City of Denton Comprehensive Annual Financial Report Fiscal Year Ending September 30, 2013 Denton, Texas

Denton Municipal Electric’s Engineering and Operations Building

VISION “Destination Denton” Denton is an identifiable and memorable destination and a community of opportunities. We achieve this by providing high quality of life through excellence in education, entertainment, and employment; neighborhood vitality and sustainability; environmental and financial stewardship; and superior public facilities and services.

MISSION “Dedicated to Quality Service” The City of Denton will foster an environment that will deliver extraordinary quality service and products through stakeholder, peer group, and citizen collaboration; leadership and innovation; and sustainable and efficient use of resources.

VALUES “We Care” We care about our people, our community, and our work. We do this with integrity, respect, and fairness.

+ CITY OF DENTON, TEXAS

COMPREHENSIVE ANNUAL FINANCIAL REPORT

For the fiscal year ended September 30, 2013

CITY MANAGER

George C. Campbell

ASSISTANT CITY MANAGER AND CHIEF FINANCIAL OFFICER

Bryan Langley

Prepared by:

Chuck Springer Director of Finance

Antonio Puente Harvey Jarvis Assistant Director of Finance Controller

Kevin Ann Mullen, CPA Cody Wood Assistant Controller Assistant Controller

David Wilson Diane Chang, CPA Electric Accounting Manager Senior Grants Accountant

Kurt Breyfogle Randall Mahaffey, CIA Senior Utilities Accountant Senior Accountant

Ed Lane, CPA Cindy Liang, CPA Accountant III Accountant III

Lori Allen Mary Billings Accounting Technician Electric Analyst

Nancy Towle Mike Halsema Budget Manager Senior Financial Analyst

Caroline Finley Treasury Administrator

City of Denton, Texas Comprehensive Annual Financial Report For Year Ended September 30, 2013

TABLE OF CONTENTS Page INTRODUCTORY SECTION (UNAUDITED): Transmittal Letter ...... i Organizational Chart ...... viii Certificate of Achievement ...... ix List of Principal Officials...... x

FINANCIAL SECTION: Independent Auditor’s Report...... 1 Management’s Discussion and Analysis ...... 5 Basic Financial Statements: Government-wide Financial Statements: Statement of Net Position ...... 15 Statement of Activities ...... 16 Fund Financial Statements: Governmental Fund Financial Statements: Balance Sheet ...... 18 Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Position .... 19 Statement of Revenues, Expenditures and Changes in Fund Balances ...... 20 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities ...... 21 Statement of Revenues, Expenditures and Changes in Fund Balance – Budget to Actual General Fund...... 23 Proprietary Fund Financial Statements: Statement of Net Position ...... 24 Statement of Revenues, Expenses and Changes in Fund Net Position ...... 28 Statement of Cash Flows ...... 30 Fiduciary Fund Financial Statements: Statement of Assets and Liabilities ...... 32 Notes to Basic Financial Statements ...... 33 Required Supplementary Information: Schedule of TMRS Funding Progress and Contributions – Last Three Fiscal Years ...... 67 Schedule of Denton’s Firemen’s Relief and Retirement Plan Funding Progress and Contributions – Last Three Valuation Years ...... 67 Schedule of Other Post Employment Benefits Funding Progress and Contributions Last Three Valuation Years ...... 68 Combining and Individual Fund Financial Statements and Schedules: Schedule of Revenues, Expenditures and Changes in Fund Balances – Budget to Actual: Debt Service Fund ...... 69 Combining Balance Sheet – Nonmajor Governmental Funds...... 72 Combining Statement of Revenues, Expenditures and Changes in Fund Balances Nonmajor Governmental Funds ...... 74 Schedule of Revenues, Expenditures and Changes in Fund Balances – Budget to Actual: Recreation...... 76 Police Confiscation ...... 77 Tourist and Convention ...... 78 Street Improvement Fund ...... 79 Gas Well Revenues Fund ...... 80 Citizens’ Park Trust ...... 81

City of Denton, Texas Comprehensive Annual Financial Report For Year Ended September 30, 2013

TABLE OF CONTENTS (Continued)

Page FINANCIAL SECTION (continued):

Combining and Individual Fund Financial Statements and Schedules (continued): Combining Statement of Net Position – Internal Service Funds ...... 84 Combining Statement of Revenues, Expenses and Changes in Fund Net Position - Internal Service Funds ...... 86 Combining Statement of Cash Flows – Internal Service Funds ...... 88 Combining Statement of Assets and Liabilities – Agency Funds ...... 90 Combining Statement of Changes in Assets and Liabilities – Agency Funds ...... 91

Capital Assets Used in the Operation of Governmental Funds: Comparative Schedules by Source ...... 93 Schedule by Function and Activity ...... 94 Schedule of Changes by Function and Activity ...... 95

STATISTICAL SECTION (UNAUDITED):

Table 1 Net Position by Component ...... 98 2 Changes in Net Position ...... 100 3 Fund Balances of Governmental Funds ...... 104 4 Changes in Fund Balances of Governmental Funds ...... 106 5 Assessed Value and Estimated Actual Value of Taxable Property ...... 108 6 Property Tax Rates (Per $100 of Assessed Value) – Direct and Overlapping Governments ...... 109 7 Principal Property Taxpayers ...... 111 8 Property Tax Levies and Collections ...... 112 9 Ratio of Outstanding Debt by Type...... 114 10 Ratio of General Bonded Debt Outstanding ...... 116 11 Direct and Overlapping Governmental Activities Debt ...... 117 12 Pledged Revenue Coverage ...... 118 13 Demographic and Economic Statistics ...... 120 14 Principal Employers ...... 121 15 Full-Time Equivalent City Government Employees by Function/Program ...... 122 16 Operating Indicators by Function/Program ...... 124 17 Capital Asset Statistics by Function/Program ...... 126

OTHER SUPPLEMENTAL INFORMATION: Schedule of Expenditures - Budget and Actual – General Fund ...... 129

215 E. MCKINNEY • DENTON, TEXAS 76201 • (940) 349-8200 • FAX (940) 349-7206

February 25, 2014

The Honorable Mayor and Members of the City Council City of Denton Denton, Texas

It is with great pleasure that we present to you a copy of the Comprehensive Annual Financial Report (CAFR) of the City of Denton (the City) for the fiscal year ended September 30, 2013. The purpose of the report is to provide the City Council, management, citizens, and other interested parties with detailed information concerning the City’s financial condition. THE REPORT

The Texas Local Government Code (§ 103.001) requires an annual audit for municipalities. In addition, the City Charter (Section 2.13) requires a Certified Public Accountant who, as of the end of the fiscal year, shall make an “independent audit of accounts” and prepare a report to the City Council and the City Manager. This document fulfills the above mentioned requirements, and the independent auditor’s opinion is included in the report for the fiscal year ended September 30, 2013. The CAFR is presented in three main sections: Introductory, Financial, and Statistical. The Introductory Section includes this transmittal letter, the City’s organizational chart, and a list of principal officials. The Financial Section includes the Management’s Discussion and Analysis (MD&A), Basic Financial Statements, Required Supplementary Information, Combining and Individual Fund Financial Statements and Other Supplemental Information, as well as, the independent auditors’ report. The Statistical Section includes selected financial and demographic information, generally presented on a multi-year basis. The responsibility for both the accuracy of the presented information and the completeness and fairness of the presentation of the data, including all disclosures, rests with the City. To the best of our knowledge and belief, the enclosed data is accurate in all material respects and is reported in a manner designed to fairly present the results of our operations in each of the various funds reported by the City. All disclosures necessary to enable the reader to gain an understanding of the City’s financial activities have been included. The accounting firm of Weaver, LLP has issued an unqualified opinion on the City of Denton’s financial statements for the period ended September 30, 2013. As a recipient of federal and state grant awards, a separate audit is prepared to meet the requirements of the Single Audit Act Amendments of 1996 and related OMB Circular A-133. As a part of the City’s single audit, tests are conducted to determine that the City has complied with applicable laws and regulations related to federal awards. Management’s Discussion and Analysis (MD&A) immediately follows the independent auditors’ report and provides a narrative introduction, overview, and analysis of the basic financial statements. The MD&A complements this letter of transmittal and should be read in conjunction with it. PROFILE OF THE GOVERNMENT Originally incorporated on September 26, 1866, the City of Denton is now 97.411 square miles and has an estimated population of 117,397. The City is a home rule city and operates under the Council-Manager form of government. The elected seven-member council consists of a Mayor and six Council Members. The Mayor and two Council Members are elected at large, while the remaining representatives are elected from single member districts. The City Council enacts local laws, determines policy, and adopts the annual budget, and the City Manager is the chief executive officer for the City.

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The City of Denton is located in the northern portion of the Dallas/Fort Worth Consolidated Metropolitan Statistical Area (CMSA). The City is a part of the Dallas/Fort Worth Metroplex, and is situated at the apex of a triangle based by Dallas (37 miles to the southeast) and Fort Worth (35 miles to the southwest) providing excellent access to and from all parts of the area. The City provides a full range of general government services to its citizens including: public safety (police and fire protection); public works (construction and maintenance of highways, streets and infrastructure); parks and recreation; library; planning and zoning; economic development; and general administrative services. The City’s enterprise fund operations consist of a utility system, solid waste, and airport operations. The City’s utility system provides electric, water and wastewater services. The internal service operations consist of the Materials Management, Fleet Services, Risk Retention, Health Insurance, and Technology Services funds. The Materials Management Fund accounts for the financing of Warehouse and Purchasing services which are provided to other City departments. The Fleet Services Fund accounts for the financing of goods and services provided by the municipal garage to other departments within the City. The Risk Retention Fund accounts for the accumulation of resources for the payment of workers’ compensation, general liability claims, and insurance policies. The Health Insurance Fund accounts for administration of the self-insurance program in the City. The Technology Services Fund provides support for the various information and computer systems within the City. Reprographics, which is part of the Technology Services Fund, provides imaging, print shop, and office services to City departments. The financial statements presented include all government activities, organizations, and functions for which the City is financially accountable as defined by the Governmental Accounting Standards Board (GASB). LOCAL ECONOMY The City of Denton’s tax base continues to grow with an average growth rate of 5.72% over the last 10 years. Recently, the City’s tax base grew by 2.93% in FY 2011-12, 4.75% in FY 2012-13, and 3.91% in FY 2013-14. After property tax revenues, the second largest source of revenue in the General Fund is sales tax. Representing approximately 31% of overall revenue in the General Fund, sales tax is a significant revenue source that is dependent upon a variety of economic factors. For FY 2012-13, total sales tax revenues equaled $26,522,473, which is $635,533 or 2.5%, more than the prior year collections of $25,886,940. For FY 2013-14, sales tax collections are estimated to increase by 3.0% over FY 2012-13 actual receipts. Increased strength in employment and growth in new residential and commercial construction are leading indicators of continued growth in the City’s property tax base and sales tax collections. The City of Denton’s unemployment rate remains well below state and national levels having declined from 4.8 percent in December of 2012 to 4.2 percent as of December 2013. The State of Texas unemployment rate has dropped from 6.2 percent in December 2012 to 6.0 percent in December 2013. The City of Denton has issued 594 residential and commercial building permits for calendar year 2013, at an estimated value of $324 million. This compares to a total of 333 commercial and residential permits issued for calendar year 2012 at an estimated value of $254 million. The following two charts from the Federal Reserve Bank of Dallas’ Economic Snapshot highlight the reduction in Texas unemployment levels as well as strong job growth and also include comparisons to the same indicators for the United States.

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Fiscal year 2012-13 brought exciting news in economic development. Listed below are just a few of the highlights:

 Rayzor Ranch Marketplace completed over 400,000 square feet of retail and commercial space. Sam’s and Wal-Mart anchor the Marketplace with 137,381 and 189,929 square feet, respectively. Sam’s is valued at $12.2 million and Wal-Mart at $15.4 million. The 30,000 square foot strip center is home to 21 retail and restaurant tenants. Some of the new stores in the development include: Kohl’s, Famous Footwear, Five Below, Jo-Ann’s Fabric, Petco, and Panera Bread. Additional retailers under construction, which will open in 2014, include: Ross Dress for Less, Boot Barn, Style for Less, Colorful Hearing and Salons by JC. Preliminary plats for the 600,000 square foot Rayzor Ranch Town Center have been submitted and anchors for the south side of the development are expected to be in operation by 2015.

 The mixed-use development of Unicorn Lake continues to experience growth with the addition of a new restaurant on the north east side of the development. The City granted a rebate of a portion of the

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sales tax generated by the project for a period of 15 years. The incentive reimburses infrastructure costs in return for the creation of an urban-style development.

 Golden Triangle Mall was purchased by the Herring Group and the Weitzman Group in 2011. The partnership is making major renovations to the mall to include: the addition of restaurants and stores; improving the building façade; creating a food court; and improving the parking lot and landscaping. The first phase of the renovations was completed in late 2012 and includes: the installation of energy efficient lighting, a new Center Court, Wi-Fi, interior landscaping and updated finishes. Exterior entrance updates, a new food court, pylon sign and way finding have been constructed as part of the second phase of the redevelopment. New tenants that have opened include: Buckle, Body Central, Charlette Russe, Tobu Asian Eatery, Italia Express, Great American Cookie and Smoothie Paradise.

 U.S. Aviation completed their 28,400 square foot expansion at a $1.2 million valuation. The company officially gained fixed base operator (FBO) status at the Denton Municipal Airport. The expansion provides space for FBO services and flight training room space. U.S. Aviation is the official flight training school for Chinese commercial aircraft pilots. Approximately 200 students are involved in this flight training program. The company provides a complete package of housing, flight training and other services to the students. Helicopter flight training is also offered through All American Helicopters, a U.S. Aviation company.

 Denton became the terminus for the Denton County Transportation Authority (DCTA) commuter rail line in 2011. The “A-train” links Denton with passenger rail service to the City of Carrollton, where passengers can transfer to the Dallas Area Rapid Transit (DART) system and continue into the Dallas/Fort Worth metroplex. The Euline Brock Downtown Denton Transit Center (DDTC) has also been serving as an entertainment venue for local food truck vendors who have partnered with DCTA to host food truck events. The MedPark Station, located near the Denton Regional Medical Center, serves as the main park and ride for Denton-based A-train passengers. DCTA buses provide the community access to A-train stations, University of North Texas, Texas Woman’s University and other key destinations within the city of Denton. Overall 2013 DCTA ridership increased 3.1 percent over 2012 from 2.9 million to close to 3.1 million passengers. The Agency expects to see continued growth in ridership with the expansion of I-35E.

 Downtown Denton has seen new residential development with a new apartment complex on South Locust. Recent retail includes: 7 Mile Coffee Company, Authentic Life Yoga Studio, Barefoot Apparel, Viet Bites, The DIME Store, Queenie’s Steak House, Smiling Moose Deli, Rusty Taco, Gold Mine Barbeque, Mulberry Street Cantina, Shop the Barn, Shift Coffee, East Side Social Club, Last Drop Tavern, Twisted Body Pilates, Irish Boozer and Lone Star Attitude.

 Fortune 50 Target Corporation completed construction of their 365,853 square foot frozen and refrigerated food distribution center in 2012. The facility is located on the southeast corner of Airport and Corbin Roads. This $100 million project received a 65% tax abatement for five years from the City of Denton to help offset costs to improve Airport and Corbin Roads. This facility services over 230 stores in eight states with frozen and perishable food products. Target opened in March 2013 and employs 115 to 150 area residents.

 Peerless Manufacturing selected Denton to expand and consolidate some of their Texas operations. The company designs, custom engineers and manufactures highly specialized filtration, separation equipment, industrial silencers, heat exchangers, and air pollution reduction systems to energy industry customers involved in gas and oil production, petrochemical processing, and power generating. They completed construction of an 80,000 square foot manufacturing facility in October 2013. The valuation of the proposed project is estimated at $16 million. Peerless received a 40% tax abatement from the City of Denton for the new facility. Peter Burledge, Chief Executive Officer, indicated that they plan

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on significantly increasing their 126 positions in the next year and their site plans have the capacity for duplicating the existing plant in the near future.

 Labinal Inc., part of the Safran Group, is a world leader in electrical wiring harness and integration systems for the aviation, space and defense markets. In August 2012, Labinal relocated and expanded its North American Wiring and Services Division headquarters, one of four wiring harness and integration system manufacturing sites and moved over 700 employees to the former Russell Newman facility in Denton. The company received a 50%, three-year tax abatement on increased valuation of at least $5 million at the Denton facility.

 Mayday Manufacturing/Tailwind Technologies manufactures precision bushings, sleeves, pins, and other machine parts used in the aerospace industry. Mayday subsidiary, High Tech Metal Refinishing is collocated with Mayday and provides metal finishing processes for Mayday products and for additional customers. Solid growth plans support the doubling of Mayday Manufacturing’s revenues by 2016 and necessitated the expansion of their facilities to accommodate this growth. The company purchased an 80,000 square foot facility in 2012 and held a groundbreaking at the new site location in February 2013 that included a 15,000 square foot expansion. The company will move from leased space in Denton into the new facility by fall 2014.

 Tetra Pak Materials LP, a Texas Limited Partnership, has been in Denton for twenty-nine years. The company manufactures, processes, packages and distributes liquid foods all over the globe. The aseptic packaging process removes air and bacteria, which allows for a products shelf life for a minimum of six months. In 2000, the company added the Americas Global Information Management hub, a pilot research and development center and relocated the U.S. Technical Service Center. In October 2013, the company received a four-year 65% tax abatement for expanding their facility and relocating their corporate headquarter operations from Chicago to Denton. The current facility comprises approximately 220,000 square feet. The increase in real and business personal property valuation of the proposed project expansion is estimated at $10.7 million. Tetra Pak Materials expects to create a total of thirty new jobs with this expansion.

 The Heart Hospital Baylor Denton purchased the 60,000 square foot North Texas Hospital in 2013. An $8.2 million facility alteration is underway that will add an 8,600 square foot medical/surgical patient wing and expand the facility from 16 to 22 beds. The Heart Hospital Baylor Denton is the first “sister” facility to the Dallas-Fort Worth area’s renowned Heart Hospital Baylor Plano; presently performing more intricate, surgical heart procedures than any facility in north Texas. The Denton facility will open in early 2014.

 Greenpoint Aerospace, Inc., a division of Greenpoint Technologies’ Boeing Business Jet Completion Center, acquired Jet Works Air Center located at Denton Enterprise Airport. Jet Works’ 75 employees provide aviation corporate and VIP maintenance and repair services at a 109,000 square foot facility. The Greenpoint purchase will result in a 50,000+ square foot expansion to the Jet Works facility and an additional 75-100 employees by summer 2014.

LONG-TERM FINANCIAL PLANNING In conjunction with this document, interested parties are encouraged to read the City of Denton’s FY 2013-14 Annual Budget document. This document details the City’s strategic plan, long-term financial policies, program accomplishments, and other key initiatives. The document also includes the long-term financial forecasts for each of the major funds, and a summary of the assumptions that are included in these plans. In addition, the budget document provides an overview of the adopted Capital Improvement Program and planned future debt issuances. The budget document can be obtained from the City of Denton’s Finance Department by calling (940) 349-8531. The Annual Budget can also be accessed through the City’s web site at www.cityofdenton.com and selecting the Finance Department under the “Departments and Services” link.

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RELEVANT FINANCIAL POLICIES

The City of Denton maintains reserve balances for emergencies. In the General Fund, the target reserve level is 15-20% of budgeted expenditures to provide stability and flexibility for the organization. The actual reserve level has exceeded this target for the current fiscal year. As described in the accompanying CAFR document, the unassigned fund balance is $24.4 million, or 25.8%, of the budgeted General Fund expenditures for the fiscal year ended September 30, 2013.

Beginning in FY 2011-12, the City adopted a policy which requires a minimum ending working capital balance (current assets minus current liabilities) of at least 8% of budgeted expenditures for the Electric, Water, Wastewater and Solid Waste Funds. If the working capital level should fall below the desired minimum, the City will implement necessary corrective action with a five-year plan to restore the working capital balance to 8% of budgeted expenditures.

Additionally, rate reserve levels were established for the Electric, Water, Wastewater, and Solid Waste Funds in FY 2011-12 according to the unique operational aspects of each utility. The rate reserve levels were revised in FY 2012-13 based on the factors of revenue stability, expense volatility, infrastructure age, debt levels and management plans for the use of these reserves. The rate reserve level is established at a range of 8% to 12% of expenses for the Electric Fund, at a range of 12% to 16% of expenses for the Wastewater Fund, at a range of 17% to 25% of expenses for the Water Fund, and at 4% of expenses for the Solid Waste Fund. If the rate reserve level falls below the range, the City will implement necessary corrective action within a five-year plan to restore the balances to the levels outlined above.

