancy tax 1,302,617 1,513,468 1,555,347 1,910,125 1,982,643 Beverage tax 347,940 359,671 345,032 392,192 419,498 Bingo tax 22,611 21,963 20,889 20,774 20,684 Licenses and permits 1,198,552 1,460,548 1,436,215 1,446,580 1,978,421 Franchise fees 17,457,994 19,324,244 19,336,701 19,901,459 21,001,427 Fines and forfeitures 4,828,159 4,929,110 5,462,133 5,342,966 6,261,579 Fees for services 12,244,258 8,395,583 8,519,763 8,683,278 10,187,195 Investment revenue 684,709 459,615 581,849 354,089 563,236 Intergovernmental 16,639,038 10,896,063 6,739,864 9,914,834 10,986,128 Miscellaneous 1,002,133 1,911,634 1,171,618 1,322,762 2,648,160 Total revenues 119,539,392 116,290,887 116,172,836 123,142,054 132,685,101 EXPENDITURES: General government 26,909,485 25,784,296 24,359,018 25,047,062 28,188,722 Public safety 44,398,442 46,561,747 48,118,051 51,303,825 53,380,064 Public works 6,517,717 7,483,926 8,608,554 9,425,446 9,979,997 Parks and recreation 11,072,061 10,913,450 11,315,951 12,274,908 12,808,701 Capital outlay 14,164,662 12,937,053 10,983,987 20,038,064 20,660,461 Debt service: Principal retirement 9,277,804 9,670,892 9,770,660 10,017,719 10,703,071 Advance refunding escrow - - 130,111 110,145 - Bond issuance costs 78,919 29,156 163,811 181,308 86,800 Interest and other charges 5,095,245 5,070,734 4,758,305 4,552,348 4,741,257 Total expenditures 117,514,335 118,451,254 118,208,448 132,950,825 140,549,073 Excess (deficiency) of revenues over (under) expenditures 2,025,057 (2,160,367) (2,035,612) (9,808,771) (7,863,972) OTHER FINANCING SOURCES (USES): Refunding bonds issued 3,460,000 - 10,173,303 6,182,405 3,130,000 Payment to refunded bond escrow agent (3,774,764) - (11,432,581) (6,547,180) (3,194,293) Issuance of long-term debt 6,905,000 5,680,000 8,020,000 14,765,000 12,635,000 Premium on debt issuance 498,682 32,628 2,016,193 1,232,674 635,037 Insurance recoveries - - 19,961 - - Proceeds of capital lease - - - - - Sale of capital assets 160,495 303,307 153,127 148,417 85,059 Transfers in 5,815,769 1,968,253 4,741,735 2,980,448 3,596,433 Transfers (out)(8,384,227) (7,915,382) (4,192,497) (3,063,936) (2,735,717) Total other financing sources (uses)4,680,955 68,806 9,499,241 15,697,828 14,151,519 NET CHANGE IN FUND BALANCES 6,706,012$ (2,091,561)$ 7,463,629$ 5,889,057$ 6,287,547$ Debt service as a percentage of noncapital expenditures 13.9%14.0%13.6%12.9%12.9% Source: Comprehensive Annual Financial Reports (continued on the following page) 1 Sales tax figures in fiscal years 2010 and prior present amounts net of economic incentive payments. 124 CITY OF DENTON, TEXAS Table 4 CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS (concluded) LAST TEN FISCAL YEARS (modified accrual basis of accounting) 2015 2016 2017 2018 2019 REVENUES: Taxes: Property tax 54,230,541$ 58,802,856$ 64,317,641$ 67,055,807$ 71,393,395$ Sales tax1 30,601,965 32,624,297 36,841,137 38,270,026 38,330,825 Hotel occupancy tax 2,156,294 2,243,264 2,374,221 2,733,720 3,039,748 Beverage tax 573,758 597,284 617,662 632,217 661,823 Bingo tax 20,380 18,910 13,633 11,244 11,445 Licenses and permits 2,782,395 3,106,162 3,016,697 3,739,691 3,889,820 Franchise fees 21,996,031 22,659,014 24,211,081 26,007,002 26,160,639 Fines and forfeitures 6,505,175 6,433,158 6,039,401 5,539,793 5,147,203 Fees for services 9,391,260 10,927,305 10,395,166 10,536,817 11,583,743 Investment revenue 759,334 1,019,594 1,330,008 1,937,579 6,093,100 Intergovernmental 10,236,689 5,217,302 9,647,977 30,518,141 22,477,192 Miscellaneous 1,387,127 1,347,258 2,382,708 5,053,082 5,043,652 Total revenues 140,640,949 144,996,404 161,187,332 192,035,119 193,832,585 EXPENDITURES: General government 29,277,275 31,024,356 31,330,757 32,800,175 35,528,063 Public safety 55,978,174 59,067,019 61,156,694 66,355,282 71,257,658 Public works 12,439,131 11,604,966 15,871,804 14,710,211 14,579,218 Parks and recreation 13,277,516 13,987,694 14,140,518 14,671,894 15,221,092 Capital outlay 23,712,400 25,966,695 38,191,803 54,829,949 64,835,885 Debt service: Principal retirement 11,918,983 13,390,576 14,351,487 15,429,697 16,904,637 Advance refunding escrow 120,519 147,687 103,950 - - Bond issuance costs 181,409 154,948 171,252 284,181 142,226 Interest and other charges 4,647,528 5,246,925 5,819,949 6,561,442 8,146,969 Total expenditures 151,552,935 160,590,866 181,138,214 205,642,831 226,615,748 Excess (deficiency) of revenues over (under) expenditures (10,911,986) (15,594,462) (19,950,882) (13,607,712) (32,783,163) OTHER FINANCING SOURCES (USES): Refunding bonds issued 14,290,000 12,045,000 10,850,000 - - Payment to refunded bond escrow agent (15,604,758) (14,075,445) (11,358,665) - - Issuance of long-term debt 29,240,000 22,780,000 33,405,000 56,960,000 25,870,000 Premium on debt issuance 3,214,914 4,317,817 3,077,360 3,206,728 2,006,343 Insurance recoveries - 30,624 86,992 18,135 88,954 Proceeds of capital lease - 150,155 - - - Sale of capital assets 715,685 530,054 236,068 226,025 17,033 Transfers in 4,557,824 8,164,575 10,856,904 15,083,695 14,477,744 Transfers (out)(3,071,594) (6,592,842) (9,987,828) (21,749,676) (10,234,644) Total other financing sources (uses)33,342,071 27,349,938 37,165,831 53,744,907 32,225,430 NET CHANGE IN FUND BALANCES 22,430,085$ 11,755,476$ 17,214,949$ 40,137,195$ (557,733)$ Debt service as a percentage of noncapital expenditures 13.0%13.8%14.1%14.6%15.5% (continued on the following page)Source: Comprehensive Annual Financial Reports (concluded) 1 Sales tax figures in fiscal years 2010 and prior present amounts net of economic incentive payments. 125 CITY OF DENTON, TEXAS Table 5 ASSESSED VALUE AND ESTIMATED ACTUAL VALUE OF TAXABLE PROPERTY LAST TEN FISCAL YEARS Estimated Market Value Less:Less:Total Taxable Total Direct Fiscal Real Personal Tax-Exempt Frozen Assessed Tax Year Property Property Property Value1 Value2 Rate 2010 6,619,118,472$ 922,539,801$ 1,213,749,251$ -$ 6,327,909,022$ 0.66652 2011 6,744,096,534 879,202,496 1,393,181,072 - 6,230,117,958 0.68975 2012 6,903,311,493 933,580,101 1,424,516,590 - 6,412,375,004 0.68975 2013 7,083,330,127 1,125,646,116 1,492,264,875 - 6,716,711,368 0.68975 2014 7,427,124,969 1,161,189,421 1,609,090,116 - 6,979,224,274 0.68975 2015 8,285,049,321 1,329,999,883 1,817,871,596 - 7,797,177,608 0.68975 2016 8,989,650,946 1,332,290,743 1,858,794,929 - 8,463,146,760 0.68975 2017 9,784,179,133 1,429,040,012 2,040,968,652 - 9,172,250,493 0.68334 2018 11,218,394,767 1,497,275,644 2,298,809,194 - 10,416,861,217 0.63786 2019 12,399,345,379 1,376,428,125 2,348,204,604 112,974,494 11,314,594,406 0.62048 Source: Denton Central Appraisal District 1Fiscal year 2019 marks the first year of the Over 65/Disabled tax limitation (freeze). 2Total Taxable Assessed Value from 2013-2019 include the Downtown and West Park TIRZ's. 126 127 CITY OF DENTON, TEXAS Table 6 PROPERTY TAX RATES (PER $100 OF ASSESSED VALUE) DIRECT AND OVERLAPPING1 GOVERNMENTS LAST TEN FISCAL YEARS Denton Argyle City of Denton Independent Independent Fiscal Operating Debt Service Total Denton School School Year Rate Rate Direct Rate County District District 2010 0.44765$ 0.21887$ 0.66652$ 0.24980$ 1.49000$ 1.41005$ 2011 0.47088 0.21887 0.68975 0.273900 1.53000 1.440050 2012 0.47088 0.21887 0.68975 0.277357 1.53000 1.460050 2013 0.47088 0.21887 0.68975 0.282867 1.53000 1.480050 2014 0.47480 0.21495 0.68975 0.284914 1.53000 1.475000 2015 0.48119 0.20856 0.68975 0.272200 1.54000 1.570050 2016 0.47456 0.21519 0.68975 0.262000 1.54000 1.570050 2017 0.46674 0.21660 0.68334 0.248409 1.54000 1.570050 2018 0.43031 0.20755 0.63786 0.237812 1.54000 1.585050 2019 0.40543 0.21505 0.62048 0.225574 1.54000 1.585050 (continued on the following page) Source: Denton County Tax Office Denton County Central Appraisal District 1Overlapping rates are those of the school district and county government that apply to property owners within the City of Denton. School Districts Overlapping Rates 128 CITY OF DENTON, TEXAS Table 6 PROPERTY TAX RATES (PER $100 OF ASSESSED VALUE) (concluded) DIRECT AND OVERLAPPING1 GOVERNMENTS LAST TEN FISCAL YEARS Aubrey Krum Pilot Point Ponder Sanger Total Direct Independent Independent Independent Independent Independent & Overlapping Fiscal School School School School School Rates Year District District District District District (Range) 2010 1.54000$ 1.44000$ 1.37000$ 1.30903$ 1.36000$ 2.225348 - 2.456320 2011 1.540000 1.480000 1.370000 1.324890 1.360000 2.288540 - 2.503650 2012 1.540000 1.540000 1.370000 1.344610 1.372067 2.311717 - 2.507107 2013 1.540000 1.520000 1.370000 1.353292 1.372067 2.325909 - 2.512617 2014 1.510000 1.540000 1.370000 1.385000 1.372070 2.344664 - 2.514664 2015 1.510000 1.540000 1.370000 1.380800 1.372067 2.331950 - 2.532000 2016 1.510000 1.540000 1.370000 1.387500 1.372067 2.321750 - 2.521800 2017 1.510000 1.540000 1.370000 1.467840 1.372067 2.301749 - 2.501799 2018 1.510000 1.540000 1.370000 1.467790 1.372067 2.245668 - 2.460718 2019 1.590000 1.540000 1.370000 1.467790 1.372067 2.216051 - 2.436051 (continued on the following page)(concluded) Source: Denton County Tax Office Denton County Central Appraisal District 1Overlapping rates are those of the school district and county government that apply to property owners