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Home My WebLink AboutFinancial Reports-Comprehensive Annual Financial Report (CAFR) - 6/30/2008 TOWN OF ORO VALLEY,ARIZONA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2008 11000 North La Canada Drive—Oro Valley, Arizona 85737-7015 TOWN OF ORO VALLEY,ARIZONA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2008 Prepared by: Finance Department Stacey Lemos, CPA Finance Director (This page intentionally left blank) TOWN OF ORO VALLEY, ARIZONA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30,2008 TABLE OF CONTENTS INTRODUCTORY SECTION Page Letter of Transmittal i Organizational Chart ix List of Town Officials x GFOA Certificate of Achievement xi FINANCIAL SECTION INDEPENDENT AUDITORS' REPORT 1 MANAGEMENT'S DISCUSSION AND ANALYSIS (MD&A) (Required supplementary information) 5 BASIC FINANCIAL STATEMENTS Government-Wide Financial Statements: Statement of Net Assets 21 Statement of Activities 22 Fund Financial Statements: Balance Sheet—Governmental Funds 26 Reconciliation of the Balance Sheet— Governmental Funds to the Statement of Net Assets 29 Statement of Revenues, Expenditures and Changes in Fund Balances— Governmental Funds 30 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances—Governmental Funds to the Statement of Activities 33 Statement of Net Assets—Proprietary Funds 34 TOWN OF ORO VALLEY,ARIZONA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30,2008 TABLE OF CONTENTS (Cont'd) FINANCIAL SECTION (Cont'd) Pa. BASIC FINANCIAL STATEMENTS (Concl'd) Statement of Revenues, Expenses and Changes in Fund Net Assets— Proprietary Funds 35 Statement of Cash Flows--Proprietary Funds 36 Notes to Financial Statements 37 SCHEDULES OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES—BUDGET AND ACTUAL (Required Supplementary Information) General Fund 60 Highway User Fund 61 Note to Required Supplementary Information 62 COMBINING AND INDIVIDUAL FUND FINANCIAL STATEMENTS AND SCHEDULES Other Major Governmental Fund Schedule of Revenues, Expenditures and Changes in Fund Balances—Budget and Actual: Oracle Road Debt Service Fund 66 Townwide Roadway Development Impact Fees Fund 67 Municipal Building Fund 68 Non-Major Governmental Funds: Combining Balance Sheet--All Non-Major Governmental Funds By Fund Type 71 Combining Statement of Revenues, Expenditures and Changes in Fund Balances—All Non-Major Governmental Funds—By Fund Type 72 TOWN OF ORO VALLEY, ARIZONA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30,2008 TABLE OF CONTENTS (Cont'd) FINANCIAL SECTION (Concl'd) Page COMBINING AND INDIVIDUAL FUND FINANCIAL STATEMENTS AND SCHEDULES (Concl'd) Non-Major Special Revenue Funds: Combining Balance Sheet 76 Combining Statement of Revenues, Expenditures and Changes in Fund Balances 78 Combining Schedule of Revenues, Expenditures and Changes in Fund Balances--Budget and Actual 80 Non-Major Debt Service Fund: Schedule of Revenues, Expenditures and Changes in Fund Balances—Budget and Actual 87 Non-Major Capital Projects Funds: Combining Balance Sheet 91 Combining Statement of Revenues, Expenditures and Changes in Fund Balances 93 Combining Schedule of Revenues, Expenditures and Changes in Fund Balances--Budget and Actual 94 TOWN OF ORO VALLEY, ARIZONA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2008 TABLE OF CONTENTS (Concl'd) STATISTICAL SECTION Page Financial Trends: Net Assets by Component 99 Changes in Net Assets 100 Fund Balances of Governmental Funds 102 Changes in Fund Balances of Governmental Funds 104 Revenue Capacity: Principal Employers 106 Principal Sales Taxpayers 107 Taxable Sales by Category 108 Direct and Overlapping Sales Tax Rates 109 Debt Capacity: Ratio of Outstanding Debt by Type 110 Direct and Overlapping Governmental Activities Debt 111 Legal Debt Margin Information 112 Calculation of Legal Debt Margin 113 Pledged-Revenue Coverage 114 Demographic and Economic Information: County-Wide Demographic and Economic Statistics 115 Operating Information: Full-Time-Equivalent Town Employees by Function 116 Water Utility Revenues by User Type 117 Operating Indicators by Function 118 Water Rates 118 Capital Assets Statistics by Function 120 INTRODUCTORY SECTION (This page intentionally left blank) O 4a5TOWN OF ORO VALLEY Vii. ,,% ; 11000 N. LA CANADA DRIVE Pto ORO VALLEY ARIZONA 85737 k a 4 F`i'n , 00 Administrative Offices(520)229-4700 Fax(520)297-0428 APSOA004,AM/h�.."�' www.townoforovalley.com p °UN D Eo 4 November 18, 2008 Honorable Mayor, Members of Town Council and Citizens of the Town of Oro Valley, Arizona: State law mandates that cities publish a complete set of financial statements presented in conformity with accounting principles generally accepted in the United States of America and audited in accordance with auditing standards generally accepted in the United States of America by a certified public accounting firm licensed in the State of Arizona. Pursuant to that requirement, we hereby issue the comprehensive annual financial report of the Town of Oro Valley, Arizona(Town) for the fiscal year ended June 30, 2008. This report consists of management's representations concerning the finances of the Town. Consequently, management assumes full responsibility for the completeness and reliability of all of the informationp resented in this report. To provide a reasonable basis for making these management, representations, of the Town has established a comprehensive internal control pfrom that is designed both to protect the Town's assets f oin loss theft, or misuse and to compile sufficient reliable information for the preparation of the Town's financial statements in conformity with accounting principles generally accepted in the United States of America. Because the cost of internal controls should not outweigh their benefits, the Town's comprehensive framework of internal controls has been designed to provide reasonable rather than absolute assurance that the financial statements will be free from material misstatement. As management, we assert that, to the best of our knowledge and belief, this financial report is complete and reliable in all material respects. The Town's financial statements have been audited by Heinfeld, Meech & Co., P.C., a certified public accounting firm. The goal of the independent audit was to provide reasonable assurance that the financial statements of the Town for the fiscal year ended June 30, 2008, are free of material misstatement. The independent audit involved examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements; assessing the accounting pp g principles les used and significant estimates made by management; and evaluating the overall financial statement presentation. The independent auditor concluded, based upon the audit, that there was a reasonable basis for rendering an unqualified opinion that the Town's financial statements for the fiscal year ended June 30, 2008, are fairly presented in conformity with accounting principles generally accepted in the United States of America. The independent auditors' report is presented as the first component of the financial section of this report. PROFILE OF THE TOWN The Town of Oro Valley was incorporated in 1974. It is located in northeastern Pima County, six miles north of the Tucson city limits, and has a land area of 34.85 square miles. The Town's current population is estimated at 43,651. The Town of Oro Valley operates under the Council-Manager form of government. Policymaking and legislative authority is vested in the Town Council, which consists of a Mayor and six Council Members. Council Members are elected to four-year staggered terms. The citizens of Oro Valley elect the Mayor. The Council, from among its members, selects the Vice- Mayor. The Town Council is responsible, among other things, for the adoption of local ordinances, budget adoption, the development of citizen advisory committees and the hiring of the Town Manager. The Town Manager is responsible for implementation of the policies of the Town Council. The Town Manager appoints all department heads except the Chief of Police, Town Attorney and Magistrate. The Town of Oro Valley provides a full range of services including police protection; the construction and maintenance of streets and related infrastructure; the provision of water services; public transportation services; recreational activities, a public library and cultural events. In addition to general government activities, the governing body is financially accountable for the Municipal Property Corporation; therefore, this activity is included in the reporting entity. Additional information regarding the Municipal Property Corporation can be found in Note 1 in the notes to the basic financial statements. As with all cities in the State of Arizona, the Town of Oro Valley is required to comply with Article IX, Section 20 (1) of the Arizona Constitution, which sets limits on the Town's legal budget capacity. The Town currently operates under the Alternative Expenditure Limitation — Home Rule Option. This option allows the Town Council to establish the budgetary limits locally, rather than being restricted by the State-imposed expenditure limitation. The voters must authorize this option every four years. It was last authorized by the citizens of Oro Valley in 2006. The annual operating budget serves as the foundation for the Town's financial planning and control. The objective of these budgetary controls is to ensure compliance with legal provisions embodied in the annual operating budget approved by the Town Council. The Town's proposed operating budget is presented to the Town Council for review throughout the budget cycle starting in January and tentatively approved in June or July. The Town Council is required to hold a public hearing on the proposed budget and to adopt the final budget by no later than the second Monday in August. The Town Manager, subject to Town Council approval, may at any time transfer various unencumbered appropriation balances or portions thereof between a department or activity. The adopted budget cannot be amended in any way without Town Council approval. A schedule of revenues, expenditures and changes in fund balances — budget and actual are provided in this report for the General and Highway User Funds. These schedules are presented as required supplementary information. For other Governmental Funds, this schedule is presented in the Combining and Individual Fund Statements and Schedules section of this report. 11 MAJOR INITIATIVES AND ACCOMPLISHMENTS FOR THE YEAR During fiscal year 2007-08, the Town continued to invest in programs and amenities that keep Oro Valley the Community of Excellence it strives to be. During this time, the Mayor and Town Council was guided by the Town's adopted strategic plan which identified the following focus areas: • Financial Sustainability • Quality of Life • Economic Development • Protection of Environment and Cultural Assets • Leadership and Communication The following are some of the highlights and accomplishments of the Town during the fiscal year: Town Council • Conducted a Town-wide community survey to determine resident's satisfaction with Oro Valley's quality of life and services • Participated in the conceptual planning process with the Arizona State Land Department for the potential annexation of State land north of Town • Voted to place the ballot question requesting authorization for the Town to issue $48.6 million in general obligation bonds for development of the Naranja Town Site on the November, 2008 election ballot • Enacted a new Stormwater Utility Fee for all residential and commercial customers in Town to improve stormwater management and quality Town Clerk • Improved citizen access to public information by providing on-line full text search capability of the Oro Valley Town Code and implemented live voice and video streaming capability of regular Town Council meetings Town Manager • Launched the Oro Valley Vista as a full-color informational publication mailed to Town residents each month • Hired a new Communications Administrator, Communications Specialist and Constituent Services Coordinator to enhance public outreach and communication Police • Implemented license plate reader program to detect stolen vehicles • Applied for and received grant funding for safety equipment to be used at night time accident scenes • Created an Adopt-A-Business program to address public safety concerns related to retail and restaurant sectors in Town • Increased volunteer staffing from 80 to 100 volunteers • Expanded Neighborhood Watch program with six new groups organized this year 111 Planning and Zoning • Developed Leadership in Energy and Environmental Design (LEED) policy for adoption by the Town Council • Conducted Household Hazardous Waste program and neighborhood cleanups for Oro Valley residents • Completed Steam Pump Ranch Master Plan process • Coordinated successful Citizens Planning Institute classes resulting in 24 graduates Parks and Recreation • Implemented RecTrac software system to allow for on-line registration of recreation programs • Installed new pool deck surface at the James D. Kriegh pool • Added 1.4 miles of shared use paths and 1.77 miled of paved shoulders to Town inventory • Installed new irrigation system at James D. Kriegh Park Public Works • Continued implementation of Pavement Preservation Program to assess the overall condition of Town streets • Crack sealed 80 lane miles of the Town's paved streets • Completed safety improvements at the La Cholla and Lambert Lane intersection • Completed safety improvements at the La Cholla and Glover Road intersection • Hired a Stormwater Manager to manage all aspects of the utility Water Utility • Took 5,998 water quality samples with all results meeting federal, state and local water quality regulations • Increased customer base in calendar year 2007 by 383 new connections for a total of 18,035 connections as of 12/31/07 • Delivered 501 million gallons of reclaimed water to area golf courses • Began construction of Phase 2 of the reclaimed water system designed to deliver over 300 million more gallons of reclaimed water to area golf courses in the southern half of Town • Performed 205 residential water use audits • Analyzed and updated Alternative Water Resource Development Impact Fees to pay for future delivery of Central Arizona Project (CAP)water to Oro Valley ECONOMIC CONDITIONS AND OUTLOOK The information presented in the financial statements is perhaps best understood when it is considered from the broader perspective of the specific environment within which the Town operates. iv Local Economy. The local economic outlook for the Town of Oro Valley saw a continued slowdown in residential construction activity during fiscal year 2007-08. This was offset, however, by a marked increase in commercial construction activity during the year. Sales tax collections from construction, retail trade and restaurants and bars and hotel/motel lodging are the major industries which accounted for 83% of all sales tax receipts for fiscal year 2007-08. The Town currently does not have a property tax in place, therefore the budget is very dependent on sales taxes and state shared revenues to fund ongoing programs and services. As the Town transitions from "growth" mode to "maintenance" mode over the next five to ten years, efforts continue to be made to diversify our revenues, explore the feasibility of additional revenue sources and cost control efforts. Construction sales tax collections for fiscal year 2007-08 increased by only $142,724 or 2% as compared to fiscal year 2006-07. Demonstrating the decline in residential development, single family residential building permits issued during fiscal year 2007-08 totaled 285, down from 335 permits issued in fiscal year 2006-07. Sales tax collections from retail trade totaled $4,017,101 for this fiscal year. This is an increase of $352,601 or 10% over last fiscal year. Two new shopping centers, Oracle Crossings and Steam Pump Village, were open for a full fiscal year in 2007-08 and the construction of another major retail center began with an expected opening in the fall of 2008. This major retail center will include a Walmart Supercenter, a 12-screen movie theater complex, a Best Buy electronics store, and a selection of many other smaller shops and restaurants. When all of the expected commercial construction activity is completed, it is anticipated that there will be over two (2) million square feet of commercial retail and office space added to the Town. As such, the Town can expect to see one-time commercial building-related revenues sustained at higher levels over the next two years, as well as an increase in related retail sales taxes as those commercial centers open for business. Once this growth in commercial construction subsides, however, it is anticipated that those one-time construction-related revenues will significantly decrease as well. The Town of Oro Valley also saw further