The City of Denton has adopted an Investment Policy which guides the investment of all City funds. In accordance with State law, the policy is reviewed annually by the City Council to ensure that public funds are being invested in a conservative and prudent fashion. In addition, the City also annually reviews and approves a Debt Management policy. The purpose of this policy is to provide general guidelines regarding the issuance of City debt and the use and limitation of such debt. The City complied with all aspects of the Investment and Debt Management policies during FY 2012-13.

MAJOR INITIATIVES In FY 2012-13, the City increased budgeted expenditures for street maintenance and repair activities by just over $1.0 million. The staffing level in the Street Improvement Fund was increased by three with the addition of two maintenance positions and a crew leader. Mobility funding enhancements included $100,000 in funding for a citywide bike plan and $1,066,053 in capital funding for six new traffic signals. Public safety funding continues to be a priority for the City of Denton with the FY 2012-13 budget including $1.3 million in additional funding. The additional funding including a new front line medic unit including five Fire personnel, two additional staff in the Police Department and two positions in the Animal Services division. Funding was also provided for Aircraft Rescue and Firefighting (ARFF) vehicle equipment. Employee compensation was a priority for FY 2012-13 with an average 3% merit increase provided to all employees along with eligible step increases for all police and fire civil service personnel. In addition, funding was provided for equity pay adjustments for employees whose salary was below the market rate for their positions. The City also continues to emphasize neighborhood service programs. The FY 2012-13 budget included additional funding for a technology librarian, two positions in building inspections, three positions in the Planning Department, and an expansion of the Downtown Reinvestment Grant Program from $50,000 to $100,000. AWARDS AND ACKOWLEDGEMENTS The Government Finance Officers’ Association (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the City for its Comprehensive Annual Financial Report for the fiscal year ended September 30, 2012, for the twenty-eighth consecutive year. In order to be awarded the Certificate of Achievement in Financial Reporting, the City must publish an easily readable and efficiently organized Comprehensive Annual Financial Report. This report satisfies both generally accepted accounting principles vi

and applicable legal requirements. The Certificate of Achievement is held for a period of one year only. We believe our current Comprehensive Annual Financial Report continues to meet the Certificate of Achievement requirements, and we are submitting it to GFOA to determine its eligibility for another certificate. The City also received the GFOA award for Distinguished Budget Presentation for its fiscal year 2012-13 Annual Budget for the twenty-seventh consecutive year. In order to qualify for the Distinguished Budget Presentation Award, the City’s budget document was judged according to its compliance with specific guidelines established by GFOA. These guidelines help ensure that Denton’s budget is distinguished as an operations guide, financial plan, policy document, and communications device. The City has submitted its fiscal year 2013-14 Annual Budget to GFOA to determine its eligibility for another certificate. We believe it continues to meet the Distinguished Budget Presentation Award criteria. In 2013, the City’s Purchasing Department earned the Excellence in Procurement Award from the National Purchasing Institute, Inc. (NPI) for the fifteenth year in a row. This award is achieved by those organizations that demonstrate excellence in procurement by achieving a high score on standardized criteria designed to measure innovation, professionalism, productivity, and leadership. NPI represents purchasing officials employed by national, state, and local governments; educational institutions; and tax-supported and public entities throughout the country. We would like to thank the City Council for their strong leadership and support that helped make the presentation of this report possible. We would also like to thank the City Manager, Finance staff, department directors, division heads and especially the Accounting Division staff for their diligent efforts in the preparation of the annual financial report.

Bryan Langley Chuck Springer Assistant City Manager/CFO Director of Finance

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CITY OF DENTON CURRENT ORGANIZATIONAL CHART

Citizens

City Council

Boards, Commissions, & Committees City Attorney

Municipal Judge

City Manager

Assistant City Manager Assistant City Manager Assistant City Manager Assistant City Manager

Administrative Services Electric Operations Parks & Recreation Fire

Environmental Services Planning & Development Police

City Manager's Office Water/Wastewater Utilities

City Secretary Building Inspections Animal Services

Reprographics Water Operations Community Improvement Services Solid Waste Operations

Public Communications Wastewater Operations Social Services / Community Development Transportation

Finance Drainage Gas Well Review

Fleet Services Streets Economic Development

Accounting/Budget/Treasury Facilities Management Traffic/Street Lighting PIO/Intergovernmental Relations

Municipal Court Airport

Materials Management Engineering & Development Services

Customer Service

Human Resources

Risk Management/Health Ins.

Technology Services

Library

CITY OF DENTON, TEXAS

List of Principal Officials September 30, 2013

ELECTED OFFICIALS

Title Name Mayor Mark Burroughs Mayor Pro-Tem Pete Kamp Councilmember Jim Engelbrecht Councilmember Dalton Gregory Councilmember Joey Hawkins Councilmember James King Councilmember Kevin Roden

CITY OFFICIALS

Title Name City Manager George C. Campbell Assistant City Manager Howard Martin Assistant City Manager Jon Fortune Assistant City Manager / Chief Financial Officer Bryan Langley Assistant City Manager John Cabrales City Attorney Anita Burgess Municipal Judge Robin Ramsay City Secretary Jennifer Walters

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INDEPENDENT AUDITOR’S REPORT

To The Honorable Mayor and Members of City Council City of Denton, Texas

Report on the Financial Statements

We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Denton, Texas (the City) as of and for the year ended September 30, 2013, 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 conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.

City of Denton, Texas

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Opinions

In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Denton, Texas, as of September 30, 2013, and the respective changes in financial position, and, where applicable, cash flows thereof, and the budgetary comparison of the General Fund for the year then ended in accordance with accounting principles generally accepted in the United States of America.

Other Matters

Required Supplementary Information

Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis (on pages 5 through 14) and the schedules of TMRS funding progress and contributions, Denton’s firemen’s relief and retirement plan funding progress and contributions, and other post-employment benefits funding progress and contributions (on pages 67 and 68) 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 fund financial statements and schedules, capital assets used in the operation of governmental funds schedules, other supplementary information, and statistical section, are presented for purposes of additional analysis and are not a required part of the basic financial statements.

The combining and individual fund financial statements and schedules, capital assets used in the operation of governmental funds schedules, and other supplementary information are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such

City of Denton, Texas

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information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining and individual fund financial statements and schedules, capital assets used in the operation of governmental funds schedules, and other supplementary information are fairly stated in all material respects in relation to the basic financial statements as a whole.

The introductory and statistical sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on them.

Other Reporting Required by Government Auditing Standards

In accordance with Government Auditing Standards, we have also issued our report dated February 25, 2014, on our consideration of the City of Denton’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City of Denton’s internal control over financial reporting and compliance.

WEAVER AND TIDWELL, L.L.P.

Dallas, Texas February 25, 2014

4 CITY OF DENTON, TEXAS MANAGEMENT’S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2013

The City of Denton’s Management’s Discussion and Analysis is designed to (a) assist the reader in focusing on significant financial issues, (b) provide an overview of the City’s financial activity, (c) identify changes in the City’s financial position (its ability to address the next and subsequent years’ challenges), (d) identify any material deviations from the financial plan (the approved budget), and (e) identify individual fund issues or concerns.

Since the Management’s Discussion and Analysis (MD&A) is designed to focus on the current year’s activities, resulting changes and currently known facts, please read it in conjunction with the Transmittal Letter (beginning on page i) and the City’s financial statements (beginning on page 15).

FINANCIAL HIGHLIGHTS

 The assets of the City exceeded its liabilities at the close of the fiscal year ended September 30, 2013 by $689,979,695 (net position). Of this amount, $193,281,515 (unrestricted net position) may be used to meet the government’s ongoing obligations to citizens and creditors.

 The City’s total net position increased by $36,037,532. This increase can be attributed to the net revenue of the governmental activities, business-type activities and the contribution of capital assets by developers.

 As of September 30, 2013, the City’s governmental funds reported combined fund balances of $84,276,691, an increase of $5,889,057 in comparison with the prior fiscal year. Compared to the prior year, revenues were higher by $6.9 million due primarily to higher property and sales tax of $3.3 million, higher intergovernmental revenues of $3.2 million, higher miscellaneous revenues of $0.2 million, and higher fees for service of $0.2 million. Expenditures reflect higher costs for public safety of $3.2 million, higher costs for public works of $0.8 million, higher costs for general government of $0.7 million, higher costs for parks and recreation of $1.0 million, and higher capital expenditures of $9.1 million. Total expenditures of the City’s combined governmental funds are $14.7 million higher than the prior year. New proceeds from the issuance of long-term debt added $14.8 million in new funding. Net transfers changed by $0.6 million, from $0.5 million net transfer in, in fiscal year 2012, to a net transfer out of $0.1 million in fiscal year 2013. Approximately 28.9% of the $84,276,691, or $24,369,238, is available for spending at the government’s discretion (unassigned fund balance).

 The City’s total noncurrent liabilities increased by $26,511,419 during the fiscal year. The primary reasons for the changes are the issuance of $10.7 million of general obligation refunding bonds, $63.5 million of certificates of obligation, offset by the normal pay down of general obligation bonds and certificates of obligation of $24.9 million, and the normal pay down of revenue bonds of $12.6 million. The general obligation refunding bonds reduced by $6.8 million of both general obligation and certificates of obligation bonds.

OVERVIEW OF THE FINANCIAL STATEMENTS

The Management’s Discussion and Analysis is intended to serve as an introduction to the City of Denton’s basic financial statements. The City’s basic financial statements are comprised of three components: (1) government-wide financial statements, (2) fund financial statements and (3) notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves.

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 private-sector business.

The statement of net position presents information on all of the City’s assets, liabilities, deferred inflows, and deferred outflows with the difference reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the City is improving or deteriorating.

The statement of activities presents information showing how the City’s net position changed during the most recent fiscal year. All of the current year’s revenues and expenses are taken into account regardless of when cash is received or paid. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes and earned but not used vacation leave).

5 CITY OF DENTON, TEXAS MANAGEMENT’S DISCUSSION AND ANALYSIS (continued) SEPTEMBER 30, 2013

Both the statement of net position and the statement of activities are prepared using the accrual basis of accounting as opposed to the modified accrual basis.

In its Statement of Net Position and the Statement of Activities, the City is divided between two kinds of activities:

 Governmental activities. Most of the City’s basic services are reported here, including police, fire, libraries, development, public services and operations, public works, building inspection, technology services and general administration. Property taxes, sales taxes, and franchise fees finance most of these activities.  Business-type activities. The City charges a fee to customers to cover the cost of services it provides. The City’s utility systems (electric, water and wastewater), solid waste and airport activities are reported here.

The government-wide financial statements can be found on pages 15 - 17 of the report.

Fund Financial Statements. A fund is a grouping of related accounts used to maintain control over resources that have been segregated for specific activities or objectives. Fund financial statements provide detailed information about the most significant funds, not the City as a whole. Some funds are required to be established by state law or bond covenants. However, the City Council establishes many other funds to help it control and manage money for particular purposes or to show that it is meeting legal responsibilities for using certain taxes, grants and other monies. The below illustration summarizes the major features the City’s financial statements.

Major Features of City of Denton's Government-wide and Fund Financial Statements

Fund Statements Government-wide Statements Governmental Funds Proprietary Funds

Scope Entire City government Activities of the City that are not Activities the City operates proprietary, such as police, fire similar to private businesses: and parks electric, water, wastewater utilities, solid waste and airport operations

Required financial Statement of net position Balance Sheet Statement Statement of net position statements Statement of activities of revenues, expenditures and Statement of revenues, changes in fund balances expenses and changes in net position Statement of cash flows Accounting basis and Accrual accounting and Modified accrual accounting Accrual accounting and measurement focus economic resources focus and current financial resources economic resources focus focus Types of asset/liability All assets and liabilities, both Only assets expected to be used All assets and liabilities, both information financial and capital, short- up and liabilities that come due financial and capital, short-term term and long-term during the year or soon and long-term thereafter; no capital assets included Type of inflow/outflow All revenues and expenses Revenues for which cash is All revenues and expenses information during year, regardless of received during or soon after during year, regardless of when when cash is received or paid the end of the year; cash is received or paid expenditures when goods or services have been received and payment is due during the year of soon thereafter

6 CITY OF DENTON, TEXAS MANAGEMENT’S DISCUSSION AND ANALYSIS (continued) SEPTEMBER 30, 2013

All of the funds of the City can be divided into three categories: governmental funds, proprietary funds and fiduciary funds.

 Governmental funds. The majority of the City’s basic services are reported in governmental funds, which focus on how money flows into and out of those funds and the balances left at year-end that are available for spending. These funds are reported using an accounting method identified as the modified accrual basis of accounting, which measures cash and all other financial assets that can readily be converted to cash. The governmental fund statements provide a detailed short-term view of the City’s general government operations and the basic services it provides. Governmental fund information helps the reader determine whether there are more or fewer financial resources that can be spent in the near future to finance the City’s programs. By comparing information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements, readers may better understand the long-term impact of the government’s near-term financing decisions. The relationship or differences between governmental activities (reported in the Statement of Net Position and the Statement of Activities) and governmental funds are detailed in a reconciliation following the fund financial statements.

The City of Denton maintains twelve governmental funds. Information is presented separately in the governmental funds balance sheet and in the governmental funds statement of revenues, expenditures and changes in fund balances for the general fund, debt service fund and capital projects fund, all of which are considered to be major funds. Data from the other nine governmental funds are combined into a single, aggregated presentation. Individual fund data for eight of these non-major governmental funds along with an aggregate of all other is provided in the form of combining statements elsewhere in this report.

 Proprietary funds. The City charges customers for certain services it provides, whether to outside customers or to other units within the City. These services are generally reported in proprietary funds. Proprietary funds are reported in the same manner that all activities are reported in the Statement of Net Position and the Statement of Activities. In fact, the City’s enterprise funds (a component of proprietary funds) are similar to the business-type activities that are reported in the government-wide statements but provide more detail and additional information, such as cash flows. The internal service funds (the other component of proprietary funds) are utilized to report activities that provide supplies and services for the City’s other programs and activities, such as the City’s municipal warehouse, the City’s self-insurance fund, and the City’s equipment maintenance function. Because these services benefit both governmental and business-type functions, they have been included in both the governmental and business-type activities in the government-wide financial statements.

The City of Denton maintains five enterprise funds. The City uses enterprise funds to account for its electric, water and wastewater systems, solid waste, and airport operations. The funds provide the same type of information as the government-wide financial statements, only in more detail and include the internal service fund-type activity. The City considers all enterprise funds to be major funds.

 Fiduciary funds. Fiduciary funds are used to account for resources held for the benefit of parties outside the government. Fiduciary funds are not reflected in the government-wide financial statement because the resources of those funds are not available to support the City’s own programs. The accounting used for fiduciary funds is much like that used for proprietary funds. Agency funds are a component of fiduciary funds. Agency funds differ from other fiduciary funds in that they do not typically involve a formal trust agreement. Agency funds are used to account for situations where the City’s role is purely custodial, such as receipt, temporary investment and remittance of fiduciary resources to individuals, private organizations, or other governments.

The City maintains three fiduciary funds which include the payroll fund, developers’ escrow fund, and other agency funds. The City uses agency funds to account for the collection and payment of the City’s payroll and associated liabilities, employee-purchased insurance and other similar relationships.

Notes to the financial statements. The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. The notes to the financial statements can be found on pages 33 - 65 of this report.

7 CITY OF DENTON, TEXAS MANAGEMENT’S DISCUSSION AND ANALYSIS (continued) SEPTEMBER 30, 2013

GOVERNMENT-WIDE FINANCIAL ANALYSIS

As of September 30, 2013, the City’s combined net position were $689,979,695, of which $155,399,166 can be attributed to governmental activities and $534,580,529 attributed to business-type activities. This analysis focuses on the net position (Table 1) and changes in net position (Table 2) of the City’s governmental and business-type activities.

The largest portion of the City’s net position (67.2%) reflects its investment in capital assets (e.g., land, building, machinery and equipment), less any related debt used to acquire those assets that is still outstanding. The City uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the City’s investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities.

Table 1 Net Position (in thousands) Governmental Business-type Activities Activities Total 2013 2012 2013 2012 2013 2012 Current and other assets $ 191,062 $ 187,583 $ 361,719 $ 369,433 $ 552,781 $ 557,016 Capital assets, net of accumulated depreciation 200,867 188,637 650,492 595,433 851,359 784,070 Total assets 391,929 376,220 1,012,211 964,866 1,404,140 1,341,086 Long-term liabilities outstanding 123,721 121,656 415,362 390,916 539,083 512,572 Other liabilities 112,809 114,314 62,269 60,258 175,078 174,572 Total liabilities 236,530 235,970 477,631 451,174 714,161 687,144 Net position: Net investment in capital assets 116,147 101,785 347,780 315,479 463,927 417,264 Restricted 4,116 3,460 28,655 28,560 32,771 32,020 Unrestricted 35,136 35,005 158,145 169,653 193,281 204,658 Total net position $ 155,399 $ 140,250 $ 534,580 $ 513,692 $ 689,979 $ 653,942

8 CITY OF DENTON, TEXAS MANAGEMENT’S DISCUSSION AND ANALYSIS (continued) SEPTEMBER 30, 2013

Governmental activities increased the City’s net position by $15,149,101 and business-type activities increased the City’s net position by $20,888,431. The key elements of these increases are contained in Table 2. Table 2 Changes in Net Position (in thousands) Governmental Business-type Activities Activities Total 2013 2012 2013 2012 2013 2012 Revenue: Program Revenue: Charges for services 17,092$ 15,981$ $ 227,180 $ 218,042 $ 244,272 $ 234,023 Operating grants and contributions 3,118 2,598 - - 3,118 2,598 Capital grants and contributions 14,672 4,293 9,877 4,317 24,549 8,610 General Revenue: Property tax 47,276 45,174 - - 47,276 45,174 Sales tax 26,522 25,887 - - 26,522 25,887 Franchise tax 19,901 19,337 - - 19,901 19,337 Hotel occupancy tax 1,910 1,555 - - 1,910 1,555 Beverage tax 392 345 - - 392 345 Bingo tax 21 21 - - 21 21 Investment Income 354 582 1,086 1,639 1,440 2,221 Miscellaneous 1,429 1,390 511 (691) 1,940 699 Total revenue 132,687 117,163 238,654 223,307 371,341 340,470

Expenses: General government 27,687 29,421 - - 27,687 29,421 Public safety 52,907 52,496 - - 52,907 52,496 Public works 18,664 18,662 - - 18,664 18,662 Parks and recreation 13,714 12,968 - - 13,714 12,968 Interest on long-term debt 4,464 4,756 - - 4,464 4,756 Electric - - 146,247 122,429 146,247 122,429 Water - - 26,814 26,823 26,814 26,823 Wastewater - - 21,467 20,891 21,467 20,891 Solid waste - - 21,731 21,695 21,731 21,695 Airport - - 1,609 1,472 1,609 1,472 Total expenses 117,436 118,303 217,868 193,310 335,304 311,613 Increase in net position before transfers 15,251 (1,140) 20,786 29,997 36,037 28,857 Transfers (102) 887 102 (887) - - Increase in net position 15,149 (253) 20,888 29,110 36,037 28,857 Net position at beginning of year 140,250 140,503 513,692 484,582 653,942 625,085 Net position at end of year $ 155,399 $ 140,250 $ 534,580 $ 513,692 $ 689,979 $ 653,942

Governmental activities. Expenses for the governmental activities reflects a decrease of $1.7 million in general government, an increase of $0.4 million in public safety and a $0.8 million increase in parks and recreation. The most significant governmental activities expense was in providing public safety, which incurred expenses of $52,906,985. These expenses were funded by revenues collected from a variety of sources, with the largest being from property taxes, which are $47,275,552 for the fiscal year ended September 30, 2013. The most significant portion of public safety is the cost of personnel, which totaled $43,700,482. Other significant governmental activities expense for the City includes general government, which incurred $27,686,735 in expenses, of which $17,551,339 represented personnel charges. The $12.0 million increase in governmental program revenues are mainly due to an increase of $1.1 million in charges for services, a $0.5 million in operating grants and contributions due primarily to an increase of $0.4 million of CDBG

9 CITY OF DENTON, TEXAS MANAGEMENT’S DISCUSSION AND ANALYSIS (continued) SEPTEMBER 30, 2013 (community development block grant) grant monies for an Emergency Shelter Grant, an increase in cost sharing with Denton Independent School District related to the Aquatic Center of $0.1 million. Capital grants and contributions increased $10.4 million due primarily to an increase in funding from an agreement with Texas Department of Transportation for the distribution of regional toll revenues of $3.2 million for streets and traffic infrastructure and an $8.6 million increase associated with capital contributions from developers. Governmental general revenues included an increase of $2.1 million for Property tax and an increase of $0.6 million for sales tax due to an improving economy. Transfers reflect a $0.1 transfer out for the current year as compared to a transfer in of $0.9 million in the prior fiscal year which included the Airport operations being transferred to the business-type funds.