within the City of Denton. Overlapping Rates School Districts 129 CITY OF DENTON, TEXAS Table 7 PRINCIPAL PROPERTY TAXPAYERS CURRENT YEAR AND NINE YEARS AGO 2010 Percentage of Percentage of Taxable Total Taxable Taxable Total Taxable Assessed Assessed Assessed Assessed Name of Taxpayer Value Value1 Name of Taxpayer Value Value2 Target Corporation $101,464,041 0.90% Columbia Medical Center of Denton (Medical City Denton)$83,900,462 1.33% Columbia Medical Center of Denton (Medical City Denton)83,902,796 0.74% Inland Western Crossing (Denton Crossing Shopping Center)53,041,520 0.84% PACCAR Inc. (Peterbilt)73,811,959 0.65% PACCAR Inc. (Peterbilt)52,109,610 0.82% O'Reilly Hotel Partners (Embassy Suites Hotel and Convention Center)55,859,534 0.49% Verizon Southwest (Telephone Company)32,549,140 0.51% Winco Foods, LLC (Grocery Distributor)55,189,070 0.49% GEL Timberlinks (The Timbers at Denton)29,500,000 0.47% Inland Western Crossing (Denton Crossing Shopping Center)54,096,002 0.48% Aldi, LLC (Grocery Distributor)25,554,780 0.40% Southwire Company (Wire and Cable Manufacturer)48,257,240 0.43% Denton Education Housing Corp (University Courtyard Apartments)21,693,000 0.34% Rayzor Ranch Marketplace Associates 47,940,231 0.42% SCI Gateway at Denton Fund 25, LLC (Gateway at Denton Apartments)20,717,990 0.33% NREA Gardens, DST (Gardens at Denton Apartments)44,828,748 0.40% CNL Retirement CRSI (Mayhill Hospital)19,778,423 0.31% Wells Services Division of STC (Schlumberger)42,646,970 0.38% Value Family Properties (Pecan Creek Mobile Home Park)19,776,368 0.31% Total 607,996,591$ 5.37%Total 358,621,293$ 5.66% Source: Denton Central Appraisal District 1Total taxable assessed value for tax year 2018 (fiscal year 2019) is $11,314,594,406. 2Total taxable assessed value for tax year 2009 (fiscal year 2010) is $6,327,909,022. 2019 130 131 CITY OF DENTON, TEXAS Table 8 PROPERTY TAX LEVIES AND COLLECTIONS LAST TEN FISCAL YEARS Taxes Levied Adjustments Adjusted Collected Within the Within the to Levy in Taxes Levied Fiscal Year of the Levy Collections Total Collections to Date Fiscal Fiscal Year Subsequent for the Percentage in Subsequent Year of the Levy Years Fiscal Year Amount of Levy Years 2010 42,898,414$ 56,034$ 42,954,448$ 42,448,364$ 98.82%432,579$ 2011 43,890,121 (2,866) 43,887,255 43,447,508 99.00%384,097 2012 44,856,277 21,567 44,877,844 44,461,501 99.07%346,245 2013 46,965,495 37,212 47,002,707 46,638,975 99.23%289,169 2014 48,398,900 70,987 48,469,887 48,083,910 99.20%304,016 2015 53,829,793 (93,124) 53,736,669 53,503,029 99.57%127,026 2016 58,634,172 (15,770) 58,618,401 58,280,013 99.42%211,543 2017 64,030,255 (70,380) 63,959,875 63,702,954 99.60%128,328 2018 66,830,333 (57,089) 66,773,244 66,493,774 99.58%76,952 2019 70,914,567 - 70,914,567 70,345,941 99.20%- (continued on the following page) Source: Denton Central Appraisal District 132 CITY OF DENTON, TEXAS Table 8 PROPERTY TAX LEVIES AND COLLECTIONS (concluded) LAST TEN FISCAL YEARS Total Collections to Date Fiscal Percentage Year Amount of Levy 2010 42,880,943$ 99.83% 2011 43,831,605 99.87% 2012 44,807,746 99.84% 2013 46,928,144 99.84% 2014 48,387,926 99.83% 2015 53,630,055 99.80% 2016 58,491,556 99.78% 2017 63,831,282 99.80% 2018 66,570,726 99.70% 2019 70,345,941 99.20% (continued on the following page)(concluded) Source: Denton Central Appraisal District 133 CITY OF DENTON, TEXAS Table 9 RATIO OF OUTSTANDING DEBT BY TYPE LAST TEN FISCAL YEARS General Certificates General Certificates Fiscal Obligation of Premiums,Other Revenue Obligation of Year Bonds Obligation Discounts Obligations Bonds Bonds Obligation 2010 77,314,650$ 45,727,950$ 1,798,093$ 1,771,952$ 209,885,000$ 39,600,350$ 126,207,050$ 2011 73,395,650 43,036,419 1,475,673 1,879,906 187,525,000 47,209,350 150,553,581 2012 80,013,439 33,910,342 3,272,887 1,891,895 156,855,000 59,301,561 181,314,658 2013 80,719,761 37,514,485 3,737,386 983,249 144,225,000 55,970,239 222,955,515 2014 78,316,161 41,570,000 3,593,057 1,102,864 112,170,000 79,188,839 290,640,000 2015 95,019,058 41,590,000 6,039,823 2,079,227 63,340,000 108,585,942 359,375,000 2016 109,861,174 34,565,000 9,250,779 1,373,230 - 141,063,826 416,465,000 2017 118,267,663 49,285,000 10,994,176 498,062 214,890,000 127,677,337 467,620,000 2018 127,647,935 81,200,000 12,515,724 4,171 214,890,000 111,347,065 447,050,000 2019 135,507,957 83,560,000 12,749,386 - 214,890,000 118,682,043 414,890,000 (continued on the following page) Source: Comprehensive Annual Financial Reports Note: Details regarding the City's outstanding debt can be found in the notes to the financial statements. Governmental Activities Business-Type Activities 134 CITY OF DENTON, TEXAS Table 9 RATIO OF OUTSTANDING DEBT BY TYPE (concluded) LAST TEN FISCAL YEARS Total Percentage Fiscal Premiums,Other Primary of Personal Per Year Discounts Obligations Government Income1 Capita1 2010 14,799,674$ 1,824,177$ 518,928,896$ 0.02103%4,576.78 2011 13,078,316 1,279,130 519,433,025 0.01982%4,535.86 2012 17,869,148 713,408 535,142,338 0.02150%4,626.78 2013 18,645,703 363,487 565,114,825 0.02040%4,813.71 2014 23,263,019 - 629,843,940 0.02145%5,285.79 2015 27,564,104 - 703,593,154 0.02398%5,817.46 2016 38,514,641 - 751,093,650 0.02545%6,118.44 2017 69,029,540 - 1,058,261,778 0.03267%8,466.91 2018 61,504,481 - 1,056,157,358 0.03176%8,310.11 2019 56,877,139 - 1,037,156,525 0.02907%8,000.59 (continued on the following page)(concluded) Source: Comprehensive Annual Financial Reports Note: Details regarding the City's outstanding debt can be found in the notes to the financial statements. 1See Table 13 for personal income and population data. Business-Type Activities 135 CITY OF DENTON, TEXAS Table 10 RATIO OF GENERAL BONDED DEBT OUTSTANDING LAST TEN FISCAL YEARS Less: Amounts Percentage of General Certificates Available Taxable Fiscal Obligation of Premiums,in Debt Value of Per Year Bonds Obligation Discounts Service Fund Total Property1 Capita2 2010 116,915,000$ 171,935,000$ 11,933,474$ 2,894,676$ 297,888,798$ 4.71%2,627.28$ 2011 120,605,000 193,590,000 10,580,069 2,839,556 321,935,513 5.17%2,811.25 2012 139,315,000 215,225,000 18,283,190 3,460,027 369,363,163 5.76%3,193.47 2013 136,690,000 260,470,000 20,029,829 4,116,256 413,073,573 6.15%3,518.60 2014 157,505,000 332,210,000 25,434,647 4,261,848 510,887,799 7.32%4,287.48 2015 203,605,000 400,965,000 33,414,816 4,260,793 633,724,023 8.13%5,239.77 2016 250,925,000 451,030,000 47,765,420 4,314,370 745,406,050 8.81%6,072.11 2017 245,945,000 516,905,000 49,644,634 4,666,797 807,827,837 8.81%6,463.24 2018 238,995,000 528,250,000 46,011,204 4,773,267 808,482,937 7.76%6,361.35 2019 254,190,000 498,450,000 43,987,604 4,627,301 792,000,303 7.00%6,109.46 Source: Comprehensive Annual Financial Reports (continued on the following page) Note: Details regarding the City's outstanding debt can be found in the notes to the financial statements. 1See Table 5 for property value data. 2See Table 13 for population data. 3In 2010, the City began issuing Certificates of Obligation not only for general government purposes which are repaid by property taxes, but also for utility related projects of the City. The Certificates of Obligation issued for utility purposes are repaid from the specific utility fund as revenue supported for which the debt was issued. General Bonded Debt Outstanding 136 CITY OF DENTON, TEXAS Table 10 RATIO OF GENERAL BONDED DEBT OUTSTANDING (concluded) LAST TEN FISCAL YEARS Percentage of Actual Taxable Fiscal Less: Revenue Net Tax Value of Per Year Supported Debt3 Supported Debt Property Capita2 2010 175,942,781$ 121,946,017$ 1.93%1,075.52$ 2011 206,867,327 115,068,186 1.85%1,004.81 2012 255,626,522 113,736,641 1.77%983.35 2013 295,218,197 117,855,376 1.75%1,003.90 2014 391,670,429 119,217,370 1.71%1,000.50 2015 495,335,935 138,388,088 1.77%1,144.22 2016 596,043,467 149,362,583 1.76%1,216.71 2017 633,947,795 173,880,042 1.90%1,391.17 2018 619,901,546 188,581,391 1.81%1,483.81 2019 590,449,182 201,551,121 1.78%1,554.76 (continued on the following page)(concluded) Note: Details regarding the City's outstanding debt can be found in the notes to the financial statements. 