Interfund Transfers in 2020 Financial Statements of Local Government, Lecture notes of Business

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COMPREHENSIVE ANNUAL FINANCIAL REPORT FISCAL YEAR ENDED SEPTEMBER 30, 2020 CITY OF TUSCALOOSA, AL CITY OF TUSCALOOSA, ALABAMA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2020 Prepared by: Accounting and Finance Department Susan Snowden, CPA, CGMA, CIA, Chief Financial Officer CITY OF TUSCALOOSA, ALABAMA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2020 Page TABLE OF CONTENTS (CONTINUED) FINANCIAL SECTION (CONTINUED) Combining Statements and Schedules: Combining Balance Sheet – Nonmajor Governmental Funds .................................................................................................................................................. 140 Combining Statement of Revenues, Expenditures and Changes in Fund Balances – Nonmajor Governmental Funds ................................................................................................................................................................... 141 Combining Balance Sheet – Nonmajor Special Revenue Funds ............................................................................................................................... 142 and 143 Combining Statement of Revenues, Expenditures and Changes in Fund Balances – Nonmajor Special Revenue Funds ........................................................................................................................................................................................... 144 and 145 Combining Balance Sheet – Nonmajor Capital Projects Funds ............................................................................................................................................... 146 Combining Statement of Revenues, Expenditures and Changes in Fund Balances – Nonmajor Capital Project Funds .................................................. 147 Supplemental Information Water and Sewer Fund – Schedule of Revenues and Operating Expenses – Budget (GAAP Basis) to Actual .................................................................. 148 STATISTICAL SECTION Statistical Information: Schedule A – Net Position by Component ................................................................................................................................................................................. 149 Schedule B – Changes in Net Position ......................................................................................................................................................................... 150 and 151 Schedule C – Governmental Activities Tax Revenues by Source ........................................................................................................................................... 152 Schedule D – Fund Balances of Governmental Funds ............................................................................................................................................................. 153 Schedule E – Changes in Fund Balances of Governmental Funds ........................................................................................................................... 154 and 155 Schedule F – Total Governmental Activities Tax Revenue by Source .................................................................................................................................... 156 Schedule G – Assessed Value and Estimated Actual Value of Taxable Property ................................................................................................................. 157 CITY OF TUSCALOOSA, ALABAMA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2020 TABLE OF CONTENTS (CONTINUED) Page STATISTICAL SECTION (CONTINUED) Statistical Information (Continued): Schedule H – Property Tax Rates .............................................................................................................................................................................................. 158 Schedule I – Principal Property Taxpayers ................................................................................................................................................................................ 159 Schedule J – Property Tax Valuation, Levies and Collection .................................................................................................................................................. 160 Schedule K – Principal Sales Taxpayers .................................................................................................................................................................................... 161 Schedule L – Sales Tax Rates ..................................................................................................................................................................................................... 162 Schedule M – Ratio of Outstanding Debt by Type..................................................................................................................................................................... 163 Schedule N – Ratio of General Bonded Debt Outstanding ....................................................................................................................................................... 164 Schedule O – Direct and Overlapping Governmental Activities Debt ..................................................................................................................................... 165 Schedule P – Legal Debt Margin Information ............................................................................................................................................................................ 166 Schedule Q – Pledged Revenue Coverage ................................................................................................................................................................................. 167 Schedule R – Demographic and Economic Statistics .............................................................................................................................................................. 168 Schedule S – Principal Employers .............................................................................................................................................................................................. 169 Schedule T – Full-Time Equivalent City Employees by Function ............................................................................................................................................ 170 Schedule U – Water and Sewer Rates ........................................................................................................................................................................................ 171 Schedule V – Operating Indicators by Function ........................................................................................................................................................................ 172 Schedule W – Capital Asset Statistics by Function .................................................................................................................................................................. 173 INTRODUCTORY SECTION The City provides a full range of municipal services including police and fire protection, water and sewer services, solid waste collection, construction and maintenance of streets, infrastructure, community services and general government. In addition, the City also provides funding to external agencies of the City spanning education, parks and recreation, industrial development, mental health, arts and entertainment, transit, library, and community outreach programs. The Reporting Entity This Comprehensive Annual Financial Report includes all funds of the City, as well as its component units. Component units are legally separate entities for which the City is financially accountable. Various potential component units were evaluated to determine whether they should be reported in the City’s Comprehensive Annual Financial Report. Two entities, the Tuscaloosa Tourism and Sports Commission and the Tuscaloosa Parking and Transit Authority, were considered to be part of the City’s reporting entity when it was concluded that the City was financially accountable for these entities. These separate legal entities are reported as discrete component units on the government-wide statements. ECONOMIC CONDITIONS Local Economy The City of Tuscaloosa has a diverse economy and benefits from employment stability provided by major employers including the University of Alabama, Mercedes-Benz U.S. International, DCH Health Systems, and numerous manufacturing companies. While these employers provide valuable economic benefits, the City must continually manage the growing demand for services, as well as provide a desirable place to live for its residents. This is accomplished through strong fiscal policies and collaborative efforts throughout the City’s annual budget process. As part of these efforts, in fiscal year 2019 the City Council passed Elevate Tuscaloosa, a community-driven process for strategically investing in education, cultural arts, tourism, parks, recreation and connectivity. As part of the annual budget process a 1% sales tax was passed, effective October 1, 2019, to fund projects supporting these initiatives. In fiscal year 2020, our local economy was severely impacted by COVID-19. Many local businesses temporarily shut down and once they re-opened, operated at a reduced capacity. Continuous efforts to slow the spread had a significant impact on local businesses, especially our tourism and service industry. Due to social distancing measures, we have continued to see an increased shift in spending from traditional “brick and mortar” retail stores to online retailers. Additionally, as mentioned, Tuscaloosa is home to the University of Alabama, whose football season brings fans from around the country in the fall months. The reduction in games and seating capacity negatively impacted our hotels, restaurants and retail industry as a whole in the beginning months of fiscal year 2021. While these scenarios certainly presented challenges for the City, the Accounting and Finance department was able to identify and implement cost saving measures to ensure a balanced budget for fiscal year 2020. We continue to monitor our revenues monthly as we navigate the unknown, and make adjustments as needed. Aside from the COVID-19 crisis, economic changes in the retail industry continue to be one of the principal issues for the City’s revenue growth. While sales tax collections over the years have been increasing, the growth rate is slowly declining due to the shift in sales from the traditional “brick and mortar” retail stores to online retailers. In 2015, the State of Alabama passed ACT 2015-448, which was the state’s first step in addressing the crippling effect of not capturing and collecting sales tax in our evolving, online retail economy. This legislation established the Simplified Sellers Use Tax or SSUT, which began with voluntary enrollment and allows online retailers to collect a flat 8 percent tax on every sale made to a customer in Alabama. During the 2018 Legislative session, Act 2018-539 was passed, making SSUT mandatory effective January 2019, for all online retailers and third party sellers meeting certain criteria. While the percentage of sales tax collected through this program is substantially less than the traditional sales tax collection, the City has seen significant growth in SSUT collections since the inclusion of third party sellers. The City plans to monitor and participate in future legislation regarding online sales tax collections, in our proactive approach to growing our revenue base. Employment Major Employers The