Business-type activities. Business-type activities increased the City’s net position by $20,888,431, accounting for 58.0% of the growth in the entity-wide net position. Utility service revenues increased by $8.2 million. Electric charges for services provided a $4.1 million increase in demand revenue. Water charges for services provided $0.9 million of the increase in revenues due to an 8.0% rate increase for both residential and commercial customers to encourage conversation. Wastewater charges provided $1.7 million of the increase due to a 9.0% rate increase for retail and commercial customers. Solid Waste charges provided $1.5 million of the increase due to a 4.4% increase for the standard residential cart, a 5.0% rate increase for commercial fount and side load containers, and a 1.0% increase for commercial roll-off containers. Water and Wastewater collected $2.6 million and $1.1 million in impact fees, respectively. Capital contributions, which arise from new property development within the City, represent a major revenue source for Water and Wastewater during the current fiscal year, producing $9.9 million in revenue. The Airport gas well revenues contributed an additional $1.2 million to the increase in net assets. Total business-type’s operating costs increased by $25.1 million. Electric expenses reflect $23.5 million for increased costs related to purchase power costs. Water expenses reflect $0.9 million in increased costs for personnel and maintenance. Wastewater expenses reflect a $0.5 million in increased costs for personnel and administrative costs. Airport operations expenses reflect a $0.2 million in increased costs for personnel, materials and administrative costs.

FINANCIAL ANALYSIS OF THE GOVERNMENT’S FUNDS

As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements.

Governmental funds. The focus of the City’s governmental funds is to provide information on near-term inflows, outflows, and balances of resources available to spend. Such information is useful in assessing the City’s financing requirements. In particular, unassigned fund balance may serve as a useful measure of a government’s net resources available for spending at the end of the fiscal year.

As of the end of the current fiscal year, the City’s governmental funds reported a combined ending fund balance of $84.3 million, an increase of $5.9 million in comparison with the prior year. Approximately $24.4 million constitutes unassigned fund balance, which is available for spending at the government’s discretion. The remainder of the fund balance has been classified to indicate that it is not available for new spending because it has already been classified as restricted ($51.9 million), committed ($3.7 million), and assigned ($4.2 million).

The General Fund is the chief operating fund of the City. At September 30, 2013, the unassigned fund balance of the General Fund was $24.4 million, or 25.8% of budgeted general fund expenditures. The General Fund also has $1.4 million of fund balance assigned for expenditures in the following fiscal year. The General Fund’s ending fund balance decreased by $0.1 million during the current fiscal year. The change in fund balance is due to expenditures, including other financing uses, of $85.7 million, and revenues, including other financing sources, of $85.6 million. Revenues were $1.8 million higher compared to the previous year primarily due to lower franchise fees of $0.1 million and lower miscellaneous revenues of $0.2 million, offset by higher taxes of $2.1 million. The net change in expenditures was $3.8 million higher as compared to the previous year. Public safety expenditures increase by $2.8 million, primarily due to increased personnel costs of $2.5 million, material costs of $0.1 million, and operations costs of $0.1 million. Associated with the

10 CITY OF DENTON, TEXAS MANAGEMENT’S DISCUSSION AND ANALYSIS (continued) SEPTEMBER 30, 2013 increase of $0.8 million in parks and recreation, transfers out reflected a $0.1 million increase and personnel costs reflected an increase of $0.7 million. Personnel costs, on a year over year comparison, for general government, public safety, public works, parks and recreation were $4.1 million higher due to an average merit increase of 3% for non-civil service employees, a 3% pay adjustment for civil service employees and continued step raises for the public safety civil service employees. All personnel costs were also higher due to increased benefit costs.

At the end of the fiscal year, the capital projects fund has a total fund balance of $43.0 million, an increase of $4.3 million. The total fund balance is made up of $40.3 million in restricted funds and $2.7 million in assigned funds, both for capital construction and acquisition. In 2013, the City received $14.8 million of proceeds from the issuance of debt and $5.5 million of regional toll revenues from the Texas Department of Transportation for street construction while expending $19.4 million on construction and acquisition. In addition, the capital projects fund received $0.1 million in interest income, approximately $0.7 million due to gas wells revenues and developers aid in construction, and $1.9 million of transfers from other funding sources.

The debt service fund has a total fund balance of $4.6 million, all of which is restricted for the payment of debt service. As compared with the prior year results, the overall increase in the debt service fund balance of $0.8 million results from an increase of $0.6 million in tax revenue, offset by an increase of $0.1 million in principal and interest costs, while $0.4 million was provided by transfers in.

Proprietary funds. The City’s proprietary funds provide the same type of information found in the government-wide financial statements, but in more detail.

Unrestricted net position at September 30, 2013 in proprietary funds are $79.8 million for Electric, $38.2 million for Water, $21.8 million for Wastewater, $3.2 million for Solid Waste, and $6.3 million for the Airport Fund. The results reflect an increase of the unrestricted net position in the Wastewater fund of $2.2 million, and the Solid Waste fund of $1.2 million and decreases in the Electric Fund of $14.8 million, the Water fund of $1.3 million, and the Airport fund of $0.5 million. Other factors concerning the finances of these funds have already been addressed in the discussion of the City of Denton’s business-type activities.

BUDGETARY HIGHLIGHTS

During fiscal year 2012-2013, a single formal amendment to adjust the City’s of Denton Annual Program of Services was approved by Council. The Council increased the Animal Control Donation Fund by $250,000 to provide for additional funding for contract veterinary services.

GENERAL FUND BUDGET TO ACTUAL HIGHLIGHT

For fiscal year 2012-13, General Fund actual expenditures (including transfers) on a budgetary basis were $92.9 million compared to the budget of $94.3 million. The $1.4 million positive expenditure variance was primarily due to reduced costs of $0.4 million in personnel, $0.9 million in operational costs and $0.3 million in miscellaneous costs. Personnel costs were lower than the budget due to a vacancy management program which produced saving of $0.4 million in general government and $0.1 million in parks and recreation, with a $0.1 million higher than budgeted personnel costs in public safety. In addition to personnel savings, general government also saw savings of $0.3 million in miscellaneous costs due to unused fuel contingency and $0.8 million in operation costs due to lower than budgeted fuel costs, lower consulting fees for legal services, lower development plan reviews, and lower tax rebates for economic development. Parks and recreation had $0.2 million higher than budgeted vehicle maintenance and landscape irrigation costs.

Actual revenues for the General Fund (including transfers and sale of capital asset) on a budgetary basis were $92.9 million compared to the original budget of $93.7 million. Of the $0.8 million revenue variance, approximately $0.2 million is a positive revenue variance is due to greater that budgeted sales taxes, ad

11 CITY OF DENTON, TEXAS MANAGEMENT’S DISCUSSION AND ANALYSIS (continued) SEPTEMBER 30, 2013 valorem tax, and mixed beverage taxes. Offsetting the positive revenue variances are $0.2 million in lower that budgeted franchise fees, $0.3 million in lower court fines, and $0.3 million in lower fees for service such as ambulance and recreation fees, and $0.2 million in lower miscellaneous revenues due to adjustment to the deferred revenues.

The City of Denton’s General Fund unassigned fund balance at September 30, 2013 is $24.4 million, or 25.8% of budgeted expenditures. Below is a listing of the ending unassigned balances for the prior year, as well as the fiscal year 2011-12 unassigned fund balance. For years where the actual ending balance has exceeded the policy level, the following year’s budget has included utilization of that amount for expenditures. Actual Actual 9/30/12 9/30/13 Unassigned balance $25,171,186 $24,378,139 % of total budgeted expenditures 28.5% 25.8% Policy level 15-20% 15-20%

The largest revenue source of the General Fund’s budget was the ad valorem tax. Denton’s ad valorem tax rate is comprised of two components. The first is the operations and maintenance component that is used to calculate revenue for the City’s General Fund operations. The second component is the debt portion that is used to calculate revenue to pay the City’s general debt service obligations. The Denton Central Appraisal District’s certified appraisal roll shows an increase of 4.75% compared to the prior year certified value, which showed an increase of 2.93%. The current property tax year included $133 million of new growth and construction that was added to the tax rolls in Tax year 2012 as compared to Tax year 2011. The fiscal year 2012-13 ad valorem tax rate remained the same as the prior year at $0.68975 per $100 of valuation.

CAPITAL ASSET AND DEBT ADMINISTRATION

Capital assets. At the end of fiscal year 2013, the City had $851,359,104 invested in a broad range of capital assets, including police and fire equipment, buildings, park facilities, roads, bridges, electrical infrastructure, and water and sewer lines (see Table 3 below). This amount represents a net increase (including additions and deductions) of $67,289,396, or 3.5% over the prior fiscal year.

Table 3 Capital Assets at Year-end (Net of Accumulated Depreciation, in Thousands) Governmental Business-type Activities Activities Totals 2013 2012 2013 2012 2013 2012 Land $ 14,613 $ 14,613 $ 17,466 $ 12,850 $ 32,079 $ 27,463 Landfill improvements - - 4,422 6,034 4,422 6,034 Buildings and improvements 39,871 41,412 10,288 10,120 50,159 51,532 Plant, machinery and equipment 25,248 21,168 137,811 136,843 163,059 158,011 Water rights - - 52,921 53,616 52,921 53,616 Infrastructure 92,607 91,324 260,591 255,950 353,198 347,274 Construction in progress 28,528 20,120 166,993 120,020 195,521 140,140 Total capital assets $ 200,867 $188,637 $650,492 $595,433 $851,359 $784,070

12 CITY OF DENTON, TEXAS MANAGEMENT’S DISCUSSION AND ANALYSIS (continued) SEPTEMBER 30, 2013 This year’s major asset additions included:

Description Amount Solid Waste land acquisition 650 Mayhill Drive $ 2,892,774 Hike and Bike Trail - DCTA contribution 2,114,514 Loop 288 Pedestrian Bridge 1,946,733 Water line relocation - DCTA contribution 1,640,649 Wet Weather Pump Station 1,582,217 Solid Waste land acquisition 1001 Mayhill Drive 1,290,862 Gardens of Denton-Drainage 917,996 Robson Ranch SW Lift Station 818,055 Compost Facility 721,385 Pecan Creek bridge - DCTA contribution 684,161 Total $ 14,609,346

Additional information on the City’s capital assets can be found in note IV. D. on pages 44 - 46 of this report.

Debt. At year-end, the City had $541.4 million in bonds and notes outstanding as compared to $511.4 million at the end of the prior fiscal year, an increase of 5.9%, as shown in Table 4.

Table 4 Outstanding Debt at Year-end (in thousands) Governmental Business-type Activities Activities Totals 2013 2012 2013 2012 2013 2012 General obligation bonds $ 80,720 $80,014 $ 55,970 $ 59,301 $136,690 $139,315 Certificates of obligation 37,514 33,910 222,955 181,315 260,469 215,225 Revenue bonds - - 144,226 156,855 144,226 156,855 Total $118,234 $113,924 $423,151 $397,471 $541,385 $511,355

These amounts do not include net unamortized premiums/(discounts) of $22,383,089 or net deferred gain/(loss) on refunding of ($6,937,886). During the current fiscal year, the City issued debt two times on April 15, 2013 and on May 15, 2013. The new debt resulted from the issuance $63.5 million in certificates of obligation, of which $52.7 million is for utility operations, and $10.7 million in general obligation refunding bonds which refunded $3.3 million in certificates of obligation, and $3.5 million in general obligation bonds. Normal pay down in general obligation bonds was $9.9 million, $15.0 million in certificates of obligation and $12.6 million in utility revenue bonds. No utility revenue bonds have been issued since 2008 as management has elected to utilize general obligation bonds as a result of lower interest rates.

Moody’s Investor’s Service, Inc. has given the City’s General Obligation Bonds and the Certificates of Obligation a rating of “Aa2.” Standard and Poor’s Corporation has given both the City’s General Obligation Bonds and Certificates of Obligation an “AA” rating. Fitch has given the City’s General Obligation Bonds and the Certificates of Obligation a rating of “AA+.” The City’s Utility Revenue Bonds carry “A1” and “AA- ” ratings by Moody’s and Standard and Poor’s, respectively. The City is permitted by Article XI, Section 5 of the State of Texas Constitution to levy taxes up to $2.50 per $100 of assessed valuation for general governmental services including the payment of principal and interest on general obligation long-term debt. The current ratio of tax-supported debt to certified assessed value of all taxable property is 2.24%.

Other long-term liabilities. The City maintains a self-insurance program for general liability, auto liability, public officials’ liability, errors and omission liability, police professional liability, and workers’ compensation. Private insurance companies cover claims for property loss over $50,000 per occurrence and for workers’ compensation and liability over $500,000 per occurrence. The City has a reserve for claims and

13 CITY OF DENTON, TEXAS MANAGEMENT’S DISCUSSION AND ANALYSIS (continued) SEPTEMBER 30, 2013 judgments of $2.1 million outstanding at year-end compared with $3.9 million at the end of the prior fiscal year. Other obligations include accrued vacation pay and sick leave. More detailed information about the City’s long-term liabilities is presented in Note IV. G., on pages 49 - 54 of this report.

ECONOMIC FACTORS AND NEXT YEAR’S BUDGETS AND RATES

While growth for the Denton community is expected to be moderate in the short term, demands for city services is expected to remain strong over the long term. As a result, the fiscal year 2013-14 Budget includes an ad valorem tax rate of $0.68975/$100 valuation and maintains the same rate in comparison to the prior year. While sales tax has increased over the prior year by 2.5%, financial projections anticipate an increase of 3.0% in fiscal year 2013-14. General Fund expenditure enhancements for fiscal year 2013-14 include new positions in legal administration, public communications, police, parks and recreation. An additional $1.7 million has been budgeted in the General Fund for fiscal year 2013-14 in accordance with priorities established through the Strategic Plan for program enhancements.

The fiscal year 2013-14 budget includes a base rate increase of 2.5% for all electric customers. The water budget includes an average rate increase of 4.0 % for all customers. Wastewater includes an average rate increase of 9.0% for all customers. The solid waste residential standard cart rate will increased by 3.2%. Commercial front and side load dumpster rates include an increase of 4.3% and commercial roll-off increased by 2.0%. Other minor fee adjustments were also approved for the water, wastewater and solid waste fee schedules.

REQUESTS FOR INFORMATION

This financial report is designed to provide a general overview of the City’s finances for all those with an interest in the City’s finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the City of Denton Finance Department, 215 E. McKinney, Denton, Texas 76201.

14 CITY OF DENTON, TEXAS Exhibit I STATEMENT OF NET POSITION SEPTEMBER 30, 2013 Primary Government Governmental Business-type Activities Activities Total ASSETS: Current assets: Cash, cash equivalents and investments, at fair value $ 51,475,484 $ 148,839,623 $ 200,315,107 Receivables, net of allowances: Taxes 5,472,536 - 5,472,536 Accounts - 11,570,654 11,570,654 Unbilled utility service - 11,025,632 11,025,632 Interest 176,812 495,355 672,167 Other 5,100,451 682,004 5,782,455 Internal balances (12,325,784) 12,325,784 - Due from other governments 1,156,136 - 1,156,136 Inventory 4,941,543 - 4,941,543 Prepaid items - 48,117,273 48,117,273 Debt issuance costs 133,375 293,258 426,633 Total current assets 56,130,553 233,349,583 289,480,136 Noncurrent assets: Restricted assets: Cash, cash equivalents and investments, at fair value 133,449,846 124,851,177 258,301,023 Escrow deposits 180,000 50,000 230,000 Accrued interest 444,270 415,546 859,816 Other receivables 184,222 1,307,027 1,491,249 Due from other governments Debt issuance costs 673,303 1,745,934 2,419,237 Capital assets not being depreciated: Land 14,612,957 17,465,730 32,078,687 Construction in progress 28,527,480 166,993,281 195,520,761 Capital assets, net of accumulated depreciation: Buildings 39,871,324 10,287,975 50,159,299 Plant, machinery and equipment 25,248,406 137,811,180 163,059,586 Infrastructure 92,606,873 260,591,225 353,198,098 Landfill improvements - 4,422,110 4,422,110 Water rights - 52,920,563 52,920,563 Total noncurrent assets 335,798,681 778,861,748 1,114,660,429 Total assets 391,929,234 1,012,211,331 1,404,140,565 LIABILITIES: Current liabilities: Accounts payable 6,172,060 10,919,005 17,091,065 Retainage payable - 358,764 358,764 Deposits - 4,787,981 4,787,981 Accrued interest 719,751 35,357 755,108 Due to other governments 160 - 160 Noncurrent liabilities due within one year 18,269,838 34,157,704 52,427,542 Other liabilities 545,999 - 545,999 Unearned revenue 85,513,299 5,533,160 91,046,459 Payable from restricted assets: Accounts payable 1,499,118 1,075,863 2,574,981 Retainage payable 88,407 1,249,193 1,337,600 Accrued interest - 4,152,100 4,152,100 Total current liabilities 112,808,632 62,269,127 175,077,759 Noncurrent liabilities: Noncurrent liabilities due in more than one year 123,721,436 415,361,675 539,083,111 Total liabilities 236,530,068 477,630,802 714,160,870 NET POSITION: Net investment in capital assets 116,146,838 347,780,207 463,927,045 Restricted: Restricted for debt service 4,116,256 23,250,815 27,367,071 Restricted for capital acquisition - 5,404,064 5,404,064 Unrestricted 35,136,072 158,145,443 193,281,515 Total net position $ 155,399,166 $ 534,580,529 $ 689,979,695 The notes to the basic financial statements are an integral part of this statement.

15 CITY OF DENTON, TEXAS STATEMENT OF ACTIVITIES FOR THE YEAR ENDED SEPTEMBER 30, 2013

Program Revenues Operating Capital Charges for Grants and Grants and Functions/Programs Expenses Services Contributions Contributions Primary government: Governmental activities: General government $ 27,686,735 $ 4,105,648 $ 2,386,704 $ 368,590 Public safety 52,906,985 7,767,083 515,468 173,886 Public works 18,663,884 1,159,605 - 13,057,466 Parks and recreation 13,714,245 4,059,383 215,933 1,071,629 Interest expense 4,464,309 - - - Total governmental activities 117,436,158 17,091,719 3,118,105 14,671,571 Business-type activities: Electric system 146,246,880 136,655,892 - - Water system 26,814,020 37,586,306 - 3,272,289 Wastewater system 21,467,088 26,588,179 - 6,590,609 Solid waste 21,730,796 24,468,976 - - Airport 1,608,989 1,880,812 14,287 Total business-type activities 217,867,773 227,180,165 - 9,877,185 Total primary government $ 335,303,931 $ 244,271,884 $ 3,118,105 $ 24,548,756

General revenues: Taxes: Property tax Sales tax Franchise fees Hotel occupancy tax Beverage tax Bingo tax Investment income Miscellaneous Transfers Total general revenues and transfers Change in net position Net position at beginning of year Net position at end of year

The notes to the basic financial statements are an integral part of this statement.

