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HomeMy WebLinkAboutPopular Annual Financial Report (PAFR) - 6/30/2023Town ofTown of Town of INSIDE Photo credit: Paul Livingston, “Whispy” Fiscal Year ended June 30, 2023 POPUL AR ANNUAL FINANCIAL REPORT OVERVIEW The Town of Oro Valley is proud to present its twelfth annual Popular Annual Financial Report (PAFR) prepared by the Finance Department. The purpose of the PAFR is to provide a user-friendly summary of the financial position of the Town of Oro Valley and other interesting information for citizens who want a better understanding of the Town’s finances. The financial information in the PAFR is taken from the Town’s Annual Comprehensive Financial Report (ACFR). The ACFR outlines the Town’s financial position and operating activities each fiscal year presented in conformity with generally accepted accounting principles (GAAP) and includes financial statements audited by Baker Tilly, LLP, a certified public accounting firm. The Town received an unmodified (or clean) audit opinion, which is the best audit opinion that the financial statements could receive. While the numbers in the PAFR come from an audited source, they are presented in a summarized, unaudited non-GAAP format that is more accessible to the public. Additionally, some of the information in the PAFR is from the Town’s Annual Budget. Citizens who wish to review the audited, GAAP-based, full disclosure financial statements can refer to the Town’s ACFR available on the Town’s website at www.orovalleyaz.gov, or contact the Finance Department by phone at 520-229-4700 or in person at 11000 N. La Cañada Drive, Oro Valley, AZ 85737. ORO VALLEY TOWN COUNCIL 2 Connect with us! Visit | Josh Nicolson, Councilmember Harry “Mo” Greene, II, Councilmember Joyce Jones-Ivey, Councilmember Joe Winfield, Mayor Melanie Barrett, Vice Mayor Steve Solomon, Councilmember Tim Bohen, Councilmember We are pleased to present the Town of Oro Valley Popular Annual Financial Report (PAFR) for fiscal year 2022/23. This is the twelfth consecutive year that we have produced this summarized overview of various financial aspects of the Town, including sources of revenues and expenditures, financial trends, assets and liabilities, and debt obligations. We are humbled to have earned recognition from the Government Finance Officers Association (GFOA) for the past eleven years with their Popular Annual Financial Reporting Award. The Town is one of only twenty government agencies in Arizona to prepare a PAFR, representing the Town’s ongoing commitment to transparency, accountability and communicating the financial position of the Town in this easy-to-understand format. The Town’s audited financial statements once again received an unmodified or “clean” audit opinion by our outside, independent auditors, which is the highest form of audit opinion given. The Town demonstrated strong financial performance during fiscal year 2022/23. In the General Fund, our main operating fund, revenues exceeded budget by $6.2 million. Through a combination of strong revenue growth and expenditure savings, the Town reduced its use of fund balance in the General Fund from a budget of $18.8 million to just under $6.6 million. General Fund reserves total $23.8 million, or 47% of budgeted expenditures for the coming fiscal year. The Town’s disciplined approach to budgeting, adherence to strong financial management principles and policies, and a track record of prudent financial decision-making help to ensure both near- and long-term fiscal health and sustainability. This is evidenced by the Town’s strong credit rating, including our ‘AA+’ rating from Standard and Poor’s. In the coming year, we look forward to making investments in our facilities that provide maximum benefit to our community and managing your taxpayer dollars in the most efficient and effective manner. We hope that our 2023 Popular Annual Financial Report fulfills its purpose as an understandable, informative publication, and thank you for your interest in the Town of Oro Valley government functions and finances. Respectfully, Jeff Wilkins, Town Manager ORO VALLEY FAST FACTS 3 Jeff Wilkins Town Manager MESSAGE from the TOWN MANAGER INCORPORATED 1974 SERVICES Police, Parks and Recreation, Water Utility, Stormwater Utility, Public Transit, Community Development and Public Works FORM OF GOVERNMENT Council/Manager GOVERNING BODY Mayor elected at large to four-year term; 6 councilmembers elected at large to four-year terms POPULATION 48,906 (Arizona Commerce Authority) # OF HOUSEHOLDS (US Census estimate) 20,754 BACHELOR’S DEGREE OR HIGHER (Age 25+) 56% MEDIAN INCOME (US Census estimate) $92,548 # OF PARKS 7 PARK ACRES MAINTAINED 651 TRAILS AND PATHS 62 miles PUBLIC STREET LANE MILES MAINTAINED 431 2023 BUDGET $147.7 million HISTORY After World War II, the Tucson area experienced dramatic population growth. In the early 1950s, the Oro Valley Country Club opened at the base of Pusch Ridge, and land owners began building residential homes. As the community continued to grow, area residents increasingly desired local control of the land