major employers in Tuscaloosa County, their principal activity and the number of employees of each are as follows: The University of Alabama Higher Education 13,784 Mercedes-Benz U.S. International Automobile Manufacturing 4,200 DCH Regional Medical Center Medical Services 3,476 County Board of Education Public Education 2,359 City Board of Education Public Education 1,455 Warrior Met Coal, Inc. Metallurgical Coal Mining 1,350 Michelin/BF Goodrich Tire Manufacturing Aftermarket Tire Manufacturing 1,289 City of Tuscaloosa City Services 1,322 Veterans Administration Hospital Specialized Health Care 1,277 Phifer Incorporated Aluminum/Fiberglass Screening 1,079 Manufacturing Source: Tuscaloosa County Industrial Development Authority. Unemployment Rate As of September 2020, Tuscaloosa’s unemployment rate was 7.4%, an increase of 4.6% over prior year. The increase can be attributed to the COVID-19 crisis, which as mentioned, has severely impacted the restaurant, travel and retail industries. The average unemployment rate is slightly higher than the state of Alabama average of 6.6%, and fell below the U.S. average of 8.7%. We feel Tuscaloosa’s higher unemployment rate could be attributable to our larger tourism and service industry. Tuscaloosa MSA 3.7% 2.8% 74% State of Alabama 3.9% 3.0% 6.6% United States 3.9% 3.7% 8.7% Source: Alabama Department of Labor in cooperation with the Bureau of Labor Statistics, *annual average as of September 2020 Property Taxes Property Tax revenue accounts for approximately 10% of all General Fund revenues and includes real and personal property tax as well as property taxes on automobiles. The growth in the Tuscaloosa residential housing market over recent years has greatly attributed to revenue increases. The chart below shows historical property tax revenue trends over the past five years. Property Tax Revenue Trends 25,000,000 18,921,272 19,308,680 20,000,000 17,708,865 18,496,477 16,686,560 15,000,000 —13,734,771 10,000,000 5,000,000 0 2016 2017 2018 2019 2020 Actual m Budget viii Lodging Tax The City’s lodging tax collections have been negatively impacted by the COVID-19 pandemic. For fiscal year 2020, lodging tax revenues fell short of budget by $2.4 million. While this deficit is certainly concerning, we are encouraged by the monthly improvements we have recently seen in fiscal year 2021. Although there is significant uncertainty surrounding the tourism industry, we find it encouraging that Tuscaloosa has seen significant growth in lodging over the recent years. Current redevelopment efforts are growing our lodging and tourism sectors and increasing the City’s property tax base. Developers continue to target downtown, riverfront, and the McFarland/15" Street Corridor. Just in downtown, we currently have three hotels under construction, one in the permit process and two working through site selection. In addition, we have four other large hotels announced, permitted, and/or under construction in other parts of the city, totaling approximately $100 million in private investment. All together, these projects will add well over 900 additional hotel rooms to the Tuscaloosa market. Below you will find a chart of our lodging tax revenue trends for the last five years. Lodging Tax Revenue Trends 9,000,000 7,846,381 8,068,485 8,000,000 7,233,297 7,000,000 6,686,188 6,091,466 «6,000,000 5,697,315 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 0 2016 2017 2018 2019 2020 Actual m Budget BUDGETS AND STRATEGIC PLANNING Long-term Financial Planning Tuscaloosa’s long-term financial plan is based on sound financial reserves, low debt burden, and conservative revenue growth forecasts. The City anticipates a moderate increase in revenues over the next several years with a continued focus on efficient spending to maintain essential City services to the community. In an effort to continually plan for the future, the Accounting and Finance Department created its Budgets and Strategic Planning Division during a city-wide restructure in 2016. Since then, the Department has developed forecasting techniques based on economic assumptions in an effort to align future anticipated revenues with anticipated projects. Fund Balance and Reserve Policy As authorized by the City Council and contained in the Tuscaloosa City Code chapter 2, the General Fund, the General Fund Reserve, and the Water and Sewer Fund Reserve each have a mandatory unencumbered fund balance that should not be budgeted or otherwise designated for expenditure unless there is an ordinance duly adopted by the City Council declaring that the requested expenditure is required by extraordinary circumstances to preserve and protect the health, safety, and welfare of the citizens of the City or to make debt service payments that the City cannot otherwise finance. The City’s reserve policy requires that at least 10% of the final prior year General Fund operating budget be kept in unassigned fund balance so the City has adequate working capital and can respond to unexpected financial situations. City policy also states that the minimum unrestricted net position in the Water and Sewer Fund be maintained at 30% of operating expenses. Surpluses from the General fund are transferred annually to the General Fund Reserve for Future Improvements Fund (General Fund Reserve) for capital needs. An adjusted surplus amount in the Water and Sewer Fund is transferred annually to the Water and Sewer Reserve for Future Improvements Fund (Water and Sewer Fund Reserve). Designations for capital projects are approved each year as a management control device for the General Fund Reserve and Water and Sewer Fund Reserve. These projects are designated until they are complete and become operational, often spanning a three to five year cycle. Debt Management An important factor in assessing the economic health of the City and its finances is the credit rating assigned by bond rating agencies. The City maintains credit ratings of AAA, Aa and AA with Fitch Ratings, Moody’s Investors Service and Standard & Poor’s, respectively. Tuscaloosa is one of only two cities in Alabama to have the highest rating of AAA. Rating agency reports have referenced a “strong economy with a local stabilizing institutional influence” as a contributing factor to the City’s strong credit ratings. In fiscal year 2019 a 1% sales tax increase was approved by Council, effective October 1, 2019, as part of the Elevate Tuscaloosa plan to support the funding of high priority projects throughout the City of Tuscaloosa. These projects will span education, infrastructure, economic development and public safety. City Council passed the Elevate Tuscaloosa budget as part of the fiscal year 2020 budget et 7 process, with projected net revenues totaling $15,000,000. In : fiscal year 2019, the City signed a memorandum with the Tuscaloosa Public Library and Children’s Hands-On Museum (CHOM) to explore the use of the Tuscaloosa News building as a shared use facility. Over the next several months, the property was purchased by the City and in December 2019 it was announced that $1.25 million would be donated through Nick’s Kids Foundation, as well as the Saban family, to kick start the funding of a new, state of the art interactive learning center to be housed in the previously purchased building. This will be just one of many projects stemming from Elevate Tuscaloosa. The City received its first GFOA budget award for the fiscal year 2020 budget document. An enormous amount of hard work and dedication went into this effort and the City is proud to have received this prestigious award. The City began the curbside farmer’s market in March 2020 in response to the health and safety restrictions enacted by the Alabama Department of Public Health. Customers could visit the City’s website to view a list of vendors and vendor contact information to place their orders. When picking up their orders, customers were able to drive up to the current Farmer’s Market location where a staff member would greet them and assign them a parking space. The staff member would then communicate with the vendor, who would then deliver the goods purchased to the customer’s vehicle. xiii Restart Tuscaloosa, an initiative to invest $15 million through 2022 into public safety, neighborhoods, small businesses, the experience economy, and local agencies was passed during fiscal year 2020. Restart Tuscaloosa works as a catalyst to jumpstart Tuscaloosa’s economy in the wake of the COVID-19 pandemic by setting a strong foundation for Tuscaloosa businesses and residents. Tuscaloosa Tourism and Sports, a component unit of the City, hosted the 2"? annual Druid City Music Festival. The music festival was held virtually, and benefited the Small Business Relief Fund to assist businesses who were negatively affected by COVID-19 pandemic. The City received $6.2 million in CARES act funding to assist with offsetting expenses incurred related to COVID-19. Approximately $36 million in capital projects were completed during the fiscal year and approximately $28 million in construction projects are currently in progress. Notable projects include the completion of Rice Mine road improvements, Gaineswood Waterline Improvements, and 39" Street Sewer Improvements. xiv Upcoming Major Initiatives The City of Tuscaloosa strives to be the most innovative and effectively managed City in the United States of America all while adhering to the Mayor’s core beliefs as summarized below. CORE BELIEFS x & g Economic prosperity Open, efficient and effective Emphasis on comprehensive in all parts of our city customer-friendly planning and infrastructure environment investments Citizen safety in all Highly effective Shared responsibility among areas with swift and pre-k programs employees to provide high effective response level of dedication The fiscal year 2021 budget was built on the foundation of these core beliefs, with a focus on public safety, education, infrastructure, economic development, and employee investment. The following major initiatives were funded: COVID-19 Initiatives e Budget Reduction: Departments and agencies of the City were asked to reduce their operating budget by 38% for General Fund and 12% for Water and Sewer. This reduction was a result of the initial revenue projections when the COVID-19 pandemic began. e Restart Tuscaloosa: Restart Tuscaloosa is an Elevate Tuscaloosa Initiative, which will invests $15 million over the next three years in public safety, neighborhoods, small businesses, and local agencies negatively affected by the COVID-19 pandemic. This initiative will work as a catalyst to jumpstart Tuscaloosa’s economy by setting a strong foundation for Tuscaloosa businesses and residents in the wake of this international pandemic. AWARDS AND ACKNOWLEDGEMENTS Certificate of Achievement The Government Finance Officers Association of the United States and Canada ("GFOA") awarded a Certificate of Achievement for Excellence in Financial Reporting to the City for its Comprehensive Annual Financial Report for the fiscal year ended September 30, 2019, marking the thirty-third consecutive year the City has achieved this prestigious recognition. In order to be awarded a Certificate of Achievement, a government must publish an easily readable and efficiently organized Comprehensive Annual Financial Report that satisfies both generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. However, we believe that our current CAFR continues to meet the Certificate of Achievement Program’s requirements and we are submitting it to the GFOA to determine its eligibility for another award. Acknowledgments The preparation of this report would not have been possible without the talent, effort, and dedication of the entire Accounting and Finance Department staff and the many members of other city departments who responded so positively to the requests for detailed information that accompanies