1See Table 5 for property value data. 2See Table 13 for population data. 3In 2010, the City began issuing Certificates of Obligation not only for general government purposes which are repaid by property taxes, but also for utility related projects of the City. The Certificates of Obligation issued for utility purposes are repaid from the specific utility fund as revenue supported for which the debt was issued. Tax Supported General Bonded Debt Outstanding 137 CITY OF DENTON, TEXAS Table 11 DIRECT AND OVERLAPPING GOVERNMENTAL ACTIVITIES DEBT AS OF SEPTEMBER 30, 2019 Estimated Estimated Share of Debt Percentage Overlapping Governmental Unit Outstanding Applicable1 Debt Debt repaid with property taxes: Denton Independent School District 1,129,693,172$ 62.06%701,087,582$ Denton County 590,380,000 12.50%73,797,500 Argyle Independent School District 192,862,890 8.63%16,644,067 Aubrey Independent School District 83,637,910 0.11%92,002 Krum Independent School District 37,500,866 8.38%3,142,573 Lake Dallas Independent School District 151,925,180 1.54%2,339,648 Pilot Point Independent School District 14,990,000 1.92%287,808 Ponder Independent School District 14,774,862 1.25%184,686 Sanger Independent School District 19,490,524 0.35%68,217 Subtotal, overlapping debt 797,644,083 City of Denton, direct debt 100.00%231,817,343 Total direct and overlappping debt 1,029,461,426$ Ratio of direct and overlapping funded debt to the City's taxable assessed valuation 9.10% Per capita overlapping funded debt 7,941$ Source: Municipal Advisory Council of Texas website Note: Overlapping governments are those that coincide, at least in part, with the geographic boundaries of the city. This schedule estimates the portion of the outstanding debt of those overlapping governments that is borne by the residents and businesses of the City of Denton. This process recognizes that, when considering the City of Denton's ability to issue and repay long-term debt, the entire debt burden borne by the residents and businesses should be taken into account. However, this does not imply that every taxpayer is a resident, and therefore responsible for repaying the debt, of each overlapping government. 1The percentage of overlapping debt applicable is estimated using taxable assessed property values. Applicable percentages were estimated by determining the portion of the overlapping government's taxable assessed value that is within the City of Denton's boundaries and dividing it by the overlapping government's total taxable assessed value. 138 139 CITY OF DENTON, TEXAS Table 12 PLEDGED REVENUE COVERAGE LAST TEN FISCAL YEARS Less:Add: Fair Market Less:Franchise Fees Value Operating and Return Adjustment Expenses on Investment Fiscal Operating Investment to Investment Impact Fee Before Paid to Year Revenue Revenue Revenue2 Revenue Depreciation General Fund3 2010 166,295,694$ 1,593,161$ (550,830)$ 3,186,225$ 137,201,402$ 12,828,293$ 2011 186,359,226 1,340,539 (66,712) 5,205,889 136,774,866 14,304,393 2012 189,645,277 1,477,452 110,626 3,542,829 139,801,421 14,414,769 2013 197,126,041 983,424 (227,534) 3,704,336 164,688,198 14,582,800 2014 208,666,178 1,225,879 46,226 5,191,886 175,620,125 15,278,150 2015 229,583,483 1,512,820 156,230 6,476,021 175,131,645 16,356,904 2016 229,086,008 1,772,813 (132,432) 7,286,409 163,392,323 17,027,566 2017 239,310,663 3,150,469 (737,238) 7,409,026 182,455,762 18,215,432 2018 271,387,844 3,599,667 (707,351) 11,867,205 177,438,191 20,089,862 2019 311,420,814 7,852,695 2,174,835 11,945,407 236,743,123 20,527,742 (continued on the following page) Source: Comprehensive Annual Financial Reports 1The Utility System includes the Electric, Water, and Wastewater funds. 2For the coverage calculation, the fair market adjustment to the value of investments is excluded. 3For the coverage calculation, franchise fees and return on investment payments to the General Fund are excluded from operating expenses. 4Revenue bond covenants required a times coverage of 1.25 or greater through fiscal year 2016. Starting in fiscal year 2017, revenue bond convenants require a times coverage of 1.00 or greater. 5Total times coverage provided to assess total bond debt related to the Utility System. Utility System1 Revenue Bonds 140 CITY OF DENTON, TEXAS Table 12 PLEDGED REVENUE COVERAGE (concluded) LAST TEN FISCAL YEARS Net Total Fiscal Available Times Times Times Year Revenue Principal Interest Coverage4 Principal Interest Coverage Coverage5 2010 47,252,801$ 13,180,000$ 9,208,682$ 2.11 - - N/A 2.11 2011 70,501,893 8,460,000 7,982,284 4.29 4,610,000 7,315,189 5.91 2.49 2012 69,168,280 12,630,000 7,028,800 3.52 11,880,000 7,477,233 3.57 1.77 2013 51,935,937 13,260,000 6,437,088 2.64 9,940,000 9,115,348 2.73 1.34 2014 54,695,742 11,570,000 4,902,319 3.32 11,860,000 10,306,245 2.47 1.42 2015 78,641,353 10,210,000 2,551,456 6.16 15,535,000 14,115,713 2.65 1.85 2016 91,912,905 10,210,000 2,551,456 7.20 18,800,000 18,258,583 2.48 1.84 2017 86,367,066 - 3,680,389 23.47 25,495,000 21,419,293 1.84 1.71 2018 130,213,738 - 10,685,000 12.19 31,035,000 22,962,237 2.41 2.01 2019 112,828,700 - 10,685,000 10.56 34,805,000 21,067,832 2.02 1.70 (continued on the following page)(concluded) Source: Comprehensive Annual Financial Reports 1The Utility System includes the Electric, Water, and Wastewater funds. 2For the coverage calculation, the fair market adjustment to the value of investments is excluded. 3For the coverage calculation, franchise fees and return on investment payments to the General Fund are excluded from operating expenses. 4Revenue bond covenants required a times coverage of 1.25 or greater through fiscal year 2016. Starting in fiscal year 2017, revenue bond convenants require a times coverage of 1.00 or greater. 5Total times coverage provided to assess total bond debt related to the Utility System. Revenue Bond Debt Certificate of Obligation & General Obligation Bond Debt Utility System1 Revenue Bonds 141 CITY OF DENTON, TEXAS Table 13 DEMOGRAPHIC AND ECONOMIC STATISTICS LAST TEN FISCAL YEARS Fiscal Estimated Personal Per Capita Median Grade School University Unemployment Year Population1 Income Income2 Age2 Enrollment3 Enrollment4 Rate5 2010 113,383 2,467,894,378 21,766 28.9 24,047 47,236 6.6% 2011 114,517 2,621,408,647 22,891 28.9 24,901 47,720 6.3% 2012 115,662 2,489,161,902 21,521 27.0 25,791 48,227 5.5% 2013 117,397 2,769,630,024 23,592 26.9 26,339 48,584 5.2% 2014 119,158 2,936,410,594 24,643 27.5 27,105 48,497 4.2% 2015 120,945 2,934,125,700 24,260 27.9 27,473 49,665 3.4% 2016 122,759 2,950,758,083 24,037 28.4 28,658 50,809 3.5% 2017 124,988 3,239,064,020 25,915 28.5 29,433 50,911 3.1% 2018 127,093 3,325,388,345 26,165 29.1 30,219 51,100 3.1% 2019 129,635 3,567,425,565 27,519 29.9 30,973 52,368 2.8% Sources: 2United States Census and Denton Chamber of Commerce 3Denton Independent School District 4University of North Texas' and Texas Woman's University's Denton campus enrollment 5Texas Workforce Commission estimate 1City of Denton Planning and Development Department estimate. Prior population figures have been adjusted to reflect the 2010 census data. 142 CITY OF DENTON, TEXAS Table 14 PRINCIPAL EMPLOYERS CURRENT YEAR AND NINE YEARS AGO 2019 2010 Percentage Percentage of Total City of Total City Name of Employer Employees Employment Name of Employer Employees Employment University of North Texas 4,626 6.13%University of North Texas 7,949 13.16% Denton Independent School District 4,417 5.85%Denton Independent School District 2,600 4.30% Peterbilt Motors- Headquarters & Plant 3,075 4.08%Texas Woman's University 1,620 2.68% Texas Woman's University 1,875 2.48%Denton State School 1,533 2.54% Denton State Supported Living Center 1,700 2.25%Peterbilt Motors- Headquarters & Plant 1,450 2.40% Denton County (in Denton)1,681 2.23%Denton County (in Denton)1,441 2.39% City of Denton 1,623 2.15%City of Denton 1,319 2.18% Texas Presbyterian Hospital 1,076 1.43%Denton Regional Medical Center 850 1.41% Medical City Denton 950 1.26%Presbyterian Hospital of Denton 800 1.32% Sally Beauty Holdings, Inc 950 1.26% Sally Beauty Company Headquarters 750 1.24% Total 21,973 29.12%Total 20,312 33.62% Source: Office of Economic Development & Denton Chamber of Commerce 143 CITY OF DENTON, TEXAS Table 15 FULL-TIME EQUIVALENT CITY GOVERNMENT EMPLOYEES BY FUNCTION/PROGRAM LAST TEN FISCAL YEARS Function / Program 2010 2011 2012 2013 2014 General government 194.63 195.00 204.25 210.25 210.25 Public safety Police 217.23 222.23 217.23 219.23 225.23 Fire 163.25 163.25 163.25 167.75 167.75 Animal services 8.00 8.00 9.00 11.00 11.00 Municipal Court/Judge 17.50 18.50 19.50 19.50 19.50 Public Safety Communication1 - - - - - Public works 39.00 39.00 41.00 44.00 46.00 Parks and recreation 143.08 142.58 141.08 143.35 145.81 Electric system 129.50 129.50 131.50 143.00 164.00 Water system 158.00 158.50 158.00 154.00 133.50 Wastewater system 86.37 88.37 92.37 97.25 100.75 Solid waste 93.50 98.50 105.50 115.00 117.00 Airport - 5.00 5.50 6.50 6.50 Materials management 13.50 13.50 12.00 13.00 15.00 Fleet services 21.00 21.00 22.00 22.00 22.00 Technology services 25.00 26.00 27.00 29.00 31.00 Engineering - - - - 31.00 Risk Retention 5.00 5.00 6.00 6.00 6.00 Customer Service - - - - - Total 1,314.56 1,333.93 1,355.18 1,400.83 1,452.29 (continued on the following page) Source: City of Denton Budget Office Full-time Equivalent Employees for Fiscal Year 1Public Safety Communication moved out of Police in fiscal year 2019 into its own department. 144 CITY OF DENTON, TEXAS Table 15 FULL-TIME EQUIVALENT CITY GOVERNMENT EMPLOYEES BY FUNCTION/PROGRAM (concluded) LAST TEN FISCAL YEARS Function / Program 2015 2016 2017 2018 2019 General government 218.75 229.75 224.75 224.25 226.50 Public safety Police 228.23 230.23 249.73 253.73 239.73 Fire 168.25 177.25 184.25 191.25 194.25 Animal services 13.00 13.00 14.00 14.00 16.50 Municipal Court/Judge 19.00 19.00 18.00 17.00 15.50 Public Safety Communication1 - - - - 30.00 Public works 49.50 54.50 61.00 60.00 55.00 Parks and recreation 145.81 148.48 157.73 157.73 163.93 Electric system 174.00 188.00 191.00 199.00 187.00 Water system 140.50 144.50 151.50 149.00 105.50 Wastewater system 108.75 111.25 111.25 110.00 113.50 Solid waste 120.00 124.50 132.50 132.50 122.50 Airport 7.50 7.50 6.50 6.00 6.00 Materials management 15.00 16.00 17.00 18.00 23.00 Fleet services 22.00 24.00 24.00 23.00 26.00 Technology services 36.00 36.00 43.00 44.00 56.75 Engineering 34.00 34.00 35.00 36.00 52.00 Risk Retention 8.00 8.00 9.00 9.00 10.00 Customer Service - - - - 42.50 Total 1,508.29 1,565.96 1,630.21 1,644.46 1,686.16 (continued on the following page)(concluded) Source: City of Denton Budget Office Full-time Equivalent Employees for Fiscal Year 1Public Safety Communication moved out of Police in fiscal year 2019 into its own department. 