expansion of its flourishing biotechnology sector during FY 2007-08 with the leading global pharmaceutical company, Sanofi- aventis, constructing a $60 million research and development facility in Town. The new 110,350 square foot research and development facility has the capacity to almost double its current workforce over the next few years. Another leading biotech firm in Oro Valley, Ventana Medical Systems, was purchased by the Swiss pharmaceutical company, Roche, during FY 2007-08. Ventana has purchased an additional 17-acre site next to its existing campus and has announced a major expansion of its tissue diagnostics business over the next five to ten years. Finally, the Town is currently assessing the annexation potential of 14 square miles of undeveloped land north of the Town that is owned by the Arizona State Land Department. Proposed land use designations target the development in this area to v consist of just less than 16,000 dwelling units, along with commercial, resort and employment center development. The continued growth in the retail, service, tourism and biotechnology sectors in Oro Valley provide further evidence of the Town's growing, diversified economy where local residents can live, work and shop within the Town boundaries. Long-term financial planning. On an annual basis, the Town performs a comprehensive update to its 10-Year Financial Sustainability Plan. This plan encompasses a 10-year projection of the costs of existing Town service levels, the incremental costs of increased service levels, identification of gaps in funding levels, expected revenue shortfalls and/or surpluses, and recommended service level changes or additional revenue solutions to meet the Town's needs over the long term. The scope of this analysis focuses primarily on the General Fund and the Highway User Revenue Fund. During FY 2007-08, this plan forecasted that the Town could sustain its existing service and program levels into the future with current revenue sources, but should the Town or residents desire increases in programs or service levels requiring additional staff or resources, then additional, stable revenue sources would need to be implemented to pay for them. The Town continues to maintain healthy cash reserves in its major operating funds, with the General Fund's ending fund balance of$16.7 million equaling 57% of that fund's adopted expenditure budget of $28.1 million (excluding the contingency reserve budget). The Town completed its migration from a traditional line-item budget to a program-based budgeting approach during fiscal year 2007-08. By doing so, the Town will be able to measure the specific costs of providing programs and services to its residents, as well as measure the efficiency with which those programs are provided. To facilitate this change in approach, the Town implemented a new enterprise resource planning (ERP) system during fiscal year 2007-08. This is an integrated financial reporting system designed to more accurately capture costs by program area. The Town Council continues to analyze and study all available revenue sources available to the Town in an effort to further diversify its revenue base and provide financial sustainability into the future. Cash Management. The Town uses a system of consolidated cash management. Cash from all funds is pooled in a central disbursement fund. Cash to be used for payment of current expenditures is maintained in a checking account; the balance of cash is maintained on deposit with the Arizona State Treasurer's Local Government Investment Pool. Cash in the Local Government Investment Pool (LGIP) is available upon 24 hours notice. The LGIP invests in U.S. Treasury Notes, U.S. Treasury Bills and federally guaranteed insurance contracts. The average interest rate for the fiscal year 2006-07 was 5.200% and 4.096% in fiscal year 2007-08. Investments held in the LGIP earned $2,067,080 in interest revenue for the year ended June 30, 2008. The account at LGIP for the construction of the reclaimed water system improvement project and potable water system improvements and expansion earned$99,809 in interest revenue. vi Trust accounts are held with Wells Fargo Bank for annual debt service payments. Funds on deposit in the trust accounts are invested solely in obligations that are issued or guaranteed by the U.S. Treasury, such as U.S. Treasury bills, bonds and notes ("U.S. Treasury Securities"). Interest on investments held with the trustee earned $58,009 for fiscal year 2007-08. A debt service reserve fund was established in 2005 for the construction of the Municipal Operations Center land and building construction. These funds are maintained in trust accounts with the Bank of New York Trust Co. N.A. Funds on deposit in the trust accounts are invested solely in obligations that are issued or guaranteed by the U.S. Treasury, such as U.S. Treasury bills, bonds and notes ("U.S. Treasury Securities"). Interest on investments held with the trustee earned $35,870 for fiscal year 2007-08. Risk Management. The Town of Oro Valley participates in the Arizona Municipal Risk Retention Pool. Risk coverage includes general liability, errors and omissions, property and automobile insurance. The policy insures up to $2,000,000 per incident occurrence plus any excess liability of up to a$10,000,000 limit per occurrence per year. Coverage is provided on a claims-made basis. The Town participates in the Arizona Municipal Workers Compensation Pool for workers compensation insurance coverage. The Town of Oro Valley is self-insured for unemployment compensation. Unemployment reserves totaled $228,593 as of June 30, 2008 for the Town's 448 full- time, part-time and seasonal employees. The Town did not make an unemployment contribution in fiscal year 2007-08. AWARDS AND ACKNOWLEDGMENTS Awards. The Government Finance Officers Association (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the Town for its Comprehensive Annual Financial Report for the year ended June 30, 2007. This report satisfied both accounting princiles generally accepted in the United States of America and applicable legal requirements. This was the thirteenth year the Town received this prestigious award. A Certificate of Achievement is valid for a period of one year only. We believe that our current Comprehensive Annual Financial Report continues to meet the Certificate of Achievement program's requirements and we are submitting it to the GFOA to determine its eligibility for another certificate. vii Acknowledgments. The preparation of this Comprehensive Annual Financial Report could not have been accomplished without the efficient and dedicated services of the entire staff of the Finance Department who assisted and contributed in its preparation. We thank the Mayor and members of the Town Council for their interest and support in planning and conducting the financial affairs of the Town in a responsible and progressive manner. Respectfully submitted, /1./m David L. Andrews Stacey Le s, CPA Town Manager Finance Director viii 4'''7jii':J.F.:4:N.v:&iVI'f'.;4i.!1*'I ( 3 ) //��' C V L... O '•el;.�• ,fie 4—, H Q, c I o o -a c "" aJ ro .V Q1•C y..,. s-- C C ' -0 �C o COCa a_ L a) C ID co CU o V CU 4.7jo u E ' c u 0 0 ii °- o F O _ - CU .Ni OCA = a C7 L.' 01) CNl ' •V a 4J Q I i V ' °c o E c c Ca N o 0 .� ' 0 0 u a .Z:_ t nc .0 � o E .io rLo a5 m U ce O [I- ix TOWN OF ORO VALLEY,ARIZONA LIST OF TOWN OFFICIALS ELECTED OFFICIALS Mayor Mr. Paul Loomis Vice-Mayor Mr. Alfred Kunisch Council Member Ms. Paula Abbott Council Member Mr. Kenneth"K.C." Carter Council Member Mr. William Garner Council Member Mr. Barry Gillaspie Council Member Ms. Salette Latas DEPARTMENT HEADS Town Manager David L. Andrews Assistant Town Manager Jerene Watson Finance Director Stacey Lemos, CPA Human Resources Director Sandra Abbey Town Engineer Craig Civalier Town Clerk Kathryn E. Cuvelier Magistrate George Dunscomb Town Attorney Tobin Rosen Water Utility Director Philip Saletta Chief of Police Daniel G. Sharp Planning and Zoning Director Sarah More Building Safety Director Suzanne Smith Parks and Recreation Director Ainsley A. Legner Information Technology Director Kevin Verville x Certificate of Achievement for Excellence InFinancial Reporting Presented to Town of OValley Arizona For its Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2007 A Certificate of Achievement for Excellence in Financial Reporting is presented by the Government Finance Officers Association of the United States and Canada to government units and public employee retirement systems whose comprehensive annual financial reports (CAFRs) achieve the highest standards in government accounting and financial reporting. Ott•9.PFF/' --' J,C...... --1 C25)‹ -\:ATIVsfAil.. 1'Vs\ VSf AND l � ` '' )5_> President 71.'‘:?:‘,\tti2".'"*.AS Grit t,. ,,, Oer deA04.,71 Executive Director xi (This page intentionally left blank) FINANCIAL SECTION (This page intentionally left blank) 4-1 10120 N. Oracle Road ,� _,� _. HEINFELD, MEECH & CO., P.C. Tucson,Arizona 85704 _ � CERTIFIED PUBLIC ACCOUNTANTS Tel(520) 742-2611 Fax(520)742-2718 INDEPENDENT AUDITORS' REPORT Honorable Mayor and Members of the Town Council Town of Oro Valley, Arizona We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund (General, Highway User Revenue, Oracle Road Debt Service, Townwide Roadway Development Impact Fees and Municipal Building Funds), and the aggregate remaining fund information of the Town of Oro Valley, Arizona (Town), as of and for the year ended June 30, 2008, which collectively comprise the Town's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the Town's management. 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 of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall basic financial statement presentation. We believe that our audit provides a reasonable basis for our 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 listed above, and the aggregate remaining fund information of the Town of Oro Valley, Arizona, as of June 30, 2008, and the respective changes in financial position and cash flows, where applicable, thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated November 18, 2008, on our consideration of the Town's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. TUCSON • PHOENIX • FLAGSTAFF www.heinfeldlneech.corn The management's discussion and analysis on pages 5 through 15 and budgetary comparison information on pages 60 through 62 are not a required part of the basic financial statements but are supplementary information required by the Governmental Accounting Standards Board. We have applied certain limited procedures, which consisted principally of inquires of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. Our audit was conducted for the purpose of forming an opinion on the financial statements that collectively comprise the Town's basic financial statements. The accompanying supplementary information such as the introductory section, combining and individual fund financial statements and schedules, and 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 have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. The introductory section and statistical section have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we express no opinion on them. 1-9-4..." lid, texAt. * to. 4 Rc HEINFELD, MEECH & CO., P.C. Certified Public Accountants November 18, 2008 Page 2 MANAGEMENT'S DISCUSSION AND ANALYSIS (MD&A) (Required Supplementary Information) Page 3 (This page intentionally left blank) Page 4 TOWN OF ORO VALLEY,ARIZONA MANAGEMENT'S DISCUSSION AND ANALYSIS (MD&A) YEAR ENDED JUNE 30, 2008 As management of the Town of Oro Valley, Arizona(Town), we offer readers of the Town's financial statements this narrative overview and analysis of the financial activities of the Town for the fiscal year ended June 30, 2008. We encourage readers to consider the information presented here in conjunction with additional information that we have furnished in our letter of transmittal,which can be found in the introductory section of this report. FINANCIAL HIGHLIGHTS The financial statements which follow the Management's Discussion and Analysis provide those significant key financial highlights for 2007-08 as follows. • The Town's total net assets of governmental activities increased$17.4 million to$155.9 million and business-type activities increased$7.1 million to$45.9 million representing 77 percent and 23 percent respectively, of the total net assets of$201.9 million. • General revenues from governmental activities accounted for$31.1 million in revenue,or 61 percent of all revenues from governmental activities. Program specific revenues in the form of charges for services and grants and contributions accounted for$20.1 million or 39 percent oftotal governmental activities revenues. The Town had $20.7 million of program revenues and $864,484 in general revenues related to business-type activities. • The Town had$35.4 million in expenses related to governmental activities,an increase of 10 percent from the prior fiscal year. The Town had$12.9 million in expenses related to business-type activities an increase of 12 percent from the prior fiscal year. • Among major funds,the General Fund had $30.6 million in revenues,which primarily consisted of sales taxes and intergovernmental revenues. The total expenditures of the General Fund were$26.5 million. The General Fund's fund balance decreased from$18.5 million to$16.7 million,primarily due to a transfer of$3.7 million to the Municipal Operations Fund for construction of a new town complex. • The Highway User Revenue Fund, had $6.6 million in revenues which primarily consisted of sales taxes and intergovernmental revenues. The total expenditures of the Highway User Revenue Fund were $5.6 million. • The Townwide Roadway Development Impact Fee Fund had $6.6 million in revenues which primarily consisted of intergovernmental revenues. The total expenditures ofthe Townwide Roadway Development Impact Fee Fund were$9.7 million. The Townwide Roadway Development Impact Fee Fund's fund balance increased from $3.7 million to $8.6 million, due primarily to current year loan proceeds of $8.0 million through a HELP loan from the Arizona Department of Transportation (ADOT). • The Water Fund operating revenues of$14.2 million exceeded operating expenses of$9.8 million. The change in net assets of$6.2 million was due to an increase of$3.4 million in capital assets due to the construction in progress on the Town's reclaimed water delivery system and $2.8 million in capital contributions from line extension agreements. Page 5 TOWN OF ORO VALLEY,ARIZONA MANAGEMENT'S DISCUSSION AND ANALYSIS (MD&A) YEAR ENDED JUNE 30,2008 OVERVIEW OF FINANCIAL STATEMENTS This discussion and analysis are intended to serve as an introduction to the Town's basic financial statements. The Town's basic financial statements comprise three components: 1)government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves. Government-wide financial statements. The government-wide financial statements are designed to provide readers with a broad overview of the Town's finances, in a manner similar to a private- sector business. The statement of net assets presents information on all of the Town's assets and liabilities,with the difference between the two reported as net assets. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position of the Town is improving or deteriorating. The statement of activities presents information showing how the Town's net assets changed during the most recent fiscal year. All changes in net assets are reported as soon as the underlying event giving rise to the change occurs,regardless of the timing of related cash flows. Thus,revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes and earned but unused compensated absences). In the government-wide financial statements the Town's activities are presented in the following categories: • Governmental activities — Most of the Town's basic services are included here, such as general government, public safety, highways and streets, and culture and recreation. Sales taxes, intergovernmental, and charges for services finance most of these activities. • Business-type activities--The services provided by the Town included here are water and stormwater utilities. The services are primarily financed through user fees and charges. Fund Financial Statements. A fund is a groupingof related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The Town uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the Town can be divided into two categories: governmental funds and proprietary funds. Page 6 TOWN OF ORO VALLEY, ARIZONA MANAGEMENT'S DISCUSSION AND ANALYSIS (MD&A) YEAR ENDED JUNE 30, 2008 OVERVIEW OF FINANCIAL STATEMENTS (Concl'd) Governmental funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements,governmental fund financial statements focus on near-term inflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating the Town's near-term financing requirements. Because the focus of governmental funds is narrower than that of the government-wide financial statements,it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the Town's near-term financing decision. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures and changes in fund balances for the General, Highway User Revenue, Oracle Road Debt Service, and the Townwide Roadway Development Impact Fees, and the Municipal Building Funds, all of which are considered to be major funds. Data from the other governmental funds are combined into a single, aggregated presentation. Individual fund data for each of these non-major governmental funds is provided in the form of combining statements and schedules. Proprietary funds. The Town of Oro Valley maintains one type of proprietary fund. Enterprise funds are used to report the same functions presented as business-type activities in the government-wide financial statements. The Town of Oro Valley uses enterprise funds to account for its Oro Valley Water Utility and Stormwater Utility. 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 immediately following the basic financial statements. Other information. In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information concerning the Town's budget process. The Town adopts an annual expenditure budget for all governmental funds. A schedule of revenues,expenditures and changes in fund balances—budget and actual has been provided for the General Fund and major Special Revenue Fund as required supplementary information. Page 7 TOWN OF ORO VALLEY,ARIZONA MANAGEMENT'S DISCUSSION AND ANALYSIS (MD&A) YEAR ENDED JUNE 30, 2008 GOVERNMENT-WIDE FINANCIAL ANALYSIS Net assets may serve over time as a useful indicator of a government's financial position. In the case of the Town, assets exceeded liabilities by$201.9 million as of June 30, 2008. The largest portion of the Town's net assets(68 percent)reflects its investment in capital assets(e.g., land, buildings and improvements, improvements other than buildings, infrastructure, vehicles, machinery and equipment and construction in progress),less any related debt used to acquire those assets that is still outstanding. The Town uses these capital assets to provide services to its citizens; consequently,these assets are not available for future spending. Although the Town's investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources,since the capital assets themselves cannot be used to liquidate these liabilities. The Town's financial position is the product of several financial transactions including the net results of activities,the acquisition and payment of debt,the acquisition and disposal of capital assets,and the depreciation of capital assets. The following table presents a summary of the Town's net assets for the fiscal years ended June 30, 2008 and June 30, 2007. 2008 2007 2008 2007 Governmental Governmental Business-type Business-type Activities Activities Activities Activities 2008 Total 2007 Total Current and other assets $ 46,391,734 $ 36,399,408 $29,530,278 $ 28,631,927 $ 75,922,012 $ 65,031,335 Capital assets,net 138,925,390 125,795,995 86,592,743 77,102,895 225,518,133 202,898,890 Total assets,net 185,317,124 162,195,403 116,123,021 105,734,822 301,440,145 267,930,225 Current and other liabilities 6,241,535 7,778,755 6,430,049 6,170,121 12,671,584 13,948,876 Long-term liabilities 23,126,853 15,873,961 63,767,001 60,777,911 _ 86,893,854 76,651,872 Total liabilities 29,368,388 23,652,716 70,197,050 66,948,032 99,565,438 90,600,748 Invested in capital assets,net of related debt 115,177,344 106,644,847 21,274,023 15,534,043 136,451,367 122,178,890 Restricted 14,072,781 8,326,73] 14,072,781 8,326,731 Unrestricted 26,698,611 23,571,109 24,651,948 23,252,747 51,350,559 46,823,856 Total net assets $ 155,948,736 $138,542,687 $45,925,971 $ 38,786,790 $201,874,707 $ 177,329,477 The following are significant current year transactions that have had an impact on the Statement of Net Assets. • The addition of$11.9 million in business-type activities capital assets through improvements to the potable water system and expansion of the reclaimed water system. • The addition of$17.5 million in governmental activities capital assets,including$1.7 million for vehicles and equipment, and $16.9 million for infrastructure. Infrastructure assets consisted of First Avenue Widening, Lambert Lane and La Cholla roadway improvement projects and several subdivision improvements. Page 8 TOWN OF ORO VALLEY, ARIZONA MANAGEMENT'S DISCUSSION AND ANALYSIS (MD&A) YEAR ENDED JUNE 30, 2008 GOVERNMENT-WIDE FINANCIAL ANALYSIS (Cont'd) Changes in net assets. The Town's total revenues for the fiscal year ended June 30, 2008, were $72.8 million. The total cost of all programs and services was$48.2 million. The following table presents a summary of the changes in net assets for the fiscal years ended June 30, 2008 and June 30, 2007. 2008 2007 2008 2007 Governmental Governmental Business-type Business-type 2008 2007 Activities Activities Activities Activities Total Total Revenues: Program revenues: Charges for services $ 4,183,553 $ 3,765,011 $17,161,552 $13,617,461 $21,345,105 $17,382,472 Operating grants and contributions 5,619,003 4,893,869 5,619,003 4,893,869 Capital grants and contributions 10,264,829 8,321,691 3,567,083 3,066,170 13,831,912 11,387,861 General revenues: Sales taxes 17,168,998 16,873,630 17,168,998 16,873,630 Franchise taxes 516,652 478,175 516,652 478,175 Impact fees 910,741 1,038,217 910,741 1,038,217 Unrestricted state shared revenues 10,904,654 9,944,318 10,904,654 9,944,318 Investment earnings 1,590,654 1,471,641 864,494 1,163,837 2,455,148 2,635,478 Total revenues 51,159,084 46,786,552 21,593,129 17,847,468 72,752,213 64,634,020 Expenses: General government 9,080,766 7,529,245 9,080,766 7,529,245 Public Safety 14,347,250 12,352,671 14,347,250 12,352,671 Highways and streets 7,292,972 7,757,276 7,292,972 7,757,276 Culture and recreation 3,644,973 3,375,314 3,644,973 3,375,314 Interest on long-term debt 987,074 996,336 987,074 996,336 Water 12,676,275 11,446,958 12,676,275 11,446,958 Stormwater drainage 177,673 74,235 177,673 74,235 Total expenses 35,353,035 32,010,842 12,853,948 11,521,193 48,206,983 43,532,035 Transfers 1,600,000 69,813 (1,600,000) (69,813) Increase in net assets $ 17,406,049 $ 14,845,523 $ 7,139,181 $ 6,256,462 $24,545,230 $21,101,985 Total revenues increased $8.1 million or 13 percent primarily due to an increase in charges for services in the water utility which was from an increase of$1.5 million from water connection fees and groundwater preservation fees. In addition, the stormwater utility had revenues totaling $1 million from the newly enacted user fees and a state grant used for a drainage project. Sales tax revenue increased by$1.2 million primarily due to a full year of collections from the 2%utility sales tax. State/county shared revenues increased by$1 million due to increased distributions based on the Town's current population numbers. A HELP loan in the amount of$8 million was received from the Arizona Department of Transportation for improvements and widening of La Canada Drive. Expenses increased$4.7 million primarily due to increased salary and benefit costs,the addition of 10 new positions and operational costs across all departments. Page 9 TOWN OF ORO VALLEY,ARIZONA MANAGEMENT'S DISCUSSION AND ANALYSIS (MD&A) YEAR ENDED JUNE 30, 2008 GOVERNMENT-WIDE FINANCIAL ANALYSIS (Concl'd) Governmental and Business-type activities. The following table presents the cost of the 7 major Town functional activities. The table also shows each function's net cost(total cost less charges for services generated by the activities and intergovernmental aid provided for specific programs). The net cost shows the financial burden that was placed on the State and Town's taxpayers by each of these functions. 2008 2007 Net Net Total (Expense)/ Total (Expense)/ Governmental Activities Expenses Revenue Expenses Revenue General government $ 9,080,766 $ (251,600) $ 7,529,245 $ 337,963 Public Safety 14,347,250 (12,843,190) 12,352,671 (10,923,779) Highways and streets 7,292,972 1,969,833 7,757,276 (816,932) Culture and recreation 3,644,973 (3,173,619) 3,3 75,314 (2,631,187) Interest on long-term debt 987,074 (987,074) 996,336 (996,336) Total $35,353,035 $(15,285,650) $32,010,842 $(15,030,271) Business-type Activities Water 12,676,275 6,973,578 11,446,958 4,873,510 Stormwater drainage 177,673 901,109 74,235 288,928 Total $12,853,948 $ 7,874,687 $ 11,521,193 $ 5,162,438 • The cost of all governmental activities this year was $35.4 million. The increase of$3.3 million from the prior year was due primarily to increased personnel and operating and maintenance costs. • The cost of all business-type activities this year was $12.9 million. The increase of$1.3 million from the prior year was primarily due to an increase in personnel and operating costs associated with the water and stormwater utility funds. • Federal and State governments,developer contributions,and charges for services subsidized certain governmental programs and business-type programs with revenues of$40.8 million. • Net cost of governmental activities of$15.3 million was financed by general revenues,which are made up of primarily sales taxes and state shared revenues of$28.1 million. Page 10 TOWN OF ORO VALLEY, ARIZONA MANAGEMENT'S DISCUSSION AND ANALYSIS (MD&A) YEAR ENDED JUNE 30, 2008 FINANCIAL ANALYSIS OF THE TOWN'S FUNDS As noted earlier,the Town uses fund accounting to ensure and demonstrate compliance with finance- related legal requirements. Governmental funds. The focus of the Town's governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the Town's financing requirements. In particular,unreserved fund balance may serve as a useful measure of the Town's net resources available for spending at the end of the fiscal year. The financialp erformance of the Town as a whole is reflected in its governmental funds. As the Town completed the year, its governmental funds reported a combined fund balance of $37.9 million,an increase of$9.7 million due primarily from loan proceeds of$8 million from the Arizona Department of Transportation and a contribution of $1.6 million from the water utility for construction of the municipal operations complex. The General Fund is thep rincipal operating fund of the Town. The decrease in fund balance of$1.8 million in the General Fund for the fiscal year to $16.7 million, was due primarily to a transfer of $3.7 million to the Municipal Operation Fund for construction of new town facilities. In addition, revenues exceeded budget by$1.2 million from sales tax collections and commercial building permit fees. The fund balance of the Highway User Revenue Fund showed an increase of$369,759 primarily due to lower than anticipated costs related to street improvement projects. The Townwide Roadway Fund showed an increase of$4.9 million due primarily to receiving a loan proceeds of$8 million for improvements and widening of La Canada Drive. The fund balance of the Municipal Building Fund showed an increase of$5.1 million primarily due to transfers from the General Fund,Highway Fund and Water Utility Fund for construction of new town facilities. Proprietary funds. Net assets of the Enterprise Funds at the end of the year amounted to $45.9 p rY million. The increase of$7.1 million from fiscal year 2006-07 was primarily due to the addition of improvements to the potable water system with capital contributions of$2.8 million and construction of the reclaimed water system. Page 11 TOWN OF ORO VALLEY,ARIZONA MANAGEMENT'S DISCUSSION AND ANALYSIS (MD&A) YEAR ENDED JUNE 30,2008 BUDGETARY HIGHLIGHTS There were no amendments to the Town of Oro Valley's fiscal year 2007-08 operating and capital budget. A schedule showing the original and final budget amounts compared to the Town's actual financial activity for the General Fund is provided in this report as required supplementary information. The significant variances are summarized as follows: • The favorable variance of$1.2 million in revenues was a result of sales tax collections of $13.8 million exceeding budget by $760K and commercial building permit fees of$1.3 million exceeding budget by $700K. • The favorable variance of$11.7 million (includes contingency reserves of$9.7 million) in expenditures was a result of departmental savings in personnel vacancies and operation and maintenance costs. CAPITAL ASSETS AND DEBT ADMINISTRATION Capital Assets. As of June 30, 2008, the Town had invested $285.9 million in capital assets, including buildings, facilities, vehicles, computers, equipment, and infrastructure assets. This amount represents a net increase prior to depreciation of$28.5 million from last year,primarily due to the completion of First Avenue widening project($10 million),several roadway improvements in the governmental activities and expansion of the potable water system and stormwater system in the business-type activities. Total depreciation expense for the year was $6.6 million. The following schedule presents capital asset balances for the fiscal years ended June 30,2008 and June 30, 2007. As of As of Governmental Activities June 30, 2008 June 30, 2007 Land $ 18,03 8,076 $ 17,694,622 Infrastructure 126,949,031 110,082,926 Buildings and improvements 19,832,560 18,956,247 Vehicles, machinery and equipment 8,036,706 7,186,005 Construction in progress 7,359,025 9,708,610 Less: Accumulated depreciation (41,290,008) (37,832,415) Total $ 138,925,390 $125,795,995 Page 12 TOWN OF ORO VALLEY, ARIZONA MANAGEMENT'S DISCUSSION AND ANALYSIS (MD&A) YEAR ENDED JUNE 30,2008 CAPITAL ASSETS AND DEBT ADMINISTRATION (Concl'd) As of As of Business-type Activities June 30, 2008 June 30, 2007 Land $ 2,410,660 $ 2,410,660 Water rights 8,534,490 6,172,361 Water system 84,555,171 79,048,639 Stormwater system 1,028,602 Equipment and vehicles 2,766,095 2,539,885 Construction in progress 6,423,996 3,626,425 Less: Accumulated depreciation (19,126,269) (16,695,075) Total $ 86,592,745 $ 77,102,895 Additional information on the Town's capital assets can be found in Note 5. Debt Administration. At year-end,the Town had$89.1 million in long-term debt outstanding,$3.6 million due within one year. The following table presents a summary of the Town's outstanding long-term debt for the fiscal years ended June 30, 2008 and June 30, 2007. Governmental Activities 2008 2007 Revenue bonds $ 12,183,046 $12,891,148 Special assessment bonds 3,565,000 3,760,000 Loan payable 8,000,000 2,500,000 Total $ 23,748,046 $19,151,148 Business-type Activities 2008 2007 Revenue bonds $ 59,586,954 $61,568,852 Loan payable 5,731,766 $ 65,318,720 $61,568,852 State statutes currently limit the amount of general obligation debt a Town may issue to 20 percent of its total assessed valuation for water, sewer, lights, open space preserves, parks, playgrounds and recreational facilities. The current debt limitation for the Town is $137.3 million. The Town of Oro Valley received an upgraded bond rating during FY 2006/07 and now maintains a "AA-" rating from Standard & Poor's and an "A+" rating from Fitch on the outstanding revenue bonds. Additional information on the Town's long-term debt can be found in Notes 6 through 9. Page 13 TOWN OF ORO VALLEY,ARIZONA MANAGEMENT'S DISCUSSION AND ANALYSIS (MD&A) YEAR ENDED JUNE 30, 2008 ECONOMIC FACTORS AND NEXT YEAR'S BUDGET AND RATES • The unemployment rate for the Town of Oro Valley is currently 3%.Pima County's and the State of Arizona's unemployment rates are 5.6% and 5.9%, respectively. • The Town's secondary assessed valuation for the current year is$686,707,506,an increase of 18% over last fiscal year. • Single family residential(SFR)building permits issued in this fiscal year totaled 285,which is down from 335 issued last year. Projections for SFR building permits are 250 for fiscal year 2008-09 based on the slow down in the housing market. • Two new shopping centers, Oracle Crossings and Steam Pump Village,were open for a full fiscal year in 2007-08 and the construction of another major retail center began with an expected opening in fall of 2008. The adopted combined operating and capital expenditure budget for fiscal year 2008-09 totals $203.1 million, an increase of 71% over last year's budget of$118.8 million. This increase is attributed to the following factors: • Anticipated construction of a municipal operations center to accommodate Police, Public Works and Water Utility staff. The estimated cost of the complex is $33 million. • Included the capacity to issue $48.6 million in general obligation (GO) bonds to pay for future development of Phase I of the Naranja Town Site park. This item is placed on the November 4, 2008 election ballot for voter consideration. • Included funding from Regional Transporation Authority in the amount of $675K for construction of a Park N' Ride facility. Page 14 TOWN OF ORO VALLEY, ARIZONA MANAGEMENT'S DISCUSSION AND ANALYSIS (MD&A) YEAR