each annual audit. We also wish to express our sincere appreciation to the City Council for their support in maintaining the highest standards of professionalism in planning and conducting the financial affairs of the City of Tuscaloosa. leat Model Vana ondin Walt Maddox Susan Snowden Mayor Chief Financial Officer Organizational Chart Citizens of Tuscaloosa Mayor and City Council Accounting & Finance Office of the City Attorney Human Resources Office of the City Clerk Information Technology Tuscaloosa Police Department Tuscaloosa Fire & Rescue Service Municipal Court Infrastructure & Public Services Urban Development Federal Programs Office of the Mayor Phyllis Odom District 1 Ricky McKinney Municipal Court Judge Raevan Howard District 2 Cynthia Almond District 3 Lee Busby District 4 Kip Tyner District 5 Edwin Pugh District 6 Sonya McKinstry District 7 Susan Snowden Accounting and Finance Department Carly Standridge City Clerk Randy Smith Fire & Rescue LaShonda Kemp Human Resources Chuck Crocker Information Technology Tera Tubbs Infrastructure and Public Services Marion Williams Municipal Court LaParry Howell Community and Neighborhood Services Glenda Webb Office of the City Attorney Brendan Moore Office of Urban Development Brent Blankley Police Executive Branch Department Heads Legislative Branch Judicial Branch Walt Maddox, Mayor xx 300 MULBERRY STREET, SUITE 300 • POST OFFICE BOX 1877 • MACON, GEORGIA 31202-1877 • 478-464-8000 • FAX 478-464-8051 • www.mjcpa.com MEMBERS OF THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS INDEPENDENT AUDITOR’S REPORT To the Honorable Mayor and Members of the City Council Tuscaloosa, Alabama Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City of Tuscaloosa, Alabama (the “City”), as of and for the year ended September 30, 2020, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements as listed in the table of contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We did not audit the financial statements of the Tuscaloosa Tourism and Sports Commission and the Tuscaloosa County Parking and Transit Authority, which represent 100%, respectively, of the assets, net position, and revenues of the aggregate discretely presented component units. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for the Tuscaloosa Tourism and Sports Commission and the Tuscaloosa County Parking and Transit Authority, is based solely on the report of the other auditors. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. 2 An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, based on our audit and the reports of the other auditors, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City as of September 30, 2020, and the respective changes in financial position and, where applicable, cash flows thereof and the respective budgetary comparison for the General Fund for the year then ended in accordance with accounting principles generally accepted in the United States of America. 3 Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Management’s Discussion and Analysis (on pages 5 through 25), the Schedule of Changes in the City’s Net Pension Liability and Related Ratios – Tuscaloosa Police Officers and Firefighters Supplemental Retirement Plan (on page 130), the Schedule of City Contributions – Tuscaloosa Police Officers and Firefighters Supplemental Retirement Plan (on page 131), the Schedule of Pension Investment Returns – Tuscaloosa Police Officers and Firefighters Supplemental Retirement Plan (on page 132), the Schedule of Changes in the City’s Net Pension Liability and Related Ratios – Employees’ Retirement System of Alabama (on page 133), the Schedule of City Contributions – Employees’ Retirement System of Alabama (on page 134), Schedule of Changes in the City’s Net Pension Liability and Related Ratios – Retirement Plan for Hourly Employees of the City of Tuscaloosa (on page 135), the Schedule of City Contributions – Retirement Plan for Hourly Employees of the City of Tuscaloosa (on page 136), Schedule of Changes in the City’s Net Pension Liability and Related Ratios – Tuscaloosa Police Officers and Firefighters Retirement Plan (on page 137), the Schedule of City Contributions – Tuscaloosa Police Officers and Firefighters Retirement Plan (on page 138), and the Schedule of Changes in the City’s Total OPEB Liability and Related Ratios (on page 139) be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City’s basic financial statements. The introductory section, combining and individual nonmajor fund financial statements and schedules, the water and sewer budgetary comparison schedule and the statistical section are presented for purposes of additional analysis and are not a required part of the basic financial statements of the City. 5 MANAGEMENT’S DISCUSSION & ANALYSIS This section of the City of Tuscaloosa, Alabama’s (the “City”) Comprehensive Annual Financial Report presents a narrative overview and analysis of the financial activities of the City for the fiscal year ended September 30, 2020. We encourage readers to consider the information presented here in conjunction with the City’s basic financial statements that immediately follow, along with the letter of transmittal, which can be found in the introductory section of this Comprehensive Annual Financial Report. FINANCIAL HIGHLIGHTS Government-Wide Highlights: Net position - The City’s total assets and deferred outflows of resources exceeded its total liabilities and deferred inflows of resources for fiscal year ended September 30, 2020 by $375,302,632 (net position). The City’s unrestricted net position was negatively impacted by the implementation of GASB Statement No. 68, Accounting for Financial Reporting for Pensions (GASB 68) and GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits other than Pensions. GASB 68 and GASB 75 requires the City to record its proportionate share of unfunded liabilities for pension plans in which it participates and its post-employment health insurance plan. For fiscal year ended September 30, 2020, net position included a negative $98,576,704 for the unrestricted portion. Changes in net position - The City’s total net position increased in fiscal year 2020 by $12,986,104 (an increase of $8,086,622 from governmental activities and $4,899,482 from business-type activities). 6 FINANCIAL HIGHLIGHTS (continued) Fund Highlights: Governmental Funds – Fund Balances – At the close of fiscal year 2020, the City’s governmental funds reported a combined ending fund balance of $76,481,531, an increase of $6,374,077 when compared to the prior year balance. Of this amount, $853,105 represents non-spendable fund balance in the General Fund. Amounts available to be spent include $21,712,959 of restricted fund balance, $12,218,817 of committed fund balance, $28,217,018 of assigned fund balance and $13,479,632 of unassigned fund balance. At the end of the current fiscal year, unrestricted fund balance (the total of the committed, assigned and unassigned components of fund balance) was $53,915,467 or approximately 27% of total governmental expenditures of $199,417,082. Business-Type Activities – At the close of fiscal year 2020, the City’s Business-Type Activity Funds reported a net position of $251,022,657. The change in net position for fiscal year 2020 was a $4,899,482 increase. OVERVIEW OF THE FINANCIAL STATEMENTS This discussion and analysis is intended to serve as an introduction to the City’s basic financial statements. The basic financial statements consist of three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains additional required supplementary information (schedules related to pension liability and funding progress for other postemployment benefits) and other supplemental information (combining financial statements and budgetary and statistical schedules) intended to furnish additional detail to support the basic financial statements. These components are described below: Government-Wide Financial Statements The government-wide financial statements are designed to provide readers with a broad overview of the City’s finances in a manner similar to a private-sector business and are made up of the following two statements: the statement of net position and the statement of activities. The statements provide information about the City as a whole, presenting both an aggregate current view of the City’s finances and a longer-term view of these assets. These are prepared using the economic resources measurement focus and the accrual basis of accounting. The statement of net position presents information on all of the City’s assets and deferred outflows of resources, and liabilities and deferred inflows of resources with the difference reported as net position. This statement combines and consolidates governmental funds, the current financial resources (short-term spendable resources) with the capital assets and long-term obligations. Over time, increases or decreases in net position may serve as a useful indicator of whether the City is improving or deteriorating. Other non-financial factors should also be taken into consideration, such as changes in the City’s sales and property tax base and the condition of the City’s infrastructure (i.e. roads, drainage improvements, storm and sewer lines, etc.) to assess the overall health or financial condition of the City. 7 Government-Wide Financial Statements (continued) The statement of activities presents information that focuses on how the City’s net position changes during the most recent fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses in this statement are some items that will not result in cash flows until future fiscal periods (such as uncollected taxes and earned but unused vacation leave). Both of the government-wide financial statements have separate sections for three different types of programs or activities. These three types of activities are: Governmental activities – The activities in this section are mostly supported by taxes and intergovernmental revenues and for the City include general government, public safety, streets and highways, environmental services, public health, education, culture and recreation, housing, and economic development. Business-type activities – These functions are intended to recover all, or a significant portion, of their costs through user fees and charges to external users of services which include primarily water and sewer utilities. Discretely Presented Component Units – These are operations that have certain independent qualities but for which the City has financial accountability. For the most part, these entities operate similar to private-sector businesses and the business-type activities described above. The City has two discretely presented component units, the Tuscaloosa County Parking and Transit Authority and the Tuscaloosa Tourism and Sports Commission. Complete financial statements of the individual component units can be obtained from their respective administrative offices. Addresses and other additional information about the City’s component units are presented in the notes to the financial statements. The government-wide financial statements can be found on pages 26-28 of this report. Fund Financial Statements A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the City can be divided into the following three categories: governmental funds, proprietary funds and fiduciary funds. 10 GOVERNMENT-WIDE FINANCIAL ANALYSIS Analysis of Net Position As noted earlier, net position may serve over time as a useful indicator of a government’s financial condition. The City’s combined net position totaled $375,302,632 as of September 30, 2020. Analyzing the net position of governmental and business-type activities separately, the governmental activities net position was $124,279,975 and the business-type activities net position was $251,022,657. 