16 Exhibit II

Net (Expense) Revenue and Changes in Net Position Primary Government Governmental Business-type Activities Activities Total

$ (20,825,793) $ - $ (20,825,793) (44,450,548) - (44,450,548) (4,446,813) - (4,446,813) (8,367,300) - (8,367,300) (4,464,309) - (4,464,309) (82,554,763) - (82,554,763)

- (9,590,988) (9,590,988) - 14,044,575 14,044,575 - 11,711,700 11,711,700 - 2,738,180 2,738,180 286,110 286,110 - 19,189,577 19,189,577 (82,554,763) 19,189,577 (63,365,186)

47,275,552 - 47,275,552 26,522,473 - 26,522,473 19,901,459 - 19,901,459 1,910,125 - 1,910,125 392,192 - 392,192 20,774 - 20,774 354,089 1,085,856 1,439,945 1,428,907 511,291 1,940,198 (101,707) 101,707 - 97,703,864 1,698,854 99,402,718 15,149,101 20,888,431 36,037,532 140,250,065 513,692,098 653,942,163 $ 155,399,166 $ 534,580,529 $ 689,979,695

17 CITY OF DENTON, TEXAS Exhibit III BALANCE SHEET GOVERNMENTAL FUNDS SEPTEMBER 30, 2013

Other Total General Capital Governmental Governmental Fund Debt Service Projects Funds Funds ASSETS: Cash, cash equivalents and investments, at fair value $ 23,355,587 $ 4,539,894 $ 129,501,243 $ 11,603,395 $ 169,000,119 Receivables, net of allowances for uncollectibles: Taxes 5,191,497 281,039 - - 5,472,536 Accrued interest 83,329 15,110 431,022 38,618 568,079 Other 4,442,730 - - 374,623 4,817,353 Interfund receivables 119,875 - - 88,426 208,301 Due from other governments 459,413 - - 696,723 1,156,136 Total assets $ 33,652,431 $ 4,836,043 $ 129,932,265 $ 12,801,785 $ 181,222,524 LIABILITIES AND FUND BALANCES LIABILITIES: Accounts payable 3,568,115 36 1,297,073 1,632,153 6,497,377 Retainage payable - - 88,407 - 88,407 Interfund payables - - - 88,426 88,426 Due to other governments 160 - - - 160 Other liabilities 545,999 - - - 545,999 Unearned revenues 3,782,979 263,200 85,502,553 176,732 89,725,464 Total liabilities 7,897,253 263,236 86,888,033 1,897,311 96,945,833 FUND BALANCES: Restricted for: Debt service - 4,572,807 - - 4,572,807 Parks and recreation - - 4,310,011 4,910,942 9,220,953 Streets and drainage projects - - 23,759,574 - 23,759,574 Other capital projects - - 12,231,061 - 12,231,061 Other grants and purposes - - - 2,223,626 2,223,626 Committed to: Streets - - - 1,330,184 1,330,184 Parks and recreation - - - 590,062 590,062 Other purposes - - - 1,801,661 1,801,661 Assigned to: Streets and drainage projects - - 144,485 - 144,485 Use of reserves 1,377,039 - - - 1,377,039 Capital projects - - 2,599,101 - 2,599,101 Other purposes - - - 56,900 56,900 Unassigned 24,378,139 - - (8,901) 24,369,238 Total fund balances 25,755,178 4,572,807 43,044,232 10,904,474 84,276,691

Total liabilities and fund balances $ 33,652,431 $ 4,836,043 $ 129,932,265 $ 12,801,785 $ 181,222,524

The notes to the basic financial statements are an integral part of this statement.

18 CITY OF DENTON, TEXAS Exhibit IV RECONCILIATION OF THE BALANCE SHEET OF GOVERNMENTAL FUNDS TO THE STATEMENT OF NET POSITION AS OF SEPTEMBER 30, 2013

Total fund balances - governmental funds (Exhibit III) $ 84,276,691

Amounts reported for governmental activities in the statement of net position are different because:

Capital assets used in governmental activities are not financial resources and therefore are not reported as assets in governmental funds. 200,867,040

Certain receivables will be collected next year but are not available soon enough to pay for the current period's expenditures and therefore are reported as unearned revenues in the funds. 4,212,165

An internal charge to business-type activities is not recorded at the fund level. (8,880,659)

Several internal service funds are used by the City's management. The assets and liabilities of the internal service funds are included with governmental activities. Total assets of internal service funds $ 30,434,477 Less: Debt issuance costs (11,625) Less: Capital assets reported above (8,855,775) Less: Total liabilities of internal service funds (12,082,816) Liabilities reported below 3,664,904 13,149,165

Long-term liabilities, including bonds payable, are not due and payable in the current period and therefore are not reported as liabilities in the funds. Long-term liabilities at year-end consist of: General obligation bonds payable $ (80,719,761) Certificates of obligation payable (37,514,485) Bond (premiums)/discounts (3,737,386) Loss on refunding 1,640,122 Debt issuance costs 806,678 Accrued interest on the bonds (719,751) Capital leases payable (983,249) Municipal pension obligation (4,506,118) Other post employment benefits liability (2,466,604) Compensated absences (10,024,682) (138,225,236)

Total net position of governmental activities (Exhibit I) $ 155,399,166

The notes to the basic financial statements are an integral part of this exhibit.

19 CITY OF DENTON, TEXAS Exhibit V STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2013

Other Total General Capital Governmental Governmental Fund Debt Service Projects Funds Funds REVENUES: Taxes $ 59,278,152 $ 14,893,428 $ - $ 2,004,506 $ 76,176,086 Licenses and permits 1,446,580 - - - 1,446,580 Franchise fees 13,597,253 - - 6,304,206 19,901,459 Fines and forfeitures 4,229,107 - - 1,113,859 5,342,966 Fees for services 5,631,829 - - 3,051,449 8,683,278 Investment revenue 141,734 37,305 139,017 36,033 354,089 Intergovernmental 1,021,581 - 5,542,391 3,350,862 9,914,834 Miscellaneous 84,929 136 660,266 577,431 1,322,762 Total revenues 85,431,165 14,930,869 6,341,674 16,438,346 123,142,054 EXPENDITURES: Current: General government 21,067,238 - 244,932 3,734,892 25,047,062 Public safety 49,622,237 - 12,958 1,668,630 51,303,825 Public works 2,816,923 - 11,652 6,596,871 9,425,446 Parks and recreation 10,579,066 - 8,676 1,687,166 12,274,908 Capital outlay 616,199 - 19,125,297 296,568 20,038,064 Debt service: Principal retirement - 9,969,337 - 48,382 10,017,719 Advance refunding escrow - 110,145 - - 110,145 Bond issuance costs - 111,932 69,376 - 181,308 Interest and other charges - 4,538,624 3,609 10,115 4,552,348 Total expenditures 84,701,663 14,730,038 19,476,500 14,042,624 132,950,825 Excess (deficiency) of revenues over (under) expenditures 729,502 200,831 (13,134,826) 2,395,722 (9,808,771) OTHER FINANCING SOURCES (USES): Refunding bonds issued - 6,182,405 - - 6,182,405 Payment to refunded bond escrow agent - (6,547,180) - - (6,547,180) Issuance of long-term debt - - 14,765,000 - 14,765,000 Premium on debt issuance - 447,895 784,779 - 1,232,674 Sale of capital assets 137,417 - 11,000 - 148,417 Transfers in 2,600 464,418 1,901,394 612,036 2,980,448 Transfers out (950,421) - (20) (2,113,495) (3,063,936) Total other financing sources (uses) (810,404) 547,538 17,462,153 (1,501,459) 15,697,828

Net change in fund balances (80,902) 748,369 4,327,327 894,263 5,889,057

Fund balance at beginning of year 25,836,080 3,824,438 38,716,905 10,010,211 78,387,634 Fund balances at end of year $ 25,755,178 $ 4,572,807 $ 43,044,232 $ 10,904,474 $ 84,276,691 The notes to the basic financial statements are an integral part of this statement.

20 CITY OF DENTON, TEXAS Exhibit VI RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED SEPTEMBER 30, 2013

Net change in fund balances - total governmental funds (Exhibit V) $ 5,889,057 Amounts reported for governmental activities in the statement of activities are different because:

Governmental funds report capital outlays as expenditures. However, in the statement of activities the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense. This is the amount by which capital outlay ($20,038,064) is different from depreciation and retirement of assets ($14,616,242 = $16,127,114 total governmental minus $1,510,872 internal service portion) in the current period. 5,421,822

Revenues in the statement of activities that do not provide current financial resources are not reported as revenues in the funds. Such amounts are recorded in the funds when considered available. 958,207

The net effect of various miscellaneous transactions involving capital assets (i.e., sales, trade-ins and donations) is to increase net position. 7,244,824

Bond proceeds provide current financial resources to governmental funds, but issuing debt increases long-term liabilities in the statement of net position. Repayment of bond principal is an expenditure in the governmental funds, but the repayment reduces long-term liabilities in the statement of net position. This is the amount by which payments exceeded proceeds. (4,726,005)

Fund-level financials report costs related to bonds as expenditures; however, these are deferred and amortized on the government-wide financials. (376,154)

Certain expenses reported in the statement of activities do not require the use of current financial resources and therefore are not reported as expenditures in governmental funds. (807,255)

Internal service funds are used by management to charge the costs of certain activities, such as insurance and technology services, to individual funds. A portion of the net revenue (expense) of certain internal service funds is reported with governmental activities. The amount reported with business-type activities is $1,868,888. 1,544,605 Change in net position of governmental activities (Exhibit II) $ 15,149,101

The notes to the basic financial statements are an integral part of this statement.

21

22 CITY OF DENTON, TEXAS Exhibit VII STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET TO ACTUAL GENERAL FUND FOR THE YEAR ENDED SEPTEMBER 30, 2013

Variance with Adjustments - Actual on a Final Budget - Budgeted Amounts Actual Budgetary Budgetary Positive Original Final Amounts Basis Basis (Negative) REVENUES: Taxes $ 59,055,329 $ 59,055,329 $ 59,278,152 $ - $ 59,278,152 $ 222,823 Licenses and permits 1,413,195 1,413,195 1,446,580 - 1,446,580 33,385 Franchise fees 13,798,680 13,798,680 13,597,253 - 13,597,253 (201,427) Fines and forfeitures 4,564,093 4,564,093 4,229,107 - 4,229,107 (334,986) Fees for services 5,943,989 5,943,989 5,631,829 - 5,631,829 (312,160) Investment revenue 225,000 225,000 141,734 - 141,734 (83,266) Intergovernmental 912,961 912,961 1,021,581 - 1,021,581 108,620 Miscellaneous 318,152 318,152 84,929 - 84,929 (233,223) Total revenues 86,231,399 86,231,399 85,431,165 - 85,431,165 (800,234)

EXPENDITURES: Current: General government 30,047,800 29,822,795 21,067,238 7,306,682 28,373,920 1,448,875 Public safety 49,622,827 49,564,643 49,622,237 - 49,622,237 (57,594) Public works 2,927,037 2,924,842 2,816,923 - 2,816,923 107,919 Parks and recreation 10,814,857 10,704,757 10,579,066 - 10,579,066 125,691 Capital outlay 787,953 617,938 616,199 - 616,199 1,739 Total expenditures 94,200,474 93,634,975 84,701,663 7,306,682 92,008,345 1,626,630

Excess (deficiency) of revenues over (under) expenditures (7,969,075) (7,403,576) 729,502 (7,306,682) (6,577,180) 826,396

OTHER FINANCING SOURCES (USES): Sale of capital assets 91,000 91,000 137,417 - 137,417 46,417 Transfer in 7,332,993 7,332,993 2,600 7,306,682 7,309,282 (23,711) Transfers out (119,812) (685,311) (950,421) - (950,421) (265,110) Total other financing sources (uses) 7,304,181 6,738,682 (810,404) 7,306,682 6,496,278 (242,404)

Excess (deficiency) of revenues and other sources over (under) expenditures and other uses (664,894) (664,894) (80,902) - (80,902) 583,992

Fund balances at beginning of year 25,836,080 25,836,080 25,836,080 - 25,836,080 - Fund balance at end of year $ 25,171,186 $ 25,171,186 $ 25,755,178 $ - $ 25,755,178 $ 583,992

Adjustments - Budgetary Basis are expenditures allocated to and reimbursed by other funds. These expenditures are recorded in the other funds' financials. The notes to the basic financial statements are an integral part of this statement.

23 CITY OF DENTON, TEXAS STATEMENT OF NET POSITION PROPRIETARY FUNDS AS OF SEPTEMBER 30, 2013

Business-type Activities - Enterprise Funds Electric Water Wastewater Solid System System System Waste ASSETS: Current assets: Cash, cash equivalents and investments, at fair value $ 81,987,021 $ 37,054,228 $ 19,896,804 $ 3,746,767 Receivables, net of allowances: Accounts 8,200,241 2,017,769 1,326,398 - Unbilled utility service 6,391,402 1,521,070 1,023,431 2,089,729 Accrued interest 272,879 123,301 66,222 12,468 Other 412,917 - - - Interfund receivables 3,068,912 300,180 76,033 - Merchandise inventory - - - - Prepaid items 48,117,273 - - - Unamortized debt issuance costs 122,833 93,299 47,350 27,437 Total current assets 148,573,478 41,109,847 22,436,238 5,876,401 Noncurrent assets: Restricted assets: Cash, cash equivalents and investments, at fair value 53,606,048 28,396,793 24,418,676 17,944,768 Escrow deposit - 50,000 - - Accrued interest 178,418 94,516 81,272 59,726 Other receivables 1,307,027 - - - Total restricted assets 55,091,493 28,541,309 24,499,948 18,004,494 Unamortized debt issuance costs 805,185 585,429 224,985 117,108 Capital assets, net of accumulated depreciation 201,149,578 232,801,105 168,159,169 36,695,507 Total noncurrent assets 257,046,256 261,927,843 192,884,102 54,817,109 Total assets 405,619,734 303,037,690 215,320,340 60,693,510 LIABILITIES: Current liabilities: Accounts payable 8,341,277 1,222,935 642,318 647,296 Retainage payable - 341,683 15,330 1,751 Claims payable - - - - Compensated absences payable 748,118 487,196 348,110 378,087 Leases payable - - 107,168 256,319 Deposits 4,270,303 287,088 86,893 143,697 Accrued interest - - - - Interfund payables - - - - Unearned revenue 5,533,160 - - - Payable from restricted assets: Accounts payable 212,645 117,014 249,775 496,429 Retainage payable 17,151 1,142,300 62,267 27,475 Accrued interest 1,959,411 1,503,986 465,413 223,290 Revenue and certificate and general obligation bonds 13,675,498 8,101,718 4,898,654 4,914,247 Total current liabilities paid from restricted assets 15,864,705 10,865,018 5,676,109 5,661,441 Total current liabilities 34,757,563 13,203,920 6,875,928 7,088,591

24 Exhibit VIII

Governmental Activities - Total Internal Enterprise Service Airport Funds Funds

$ 6,154,803 $ 148,839,623 $ 15,925,211

26,246 11,570,654 - - 11,025,632 - 20,485 495,355 53,003 269,087 682,004 467,320 - 3,445,125 - - - 4,941,543 - 48,117,273 - 2,339 293,258 3,221 6,472,960 224,468,924 21,390,298

484,892 124,851,177 - - 50,000 180,000 1,614 415,546 - - 1,307,027 - 486,506 126,623,750 180,000 13,227 1,745,934 8,404 11,686,705 650,492,064 8,855,775 12,186,438 778,861,748 9,044,179 18,659,398 1,003,330,672 30,434,477

65,179 10,919,005 1,173,801 - 358,764 - - - 1,930,079 19,671 1,981,182 278,234 - 363,487 770,260 - 4,787,981 - 35,357 35,357 9,561 - - 3,565,000 - 5,533,160 -

- 1,075,863 - - 1,249,193 - - 4,152,100 -

222,918 31,813,035 329,402

222,918 38,290,191 329,402 343,125 62,269,127 8,056,337 (continued)

25 CITY OF DENTON, TEXAS STATEMENT OF NET POSITION PROPRIETARY FUNDS AS OF SEPTEMBER 30, 2013

Business-type Activities - Enterprise Funds Electric Water Wastewater Solid System System System Waste

Noncurrent liabilities: Payable from restricted assets: General obligation bonds payable 15,729,354 18,380,623 17,476,161 3,514,154 Certificates of obligation 158,899,560 17,317,192 16,561,209 24,789,445 Revenue bonds payable, net of premium/discount 41,450,084 78,713,248 12,685,348 - Unamortized loss on refunding (1,262,066) (2,241,293) (705,398) (131,459) Notes payable - - - - Compensated absences payable 138,977 93,557 58,412 138,587 Claims payable - - - - Municipal pension obligation 907,868 808,500 526,088 584,960 Other post employment benefits 333,028 472,546 248,481 288,979 Landfill closure/postclosure costs - - - 6,044,056 Total noncurrent liabilities 216,196,805 113,544,373 46,850,301 35,228,722 Total liabilities 250,954,368 126,748,293 53,726,229 42,317,313 NET POSITION: Net investment in capital assets 67,978,543 121,887,030 134,261,817 15,212,197 Restricted for debt service 6,934,187 12,934,600 3,382,028 - Restricted for capital acquisition - 3,289,014 2,115,050 - Unrestricted 79,752,636 38,178,753 21,835,216 3,164,000 Total net position $ 154,665,366 $ 176,289,397 $ 161,594,111 $ 18,376,197 Adjustment to reflect inclusion of internal service fund activities related to enterprise funds. Net position of business-type activities (Exhibit I) The notes to the basic financial statements are an integral part of this statement.

26 Exhibit VIII

Governmental Activities - Total Internal Enterprise Service Airport Funds Funds

1,098,464 56,198,756 1,565,844 2,434,906 220,002,312 73,066 - 132,848,680 - (23,874) (4,364,090) (68,307) - - - 1,386 430,919 42,006 - - 1,749,032 12,889 2,840,305 470,769 17,703 1,360,737 194,069 - 6,044,056 - 3,541,474 415,361,675 4,026,479 3,884,599 477,630,802 12,082,816

8,440,620 347,780,207 6,986,692 - 23,250,815 - - 5,404,064 - 6,334,179 149,264,784 11,364,969 $ 14,774,799 $ 525,699,870 $ 18,351,661 8,880,659 $ 534,580,529

(concluded)

27 CITY OF DENTON, TEXAS STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET POSITION PROPRIETARY FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2013

Business-type Activities - Enterprise Funds

Electric Water Wastewater Solid System System System Waste OPERATING REVENUES: Utility services $ 133,706,573 $ 31,608,951 $ 24,158,140 $ 24,115,018 Charges for goods and services - - - - Other fees 2,949,319 3,414,945 1,288,113 353,958 Miscellaneous - - - - Total operating revenues 136,655,892 35,023,896 25,446,253 24,468,976

OPERATING EXPENSES: Operating expenses before depreciation 132,100,337 18,221,499 14,366,362 17,588,344 Depreciation 6,834,128 5,241,483 5,673,494 3,757,359 Total operating expenses 138,934,465 23,462,982 20,039,856 21,345,703

Operating income (loss) (2,278,573) 11,560,914 5,406,397 3,123,273

NON-OPERATING REVENUES (EXPENSES): Investment revenue 549,024 275,870 158,530 75,029 Interest expense and fiscal charges (7,448,278) (4,156,568) (1,732,387) (867,761) Impact fee revenue - 2,562,410 1,141,926 - Gain (loss) on disposal of capital assets (592,621) 32,794 117,510 360,987 Gas well revenues - - - - Other non-operating revenues (expenses) (3,369) 411,954 65,186 - Total non-operating revenues (expenses) (7,495,244) (873,540) (249,235) (431,745)

Income (loss) before contributions and transfers (9,773,817) 10,687,374 5,157,162 2,691,528

CONTRIBUTIONS AND TRANSFERS: Capital contributions - 3,272,289 6,590,609 - Transfers in 2,500 276,450 621,661 123,985 Transfers out (170,857) (70,462) (608,167) (24,000) Total contributions and transfers (168,357) 3,478,277 6,604,103 99,985

Change in net position (9,942,174) 14,165,651 11,761,265 2,791,513

Net position at beginning of year 164,607,540 162,123,746 149,832,846 15,584,684 Total net position at end of year $ 154,665,366 $ 176,289,397 $ 161,594,111 $ 18,376,197

Change in fund net position of proprietary funds Adjustment to reflect inclusion of internal service fund activities related to enterprise funds. Change in net position of business-type activities (Exhibit II) The notes to the basic financial statements are an integral part of this statement.