ENDED JUNE 30,2008 CONTACTING THE TOWN'S FINANCIAL MANAGEMENT This financial report is designed to provide our citizens, taxpayers, customers, and investors and creditors with a general overview of the Town's finances and to demonstrate the Town's accountability for the resources it receives. If you have questions about this report or need additional information,contact the Finance Department,Town of Oro Valley,Arizona, 11000 North La Canada Drive, Oro Valley, Arizona 85737. Page 15 4 (This page intentionally left blank) Page 16 BASIC FINANCIAL STATEMENTS Page 17 (This page intentionally left blank) Page 18 GOVERNMENT-WIDE FINANCIAL STATEMENTS Page 19 (This page intentionally left blank) Page 20 TOWN OF ORO VALLEY,ARIZONA STATEMENT OF NET ASSETS JUNE 30,2008 Governmental Business-type Activities Activities Total ASSETS Current assets: Cash and cash equivalents $ 36,908,789 $ 23,676,233 $ 60,585,022 Taxes receivable 1,501,734 1,501,734 Accounts receivable 2,724,660 2,640,544 5,365,204 Intergovernmental receivable 779,340 779,340 Special assessments 3,565,000 3,565,000 Interest receivable 73,227 41,425 114,652 Prepaid items 26,734 26,734 Total current assets 45,579,484 26,358,202 71,937,686 Noncurrent assets: Deferred bond charges 812,250 3,172,076 3,984,326 Capital assets,non-depreciable 25,397,101 17,369,145 42,766,246 Capital assets,depreciable(net) 113,528,289 69,223,598 182,751,887 Total noncurrent assets 139,737,640 89,764,819 229,502,459 Total assets 185,317,124 116,123,021 301,440,145 LIABILITIES Current liabilities: Accounts payable 2,266,113 1,436,123 3,702,236 Accrued wages and benefits 561,789 51,543 613,332 Intergovernmental payable 68,327 620,642 688,969 Interest payable 222,369 1,411,099 1,633,468 Unearned revenue 235,075 235,075 Customer deposits payable 800,729 159,778 960,507 Compensated absences 1,148,233 102,600 1,250,833 Loans payable 637,164 637,164 Special assessment bonds 205,000 205,000 Revenue bonds 733,900 2,011,100 2,745,000 Total current liabilities 6,241,535 6,430,049 12,671,584 Noncurrent liabilities: Compensated absences 208,103 43,287 251,390 Loans payable 8,000,000 5,094,602 13,094,602 Special assessment bonds 3,360,000 3,360,000 Deferred bond premium 109,604 1,053,258 1,162,862 Revenue bonds 11,449,146 57,575,854 69,025,000 Total non-current liabilities 23,126,853 63,767,001 86,893,854 Total liabilities 29,368,388 70,197,050 99,565,438 NET ASSETS Invested in capital assets,net of related debt 115,177,344 21,274,023 136,451,367 Restricted for: Public safety 354,462 354,462 Highways and streets 4,131,971 4,131,971 Capital outlay 9,089,229 9,089,229 Debt service 263,478 263,478 Other 233,641 233,641 Unrestricted 26,698,611 24,651,948 51,350,559 Total net assets $ 155,948,736 $ 45,925,971 $ 201,874,707 The notes to the financial statements are an integral part of this statement. Page 21 TOWN OF ORO VALLEY,ARIZONA STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30,2008 Net(Expense) Revenue and Changes Program Revenues in Net Assets Operating Capital Charges for Grants and Grants and Governmental Functions/Programs Expenses Services Contributions Contributions Activities Primary Government Governmental activities: General government $ 9,080,766 $ 3,830,060 $ 87,702 $ 4,911,404 $ (251,600) Public safety 14,347,250 69,256 1,434,804 (12,843,190) Highway and streets 7,292,972 211,088 3,698,292 5,353,425 1,969,833 Culture and recreation 3,644,973 73,149 398,205 (3,173,619) Interest on long-term debt 987,074 (987,074) Total governmental activities 35,353,035 4,183,553 5,619,003 10,264,829 (15,285,650) Business-type activities: Water 12,676,275 16,803,950 2,845,903 Stormwater drainage 177,673 357,602 721,180 Total business-type activities 12,853,948 17,161,552 3,567,083 TotalP rimary government $ 48,206,983 $ 21,345,105 $ 5,619,003 $ 13,831,912 (15,285,650) General revenues: Taxes: Sales taxes 17,168,998 Franchise taxes 516,652 Impact fees 910,741 Unrestricted state shared revenues 10,904,654 Investment earnings 1,590,654 Transfers 1,600,000 Total general revenues and transfers 32,691,699 Changes in net assets 17,406,049 Net assets,beginning of year 138,542,687 Net assets,end of year $155,948,736 The notes to the financial statements are an integral part of this statement. Page 22 Net(Expense)Revenue and Changes in Net Assets Business-type Activities Totals $ $ (251,600) (12,843,190) 1,969,833 (3,173,619) (987,074) (15,285,650) 6,973,578 6,973,578 901,109 901,109 7,874,687 7,874,687 7,874,687 (7,410,963) 17,168,998 516,652 910,741 10,904,654 864,494 2,455,148 (1,600,000) (735,506) 31,956,193 7,139,181 24,545,230 38,786,790 177,329,477 $ 45,925,971 $201,874,707 Page 23 (This page intentionally left blank) Page 24 FUND FINANCIAL STATEMENTS Page 25 TOWN OF ORO VALLEY,ARIZONA BALANCE SHEET-GOVERNMENTAL FUNDS JUNE 30,2008 Oracle Road General HURF Debt Service ASSETS Cash and cash equivalents $ 15,945,022 $ 3,431,023 $ 98,759 Taxes receivable 1,501,734 Accounts receivable 371,923 695,464 Intergovernmental receivable 536,207 243,133 Special assessments 3,565,000 Interest receivable 37,015 12,884 Prepaid items 26,734 Total assets $ 18,418,635 $ 4,382,504 $ 3,663,759 LIABILITIES AND FUND BALANCES Liabilities: Accounts payable $ 893,017 $ 317,864 $ 1,800 Accrued wages and benefits 505,849 47,665 Intergovernmental payable 68,255 Interest payable Deferred revenue 235,075 3,565,000 Customer deposits payable 50,051 202 Total liabilities 1,752,247 365,731 3,566,800 Fund balances: Unreserved: Undesignated 16,666,388 4,016,773 96,959 Unreserved reported in: Special revenue funds Debt service funds Capital projects funds Total fund balances 16,666,388 4,016,773 96,959 Total liabilities and fund balances $ 18,418,635 $ 4,382,504 $ 3,663,759 The notes to the financial statements are an integral part of this statement. Page 26 Townwide Roadway Non-Major Total Development Municipal Governmental Governmental Impact Fees Building Funds Funds $ 8,042,863 $ 5,912,584 $ 3,478,538 $ 36,908,789 1,501,734 1,577,985 79,288 2,724,660 779,340 3,565,000 18,487 4,841 73,227 26,734 $ 9,639,335 $ 5,912,584 $ 3,562,667 $ 45,579,484 $ 827,737 $ 14,351 $ 211,344 $ 2,266,113 8,275 561,789 72 68,327 222,369 222,369 3,800,075 750,476 800,729 1,050,106 14,351 970,167 7,719,402 8,589,229 5,898,233 35,267,582 1,517,419 1,517,419 166,519 166,519 908,562 908,562 8,589,229 5,898,233 2,592,500 37,860,082 $ 9,639,335 $ 5,912,584 $ 3,562,667 $ 45,579,484 Page 27 • (This page intentionally left blank Page 28 TOWN OF ORO VALLEY,ARIZONA RECONCILIATION OF THE BALANCE SHEET-GOVERNMENTAL FUNDS TO THE STATEMENT OF NET ASSETS JUNE 30,2008 Total governmental fund balances $ 37,860,082 Amounts reported for governmental activities in the Statement of Net Assets are different because: Capital assets used in governmental acitivities are not financial resources and therefore are not reported in the funds. Governmental capital assets $ 180,215,398 Less accumulated depreciation (41,290,008) 138,925,390 Special assessments receivable are not available to pay for current period expenditures and therefore are not reported in the funds. 3,565,000 Deferred items related to the issuance of bonds are amortized over the life of the associated issuance in the government-wide statements but not reported in the funds. Deferred bond charges 812,250 Deferred bond premium (109,604) 702,646 Long-term liabilites are not due and payable in the current period and therefore are not reported in the funds. Special assessment bonds (3,565,000) Revenue bonds (12,183,046) Loans payable (8,000,000) Compensated absences (1,356,336) (25,104,3 82) Net assets of governmental activities $ 155,948,736 The notes to the financial statements are integral part of this statement. Page 29 TOWN OF ORO VALLEY,ARIZONA STATEMENT OF REVENUES,EXPENDITURES AND CHANGES IN FUND BALANCES- GOVERNMENTAL FUNDS YEAR ENDED JUNE 30,2008 Oracle Road Debt General Fund HURF Service Revenues: Sales taxes $ 13,278,681 $ 2,639,189 $ Franchise taxes 516,652 Impact fees Special assesments 193,023 Intergovernmental 11,773,977 3,698,292 Licenses,fees&permits 2,761,145 31,539 Fines,forfeitures&penalties 294,577 Charges for services 983,094 Contributions and donations Investment earnings 744,393 187,687 172,787 Other 276,611 78,889 Total revenues 30,629,130 6,635,596 365,810 Expenditures: Current- General government 7,992,477 Public safety 13,511,713 Highway and streets 3,549,525 Culture and recreation 3,291,775 Capital outlay 1,684,902 2,037,942 Debt service- Principal retirement 195,000 Interest and fiscal charges 180,439 Total expenditures 26,480,867 5,587,467 375,439 Excess(deficiency)of revenues over expenditures 4,148,263 1,048,129 (9,629) Other financing sources(uses): Loan proceeds Transfers in Transfers out (5,959,581) (678,370) Total other financing sources(uses) (5,959,581) (678,370) Changes in fund balances (1,811,318) 369,759 (9,629) Fund balances,beginning of year 18,477,706 3,647,014 106,588 Fund balances,end of year $ 16,666,388 $ 4,016,773 $ 96,959 The notes to the financial statements are an integral part of this statement. Page 30 Townwide Roadway Non-Major Total Development Governmental Governmental Impact Fees Municipal Building Funds Funds $ $ $ 1,251,128 $ 17,168,998 516,652 910,741 910,741 193,023 5,198,172 1,193,434 21,863,875 2,792,684 97,344 391,921 57,600 1,040,694 249,999 249,999 339,628 31,773 114,386 1,590,654 172,191 28,099 555,790 6,620,732 31,773 2,991,990 47,275,031 775,019 8,767,496 37,457 13,549,170 6,925 551,421 4,107,871 32,291 3,324,066 7,014,301 672,370 1,680,798 13,090,313 2,500,000 708,102 3,403,102 224,994 502,225 907,658 9,746,220 672,370 4,287,313 47,149,676 (3,125,488) (640,597) (1,295,323) 125,355 8,000,000 8,000,000 5,752,000 2,695,951 8,447,951 (210,000) (6,847,951) 8,000,000 5,752,000 2,485,951 9,600,000 4,874,512 5,111,403 — 1,190,628 9,725,355 3,714,717 786,830 1,401,872 28,134,727 $ 8,589,229 $ 5,898,233 $ 2,592,500 $ 37,860,082 Page 31 (This page intentionally left blank Page 32 TOWN OF ORO VALLEY,ARIZONA RECONCILIATION OF THE STATEMENT OF REVENUES,EXPENDITURES AND CHANGES IN FUND BALANCES-GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30,2008 Net changes in fund balances-total governmental funds $ 9,725,355 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 as depreciation expense. Expenditures for capital assets $ 12,682,664 Less current year depreciation (4,186,143) 8,496,521 Capital assets contributed by developers to the Town are not recorded in the governmental funds as they do not provide current financial resources but are recognized in the Statement of Activities as program revenues. 4,422,015 Special assessment revenues in the Statement of Activities do not provide current financial resources and therefore are not reported as revenues in the governmental funds. (195,000) The issuance of long-term debt provides current financial resources to governmental funds,but the issuance increases long-term liabilities in the Statement of Net Assets. (8,000,000) Repayment of debt principal are expenditures in the governmental funds,but the repayment reduces long-term liabilities in the Statement of Net Assets. Loan principal retirement 2,500,000 Bond principal retirement 903,102 3,403,102 Some expenses reported in the Statement of Activities do not require the use of current financial resources and therefore are not reported as expenditures in governmental funds. Amortization of deferred charges (79,416) Compensated absences (234,425) Loss on disposal of capital assets (132,103) (445,944) Change in net assets in governmental activities $ 17,406,049 The notes to the financial statements are integral part of this statement. Page 33 TOWN OF ORO VALLEY,ARIZONA STATEMENT OF NET ASSETS PROPRIETARY FUNDS JUNE 30,2008 Enterprise Funds Non-Major Water Enterprise Fund Total ASSETS Current assets: Cash and cash equivalents $ 23,570,940 $ 105,293 $ 23,676,233 Accounts receivable 2,501,974 138,570 2,640,544 Interest receivable 41,215 210 41,425 Total current assets 26,114,129 244,073 26,3 5 8,202 Noncurrent assets: Deferred bond charges 3,172,076 3,172,076 Capital assets,non-depreciable 17,287,679 81,466 17,369,145 Capital assets,depreciable(net) 68,184,581 1,039,017 69,223,598 Total noncurrent assets 88,644,336 1,120,483 89,764,819 Total assets 114,758,465 1,364,556 116,123,021 LIABILITIES Current liabilities: Accountspay able 1,428,929 7,194 1,436,123 Accrued wages and benefits 49,286 2,257 51,543 Intergovernmental payable 620,642 620,642 Interesty a able 1,411,099 1,411,099 p Customer deposits payable 159,778 159,778 absences 101,034 1,566 102,600 Compensated Loans payable 637,164 637,164 Revenue bonds 2,011,100 2,011,100 Total current liabilities 6,419,032 11,017 6,430,049 Noncurrent liabilities: Compensated absences 42,577 710 43,287 p Loans payable 5,094,602 5,094,602 Deferred bondP remium 1,053,258 1,053,258 Revenue bonds 57,575,854 57,575,854 Total non-current liabilities 63,766,291 710 63,767,001 Total liabilities 70,185,323 11,727 70,197,050 NET ASSETS Invested in capital assets,net of related debt 20,153,540 1,120,483 21,274,023 Unrestricted 24,419,602 232,346 24,651,948 Total net assets $ 44,573,142 $ 1,352,829 $ 45,925,971 The notes to the financial statements are an integral part of this statement. Page 34 TOWN OF ORO VALLEY,ARIZONA STATEMENT OF REVENUES,EXPENSES,AND CHANGES IN FUND NET ASSETS PROPRIETARY FUNDS FOR THE YEAR ENDED JUNE 30,2008 Enterprise Funds Non-Major Water Enterprise Fund Total Operating revenues: Charges for services $ 14,175,476 $ 357,602 $ 14,533,078 Total operating revenues 14,175,476 357,602 14,533,078 Operating expenses: Costs of sales and services 7,164,301 165,217 7,329,518 Depreciation and amortization 2,601,673 12,456 2,614,129 Total operating expenses 9,765,974 177,673 9,943,647 Operating income 4,409,502 179,929 4,589,431 Nonoperating revenues(expenses): Impact fees 512,543 512,543 Connection fees 1,925,656 1,925,656 Investment earnings 864,262 232 864,494 Other 190,275 190,275 Interest expense (2,910,301) (2,910,301) Total nonoperating revenues (expenses) 582,435 232 582,667 Income before capital contributions and transfers 4,991,937 180,161 5,172,098 Capital contributions 2,845,903 721,180 3,567,083 Transfers out (1,600,000) (1,600,000) Changes in net assets 6,237,840 901,341 7,139,181 Total net assets,beginning of year 38,335,302 451,488 38,786,790 Total net assets,end of year $ 44,573,142 $ 1,352,829 $ 45,925,971 The notes to the financial statements are an integral part of this statement. Page 35 TOWN OF ORO VALLEY,ARIZONA STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE YEAR ENDED JUNE 30,2008 Enterprise Funds Non-Major Water Enterprise Fund Total Increase(Decrease)in'Cash and Cash Equivalents Cash flows from operating activities: Cash received from customers $ 13,525,094 $ 582,070 $ 14,107,164 Cash payments to suppliers for goods and services (4,518,028) (350,830) (4,868,858) Cash payments to employees for services (2,284,272) (82,304) (2,366,576) Net cash provided by operating activities 6,722,794 148,936 6,871,730 Cash flows from noncapital and related financing activities: Connection fees 1,925,656 1,925,656 Other revenue 190,275 190;275 Interfund borrowing (1,600,000) (1,600,000) Net cash provided by noncapital financing activities 515,931 515,931 Cash flows from capital and related financing activities: Development impact fees 512,543 512,543 Acquisition of capital assets (8,305,549) (48,411) (8,353,960) Proceeds from loans 6,253,260 6,253,260 Principal paid on long-term debt (2,503,392) (2,503,392) Interest on long-term debt (3,238,557) (3,238,557) Net cash used for capital and related financing activities (7,281,695) (48,411) (7,330,106) Cash flows from investing activities: Investment income 919,551 47 919,598 Net cash provided by investing activities 919,551 47 919,598 Net increase in cash and cash equivalents 876,581 100,572 977,153 Cash and cash equivalents,beginning of year 22,694,359 4,721 22,699,080 Cash and cash equivalents,end of year $ 23,570,940 $ 105,293 $ 23,676,233 Reconciliation of Operating Income to Net Cash Provided by Operating Activities Operating income $ 4,409,502 $ 179,929 $ 4,589,431 Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation and amortization 2,601,673 12,456 2,614,129 Change in assets and liabilities: (Increase)decrease in accounts receivable (671,990) 224,468 (447,522) Increase(decrease)in accounts payable 321,352 (269,462) 51,890 Increase in accrued payroll and employee benefits 12,140 1,344 13,484 Increase in compensated absences payable 28,509 201 28,710 Increase in deposits held for others 21,608 21,608 Total adjustments 2,313,292 (30,993) 2,282,299 Net cash provided by operating activities $ 6,722,794 $ 148,936 $ 6,871,730 Page 36 The notes to the financial statements are an integral part of this statement. TOWN OF ORO VALLEY,ARIZONA NOTES TO FINANCIAL STATEMENTS JUNE 30, 2008 NOTE 1 --SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements of the Town of Oro Valley,Arizona have been prepared