2020 2019 2020 2019 2020 2019 Assets and Deferred Outflows of Resources Current and other assets $ 95,363,485 $ 89,450,414 $ 36,782,964 $ 40,777,261 $ 132,146,449 $ 130,227,675 Capital assets 335,378,136 316,772,296 315,069,510 308,359,605 650,447,646 625,131,901 Total assets 430,741,621 406,222,710 351,852,474 349,136,866 782,594,095 755,359,576 Total deferred outflows of resources 48,378,565 35,040,648 6,206,039 4,646,774 54,584,604 39,687,422 Total assets and deferred outflows of resources 479,120,186 441,263,358 358,058,513 353,783,640 837,178,699 795,046,998 Liabilities and Deferred Inflows of Resources Long-term liabilities 323,333,323 291,772,121 92,050,915 92,124,235 415,384,238 383,896,356 Other liabilities 24,703,119 24,115,272 14,498,931 14,273,863 39,202,050 38,389,135 Total liabilities 348,036,442 315,887,393 106,549,846 106,398,098 454,586,288 422,285,491 Total deferred inflows of resources 6,803,769 9,182,612 486,010 1,262,367 7,289,779 10,444,979 Total liabilities and deferred inflows of resources 354,840,211 325,070,005 107,035,856 107,660,465 461,876,067 432,730,470 Net Position Net investment in capital assets 212,335,854 195,622,070 236,429,104 227,543,387 448,764,958 423,165,457 Restricted 25,114,378 25,443,065 - - 25,114,378 25,443,065 Unrestricted (113,170,257) (104,871,782) 14,593,553 18,579,788 (98,576,704) (86,291,994) Total Net Position $ 124,279,975 $ 116,193,353 $ 251,022,657 $ 246,123,175 $ 375,302,632 $ 362,316,528 Governmental Activities Business-Type Activities Total 11 GOVERNMENT-WIDE FINANCIAL ANALYSIS (Continued) Analysis of Net Position (Continued) The largest portion of the City’s net position, $448,764,958 reflects its net investment in capital assets (such as land, buildings, machinery and equipment, infrastructure and construction in progress), less any debt used to acquire those assets that is still outstanding. In fiscal year 2020, the City’s governmental activities capital assets, net of accumulated depreciation, increased by $18,605,840 and business-type activities capital assets, net of accumulated depreciation, increased by $6,709,905 primarily due to the completion of ongoing infrastructure projects and the purchase of the Tuscaloosa News Building. The City uses these capital assets to provide service to citizens, and consequently, they are not available for future spending. Although the City’s investment in capital assets is reported net of related debt, it should be noted that the resources needed to pay this debt must be provided from other sources, since the capital assets cannot be used to liquidate these liabilities. An additional portion of the City’s net position, $25,114,378 represents resources that are subject to external restrictions on how they may be used. In governmental activities, there is a negative unrestricted net position of $113,170,257 largely as a result of the impact of recording the deferred outflows, deferred inflows, net pension and total OPEB liability in accordance with GASB 68 and GASB 75. The net pension liability and total OPEB liability as of September 30, 2020 for governmental activities totaled $160,064,379 and $36,982,982, respectively. The unrestricted net position in business-type activities is $14,593,553. The net pension liability and total OPEB liability as of September 30, 2020 for business-type activities totaled $8,513,070 and $5,690,138, respectively. 12 GOVERNMENT-WIDE FINANCIAL ANALYSIS (Continued) Analysis of Changes in Net Position The following table provides a summary of the City’s change in net position. Governmental activities net position increased by $8,086,622 and the business-type activities net position increased by $4,899,482. The reasons for the increases are discussed in the governmental and business- type activities discussion herein. Such amounts are included in the table that follow: 2020 2019 2020 2019 2020 2019 Revenues Program revenues: Charges for services $ 28,376,310 $ 32,904,434 $ 49,333,560 $ 51,051,580 $ 77,709,870 $ 83,956,014 Operating grants and contributions 53,367,264 52,891,714 - - 53,367,264 52,891,714 Capital grants and contributions 3,198,231 7,471,892 453,399 127,131 3,651,630 7,599,023 General revenues: Sales and use tax 69,196,100 47,666,435 - - 69,196,100 47,666,435 Property tax 19,482,368 19,034,804 - - 19,482,368 19,034,804 Other taxes 14,557,958 16,815,922 - - 14,557,958 16,815,922 Investment earnings 108,894 409,533 13,023 85,970 121,917 495,503 Gain (loss) on disposal of capital assets - 4,733 43,139 62,758 43,139 67,491 Total revenues $ 188,287,125 177,199,467 $ 49,843,121 51,327,439 $ 238,130,246 228,526,906 Expenses Community Services $ 26,063,157 $ 21,692,644 $ - $ - $ 26,063,157 $ 21,692,644 Education 22,731,935 21,646,612 - - 22,731,935 21,646,612 General Government 23,163,585 21,767,822 - - 23,163,585 21,767,822 Infrastructure and public services 35,447,889 33,774,746 - - 35,447,889 33,774,746 Public safety 72,429,503 73,277,078 - - 72,429,503 73,277,078 Urban Development 4,367,239 3,395,063 - - 4,367,239 3,395,063 Interest 3,535,948 4,029,079 - - 3,535,948 4,029,079 Intermodal facility - - 51,269 52,163 51,269 52,163 Water and sewer - - 37,353,617 36,498,015 37,353,617 36,498,015 Total expenses 187,739,256 179,583,044 37,404,886 36,550,178 225,144,142 216,133,222 Increase (decrease) in net position before transfers 547,869 (2,383,577) 12,438,235 14,777,261 12,986,104 12,393,684 Transfers in (out) 7,538,753 6,366,336 (7,538,753) (6,366,336) - - Change in net position 8,086,622 3,982,759 4,899,482 8,410,925 12,986,104 12,393,684 Net position, beginning of year, 116,193,353 112,210,594 246,123,175 237,712,250 362,316,528 349,922,844 Net position, end of year $ 124,279,975 $ 116,193,353 $ 251,022,657 $ 246,123,175 $ 375,302,632 $ 362,316,528 Governmental Activities Business-Type Activities Total 15 GOVERNMENT-WIDE FINANCIAL ANALYSIS (Continued) Governmental Activities - Expenses Significant changes in governmental activities expenses include the following: Overall, governmental expenses increased $8,156,212 (5%) primarily due to initiatives that were funded through the 1% sales tax increase as part of the Elevate Tuscaloosa plan. The sales tax increase was passed to support the funding of projects throughout the City of Tuscaloosa spanning education, infrastructure, economic development and public safety. The sales tax went into effect October 1, 2019. In addition, a 2.2% cost of living increase and two-step (3%) increase was implemented for all employees in fiscal year 2020, which was projected to cost $3,025,952. Education expenses increased $1,085,323, approximately 5%, primarily due to educational initiatives funded through the Elevate Tuscaloosa plan. Specifically, $350,000 was invested for expanding Pre-k programs in the city, $250,000 for the summer learning academy and $500,000 for career and college ready dual-enrollment scholarships. Community Services increased $4,370,513, approximately 20%, the majority of which can be attributed to initiatives funded through the Elevate Tuscaloosa plan, specifically, the purchase of the Tuscaloosa News building for a future project, Saban Center, as well as COVID- 19 relief provided for businesses and the community. Saban Center is a unique public-private partnership that will bring together STEAM programs and interactive learning in one dynamic space. Infrastructure and Public Services increased $1,673,143, approximately 5%, of which $1,317,172 related to parks and recreation initiatives funded through the Elevate Tuscaloosa plan. Initiatives include, improvements to the McDonald Hughes Community Center, Snow Hinton Park and Alabama’s largest all-inclusive playground designed for children and families of all abilities. Other increases can be attributed to salary and benefit increases for employees. Urban Development increased $972,176, approximately 29%, $804,688 of which are the result of increased operational expenditures necessary to support the Elevate Tuscaloosa plan. Other increases can be attributed to salary and benefit increases for employees. 16 GOVERNMENT-WIDE FINANCIAL ANALYSIS (Continued) Governmental Activities – Expenses (Continued) Business-type Activities The City operates a water and sewer utility that is accounted for as an enterprise fund. Total operating revenues decreased by $1,719,811 (3%) while operating expenses increased by $1,196,421 (4%). The Water and Sewer Fund change in net position compared to the prior year decreased by $3,461,167 primarily due to the impact that COVID-19 has had on our water and sewer utility. For example, manufacturing and major commercial customers had reduced operations, which in turn led to reduced water and sewer usage. Although a 3% rate increase was implemented in fiscal year 2020, the impact of the pandemic greatly outweighed the rate increase. The Water and Sewer Fund transferred $7,538,753 to the General Fund for services provided by key General Fund departments including accounting, legal, human resource and information technology services as well as direct expenses incurred from property insurance and workers compensation claims. Community Services 14% Education 12% General Government 12%Infrastructure and public services 19% Public safety 39% Urban Development 2% Interest 2% FY 2020 Governmental Activities Expenses 17 FINANCIAL ANALYSIS OF THE CITY’S FUNDS Governmental Funds As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. The focus of the City’s governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the City’s financing requirements. In particular, unassigned fund balance may serve as a useful measure of a government’s net resources available for spending at the end of the fiscal year. As of the end of the 2020 fiscal year, the City’s governmental funds reported combined ending fund balances of $76,481,531 an increase of $6,374,077 (9%) from the prior year balance. At the end of each fiscal year, the general fund records a transfer to the capital projects fund resulting in a decrease to the unassigned fund balance and an increase to the assigned fund balance for capital projects. For fiscal year 2020, the total transfer was $6,326,469. Of the total fund balance of $76,481,530, $853,105 (1%) constitutes the non-spendable fund balance, which includes amounts that are either not in spendable form or legally or contractually required to be maintained intact. In addition, $21,712,959 (28%) of fund balance is classified as restricted, meaning that funds can only be used for specific purposes defined by enabling legislation or externally imposed limitations. Amounts that can only be used for specific purposes pursuant to constraints of the government’s highest level of decision-making authority are reported as committed fund balance. Committed fund balance represents $12,218,817 (16%) of total fund balance. Amounts that are constrained by the government’s intent to be used for specific purposes, but are neither restricted or committed are reported as assigned fund balance. Assigned fund balance represents $28,217,018 (37%) of total fund balance. The remaining funds that are not classified in any of the other four categories constitute the unassigned fund balance. For the fiscal year ended September 30, 2020, unassigned fund balance represented $13,479,632 (18%) of total fund balance. 