28 Exhibit IX

Governmental Activities - Total Internal Enterprise Service Airport Funds Funds

$ - $ 213,588,682 $ - 678,550 678,550 46,019,375 - 8,006,335 - 39,754 39,754 398,622 718,304 222,313,321 46,417,997

1,131,202 183,407,744 41,604,601 463,032 21,969,496 1,510,872 1,594,234 205,377,240 43,115,473

(875,930) 16,936,081 3,302,524

27,403 1,085,856 48,588 (35,577) (14,240,571) (136,683) - 3,704,336 - - (81,330) (41,485) 1,162,508 1,162,508 - - 473,771 - 1,154,334 (7,895,430) (129,580)

278,404 9,040,651 3,172,944

14,287 9,877,185 258,768 20 1,024,616 73,083 (49,423) (922,909) (91,302) (35,116) 9,978,892 240,549

243,288 19,019,543 3,413,493

14,531,511 506,680,327 14,938,168 $ 14,774,799 $ 525,699,870 $ 18,351,661

19,019,543 1,868,888 $ 20,888,431

29 CITY OF DENTON, TEXAS STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2013

Business-type Activities - Enterprise Funds Electric Water Wastewater System System System CASH FLOWS FROM OPERATING ACTIVITIES: Cash received from customers $ 135,220,321 $ 35,508,731 $ 25,420,801 Cash paid to employees for services (9,139,168) (10,708,315) (6,287,762) Cash paid to suppliers (120,917,741) (7,483,028) (7,554,266) Net cash provided (used) by operating activities 5,163,412 17,317,388 11,578,773 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES: Transfers out (170,857) (70,462) (608,167) Transfers in 2,500 276,450 621,661 Net cash provided (used) by noncapital financing activities: (168,357) 205,988 13,494 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES:

Principal payments on capital debt (9,301,522) (8,123,795) (4,737,137) Interest and fiscal charges (7,258,007) (4,217,517) (1,752,991) Principal payments under capital lease obligation - - (103,168) Proceeds from issuance of debt 38,405,000 - 5,621,765 Proceeds from gas wells - - - Proceeds from impact fees - 2,959,725 1,141,926 Proceeds from sale of capital assets 22,390 40,768 125,831 Acquisition and construction of capital assets (32,127,646) (16,989,298) (6,713,895) Net cash provided (used) by capital financing activities (10,259,785) (26,330,117) (6,417,669) CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale and maturities of investment securities 62,969,498 37,282,168 24,190,308 Purchase of investment securities (55,498,628) (27,994,092) (27,994,092) Interest received on investments 602,532 324,125 151,365 Net cash provided (used) by investing activities 8,073,402 9,612,201 (3,652,419) Net increase in cash and cash equivalents 2,808,672 805,460 1,522,179 Cash and cash equivalents at beginning of year 12,366,421 6,526,263 3,438,010 Cash and cash equivalents at end of year 15,175,093 7,331,723 4,960,189 Investments, at fair value (Note IV.A.) 120,417,976 58,119,298 39,355,291 Cash, cash equivalents and investments, at fair value $ 135,593,069 $ 65,451,021 $ 44,315,480

RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES: Operating income (loss) $ (2,278,573) $ 11,560,914 $ 5,406,397 Adjustments: Depreciation expense 6,834,128 5,241,483 5,673,494 Decrease (Increase) in receivables (1,475,344) 600,498 (20,998) Increase in interfund receivables (824,171) (115,663) (4,453) Increase in inventories - - - Decrease in prepaid items 4,176,940 - - Decrease in escrow deposits - - - Increase (Decrease) in accounts payable (2,271,474) (81,662) 439,034 Increase in unearned revenue 863,944 - - Increase in compensated absences payable 69,366 28,228 39,743 Increase in municipal pension obligations 7,126 10,265 4,621 Increase in other post employment benefits 61,470 73,325 40,935 Increase in closure/postclosure liability - - - Increase in interfund payables - - - Total adjustments 7,441,985 5,756,474 6,172,376 Net cash provided (used) by operating activities $ 5,163,412 $ 17,317,388 $ 11,578,773

NONCASH CAPITAL, INVESTING AND FINANCING ACTIVITIES: Decrease in fair value of investments (126,137) (68,016) (33,381) Capital asset contributions - 3,272,289 6,590,609 The notes to the basic financial statements are an integral part of this statement.

30 Exhibit X

Governmental Activities Total Internal Solid Enterprise Service Waste Airport Funds Funds

$ 24,461,422 $ 738,194 $ 221,349,469 $ 46,707,354 (8,147,144) (443,004) (34,725,393) (24,991,863) (9,481,867) (631,798) (146,068,700) (18,078,316) 6,832,411 (336,608) 40,555,376 3,637,175

(24,000) (49,423) (922,909) (91,302) 123,985 20 1,024,616 73,083 99,985 (49,403) 101,707 (18,219)

(4,512,243) (161,027) (26,835,724) (466,276) (818,739) (14,304) (14,061,558) (136,151) (246,753) - (349,921) (860,264) 7,810,000 2,000,298 53,837,063 - - 1,096,339 1,096,339 - - - 4,101,651 - 382,678 - 571,667 7,436 (8,972,511) (2,523,637) (67,326,987) (102,179) (6,357,568) 397,669 (48,967,470) - (1,557,434)

7,821,586 2,897,710 135,161,270 4,266,116 (7,892,739) (2,777,176) (122,156,727) (5,809,063) 68,045 29,052 1,175,119 45,320 (3,108) 149,586 14,179,662 (1,497,627) 571,720 161,244 5,869,275 563,895 1,856,424 581,839 24,768,957 1,218,377 2,428,144 743,083 30,638,232 1,782,272 19,263,391 5,896,612 243,052,568 14,142,939 $ 21,691,535 $ 6,639,695 $ 273,690,800 $ 15,925,211

$ 3,123,273 $ (875,930) $ 16,936,081 $ 3,302,524

3,757,359 463,032 21,969,496 1,510,872 (66,204) 19,890 (942,158) 289,356 - - (944,287) - - - - (717,490) - - 4,176,940 157,576 - - - 61,000 (428,697) 49,471 (2,293,328) (1,985,413) - - 863,944 - 35,787 3,769 176,893 19,528 4,990 109 27,111 3,967 51,597 3,051 230,378 32,693 354,306 - 354,306 - - - - 962,562 3,709,138 539,322 23,619,295 334,651 $ 6,832,411 $ (336,608) $ 40,555,376 $ 3,637,175

(18,588) (5,869) (251,991) (11,775) - 14,287 9,877,185 258,768

31 CITY OF DENTON, TEXAS Exhibit XI STATEMENT OF ASSETS AND LIABILITIES AGENCY FUNDS AS OF SEPTEMBER 30, 2013

Total Agency Funds ASSETS: Cash, cash equivalents and investments, at fair value $ 1,914,309 Accrued interest 759 Other assets 78,271 Total assets $ 1,993,339

LIABILITIES: Accounts payable 1,993,339 Total liabilities $ 1,993,339

The notes to the basic financial statements are an integral part of this statement.

32 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS SEPTEMBER 30, 2013

I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The City of Denton is a municipal corporation governed by an elected seven-member council consisting of a mayor elected at large and six councilpersons, four representing specific geographical districts and two elected at large. The City receives funding from state and federal government sources and must comply with the requirements of these funding source entities. However, the City is not included in any other governmental “reporting entity,” as defined in pronouncements by the Governmental Accounting Standards Board (GASB) Statement No. 14, “The Financial Reporting Entity,” since council members are elected by the public and have decision-making authority, the authority to levy taxes, the power to designate management, the ability to significantly influence operations, and primary accountability for fiscal matters. The financial statements of the City have been prepared to conform to accounting principles generally accepted (GAAP) in the United States of America as applicable to state and local governments. GASB is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. The following is a summary of the more significant policies. A. Reporting entity An elected seven-member council consisting of a mayor and six councilpersons govern the City. As required by accounting principles generally accepted in the United States of America, these financial statements present the City (the primary government) and its component units, which are entities for which the City is considered to be financially accountable. Blended component units, although legally separate entities, are, in substance, part of the City's operations, and so data from these units are combined with data of the primary government. A discretely presented component unit, on the other hand, is reported in a separate column in the government-wide financial statements to emphasize it is legally separate from the City. The City had no component units, discretely presented or blended, at September 30, 2013. B. Government-wide and fund financial statements The basic financial statements include both government-wide (based on the City as a whole) and fund financial statements. The reporting focus is either the City as a whole (government-wide financial statements) or major individual funds (within the fund financial statements). The government-wide financial statements (i.e., the statement of net position and the statement of activities) report information on all non-fiduciary activities of the primary government. For the most part, the effect of inter-fund activity has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support. The government-wide statement of activities demonstrates the degree to which the direct expenses of a functional category (public safety, public works, etc.) or segment are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include (1) charges to customers or applicants who purchase, use or directly benefit from goods, services or privileges provided by a given function or segment; (2) grants and contributions that are restricted to meeting operational requirements of a particular function or segment; and (3) grants and contributions that are restricted to meeting the capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues. The net cost (by function or business-type activity) is normally covered by general revenue (property taxes, sales taxes, franchise fees, interest income, etc.). Separate fund financial statements are provided for governmental funds, proprietary funds, and fiduciary funds, even though the latter are excluded from the government-wide financial statements. Major governmental funds and major enterprise funds are reported as separate columns in the fund financial statements. GASB Statement No. 34 sets forth minimum criteria (percentage of assets, liabilities, revenues or expenditures/expenses of either fund category and for the governmental and enterprise funds combined) for the determination of major funds. Non-major funds are combined in a column in the fund financial statements.

33 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2013

Internal service funds, which traditionally provide services primarily to other funds of the government, are presented in summary form as part of the proprietary fund financial statements. The financial statements of internal service funds are allocated (based on the percentage of goods or services provided) between the governmental and business-type activities when presented at the government-wide level. The City’s fiduciary funds are presented in the fund financial statements. Since by definition these assets are being held for the benefit of a third party (other local governments, individuals, etc.) and cannot be used to address activities or obligations of the government, these funds are not incorporated into the government- wide statements. The government-wide focus is more on the sustainability of the City as an entity and the change in aggregate financial position resulting from the activities of the fiscal period. The focus of the fund financial statements is on the major individual funds of the governmental and business-type categories, as well as the fiduciary funds (by category). Each presentation provides valuable information that can be analyzed and compared to enhance the usefulness of the information. C. Measurement focus, basis of accounting and financial statement presentation The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the proprietary fund statements. Revenues are recorded when earned, and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. Governmental fund-level financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the government considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. 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. Property tax, franchise fees, sales tax and other taxes associated with the current fiscal period are all susceptible to accrual and so have been recognized as revenues of the current fiscal period. All of the other revenue items are considered to be measurable and available only when cash is received. The City reports the following major governmental funds: The general fund is the City’s primary operating fund. All general tax revenues and other receipts that are not allocated by law or contractual agreement to some other fund are accounted for in this fund. From the fund are paid general operating costs, fixed charges and capital improvement costs that are not paid through other funds. The debt service fund accounts for the accumulation of financial resources for the payment of principal, interest and related costs on general long-term debt, paid primarily by taxes levied by the City. The capital projects fund accounts for financial resources used for the acquisition or construction of capital other than those recorded in the enterprise funds and internal service funds. Other governmental funds is a summarization of all of the non-major governmental funds.

34 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2013

The City reports the following major proprietary funds: The City utility system is made up of three separate funds as follows: The electric fund accounts for electrical utility services to the residents and commercial establishments of the City. Activities necessary to provide such services are accounted for in the fund, including, but not limited to, administration, operations, maintenance, finance and related debt service. The water fund accounts for water utility services to the residents and commercial establishments of the City. Activities necessary to provide such services are accounted for in the fund, including, but not limited to, administration, operations, maintenance, finance and related debt service. The wastewater fund accounts for sewer and storm water services to the residents and commercial establishments of the City. Activities necessary to provide such services are accounted for in the fund, including, but not limited to, administration, operations, maintenance, finance and related debt service. The City provides additional services through the following funds: The solid waste fund accounts for the provision of solid waste services to the residents of the City. Activities necessary to provide such services are accounted for in the fund, including, but not limited to, administration, operations, maintenance, finance and related debt service. The airport fund accounts for the airport services to the public and is funded through operational and gas well revenues. Activities necessary to provide such services are accounted for in the fund, including, but not limited to, administration, operations, maintenance, finance and related debt service. The City additionally reports the following funds: Internal service funds are used to account for the financing of materials and services provided by one department of the City to other departments of the City on a cost-reimbursement basis. Agency funds are used to account for the payment of payroll, developers’ escrow funds, and other similar liabilities. The City holds the assets in an agency capacity for individuals, private organizations or other governments. Proprietary funds distinguish operating revenues and expenses from non-operating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund’s principal ongoing operations. The principal operating revenues of the City’s electric, water, wastewater, solid waste, and airport funds are charges to customers for services. Operating expenses for the enterprise funds and internal service funds include the cost of sales and services, administrative expenses and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses. For deferred charges, the City recognizes, as an asset or a liability, the difference between the electric fund’s energy cost adjustment (ECA) revenue collected and related costs. 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. Assets, liabilities and net assets or equity 1. Cash, cash equivalents and investments The City’s cash and cash equivalents are considered to be cash on hand, demand deposits and short- term investments with original maturities of three months or less from the date of acquisition.

35 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2013

Investments are carried at fair value or cost, if maturities are one year or less. Fair value is determined as the price at which two willing parties would complete an exchange. The City uses a pooled cash and investment fund to hold and account for all of the City’s investments. For financial reporting purposes, the investment balances in the pooled fund are allocated back to the individuals funds based on their respective share of the pooled total. Interest earned on investments is also allocated back and recorded directly to the individual funds on a monthly basis. 2. Receivables Outstanding balances between funds are reported as “interfund receivables/payables.” Any residual balances between governmental activities and business-type activities are reported in the government- wide statements as “internal balances.” Trade and property tax receivables are shown net of an allowance for uncollectible accounts. The City accrues amounts for utility services provided in September, but not billed at September 30, 2013. 3. Inventories Inventories of supplies are maintained at the City warehouse for use by all City funds and are accounted for by the consumption method. Cost is determined using a moving average method. No inventories exist in the governmental fund types. 4. Prepaid Items Certain costs applicable to future accounting periods are recorded as prepaid items. During 2010 the City prepaid certain contractual obligations to the Texas Municipal Power Agency (TMPA) relating to the cost of TMPA providing energy to the City. The benefit from the prepayment is being amortized over the benefit period of 15 years, of which 11.5 years is remaining. 5. Restricted Assets Certain proceeds of the City’s governmental and proprietary fund revenue bonds, general obligation bonds, and certificates of obligation, as well as certain resources set aside for their repayment, are classified as restricted assets on the balance sheet because their use is limited by applicable bond covenants. Assets collected from impact fees are limited by state statute in use and also shown as restricted on the balance sheet of the Water and Wastewater funds. 6. Capital Assets Capital assets, which include property, plant, equipment and infrastructure assets (e.g., roads, bridges, sidewalks and similar items) are reported in applicable governmental or business-type activities columns in the government-wide financial statements and in the proprietary fund financial statements. The City defines capital assets as assets with an initial, individual cost of more than $5,000 and an estimated useful life in excess of one year. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair value at the time received. Major outlays for capital assets and improvements are capitalized as projects are constructed. Net interest incurred during the construction phase of capital assets of business-type activities and enterprise funds is included as part of the capitalized value of the assets constructed. For 2013, net interest capitalization of $1,040,492 was recorded for electric fund projects, $1,434,473 for water fund projects, $336,891 for wastewater fund projects, $242,736 for solid waste fund projects and $51,409 for airport fund projects.

36 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2013

Capital assets are depreciated using the straight-line method over the following useful lives:

Assets Years Buildings 40 Infrastructure 20 – 40 General improvements 10 Machinery and equipment 10 – 20 Furniture and office equipment 10 Computer equipment/software 3 – 10 Plant and equipment 5 Underground pipe 40 Water storage rights 50 – 100 Water recreation rights 50 Communication equipment 5 Vehicles 3 – 10

Renewals and betterments of property and equipment are capitalized, whereas normal repair and maintenance are charged to expense as incurred. 7. Compensated Absences The City allows full-time employees to accumulate unused vacation up to 320 hours (480 for Civil Service Fire employees.) Upon termination, any accumulated vacation time will be paid to an employee. Generally, sick leave is not paid upon termination except for civil service fire fighters and police officers. Firefighters and police officers accumulate unused sick leave up to a maximum of 1080 hours and 720 hours, respectively. All other employees are paid only upon illness while employed by the City. Accumulated vacation and sick leave is accrued when incurred in the government-wide, proprietary and fiduciary fund financial statements. A liability for these amounts is reported in governmental funds only if they have matured, for example, as a result of employee resignations and retirements but have not been paid this amount at the end of the fiscal year. The General Fund and Other Governmental Funds are used to record any payout expenditures of the governmental funds’ employees and related liability, while proprietary fund payouts for their employees are recorded as reductions to the liabilities in those funds. 8. Arbitrage Arbitrage involves the investment of the proceeds from the sale of tax-exempt securities in a taxable money market instrument that yields a higher rate, resulting in interest revenue in excess of interest costs. Federal tax code requires that these excess earnings be rebated to the federal government. The Capital Projects Fund has been used in prior years to liquidate governmental funds’ related liability. 9. Long-term obligations In the government-wide financial statements and proprietary fund types in the fund financial statements, long-term obligations are reported as liabilities. Bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds. Bonds payable are reported net of the applicable bond premium or discount. Gains and losses on refunding are amortized over the life of the refunded debt or the life of the new issue, whichever is shorter. In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures.

37 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2013

10. Fund equity The City adopted GASB Statement No. 54, “Fund Balance Reporting and Governmental Fund Type Definitions”, and in accordance with the statement, the classifications of governmental fund balances have changed and are as follows: Nonspendable fund balance – includes amounts not in a spendable form or are legally or contractually required to be maintained intact. Examples include inventory or endowments. Restricted fund balance – includes amounts that can be spent only for the specific purposes stipulated by external resource providers, creditors, grantors, and contributors or through enabling legislation. Committed fund balance – includes amounts that can be used only for the specific purposes determined by the City Council through an ordinance and may only be changed or lifted through another ordinance. The ordinance must either adopt or rescind the commitment, as applicable, prior to the last day of the fiscal year for which the commitment is made. The amount subject to the constraint may be determined in the subsequent period. Assigned fund balance - comprises amounts intended to be used for specific purposes. Intent can be expressed by the City Council, or per the policy adopted by an ordinance by the City Council, the City Manager or the City Manager’s designee (assistant city manager) may also make an assignment. In governmental funds other than the general fund, assigned fund balance represents the amount that is not restricted or committed and, at a minimum, is intended for the purpose of that fund. Unassigned fund balance – is the residual classification of the general fund and includes all amounts not constrained in the other classifications. Unassigned amounts are technically available for any purpose. When multiple categories of fund balance are available for expenditure and approved for use by the City Council, the City will start with the most restricted category and spend those funds first before moving down to the next category with available funds. Normally this would result in the use of restricted, then committed, then assigned, and lastly, unassigned fund balance. 11. Minimum fund balance policy It is the goal of the City to achieve and maintain an unassigned fund balance in the general fund equal to 20% of budgeted expenditures for unanticipated expenditures, unforeseen revenue fluctuations, or other adverse circumstances. The fund balance level, however, may be reduced to the equivalent of 15% of budgeted expenditures in unusual financial circumstances. However, if such a situation occurs, the City will implement necessary corrective action within a five-year plan to restore the unassigned fund balance to the equivalent of 20% of budgeted expenditures. 12. Net Position Net position represents the difference between assets, deferred inflows, deferred outflows, and liabilities. Net investment in capital assets consists of capital assets net of accumulated depreciation and the outstanding balances of any borrowing spent for the acquisition, construction or improvements of those assets. Net position is reported as restricted when there are limitations imposed on their use either through the enabling legislation adopted by the City or through external restrictions imposed by creditors, grantors or laws or regulations of other governments.