145 CITY OF DENTON, TEXAS Table 16 OPERATING INDICATORS BY FUNCTION/PROGRAM LAST TEN FISCAL YEARS Function / Program 2010 2011 2012 2013 2014 Public Safety Police Calls for service 83,746 84,899 81,104 81,084 83,704 Traffic citations issued 33,990 29,162 28,327 30,166 27,160 Fire Fire calls for service 3,199 3,423 3,316 3,845 4,183 EMS calls for service 7,255 7,458 7,657 7,717 7,977 Inspections (Businesses)4,739 4,370 4,310 4,366 4,830 Animal Services Animals sheltered 5,042 4,936 5,467 5,420 5,072 Animals adopted, transferred, or returned 3,264 3,730 4,332 4,209 3,895 Public Works Street repaving (lane miles)10.27 8.33 15.43 10.26 25.59 Pot holes repaired 20,988 10,535 10,807 7,227 8,996 Cutouts base failures (square feet)169,396 146,925 102,879 114,448 72,098 Crack seal maintenance (linear feet)53,712 116,556 117,780 155,838 77,451 Parks and Recreation Attendance Leisure Services 1,153,632 1,093,705 969,858 909,395 1,060,988 Water Park 193,361 200,553 212,123 215,605 209,406 Total Acres Maintained 2,633 2,570 2,405 2,272 2,425 Water Number of customers 30,889 31,222 31,372 31,837 32,405 Annual finished water production (in thousand gallons)6,209,966 7,331,902 6,750,840 6,827,186 6,155,724 Wastewater Number of customers 29,105 29,519 29,772 30,103 30,562 Annual wastewater discharge (in thousand gallons)5,617,490 4,852,097 4,966,250 4,943,270 4,926,080 Solid Waste Number of customers (residential and commercial)32,044 32,621 33,049 34,003 36,593 MSW Landfilled (tons)140,284 149,930 164,436 176,076 203,928 Recycling collections (tons)50,246 73,912 86,887 96,055 87,655 (continued on the following page) Source: Various city departments Fiscal Year 146 CITY OF DENTON, TEXAS Table 16 OPERATING INDICATORS BY FUNCTION/PROGRAM (concluded) LAST TEN FISCAL YEARS Function / Program 2015 2016 2017 2018 2019 Public Safety Police Calls for service 84,434 86,399 87,122 81,672 87,847 Traffic citations issued 22,022 20,207 22,323 20,251 22,747 Fire Fire calls for service 3,933 4,511 4,651 4,978 3,502 EMS calls for service 8,079 8,943 9,687 9,876 9,130 Inspections (Businesses)4,066 4,361 3,988 4,142 3,537 Animal Services Animals sheltered 4,876 5,032 4,944 4,924 5,027 Animals adopted, transferred, or returned 3,870 4,468 4,203 4,236 4,065 Public Works Street repaving (lane miles)18.21 25.69 28.36 32.01 16.89 Pot holes repaired 11,872 15,254 16,972 6,228 6,658 Cutouts base failures (square feet)99,085 152,002 95,601 328,022 72,819 1 Crack seal maintenance (linear feet)59,115 37,828 119,611 438,240 47,908 1 Parks and Recreation Attendance Leisure Services 967,132 1,007,102 1,082,246 1,166,987 1,000,918 Water Park 218,232 224,893 232,527 210,171 218,326 Total Acres Maintained 2,469 2,511 2,206 2,245 1,990 Water Number of customers 33,465 34,198 34,714 35,945 36,876 Annual finished water production (in thousand gallons)6,355,608 6,301,333 6,368,582 7,141,131 6,706,951 Wastewater Number of customers 31,243 32,077 32,618 33,987 34,873 Annual wastewater discharge (in thousand gallons)5,834,100 6,111,680 5,175,571 4,548,900 5,335,150 Solid Waste Number of customers (residential and commercial)37,540 39,806 41,219 42,499 43,256 MSW Landfilled (tons)227,859 251,305 268,000 276,537 310,487 Recycling collections (tons)81,558 113,743 117,155 105,493 48,025 (continued on the following page)(concluded) Source: Various city departments 1The City did less route and seal of the concrete pavement and more clean and seal of asphalt pavement during the year. The drop in # of cutouts and crack seal maintenance was due to resources beign allocated to other projects and programs. Fiscal Year 147 CITY OF DENTON, TEXAS Table 17 CAPITAL ASSET STATISTICS BY FUNCTION/PROGRAM LAST TEN FISCAL YEARS Function / Program 2010 2011 2012 2013 2014 Public safety Police Police stations 1 1 1 1 1 Police patrol units 149 143 139 137 138 Fire Fire stations 7 7 7 7 7 Emergency vehicles 30 30 30 31 31 Animal services Animals shelters 1 1 1 1 1 Public works Lane miles added per year 41.77 1.56 2.45 12.00 12.20 Streetlights 7,016 6,996 6,987 7,020 7,067 Parks and recreation Parks 34 34 34 34 34 Parks and open spaces acreage 1,341 1,332 1,431 1,461 1,783 Recreation centers 12 12 12 12 12 Water Water mains (miles)558 560 565 572 592 Raw water (in thousand gallons)6,416,086 7,572,149 7,013,351 6,776,717 6,195,624 Wastewater Wastewater mains (miles)495 496 501 509 513 Maximum daily capacity (in million gallons)25 25 25 25 25 Solid waste Landfills 1 1 1 1 1 (continued on the following page) Source: Various city departments Fiscal Year 148 CITY OF DENTON, TEXAS Table 17 CAPITAL ASSET STATISTICS BY FUNCTION/PROGRAM (concluded) LAST TEN FISCAL YEARS Function / Program 2015 2016 2017 2018 2019 Public safety Police Police stations 1 1 1 1 1 Police patrol units 137 141 147 155 168 Fire Fire stations 7 7 7 7 7 Emergency vehicles 32 36 36 37 37 Animal services Animals shelters 1 1 1 1 1 Public works Lane miles added per year 5.83 8.11 22.45 22.64 85.60 Streetlights 7,164 7,233 7,414 7,771 7,889 Parks and recreation Parks 34 34 34 34 34 Parks and open spaces acreage 1,783 2,284 2,284 2,245 4,033 Recreation centers 12 12 12 12 12 Water Water mains (miles)604 618 626 631 631 Raw water (in thousand gallons)6,493,457 6,182,450 6,232,032 6,946,073 6,473,664 Wastewater Wastewater mains (miles)516 521 526 533 533 Maximum daily capacity (in million gallons)25 25 25 25 25 Solid waste Landfills 1 1 1 1 1 (continued on the following page)(concluded) Source: Various city departments Fiscal Year 149 150 CITY OF DENTON, TEXAS Exhibit XXXI SCHEDULE OF EXPENDITURES - BUDGET AND ACTUAL GENERAL FUND FOR THE YEAR ENDED SEPTEMBER 30, 2019 Variance with Actual on a Final Budget - Budgetary Positive Original Final Basis (Negative) EXPENDITURES: Personal Service 1,654,392$ 1,654,392$ 1,748,551$ (94,159)$ Materials and Supplies 37,945 45,116 40,499 4,617 Maintenance and Repairs 1,800 1,800 1,095 705 Insurance 21,067 21,067 21,067 - Miscellaneous 58,275 106,421 113,695 (7,274) Operations, Services 153,625 208,049 210,864 (2,815) Transfers - Interfund 199,101 199,848 209,159 (9,311) Capital Outlay - - 6,688 (6,688) City Manager's Office 2,126,205 2,236,693 2,351,618 (114,925) Personal Service 303,442 303,442 302,689 753 Materials and Supplies 700 700 1,136 (436) Insurance 4,609 4,609 4,609 - Miscellaneous 1,000 1,000 1,050 (50) Operations, Services 13,866 13,866 6,835 7,031 Transfers - Interfund 14,980 14,980 15,637 (657) Cable Television 338,597 338,597 331,956 6,641 Personal Service 479,586 479,586 383,415 96,171 Materials and Supplies 10,800 10,800 8,873 1,927 Insurance 2,269 2,269 2,269 - Miscellaneous - - 193 (193) Operations, Services 56,250 56,001 49,881 6,120 Transfers - Interfund - 249 249 - Internal Audit 548,905 548,905 444,880 104,025 Personal Service 800,346 800,346 803,267 (2,921) Materials and Supplies 173,475 173,475 162,890 10,585 Insurance 4,102 4,102 4,102 - Miscellaneous - 356,486 - 356,486 Operations, Services 356,486 21,800 289,732 (267,932) Transfers - Interfund 21,800 - 22,676 (22,676) Public Communications 1,356,209 1,356,209 1,282,667 73,542 Personal Service 1,238,813 1,225,101 1,153,309 71,792 Materials and Supplies 29,900 29,900 16,042 13,858 Maintenance and Repairs 500 500 - 500 Insurance 20,333 20,333 20,333 - Miscellaneous 45,000 45,000 47,997 (2,997) Operations, Services 381,971 395,683 409,009 (13,326) Transfers - Interfund 110,952 110,952 115,321 (4,369) Human Resources 1,827,469 1,827,469 1,762,011 65,458 Personal Service 2,329,996 2,228,740 2,071,664 157,076 Materials and Supplies 58,763 81,629 72,080 9,549 Insurance 17,466 17,466 17,466 - Operations, Services 210,755 250,755 227,002 23,753 Transfers - Interfund 86,549 124,939 159,318 (34,379) Legal Administration 2,703,529$ 2,703,529$ 2,547,530$ 155,999$ (continued on the following page) Budgeted Amounts 151 CITY OF DENTON, TEXAS Exhibit XXXI SCHEDULE OF EXPENDITURES - BUDGET AND ACTUAL GENERAL FUND FOR THE YEAR ENDED SEPTEMBER 30, 2019 Variance with Actual on a Final Budget - Budgetary Positive Original Final Basis (Negative) EXPENDITURES: Personal Service 395,919$ 395,919$ 372,655$ 23,264$ Materials and Supplies 4,576 4,576 1,746 2,830 Insurance 5,145 5,145 5,145 - Miscellaneous - - 28 (28) Operations, Services 7,285 7,285 6,711 574 Transfers - Interfund 35,236 35,236 36,550 (1,314) Municipal Judge 448,161 448,161 422,835 25,326 Personal Service 2,039,891 2,039,891 1,874,016 165,875 Materials and Supplies 46,551 46,551 66,968 (20,417) Maintenance and Repairs - - 722 (722) Insurance 28,943 28,943 28,943 - Miscellaneous 43,181 43,181 11,377 31,804 Operations, Services 1,179,787 697,367 667,168 30,199 Transfers - Interfund 225,208 707,628 715,730 (8,102) Planning 3,563,561 