in conformity with accounting principles generally accepted in the United States of America as applied to government units. The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. The more significant of the Town's accounting policies are described below. A. Reporting Entity The Town is a municipal entity governed by an elected mayor and council. As required by accounting principles generally accepted in the United States of America, these financial statements present the Town and its component units,entities for which the Town is considered to be financially accountable. Blended component units, although legally separate entities, are, in substance,part of the Town's operations and so data from these units are combined with data of the Town,the primary government. The blended component units presented have a June 30 year end. The financial reporting entity consists of a primary government and its component units. A component unit is a legally separate entity that must be included in the reporting entity in conformity with generally accepted accounting principles. The Town is a primary government that has a separately elected governing body, is legally separate, and is fiscally independent of other state or local governments. Furthermore, component units combined with the Town for financial statement presentation purposes, and the Town, are not included in any other governmental reporting entity. Consequently,the Town's financial statements include the funds of those organizational entities for which its elected governing body is financially accountable. Blended Component Unit—The financial reporting entity presented in these financial statements consists of the Town and one blended component unit. This component unit,discussed below,is included in the Town's reporting entity because of the significance of its operational relationship or financial relationship with the Town. The component unit is governed by a board,substantially or wholly, comprised of the Town's elected council. Separate financial statements are not prepared for the component unit on a stand-alone basis. The Town of Oro Valley Municipal Property Corporation's(MPC)Board of Directors consists of the three members which are appointed by the Town of Oro Valley Town Council. The MPC, which a non-profit corporation incorporated under the laws of the State of Arizona,was originally formed for the purpose of assisting the Town in obtaining financing for acquiring the Canada Hills and Rancho Vistoso water companies. The Town has a contractual obligation for the repayment of the Municipal Property Corporation's Municipal Facilities Revenue Bonds, Series 1996, 1999, 2001, 2003, 2005, and 2007. The activity of the 1996 MPC is reported in the applicable water enterprise fund and the activity of the Series 1999,2001,2003,2005,and 2007 MPC is reported in the applicable water enterprise and governmental funds. All related receivables and payables between the Town and the MPC have been eliminated. Page 37 TOWN OF ORO VALLEY, ARIZONA NOTES TO FINANCIAL STATEMENTS JUNE 30,2008 NOTE 1 --SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd) B. Government-Wide and Fund Financial Statements The government-wide financial statements (i.e.,the statement of net assets and the statement of activities) present financial information about the Town as a whole. The reported information includes all of the nonfiduciary activities of the Town and its component units. For the most part, the effect of internal activity has been removed from these statements. These statements are to between the governmental and business-type activities of the Town. Governmental distinguish a are activities normallysupported by sales taxes and intergovernmental revenues,and are reported pp from business-type activities,which rely to a significant extent on fees and charges for separately typ support. The statement of activities demonstrates the degree to which the direct expenses of a given function 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 a given providedby function or segment and 2) grants and contributions that are restricted to meeting operational o erational or capital requirements of a particular function or segment. Sales taxes, unrestricted state shared revenues, investment income and other items not included among program revenues are reported instead as general revenues. Separate arate financial statements are provided for governmental funds and proprietary funds. Major individualg overnmental funds and the major individual enterprise fund are reported as separate columns in the fund financial statements. C. Measurement Focus, Basis of Accounting, and Financial Statement Presentation Government-wide Financial Statements -- The government-wide financial statements are reported usingthe economic resources measurement focus and the accrual basis of accounting,as p are thero rieta fund financial statements. Revenues are recorded when earned and expenses p p ry are recorded when a liability is incurred, regardless of the timing of related cash flows. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the grantoror provider rovider have been met. As a general rule, the effect of internal activity has been eliminated from theg overnment-wide financial statements; however, the effects of interfund servicesp rovided and used between functions are reported as expenses and program revenues at amounts approximating their external exchange value. Page 38 TOWN OF ORO VALLEY, ARIZONA NOTES TO FINANCIAL STATEMENTS JUNE 30, 2008 NOTE 1 —SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd) grantor or provider have been met. As a general rule, the effect of internal activity has been eliminated from the government-wide financial statements; however, the effects of interfund services provided and used between functions are reported as expenses and program revenues at amounts approximating their external exchange value. Fund Financial Statements — Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose,the Town considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However,debt service expenditures,as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due. Sales taxes, franchise taxes, licenses and permits, charges for services, special assessments and investment income associated with the current fiscal period are all considered to be susceptible to accrual and have been recognized as revenues of the current fiscal period. Grants and similar awards are recognized as revenue as soon as all eligibility requirements imposed by the grantor or provider have been met. Miscellaneous revenue is not susceptible to accrual because generally they are not measurable until received in cash. Grants and similar awards are recognized as revenue as soon as all eligibility requirements imposed by the grantor or provider have been met. Deferred revenue arise when resources are received by the Town before it has legal claim to them, as when grant monies are received prior to meeting all eligibility requirements imposed by the provider. The Town reports the following major governmental funds. General Fund — This fund accounts for all financial resources of the Town, except those required to be accounted for in other funds. Highway User Revenue Fund--This fund is used to account for the Town's share of motor fuel tax revenues. Oracle Road Debt Service Fund--This fund accounts for the special assessment collections and payment of the outstanding Oracle Road bond issue. Page 39 TOWN OF ORO VALLEY, ARIZONA NOTES TO FINANCIAL STATEMENTS JUNE 30,2008 NOTE 1 —SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd) Townwide Roadway Development Impact Fees Fund--This fund accounts for the collection and capital expenditures of the Townwide Roadway Development Impact Fees. Municipal Building Fund--This fund accounts for the bond proceeds issued to acquire land and construct the public works facility. The Town reports the following major proprietary fund. Water Fund—This fund accounts for the costs to operate,construct and finance the Town's water system. Private-sector standards of accounting and financial reporting issued prior to December 1, 1989, generally are followed in both the government-wide and proprietary fund financial statements to the extent that those standards do not conflict with or contradict guidance of the Governmental Accounting Standards Board. Governments also have the option of following subsequent private- sector guidance for their business-type activities and enterprise funds, subject to this same limitation. The Town has elected not to follow subsequent private-sector guidance. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund's principal ongoing operations. The principal operating revenues of the Town's enterprise fund are charges to customers for water and stormwater drainage services. Operating expenses for these funds include the cost of sales and services, depreciation, and amortization. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. When both restricted and unrestricted resources are available for use, it is the Town's policy to use restricted resources first, then unrestricted resources as they are needed. The focus of governmental fund financial statements is on major funds rather than reporting funds by type. Each major fund is presented in a separate column.Non-major funds are aggregated and presented in a single column. D. Investments Nonparticipating interest-earning investment contracts are stated at cost. Money market investments and participating interest investment contracts with a remaining maturity of one year or less at time of purchase are stated at amortized cost. All other investments are stated at fair value. Page 40 TOWN OF ORO VALLEY, ARIZONA NOTES TO FINANCIAL STATEMENTS JUNE 30, 2008 NOTE 1 —SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd) E. Investment Income Investment income is composed of interest and net changes in the fair value of applicable investments. F. Receivables and Payables Activity between funds that is representative of lending/borrowing arrangements outstanding at the end of the fiscal year is referred to as either"due to/from other funds"(i.e.,the current portion of interfund loans) or"advances to/from other funds" (i.e., the non-current portion of interfund loans). All other outstanding balances between funds are reported as"due to/from other funds. All trade receivables are shown net of an allowance for uncollectibles. Trade accounts receivable in excess of 180 days comprise the trade accounts receivable allowance for uncollectibles. G. Prepaid Items Certainpay ments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in the government-wide and fund financial statements. H. Capital Assets Capital assets, which include property, plant, and equipment, are reported in the applicable governmental or business-type activities columns in the government-wide financial statements. Capital assets are defined by the Town as assets with an initial,individual cost of$5,000 or more and an estimated useful life of more than one year. Such assets are recorded at historical cost or estimated historical cost if actual historical cost is not available. Donated capital assets are recorded at estimated fair market value at the date of donation. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend the life of the asset are not capitalized. Major outlays for capital assets and improvements are capitalized as projects are constructed. Interest incurred during the construction phase of capital assets of business-type activities is included as part of the capitalized value of the assets constructed. Page 41 TOWN OF ORO VALLEY,ARIZONA NOTES TO FINANCIAL STATEMENTS JUNE 30,2008 NOTE 1 —SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd) Certain capital assets of the Town are depreciated using the straight line method over the following estimated useful lives: Assets Years Buildings 50 Improvements other than buildings 20-30 Infrastructure 20-50 Vehicles 4-6 Machinery and equipment 7-20 I. Compensated Absences The Town's employee annual and sick leave policies generally provide for granting annual and sick leave with pay. Full-time employees accrue annual leave based on the number of years employed. Employees who terminate employment shall be paid in a lump sum. Full-time employees accumulate sick leave at the rate of one work day per month. Part-time employees whose normal week is twenty hours or more receive sick leave at half the rate of full-time employees. Once an employee has exceeded 480 hours of accrued sick leave,one half of the sick leave balance in excess of the 480 hours shall be paid to theemployee upon separation from employment. The current and long-term liabilities, including related benefits, for accumulated vacation and sick leave are reported on the government-wide financial statements. A liability for these amounts, including related benefits, is reported in governmental funds only if they have matured, for example, as a result of employee leave, resignations and retirements. Generally, resources from the General Fund are used to pay for compensated absences. J. Long-term Obligations In the government-wide financial statements and proprietary fund financial statements,long-term debt and other long-term obligations are reported as liabilities in the applicable business-type activities and proprietary fund type statement of net assets. 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. Page 42 TOWN OF ORO VALLEY, ARIZONA NOTES TO FINANCIAL STATEMENTS JUNE 30, 2008 NOTE 1 --SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Concl'd) K. Fund Equity In the fund financial statements, governmental funds report reservations of fund balance for p amounts that are not available for expenditures or are legally restricted by outside parties for use for a specific purpose. L. Interfund Activity from of cash fr m one fund to another without a requirement for repayment are reported as interfund transfers. Interfund transfers between governmental funds are eliminated in the Statement of Activities. Interfund transfers in the fund statements are reported as other financing sources/uses in governmental funds and after nonoperating revenues/expenses in proprietary funds. M. Estimates The preparation of the 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 amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates. N. Statement of Cash Flows For purposes ofthe he Statement of Cash Flows, the Town considers all highly liquid investments months or less when purchased to be cash equivalents. Cash and cash with a maturity of three un is at June 30 2008 were cash in bank and investments held by the County and State equivalen , Treasurers. Page 43 TOWN OF ORO VALLEY,ARIZONA NOTES TO FINANCIAL STATEMENTS JUNE 30,2008 NOTE 2--STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY p Excess Expenditures Over Budget—At June 30, 2008, the Town had expenditures in a fund that exceeded the budget,however, this does not constitute a violation of any legal provisions. NOTE 3 --CASH AND INVESTMENTS authorize the Town to invest public monies in obligations of the U.S.Government and its A.R.S. agencies, obligations of the State and certain local government subdivisions, interest-bearing g g a , savings accounts and certificates of deposit, collateralized repurchase agreements, certain obligations of U.S. corporations, and certain other securities. The statutes do not include any requirements for credit risk,custodial credit risk,concentration of credit risk,interest rate risk,or foreign currency risk for the Town's investments. The State Treasurer's pools are external investment pools, the Local Government Investment Pool(Pool 5)and Local Government Investment Pool-Government(Pool 7),with no regulatory poolsrequired The are not to register(and are not registered)with the Securities and p Exchange Commission. No comparable oversight is provided for the County Treasurer's investmentpool.ool. The fair value of each participant's position in the State Treasurer and County Treasurer investment poolsapproximates a roximates the value of the participant's shares in the pool. Custodial Creditp Risk— Deposits. Custodial Credit risk is the risk that in the event of bank failure the Town'sdepositsmay not be returned to the Town. The Town does not have a deposit policy for custodial credit risk. As of June 30,2008,the carrying value of the Town's deposits was$407,804 and the bank balance was$819,349,of which$719,349 was exposed to custodial credit risk as uninsureddeposits and Town de osits were collateralized with securities held by the pledging financial institution's trust department. Page 44 TOWN OF ORO VALLEY, ARIZONA NOTES TO FINANCIAL STATEMENTS JUNE 30,2008 NOTE 3—CASH AND INVESTMENTS (Concl'd) At June 30, 2008, the Town's investments consisted of the following. Investment Type Maturities Fair Value Money Market--U.S. Treasuries Less than 1 year $ 6,165,780 County Treasurer's investment