38 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2013

E. Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses/expenditures during the reporting period. Actual results could differ from those estimates. II. RECONCILIATION OF GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS Explanation of certain differences between the governmental fund statement of revenues, expenditures and changes in fund balances and the government-wide statement of activities Another element of that reconciliation states, “Bond proceeds provide current financial resources to governmental funds, but issuing debt increases long-term liabilities in the statement of net position. Repayment of bond principal is an expenditure in the governmental funds, but the repayment reduces long- term liabilities in the statement of net position. This is the amount by which payments exceeded proceeds.” The details of this ($4,726,005) difference are as follows: Debt issued or incurred: Issuance of general obligation debt $(10,142,405) Issuance of certificates of obligation (10,805,000) Principal repayments: Certificates of obligation principal retirement 5,811,768 General obligation debt principal retirement 4,157,569 Refunded debt principal 6,203,681 Lease obligations principal retirement 48,382 Net adjustment to decrease net changes in fund balances – total governmental funds to arrive at changes in net position of governmental activities $ 4,726,005

Another element of that reconciliation states, “The net effect of various miscellaneous transactions involving capital assets (i.e., sales, trade-ins and donations) is to increase net position.” The details of this $7,244,824 difference are as follows:

Net effect of transactions involving asset retirements/disposals $ (498,430) Capital assets transferred to business-type activities as capital contributions (843,450) Donations of capital assets increase net position in the statement of activities but do not appear in the governmental funds because 8,586,704 they are not financial resources Net adjustment to increase net changes in fund balances – total $ 7,244,824 governmental funds

39 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2013

Another element of that reconciliation states, “Certain expenses reported in the statement of activities do not require the use of current financial resources and therefore are not reported as expenditures in governmental funds.” The details of the ($807,255) difference are as follows:

Compensated absences $ (341,101) Municipal pension obligation (33,967) Other post employment benefits (357,785) Accrued interest (74,402) Net adjustments to decrease net changes in fund balances – total governmental funds to arrive at changes in net position of governmental activities $ (807,255)

III. STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY A. Budgetary information The City Council follows these procedures, as prescribed by City Charter, in establishing the budgets reflected in the financial statements: 1. Within the time period required by law, the City Manager submits to the City Council a proposed budget for the fiscal year beginning on the following October 1. The operating budget includes proposed expenditures and the means of financing them. 2. Public hearings are conducted prior to the adoption of the budget in order to obtain taxpayer comments. 3. The annual budget adopted by the City Council covers the general fund, non-major special revenue funds (Recreation Fund, Police Confiscation Fund, Tourist and Convention Fund, Gas Well Revenues Fund, Street Improvement Fund, and the Citizens’ Park Trusts), the debt service fund, the enterprise funds, and internal service funds. The budget is legally enacted by the City Council through passage of an ordinance prior to the beginning of the fiscal year. The basic financial statements reflect the legal level of control, (i.e. the level at which expenditures cannot legally exceed the appropriated amount) which is established at the total fund level as approved by City Council. 4. The City Charter provides that the City Manager may transfer any part of the unencumbered appropriation balance or the entire balance thereof between programs or general classifications of expenditures within an office, department, agency or organizational unit. (The City Council defines an organizational unit as set forth in Article VIII, Section 8.07 of the City Charter, to be a fund that has been appropriated by the City Council.) City Council approval is not required up to the fund level. The Charter also provides that at any time during the year, at the request of the City Manager, City Council may by resolution transfer any part of the unencumbered appropriation balance or the entire balance thereof from one office, department, agency, or organizational unit to another, as well as make any increases in fund appropriations. Budgets are adopted on a basis for the governmental funds and the budgeted special revenue funds that is generally consistent with generally accepted accounting principles. Budgets for enterprise funds are prepared on the full accrual basis, except certain noncash transactions such as depreciation expense and amortization on debt issuance costs where it is not budgeted, and debt service payments where it is budgeted. At the beginning of the subsequent year, management reviews all open encumbrances from the prior year and, as provided in the budget ordinance, appropriations for the encumbrances may be carried forward. In the current fiscal year, no appropriations were carried forward for the General Fund or Other Governmental Funds. Also, during the budgetary process, amounts are included in all fund budgets to

40 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2013

recognize administrative transfers between funds for goods or services. These amounts are not included in the reporting of actual activity for the funds. For funds reporting required budget-to-actual comparisons, these administrative transfers are included as adjustments – budgetary basis. B. Deficit fund equity The Criminal Justice fund had a deficit fund balance of ($8,901) at September 30, 2013. The deficit was a result of reimbursement timing funding and is anticipated to clear in fiscal year 2013-2014. IV. DETAILED NOTES ON ALL FUNDS A. Deposits and investments In order to facilitate effective cash management practices, the operating cash of all funds is pooled into a common account for the purpose of increasing income through combined investment activities. At year- end, the City had $51,538,677 in cash and cash equivalents of which $1,711,869 is included in the agency funds. In addition, the City had $14,828 in petty cash at year-end. The Public Funds Investment Act (Texas Government Code) authorizes the City to invest in obligations of the U.S. Treasury, U.S. agencies, fully collateralized repurchase agreements, public fund investment pools, SEC-registered no-load money market mutual funds, investment-grade rated municipal securities of any state, fully collateralized or insured certificates of deposit, and commercial paper rated not less than A-1 or P-1 with a stated maturity of no more than 270 days. The City’s investment policy may further restrict those investment options. The investments reported on September 30, 2013 were similar to those held during the fiscal year. The City reports all investments in the financial statements at fair value. At September 30, 2013, the City’s investments carried a fair value of $408,976,934. As of September 30, 2013, City investments were as follows: Weighted Average Investment Type Fair Value Maturity (Years) U.S. Treasury Securities - Coupon $ 4,994,917 2.375 U.S. Agency Securities - Coupon 232,148,329 1.482 U.S. Agency Securities - Callable 15,015,080 2.236 Municipal Bonds - Coupon 30,818,608 2.266 Certificates of Deposit - Insured and 1.030 Collateralized 126,000,000 Total fair value of investments $408,976,934 Portfolio weighted average maturity 1.440

Interest rate risk. In accordance with its investment policy, the City manages its exposure to declines in fair values due to interest rate fluctuations by limiting the weighted average maturity of its investment portfolio to less than eighteen months. Credit risk. The City’s investment policy limits investments to obligations of the United States of America and its agencies, investment quality obligations of the State of Texas with a rating not less than AA, fully insured or collateralized Certificates of Deposits, and commercial paper that has a maturity of 270 days or less and a rating of A-1 or P-1. The City’s investments in the bonds of U.S. agencies were rated AA+ by Standard & Poor’s and AAA by Fitch Ratings. Custodial credit risk. This is the risk that in the event of a bank or counterparty failure, the City’s deposits may not be returned. The policy states that all bank deposits of City funds shall be secured by pledged collateral with a market value equal to no less than 102 percent of the principal plus accrued interest less an

41 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2013

amount insured by FDIC. As of September 30, 2013, the bank balance for deposits was $53,167,034 and was fully collateralized by the City’s third party custodian, Bank of New York Mellon. Cash, cash equivalents and investments, at fair value are reported together on the financial statements. Investments, at fair value, by fund were as follows: Other General Debt Capital Governmental Fund Service Projects Funds Unrestricted investments $ 22,228,197 $ 4,030,657 $114,975,170 $ 10,301,574 Change in fair value 6,364 1,154 32,921 2,950 Restricted investments - - - - Change in fair value - - - - Total $ 22,234,561 $ 4,031,811 $115,008,091 $ 10,304,524

Electric Water Wastewater Solid Waste Unrestricted investments $ 72,790,587 $ 32,890,598 $ 17,664,726 $ 3,325,962 Change in fair value 20,843 9,418 5,058 952 Restricted investments 47,592,919 25,212,063 21,679,300 15,931,915 Change in fair value 13,627 7,219 6,207 4,562 Total $120,417,976 $ 58,119,298 $ 39,355,291 $ 19,263,391

Internal Total Total City and Service City Other Agency Agency Airport Funds Investments Funds Investments Unrestricted investments $ 5,464,422 $ 14,138,890 $297,810,783 $ 202,382 $298,013,165 Change in fair value 1,565 4,049 85,274 58 85,332 Restricted investments 430,502 - 110,846,699 - 110,846,699 Change in fair value 123 - 31,738 - 31,738 Total $ 5,896,612 $ 14,142,939 $408,774,494 $ 202,440 $408,976,934

B. Property tax revenue Property taxes attach as an enforceable lien on property as of January 1. Taxes are levied on October 1 and are due and payable at that time; therefore, the legally enforceable claim arises on October 1. A receivable is recorded at that time. All unpaid taxes levied October 1 become delinquent February 1 of the following year. Property taxes at the fund level are recorded as receivables and revenue in the period they become available. Current-year revenues recognized are those ad valorem taxes collected within the current period or soon enough thereafter to pay current liabilities, which is sixty days after year-end. All other outstanding receivables are adjusted from revenue and recognized as deferred for future collections. Current tax collections for the year ended September 30, 2013 were 99.30% of the tax levy. An allowance is provided for delinquent taxes not expected to be collected in the future. At September 30, 2013, the City had a tax rate of $0.68975 per $100 valuation. Based upon the maximum ad valorem tax of $2.50 per $100 valuation imposed by Texas Constitutional law, the City had a tax rate

42 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2013

margin of $1.81025. Additional revenues up to $121,589,268 could be raised per year based on the current year's assessed value of $6,716,711,368 before the limit is reached. On December 7, 2011, the City Council approved a Tax Increment Financing (TIRZ #1) Reinvestment Zone for the purpose of dedicating the increase in tax revenues generated within the TIRZ district for development in the downtown area of the City. In fiscal year 2013, the assessed value after adjustments of $93,040,263 for TIRZ #1 was an increase of $13,683,409 over the base fiscal year 2011 assessed value and resulted in $94,381 of property tax revenue recorded in the TIRZ Fund as part of All Other Special Revenue Funds. C. Receivables Receivables at September 30, 2013, for the City’s individual major funds and other funds (non-major funds, internal service funds and fiduciary funds), including the applicable allowances for uncollectible accounts, are shown below. Capital Debt General Service Projects Electric Water Receivables: Taxes $ 5,633,457 $ 446,907 $ - $ - $ - Accounts 165,609 - - 9,446,787 2,301,955 Accrued interest 83,329 15,110 431,022 451,297 217,817 Unbilled utility service - - - 6,391,402 1,521,069 Other 14,134,950 - - 1,719,944 - Gross receivables 20,017,345 462,017 431,022 18,009,430 4,040,841 Less: Allowance for uncollectibles (10,299,789) (165,868) - (1,246,546) (284,185) Net total receivables $ 9,717,556 $ 296,149 $ 431,022 $ 16,762,884 $ 3,756,656

Other Internal Waste- Solid Governmental Service water Waste Airport Funds Funds Total Receivables: Taxes $ - $ - $ - $ - $ - $ 6,080,364 Accounts 1,504,900 1,354,956 46,321 37,705 1,358 14,859,591 Accrued interest 147,494 72,194 22,099 38,618 53,003 1,531,983 Unbilled utility service 1,023,431 870,761 - - - 9,806,663 Other - - 272,599 369,252 465,962 16,962,707 Gross receivables 2,675,825 2,297,911 341,019 445,575 520,323 49,241,308 Less: Allowance for uncollectibles (178,502) (135,988) (23,587) (32,334) - (12,366,799) Net total receivables $ 2,497,323 $ 2,161,923 $ 317,432 $ 413,241 $ 520,323 $36,874,509

43 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2013

D. Capital assets Capital asset balances and transactions for the year ended September 30, 2013 are summarized below and

on the following page.

Balance at Transfers and Balance at Governmental activities: October 1, 2012 Increases Decreases September 30, 2013 Capital assets not being depreciated: Land $ 14,612,957 $ 14,287 $ (14,287) $ 14,612,957 Construction in progress 20,119,548 19,514,721 (11,106,789) 28,527,480 Total capital assets not being depreciated 34,732,505 19,529,008 (11,121,076) 43,140,437

Capital assets being depreciated: Buildings 60,796,431 - - 60,796,431 Infrastructure 212,602,109 10,805,273 (7,746) 223,399,636 Machinery, equipment, and other improvements 66,719,121 9,854,962 (1,986,662) 74,587,421 Total capital assets being depreciated 340,117,661 20,660,235 (1,994,408) 358,783,488

Less accumulated depreciation for: Buildings 19,384,309 1,540,798 - 20,925,107 Infrastructure 121,277,979 9,522,530 (7,746) 130,792,763 Machinery, equipment, and other improvements 45,551,415 5,063,786 (1,276,186) 49,339,015 Total accumulated depreciation 186,213,703 16,127,114 (1,283,932) 201,056,885 Total capital assets, being depreciated, net 153,903,958 4,533,121 (710,476) 157,726,603

Governmental activities capital assets, net $188,636,463 $ 24,062,129 $ (11,831,552) $200,867,040

44 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2013

(Continued)

Balance at Transfers and Balance at Business-type activities: October 1, 2012 Increases Decreases September 30, 2013

Capital assets not being depreciated: Land $ 12,850,306 $ 4,601,137 $ 14,287 $ 17,465,730 Construction in progress 120,019,828 67,746,189 (20,772,736) 166,993,281 Total capital assets not being depreciated 132,870,134 72,347,326 (20,758,449) 184,459,011

Capital assets being depreciated: Buildings 14,992,513 636,876 - 15,629,389 Landfill improvements 17,126,394 - - 17,126,394 Water rights 69,883,098 - - 69,883,098 Infrastructure 361,543,813 12,803,281 (15,710) 374,331,384 Plant, machinery, equipment, and other improvements 274,464,055 12,082,534 (4,382,494) 282,164,095 Total capital assets being depreciated 738,009,873 25,522,691 (4,398,204) 759,134,360

Less accumulated depreciation for: Buildings 4,872,686 468,728 - 5,341,414 Landfill improvements 11,092,503 1,611,781 - 12,704,284 Water rights 16,266,545 695,990 - 16,962,535 Infrastructure 105,593,925 8,726,079 (579,845) 113,740,159 Plant, machinery, equipment, and other improvements 137,621,103 10,466,918 (3,735,106) 144,352,915 Total accumulated depreciation 275,446,762 21,969,496 (4,314,951) 293,101,307 Total capital assets, being depreciated, net 462,563,111 3,553,195 (83,253) 466,033,053

Business-type activities capital assets, net $ 595,433,245 $ 75,900,521 $ (20,841,702) $ 650,492,064

Transfers and decreases include $125,425 of capital assets ($125,425 in related accumulated depreciation) due to the transfer of assets from the Business-type activities to the Governmental activities recorded as transfers and $680,079 ($95,397 in related accumulated depreciation) of capital assets due to the transfer of assets from the Governmental activities to the Business-type activities recorded as capital contributions.

45 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2013

Depreciation expense was charged to activities of funds/functions/programs as follows: Governmental activities: General government $ 1,992,265 Public safety 1,897,702 Public works 9,214,937 Parks & recreation 1,511,338

Capital assets held by internal service funds are charged to the various functions based upon usage 1,510,872 Total depreciation expense - governmental activities $16,127,114 Business-type activities: Electric $ 6,834,128

Water 5,241,483 Wastewater 5,673,494 Solid waste 3,757,359 Airport 463,032

Total depreciation expense - business-type activities $21,969,496

Construction commitments: The City has several major construction/capital projects planned or in progress as of September 30, 2013. These projects are evidenced by contractual commitments with contractors and include: Remaining Project Spent-to-Date Commitment Animal Shelter Construction $ 2,228,953 $4,258,630 Lake Lewisville Water Treatment Plant Upgrade 32,433,531 3,901,799 Landfill Cell 4AB Excavation 1,759,170 2,796,718 Bonnie Brae Widening – Phase 1 Engineering 3,374,212 2,580,416 Cooper Creek Substation Construction 7,897,596 2,299,109 Mayhill Widening – Phase 1 Engineering 3,358,431 2,152,127 Water Line Relocation - Hwy 380 Locust to I35 2,922,139 1,732,834 Wastewater Line Relocation - Hwy 380 Locust to I35 1,981,546 1,288,183

E. Interfund receivables, payables and transfers A summary of interfund receivables and payables (in thousands) at September 30, 2013, is as follows:

Interfund Receivables: Governmental Major Funds Business-Type Major Funds Non-Major Governmental Interfund Payables: General Fund Funds Electric Water Wastewater Total Non-Major Governmental Funds $ - $ 88 $ - $ - $ - $ 88 Internal Service Funds 120 - 3,069 300 76 3,565 Total $ 120 $ 88 $ 3,069 $ 300 $ 76 $ 3,653

46 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2013

The more significant interfund receivables and payables include the following: Interfund receivables Interfund payables Amount Electric fund Internal service funds-materials management $3,068,912 Water fund Internal service funds-materials management 300,180 General fund Internal service funds-materials management 119,875 Non-Major Governmental funds Non-Major Gov’t funds grant reimbursement 88,426

The outstanding balances between the Electric, Water, and General Fund and the Materials Management Fund are a result of the cash position in the Materials Management Fund due to inventory purchases. The outstanding balances between the Recreation Fund and the Non-Major Governmental funds are a result of the cash position in the Non-Major Governmental funds due to the timing of grant reimbursements.

Transfers between funds (in thousands) during the year were as follows:

Transfers Out:

Governmental Major Funds Business-Type Major Funds Non-Major Internal Governmental Electric Water Wastewater Solid Waste Airport Service Transfers In: General Fund Funds Fund Fund Fund Fund Fund Funds Total Governmental Major Funds: General Fund $ - $ - -$ 3$ -$ -$ -$ -$ 3$ Debt Service Fund - - - - 464 - - - 464 Capital Projects Fund 655 1,169 - - - - - 77 1,901 Non-Major Governmental 232 15 157 53 106 - 49 - 612 Electric Fund - - - - 3 - - - 3 Water Fund 29 184 14 - 35 - - 14 276

Wastewater Fund 15 592 - 15 - - - - 622 Solid Waste Fund - 124 ------124 Internal Service Funds 19 30 - - - 24 - - 73 Total $ 950 $ 2,114 $ 171 $ 71 $ 608 $ 24 $ 49 $ 91 4,078$

The more significant transfers include the following:

Transfers from fund Transfers to fund Amount Non-Major Gov’t – Gas Well Revenues Capital Projects $797,999 General Fund Capital Projects 655,384 Non-Major Governmental Funds Wastewater 591,661 Wastewater Debt Service 464,418 Non-Major Gov’t - Recreation Capital Projects 222,895 Transfers from the Gas Well Revenues fund, the General Fund, and the Non-Major Governmental fund - Recreation to the Capital Projects Fund were to fund capital projects. Transfers from the Non-Major Governmental Funds to the Wastewater Fund were for capital project expenditures. Transfers from the Wastewater Fund to the Debt Service Fund were for related drainage debt service payments.

47 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2013

F. Leases Leases payable represent the remaining principal amounts payable under lease purchase agreements for the acquisition of equipment through the General, Solid Waste, Tech Services, and Wastewater funds. These leases are recorded as capital leases. Remaining requirements, including interest, under these leases are as follows: Year Payments 2014 $1,228,711 2015 58,497 2016 58,497 2017 58,496 Total minimum lease payments 1,404,201 Less: amount representing interest 57,465 Present value of minimum future lease payments $1,346,736

The following schedule provides an analysis of the City’s investments in equipment under capital lease arrangements as of September 30, 2013:

Equipment $ 13,507,704 Less: Accumulated Depreciation (11,290,945) Total $ 2,216,759

48 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2013

G. Long-term debt Long-term liabilities transactions for the year ended September 30, 2013, are summarized as follows below and on the following pages:

Balance at Balance at October 1, September 30, Due Within 2012 Increases Decreases 2013 One Year Governmental Activities: General obligation bonds $ 80,013,439 $ 10,221,023 $ 9,514,701 $ 80,719,761 $ 6,398,601 Certificates of obligation 33,910,342 10,805,000 7,200,857 37,514,485 4,579,484 Obligations under capital leases 1,891,893 - 908,644 983,249 820,514 Compensated absences payable 9,664,053 5,530,077 5,169,448 10,024,682 4,203,100 Claims payable 5,272,005 16,304,658 17,897,552 3,679,111 1,930,079 Municipal pension obligation 4,468,184 7,023,055 6,985,121 4,506,118 - Other post employment benefits 2,076,126 939,587 549,109 2,466,604 - Unamortized premium/(discounts) 3,272,887 1,238,434 773,935 3,737,386 642,143 Unamortized deferred gain/(loss) (1,512,515) (479,987) (352,380) (1,640,122) (304,083) Total governmental long-term liabilities $ 139,056,414 $ 51,581,847 $ 48,646,987 $ 141,991,274 $ 18,269,838

Balance at Balance at October 1, September 30, Due Within 2012 Increases Decreases 2013 One Year Business-type Activities: Revenue bonds $ 156,855,000 $ - $ 12,630,000 $ 144,225,000 $ 13,260,000 General obligation bonds 59,301,561 513,977 3,845,299 55,970,239 3,936,399 Certificates of obligation 181,314,658 52,715,000 11,074,143 222,955,515 12,860,516 Obligations under capital leases 713,408 - 349,921 363,487 363,487 Compensated absences payable 2,235,208 1,967,172 1,790,279 2,412,101 1,981,182 Municipal pension obligation 2,813,194 5,213,472 5,186,361 2,840,305 - Other post employment benefits 1,130,359 579,852 349,474 1,360,737 - Landfill closure/post-closure costs 5,689,750 354,306 - 6,044,056 - Unamortized premium/(discounts) 17,869,148 3,635,278 2,858,723 18,645,703 2,689,794 Unamortized deferred gain/(loss) (6,240,327) (45,657) (988,220) (5,297,764) (933,674) Total business-type activities 421,681,959 64,933,400 37,095,980 449,519,379 34,157,704 Total long-term liabilities $ 560,738,373 $ 116,515,247 $ 85,742,967 $ 591,510,653 $ 52,427,542

For Internal Service funds, long-term liabilities are included as part of the above totals for governmental activities. Compensated absences payables and municipal pension obligations are based on the assignment of an employee within a fund, with both historically being liquated predominantly by the General Fund. Other post employment benefits are liquidated from the Health Insurance internal service fund, with the retiree subsidy amounts paid predominantly by the General Fund. Claims payable represents an estimate of self-insured claims liability outstanding in the Health Insurance and Risk Retention internal service funds.