in the area. In the late 1960s, a petition to incorporate began to circulate in Oro Valley, and Oro Valley was successfully incorporated in 1974. What began as a town with only 2.4 square miles and 1,200 residents has grown into a vibrant community and tourist destination featuring world-class amenities and outdoor attractions, excellent schools, and a diverse business environment. FISCAL YEAR (FY) 22/23 ACCOMPLISHMENTS Recognized as a “Triple Crown Winner” by the Government Finance Officers Association for receiving the Certificate of Achievement for Excellence in Financial Reporting Award (29th consecutive year), the Distinguished Budget Presentation Award (15th consecutive year) and the Popular Annual Financial Reporting Award (11th consecutive year) Ended FY 22/23 with a $23.8 million fund balance in the General Fund, exceeding budget expectations by $12.2 million Revised and updated comprehensive Town Financial and Budgetary Policies Received an unmodified “clean” audit opinion for the Town’s annual financial statements Continued work on the $25 million bond-funded parks and recreation amenities and improvements, including Naranja Park improvements, Community Center and golf course irrigation improvements Approved zoning amendments and a revised master development plan for revitalization of the Oro Valley Marketplace Approved the updated Strategic Plan for FY 23/24 through 24/25 Approved the public engagement plan related to the 2026 General Plan The Government Finance Officers Association of the United States and Canada (GFOA) has given an Award for Outstanding Achievement in Popular Annual Financial Reporting to the Town of Oro Valley for its Popular Annual Financial Report for the fiscal year ended June 30, 2022. The Award for Outstanding Achievement in Popular Annual Financial Reporting is a prestigious national award recognizing conformance with the highest standards for preparation of state and local government popular reports. In order to receive this award, a government unit must publish a Popular Annual Financial Report, whose contents conform to program standards of creativity, presentation, understandability and reader appeal. The award is valid for a period of one year only. We believe our current report continues to conform to program requirements, and we are submitting it to GFOA to determine eligibility for another award. 4 ACCOLADES Oro Valley voted Top Ten Safest Places to Live in Arizona Safewise 2023. Oro Valley Among Safest Places to live in Arizona Elite Personal Finance 2022. Oro Valley Police Department receives accreditation from the Arizona Association of Chiefs of Police 2022 Oro Valley’s Peak Performance Program wins “Celebrating Innovation in the Workplace: Technology and Process Improvement” award Society for Human Resource. Management of Greater Tucson 2022 Chuck Huckleberry Loop voted Best Recreational Trail in America USA Today 2022. BASIS Oro Valley recognized as one of the “Best High Schools in Pima County” Niche.com. Paul Richardson, “Capturing a Masterpiece” The largest portion of the Town’s net position reflects its investment in capital assets such as land, buildings and improvements, vehicles, machinery and equipment, and construction, less any outstanding debt used to acquire those assets. The Town uses these capital assets to provide services to its citizens; consequently, these assets are not available for future spending. The following are significant transactions that impacted the Statement of Net Position: • The addition of $27.0 million in capital assets (net of dispositions) for governmental activities, largely attributable to $25.0 million in parks and recreation bonds issued in 2022. • The addition of $11.7 million and $3.9 million for governmental activities and business-type activities, respectively, in accumulated depreciation/amortization due to depreciation/amortization expense. • An $18.1 million reduction in long-term liabilities for governmental activities, resulting from prior fiscal year funding of the Town’s outstanding pension liability in the Public Safety Pension Retirement System. WHAT IT MEANS 5 Statement of Net Position for the year ended June 30, 2023 2023 2022 Current assets and other assets $ 102,039,607 $ 114,318,253 Capital assets, net 324,828,157 306,544,971 Current and other liabilities 12,855,925 13,442,686 Long-term liabilities 92,359,891 114,177,844 STATEMENT OF NET POSITION The Statement of Net Position is presented in much more detail in the Town’s Annual Comprehensive Financial Report. Below is a very high-level summary that captures total assets and liabilities and compares them to prior years. The Statement of Net Position may serve as a useful overall indicator of the Town’s financial position and trends over the last two years. The Town’s activities are presented in two categories. Governmental activities include most of the Town’s core services, such as public safety, parks and recreation, and street maintenance. Sales taxes, state-shared revenues and grants finance most of these activities. Business-type activities are the Water and Stormwater utilities, which