pool 108 days average 404,858 State Treasurer's investment pool 5 45 days average 51,877,877 State Treasurer's investment pool 7 23 days average 1,723,502 Total $60,172,017 Interest Rate Risk. The Town does not have a formal investment policy that limits investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates. Credit Risk. The Town has no investment policy that would further limit its investment choices. As of June 30, 2008, the Town's investment in the State and County Treasurers' investment pools did not receive a credit quality rating from a national rating agency. Investments in the State Treasurer's investment pool 7 were rated AAA by Standard and Poor's. For investments in the State Treasurer's investment pool 5,77%of the securities were rated AAA,A+,or Al;all of the remaining securities were rated A- or better by Standard and Poor's. Custodial Credit Risk — Investments. The Town's investment in the State and County Treasurer's investment pools represents a proportionate interest in the pool's portfolio;however, the Town'sp ortion is not identified with specific investments and is not subject to custodial credit risk. Page 45 TOWN OF ORO VALLEY, ARIZONA NOTES TO FINANCIAL STATEMENTS JUNE 30,2008 NOTE 4--RECEIVABLES Receivable balances, net of allowance for uncollectibles, have been disaggregated by type and presented separately in the financial statements with the exception of due from governmental entities. Due from governmental entities,net of allowance for uncollectibles,as of year end for the Town's individual major funds in the aggregate,were as follows. Highway User General Revenue Fund Fund Due from governmental entities: Due from State government $536,207 $243,133 Net due from governmental entities $536,207 $243,133 Governmental funds report deferred revenue in connection with receivables for revenues that are not considered to be available to liquidate liabilities of the current period. Governmental funds also defer revenue recognition in connection with resources that have been received,but not yet earned. At the end of the current fiscal year,the various components of deferred revenue reported in the governmental funds were as follows. Unavailable Unearned Prepaid developer fees (General Fund) $ $ 235,075 Special assessments (Oracle Road Debt Service Fund) 3,565,000 Total deferred revenue for governmental funds $ 3,565,000 $ 235,075 Page 46 TOWN OF ORO VALLEY,ARIZONA NOTES TO FINANCIAL STATEMENTS JUNE 30,2008 NOTE 5—CAPITAL ASSETS A summary of capital asset activity for the fiscal year ended June 30, 2008 follows. Beginning Ending Governmental Activities Balance Increase Decrease Balance Capital assets,not being depreciated: Land $ 17,694,622 $ 343,454 $ $ 18,03 8,076 Construction inro ess 9,708,610 9,634,688 11,984,273 7,359,025 P l� Total capital assets,not being depreciated 27,403,232 9,978,142 11,984,273 25,397,101 Capital assets,being depreciated: Infrastructure 110,082,926 16,866,105 126,949,031 Buildings and improvements 18,956,247 876,313 19,832,560 P Machinery,equipment,e ui ment,and vehicles 7,186,005 1,711,354 860,653 8,036,706 Total capital assets being depreciated 136,225,178 19,453,772 860,653 154,818,297 Less accumulated depreciation for: (33,286,971) Infrastructure (30,151,800) (3,135,171) and im improvements (3,221,675) (411,189) (3,632,864) BuildingsP (4,458,940) (639,783) (728,550) (4,370,173) Machinery,equipment,and vehicles Total accumulated depreciation (37,832,415) (4,186,143) (728,550) (41,290,008) Total capital assets,being depreciated,net 98,392,763 15,267,629 132,103 113,528,289 p Governmental activities capital assets,net $ 125,795,995 $ 25,245,771 $ 12,116,376 $ 138,925,390 Beginning Ending Business-Type a Activities Balance Increase Decrease Balance Capital assets,not being depreciated: $ 2,410,660 Land $ 2,410,660 $ Water rights 6,172,361 2,362,129 8,534,490 g Construction in progress 3,626,425 6,270,850 3,473,279 6,423,996 Total 12,209,446 8,632,979 3,473,279 17,369,146 Capital assets,being depreciated: 84,555,171 Water system 79,048,639 5,506,532 Stormwater system 1,028,602 1,028,602 y Equipment and vehicles 2,539,885 226,210 2,766,095 Total capital assets beingdepreciated 81,588,524 6,761,344 88,349,868 P Less accumulated depreciation for: system (15,400,084) (2,225,341) (17,625,425) Water (11,639) (11,639) Stormwater system Equipment and vehicles (1,294,991) (194,214) (1,489,205) Total accumulated depreciation (16,695,075) (2,431,194) (19,126,269) Total capital assets,being depreciated,net 64,893,449 4,330,150 69,223,599 Business-type activities capital assets,net $ 77,102,895 $ 12,963,129 $ 3,473,279 $ 86,592,745 Page 47 TOWN OF ORO VALLEY, ARIZONA NOTES TO FINANCIAL STATEMENTS JUNE 30,2008 NOTE 5—CAPITAL ASSETS (Concl'd) Depreciation expense was charged to functions/programs as follows: Governmental activities: General government $ 244,092 Public Safety 622,432 Highways and streets 3,001,953 Culture and recreation 317,666 Total depreciation expense--governmental activities $4,186,143 Business-type activities: Water $2,418,738 Stormwater 12,456 Total depreciation expense—business-type activities $2,431,194 Construction Commitments — As of June 30, 2008, the Town was involved in several construction projects. The estimated cost to complete the construction projects is$26.0 million. Page 48 TOWN OF ORO VALLEY, ARIZONA NOTES TO FINANCIAL STATEMENTS JUNE 30,2008 NOTE 6—LOANS PAYABLE the Town received an $8,000,000 loan from the Arizona Department of In the current year, Transportation (ADOT)ns ortationfor streets projects. The loan payable at June 30, 2008, is presented below. Outstanding Due Interest Rate Principal Within Governmental activities: (Including Fees) Maturity June 30, 2008 One Year DOT HELP Loan 3.50% 8/15/11-12 $ 8,000,000 $ A Total $ 8,000,000 $ and interest payments on the governmental activities loans payable at June 30,2008 are Principalp y summarized as follows. Governmental Activities Year ending June 30: Principal Interest 2009 $ $ 222,369 2010 255,760 2011 255,760 2012 6,000,000 255,760 2013 2,000,000 63,940 Total $ 8,000,000 $ 1,053,589 In the current year,the Town received a$3,891,131 loan from the Water Infrastructure Finance y Authority of Arizona for water system projects. The Town also received loan financing for water rights from the Central Arizona Water Conservation District(CAWCD)valued at$2,362,129 to paid back over five years. The loans payable at June 30, 2008 are presented below. be Outstanding Due Interest Rate Principal Within activities: (Including Fees) Maturity June 30, 2008 One Year Business-type 0211,383 WIFA Loan 3.54/0 7/1/08-27 $ 3,891,131 $ CAWCD Loan 5.20% 12/1/08-11 1,840,635 425,781 Total $ 5,731,766 $ 637,164 Page 49 TOWN OF ORO VALLEY,ARIZONA NOTES TO FINANCIAL STATEMENTS JUNE 30, 2008 NOTE 6—LOANS PAYABLE (Concl'd) Principal and interest payments on the business-type activities loans payable at June 30,2008 are p summarized as follows. Business-type Activities Year ending June 30: Principal Interest 2009 $ 637,164 $ 215,722 2010 589,856 206,315 2011 618,166 178,004 2012 647,867 148,305 2013 157,529 117,148 2014-18 875,241 498,143 2019-23 1,041,322 332,063 2024-28 1,164,622 134,468 Total $ 5,731,767 $ 1,830,169 NOTE 7—BONDS PAYABLE Bondspay able at June 30, 2008, consisted of the following outstanding revenue and refunding bonds. The bonds are both callable and noncallable with interest payable semiannually. Taxes and Impact Fees are used to pay bonded debt. Original Outstanding Due Amount Interest Principal Within Purpose Issued Rates Maturity June 30, 2008 One Year Governmental activities: Revenue Bonds, 1999 $ 2,730,462 4.40-4.50% 7/1/08-09 $ 305,000 $ 200,000 Revenue Bonds, 2000 2,580,000 4.80-5.20% 7/1/08-11 445,000 100,000 Revenue Bonds, 2001 3,362,532 4.13-4.63% 7/1/08-13 934,866 139,950 Refunding Revenue Bonds, 2003 5,494,920 2.50-5.00% 7/1/08-19 5,206,250 136,500 Revenue Bonds, 2005 4,164,050 3.25-4.75% 7/1/08-25 3,902,750 157,450 Refunding Revenue Bonds, 2007 1,3 89,180 4.00-5.00% 7/1/09-26 1,3 89,180 Total $ 12,183,046 $ 733,900 Page 50 TOWN OF ORO VALLEY, ARIZONA NOTES TO FINANCIAL STATEMENTS JUNE 30,2008 NOTE 7--BONDS PAYABLE (Cont'd) Annual debt service requirementsto maturityon revenue and refunding bonds for governmental activities at June 30, 2008, are summarized as follows. Governmental Activities Year ending June 30: Principal Interest 2009 $ 733,900 $ 492,749 2010 699,010 462,840 2011 642,750 436,805 2012 878,430 407,287 2013 832,368 371,006 2014-18 4,286,608 1,299,922 2019-23 2,699,590 535,623 2024-27 1,410,390 103,487 Total $ 12,183,046 $ 4,109,719 Original Outstanding Amount Interest Principal Due Within Purpose Issued Rates Maturity June 30, 2008 One Year Business-type activities: Revenue Bonds, 1999 $ 2,199,538 4.40-5.00% 7/1/08-19 $ 2,050,000 $ 170,000 Revenue Bonds, 2001 5,647,468 4.13-4.63% 7/1/08-13 1,570,134 235,050 Revenue Bonds, 2003 31,750,000 3.00-5.00% 7/1/08-28 27,955,000 1,275,000 Bonds, 2003 10,225,080 2.50-5.00% 7/1/08-19 9,668,750 253,500 Refunding Revenue Revenue Bonds, 2005 2,050,950 3.13-4.75% 7/1/08-25 1,922,250 77,550 Refunding Revenue Bonds, 2007 16,420,820 4.00-5.00% 7/1/09-26 16,420,820 Total $ 59,586,954 $2,011,100 Annual debt service requirements to maturity revenue and refunding bonds for business-type activities at June 30, 2008, are summarized as follows. Business-type Activities Year ending June 30: Principal Interest 2009 $ 2,011,100 $ 2,612,750 2010 2,485,990 2,538,280 2011 2,947,250 2,441,361 2012 2,836,570 2,336,112 2013 2,912,632 2,215,034 2014-18 14,523,392 9,252,342 2019-23 15,770,410 5,639,107 2024-28 14,434,610 2,662,386 2029 1,665,000 41,625 Total $ 59,586,954 $29,738,997 Page 51 TOWN OF ORO VALLEY,ARIZONA NOTES TO FINANCIAL STATEMENTS JUNE 30,2008 NOTE 7—BONDS PAYABLE (Concl'd) Pledged revenues—governmental activities. The Town has pledged future sales(excise)tax Pled revenues to repay outstanding revenue bonds and refunding revenue bonds of$12.2 million as of June 3 0, 2008. Proceeds from the original bond issuances, including those subsequently . . • • bonds are paid refunded,provided financing for land acquisition and facility construction. The solely from the Town's sales taxes and are payable through 2027. Total annual principal and interestpay ments for all sales tax revenue bonds are expected to require less than 5% of gross revenues. The totalp rincipal and interest to be paid on the bonds is$16.3 million. The current total sales tax revenues were $30,629,130 and the total principal and interest paid on the bonds was $1,209,252, or 3.9%of gross revenues. Pledged revenues--business-type activities. The Town has pledged future water revenues to repay outstanding revenue bonds and refunding revenue bonds of$59.6 million as of June 30, 200g 8. Proceeds from the original bond issuances, including those subsequently refunded, provided r vided financingfor the construction and improvements to the Town's water systems and infrastructure. The bonds arepaid solely from water utility revenues and are payable through 2029. Total annual principal and interest payments for all water revenue bond issuances are expected to require approximately 25%of gross revenues. The total principal and interest to be p qre pp paid on the bonds is$89.3 million. The current total customer gross revenues were$17,668,212 and the totalrinci al and interest paid on the bonds was $4,434,481, or 25.1% of gross p p revenues. NOTE 8--SPECIAL ASSESSMENT BONDS Special assessment bonds at June 30, 2008,consisted of the following outstanding bonds. The bonds are both callable and noncallable with interest payable semiannually. Special assessments from the Oracle Road Debt Service Fund are used to pay bonded debt. Original Outstanding Due Amount Interest Principal Within Purpose Issued Rates Maturity June 30, 2008 One Year Governmental activities: Special assessments debt $3,945,000 4.20-5.00% 1/1/09-21 $ 3,565,000 $ 205,000 Total $ 3,565,000 $ 205,000 Page 52 TOWN OF ORO VALLEY, ARIZONA NOTES TO FINANCIAL STATEMENTS JUNE 30,2008 NOTE 8—SPECIAL ASSESSMENT BONDS (Concl'd) Annual debt service requirements to maturity on special assessment bonds at June 30,2008,are summarized as follows. Governmental Activities Year ending June 30: Principal Interest 2009 $ 205,000 $ 167,827 2010 215,000 157,577 2011 225,000 146,827 2012 235,000 135,577 2013 250,000 123,827 2014-18 1,415,000 43 8,73 5 2019-21 1,020,000 97,156 Total $ 3,565,000 $1,267,526 NOTE 9—CHANGES IN LONG-TERM LIABILITIES Long-term liabilityactivity for the year ended June 30, 2008 was as follows. g Be innin Ending Due Within Beginning Balance Additions Reductions Balance One Year Governmental activities: Revenuebonds payable $ 12 183 046 $ 733,900 a able $ 12,891,148 $ $ 708,102 > 3 760 000 195,000 3,565,000 205,000 Special assessments payable � � Loan payable 2,500,000 8,000,000 2,500,000 8,000 000 1 121>911 1,579,760 1,345,335 1,356,336 1,148,233 Compensated absences payable Governmental activity long-term liabilities $ 2,087,133 $ 20,273,059 $ 9,579,760 $ 4,748,437 $ 25,104,382 g Beginning Ending Due Within Balance Additions Reductions Balance One Year Business-type activities: Revenue bonds payable $ 61,568,852 $ $ 1,981,898 $ 59,586,954 $ 2,011,100 5,731,766 63 7,164 a able Loan p 6,253,260 521,494 payable Compensated absences payable 117,177 156,393 127,683 145,887 102,600 Business-type activities long-term liabilities $ 2,113,700 59,732,841$ 61,686,029 $ 156,393 $ 2,109,581 $ Page 53 TOWN OF ORO VALLEY, ARIZONA NOTES TO FINANCIAL STATEMENTS JUNE 30,2008 NOTE 10—INTERFUND RECEIVABLES, PAYABLES,AND TRANSFERS At June 30, 2008, interfund balances were as follows. Interfund transfers: Transfers in Municipal Non-Major Building Governmental Transfers out Fund Funds Total General Fund $ 3,702,000 $ 2,257,581 $5,959,581 Highway User Revenue Fund 450,000 228,370 678,370 Hlg y Non-Major Governmental Funds 210,000 210,000 � Water Fund 1,600,000 1,600,000 Total $ 5,752,000 $ 2,695,951 $6,847,951 Transfers were made from the General Fund to subsidize the Public Transportation, Capital Replacement,Pima CountyBond Projects,and Municipal Building Funds. Transfers were Asset made from theHighway General and Hi hwa User Revenue Funds to the Municipal Debt Service Fund to make the requiredprincipal rinci al and interest payments on outstanding bonded indebtedness. Transfers were Highway made from the Hi hUser Revenue and Water Funds to subsidize the Municipal Building Fund. NOTE 11 —CONTINGENT LIABILITIES Compliance -- Amounts received or receivable from grantor agencies are subject to audit and adjustment by grantor agencies, principally the federal government. Any disallowed claims, including amounts alreadycollected, may constitute a liability of the applicable funds. The of expenditures/expenses that may be disallowed by the grantor cannot be amount, 1 f any, determinedalthough this time, althou h the Town expects such amounts, if any,to be immaterial. Page 54 TOWN OF ORO VALLEY,ARIZONA NOTES TO FINANCIAL STATEMENTS JUNE 30,2008 NOTE 12—RISK MANAGEMENT The Towns exposed osed to various risks of loss related to torts;theft of,damage to,and destruction of assets; errors and omissions; injuries to employees; and natural disasters. ' insuranceprotection is provided by the Arizona Municipal Risk Retention Pool,of The Town's the Town is a participating member. The limit for basic coverage is for$2,000,000 per which p p g occurrence on a claims made basis. Excess coverage is for an additional $10,000,000 per occurrence on a follow form, claims made basis. The aggregate limit is also $10,000,000. No significant reduction in insurance coverage occurred during the year and no settlements exceeded insurance coverage during any of the past three fiscal years. The Arizona Municipal Risk Retention Pool is structured such that member premiums are based actuarial review that will provide adequate reserves to allow the Pool to meet its expected on an financial obligations. The Pool has the authority to assess its members additional premiums should reserves and annual premiums be insufficient to meet the Pool's obligations. The Town is insured byArizona Municipal Workers Compensation Pool for potential worker related accidents. NOTE 13--RETIREMENT PLAN Plan Descriptions — The Town contributes to the three plans described below. Benefits are established bystate statute and generally provide retirement,death,long-term disability,survivor, and health insurance premium benefits. Y The Arizona State Retirement System (ASRS) administers a cost-sharing multiple-employer defined benefit ension plan; a cost-sharing multiple employer defined benefit health insurance p premium plan;and a cost-staring,multiple-employer defined benefit long-term disability plan that g covers employees of the State of Arizona and employeesof participating p g political subdivisions and school districts. The ASRS is governed by the Arizona State Retirement System Board according to the provisions of A.R.S. Title 38, Chapter 