49 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2013

General bonded debt - General bonded debt at September 30, 2013, is comprised of the following:

Original Gross Amount General Obligation Bonds and Interest Rate Amount Oustanding at Certificates of Obligation Debt (%) Issue Date Final Maturity of Issue September 30, 2013

General obligation refunding 2.5 to 5.0 2004 2020 $ 7,370,000 $ 3,845,000 General obligation 3.0 to 5.0 2005 2025 5,000,000 480,000 General obligation 4.25 to 4.875 2006 2026 3,695,000 2,785,000 General obligation 4.0 to 4.5 2007 2026 15,285,000 12,580,000 General obligation refunding 4.0 to 5.25 2007 2022 26,025,000 22,870,000 General obligation 4.0 to 4.75 2008 2028 7,300,000 6,070,000 General obligation refunding 3.0 to 5.0 2009 216 6,695,000 1,000,000 General obligation refunding 3.0 to 5.0 2010 2022 3,350,000 845,000 General obligation 4.0 to 4.3 2010 2030 4,115,000 3,725,000 General obligation refunding 2.0 to 4.75 2011 2031 2,225,000 2,100,000 General obligation refunding 2.0 to 5.0 2012 2032 14,358,739 14,198,738 General obligation refunding 2.0 to 4.0 2013 2033 10,221,023 10,221,023

Total general obligation bonds 105,639,762 80,719,761

Certificates of obligation 2.0 to 5.0 2004 2024 12,105,000 564,485 Certificates of obligation 3.0 to 4.375 2005 2025 5,575,000 385,000 Certificates of obligation 4.0 to 4.75 2006 2026 6,509,950 3,440,000 Certificates of obligation 4.7 to 5.0 2007 2027 8,855,000 4,470,000 Certificates of obligation 4.0 to 5.0 2007A 2028 7,065,000 5,875,000 Certificates of obligation 3.0 to 4.625 2008 2028 7,865,000 3,880,000 Certificates of obligation 2.0 to 5.0 2010 2030 2,750,000 1,680,000 Certificates of obligation 2.0 to 5.0 2011 2031 3,455,000 2,575,000 Certificates of obligation 2.0 to 5.0 2012 2032 4,490,000 3,840,000 Certificates of obligation 3.0 to 4.0 2013 2033 10,805,000 10,805,000 Total certificates of obligation 69,474,950 37,514,485 Total general bonded debt $ 175,114,712 $ 118,234,246 [These amounts do not include net unamortized premiums/(discounts) of $3,737,386 nor net deferred gain/(loss) on refunding of ($1,640,122).]

Proceeds of general obligation bonded debt are restricted to the uses for which they were approved in the bond elections or, in the case of a refunding issuance, to the uses for which the certificates of obligation were originally issued. The City Charter expressly prohibits the use of bond proceeds to fund operating expenses. The general obligations are collateralized by the full faith and credit of the City and, primarily, payable from property taxes. In prior years, the City defeased general obligation bonds and certificates of obligation by placing the proceeds of new debt in an irrevocable trust to provide for all future debt service payments on the old bonds. Accordingly, the trust account assets and liabilities for the defeased debt are not included in the City's financial statements. On September 30, 2013 $3,500,000 of general obligation bonds and $11,690,000 of certificates of obligation considered defeased are still outstanding.

50 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2013

In April 2013, the City issued $63,520,000 ($52,715,000 of which is included as part of business type activities) in certificates of obligation. The debt was issued to pay the costs of various capital improvements in the Capital Projects Fund ($10,805,000), Electric ($38,405,000), Wastewater ($5,065,000), Airport ($1,875,000), and Solid Waste ($7,370,000). In May 2013, the City issued $10,735,000 ($513,977 of which is included as part of business-type activities) of general obligation refunding and improvement bonds. The reacquisition price exceeded the net carrying amount of the old debt by $525,644, ($45,657 of which is reported in business-type activities.) This amount is being amortized over the remaining life of the refunded debt, which is shorter than the life of the new debt issued. This advance refunding was undertaken to reduce total debt service payments over the next 12 years by $409,689 and resulted in a net present value savings of $344,056. The improvement portion of the bonds was issued to pay the costs of various capital improvements in the Capital Projects Fund for $4,000,000. Business-type revenue bonds – Revenue bond debt at September 30, 2013, is comprised of the following issues:

Original Gross Amount Interest Rate Amount Oustanding at Revenue bonds (%) Issue Date Final Maturity of Issue September 30, 2013

Utility System refunding 3.625 to 5.625 2003 2022 $ 50,180,000 $ 1,900,000

Utility System refunding 2.0 to 5.25 2004 2024 24,850,000 21,870,000

Utility System refunding 3.0 to 5.0 2005 2023 53,845,000 49,570,000

Utility System refunding 4.5 to 5.0 2006 2026 8,515,000 6,380,000 Utility System 4.0 to 4.25 2007 2026 16,740,000 13,180,000

Utility System refunding 4.0 to 4.25 2007 2029 41,795,000 38,795,000 Utility System 3.5 to 5.0 2008 2027 15,290,000 12,530,000 Total revenue bonds $ 211,215,000 $ 144,225,000

[These amounts do not include net unamortized premiums/(discounts) of $2,353,260 nor net deferred gain/(loss) on refunding of ($4,063,001).]

The revenue bonds are collateralized by the revenue of the Denton utility system funds (System) and the various special funds established by the bond ordinance. The ordinance provides that the revenue of the System is to be used first to pay operating and maintenance expenses of the System and second to establish and maintain the revenue bond funds. Any remaining revenues may then be used for any lawful purpose. The ordinance also contains provisions, which among other items restrict the issuance of additional revenue bonds unless the special funds noted above contain the required amounts and certain financial ratios are met. Management believes the City is in compliance with all significant requirements. Assets in these accounts consist of cash and U.S. government securities. Following is a summary of the various net asset balances in the funds required by the bond ordinance to be restricted for debt service.

Interest and sinking fund $ 12,253,969 Reserve fund 10,996,846 Total net assets restricted for debt service $ 23,250,815

51 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2013

In prior years, the City defeased revenue bonds by placing the proceeds of new bonds in an irrevocable trust to provide for all future debt service payments on the old bonds. Accordingly, the trust account assets and liabilities for the defeased bonds are not included in the City's financial statements. On September 30, 2013, no revenue bonds considered defeased are still outstanding. Business-type general obligation bonds and certificates of obligation – General obligation bonds and certificates of obligation issued for electric, water, wastewater, solid waste and airport funds at September 30, 2013, is comprised of the following:

Original Gross Amount General Obligation Bonds and Interest Rate Amount Oustanding at Certificates of Obligation Debt (%) Issue Date Final Maturity of Issue September 30, 2013

General obligation refunding 2.5 to 5.0 2004 2015 $ 2,040,000 $ 315,000 General obligation refunding 4.0 to 5.25 2007 2022 2,885,000 2,795,000 General obligation refunding 3.0 to 5.0 2009 2016 830,000 285,000 General obligation refunding 3.0 to 5.0 2010 2022 35,815,000 28,690,000 General obligation refunding 2.0 to 4.75 2011 2031 8,620,000 4,140,001 General obligation refunding 2.0 to 5.0 2012 2032 19,231,261 19,231,261 General obligation refunding 2.0 to 4.0 2013 2033 513,977 513,977

Total general obligation bonds 69,935,238 55,970,239

Certificates of obligation 2.0 to 5.0 2004 2024 1,895,000 75,515 Certificates of obligation 3.0 to 4.375 2005 2025 1,570,000 80,000 Certificates of obligation 4.0 to 4.75 2006 2026 6,155,050 2,005,000 Certificates of obligation 4.7 to 5.0 2007 2027 2,590,000 1,080,000 Certificates of obligation 3.0 to 4.625 2008 2028 2,820,000 1,415,000 Certificates of obligation 2.0 to 5.0 2010 2030 58,295,000 50,975,000 Certificates of obligation 2.0 to 5.0 2010 2025 58,820,000 50,415,000 Certificates of obligation 2.0 to 5.0 2011 2031 28,645,000 25,805,000 Certificates of obligation 2.0 to 5.0 2012 2032 40,185,000 38,390,000 Certificates of obligation 3.0 to 4.0 2013 2033 52,715,000 52,715,000 Total certificates of obligation 253,690,050 222,955,515 Total enterprise G.O./C.O. bonds $ 323,625,288 $ 278,925,754

[These amounts do not include net unamortized premiums/(discounts) of $16,292,443 nor net deferred gain/(loss) on refunding of ($1,234,763).]

52 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2013

Schedule of long-term debt maturities

Aggregate maturities of the long-term debt (principal and interest) for the years subsequent to September 30, 2013 are shown below: Governmental Activities: Certificates of General Obligation Obligation Capital Leases Total Fiscal Year Principal Interest Principal Interest Principal Interest Principal Interest 2014 $ 6,398,601 $ 3,329,215 $ 4,579,484 $ 1,488,000 $ 820,514 $ 34,208 $ 11,798,599 $ 4,851,423 2015 7,142,102 3,064,924 4,245,000 1,258,968 52,199 6,298 11,439,301 4,330,190 2016 7,392,884 2,773,876 3,805,000 1,113,115 54,219 4,278 11,252,103 3,891,269 2017 7,256,338 2,470,527 3,380,000 968,328 56,317 2,179 10,692,655 3,441,034 2018 7,059,560 2,161,178 2,605,000 844,578 9,664,560 3,005,756 2019-2023 28,521,643 6,568,209 8,805,000 3,019,330 - - 37,326,643 9,587,539 2024-2028 13,788,632 1,887,313 7,665,000 1,201,123 - - 21,453,632 3,088,436 2029-2033 3,160,001 245,973 2,430,001 200,117 - - 5,590,002 446,090 Total $80,719,761 $22,501,215 $37,514,485 $ 10,093,559 $983,249 $46,963 $119,217,495 $32,641,737

Business-Type Activities: Certificates of General Obligation Obligation Revenue Fiscal Year Principal Interest Principal Interest Principal Interest 2014 $ 3,936,399 $ 2,418,037 $ 12,860,516 $ 9,245,243 $ 13,260,000 $ 6,437,088 2015 5,742,898 2,213,750 13,555,000 8,458,325 11,570,000 5,861,144 2016 5,522,116 1,977,783 13,040,000 7,986,884 11,695,000 5,304,006 2017 5,698,662 1,733,869 12,415,000 7,458,653 12,270,000 4,715,913 2018 5,960,440 1,476,715 11,845,000 6,919,603 12,690,000 4,114,013 2019-2023 28,888,357 3,120,250 63,210,000 26,312,445 50,390,000 12,316,335 2024-2028 221,367 6,513 57,985,000 12,789,598 27,290,000 3,755,272 2029-2033 - - 38,044,999 2,858,225 5,060,000 217,387 Total $ 55,970,239 $ 12,946,917 $ 222,955,515 $ 82,028,976 $ 144,225,000 $ 42,721,158

Capital Leases Total Fiscal Year Principal Interest Principal Interest 2014 $ 363,487 $ 10,502 $ 30,420,402 $ 18,110,870 2015 - 30,867,898 16,533,219 2016 - - 30,257,116 15,268,673 2017 - - 30,383,662 13,908,435 2018 - - 30,495,440 12,510,331 2019-2023 - - 142,488,357 41,749,030 2024-2028 - - 85,496,367 16,551,383 2029-2033 - - 43,104,999 3,075,612 Total $ 363,487 $ 10,502 $ 423,514,241 $ 137,707,553

[These amounts do not include net unamortized premiums/(discounts) of $22,383,089 nor net deferred gain/(loss) on refunding of ($6,937,886).]

53 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2013

Bonds authorized and unissued General obligation bonds authorized but unissued as of September 30, 2013 amounted to $16,400,000. When issued, the proceeds will be allocated to the applicable street projects. H. Landfill closure and post-closure cost State and federal laws and regulations require the City to place a final cover on its Mayhill Road landfill site upon closure and to perform certain maintenance and monitoring functions at the site for thirty years after closure. Although closure and post-closure care costs will be paid only upon anticipated closure, the City reports a portion of these costs as an operating expense in each period based on landfill capacity used as of each balance sheet date. Based on a model created by a 2009 engineering study, total landfill closure and post-closure cost increased from $15,194,328 at September 30, 2012 to $15,558,992 at September 30, 2013. The $6,044,056 reported as landfill closure and post-closure care liability is a $354,306 increase from the $5,689,750 liability reported on September 30, 2012. This liability represents the cumulative amount incurred to date based on the use of 38.8% of the estimated capacity of the entire landfill at September 30, 2013. Based on this estimate, the remaining potential estimated liability for closure and post-closure care of the entire landfill is $9,514,936. The City will recognize the remaining estimated cost of closure and post- closure care as the remaining capacity is filled. These amounts are based on what it would cost to perform closure and post-closure care in 2013. Actual cost may fluctuate due to inflation, changes in technology, or changes in regulations. The landfill has a remaining life of 36 years, and the City expects to close the landfill in fiscal year 2049. The solid waste fund has provided for a restriction and designation of cash and investments of $6,145,099 at September 30, 2013, and anticipates increasing the reserve in future periods as the closure and post- closure activities are carried out.

V. OTHER INFORMATION A. Pension plans Texas Municipal Retirement Plan Plan description The City provides pension benefits for all of its eligible employees (except fire fighters) through a non- traditional, joint contributory, hybrid defined benefit plan in the state-wide Texas Municipal Retirement System (TMRS), one of 849 administered by TMRS, an agent multiple-employer public employee retirement system. Benefits Upon retirement, benefits depend upon the sum of the employee's contributions to the plan, with interest, and the city-financed monetary credits, with interest. City-financed monetary credits are composed of three sources: prior service credits, current service credits, and updated service credits. At the inception the plan, the city granted monetary credits for service rendered before the plan began (or prior service credits) of a theoretical amount at least equal to two times what would have been contributed by the employee, with interest (3% annual), prior to establishment of the plan. Monetary credits for service since the plan began (or current service credits) are a percent (200%) of the employee's accumulated contributions. In addition, the City can grant, either annually or on an annually repeating basis, another type of monetary credit referred to as an updated service credit. This monetary credit is determined by hypothetically recomputing the member’s account balance by assuming the current member deposit rate of the City (7%) has always been in effect. The computation also assumes the member’s salary has always been the member’s average salary – using a salary calculation based on the 36-month period ending a year before the effective date of calculation. This hypothetical account balance is increased by 3% each year, and increased by the city match currently in effect (200%). The resulting sum is then compared to the member’s actual account

54 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2013 balance increased by the actual city match and actual interest credited. If the hypothetical calculation exceeds the actual calculation, the member is granted a monetary credit (or Updated Service Credit) equal to the difference between the hypothetical calculation and the actual calculation times the percentage adopted. At retirement, the benefit is calculated as if the sum of the employee's accumulated contributions with interest and the city-financed monetary credits with interest were used to purchase an annuity. Members can retire at ages 60 and above with 5 or more years of service or with 20 years of service regardless of age. A member is vested after five years. The plan provisions are adopted by the governing body, or the City Council of the City, within the options available in the state statutes governing TMRS and within the actuarial constraints also in the statutes. Contributions The contribution rate for the employees is 7% of gross earnings, and the City matching percentage is 200%, both as adopted by the governing body of the City. Under the state law governing TMRS, the actuary annually determines the city contribution rate using the Projected Unit Credit actuarial cost method. This rate consists of the normal cost contribution rate and the prior service contribution rate, both of which are calculated to be a level percent of payroll from year to year. The normal cost contribution rate finances the portion of an active member’s projected benefit allocated annually. The prior service contribution rate amortizes the unfunded actuarial liability over the remainder of the plan's 30-year amortization period. Both the normal cost and prior service contribution rates include recognition of the projected impact of annually repeating benefits, such as Updated Service Credits and Annuity Increases. Both the employees and the City make contributions monthly. Since the City needs to know its contribution rate in advance for budgetary purposes, there is a one-year delay between the actuarial valuation that serves as the basis for the rate and the calendar year when the rate goes into effect. Funded status and funding progress Beginning in 2009, the City of Denton elected to “phase in” higher contributions to TMRS over a period of up to eight years in order to recognize the change to a Projected Unit Cost Method in the 2007 valuation. By doing so, the City contributed less than the actuarially determined annual required contribution (ARC), and as such accrued a net pension obligation on its balance sheet. In subsequent years, this net pension obligation continued to increase until the full actuarially determined ARC is paid. The “phase in” period was expected to last eight years from fiscal year 2009 through fiscal year 2016, but due to the new fund structure approved by the Texas Legislature with Senate Bill 350 (SB 350) and better than expected financial performance, management began paying the full ARC in October 2012.

The annual pension cost and net pension obligation are as follows:

Net Pension Obligation Annual required contribution $ 12,174,640 Interest on prior year net pension obligation 509,696 Adjustment to annual required contribution (447,809) Annual pension cost 12,236,527 Contributions made (12,171,482) Increase in net pension obligation 65,045 Net Pension obligation - beginning of year 7,281,378 Net pension obligation - end of year $ 7,346,423

55 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2013

Three-Year Trend Information for TMRS Funding

Year ending 9/30/13 9/30/12 9/30/11 Annual pension costs (APC) $12,236,527 $11,536,438 $11,633,967 Actual contributions $12,171,482 $10,435,001 $9,579,358 Percent contributed 99% 90% 82% Net pension obligation $7,346,423 $7,281,378 $6,179,941

Actuarial Assumptions 12/31/12 Actuarial cost method Projected unit credit Amortization method Level percent of payroll Remaining amortization period 25.3 years – closed period Amortization period for new Gains/Losses 30 years Asset valuation method 10-year Smoothed Market Investment rate of return 7.0% Projected salary increases Varies by age and service Includes inflation at 3.0% Cost-of-living adjustments 2.1%

As of December 31, 2012, the most recent valuation date, the plan was 80% funded. The actuarial accrued liability for benefits was $315,416,972, and the actuarial value of assets was $252,276,946, resulting in an unfunded actuarial accrued liability (UAAL) of $63,140,026. The covered payroll (annual payroll of active employees covered by the plan as of the valuation date) was $61,446,004, and the ratio of the UAAL to the covered payroll was 102.8%. The schedule of funding progress, presented as “Required Supplementary Information” (Exhibit XII) following the notes to the financial statements, presents multi-year trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits. The City adopted the Updated Service Credit provision in 1992, on a repeating basis. Additionally, the City adopted annuity increases for its retirees, on a repeating basis in 1992 equal to 70% of the change in consumer price index. On October 9, 2013, subsequent to the City’s year end, the TMRS Board adopted two significant changes affecting future actuarial values: Mortality Tables – The mortality tables used to determine the annuity purchase rate were updated to reflect the increasing life expectancy of plan members and retirees. Effective January 1, 2015, this change will affect future retirees only and will be phased in over thirteen years. Entry Age Normal actuarial method – TMRS will be changing from the Projected Unit Credit method to the Entry Age Normal method, the most widely used actuarial method by public sector pension plans, which will be required by GASB beginning in fiscal year 2015 for determination of the Net Pension Liability for financial reporting purposes. This will more closely align funding with the financial reporting once the City implements GASB Statement No. 68 “Accounting and Financial Reporting for Pensions; an amendment of GASB Statement No. 27” (see note V.H.).

56 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2013

The City of Denton is one of 849 municipalities having the benefit plan administered by TMRS. Each of the 849 municipalities has an annual, individual actuarial valuation performed. All assumptions for the December 31, 2012, valuations are contained in the 2011 TMRS Comprehensive Annual Financial Report, a copy of which may be obtained by writing to P.O. Box 149153, Austin, Texas 78714-9153; in addition, the report is available on TMRS’ website at www.TMRS.com. Supplemental death benefit fund The City of Denton contributes to a cost-sharing multiple-employer defined benefit group-term life insurance plan known as the Supplemental Death Benefits Fund (SDBF). This is a separate trust administered by the TMRS Board of Trustees and is a voluntary program in which the City elected, by ordinance, to provide group term life insurance coverage to active and retired members. The City may terminate coverage under and discontinue participation in the SDBF by adopting an ordinance before November 1st of any year to be effective the following January 1st. Contributions are made monthly based on the covered payroll of employee members of the City. The contractually required contribution rate is determined annually, and the rate is based on the mortality and service experience of all employees covered by the SDBF and the demographics specific to the workforce of the City. There is a one-year delay between the actuarial valuation that serves as the basis for the employer contribution rate and the calendar year when the rate goes into effect. The contributions to the SDBF are pooled for investment purposes with those of the Pension Trust Fund described above. The TMRS Act requires the Pension Trust Fund to allocate investment income to the SDBF on an annual basis. The funding policy of the plan is to assure adequate resources are available to meet all death benefit payments for the upcoming year; the intent is not to prefund retiree term life insurance during employees’ entire careers. As such, contributions are utilized to fund active member deaths on a pay-as-you-go basis; any excess contributions and investment income over payments then become net assets available for postemployment benefits other than pension benefits (OPEB). The City’s contributions to SDBF for the fiscal years ended September 30, 2011, 2012, and 2013, were $123,135, $106,280, and $108,645, respectively, which equaled the required contributions each year. Payments from this fund are similar to group term life insurance benefits, and are paid to the designated beneficiaries upon the receipt of an approved application for payment. The death benefit for active employees provides a lump-sum payment approximately equal to the employee’s annual salary. The death benefit for retirees is considered an OPEB and is a fixed amount of $7,500. The obligations of this plan are payable only from the SDBF and are not an obligation of, or claim against, the Pension Trust Fund. Denton Firemen's Relief and Retirement Plan Plan description The Board of Trustees of the Denton Firemen’s Relief and Retirement Fund is the administrator of a single- employer defined benefit pension plan.