20 FINANCIAL ANALYSIS OF THE CITY’S FUNDS (Continued) Governmental Funds - Expenditures (Continued) Capital Projects Fund – Expenditures on capital projects decreased by $4,358,256 (30%) over the prior fiscal year due to the completion of various capital projects in fiscal year 2020. Most notably the 2018 City-Wide Resurfacing project, Brookhaven Drainage project, and the Lurleen Wallace Blvd Improvements project incurred $4.4 million more expenditures in fiscal year 2019 over current year. Disaster Recovery Construction Fund – Expenditures within the disaster recovery fund decreased by $5,006,819 (73%) over the prior fiscal year, the majority of which can be attributed to the substantial completion of major disaster recovery projects such as the 10th Avenue and Alberta Revitalization projects. As previously mentioned, this fund is used to account for grants received under the CDBG-DR grant program and the related costs of the rebuild efforts that are ongoing in Tuscaloosa as a result of the April 27, 2011 tornado that significantly damaged the city. The Alberta Parkway Revitalization project was completed and the 10th Avenue project was substantially completed in fiscal year 2020. Other Governmental Funds – Expenditures shown for these funds, comprised of nonmajor capital project and special revenue funds, increased by $1,802,234 (12%).The Airport Development fund, a non-major special revenue fund, increased by $1,238,105 million in expenditures related to grant funded capital projects at the Tuscaloosa National Airport. Combined expenditures for nonmajor capital projects funds increased by $828,407 due to the timing of various capital projects that are ongoing within these funds. 21 FINANCIAL ANALYSIS OF THE CITY’S FUNDS (Continued) Proprietary Funds The City’s proprietary funds provide the same type of information found in the government-wide financial statements, but in more detail. The following table shows a summarized comparison of the Water and Sewer Fund to the prior year. The City Council has required the Water and Sewer Fund to maintain undesignated net position of at least 30% of actual current year water and sewer operating expenses in the Water and Sewer Fund and the Water and Sewer Reserve for Future Improvements Fund. The Water and Sewer Fund has met this requirement for 2020 and has $14,593,553 in unrestricted funds available for future capital projects. Charges for services decreased due to the impact that COVID-19 has had on our water and sewer utility, as previously discussed in a section above. For financial statement purposes, the Water and Sewer Fund and the Water and Sewer Reserve for Future Improvements Fund are combined. Operating revenues Charges for services $ 48,218,192 $ 49,071,815 Connection fees 745,919 822,790 Cost reimbursement 129,838 169,746 Other 177,977 927,386 Total operating revenues 49,271,926 50,991,737 Operating expenses All departmental expenses 24,565,353 23,751,776 Depreciation 10,479,871 10,097,027 Total operating expenses 35,045,224 33,848,803 Operating income $ 14,226,702 $ 17,142,934 September 30, September 30, 2020 2019 22 BUDGETARY HIGHLIGHTS The City’s budget is prepared according to the laws of the State of Alabama and the City’s budgetary procedure ordinance. Budgets are prepared in the General Fund and the Water and Sewer Fund. Departmental totals are budgeted in both funds, but the City Council (Council) holds each department head accountable for the line items in their budget. In the Capital Projects Fund, the Council designates funds for City projects. The Council has control over the appropriation of funds; however, the Mayor is responsible for the annual budget recommendation to the Council. The budget process begins in May when the departments submit their budget requests for the following fiscal year to the Accounting and Finance Department. The Accounting and Finance Department compiles a report of the expenditure requests and the annual revenue projections. The annual budget hearings are held in June and July with City departments and agencies. The Mayor then adjusts the requests in order to present a balanced General Fund budget and Water and Sewer Fund budget to the Council. During the month of September, the Finance Committee, the Mayor and the Council, review the final recommendation for adjustments before adopting the budget prior to October 1st. The original adopted budget is revised periodically throughout the year to take into account unexpected changes in revenues or expenditures. The final budget is not deemed to be significantly different from the original budget. The Chief Financial Officer has limited ability to approve the movement of funds within the “Other Operating” category of a departmental budget as long as the total department budget does not change. 25 OTHER FINANCIAL MATTERS Internal Service Fund The City’s Health Insurance Fund, an Internal Service Fund, had a positive net position of $563,155 at September 30, 2020, an increase of $276,406 from the prior year. While the City was able to maintain a positive net position in 2020, the change in net position for 2020 was only 40% of the total change for 2019. While the deficit was eliminated in fiscal year 2019 and a positive net position was maintained in 2020, the City continues to be diligent in its efforts to maintain a positive net position in the coming years. Specifically, the City budgeted transfers to the Internal Service Fund of $100,000 in the General Fund and $25,000 in the Water and Sewer Fund in the fiscal year 2021 budget. OTHER MATTERS Acknowledgements The City of Tuscaloosa would like to thank Mayor Walter Maddox, members of the City Council, the City’s department heads, and the Accounting and Finance Department staff for their contributions to this report and their role in the City’s strong financial condition. Contacting the City’s Financial Management This financial report is intended to provide our citizens, taxpayers, customers, investors and creditors with a general overview of the City’s finances and to show the City’s accountability for the funds it receives. Any questions or requests for more information should be directed to the City of Tuscaloosa Finance Department at Post Office Box 2089, Tuscaloosa, Alabama, 35403. The City’s Chief Financial Officer, Susan Snowden, can be reached by telephone at (205) 248-5175. The City’s website is www.tuscaloosa.com. BASIC FINANCIAL STATEMENTS Current Assets Cash and Cash Equivalents $ 58,895,307 $ 17,514,169 $ 76,409,476 $ 840,617 $ 7,543 Investments 160,615 - 160,615 - 507,502 Receivables (net of allowances for uncollectibles) 34,319,111 11,823,327 46,142,438 20,500 - Internal Balances (2,882,338) 2,882,338 - - - Prepaid Items 222,306 42,666 264,972 110,425 - Inventories 600,779 1,572,133 2,172,912 - - Total Current Assets 91,315,780 33,834,633 125,150,413 971,542 515,045 Noncurrent Assets Restricted Assets Cash and Cash Equivalents - 2,948,331 2,948,331 - - Receivables 4,047,705 - 4,047,705 - - Capital Assets Land 17,686,289 2,015,023 19,701,312 - - Equipment Not in Service 2,137,465 - 2,137,465 - - Construction in Progress 20,132,875 8,901,223 29,034,098 - - Capital Assets (net of accumulated depreciation) 295,421,507 304,153,264 599,574,771 228,273 2,549,896 Total Capital Assets (net of accumulated depreciation) 335,378,136 315,069,510 650,447,646 228,273 2,549,896 Total Noncurrent Assets 339,425,841 318,017,841 657,443,682 228,273 2,549,896 Total Assets 430,741,621 351,852,474 782,594,095 1,199,815 3,064,941 Deferred Outflows from Pension 41,876,646 2,714,136 44,590,782 - 249,844 Deferred Outflows from OPEB 5,147,050 800,617 5,947,667 - - Deferred Loss on Debt Refunding 1,354,869 2,691,286 4,046,155 - - Total Deferred Outflows of Resources 48,378,565 6,206,039 54,584,604 - 249,844 Current Liabilities Accounts Payable and Other Current Charges 12,708,552 3,541,723 16,250,275 30,578 174,501 Accrued Interest Payable 1,493,293 659,501 2,152,794 1,573 - Current Portion of Long-Term Debt 10,501,274 10,297,707 20,798,981 4,443 - Total Current Liabilities 24,703,119 14,498,931 39,202,050 36,594 174,501 (Continued) CITY OF TUSCALOOSA STATEMENT OF NET POSITION SEPTEMBER 30, 2020 Primary Government Component Units Commission Authority ASSETS Tuscaloosa Tuscaloosa County Governmental Business-Type Tourism and Sports Parking and Transit DEFERRED OUTFLOWS OF RESOURCES LIABILITIES Activities Activities Total 26 Cash and Cash Equivalents $ 29,103,635 $ 13,229,386 $ 2,123,672 $ 12,469,004 $ 56,925,697 Investments - - - 160,615 160,615 Receivables (net of allowances for uncollectibles) 17,617,115 1,512,851 428,220 10,937,035 30,495,221 Due from Other Governments 3,695,325 - - - 3,695,325 Due from Other Funds 17,323,718 18,736,133 - 8,415,470 44,475,321 Advances to Other Funds 30,020 - - - 30,020 Loans Receivable - - 59,613 3,988,092 4,047,705 Prepaid Items 222,306 - - - 222,306 Inventories 600,779 - - - 600,779 Total Assets $ 68,592,898 $ 33,478,370 $ 2,611,505 $ 35,970,216 $ 140,652,989 Liabilities Accounts Payable and Other Current Charges $ 9,731,280 $ 1,079,859 $ 240,726 $ 1,605,310 $ 12,657,175 Unearned Revenue 466,914 - - - 466,914 Due to Other Funds 29,869,388 1,108,523 865,000 13,102,875 44,945,786 Advances from Other Funds - - 1,445,345 30,020 1,475,365 Total Liabilities 40,067,582 2,188,382 2,551,071 14,738,205 59,545,240 Deferred Inflows of Resources Unavailable Revenue - 742,437 65,324 3,818,457 4,626,218 Total Liabilities and Deferred Inflows of Resources 40,067,582 2,930,819 2,616,395 18,556,662 64,171,458 (Continued) Disaster Recovery Nonmajor Total CITY OF TUSCALOOSA BALANCE SHEET GOVERNMENTAL FUNDS SEPTEMBER 30, 2020 ASSETS LIABILITIES AND DEFERRED INFLOWS OF RESOURCES General Capital Projects Construction Governmental Governmental Fund Fund Fund Funds Funds 29 Fund Balances Nonspendable: Advances $ 30,020 $ - $ - $ - $ 30,020 Prepaid Items 222,306 - - - 222,306 Inventories 600,779 - - - 600,779 Restricted for: Ambulance Franchise Program 478,191 - - - 478,191 Long-term Receivable - - 59,613 3,988,092 4,047,705 Capital Park Maintenance - - - 9,323 9,323 Capital Projects - 3,948,497 - 2,325,840 6,274,337 Garnishments 4,099 - - - 4,099 Grant Projects - - - 108,989 108,989 Municipal Court 911,984 - - - 911,984 Pensions 594,055 - - - 594,055 Road Projects - - - 9,033,762 9,033,762 Salaries and Wages - - - 250,514 250,514 Committed for: Capital Projects - 1,409,314 - 2,046,052 3,455,366 Cemetery Maintenance - - - 134,466 134,466 Law Enforcement and Public Officials Liability 482,775 - - - 482,775 Tourism Enhancement 334,308 - - 203,775 538,083 Elevate Tuscaloosa Fund 7,059,427 - - - 7,059,427 Facility Renewal Projects 548,700 - - - 548,700 Assigned Fiscal Year 2020 Budget 2,891,716 - - - 2,891,716 Council District Improvement Funds 70,000 - - - 70,000 Abandoned Evidence Account 48,012 - - - 48,012 Human Trafficking Taskforce 17,550 - - - 17,550 Future Capital Projects - 25,189,740 - - 25,189,740 Unassigned 14,231,394 - (64,503) (687,259) 13,479,632 Total Fund Balances (Deficits) 28,525,316 30,547,551 (4,890) 17,413,554 76,481,531 Total Liabilities, Deferred Inflows of Resources, and Fund Balances (Deficits) $ 68,592,898 $ 33,478,370 $ 2,611,505 $ 35,970,216 $ 140,652,989 Disaster Recovery Nonmajor Total Governmental Funds CITY OF TUSCALOOSA BALANCE SHEET GOVERNMENTAL FUNDS SEPTEMBER 30, 2020 FUND BALANCES General Capital Projects Construction Governmental Fund Fund Fund Funds The notes to the financial statements are an integral part of this statement. 30 Fund Balances - Governmental Funds $ 76,481,531 Amounts reported for governmental activities in the Statement of Net Position are different because: Capital assets used in governmental activities are not financial resources and, therefore, are not reported in the funds. These assets consist of: Buildings, net of accumulated depreciation $ 90,485,805 Equipment, net of accumulated depreciation 29,615,852 Infrastructure, net of accumulated depreciation 175,319,850 Land 17,686,289 Equipment not in use 2,137,465 Construction in progress 20,132,875 335,378,136 Revenues in the Statement of Activities that do not provide current financial resources are not reported as revenues in the funds. 