3,563,561 3,364,924 198,637 Personal Service 2,595,295 2,595,295 2,638,674 (43,379) Materials and Supplies 62,242 61,879 43,668 18,211 Maintenance and Repairs - - 1,817 (1,817) Insurance 41,679 41,679 41,679 - Miscellaneous - - 90 (90) Operations, Services 113,772 113,772 81,366 32,406 Transfers - Interfund 239,898 240,261 247,925 (7,664) Building Inspections 3,052,886 3,052,886 3,055,219 (2,333) Personal Service 138,907 138,907 130,687 8,220 Materials and Supplies 202,800 202,800 179,377 23,423 Maintenance and Repairs 3,000 3,000 1,759 1,241 Insurance 2,454 2,454 2,454 - Operations, Services 3,635 3,635 6,771 (3,136) Transfers - Interfund 14,662 14,662 15,319 (657) Reprographics 365,458 365,458 336,367 29,091 Personal Service 364,544 364,544 123,244 241,300 Materials and Supplies 7,100 6,600 470 6,130 Maintenance and Repairs 200 200 77 123 Insurance 4,894 4,894 4,894 - Miscellaneous 250 250 58 192 Operations, Services 10,308 10,808 175,404 (164,596) Transfers - Interfund 28,310 28,310 28,528 (218) Gas Well Review 415,606 415,606 332,675 82,931 Personal Service 900,649 900,649 920,497 (19,848) Materials and Supplies 45,100 45,100 36,218 8,882 Insurance 41,660 41,660 41,660 - Miscellaneous 50 166 165 1 Operations, Services 503,547 503,431 371,587 131,844 Transfers - Interfund 70,722 70,722 73,130 (2,408) Community Improvement 1,561,728$ 1,561,728$ 1,443,257$ 118,471$ (continued on the following page) Budgeted Amounts 152 CITY OF DENTON, TEXAS Exhibit XXXI SCHEDULE OF EXPENDITURES - BUDGET AND ACTUAL GENERAL FUND FOR THE YEAR ENDED SEPTEMBER 30, 2019 Variance with Actual on a Final Budget - Budgetary Positive Original Final Basis (Negative) EXPENDITURES: Personal Service 1,080,339$ 1,080,339$ 903,423$ 176,916$ Materials and Supplies 39,900 39,900 40,191 (291) Insurance 20,077 20,077 20,077 - Miscellaneous 1,200 1,200 45 1,155 Operations, Services 35,111 34,187 29,502 4,685 Transfers - Interfund 96,920 97,844 101,737 (3,893) Municipal Court 1,273,547 1,273,547 1,094,975 178,572 Personal Service 2,996,360 2,883,541 2,756,258 127,283 Materials and Supplies 80,378 80,378 42,329 38,049 Maintenance and Repairs 1,800 1,800 899 901 Insurance 29,809 29,809 29,809 - Miscellaneous 1,415 1,415 2,497 (1,082) Operations, Services 132,245 141,498 111,095 30,403 Transfers - Interfund 378,487 379,234 385,079 (5,845) Finance 3,620,494 3,517,675 3,327,966 189,709 Personal Service 670,254 670,254 664,886 5,368 Materials and Supplies 39,650 39,650 28,573 11,077 Maintenance and Repairs 5,600 4,600 4,412 188 Insurance 8,437 8,437 8,437 - Miscellaneous 85,397 85,397 77,894 7,503 Operations, Services 5,099,055 5,000,055 3,830,854 1,169,201 Transfers - Interfund 42,801 142,801 144,553 (1,752) Economic Development 5,951,194 5,951,194 4,759,609 1,191,585 Personal Service 6,383,619 6,322,886 6,129,574 193,312 Materials and Supplies 651,939 671,939 572,861 99,078 Maintenance and Repairs 604,076 595,546 374,135 221,411 Insurance 139,144 139,144 139,144 - Miscellaneous 1,940 1,940 2,627 (687) Operations, Services 2,320,301 2,301,154 2,273,913 27,241 Transfers - Interfund 601,234 669,644 678,619 (8,975) Capital Outlay - - 120,380 (120,380) Parks & Recreation 10,702,253 10,702,253 10,291,253 411,000 Personal Service 1,876,724 1,876,724 1,777,904 98,820 Materials and Supplies 47,624 47,624 57,713 (10,089) Maintenance and Repairs 1,346,371 1,221,016 1,106,413 114,603 Insurance 30,204 30,204 30,204 - Miscellaneous 1,544 1,544 28 1,516 Operations, Services 1,212,736 1,212,736 1,251,195 (38,459) Transfers - Interfund 871,777 997,132 396,265 600,867 Capital Outlay - - 77,098 (77,098) Facilities Management 5,386,980 5,386,980 4,696,820 690,160 Personal Service 3,806,947 3,784,274 3,689,098 95,176 Materials and Supplies 152,671 161,222 144,505 16,717 Maintenance and Repairs 69,813 67,492 64,536 2,956 Insurance 89,534 89,534 89,534 - Operations, Services 493,370 494,184 446,554 47,630 Transfers - Interfund 850,943 880,248 926,446 (46,198) Capital Outlay 500,400 486,724 486,708 16 Library 5,963,678$ 5,963,678$ 5,847,381$ 116,297$ (continued on the following page) Budgeted Amounts 153 CITY OF DENTON, TEXAS Exhibit XXXI SCHEDULE OF EXPENDITURES - BUDGET AND ACTUAL GENERAL FUND FOR THE YEAR ENDED SEPTEMBER 30, 2019 Variance with Actual on a Final Budget - Budgetary Positive Original Final Basis (Negative) EXPENDITURES: Personal Service 213,488$ 213,488$ 38,882$ 174,606$ Materials and Supplies 5,950 5,950 2,222 3,728 Maintenance and Repairs 300 300 - 300 Insurance 3,740 3,740 3,740 - Miscellaneous 1,400 1,400 21 1,379 Operations, Services 163,233 163,233 136,597 26,636 Transfers - Interfund 10,180 10,180 10,618 (438) Transportation Operations 398,291 398,291 192,080 206,211 Personal Service 945,373 945,373 948,907 (3,534) Materials and Supplies 15,308 15,308 14,032 1,276 Maintenance and Repairs 841,100 841,100 791,147 49,953 Insurance 21,699 21,699 21,699 - Miscellaneous 2,200 2,200 1,375 825 Operations, Services 152,888 152,888 126,141 26,747 Transfers - Interfund 113,958 113,958 117,630 (3,672) Capital Outlay - - 41,094 (41,094) Traffic Operations 2,092,526 2,092,526 2,062,025 30,501 Operations, Services 777,000 777,000 825,907 (48,907) Street Lighting 777,000 777,000 825,907 (48,907) Personal Service 30,691,696 30,691,696 29,702,779 988,917 Materials and Supplies 492,714 497,006 565,698 (68,692) Maintenance and Repairs 228,333 3,945 5,438 (1,493) Insurance 569,628 569,628 569,628 - Miscellaneous 200,664 200,664 196,588 4,076 Operations, Services 1,087,502 1,310,107 1,435,642 (125,535) Transfers - Interfund 2,417,854 2,424,498 2,453,452 (28,954) Police 35,697,544 35,697,544 34,929,225 768,319 Personal Service 980,804 980,804 1,219,281 (238,477) Materials and Supplies 56,134 56,134 104,048 (47,914) Maintenance and Repairs 20,900 20,900 12,494 8,406 Insurance 27,150 27,150 27,150 - Operations, Services 441,948 441,948 533,322 (91,374) Transfers - Interfund 102,142 102,142 113,351 (11,209) Capital Outlay - 4,187 5,303 (1,116) Animal Services 1,629,078 1,633,265 2,014,949 (381,684) Personal Service 25,986,804 25,986,804 25,830,142 156,662 Materials and Supplies 619,458 602,874 581,098 21,776 Maintenance and Repairs 258,163 277,228 254,007 23,221 Insurance 297,209 297,209 297,209 - Miscellaneous 94,200 86,300 80,552 5,748 Operations, Services 1,762,313 1,753,732 2,003,703 (249,971) Transfers - Interfund 1,232,427 1,268,427 1,430,929 (162,502) Capital Outlay 80,000 58,000 - 58,000 Fire 30,330,574$ 30,330,574$ 30,477,640$ (147,066)$ (continued on the following page) Budgeted Amounts 154 CITY OF DENTON, TEXAS Exhibit XXXI SCHEDULE OF EXPENDITURES - BUDGET AND ACTUAL (concluded) GENERAL FUND FOR THE YEAR ENDED SEPTEMBER 30, 2019 Variance with Actual on a Final Budget - Budgetary Positive Original Final Basis (Negative) EXPENDITURES: Personal Service 303,674$ 303,674$ 245,217$ 58,457$ Materials and Supplies 5,465 5,465 2,228 3,237 Maintenance and Repairs - - 688 (688) Insurance 4,330 4,330 4,330 - Miscellaneous 322,500 322,500 327,090 (4,590) Operations, Services 8,925 8,925 28,145 (19,220) Transfers - Interfund 28,034 28,034 29,348 (1,314) Agency Contributions 672,928 672,928 637,046 35,882 Personal Service (1,950,000) (1,950,000) 57,169 (2,007,169) Materials and Supplies 40,000 40,000 1,583 38,417 Maintenance and Repairs - - 10,887 (10,887) Miscellaneous 299,850 299,850 301,021 (1,171) Operations, Services 1,620,304 1,608,448 1,721,324 (112,876) Transfers - Interfund 6,369,881 6,369,881 5,545,640 824,241 Miscellaneous/Finance 6,380,035 6,368,179 7,637,624 (1,269,445) Personal Service 87,227,862 86,916,669 86,486,188 430,481 Materials and Supplies 2,927,143 2,972,576 2,787,048 185,528 Maintenance and Repairs 3,381,956 3,039,427 2,630,526 408,901 Insurance 1,435,582 1,435,582 1,435,582 - Miscellaneous 1,160,066 1,556,914 1,164,391 392,523 Operations, Services 18,298,218 17,682,547 17,256,224 426,323 Transfers - Interfund 14,164,056 15,031,810 13,973,209 1,058,601 Capital Outlay 589,553 548,911 737,271 (188,360) TOTAL GENERAL FUND 129,184,436$ 129,184,436$ 126,470,439$ 2,713,997$ (concluded) Budgeted Amounts 155 156 Published 03/2020 ADA/EOE/ADEA TDD: (800) 735-2989 www.cityofdenton.com CITY OF DENTON, TEXAS SINGLE AUDIT REPORT FOR THE YEAR ENDED SEPTEMBER 30, 2019 CITY OF DENTON, TEXAS TABLE OF CONTENTS SEPTEMBER 30, 2019 Page Number 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 .................................................................. 1 - 2 Independent Auditor’s Report on Compliance for Each Major Federal and State Program, and Report on Internal Control Over Compliance in Accordance with the Uniform Guidance and The State of Texas Uniform Grant Management Standards .................................................... 3 - 5 Schedule of Expenditures of Federal and State Awards .............................................................. 6 - 8 Notes to Schedule of Expenditure of Federal and State Awards ................................................. 9 Schedule of Findings and Questioned Costs ............................................................................... 10 - 11 Schedule of Prior Year Findings and Questioned Costs .............................................................. 