are primarily financed through user fees and charges. Current Assets and Other Assets are assets that one can reasonably expect to convert to cash, sell, or consume within one year. Capital Assets, Net are the Town’s land, buildings, equipment, improvements, right of use assets, infrastructure, and construction in progress, net of accumulated depreciation/amortization. Deferred Outflows are outflows of resources that have already occurred but are applicable to future periods. Deferred Inflows are inflows of resources that have already occurred but are applicable to future periods. Liabilities are payments due to vendors and employees, lease and subscription payments due, and other long-term debt of the Town. Net Position is the difference between assets plus deferred outflows and liabilities plus deferred inflows, which may or may not be available for future spending. Sales Taxes 30,163,507 30% STATEMENT OF ACTIVITIES The Statement of Activities, often referred to as the Town’s income statement, reflects all financial activity for the Town during the fiscal year ended June 30, 2023. This statement presents information to show how the Town’s net position changed during the year as a result of the financial activity (e.g. revenues and expenses). Over time, increases or decreases in net position may serve as a useful indicator of whether the Town’s financial position is improving or deteriorating. Below is a summarized version of the detailed statement of activities found in the Town’s Annual Comprehensive Financial Report. Statement of Activities for the year ended June 30, 2023 Note: The totals below reflect both the governmental and business-type activities of the Town. The Statement of Activities shows that the Town’s total net position has improved over the beginning net position. Total expenses increased $10.3 million. Personnel costs increased as a result of an implemented classification and compensation plan. Other operating costs increased as a result of claim settlement and insurance costs, as well as inflationary impacts on services, supplies and materials. Total revenues increased $9.6 million, due primarily to investment earnings and state shared revenues, as well as capital grants and contributions. 2023 2022 $ 101,381,295 $ 91,793,200 86,777,928 76,510,383 14,603,367 15,282,817 317,155,733 301,872,916 $ 331,759,100 $ 317,155,733 6 Revenues by Source Includes Governmental & Business-Type Activities REVENUES Where the money comes from Charges for Services 32,279,363 32% Miscellaneous 11,000 0%Investment Earnings 1,826,359 2% Operating Grants & Contributions 4,533,920 4% Capital Grants & Contributions 13,222,108 13% Unrestricted State-Shared Revenues 18,581,727 18% Franchise Taxes 763,311 1% Sales Taxes 30,163,507 30%MillionsWHAT IT MEANS $36 $32 $28 $24 $20 $16 $12 $8 $4 $- $(4) 2021 2022 2023 7 Charges for Services are revenues collected for services rendered to the public. Water sales make up the majority of these revenues. Sales Taxes are levied on retail sales at 2.5%, utilities and construction activity at 4%, and lodging at 6%. Franchise Taxes are negotiated fee revenues from a local cable provider. Unrestricted State-Shared Revenues consist of the Town’s portion of Arizona state income tax, sales tax, and vehicle license tax revenue shared with incorporated cities, towns, and counties. Capital Grants and Contributions are dedicated toward specific capital expenditures and purposes, such as highways and streets. Operating Grants and Contributions are dedicated toward specific operating expenditures and purposes, such as employee salaries and ongoing maintenance costs for roadways, public safety, and culture and recreation. Investment Earnings consist of interest income earned on the Town’s invested funds.Intergover n me ntal Charges f or Services Sales & Fra nc hise Taxes Invest me nt Ear ni ngs Other Reve n ues Three-Year Historical Comparison - Revenues Governmental Funds Only This chart illustrates the sources and percentages of the Town’s revenues totaling $101.4 million for FY 22/23. The Town’s primary revenue sources during FY 22/23 include charges for services, sales taxes and unrestricted state shared revenues. Together these three categories represented 80% of all revenue collections in FY 22/23. This three-year historical comparison chart provides a snapshot of the Town’s revenue growth for Governmental Funds for the last three fiscal years. The growth in intergovernmental revenues for FY 22/23 was attributable to an increase in state-shared revenues. The growth in other revenues for FY 22/23 was attributable to a one-time land donation. EXPENSES Where the money goes This chart illustrates the uses and percentages of the Town’s expenses across all funds totaling $86.8 million for FY 22/23. The majority of expenses relate to general government operations, public safety, and Water Utility operations. More than two-thirds of the Town’s total expenses (68%) are from these three areas. Total expenses increased by $10.3 million due primarily to personnel and other operating costs. Expenses by Category Includes Governmental & Business-Type