4,626,218 Long-term receivables associated with the sale of capital assets are not reported in the funds. Receivable for sale of land $ (125,000) Receivable for sale of building 125,000 - Internal service funds are used by the City to charge the costs of health insurance to individual funds. The assets and liabilities of the internal service fund are included in the governmental activities in the Statement of Net Position. (454,930) Long-term liabilities, including warrants payable, are not due and payable in the current period and, therefore, are not reported as fund liabilities. Interest on long-term debt is not accrued in governmental funds, but rather is recognized as an expenditure when due. All liabilities, both current and long-term, are reported in the statement of net position. Warrants payable $ (108,874,614) Section 108 loan (750,000) Capital lease (6,324,502) Installment note payable (1,192,702) Compensated absences (8,845,324) Workers comp liability (4,145,355) Total OPEB liability and related deferred inflows and deferred outflows (33,224,308) Net pension liability, deferred inflows, and deferred outflows, not reported in the funds (123,137,883) Accrued interest payable (1,493,293) Deferred loss on refunding of warrants, to be amortized 1,354,869 Deferred gain on refunding of warrants, to be amortized (465,243) Premiums, to be amortized (4,989,272) Discount, to be amortized 336,647 (291,750,980) Net position of governmental activities $ 124,279,975 CITY OF TUSCALOOSA RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION SEPTEMBER 30, 2020 The notes to the financial statements are an integral part of this statement. 31 Taxes Sales $ 59,265,362 $ 59,539,728 $ 57,714,314 $ (1,825,414) Use 7,109,457 8,283,000 10,157,888 1,874,888 Property 19,308,680 19,308,680 18,921,272 (387,408) Lodging 7,963,485 8,068,485 5,697,315 (2,371,170) Other Taxes 6,849,000 6,849,000 6,742,215 (106,785) Total Taxes 100,495,984 102,048,893 99,233,004 (2,815,889) Licenses and Permits Business Licenses 20,940,000 20,940,000 21,191,407 251,407 Other Licenses and Penalties 1,639,000 1,639,000 1,542,098 (96,902) Building and Other Permits 1,384,000 1,384,000 1,820,736 436,736 Total Licenses and Permits 23,963,000 23,963,000 24,554,241 591,241 Fines and Penalties 2,555,521 2,590,731 1,682,534 (908,197) Use of Property 140,000 392,900 388,477 (4,423) Charges for Current Services Garbage Collection Fees and Tax 1,100,000 1,100,000 1,397,584 297,584 Intergovernmental Revenues Federal and State Grants Revenue 121,841 76,841 3,511,996 3,435,155 Shared from Local Units Public School Bond - Sales Tax 18,335,000 18,335,000 18,365,865 30,865 City Share of County Sales Tax 17,806,118 17,806,118 17,915,920 109,802 Other 1,981,847 1,981,847 2,118,428 136,581 Shared from State 497,000 497,000 988,125 491,125 Total Intergovernmental Revenues 38,741,806 38,696,806 42,900,334 4,203,528 Other Revenues Interest on Investments 22,100 22,100 19,373 (2,727) Cost Reimbursed 1,327,244 1,542,979 1,281,708 (261,271) Other 1,010,818 1,227,415 1,679,985 452,570 Total Other Operating Revenues 2,360,162 2,792,494 2,981,066 188,572 Total Revenues 169,356,473 171,584,824 173,137,240 1,552,416 (Continued) REVENUES CITY OF TUSCALOOSA STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES -BUDGET (GAAP BASIS) AND ACTUAL GENERAL FUND FOR THE YEAR ENDED SEPTEMBER 30, 2020 Actual Amounts Positive Budget Budget Budgetary Basis** (Negative) Variance with Final Budget Original Final **Includes unbudgeted costs added through consolidation of the General Fund for financial statement purposes. 34 Current Operations Community Services Arts and Entertainment $ 4,087,725 $ 13,025,331 $ 12,742,577 $ 282,754 Federal Programs 651,509 651,509 554,695 96,814 Total Community Services 4,739,234 13,676,840 13,297,272 379,568 Education 18,335,000 18,335,000 18,365,865 (30,865) General Government Accounting and Finance 4,583,338 4,689,695 4,443,926 245,769 City Attorney 1,998,751 2,010,751 1,983,769 26,982 City Council 369,822 371,690 302,594 69,096 Human Resources 2,786,280 2,786,280 2,331,676 454,604 Information Technology 5,730,909 5,706,875 5,114,159 592,716 Mayor and City Clerk 1,600,652 1,769,402 1,411,445 357,957 Municipal Court 1,095,080 1,095,080 1,072,133 22,947 Total General Government 18,164,832 18,429,773 16,659,702 1,770,071 Infrastructure and Public Services Administration 1,777,783 1,813,853 1,663,474 150,379 Engineering 1,901,412 2,079,486 1,884,879 194,607 Infrastructure 15,007,382 14,048,518 14,005,486 43,032 Logistics and Asset Management 7,193,845 7,210,567 7,547,106 (336,539) Public Services 9,335,874 10,496,771 9,728,271 768,500 Total Infrastructure and Public Services 35,216,296 35,649,195 34,829,216 819,979 Public Safety Fire and Rescue 24,974,175 25,103,386 25,945,919 (842,533) Jail Costs 500,000 500,000 578,853 (78,853) Police 34,275,742 34,369,546 33,076,470 1,293,076 Total Public Safety 59,749,917 59,972,932 59,601,242 371,690 Urban Development Administration 2,524,036 1,806,331 1,560,351 245,980 Building and Inspections 1,768,594 1,768,594 1,653,765 114,829 Planning 950,260 950,260 830,764 119,496 Total Urban Development 5,242,890 4,525,185 4,044,880 480,305 (Continued) CITY OF TUSCALOOSA STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES -BUDGET (GAAP BASIS) AND ACTUAL GENERAL FUND FOR THE YEAR ENDED SEPTEMBER 30, 2020 Budget Budget Variance with Final Budget Original Final EXPENDITURES Actual Amounts Positive Budgetary Basis** (Negative) **Includes unbudgeted costs added through consolidation of the General Fund for financial statement purposes. 35 Current Operations (Continued) Funds to Other Agencies Alabama Blues Project $ 10,000 $ 10,000 $ 10,000 $ - Arts and Humanities Council of Tuscaloosa 50,000 50,000 50,000 - Arts N Autism 7,500 7,500 7,500 - Boys and Girls Clubs of West Alabama 20,000 20,000 20,000 - Children's Hands-On Museum 145,000 145,000 145,000 - Easter Seals - 35,714 35,714 - Focus 122,500 122,500 122,500 - Habitat for Humanity 26,900 26,900 26,900 - Hope Summer Jobs 100,000 - - - Indian Rivers 50,000 50,000 50,000 - Jemison Foundation 60,000 60,000 60,000 - Kid One Transport 5,000 5,000 5,000 - Murphy African American Friedman Home 8,000 8,000 8,000 - PRIDE 20,000 20,000 20,000 - Theatre Tuscaloosa 15,000 15,000 15,000 - Tuscaloosa Children's Theater 15,000 15,000 15,000 - Tuscaloosa City Board of Education 3,065,473 3,065,473 3,013,570 51,903 Tuscaloosa Community Dancers 10,000 10,000 10,000 - Tuscaloosa County Health Department 130,000 130,000 130,000 - Tuscaloosa County Industrial Development Authority 418,000 418,000 418,000 - Tuscaloosa County Parks and Recreation Authority 4,294,979 4,294,979 4,263,060 31,919 Tuscaloosa City Board of Education 1,100,000 1,100,000 1,100,000 - Tuscaloosa Soil and Water Conservation 12,500 12,500 12,500 - Tuscaloosa Public Library 1,842,309 1,842,309 1,842,309 - Tuscaloosa Sister Cities Commission 120,000 120,000 120,000 - Tuscaloosa Spay Neuter Incentive Program 25,000 25,000 25,000 - Tuscaloosa Symphony Orchestra 35,000 35,000 35,000 - Tuscaloosa Tourism and Sports Commission 1,062,068 1,062,068 1,062,068 - Tuscaloosa Transit Authority 1,358,643 878,029 800,331 77,698 West Alabama Aids Outreach 15,000 15,000 15,000 - West Alabama Regional Commission 36,097 36,097 36,097 - Budgeted Allocation to Other Agencies 162,789 436,581 438,112 (1,531) Total Funds to Other Agencies 14,342,758 14,071,650 13,911,661 159,989 (Continued) Original Final EXPENDITURES (Continued) CITY OF TUSCALOOSA STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES -BUDGET (GAAP BASIS) AND ACTUAL GENERAL FUND FOR THE YEAR ENDED SEPTEMBER 30, 2020 Actual Amounts Positive Budget Budget Budgetary Basis** (Negative) Variance with Final Budget **Includes unbudgeted costs added through consolidation of the General Fund for financial statement purposes. 36 Water and Sewer Fund Intermodal Facility Retail Fund Total Business-Type Activity Funds Internal Service Fund CITY OF TUSCALOOSA STATEMENT OF NET POSITION PROPRIETARY FUNDS SEPTEMBER 30, 2020 Business-Type Activities Non-Major Deferred Loss on Debt Refunding $ 2,691,286 $ - $ 2,691,286 $ - Deferred Outflows from OPEB 800,617 - 800,617 - Deferred Outflows from Pension 2,714,136 - 2,714,136 - Total Deferred Outflows of Resources 6,206,039 - 6,206,039 - Current Liabilities Accounts Payable 3,155,157 10,152 3,165,309 51,377 Accrued Payables 376,414 - 376,414 - Due to Other Funds 12,421,497 - 12,421,497 31,093 Compensated Absences 177,720 - 177,720 - Accrued Interest Payable 659,501 - 659,501 - Current Portion of Revolving Loans Payable 2,695,000 - 2,695,000 - Current Portion of Lease Payable 114,987 - 114,987 - Current Portion of Warrants Payable 7,310,000 - 7,310,000 - Total Current Liabilities 26,910,276 10,152 26,920,428 82,470 Noncurrent Liabilities Warrants Payable, Net 46,224,967 - 46,224,967 - Revolving Loans Payable 24,523,486 - 24,523,486 - Capital Lease Payable 463,252 - 463,252 - Total OPEB Liability 5,690,138 - 5,690,138 - Unearned Revenue 22,571 - 22,571 - Developer Deposits on Water Lines 2,193,440 - 2,193,440 - Customer Deposits 2,948,331 - 2,948,331 - Compensated Absences 930,963 - 930,963 - Net Pension Liabilities 8,513,070 - 8,513,070 - Workers Compensation Claims 540,697 - 540,697 - Outstanding Claims Liability - - - 1,535,200 Total Noncurrent Liabilities 92,050,915 - 92,050,915 1,535,200 Total Liabilities 118,961,191 10,152 118,971,343 1,617,670 (Continued) LIABILITIES DEFERRED OUTFLOWS OF RESOURCES The notes to the financial statements are an integral part of this statement. 39 Water and Sewer Fund Intermodal Facility Retail Fund Total Business-Type Activity Funds Internal Service Fund CITY OF TUSCALOOSA STATEMENT OF NET POSITION PROPRIETARY FUNDS SEPTEMBER 30, 2020 Business-Type Activities Non-Major Deferred Inflows from OPEB $ 213,405 $ - $ 213,405 $ - Deferred Inflows from Pension 272,605 - 272,605 - Total Deferred Inflows of Resources 486,010 - 486,010 - Net Investment in Capital Assets 236,429,104 - 236,429,104 - Unrestricted 13,538,633 36,835 13,575,468 563,155 Total Net Position $ 249,967,737 $ 36,835 250,004,572 $ 563,155 Adjustment to reflect the consolidation of internal service fund activites related to the enterprise fund 1,018,085 Net Position of Business-Type Activities $ 251,022,657 DEFERRED INFLOWS OF RESOURCES NET POSITION The notes to the financial statements are an integral part of this statement. 40 Water and Sewer Fund Intermodal Facility Retail Fund Total Business-Type Activity Funds Internal Service Fund Operating Revenues Charges for Services $ 48,218,192 $ - $ 48,218,192 $ 18,018,447 Connection Fees 745,919 - 745,919 - Cost Reimbursement 129,838 22,501 152,339 - Other 177,977 39,133 217,110 - Total Operating Revenues 49,271,926 61,634 49,333,560 18,018,447 Operating Expenses Accounting and Finance 245,347 - 245,347 - Infrastructure and Public Services: Engineering 581,417 - 581,417 - Logistics and Asset Management 14,354,130 - 14,354,130 - Public Services 4,666 - 4,666 - Infrastructure 5,079,194 - 5,079,194 - Urban Development 1,068,065 - 1,068,065 - Damage Claims 8,855 - 8,855 - Depreciation 10,479,871 - 10,479,871 - Special Projects 2,464,303 - 2,464,303 - Other 759,376 51,269 810,645 - Insurance Claims and Expenses - - - 17,742,433 Total Operating Expenses 35,045,224 51,269 35,096,493 17,742,433 Operating Income 14,226,702 10,365 14,237,067 276,014 (Continued) Business-Type Activity Non-Major CITY OF TUSCALOOSA STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET POSITION PROPRIETARY FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2020 The notes to the financial statements are an integral part of this statement. 