12 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 Honorable Mayor and Members of the City Council City of Denton, Texas 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, the business- type activities, each major fund, and the aggregate remaining fund information of the City of Denton, Texas as of and for the year ended September 30, 2019, and the related notes to the financial statements, which collectively comprise the City of Denton, Texas’ basic financial statements, and have issued our report thereon dated March 13, 2020. Internal Control over Financial Reporting In planning and performing our audit of the financial statements, we considered the City of Denton, Texas’ 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 the City of Denton, Texas’ internal control. Accordingly, we do not express an opinion on the effectiveness of the City of Denton, Texas’ internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. 1 2 Compliance and Other Matters As part of obtaining reasonable assurance about whether the City of Denton, Texas’ financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Waco, Texas March 13, 2020 INDEPENDENT AUDITORS’ REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL AND STATE PROGRAM AND REPORT ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH THE UNIFORM GUIDANCE AND THE STATE OF TEXAS UNIFORM GRANT MANAGEMENT STANDARDS Honorable Mayor and Members of the City Council City of Denton, Texas Report on Compliance for Each Major Federal and State Program We have audited the City of Denton, Texas’ compliance with the types of compliance requirements described in the OMB Compliance Supplement and the State of Texas Uniform Grants Management Standards that could have a direct and material effect on each of the City of Denton, Texas’ major federal and state programs for the year ended September 30, 2019. The City of Denton, Texas’ major federal and state programs are identified in the summary of auditor’s results section of the accompanying schedule of findings and questioned costs. Management’s Responsibility Management is responsible for compliance with federal and state statutes, regulations, and the terms and conditions of its federal and state awards applicable to its federal and state programs. Auditor’s Responsibility Our responsibility is to express an opinion on compliance for each of the City of Denton, Texas’ major federal and state programs based on our audit of the types of 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; the audit requirements of Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance); and the State of Texas Single Audit Circular. Those standards, the Uniform Guidance and the State of Texas Single Audit Circular require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on each major federal or state program occurred. An audit includes examining, on a test basis, evidence about City of Denton, Texas’ compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. 3 4 We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal and state program. However, our audit does not provide a legal determination of City of Denton, Texas’ compliance. Opinion on Each Major Federal and State Program In our opinion, the City of Denton, Texas complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal and state programs for the year ended September 30, 2019. Report on Internal Control over Compliance Management of the City of Denton, Texas is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered City of Denton, Texas’ internal control over compliance with the types of requirements that could have a direct and material effect on each major federal and state program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal and state program and to test and report on internal control over compliance in accordance with the Uniform Guidance and the State of Texas Uniform Grant Management Standards, 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 City of Denton, Texas’ internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct noncompliance with a type of compliance requirement of a federal or state program 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 type of compliance requirement of a federal or state program 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 type of compliance requirement of a federal or state program 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 over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that were not identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance and the State of Texas Uniform Grant Management Standards. Accordingly, this report is not suitable for any other purpose. 5 Report on Schedule of Expenditures of Federal and State Awards Required by the Uniform Guidance and the State of Texas Uniform Grant Management Standards We have audited the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Denton, Texas as of and for the year ended September 30, 2019, and the related notes to the financial statements, which collectively comprise the City of Denton, Texas’ basic financial statements. We issued our report thereon dated March 13, 2020, which contained unmodified opinions on those financial statements. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the basic financial statements. The accompanying schedule of expenditures of federal and state awards is presented for purposes of additional analysis as required by the Uniform Guidance and the State of Texas Uniform Grant Management Standards and is not a required part of the basic financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the schedule of expenditures of federal and state awards is fairly stated, in all material respects, in relation to the basic financial statements as a whole. Waco, Texas March 13, 2020 Federal Grantor/Grant Federal Passed Pass-Through Grantor/I.D.CFDA Through to Program Title Number Number Expenditures Subrecipients Federal Awards U.S. Department of Housing and Urban Development Direct Awards: Community Development Block Grant B-15-MC-48-0036 14.218 19,090$ -$ Community Development Block Grant B-16-MC-48-0036 14.218 64,654 - Community Development Block Grant B-17-MC-48-0036 14.218 285,721 84,204 Community Development Block Grant B-18-MC-48-0036 14.218 345,146 172,959 Community Development Block Grant B-19-MC-48-0036 14.218 48,600 - Subtotal - CFDA #14.218 763,211 257,163 Home Investment Partnerships Program M-13-MC-48-0223 14.239 11,978 - Home Investment Partnerships Program M-14-MC-48-0223 14.239 138,038 - Home Investment Partnerships Program M-15-MC-48-0223 14.239 8,049 - Home Investment Partnerships Program M-16-MC-48-0223 14.239 71,909 48,585 Home Investment Partnerships Program M-17-MC-48-0223 14.239 23,639 22,492 Home Investment Partnerships Program M-18-MC-48-0223 14.239 151,809 48,846 Subtotal - CFDA #14.239 405,422 119,923 Passed Through Texas Department of Housing and Community Affairs: 2017-18 Emergency Solutions Grant 42170002813 14.231 41,587 41,587 Total U.S. Department of Housing and Urban Development 1,210,220 418,673 U.S. Department of the Interior Passed through Texas Historical Commission: Historic Preservation-Certified Local Government (CLG) Grant TX-18-026 15.904 20,000 - Total U.S. Department of the Interior 20,000 - U.S. Department of Justice Direct Awards: U.S. Marshals Violent Offenders Task Force VOTF 16.000 30,560 - Organized Crime Drug Enforcement Task Force OCDETF 16.000 18,344 - Victim Assistance Coordinator 2018-V2-GX-0040 16.575 20,182 - Equitable Sharing Agreement & Certification TX610200 16.922 25,677 - Total Direct Awards 94,763 - Passed through International Association of Chiefs of Police: Domestic and Sexual Violence Initiative Grant IACP-2018-7586-03 16.582 240,706 35,935 Total International Association of Chiefs of Police 240,706 35,935 Total U.S. Department of Justice 335,469 35,935 U.S. Department of Transportation Passed through Texas Department of Transportation: Evers Park Bridge & Trail (NW Denton Loop) Grant 0918-46-273 20.205 30,835 - Traffic Signal Equipment Grant 2681-01-012 20.205 8,268 - State and Community Highway Safety Grant 2019-DentonPD-S-1YG- 00044 20.600 82,462 - Total Texas Department of Transportation 121,565 - Total U.S. Department of Transportation 121,565 - CITY OF DENTON, TEXAS SCHEDULE OF EXPENDITURES OF FEDERAL AND STATE AWARDS FOR THE YEAR ENDED SEPTEMBER 30, 2019 6 Federal Grantor/Grant Federal Passed Pass-Through Grantor/I.D.CFDA Through to Program Title Number Number Expenditures Subrecipients Institute of Museum and Library Services Passed through Texas State Library and Archives Commission: Interlibrary Loan Program (ILL)LS-00-18-0044-18 45.310 33,552 - Collaborative Summer Library Program LS-00-18-0044-18 45.310 1,482 - Total Institute of Museum and Library Services 35,034 - U.S. Department of Health and Human Services Passed through Texas Health and Human Services Commission: Ambulance Services - Uncompensated Care Cost 00008301 93.778 511,100 - Total U.S. Department of Health and Human Services 511,100 - U.S. Department of Homeland Security Direct Awards: Staffing for Adequate Fire & Emergency Response (SAFER) Grant EMW-2016-FH-00195 97.083 510,687 - Passed through Texas A&M Engineering Extension Office: National