Activities 8 General Government 21,233,771 24% Stormwater Drainage 1,409,674 2% Water 17,438,890 20%Interest on Long-Term Debt 1,291,181 1% Culture & Recreation 11,839,715 14% Transit 1,520,300 2%Highways & Streets 12,041,757 14% Public Safety 20,002,641 23% General Government expenses are incurred by the Town’s administrative departments, including Town Council, Town Manager, Legal Services, Finance, Town Clerk, Human Resources, Town Court, Innovation & Technology, Community and Economic Development, and other non-departmental costs. Highways and Streets expenses are related to the design, construction, maintenance and operation of all roadways, sidewalks and related infrastructure within the Town. Culture and Recreation expenses are those incurred by the Town to enrich the quality of life in Oro Valley through parks, recreational and cultural activities. Public Safety expenses are those incurred by the Town to provide police and dispatch services to the public. Water expenses are those incurred by the Town to provide water to the public. Transit expenses are those related to the operation of the Sun Shuttle Dial-a-Ride service funded through a partnership with the Regional Transportation Authority (RTA). Stormwater Drainage expenses are those related to the design, construction, maintenance and operation of all stormwater drainageways within the Town. Interest on Long-Term Debt reflects the interest costs for long-term debt, such as bonds and loans. This does not include any interest costs on water-related debt. WHAT IT MEANS Charlie Alolkoy, “Sunrise Reflection” David Seeber Three-Year Historical Comparison - Expenditures Governmental Funds Only Five-Year Historical Comparison - Revenues & Expenditures Governmental Funds Only $100 $90 $80 $70 $60 $50 $40 $30 $20 $10 $- ExpendituresMillions$40 $35 $30 $25 $20 $15 $10 $5 $- General G o v e r n m e n t Public S af e t y Highway s & S t r e e t s Transit Culture & R e c r e a ti o n Capital O u tl a y Debt Ser vi c e 2021 2022 2023 Millions2019 2020 2021 2022 2023 Revenues The charts on this page reflect information for the Town’s governmental funds only. These funds account for most of the Town’s basic services, such as general government, public safety, highways and streets, and culture and recreation. Sales taxes, state-shared revenues and charges for services finance most of these activities. Historical Comparison charts help illustrate trends in the Town’s fiscal year revenue and expenditure growth. Decreases in general government and public safety expenditures for FY 22/23 reflect prior fiscal year funding of the Town’s outstanding pension liability in the Public Safety Pension Retirement System. This was partially offset with planned capital outlay and increased operating costs. Revenue growth in FY 22/23 reflects investment earnings and state-shared revenues, as well as capital grants and contributions. Expenditures in excess of revenues for FY 21/22 and FY 22/23 reflect planned use of fund balance reserves to fund one-time capital and/or operating expenditures. 9 WHAT IT MEANS The Town continues to maintain strong investment grade ratings on its outstanding excise tax bonds, which are rated ‘AA’ by Fitch and ‘AA+’ by Standard and Poor’s. These ratings indicate high quality investments with very strong capacity for repayment of financial commitments. This is largely achieved by the Council’s goal of continuing to diversify the Town’s revenue base and maintaining strong fund balance reserves in the General Fund, currently at $23.8 million, or 43% of FY 23/24 adopted expenditures of $55.4 million. DEBT & FINANCIAL RATINGS As of June 30, 2023, the Town had $63.1 million in long-term debt outstanding with $6.4 million due within one year. Long-term debt decreased by $6.9 million due to $7.9 million in maturities and redemptions, offset with $1 million issued during the fiscal year. The chart below depicts the Town’s outstanding debt for the fiscal year ended June 30, 2023.MillionsGovernmental Bonds are used to finance long-lived capital improvements, including land acquisition and construction or improvement of Town facilities. The Town’s excise taxes are pledged as repayment of the debt. WIFA Utility Loans are low-interest loans from the Water Infrastructure Finance Authority of Arizona (WIFA). They finance the construction and improvement of drinking water, wastewater, wastewater reclamation, and other water quality projects. Utility Bonds are issued to finance long-lived utility capital improvements for the Town’s Water Utility. This debt is repaid with Water Utility revenues. Leases Payable reflects future payments due on equipment leases entered into by the Town. Financed Purchases represents future payments for equipment purchased under a contract. Subscription Liabilities are future payments due on subscription- based information technology arrangements entered into by the Town. WHAT IT MEANS Outstanding Debt Obligations as of June 30, 2023 $50 $45 $40 $35 $30 $25 $20 $15 $10 $5 $- $2.09 $16.23 $0.83 $0.07 $0.47 $43.46 *Totals do not include accumulated depreciation/amortization 10 