5, Article 2. The Public Safety Personnel Retirement System (PSPRS) administers agent multiple-employer defined benefitp ension plan and an agent multiple-employer defined benefit health insurance premiumplan that covers public safety personnel who are regularly assigned hazardous duty as employees of the State of Arizona or one of its political subdivisions. The PSPRS, acting as a common investment and administrative agent,is governed by a five-member board,known as The Fund Manager, and 162 local boards according to the provisions of A.R.S. Title 38, Chapter 5, Article 4. Page 55 TOWN OF ORO VALLEY, ARIZONA NOTES TO FINANCIAL STATEMENTS JUNE 30,2008 NOTE 13—RETIREMENT PLAN (Cont'd) The Corrections Officer Retirement Plan(CORP)administers an agent multiple-employer defined benefit pe nsionplan and an agent multiple-employer defined benefit health insurance premium plan that covers certain employees of the State of Arizona's Department of Corrections and Department of Juvenile Corrections, and county employees whose primary duties require direct contact. The CORP is governed by The Fund Manager of PSPRS and the participating inmate local boards according to the provisions of A.R.S. Title 38, Chapter 5, Article 6. publicly Each plan issues a ublicl available financial report that includes its financial statements and information. A report may be obtained by writing or calling the applicable required supplementary plan. ASRS PSPRS/CORP P.O. Box 33910 3010 E. Camelback Road Suite 200 Phoenix, AZ 85012-0250 Phoenix, AZ 85016 (602) 240-2200 or (800) 621-3778 (602)255-5575 Funding policy The Arizona State Legislature establishes and may amend active plan members' and the Town's contribution rates. Cost-sharing plans — The Arizona State Legislature establishes and may amend active plan members' and the Town's contribution rates. For the year ended June 30, 2008, active ASRS members were required bystatute to contribute at the actuarially determined rate of 9.6 percent(9.1 q percent for retirement and0.5 percent for long-term disability) of the members' annual covered payroll and the Town was required bystatute to contribute at the actuarially determined rate of 9.6 q percent(8.05 percent for retirement, .105 percent for health insurance premium,and 0.5 percent for long-term disability)of the members' annual covered payroll. The Town's contributions ributions for the current and two preceding years, all of which were equal to the required contributions, were as follows: Health Benefit Long-Term Disabilit Retirement Fund Supplement Fund Fund Years ended June 30, 2008 $936,503 $122,153 $58,168 2007 678,657 94,383 44,944 2006 355,171 63,748 30,356 Agent plan—For the year ended June 30,2008,active PSPRS members were required by statute to g p percent. 765 of the members' annual covered payroll, and the Town was required to contribute at the actuarially determined rate of 10.12 percent. Page 56 TOWN OF ORO VALLEY, ARIZONA NOTES TO FINANCIAL STATEMENTS JUNE 30,2008 NOTE 13—RETIREMENT PLAN (Cont'd) Annual Pension Cost—The Town's pension cost for the agent plan for the year ended June 30, 2007 and related information follows. PSPRS CORP Contribution rates: Town 10.12% 6.94% Plan members 7.65% 7.96% Annual pension cost $478,027 $35,184 Contributions made $478,027 $35,184 Actuarial valuation date June 30, 2007 June 30, 2007 Actuarial cost method Projected unit credit Projected unit credit Actuarial assumptions: Investment rate of return 8.5% 8.5% Projected salary increases 5.5%-8.5% 5.0% Inflation rate 5.0% 5.0% Amortization method Level percent closed for Level percent closed for unfunded actuarial unfunded actuarial liability, open for excess liability, open for excess Remaining amortization 30 years for unfunded 30 years for unfunded actuarial accrued actuarial accrued liability, 20 years for liability, 20 years for excess excess Asset valuation method Smoothed market value Smoothed market value Trend Information—Information for the agent plan as of most recent actuarial valuations follows. PSPRS: Year Ended Annual Pension Percentage of APC Net Pension June 30, Cost(APC) Contributed Obligation 2005 $ 3 67,3 87 100% -0- 2006 434,478 100 -0- 2007 478,027 100 -0- CORP: Year Ended Annual Pension Percentage of APC Net Pension June 30, Cost(APC) Contributed Obligation 2005 $42,661 100% -0- 2006 40,089 100 -0- 2007 35,184 100 -0- Page 57 TOWN OF ORO VALLEY,ARIZONA NOTES TO FINANCIAL STATEMENTS JUNE 30, 2008 NOTE 13—RETIREMENT PLAN (Concl'd) Funding Progress—An analysis of funding progress for each of the agent plans as of June 30, 2007 follows. PSPRS: Unfunded Liability as Actuarial Actuarial Annual Percentage Valuation Value of Accrued Funding Funded Covered of Covered Date Plan Assets Liability Liability Ratio Payroll Payroll June 30, (a) (b) (a-b) (a/b) (c) ([a-bJ/c) 2005 $10,351,579 $11,338,052 $ (986,473) 91.3% $4,354,983 22.7% 2006 11,345,626 12,654,3 50 (1,308,724) 89.7 4,614,186 28.4 2007 11,996,669 16,700,207 (4,703,538) 71.8 5,306,785 88.6 CORP: Unfunded Liability as Actuarial Actuarial Annual Percentage Valuation Value of Accrued Funding Funded Covered of Covered Date Plan Assets Liability Liability Ratio Payroll Payroll June 30, (a) (b) (a-b) (a/b) (c ) [a-bile) 2005 $788,467 $1,000,086 $(211,619) 78.8% $518,393 40.8% 2006 889,875 1,140,381 (250,506) 78.0 515,269 48.6 2007 960,316 1,278,537 (318,221) 75.1 639,247 49.8 NOTE 14—SUBSEQUENT EVENT In September 2008, the Town's investment in the State Treasurer's Local Government Pool 5 incurred a loss. The potential impact to the Town's financial statements is approximately $682,000. Page 58 SCHEDULES OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES—BUDGET AND ACTUAL (REQUIRED SUPPLEMENTARY INFORMATION) Page 59 TOWN OF ORO VALLEY,ARIZONA SCHEDULE OF REVENUES,EXPENDITURES AND CHANGES IN FUND BALANCES-BUDGET AND ACTUAL-GENERAL FUND YEAR ENDED JUNE 30,2008 Budgeted Variance with Amounts Final Budget Positive Original&Final Actual (Negative) Revenues: Sales taxes $ 12,608,840 $ 13,278,681 $ 669,841 Franchise taxes 426,000 516,652 90,652 Intergovernmental 12,732,768 11,773,977 (958,791) Licenses,fees&permits 1,832,000 2,761,145 929,145 Fines,forfeitures&penalties 210,000 294,577 84,577 Charges for services 873,041 983,094 110,053 Investment earnings 600,000 744,393 144,393 Other 145,000 276,611 131,611 Total revenues 29,427,649 30,629,130 1,201,481 Expenditures: Current- Generalg overnment 19,675,008 7,992,477 11,682,531 Public safety 14,588,297 13,511,713 1,076,584 Culture and recreation 3,910,120 3,291,775 618,345 a ital outlay1,684,902 (1,684,902) Capital p Total expenditures 38,173,425 26,480,867 11,692,558 Excess(deficiency)of revenues over expenditures enditures (8,745,776) 4,148,263 12,894,039 Other financing sources(uses): Transfers out (5,674,102) (5,959,581) (285,479) Total other financing sources(uses) (5,674,102) (5,959,581) (285,479) Change in fund balances (14,419,878) (1,811,318) 12,608,560 Fund balances,July 1,2007 14,419,878 18,477,706 4,057,828 Fund balances,June 30,2008 $ $ 16,666,388 $ 16,666,388 See accompanying notes to this schedule. Page 60 TOWN OF ORO VALLEY,ARIZONA SCHEDULE OF REVENUES,EXPENDITURES AND CHANGES IN FUND BALANCES-BUDGET AND ACTUAL-HURF YEAR ENDED JUNE 30,2008 Budgeted Variance with Amounts Final Budget Positive Original&Final Actual (Negative) Revenues: Sales taxes $ 2,885,758 $ 2,639,189 $ (246,569) Intergovernmental 4,208,579 3,698,292 (510,287) Licenses,fees&permits 31,539 31,539 Investment earnings 187,687 187,687 Other 208,500 78,889 (129,611) Total revenues 7,302,837 6,635,596 (667,241) Expenditures: Current- Highway and streets 9,564,753 3,549,525 6,015,228 Capital outlay 2,037,942 (2,037,942) Total expenditures 9,564,753 5,587,467 3,977,286 Excess(deficiency)of revenues over expenditures (2,261,916) — 1,048,129 3,310,045 Other financing sources(uses): Transfers out (678,370) (678,370) Total other financing sources(uses) (678,370) (678,370) Change in fund balances (2,940,286) 369,759 3,310,045 Fund balances,July 1,2007 2,940,286 3,647,014 706,728 Fund balances,June 30,2008 $ $ 4,016,773 $ 4,016,773 See accompanying notes to this schedule. Page 61 TOWN OF ORO VALLEY, ARIZONA NOTE TO REQUIRED SUPPLEMENTARY INFORMATION JUNE 30,2008 NOTE 1 --BUDGETARY BASIS OF ACCOUNTING The adopted budget of the Town is prepared on the modified accrual basis of accounting. p g Page 62 COMBINING AND INDIVIDUAL FUND FINANCIAL STATEMENTS AND SCHEDULES Page 63 (This page intentionally left blank) Page 64 OTHER MAJOR GOVERNMENTAL FUNDS SCHEDULES OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES--BUDGET AND ACTUAL Page 65 TOWN OF ORO VALLEY,ARIZONA SCHEDULE OF REVENUES,EXPENDITURES AND CHANGES IN FUND BALANCES-BUDGET AND ACTUAL-ORACLE ROAD DEBT SERVICE YEAR ENDED JUNE 30,2008 Budgeted Variance with Amounts Final Budget Positive Original&Final Actual (Negative) Revenues: Special assesments $ 367,709 $ 193,023 $ (174,686) Investment earnings 172,787 172,787 Total revenues 367,709 365,810 (1,899) Expenditures: Debt service- Principal retirement 278,697 195,000 83,697 Interest and fiscal charges 185,797 180,439 5,358 Total expenditures 464,494 375,439 89,055 Change in fund balances (96,785) (9,629) 87,156 Fund balances,July 1,2007 96,785 106,588 9,803 Fund balances,June 30,2008 $ $ 96,959 $ 96,959 Page 66 TOWN OF ORO VALLEY,ARIZONA SCHEDULE OF REVENUES,EXPENDITURES AND CHANGES IN FUND BALANCES-BUDGET AND ACTUAL-TOWNWIDE ROADWAY DEVELOPMENT IMPACT FEES YEAR ENDED JUNE 30,2008 Budgeted Variance with Amounts Final Budget Positive Original&Final Actual (Negative) Revenues: Impact fees $ 1,080,000 $ 910,741 $ (169,259) Intergovernmental 12,720,000 5,198,172 (7,521,828) Investment earnings 339,628 339,628 Other 145,000 172,191 27,191 Total revenues 13,945,000 6,620,732 (7,324,268) Expenditures: Current- Highway and streets 16,586,347 6,925 16,579,422 g Capital outlay 7,014,301 (7,014,301) Debt service- Principal retirement 2,500,000 (2,500,000)Interest and fiscal charges 224,994 (224,994) Total expenditures 16,586,347 9,746,220 6,840,127 Excess(deficiency)of revenues over expenditures (2,641,347) (3,125,488) (484,141) Other financing sources(uses): LoanP roceeds 8,000,000 8,000,000 Total other financing sources(uses) 8,000,000 8,000,000 Change in fund balances (2,641,347) 4,874,512 7,515,859 Fund balances,July 1,2007 2,641,347 3,714,717 1,073,370 Fund balances,June 30,2008 $ $ 8,589,229 $ 8,589,229 • Page 67 TOWN OF ORO VALLEY,ARIZONA SCHEDULE OF REVENUES,EXPENDITURES AND CHANGES IN FUND BALANCES-BUDGET AND ACTUAL-MUNICIPAL BUILDING YEAR ENDED JUNE 30,2008 Budgeted Variance with Amounts Final Budget Positive Original&Final Actual (Negative) Revenues: Investment earnings $ 15,000 $ 31,773 $ 16,773 Total revenues 15,000 31,773 16,773 Expenditures: Capital outlay 6,612,690 672,370 5,940,320 Total expenditures 6,612,690 672,370 5,940,320 Excess(deficiency)of revenues over expenditures (6,597,690) (640,597) _ 5,957,093 Other financing sources(uses): Transfers in 5,752,000 5,752,000 Total other financing sources(uses) 5,752,000 5,752,000 Change in fund balances (845,690) 5,111,403 5,957,093 Fund balances,July 1,2007 845,690 786,830 (58,860) Fund balances,June 30,2008 $ $ 5,898,233 $ 5,898,233 Page 68 NON-MAJOR GOVERNMENTAL FUNDS Page 69 (This page intentionally left blank) Page 70 TOWN OF ORO VALLEY,ARIZONA COMBINING BALANCE SHEET-ALL NON-MAJOR GOVERNMENTAL FUNDS-BY FUND TYPE JUNE 30,2008 Total Non-Major Municipal Debt Governmental Special Revenue Service Capital Projects Funds ASSETS Cash and cash equivalents $ 2,474,121 $ 166,519 $ 837,898 $ 3,478,538 Accounts receivable 79,288 79,288 Interest receivable 4,841 4,841 Total assets $ 2,478,962 $ 166,519 $ 917,186 $ 3,562,667 LIABILITIES AND FUND BALANCES Liabilities: Accounts payable $ 202,720 $ $ 8,624 $ 211,344 Accrued wages and benefits 8,275 8,275 Intergovernmental payable 72 72 Customer deposits payable 750,476 750,476 Total liabilities 961,543 8,624 970,167 Fund balances: Unreserved: Undesignated 1,517,419 166,519 908,562 2,592,500 Total fund balances 1,517,419 166,519 908,562 2,592,500 Total liabilities and fund balances $ 2,478,962 $ 166,519 $ 917,186 $ 3,562,667 Page 71 TOWN OF ORO VALLEY,ARIZONA COMBINING STATEMENT OF REVENUES,EXPENDITURES AND CHANGES IN FUND BALANCES- ALL NON-MAJOR GOVERNMENTAL FUNDS-BY FUND TYPE YEAR ENDED JUNE 30,2008 Municipal Debt Special Revenue Service Capital Projects Revenues: Sales taxes $ 1,251,128 $ $ Intergovernmental 954,044 239,390 Fines,forfeitures&penalties 97,344 Charges for services 57,600 Contributions and donations 249,999 Investment earnings 109,335 5,051 Other 28,099 Total revenues 2,497,550 5,051 489,389 Expenditures: Current- General government 772,242 2,777 Public safety 37,457 Highway and streets 551,421 Culture and recreation 32,291 Capital outlay 923,098 757,700 Debt service- Principal retirement 708,102 Interest and fiscal charges 502,225 Total expenditures 2,316,509 1,210,327 760,477 Excess(deficiency)of revenues over expenditures 181,041 (1,205,276) (271,088) Other financing sources(uses): Transfers in 302,297 1,233,175 1,160,479 Transfers out (210,000) Total other financing sources(uses) 92,297 1,233,175 1,160,479 Change in fund balances 273,338 27,899 889,391 Fund balances,beginning of year 1,244,081 138,620 19,171 Fund balances,end of year $ 1,517,419 $ 166,519 $ 908,562 Page 72 Total Non-Major Governmental Funds $ 1,251,128 1,193,434 97,344 57,600 249,999 114,386 28,099 2,991,990 775,019 37,457 551,421 32,291 1,680,798 708,102 502,225 4,287,313 (1,295,323) 2,695,951 (210,000) 2,485,951 1,190,628 1,401,872 $ 2,592,500 Page 73 (This page intentionally left blank) Page 74 NON-MAJOR SPECIAL REVENUE FUNDS The Special Revenue Funds account for the proceeds of specific revenue sources, other than major capital projects,that are legally restricted to expenditures for specified purposes. Revegetation Assurances — accounts for monies received from developers to help ensure developments are properly revegetated to Town standards. State Seizures and Forfeitures—accounts for state police seizures and forfeitures received by the Town. Federal Seizures and Forfeitures--accounts for federal police seizures and forfeitures received by the Town. Bed Tax— accounts for the collection of the 6 percent bed tax revenues which funds projects for parks a nd recreation, economic development and Naranja Town Site developments. Publicp -- Transportation accounts for the operation of the Town's public transportation system. Page 75 TOWN OF ORO VALLEY,ARIZONA COMBINING BALANCE SHEET-NON-MAJOR SPECIAL REVENUE FUNDS JUNE 30,2008 Revegetation State Seizures Federal Seizures Assurances and Forfeitures and Forfeitures Bed Tax ASSETS Cash and cash equivalents $ 981,861 $ 150,937 $ 206,403 $ 993,755 Interest receivable 2,256 2,048 Total assets $ 984,117 $ 150,937 $ 206,403 $ 995,803 LIABILITIES AND FUND BALANCES Liabilities: Accounts payable able $ $ $ 2,878 $ 181,685 Accrued wages and benefits Intergovernmental payable Customer deposits payable 750,476 Total liabilities 750,476 2,878 181,685 Fund balances: Unreserved: Undesignated 233,641 150,937 203,525 814,118 Total fund balances 233,641 150,937 203,525 814,118 Total liabilities and fund balances $ 984,117 $ 150,937 $ 206,403 $ 995,803 Page 76 Public Transportation Totals $ 141,165 $ 2,474,121 537 4,841 $ 141,702 $ 2,478,962 $ 18,157 $ 202,720 8,275 8,275 72 72 750,476 26,504 961,543 115,198 1,517,419 115,198 1,517,419 $ 141,702 $ 2,478,962 Page 77 TOWN OF ORO VALLEY,ARIZONA COMBINING STATEMENT OF REVENUES,EXPENDITURES AND CHANGES IN FUND BALANCES- NON-MAJOR SPECIAL REVENUE FUNDS YEAR ENDED JUNE 30,2008 Revegetation State Seizures Federal Seizures Assurances and Forfeitures and Forfeitures Revenues: Sales taxes $ $ $ Intergovernmental Fines,forfeitures&penalties 58,802 38,542 Charges for services Investment earnings 47,785 7,626 13,960 Other Total revenues 47,785 66,428 52,502 Expenditures: Current- General government Public safety 12,438 25,019 Highway and streets Culture and recreation Capital outlay 1,273 27,387 Total expenditures 13,711 52,406 Excess(deficiency)of revenues over expenditures 47,785 52,717 96 { Other financing sources(uses): Transfers in Transfers out (210,000) Total other financing sources(uses) (210,000) Change in fund balances (162,215) 52,717 96 Fund balances,beginning of year 395,856 98,220 203,429 Fund balances,end of year $ 233,641 $ 150,937 $ 203,525 Page 78 Public Bed Tax Transportation Totals $ 1,251,128 $ $ 1,251,128 954,044 954,044 97,344 57,600 57,600 23,792 16,172 109,335 28,099 28,099 1,274,920 1,055,915 2,497,550 772,242 772,242 37,457 551,421 551,421 32,291 32,291 180,558 713,880 923,098 985,091 1,265,301 2,316,509 289,829 (209,3 86) 181,041 302,297 302,297 (210,000) 302,297 92,297 289,829 92,911 273,338 524,289 22,287 1,244,081 $ 814,118 $ 115,198 $ 1,517,419 Page 79 TOWN OF ORO VALLEY,ARIZONA COMBINING SCHEDULE OF REVENUES,EXPENDITURES AND CHANGES IN FUND BALANCES-BUDGET AND ACTUAL-NON-MAJOR SPECIAL REVENUE FUNDS YEAR ENDED JUNE 30,2008 