41 Fund Retail Fund Activity Funds Fund Activity Non-Major Total Water and Sewer Intermodal Facility Business-Type Internal Service Business-Type CITY OF TUSCALOOSA STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2020 Cash and cash equivalents, beginning of year Current assets $ 23,907,870 $ 18,353 $ 23,926,223 $ 1,624,307 Restricted assets 2,865,594 - 2,865,594 - Total cash and cash equivalents, beginning of year 26,773,464 18,353 26,791,817 1,624,307 Cash and cash equivalents, end of year Current assets 17,490,890 23,279 17,514,169 1,969,610 Restricted assets 2,948,331 - 2,948,331 - Total cash and cash equivalents, end of year $ 20,439,221 $ 23,279 $ 20,462,500 $ 1,969,610 Reconciliation of operating income to net cash Provided by operating activities: Operating income $ 14,226,702 $ 10,365 $ 14,237,067 $ 276,014 Adjustmets to reconcile operating income to net cash provided by operating activities Depreciation 10,479,871 - 10,479,871 - (Increase) decrease in operating assets Accounts receivable (2,317,307) (8,717) (2,326,024) (68,704) Inventory 47,049 - 47,049 - Prepaids 142,248 - 142,248 - Unbilled water and sewer receivables 1,289,383 - 1,289,383 - Due from other funds - - - (25,000) Deferred outflows - pensions (626,585) - (626,585) - Deferred outflows - OPEB (676,542) - (676,542) - (Continued) The notes to the financial statements are an integral part of this statement. 44 Fund Retail Fund Activity Funds Fund Activity Non-Major Total Water and Sewer Intermodal Facility Business-Type Internal Service Business-Type CITY OF TUSCALOOSA STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2020 Reconciliation of operating income to net cash (Continued) Provided by operating activities: Increase (decrease) in operating liabilities Accounts payable $ (284,870) $ 3,278 $ (281,592) $ 33,797 Accrued payables 79,627 - 79,627 - Customer deposits 82,737 - 82,737 - Due to other funds - - - 31,093 Advances from other funds (805,925) - (805,925) (160,878) Compensated absences 126,619 - 126,619 - Developer deposits (621,825) - (621,825) - Net pension liabilities 1,647,410 - 1,647,410 - Total OPEB liability 1,029,234 - 1,029,234 - Unearned revenue 11,565 - 11,565 - Outstanding claims liability - - - 258,589 Deferred inflows - pensions (737,299) - (737,299) - Deferred inflows - OPEB (39,058) - (39,058) - Workers comp claims 397 - 397 - Net cash provided by operating activities $ 23,053,431 $ 4,926 $ 23,058,357 $ 344,911 Non-cash Capital and Financing Activities . Capital assets transferred from governmental activities Donated capital assets $ 420,370 $ - $ 420,370 $ - Net non-cash capital and financing activities $ 420,370 $ - $ 420,370 $ - The notes to the financial statements are an integral part of this statement. 45 Police Officers and Firefighters Supplemental Retirement Plan Fund Agency Fund Cash Bond Cash and Cash Equivalents $ 432,305 $ 78,678 Total Assets 432,305 78,678 Accounts Payable 92 - Cash Bond Deposits Payable - 78,678 Total Liabilities 92 78,678 Restricted for Benefits $ 432,213 $ - ASSETS LIABILITIES NET POSITION CITY OF TUSCALOOSA STATEMENT OF FIDUCIARY NET POSITION FIDUCIARY FUNDS SEPTEMBER 30, 2020 The notes to the financial statements are an integral part of this statement. 46 CITY OF TUSCALOOSA, ALABAMA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2019 48 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements of the City of Tuscaloosa, Alabama (the “City”) have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) 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 City's accounting policies are described below. A. The Financial Reporting Entity The City was incorporated on December 13, 1819. The City operated under a Commission form of government until October 7, 1985. At that time, the City began operating under a Mayor and seven-member council form of government. The City provides the following services and operations as authorized by its charter: public safety (police and fire); public works; parks and recreation; housing and development; and public utilities (water and sewer). As required by, these financial statements include the accounts of all City operations and all activities of the City. As required by GAAP, the financial statements of the reporting entity include those of the City (the primary government) and its component units. The component units discussed below are included in the City’s reporting entity because of the significance of their operational and financial relationship with the City. In conformity with GAAP, as set forth in GASB No. 61, The Financial Reporting Entity: Omnibus an amendment of GASB Statements No. 14 and No. 34, the component units’ financial statements have been included as either blended or discretely presented. All of the City’s component units have a September 30 year-end. As of September 30, 2020, the City does not have any blended component units. Discretely Presented Component Units Tuscaloosa Tourism and Sports Commission, Inc. (the “Commission”) – promotes the City through tourism and sporting events. The majority of the Board of Directors are appointed by the City Council. The City provides the majority of the Commission’s support through a portion of the lodging tax received by the City. The Commission is presented as a proprietary fund type. Separate financial statements for the Commission can be obtained from the Tuscaloosa Tourism and Sports Commission, Inc., PO Box 3167, Tuscaloosa, Alabama 35403. NOTES TO FINANCIAL STATEMENTS 49 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) A. The Financial Reporting Entity (Continued) Discretely Presented Component Units (Continued) Tuscaloosa County Parking and Transit Authority (the “TPTA”) – provides public transportation to the residents of the City. The majority of the members of the Board of Directors are appointed by the City Council and the City has provided substantial funding in the past. The TPTA is presented as a proprietary fund type. Separate financial statements for the TPTA can be obtained from the Tuscaloosa County Parking and Transit Authority, 601 23rd Ave., Tuscaloosa, Alabama 35401. B. Government-wide and Fund Financial Statements The government-wide financial statements (i.e., the Statement of Net Position and the Statement of Activities) report information using the economic resources measurement focus, as do the proprietary fund and the fiduciary fund financial statements. Agency funds, however, have no measurement focus. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of the related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. Governmental fund 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 City considers property taxes to be available if they are collected within 60 days of the end of the current fiscal period for which they are levied. Other revenues susceptible to accrual are considered available if they are collected within 90 days of the end of the current fiscal period, or one year for intergovernmental revenues. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due. NOTES TO FINANCIAL STATEMENTS 50 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) B. Government-wide and Fund Financial Statements (Continued) 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 provided by a given function or segment, and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues. Separate financial statements are provided for governmental funds, proprietary funds and fiduciary funds, even though the latter are excluded from the government-wide financial statements. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements. C. Measurement Focus, Basis of Accounting and Basis of Presentation The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the proprietary fund and the fiduciary fund financial statements, although the agency funds have no measurement focus. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of the related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due. NOTES TO FINANCIAL STATEMENTS 53 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) C. Measurement Focus, Basis of Accounting and Basis of Presentation (Continued) When both restricted and unrestricted resources are available for use, it is the City’s policy to use restricted resources first, then unrestricted resources as they are needed. D. Budgets and Budgetary Accounting Annual budgets are employed each year as a management control device by the adoption of budgets for the General Fund and the Water and Sewer Fund. Project length financial plans are adopted for capital projects. Budgets are not prepared for other governmental fund types or proprietary fund types; consequently, there is no statement of revenues and expenditures, budget and actual, for these funds. An annual budget for the Water and Sewer Enterprise Fund is adopted on a basis consistent with GAAP. Budgets for the General Fund are adopted on a basis consistent with GAAP, except that budgets and budgetary schedules are prepared using encumbrance accounting under which purchase orders, contracts and other commitments for the expenditure of monies are recorded. All unencumbered appropriations lapse at fiscal year-end. Encumbrance accounting is used for governmental funds. Encumbrances (e.g., purchase orders, contracts) outstanding at year-end lapse and do not constitute expenditures or liabilities because the commitments will be re-appropriated and honored during the subsequent year. The City follows these procedures in establishing the budget each year: 1. The Mayor submits to the City Council a proposed operating budget for the fiscal year commencing October 1. Budgets are prepared for the General Fund and the Water and Sewer Enterprise Fund by fund, function, department and object. The operating budget includes proposed expenditures and the means of financing them. 2. The budget, as adopted by the City Council, is at the department level. The finance director is authorized to approve limited changes to certain line items of the budget within a department as long as the total budget for the department does not change. Council action is required for a change to the budget where the total budget for that department changes, and also for certain specific line items. Any increase must be funded by additional available resources at the time of the amendment. NOTES TO FINANCIAL STATEMENTS 54 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) E. Cash and Cash Equivalents Cash equivalents are defined as short-term, highly liquid investments that are both readily convertible to known amounts of cash and so near their maturity that they present insignificant risk of changes in value because of changes in interest rates. Generally, only investments with original maturities of three months or less meet this definition. F. Deposits and Investments The City’s cash and cash equivalents are considered to be cash on hand, demand deposits, and short-term investments with original maturities of three months or less from the date of acquisition. The City maintains a cash and investment system in which substantially all cash is invested in interest-bearing checking accounts, certificates of deposit, or U. S. government obligations as authorized by law. All investments in cash equivalents and U.S. Treasury with maturities of one year or less when purchased are reported on the balance sheet at their amortized cost. Nonparticipating investment contracts, generally certificates of deposits, are reported at cost. All other investments, including U.S. agency obligations with maturities greater than one year, are reported at fair value. The City’s nonparticipating interest-earning investment contracts are recorded at cost. The remaining investments are recorded at fair value. Increases or decreases in the fair value during the year are recognized as a component of interest income. G. Inventory and Prepaid Items Inventories for both governmental and proprietary funds, consisting principally of materials and supplies held for consumption, are valued at cost, approximating market value, using the first-in, first-out (“FIFO”) method. The costs of governmental funds inventories are recorded as expenditures when consumed, rather than when purchased. Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both the government-wide and fund financial statements. These prepaid items are recorded as expenditures when consumed, rather than when purchased. NOTES TO FINANCIAL STATEMENTS 55 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) H. Short-Term Interfund Receivables/Payables Activity between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year as well as all other outstanding balances between funds are reported as “due to/from other funds.” Any residual balances outstanding between the governmental activities and business-type activities are reported in the government-wide financial statements as “internal balances.” Advances between funds, as reported in the fund financial statements, represent long-term borrowing arrangements with established repayment schedules, and are offset by non-spendable fund balance in applicable governmental funds to indicate that they are not available for appropriation and are not expendable available financial resources. I. Grants from Other Governments Federal and state governmental units represent an important source of supplementary funding used to finance housing, business development employment, construction programs, capital asset additions and other activities beneficial to the community. This funding, primarily in the form of grants, is recorded in both governmental and proprietary funds. Grant contributions in the proprietary funds, which are for the purpose of construction activities, land easement or capital asset acquisitions, are recorded as capital contributions within the statement of revenues and expenses. For all funds, a grant receivable is recorded when the City has a right to receive the related grant amounts. J. Capital Assets Capital assets, which include machinery, equipment, vehicles, buildings, and infrastructure, are reported in the applicable governmental or business- type activities columns in the government-wide financial statements. The City is currently capitalizing machinery and equipment with a cost of $5,000 and an estimated life of at least three years. The City is reporting all infrastructure (roads, bridges, sidewalks, and similar items) including items acquired in fiscal years ended before June 30, 1980. Purchased capital assets are valued at historical cost or estimated historical cost. Donated capital assets are valued at their acquisition value on the date received. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend asset lives are not capitalized. NOTES TO FINANCIAL STATEMENTS 58 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) L. Long-Term Liabilities In the government-wide financial statements, and proprietary fund types in the fund financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities, business-type activities, or proprietary fund type statement of net position. Bond premiums and discounts are amortized over the life of the bonds using the effective interest method. Deferred charges, are deferred and amortized over the life of the bonds using the straight line method. Bonds payable are reported net of the applicable bond premium or discount. In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. M. Compensated Absences The Annual Vacation and Illness Leave (“AVAIL”) plan is the vacation and sick leave policy of the City. AVAIL days may be utilized for vacation or illness, as the employee so desires, and are earned at graduated rates based on length of service (12 days per year for the first year, with up to 30 days per year for over 20 years of service). Upon termination of employment with the City, an employee will be paid a maximum of 60 days of accumulated AVAIL time. The liability for these compensated absences is recorded as long-term debt in the government-wide statements. The current portion of the debt is based on amounts due as a result of an employee’s resignation or retirement. In the fund financial statements, governmental funds report only the liability payable from expendable and available financial resources which represents the portion of AVAIL leave that is outstanding upon an employee’s termination. The proprietary fund reports the liability as it is incurred. In prior years, the balance of compensated absence debt related to governmental activities has been liquidated using General Fund revenues, while the compensated absence debt related to the business-type activities has been liquidated using the general revenues from the Water and Sewer proprietary fund. NOTES TO FINANCIAL STATEMENTS 59 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) N. Fund Equity Fund equity at the governmental fund financial reporting level is classified as “fund balance”. Fund equity for all other reporting is classified as “net position”. Fund Balance – Generally, fund balance represents the difference between the assets, deferred outflows of resources, deferred inflows of resources, and liabilities, under the current financial resources measurement focus of accounting. In the fund financial statements, governmental funds report fund balance classifications that comprise a hierarchy based primarily on the extent to which the City is bound to honor constraints on the specific purposes for which amounts in those funds can be spent. Fund balances are classified as follows: Nonspendable – Fund balances are reported as nonspendable when amounts cannot be spent because they are either: a) not in spendable form (i.e., items that are not expected to be converted to cash), or (b) legally or contractually required to be maintained intact. Restricted – Fund balances are reported as restricted when there are limitations imposed on their use either through the enabling legislation adopted by the City or through external restrictions imposed by creditors, grantors or laws or regulations of other governments. Committed – Fund balances are reported as committed when they can be used only for specific purposes pursuant to constraints imposed by formal action of the City Council through the adoption of an ordinance. Only the City Council may modify or rescind the commitment. Assigned – Fund balances are reported as assigned when amounts are constrained by the City’s intent to be used for specific purposes, but are neither restricted nor committed. Through Council ordinance, the City Council has retained the authority to assign fund balances. NOTES TO FINANCIAL STATEMENTS 60 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) N. Fund Equity (Continued) Unassigned – Fund balances are reported as unassigned as the residual amount when the balances do not meet any of the above criterion. The City reports positive unassigned fund balance only in the general fund. Negative unassigned fund balances may be reported in all funds. The City has adopted the minimum fund balance policies: General Fund’s unassigned fund balance must be a minimum of 10% of the final prior fiscal year’s General Fund operating budget. Capital Project Fund’s assigned fund balance must be a minimum of 10% of the final prior fiscal year’s General Fund operating budget. Water and Sewer Fund’s unrestricted net position must be a minimum of 30% of the final prior fiscal year’s Water and Sewer Fund operating budget. Flow Assumptions – When both restricted and unrestricted amounts of fund balance are available for use for expenditures incurred, it is the City’s policy to use restricted amounts first and then unrestricted amounts as they are needed. For unrestricted amounts of fund balance, it is the City’s policy to use fund balance in the following order: 1) committed, 2) assigned, and 3) unassigned. Net Position – Net position represents the difference between assets, deferred inflow and outflows of resources, and liabilities in reporting which utilizes the economic resources measurement focus. Net investment in capital assets consists of capital assets, net of accumulated depreciation, reduced by the outstanding balances of any borrowing used (i.e., the amount that the City has spent) for the acquisition, construction or improvement of those assets. Net position is reported as restricted using the same definition as used for restricted fund balance as described in the section above. All other net position is reported as unrestricted. The City applies restricted resources first when an expense is incurred for purposes for which both restricted and unrestricted net position are available. NOTES TO FINANCIAL STATEMENTS 63 NOTE 2. DEPOSITS AND INVESTMENTS (CONTINUED) Fair Value Measurements. The City categorizes its fair value measurements within the fair value hierarchy established by GAAP. The hierarchy is based on the valuation inputs used to measure the fair value of the asset. Level 1 inputs are quoted prices in active markets for identical assets; Level 2 inputs are significant other observable inputs; and Level 3 inputs are significant unobservable inputs. The City has the following recurring fair value measurements as of September 30, 2020: Investment Level 1 Level 2 Level 3 Fair Value United States Treasuries 160,615$ -$ -$ 160,615 NOTE 3. The United States Treasuries are classified in Level 1 of the fair value hierarchy and valued using prices quoted in active markets for those investments. RECEIVABLES Accounts Receivable Receivables as of September 30, 2020, including the applicable allowances for uncollectible accounts, are as follows: Disaster Capital Recovery Nonmajor Water and Nonmajor General Projects Construction Governmental Sewer Enterprise Fund Fund Fund Funds Fund Fund Receivables 18,283,648$ -$ -$ 10,937,035$ 12,345,514$ 23,708$ Assessments receivable - - - - 20,760 - Due from other governments 3,695,325 1,512,851 428,220 - - - Loans receivable - - 129,613 4,608,379 - - Allowances (666,533) - (70,000) (620,287) (566,655) - Net receivables 21,312,440$ 1,512,851$ 487,833$ 14,925,127$ 11,799,619$ 23,708$ NOTES TO FINANCIAL STATEMENTS 64 NOTE 3. RECEIVABLES (CONTINUED) Accounts Receivable (Continued) The City also reports $1,333,429 of outstanding loans receivable associated with land and buildings which were sold in prior years through an installment sale. The City has determined the full amount of the note receivable to be collectable, and thus it has no associated allowance. Property Taxes Property taxes were levied on behalf of the City by Tuscaloosa County on September 1, 2019, (levy date) based upon property values assessed as of October 1, 2019. The billings were mailed on September 1, 2019, and payable on or before December 31, 2019, for the fiscal year 2020 tax. Taxes not paid within 30 days of December 31, 2019, were subject to property tax liens. Property tax revenues are recognized when levied to the extent they result in current receivables. NOTES TO FINANCIAL STATEMENTS 65 NOTE 4. CAPITAL ASSETS Capital asset activity for the year ended September 30, 2020, was as follows: Beginning Balance Transfers with Ending Balance September 30, 2019 Additions Business-type Transfers Deletions September 30, 2020 Governmental activities: Capital assets not being depreciated: Land 14,103,749$ -$ -$ 3,582,540$ -$ 17,686,289$ Equipment not in service 7,146,683 1,330,671 - (6,339,889) - 2,137,465 Construction in progress 27,769,102 26,163,210 - (33,750,457) (48,980) 20,132,875 Total capital assets not being depreciated 49,019,534 27,493,881 - (36,507,806) (48,980) 39,956,629 Capital assets, depreciable: Infastructure 302,542,577 - (420,370) 22,866,256 - 324,988,463 Buildings 116,185,617 25,837 - 7,301,661 - 123,513,115 Machinery and equipment 71,776,296 4,154,604 42,700 6,339,889 (1,234,603) 81,078,886 Total capital assets, depreciable 490,504,490 4,180,441 (377,670) 36,507,806 (1,234,603) 529,580,464 Less accumulated depreciation for: Infastructure 144,590,395 5,078,218 - - - 149,668,613 Buildings 30,638,339 2,388,971 - - - 33,027,310 Machinery and equipment 47,522,994 5,061,055 42,700 - (1,163,715) 51,463,034 Total accumulated depreciation 222,751,728 12,528,244 42,700 - (1,163,715) 234,158,957 Total capital assets, being depreciated, net 267,752,762 (8,347,803) (420,370) 36,507,806 (70,888) 295,421,507 Governmental capital assets, net 316,772,296$ 19,146,078$ (420,370)$ -$ (119,868)$ 335,378,136$