Urban Search & Rescue Response System 47-100-769 97.025 121,811 - Total Texas A&M Engineering Extension Office 121,811 - Passed through Texas Department of Public Safety: Emergency Management Performance Grant EMT-2019-EP-00005 97.042 40,009 - 2017 UASI Specialized Regional Response EMW-2017-SS-00005 97.067 29,574 - 2018 UASI SWAT Equipment EMW-2018-SS-00022-S01 97.067 24,066 - 2018 UASI Fire EMS Rescuse Task Force EMW-2018-SS-00022-S01 97.067 100,000 - 2018 SHSP SWAT Equipment Enhancement EMW-2018-00022-501 97.067 23,549 - Total Texas Department of Public Safety 217,198 - Total U.S. Department of Homeland Security 849,696 - Total Expenditures of Federal Awards 3,083,084 454,608 FOR THE YEAR ENDED SEPTEMBER 30, 2019 CITY OF DENTON, TEXAS SCHEDULE OF EXPENDITURES OF FEDERAL AND STATE AWARDS 7 Federal Grantor/Grant Passed Pass-Through Grantor/I.D.Through to Program Title Number Expenditures Subrecipients State Awards Texas Department of Transportation Airport Maintenance Grant M1918DNTO 50,000 - RTR - Mayhill Road From IH35 East to US 380 0918-46-246 10,820,636 - RTR - Bonnie Brae Road - From IH35 East to US 377 0918-46-245 3,466,078 - RTR - ITS Communication Trunk Lines 0918-46-244 941,378 - RTR - McKinney Street (Formerly FM 426)0918-46-298 2,498,158 - Hickory Creek Road Project 0918-46-290 145,393 - N TX Blvd Roundabout 0918-46-281 52,125 - Total Texas Department of Transportation 17,973,768 - Texas Office of the Governor BG-Rifle-Resistant Body Armor Grant Program 2018-BG-ST-0025 82,542 - Total Texas Office of the Governor 82,542 - Office of the Texas Attorney General Chapter 59 Asset Forfeitures N/A 26,290 - Total Office of the Texas Attorney General 26,290 - Texas A&M Engineering Extension Office Urban Search and Rescue Response System 47-100-769 193,560 - Total Texas A&M Engineering Extension Office 193,560 - Texas Intrastate Fire Mutual Aid System by Texas A&M Forest Service Trench Rescue Tech Training Tuition 1990 1,700 - Confined Space Training Tuition 1990 2,250 - Vehicle Rescue Tech Training Tuition 1990 1,500 - Swift Water Rescue Training Tuition 1990 1,920 - Total Texas Intrastate Fire Mutual Aid System by Texas A&M Forest Service 7,370 - Texas Comptroller of Public Accounts Fire-Law Enforcement Officer Standards & Education N/A 2,406 - Police-Law Enforcement Officer Standards & Education N/A 10,764 - Reimbursement for Sexual Assault Examinations N/A 54,140 - Total Texas Comptroller of Public Accounts 67,310 - Total Expenditures of State Awards 18,350,840 - Total Federal and State Financial Assistance Expended 21,433,924$ 454,608$ CITY OF DENTON, TEXAS SCHEDULE OF EXPENDITURES OF FEDERAL AND STATE AWARDS FOR THE YEAR ENDED SEPTEMBER 30, 2019 8 9 CITY OF DENTON, TEXAS NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AND STATE AWARDS FOR THE YEAR ENDED SEPTEMBER 30, 2019 1. GENERAL The accompanying schedule of expenditures of federal and state awards presents the activity of all applicable federal and state awards of the City of Denton, Texas. The City’s reporting entity is defined in Note I to the City’s basic financial statements. Federal and state awards received directly from federal and state agencies as well as federal and state awards passed through other government agencies are included in the respective schedule. 2. BASIS OF ACCOUNTING The accompanying schedule of expenditures of federal and state awards is presented using modified accrual basis of accounting, which is described in Note I to the City’s basic financial statements. 3. RELATIONSHIP TO FEDERAL FINANCIAL REPORTS Grant expenditure reports as of September 30, 2019, which have been submitted to grantor agencies will, in some cases, differ slightly from amounts disclosed herein. The reports prepared for grantor agencies are typically prepared at a later date and often reflect refined estimates of year-end accruals. The reports will agree at termination of the grant as the discrepancies noted are timing differences. 4. NEGATIVE AMOUNTS Pass-through amounts that were recorded as expenditures in prior years have been refunded to the City by subrecipients. As a result of this, the affected grants reflect a negative balance on the Schedule of Expenditures of Federal and State Awards. 5. INDIRECT COSTS The City has not elected to use the 10% de minimis indirect cost rate as allowed in the Uniform Guidance, Section 414. Section I: Summary of the Auditors' Results Financial Statements: An unmodified opinion was issued on the financial statements. Internal control over financial reporting: Material weakness(es) identified?No Significant deficiency(ies) identified that are not considered a material weakness?None reported Noncompliance material to financial statements noted?No Federal and State Awards: Internal control over major programs: Material weakness(es) identified?No Significant deficiency(ies) identified that are not considered a material weakness?None reported Type of auditors' report issued on compliance for major federal and state programs Unmodified Any audit findings disclosed that were required to be reported in accordance with 2 CFR 200.516(a) or the Uniform Grant Management Standards?None Identification of major federal and state programs: Federal: 14.218 Community Development Block Grant State: Regional Toll Revenue (RTR) Transportation Projects The dollar threshold used to distinguish between type A and type B federal programs.$750,000 The dollar threshold used to distinguish between type A and type B state programs.$550,525 Low risk auditee statement The City was classified as a low-risk auditee in the context of 2 CFR 200 and in the context of the state of Texas Uniform Grant Management Standards. CITY OF DENTON, TEXAS SCHEDULE OF FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED SEPTEMBER 30, 2019 10 11 CITY OF DENTON, TEXAS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) FOR THE YEAR ENDED SEPTEMBER 30, 2019 Findings Relating to the Financial Statements Which Are Required To Be Reported in Accordance with Generally Accepted Government Auditing Standards None Findings and Questioned Costs for Federal and State Awards None 12 SCHEDULE OF PRIOR YEAR FINDINGS AND RESPONSES FOR THE YEAR ENDED SEPTEMBER 30, 2019 None Honorable Mayor and Members of the City Council City of Denton, Texas We have audited the financial statements of the City of Denton, Texas (the City) as of and for the year ended September 30, 2019, and have issued our report thereon dated March 13, 2020. Professional standards require that we advise you of the following matters relating to our audit. Our Responsibility in Relation to the Financial Statement Audit As communicated in our engagement letter dated July 29, 2019, our responsibility, as described by professional standards, is to form and express opinions about whether the financial statements that have been prepared by management with your oversight are presented fairly, in all material respects, in accordance with accounting principles generally accepted in the United States of America. Our audit of the financial statements does not relieve you or management of your respective responsibilities. Our responsibility, as prescribed by professional standards, is to plan and perform our audit to obtain reasonable, rather than absolute, assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control over financial reporting. Accordingly, as part of our audit, we considered the internal control of the City of Denton, Texas solely for the purpose of determining our audit procedures and not to provide any assurance concerning such internal control. We are also responsible for communicating significant matters related to the audit that are, in our professional judgment, relevant to your responsibilities in overseeing the financial reporting process. However, we are not required to design procedures for the purpose of identifying other matters to communicate to you. Planned Scope and Timing of the Audit We conducted our audit consistent with the planned scope and timing we previously communicated to you. Compliance with All Ethics Requirements Regarding Independence The engagement team, others in our firm, and, as appropriate, our firm have complied with all relevant ethical requirements regarding independence. 