Revegetation Assurances Variance- Positive Budget* Actual (Negative) Revenues: Sales taxes $ $ $ Intergovernmental Fines,forfeitures&penalties Charges for services Investment earnings 47,785 47,785 Other Total revenues 47,785 47,785 Expenditures: Current- General government Public safety Highway and streets Culture and recreation Capital outlay Total expenditures Excess(deficiency)of revenues over expenditures 47,785 47,785 Other financing sources(uses): Transfers in Transfers out (210,000) (210,000) Total other financing sources(uses) (210,000) (210,000) Change in fund balances (162,215) (162,215) Fund balances,July 1,2007 395,856 395,856 Fund balances,June 30,2008 $ $ 233,641 $ 233,641 *The Revegetation Assurances Fund was included in the Town's budget,however,the budget was-0-. Page 80 State Seizures and Forfeitures Federal Seizures and Forfeitures Variance- Variance- Positive Positive Budget Actual (Negative) Budget Actual (Negative) $ $ $ $ $ $ 70,000 58,802 (11,198) 100,000 38,542 (61,458) 7,626 7,626 13,960 13,960 70,000 66,428 (3,572) 100,000 52,502 (47,498) 165,767 12,438 153,329 182,804 25,019 157,785 1,273 (1,273) 27,387 (27,387) 165,767 13,711 152,056 182,804 52,406 130,398 (95,767) 52,717 148,484 (82,804) 96 82,900 (95,767) 52,717 148,484 (82,804) 96 82,900 95,767 98,220 2,453 82,804 203,429 120,625 $ $ 150,937 $ 150,937 $ $ 203,525 $ 203,525 (Continued) Page 81 TOWN OF ORO VALLEY,ARIZONA COMBINING SCHEDULE OF REVENUES,EXPENDITURES AND CHANGES IN FUND BALANCES-BUDGET AND ACTUAL-NON-MAJOR SPECIAL REVENUE FUNDS YEAR ENDED JUNE 30,2008 (Concluded) Bed Tax Variance- Positive Budget Actual (Negative) Revenues: Sales taxes $ 1,372,293 $ 1,251,128 $ (121,165) Intergovernmental Fines,forfeitures&penalties Charges for services Investment earnings 23,792 23,792 Other 15,000 (15,000) Total revenues 1,387,293 1,274,920 (112,373) Expenditures: Current- General government 1,878,583 772,242 1,106,341 Public safety Highway and streets Culture and recreation 32,291 (32,291) Capital outlay 180,558 (180,558) Total expenditures 1,878,583 985,091 893,492 Excess(deficiency)of revenues over expenditures (491,290) 289,829 781,119 Other financing sources(uses): Transfers in Transfers out Total other financing sources(uses) Change in fund balances (491,290) 289,829 781,119 Fund balances,July 1,2007 491,290 524,289 32,999 Fund balances,June 30,2008 $ $ 814,118 $ 814,118 Page 82 Public Transportation Totals Variance- Variance- Positive Positive Budget Actual (Negative) Budget Actual (Negative) $ $ $ $ 1,372,293 $ 1,251,128 $ (121,165) 298,286 954,044 655,758 298,286 954,044 655,758 170,000 97,344 (72,656) 57,600 57,600 57,600 57,600 16,172 16,172 109,335 109,335 191,000 28,099 (162,901) 206,000 28,099 (177,901) 489,286 1,055,915 566,629 2,046,579 2,497,550 450,971 1,878,583 772,242 1,106,341 348,571 37,457 311,114 792,401 551,421 240,980 792,401 551,421 240,980 32,291 (32,291) 713,880 (713,880) 923,098 (923,098) 792,401 1,265,301 (472,900) 3,019,555 2,316,509 703,046 (303,115) (209,3 86) 93,729 (972,976) 181,041 1,154,017 302,297 302,297 302,297 302,297 (210,000) (210,000) 302,297 302,297 302,297 92,297 (210,000) (818) 92,911 93,729 (670,679) 273,338 944,017 818 22,287 21,469 670,679 1,244,081 573,402 $ $ 115,198 $ 115,198 $ $ 1,517,419 $ 1,517,419 Page 83 (This page intentionally left blank) Page 84 NON-MAJOR DEBT SERVICE FUNDS Debt Service Funds are created to account for the accumulation of resources for,and the payment of, general long-term debt principal and interest. Municipal Debt Service — accounts for the payments of debt service on the Municipal Property Corporation Revenue Bonds of 1999, 2000, 2001, 2003 Refunding, 2005, and 2007 Refunding. Page 85 (This page intentionally left blank) Page 86 TOWN OF ORO VALLEY,ARIZONA SCHEDULE OF REVENUES,EXPENDITURES AND CHANGES IN FUND BALANCES-BUDGET AND ACTUAL-NON-MAJOR DEBT SERVICE FUND YEAR ENDED JUNE 30,2008 Municipal Debt Service Variance- Positive Budget Actual (Negative) Revenues: Investment earnings $ $ 5,051 $ 5,051 Other 5,000 (5,000) Total revenues 5,000 5,051 51 Expenditures: Debt service- Principal retirement 925,261 708,102 217,159 Interest and fiscal charges 642,978 502,225 140,753 Total expenditures 1,568,239 1,210,327 357,912 Excess(deficiency)of revenues over expenditures (1,563,239) (1,205,276) 357,963 Other financing sources(uses): Transfers in 1,383,899 1,233,175 (150,724) Total other financing sources(uses) 1,383,899 1,233,175 (150,724) Change in fund balances (179,340) 27,899 207,239 Fund balances,July 1,2007 179,340 138,620 (40,720) Fund balances,June 30,2008 $ $ 166,519 $ 166,519 Page 87 (This page intentionally left blank) Page 88 NON-MAJOR CAPITAL PROJECTS FUNDS J Capital Projects Funds are created to account for the purchase or construction of major capital p facilities which are not financed by the general, enterprise, or special revenue funds. Capital Asset Replacement—accounts for revenues dedicated for the routine replacement of Town vehicles, computers, and other equipment. Pima County Bond Projects--accounts for the revenues and expenditures for historic preservation m capital improvements funded by grants and from Pima County bond funds. p p Page 89 (This page intentionally left blank) Page 90 TOWN OF ORO VALLEY,ARIZONA COMBINING BALANCE SHEET-NON-MAJOR CAPITAL PROJECTS FUNDS JUNE 30,2008 Capital Asset Pima County Replacement Bond Projects Totals ASSETS Cash and cash equivalents $ 500,000 $ 337,898 $ 837,898 Accounts receivable 79,288 79,288 Total assets $ 500,000 $ 417,186 $ 917,186 LIABILITIES AND FUND BALANCES Liabilities: Accounts payable $ $ 8,624 $ 8,624 Total liabilities 8,624 8,624 Fund balances: Unreserved: Undesignated 500,000 408,562 908,562 Total fund balances 500,000 408,562 908,562 Total liabilities and fund balances $ 500,000 $ 417,186 $ 917,186 Page 91 (This page intentionally left blank) Page 92 TOWN OF ORO VALLEY,ARIZONA COMBINING STATEMENT OF REVENUES,EXPENDITURES AND CHANGES IN FUND BALANCES- NON-MAJOR CAPITAL PROJECTS FUNDS YEAR ENDED JUNE 30,2008 Capital Asset Pima County Replacement Bond Projects Totals Revenues: Intergovernmental $ $ 239,390 $ 239,390 Contributions and donations 249,999 249,999 Total revenues 489,389 489,389 Expenditures: Current- General government 2,777 2,777 Capital outlay 757,700 757,700 Total expenditures 760,477 760,477 Excess(deficiency)of revenues over expenditures (271,088) (271,088) Other financing sources(uses): Transfers in 500,000 660,479 1,160,479 Total other financing sources(uses) 500,000 660,479 1,160,479 Change in fund balances 500,000 389,391 889,391 Fund balances,beginning of year 19,171 19,171 Fund balances,end of year $ 500,000 $ 408,562 $ 908,562 Page 93 TOWN OF ORO VALLEY,ARIZONA COMBINING SCHEDULE OF REVENUES,EXPENDITURES AND CHANGES IN FUND BALANCES-BUDGET AND ACTUAL-NON-MAJOR CAPITAL PROJECTS FUNDS YEAR ENDED JUNE 30,2008 Capital Asset Replacement Variance- Positive Budget Actual (Negative) Revenues: Intergovernmental $ $ $ Contributions and donations Total revenues Expenditures: Current- General government Capital outlay 500,000 500,000 Total expenditures _ 500,000 500,000 Excess(deficiency)of revenues over expenditures (500,000) 500,000 Other financing sources(uses): Transfers in 500,000 500,000 Total other financing sources(uses) 500,000 500,000 Change in fund balances 500,000 500,000 Fund balances,July 1,2007 Fund balances,June 30,2008 $ $ 500,000 $ 500,000 Page 94 Pima County Bond Projects Totals Variance- Variance- Positive Positive Budget Actual (Negative) Budget Actual (Negative) $ 463,113 $ 239,390 $ (223,723) $ 463,113 $ 239,390 $ (223,723) 249,999 249,999 249,999 249,999 463,113 489,389 26,276 463,113 489,389 26,276 2,777 (2,777) 2,777 (2,777) 834,613 757,700 76,913 1,334,613 757,700 576,913 834,613 760,477 74,136 1,334,613 760,477 574,136 (371,500) (271,088) 100,412 (871,509) (271,088) 600,412 165,000 660,479 495,479 665,000 1,160,479 495,479 165,000 660,479 _ 495,479 665,000 1,160,479 495,479 (206,500) 389,391 595,891 (206,500) 889,391 1,095,891 206,500 19,171 (187,329) 206,500 19,171 (187,329) $ $ 408,562 $ 408,562 $ $ 908,562 $ 908,562 Page 95 (This page intentionally left blank) Page 96 STATISTICAL SECTION The statistical section presents financial statement trends as well as detailed financial and operational information not available elsewhere in the report. The statistical section is intended to enhance the reader's understanding of the information presented in the financial statements,notes to the financial statements,and other supplementary information presented in this report. The statistical section is comprised of the five categories of statistical information presented below. Financial Trends These schedules contain information on financial trends to help the reader understand how the Town's financial position and financial activities have changed over time. Revenue Capacity These schedules contain information to help the reader assess the factors affecting the Town's ability to generate property revenue. Debt Capacity These schedules present information to help the reader evaluate the Town's current levels of outstanding debt as well as assess the Town's ability to make debt payments and/or issue additional debt in the future. Demographic and Economic Information These schedules present various demographic and economic indicators to help the reader understand the environment in which the Town's financial activities take place and to help make comparisons with other school districts. Operating Information These schedules contain information about the Town's operations and various resources to help the reader draw conclusions as to how the Town's financial information relates to the services provided by the Town. Page 97 (This page intentionally left blank) Page 98 'cf• t-- r-- CO CO CO r N- •r-• 07 N. V• CO T-•- Co N d' N. CO CO LC) 0 CY) N. CD N. 0 ' Cr) 0) c0 f` Ln N. N CO CO V• •c- Ln ,-No V• CO N` ` 0 N.N. V• Ln N Ln 1`, LI) N N. T- 0 CO 0) N CD 0) V 0 CO CO N N Ln N N ''StM• LO 0 ‘- "r- ',--• N Ea Co Co Co Eft Ea N. ,-- 0) N. CO N. 0 0 ,- CO 1"-- V" .V' CO 0 CO V" V• 0) 0) CO Ln N. CO N. ,-- C0 0 ' N. N. 00 N. CO 'Sr Vv' N N` �z• CO LC) CO N. 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Q Q 0 O 0 0 0 0 0 O a) N C a)�-• N O O 0 Z\o.\\o C) 0 i- eC W LL.(!)Q U H H (J) 0 .-- co V (D N C0 TOWN OF ORO VALLEY, ARIZONA DIRECT AND OVERLAPPING SALES TAX RATES LAST TEN FISCAL YEARS (UNAUDITED) Town of Oro Town of Oro Town of Oro Valley Town of Oro Fiscal Valley Valley Construction Valley Year Sales Tax Bed Tax Sales Tax Utility Sales Tax Pima County 1999 2.00% 1.00% 2.00% 0.00% 5.60% 2000 2.00% 1.00% 2.00% 0.00% 5.60% 2001 2.00% 3.00% 2.00% 0.00% 5.60% 2002 2.00% 3.00% 2.00% 0.00% 5.60% 2003 2.00% 3.00% 2.00% 0.00% 5.60% 2004 2.00% 3.00% 4.00% 0.00% 5.60% 2005 2.00% 3.00% 4.00% 0.00% 5.60% 2006 2.00% 6.00% 4.00% 0.00% 6.10% 2007 2.00% 6.00% 4.00% 2.00% 6.10% 2008 2.00% 6.00% 4.00% 2.00% 6.10% Source: Arizona Department of Revenue Page 109 rq O 0 O �--tt)C') CO c0 N O M 0 (I I`CA O 0 rn 04 V N ti (D d^,....o9, - ,.....6°.. 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TOWN OF ORO VALLEY,ARIZONA DIRECT AND OVERLAPPING GOVERNMENTAL ACTIVITIES DEBT JUNE 30, 2008 (UNAUDITED) Estimated Estimated Share of Debt Percentage Overlapping Governmental Unit Outstanding Applicable Debt Pima County $ 349,542,000 7.16% $ 25,024,156 Pima County Community College District 44,500,000 7.16% $ 3,185,812 Pima County Flood Control District 725,000 7.16% $ 51,904 Amphitheater Unified School District No. 10 76,740,000 40.03% $ 30,718,834 Town of Oro Valley None 100.00% None Total direct and overlapping debt 58,980,706 Source: Pima County, Pima County Community College District and Amphitheater Unified School District No. 10. (1) Proportion applicable to the Town of Oro Valley,Arizona, is computed on the ratio of secondary assessed valuation for 2007-08. 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TOWN OF ORO VALLEY CALCULATION OF LEGAL DEBT MARGIN JUNE 30, 2008 (UNAUDITED) Net secondary assessed valuation $ 686,707,506 Water, Sewer, Light, Parks, Open Space and Recreational Facility Bonds Debt limit-20% of secondary net assessed valuation $ 137,341,501 Debt applicable to limit General obligation bonds outstanding $ - Less amount set aside for repayment of debt - Net debt applicable to limit - 20% legal debt margin $ 137,341,501 All other general obligation bonds Debt Limit-6% of secondary net assessed valuation 41,202,450 Debt applicable to limit General obligation bonds outstanding $ - Less amount set aside for repayment of debt - Net debt applicable to limit - All other general obligation bonds debt margin 41,202,450 Total legal debt margin $ 178,543,951 Source: Pima County Assessor's Office Page 113 TOWN OF ORO VALLEY,ARIZONA PLEDGED-REVENUE COVERAGE LAST TEN FISCAL YEARS (UNAUDITED) Water Utility Revenue Bonds Fiscal Gross Debt Service Year Revenues Principal Interest Total Coverage 1999 $ 6,173,325 $ 350,000 $ 1,481,921 $ 1,831,921 3.37 2000 8,706,515 425,000 1,627,675 2,052,675 4.24 2001 8,330,951 1,683,544 1,926,914 3,610,458 2.31 2002 9,435,130 1,768,040 2,173,192 3,941,232 2.39 2003 10,380,720 1,578,040 2,395,359 3,973,399 2.61 2004 12,202,664 1,478,710 2,650,195 4,128,905 2.96 2005 12,544,928 1,473,710 2,949,409 4,423,119 2.84 2006 14,989,621 1,907,362 2,888,226 4,795,588 3.13 2007 14,810,173 2,336,330 2,552,081 4,888,411 3.03 2008 17,668,212 1,981,898 2,452,583 4,434,481 3.98 Governmental Revenue Bonds Fiscal Gross Debt Service Year Revenues Principal Interest _ Total _Coverage 1999 $ - $ - $ - $ - 0.00 2000 14,300,536 - 40,606 40,606 352.18 2001 15,220,985 140,000 65,935 205,935 73.91 2002 16,268,695 486,456 320,846 807,302 20.15 2003 16,435,018 346,960 320,599 667,559 24.62 2004 19,837,894 361,290 386,228 747,518 26.54 2005 21,011,720 456,290 433,108 889,398 23.62 2006 25,018,727 452,638 415,640 868,278 28.81 2007 29,200,152 573,670 637,067 1,210,737 24,12 2008 30,629,130 708,102 501,150 1,209,252 25.33 Certificates of Participation Fiscal Gross Debt Service Year Revenues Principal Interest Total Coverage 1999 $11,840,398 $ 310,000 $ 289,039 $ 599,039 19.77 2000 14,300,536 390,000 271,756 661,756 21.61 2001 15,220,985 155,000 253,322 408,322 37.28 2002 16,268,695 160,000 245,938 405,938 40.08 2003 16,435,018 170,000 237,994 407,994 40.28 2004 19,837,894 180,000 15,768 195,768 101.33 2005 21,011,720 190,000 26,690 216,690 96.97 2006 25,018,727 205,000 16,566 221,566 112.92 2007 29,200,152 215,000 5,644 220,644 0.00 2008 30,629,130 - - - 0.00 Special Assessment Fiscal Gross Debt Service Year Revenues Principal Interest - Total Coverage 1999 $ 40,985 $ 90,000 $ 13,050 $ 103,050 0.40 2000 5,048 90,000 6,525 96,525 0.05 2001 - - - - 0.00 2002 - - - - 0.00 2003 - - - - 0.00 2004 - - - - 0.00 2005 - - - - 0.00 2006 - - 176,967 176,967 0.00 2007 379,840 185,000 186,828 371,828 1.02 2008 365,810 195,000 177,577 372,577 0.98 Source: Town of Oro Valley Finance Department Page 114 TOWN OF ORO VALLEY, ARIZONA DEMOGRAPHIC AND ECONOMIC STATISTICS LAST TEN FISCAL YEARS (UNAUDITED) Personal Per Income Capita (thousands Personal Unemployment Year Population of dollars) income Rate 1999 25,455 $ 792,515,970 $ 31,134 2.3% 2000 29,700 952,420,194 32,068 1.9% 2001 29,700 980,992,800 33,030 2.0% 2002 34,050 1,158,413,770 34,021 2.0% 2003 37,260 1,305,649,691 35,042 2.9% 2004 37,700 1,360,700,031 36,093 2.6% 2005 39,310 1,461,373,787 37,176 2.5% 2006 40,215 1,539,868,259 38,291 3.0% 2007 42,551 1,678,195,258 39,440 2.6% 2008 43,651 1,773,226,205 40,623 3.0% Source: US Census Bureau and Arizona Employment statistics Page 115 000000U 000 0 0 60 0 0 0 0 O 000 0 00 N- 000 0 o NO 0 0 0 0 O d' M N ,- CO N d' O M N O O N d' N- 4 O M O NW r r CO N-- .,- 0 0 0 U) U o o 0 o 0 0 0 0 o 0 o 0 0 0 00 U N N O 0 00 CC) LC) 0 OM 0 0 0 0 0 3 M N i-- CON O 466 6 .," N O)CD 6 N 6 0 ON N N 0000000 000 0 0 00 0 0 0 0 00"-- 00000U) 0 000) 0 0 00 M In 0 0 M0466 ,-- 6NN- N- dO) 6 M (Ni cc; N, N CO O pc..) r r r m6 M N M C 0000000 000 0 0 00 0 0 0 0 ,,.,_ N 0000000 00to M 0 00 Cn 0 0 M oo d' M N N r- N O N- d• d' N N r d N-M M N 2 N N Z u' 0 0 0 0 0 0 0 0 0 0 O o 0 0 0 0 0 0 0 � M 00000) 00 000 CO O 0 0 6 o o M U p 00 d' h M N r` N O r+ 4 4 O d' O 4 r` M M N- . 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CL .� F- U) a_ TOWN OF ORO VALLEY, ARIZONA WATER RATES LAST TEN FISCAL YEARS (UNAUDITED) Base Rate Tier 1 Tier 2 Tier 3 Tier 4 GPF Year monthly per 1,000 per 1,000 per 1,000 per 1,000 per 1,000 1999 $ 9.85 $ 1.73 N/A N/A N/A N/A 2000 10.81 1.73 $ 1.85 N/A N/A N/A 2001 11.25 1.78 2.08 $ 2.31 N/A N/A 2002 12.00 1.90 2.35 3.00 N/A N/A 2003 12.00 1.90 2.35 3.00 N/A N/A 2004 12.30 1.92 2.55 3.25 N/A $ 0.21 2005 12.65 1.98 2.68 3.58 N/A 0.21 2006 12.65 1.98 2.68 3.58 N/A 0.21 2007 13.25 2.08 2.81 3.76 N/A 0.25 2008 13.25 2.08 2.81 3.76 $ 5.00 0.40 Source: Town of Oro Valley Water Utility Page 119 r- N CO r CO CO O N N,- 0) O N` 0) rr r O '�- • N co r N N CO O N N ,-- N V) 0) CO CO O N N. 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