WIFA Utility Loans Governmental Bonds Utility Bonds Leases Payable Financed Purchases Subscription Liabilities Rhonda Royse, “Sunset at Honeybee” WHAT IT MEANS TOWN ASSETS The Town develops a ten-year Capital Improvement Program (CIP) to systematically identify, plan, schedule, finance, track and monitor capital projects and acquisitions necessary to support service delivery to the community. Capital improvement projects are defined as infrastructure, equipment and vehicle purchases or construction which result in or make improvements to a capitalized asset costing more than $50,000 and having a useful life of five or more years. These capital projects and acquisitions comprise the capital assets of the Town. At June 30, 2023, the Town had invested $324.8 million in capital assets (net of accumulated depreciation/amortization), including buildings, facilities, vehicles, computers, equipment, right of use assets and infrastructure assets. Outstanding debt (Millions)Debt per Capita$80 $70 $60 $50 $40 $30 $20 $10 $- Total Outstanding Debt Five Year Historical Comparison Total Outstanding Debt & Debt Per Capita 11 Capital Assets Governmental Activities* Capital Assets Business-Type Activities* Land $36,289,821 10% Construction in Progress $14,779,568 4% Right of use asset $1,647,382 0%Machinery, Equipment and Vehicles $21,529,780 6% Buildings and Improvements $57,711,490 15% Infrastructure $245,923,586 65% Land $2,410,660 1% Equipment and Vehicles $6,722,379 4%Stormwater System $4,158,612 2% Water System $148,484,849 82% Water Rights $8,534,490 5% Construction in Progress $11,709,344 6% *Totals do not include accumulated depreciation/amortization $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 $- Debt Per Capita This historical comparison chart provides a snapshot of the Town’s total outstanding debt and debt per capita over the last five fiscal years. The increase in FY 21/22 was attributable to the issuance of excise tax bonds to fund parks and recreation improvements and pay off the Town’s unfunded liability in the Public Safety Personnel Retirement System. 2019 2020 2021 2022 2023 ECONOMIC OUTLOOK AND FUTURE FOCUS Revenues exceeded expectations in FY 22/23, with local sales tax and state shared revenues exceeding budget by 7.8% and 6.3%, respectively. The Town continues to provide services and programs without a property tax to fund operations and, therefore, is dependent upon local sales tax and state shared revenues as major sources of revenue for its operating and capital expenditures. These sources accounted for approximately 80% of total General Fund revenue for FY 22/23. Critical to the Town’s financial success is the preparation of realistic growth assumptions that help guide the Town’s revenue projections. Despite inflation and interest rate increases, there continues to be healthy economic growth in Oro Valley, the Tucson metropolitan region and state- wide. Arizona continues to do well in national economic rankings and remains one of the fastest growing states in both population and personal income. With Oro Valley’s proximity to the Tucson metro region, it is likely that the Town’s local economy will continue to benefit with increased housing sales, retail and tourism growth, and overall household and personal income growth. Population Personal Income 12 Town Demographic & Economic Statistics Personal Income (Millions)Population50,000 49,000 48,000 47,000 46,000 45,000 44,000 43,000 $3,000 $2,500 $2,000 $1,500 $1,000 $500 $- 20202019 2021 2022 2023 Town Employment Statistics Principal Employers in Oro Valley Employees Roche Tissue Diagnostics 1,800 Oro Valley Hospital 500 Simpleview 470 Town of Oro Valley 449 Amphitheater Public Schools 439 Walmart 338 El Conquistador Tucson 294 Splendido at Rancho Vistoso 200 Fry's Food & Drug 182 Casa de la Luz Hospice 155 Future population and economic growth of the Town depends largely on continued available land for development; therefore, strategic annexation efforts and discussions are ongoing as a means to address the potential for future buildout within existing town boundaries. The Town continues to dedicate one-time revenues to funding one-time expenditures in the budget, specifically for capital improvement projects, while ensuring sufficient recurring revenues exist to fund recurring expenditures. With the current growth and activity expectations in future years, it will be important to continue to analyze the budget in this manner to avoid future reliance on one-time revenues to fund recurring costs. For FY 23/24, the Town will focus its efforts on supporting elements of the Town Council adopted Strategic Plan while navigating any potential economic fluctuations that may occur. The FY 23/24 budget includes completion of $25 million in bond-funded improvements at Naranja Park, the Community Center and multi-use paths throughout the Town; continued funding of the Town’s Pavement Preservation Program, which maintains the current condition of Town streets; and investments in the Town’s water system, continuing to ensure a safe, reliable and sustainable water supply to meet community needs.