2 Qualitative Aspects of the Entity’s Significant Accounting Practices Significant Accounting Policies Management has the responsibility to select and use appropriate accounting policies. A summary of the significant accounting policies adopted by the City of Denton, Texas is included in Note 1 to the financial statements. There have been no initial selection of accounting policies and no changes in significant accounting policies or their application during the year. No matters have come to our attention that would require us, under professional standards, to inform you about (1) the methods used to account for significant unusual transactions and (2) the effect of significant accounting policies in controversial or emerging areas for which there is a lack of authoritative guidance or consensus. Significant Accounting Estimates Accounting estimates are an integral part of the financial statements prepared by management and are based on management’s current judgments. Those judgments are normally based on knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ markedly from management’s current judgments. The most sensitive accounting estimates affecting the financial statements are: Management’s estimate of the allowance for uncollectible property taxes receivable is based on a historical collection rate of outstanding property taxes. We evaluated the key factors and assumptions used to develop the allowance in determining that it is reasonable in relation to the financial statements taken as a whole. Management’s estimate of the accumulated depreciation is based on the related estimated useful lives of capital assets. We evaluated the key factors and assumptions used to develop these estimates in determining that it is reasonable in relation to the financial statements taken as a whole. Management’s estimate of the allowance for uncollectible accounts for ambulance receivables is based on a historical rate of ambulance receivables. We evaluated the key factors and assumptions used to develop the allowance in determining that it is reasonable in relation to the financial statements taken as a whole. Management’s estimate of the allowance for uncollectible trade accounts receivable is based on a historical rate of trade accounts receivable. We evaluated the key factors and assumptions used to develop the allowance for uncollectible trade accounts receivable in determining that it is reasonable in relation to the financial statements taken as a whole. Management’s estimate of the allowance for uncollectible court fines and fees receivable is based on a historical collection rate of outstanding court fines and fees. We evaluated the key factors and assumptions used to develop the allowance in determining that it is reasonable in relation to the financial statements taken as a whole. Management’s estimate of the net pension and total OPEB liabilities and pension and OPEB costs are based on actuarial assumptions which are determined by the demographics of the plans and future projections that the actuary makes based on historical information of the plans and the investment market. We evaluated the key factors and assumptions used to develop the net pension liability and total OPEB liabilities and determined that they are reasonable in relation to the basic financial statements taken as a whole and in relation to the applicable opinion units. 3 Management’s estimate for closure and post-closure costs for the municipal land fill were based upon an engineering study performed by Burns & McDonnell and updated using data and future trend assumptions developed by management. We evaluated the key factors and assumptions used to develop the estimate of the closure and post-closure costs in determining that they are reasonable in relation to the financial statements as a whole. Financial Statement Disclosures Certain financial statement disclosures involve significant judgment and are particularly sensitive because of their significance to financial statement users. The most sensitive disclosures affecting the City’s financial statements relate to the pension and OPEB liabilities and the landfill post-closure costs liability. The disclosures in the financial statements are neutral, consistent, and clear. Significant Difficulties Encountered during the Audit We encountered no significant difficulties in dealing with management relating to the performance of the audit. Uncorrected and Corrected Misstatements For purposes of this communication, professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that we believe are trivial, and communicate them to the appropriate level of management. Further, professional standards require us to also communicate the effect of uncorrected misstatements related to prior periods on the relevant classes of transactions, account balances or disclosures, and the financial statements as a whole and each applicable opinion unit. Management has corrected all immaterial misstatements. In addition, professional standards require us to communicate to you all material, corrected misstatements that were brought to the attention of management as a result of our audit procedures. None of the misstatements identified by us as a result of our audit procedures and corrected by management were material, either individually or in the aggregate, to the financial statements taken as a whole or applicable opinion units. Disagreements with Management For purposes of this letter, professional standards define a disagreement with management as a matter, whether or not resolved to our satisfaction, concerning a financial accounting, reporting, or auditing matter, which could be significant to the City’s financial statements or the auditor’s report. No such disagreements arose during the course of the audit. Representations Requested from Management We have requested certain written representations from management, which are included in the management representation letter dated March 13, 2020. 4 Management’s Consultations with Other Accountants In some cases, management may decide to consult with other accountants about auditing and accounting matters. Management informed us that, and to our knowledge, there were no consultations with other accountants regarding auditing and accounting matters. Other Significant Matters, Findings, or Issues In the normal course of our professional association with the City, we generally discuss a variety of matters, including the application of accounting principles and auditing standards, operating and regulatory conditions affecting the entity, and operational plans and strategies that may affect the risks of material misstatement. None of the matters discussed resulted in a condition to our retention as the City’s auditors. New Accounting Pronouncements The Governmental Accounting Standards Board (GASB) issued the following statements which become effective for fiscal years 2020 and 2021. Statement No. 84, Fiduciary Activities – This Statement improves guidance regarding the identification of fiduciary activities for accounting and financial reporting purposes and how those activities should be reported. The focus is generally on whether a government is controlling the assets of the fiduciary activity and on the beneficiaries with whom a fiduciary relationship exists. This Statement will become effective for the City in fiscal year 2020. Statement No. 87, Leases – This Statement will improve the accounting and financial reporting for leases by governments by requiring recognition of certain lease assets and liabilities previously classified as operating leases. It establishes a single model for lease accounting based on the principle that leases are financing the right to use an underlying asset. Under the Statement a lessee is required to recognize a lease liability and an intangible right-to-use asset, and a lessor is required to recognize a lease receivable and a deferred inflow of resource, enhancing the relevance and consistency of information about leasing activities. This Statement will become effective for the City in fiscal year 2021. Restriction on Use This report is intended solely for the information and use of the City Council of the City of Denton, Texas and management of the City of Denton, Texas and is not intended to be, and should not be, used by anyone other than these specified parties. Waco, Texas March 13, 2020 PRESENTED TO CITY OF DENTON, TEXAS Annual Financial & Compliance Audit March 17, 2020 John Manning, CPA Partner, Government Audit Kent Willis, CPA Manager, Government Audit •Audit process •Audit results •Value added •Upcoming standards •Discussion INTRODUCTION & AGENDA AUDIT PROCESS AUDIT PROCESS Planning Fieldwork AUDIT PROCESS Planning Who and when? •August 2019 •3 auditors •1 manager •1 partner •2 weeks What? •Internal controls •Risk assessment •Preliminary testing •Fraud interviews (12) AUDIT PROCESS Planning Internal controls walkthroughs •Utility billing & customer service •Municipal court •Animal services •Parks administration •Building inspections •Electric •Landfill •Purchasing AUDIT PROCESS Fieldwork Who and when? •January 2020 •3 auditors •1 manager •1 partner •4.5 weeks What? •Material balances & transactions •Compliance •Single audit AUDIT RESULTS AUDIT RESULTS Independent Auditor’s Report •Management responsible for financial statements •Audit performed in accordance with GAS and GAAS •Unmodified opinion AUDIT RESULTS Government Auditing Standards Report •No internal control deficiencies •No noncompliance with •Laws •Regulations •Contracts •Grant agreements •No findings AUDIT RESULTS Government Auditing Standards Report •Major programs: •Federal: Community Development Block Grant -$763,211 •State: TxDOT RTR (Mayhill Rd, Bonnie Brae, McKinney Street, and others) -$17,973,768 •No noncompliance •No deficiencies in internal control 87% coverage (of all state and federal expenditures) VALUE ADDED VALUE ADDED •Interest rates on capitalized interest •Fair value levels for certificates of deposits UPCOMING STANDARDS UPCOMING STANDARDS •Statement No. 84, Fiduciary Activities ‒Effective Date: FY 2020 •Statement No. 87, Leases ‒Effective Date: FY 2021 DISCUSSION