57 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2013

The Denton Firemen’s Relief and Retirement Fund covers firefighters in the Denton Fire Department. The table following summarizes the membership of the fund as of December 31, 2011, the most recent biennial actuarial valuation.

12/31/11 1. Retirees and beneficiaries currently receiving benefits and terminated employees entitled to 67 benefits but not yet receiving them 2. Current employees a. Vested 95 b. Nonvested 66 3. Total 228

The Denton Firemen’s Relief and Retirement Fund provides service retirement, death, disability and withdrawal benefits. These benefits vest after 10 years of credited service. Firefighters may retire at age 50 with 20 years of service. As of the December 31, 2011 actuarial valuation date, the Plan effective January 1, 2011 provided a monthly normal service retirement benefit, payable in a joint and two-thirds to spouse form of annuity, equal to 2.59% of highest 36-month average salary for each year of service. There is no provision for automatic postretirement benefit increases. The fund has the authority to provide, and has periodically in the past provided for, ad hoc postretirement benefit increases. The benefit provisions of this plan are authorized by the Texas Local Fire Fighter’s Retirement Act (TLFFRA). TLFFRA provides the authority and procedure to amend benefit provisions. Contributions required and contributions made The contribution provisions of this plan are authorized by TLFFRA. The TLFFRA provides the authority and procedure to change the amount of contributions determined as a percentage of pay by each firefighter and a percentage of payroll by the city. While the contribution requirements are not actuarially determined, state law requires each plan of benefits adopted by the fund be approved by an eligible actuary. The actuary certifies the contribution commitment by the firefighters and the city provides an adequate financing arrangement. Using the entry age actuarial cost method, the plans’ normal cost contribution rate is determined as a percentage of payroll. The excess of the total contribution rate over the normal cost contribution rate is used to amortize the plan’s unfunded actuarial accrued liability (UAAL), and the number of years needed to amortize the plan’s unfunded actuarial accrued liability is determined using an open, level percentage of payroll method. The costs of administering the plan are financed from the fund. The funding policy of the Denton Firemen’s Relief and Retirement Fund requires contributions equal to 12.6% of pay by the firefighters and contributions by the City equal to the same percentage of payroll the City contributes to the Texas Municipal Retirement System for other employees. The December 31, 2011 actuarial valuation assumes the city contribution rate will average 17.50% of payroll in the future. The City contribution rate for January 2012 through September 2012 was 17.58%, for October 2012 through December 2012 was 18.74%, and for calendar year 2013 was 18.98%.

58 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2013

Three-Year Trend Information for Denton Firemen’s Relief and Retirement Funding

Year ending 9/30/13 9/30/12 9/30/11 Annual pension costs (APC) $2,259,453 $2,253,667 $2,141,662 Actual contributions $2,259,453 $2,253,667 $2,141,662 Percent contributed 100% 100% 100% Weighted average percent contributed as a percent of payroll 18.92% 17.48% 16.73% Actuarial Assumptions 12/31/11 Actuarial cost method Entry age Amortization method Level percent of payroll, open Amortization period for ARC 30 years Asset valuation method 5-year adjusted market value Investment rate of return 7.00% Projected salary increases 3.50% plus promotion and longevity (0% to 6%) Includes inflation at 3.50% Cost-of-living adjustments None Payroll increases 3.50% ARC as percent of payroll Budgeted rates

As of December 31, 2011, the most recent valuation date, the plan was 72.0% funded. The actuarial accrued liability for benefits was $75,228,727, and the actuarial value of assets was $54,169,459, resulting in an unfunded actuarial accrued liability (UAAL) of $21,059,268. The covered payroll (annual payroll of active employees covered by the plan as of the valuation date) was $12,938,426, and the ratio of the UAAL to the covered payroll was 162.8%. The schedule of funding progress, presented as “Required Supplementary Information” (Exhibit XII) following the notes to the financial statements, presents multi- year trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits. Financial statements are available and can be obtained by contacting the Denton Fire Department at the City of Denton at 332 E. Hickory, Denton, Texas 76201. B. Post-employment benefits other than pensions (OPEB) The cost of post-employment healthcare benefits, from an accrual accounting perspective, similar to the cost of pension benefits, should be associated with the periods in which the cost occurs, rather than in the future year when it will be paid. According to the requirements of GASB Statement No. 45 for the fiscal year ended September 30, 2013, the City recognizes the cost of post-employment healthcare in the year the employee services are received, reports the accumulated liability from prior years, and provides information useful in assessing potential demands on the City’s future cash flows. Recognition of the liability accumulated from prior years will be amortized over 30 years, the first period commencing with the fiscal year ending September 30, 2008.

59 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2013

Plan description The City provides post-employment medical care (OPEB) for retired employees through a single-employer defined benefit medical plan. The plan provides medical benefits for eligible retirees, their spouses and dependents though the City’s group health insurance plans, which covers both active and retired members. The benefits, benefit levels, and contribution rates are approved annually by the City management as part of the budget process. Any changes in rate subsidies for retirees are approved by the City Council. Since an irrevocable trust has not been established, the plan is not accounted for as a trust fund. The plan does not issue a separate financial report. Benefits provided The City provides post-employment medical, dental, and vision care benefits to its retirees. To be eligible for benefits, an employee must qualify for retirement under the Texas Municipal Retirement System or the Denton Firemen’s Relief and Retirement Plan. Retirees must make a one-time irrevocable decision to chose benefits at the time of retirement, after that their eligibility for the benefits ceases. All medical care benefits are provided through the City’s self-insured health plan. The benefit levels are the same as those afforded to active employees. As of September 30, 2013, membership consisted of: Retirees and beneficiaries receiving benefits 94 Terminated employees eligible for benefits, but not yet enrolled - Active employees 1,198 Total 1,292

Funding policy The plan premium rates are determined annually by City management and approved by the City Council as part of the annual budget. The retiree’s contribution is the full amount of the actuarially determined blended premium rate less a subsidy dependent upon years of service at retirement. By providing retirees with access to the City’s healthcare plans based on the same rates it charges to active employees, the City is in effect providing a subsidy to retirees. This implied subsidy exists because, on average, retiree health care costs are higher than active employee healthcare costs. By the City not contributing anything toward this plan in advance, the City employs a pay-as-you-go method through paying the higher rate for active employees each year. The City contributes $20 per month for each five-year increment of service, up to $100 per month, toward the cost of retiree coverage. The subsidies paid by the City for the fiscal year ended September 30, 2013 totaled $28,072. The full cost for dental and vision is paid by the retiree. Retirees are required to enroll in Medicare Part B once eligible (age 65) and are moved into a fully-insured Medicare Supplement plan at that time. The same City contribution level applies to the supplement. The City’s GASB Statement No. 45 liability was discussed at length with the Audit/Finance Committee and the City Council. At the conclusion of these discussions, the City Council concurred with the staff recommendation to fund the City’s OPEB costs on a pay-as-you-go basis. This basis has been recommended since 1) this provides the lowest cost approach, 2) the ARC is relatively small in comparison to the City’s overall budget, and 3) the pay-as-you-go cost is not forecast to exceed the ARC until approximately the year 2031. This approach will be reevaluated periodically. Annual OPEB costs and Net OPEB obligation The City’s annual other post-employment benefit (OPEB) cost is calculated based on the annual required contribution of the City (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement 45. The ARC represents a level of accrual that, if paid on an ongoing basis, is projected to cover normal cost each year and to amortize any unfunded actuarial liabilities over a period not to exceed

60 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2013 thirty years. The City’s annual OPEB cost for the current year and the related information are as follows at September 30, 2013: Annual required contribution $ 1,582,219 Interest on prior year Net OPEB obligation 144,292 Adjustment to annual required contribution (207,072) Annual OPEB cost 1,519,439 Contributions made (898,583) Increase in net OPEB obligation 620,856 Net OPEB obligation - beginning of year 3,206,485 Net OPEB obligation - end of year $ 3,827,341

Percentage of OPEB costs contributed 59.14%

Funded status and funding progress The funded status of the plan as of the actuarial measurement date of October 1, 2011 was as follows: Actuarial accrued liability $ 12,565,747 Actuarial value of plan assets - Unfunded actuarial accrued liability$ 12,565,747

Funded ratio 0.0% Covered payroll $ 71,315,386 Unfunded actuarial accrued liability as a percentage of covered payroll 17.6% Three-Year Trend Information for OPEB Funding

Year ending 9/30/13 9/30/12 9/30/11 Annual OPEB costs $1,519,439 $1,520,203 $1,270,279 Actual contributions $898,583 $1,481,210 $623,130 Percent contributed 59% 97% 49% Net OPEB obligation $3,827,341 $3,206,485 $3,167,492

The schedule of funding progress, presented as “Required Supplementary Information” (Exhibit XIII) following the notes to the financial statements, presents multi-year trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability of benefits. Actuarial valuations involve estimates of the value of reported amounts and assumptions about the probability of events in the future. Amounts determined regarding the status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared to past expectations and new estimates are made about the future. Actuarial methods and assumptions The Projected Unit Credit actuarial cost method is used to calculate the GASB ARC for the City’s retiree health care plan. Using the plan benefits, the present health premiums and a set of actuarial assumptions, the anticipated future payments are projected. The projected unit credit method then provides for a systematic recognition of the cost of these anticipated payments. The yearly ARC is computed to cover the

61 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2013 cost of benefits being earned by covered members as well as to amortize a portion of the unfunded accrued liability. Projections of benefits are based on the substantive plan (the plan understood by the employer and plan members) and include the type of benefits in force at the valuation date and the pattern of sharing benefits between the City and the plan members at that point. Actuarial calculations reflect a long-term perspective and employ methods and assumptions that are designed to reduce short-term volatility in actuarial accrued liabilities and the actuarial value of assets. Significant method and assumptions used for this fiscal year valuation as shown on the following page were as follows: Actuarial Assumptions 10/1/11 Actuarial cost method Projected Unit credit Amortization method Level dollar, closed

Amortization period for ARC 26 years Asset valuation method N/A

Investment rate of return 4.5%, net of expenses Includes inflation at 3.0% Payroll growth 3.0% Healthcare inflation rate 8.0% for 2013 declining to an ultimate rate of 4.5% after 7 years

Medical reimbursements The federal government may provide the city subsidy per the Medicare Part D Prescription Drug Subsidy Program for providing healthcare for Medicare eligible employees. As the City does not participate in these subsidies, any current and future year subsidies are not recognized as a reduction to the actuarial accrued liability. C. Deferred compensation plan The City offers its employees a deferred compensation plan created in accordance with Internal Revenue Code Section 457. For the calendar 2013 year, the plan, available to all permanent City employees, permitted them to defer, until future years, up to 25% of annual gross earnings not to exceed $17,500. Employees who are age 50 or older may contribute an amount not to exceed $23,000. Employees who are within three years of retirement eligibility may elect to participate in a catch-up provision allowed by Section 457, which has an annual maximum contribution amount of $35,000. The withdrawal of deferred compensation funds is only available to employees by loan, termination, until termination, retirement, death, or unforeseeable emergency. All amounts of compensation deferred under the plan, all property and rights purchased with those amounts, and all income attributable to those amounts, property or rights are, until paid or made available to the employee or other beneficiary, solely the property and rights of the employees. Accordingly, the assets and associated liability of the plan are not included in the City’s financial statements. It is the opinion of the City's legal counsel that the City has no liability for losses under the plan.

62 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2013

D. Self-insurance plan The City has established a self-insurance plan for liability and workers' compensation benefits in the Risk Retention Fund. Accrued claims payable include provisions for claims reported and claims incurred but not reported. The provision for reported claims is determined by estimating the amount which will ultimately be paid for each claimant. The provision for claims incurred but not yet reported is estimated based on actuarial studies. It is the policy of the City of Denton not to purchase commercial insurance for workers' compensation claims or general liability. Commercial liability insurance coverage is purchased for airport operations, emergency medical services, take-home vehicles, and employee theft and dishonesty. Additionally, excess insurance is purchased for general liability, auto liability, public officials, and workers’ compensation exposures. The City reports liabilities when it is probable that a loss has occurred and the amount of that loss can be reasonably estimated. Liabilities include an amount for claims that have been incurred but not reported. Because actual claim liabilities depend on such complex factors as inflation, changes in legal doctrines, and damage awards, the process used in computing claims liability does not necessarily result in an exact amount. In January 2008, the City started a self-insured group employee health insurance plan. Claims are paid from the Health Insurance Fund, which has an annually negotiated stop loss provision. The City’s costs associated with the self-insurance plans are interfund transactions. Accordingly, they are treated as operating revenues of the Internal Service Risk Retention Fund and Health Insurance Fund and operating expenditures (expenses) of the other funds and employee payroll deductions. Claims liabilities are re-evaluated periodically to take into consideration settlement of claims, new claims and other factors. As of September 30, 2013, the estimated value of these liabilities was $3,679,111. Changes in balances of claims liabilities during fiscal years 2013 and 2012 were as follows: Claims Liability Claims and Claims Liability Beginning of Change in Claims End of Fiscal Year Estimates Payments Fiscal Year Workers' Compensation 2013 $3,016,960 $ (898,041) $ 514,525 $1,604,394 2012 1,858,914 1,582,362 424,316 3,016,960 General Liability 2013 $ 887,992 $ (79,717) $ 266,237 $ 542,038 2012 658,446 398,128 168,582 887,992 Health Insurance 2013 $1,367,053 $17,282,416 $ 17,116,790 $1,532,679 2012 1,129,950 17,561,8801 17,324,777 1,367,053

On September 30, 2013, the City of Denton held additional amounts in unrestricted net assets of $4,590,184 in the Risk Retention Fund and $4,205,656 in the Health Insurance Fund for payment of claims. There were no significant reductions in insurance coverage from coverage in the prior year, and the amount of settlements did not exceed insurance coverage in the current year or in any of the past three fiscal years. E. Commitments and contingencies Agreement with TMPA In 1976, the City, along with the cities of Bryan, Greenville, and Garland, Texas (the Cities) entered into a Power Sales Contract with the Texas Municipal Power Agency (TMPA). TMPA was created through concurrent ordinances of the Cities and is governed by a Board of Directors consisting of eight members, two appointed by the governing body of each city. Under the terms of the agreement, TMPA agreed to

63 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2013 construct or acquire electric generating plants to supply energy and power to the Cities for a period of not less than 35 years. The Cities in turn agreed to purchase all future power and energy requirements in excess of the amounts generated by their systems from TMPA at prices intended to cover operating costs and retirement of debt. In the event that revenues are insufficient to cover all costs and retire the outstanding debt, each of the Cities has guaranteed a portion of the unpaid debt based, generally, upon its pro rata share of the energy delivered to consumers in the prior operating year. As of September 30, 2013, total TMPA long-term debt outstanding was approximately $808,344,000, and the City's percentage was approximately 21.3%. In December 2009, the City and the other Member Cities entered into a Global Compromise Settlement Agreement. As part of the settlement, the Member Cities agreed to issue debt to provide for TMPA’s scrubber refurbishment project and to refinance TMPA’s 2003, 2004, and 2004A Subordinate Lien Bonds. The City Council approved the issuance of $58,820,000 of combination tax and revenue refunding bonds, which represents the City’s approximate 21.3% share of the TMPA debt to be refinanced. In the opinion of management, the possibility of a material payment in the near future under this agreement is remote in that TMPA is generating operating profits, and assets exceed liabilities. TMPA operates a 462-megawatt, coal-fired generating plant. In 1996, TMPA switched to an external source of coal to reduce costs. Should TMPA be dissolved, each city would be entitled to an undivided interest in the property. Selected financial statement information of TMPA is as follows: September 30 (Unaudited) 2013 2012 (000s) (000s) Operating revenues $ 271,120 $ 162,491 Operating expenses 134,405 116,368 Operating income 136,715 46,123 Other non-operating sources (uses) 360 3,312 Current unrestricted assets 55,004 46,026 Total assets 1,078,086 1,157,572 Long-term debt – Noncurrent 699,778 758,809 Total liabilities 1,022,973 1,105,714 Total net assets 55,113 51,858

Agreement with the City of Dallas

During 1985, the City entered into an agreement with the City of Dallas that provides for the purchase of a minimum of 500,000 gallons/day of untreated water from the City of Dallas from Lake Lewisville. This contract will be effective for 30 years. The cost of water purchased under this agreement during fiscal year 2013 was $82,942. F. Litigation

Various claims and lawsuits are pending against the City. In accordance with GAAP, those judgments considered “probable” are accrued, while those claims and judgments considered “reasonably possible” are disclosed but not accrued. In the opinion of City management and legal counsel, the maximum amount of all significant claims considered reasonably possible, excluding condemnation proceedings and the item described following, is approximately $500,000 as of September 30, 2013. Potential losses after insurance

64 CITY OF DENTON, TEXAS NOTES TO BASIC FINANCIAL STATEMENTS (continued) SEPTEMBER 30, 2013 coverage on all probable claims and lawsuits, excluding the item following, will not have a material effect on the City's financial position as of September 30, 2013. G. Subsequent events

The City has evaluated all events or transactions that occurred after September 30, 2013 up through February 25, 2014, the date the financial statements were issued. During this period there were no subsequent events requiring disclosure.

H. New Accounting Pronouncements The Governmental Accounting Standards Board (GASB) issued the following statements which became effective for the fiscal year 2013. Statement No. 60 “Accounting and Financial Reporting of Service Concession Arrangements” – This statement establishes guidance for accounting and financial reporting for service concession arrangements (SCAs). These arrangements are often referred to as public-private partnerships or public-public partnerships. As of September 30, 2013 the City had no SCAs and therefore the statement had no impact to the financial statements. Statement No. 61 “The Financial Reporting Entity: Omnibus; an amendment of GASB statements No. 14 and No. 34” – This statement modifies existing requirements for the assessment of potential component units in determining what should be included in the financial reporting entity, the display of component units, and certain disclosure requirements. As of September 30, 2013 the City had no component units and therefore the statement had no impact to the financial statements. Statement No. 62 “Codification of Accounting and Financial Reporting Guidance Contained in Pre- November 30, 1989 FASB and AICPA Pronouncements” – This statement codifies into GASB accounting and financial reporting standards the “legacy” standards from the private-sector. In the process of evaluating the implementation of the statement, the City determined there was no impact to the financial statements. Statement No. 63 “Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position” – This statement establishes standards for reporting deferred outflows of resources, deferred inflows of resources, and net position in a statement of financial position and also requires related disclosures. The only impact of the implementation of this standard was changing financial statement items previously called “net assets” to be titled “net position”. The City has no items that are required by this statement to be presented as deferred outflows of resources or deferred inflows of resources. The following statements for the GASB are effective for future fiscal years ending as listed below. The City is in the process of reviewing and evaluating these statements and their potential impact on the City’s financial statements. Statement No. 65 “Items Previously Reported as Assets and Liabilities” – This statement specifies the items that were previously reported as assets and liabilities that should now be reported as deferred outflows of resources, deferred inflows of resources, outflows of resources, or inflows of resources. This statement will become effective for the City in fiscal year 2014. Statement No. 68 “Accounting and Financial Reporting for Pensions; an amendment of GASB Statement No. 27” – This statement replaces the requirements of Statements No. 27 and No. 50 related to pension plans that are administered through trusts or equivalent arrangements. The primary objective of this statement is to improve accounting and financial reporting by state and local governments as well as provide information about pensions that are provided by other entities. This statement establishes standards for measuring and recognizing liabilities, deferred outflows of resources, and deferred inflows of resources, and expenses/expenditures. This statement will become effective for the City in fiscal year 2015. ****

65

66 CITY OF DENTON, TEXAS REQUIRED SUPPLEMENTARY INFORMATION Exhibit XII

SCHEDULE OF TEXAS MUNICIPAL RETIREMENT SYSTEM FUNDING PROGRESS AND CONTRIBUTIONS LAST THREE FISCAL YEARS (Unaudited)

Actuarial Unfunded Accrued Actuarial Actuarial Actuarial Liability (AAL) Accrued Fiscal Valuation Value of Unit Credit Liability Funded Year Date Assets Method (UAAL) Percent 2011 12/31/2010 $ 208,101,143 $ 279,659,548 $ (71,558,405) 74% 2012 12/31/2011 229,285,432 298,900,732 (69,615,300) 77 2013 12/31/2012 252,276,946 315,416,972 (63,140,026) 80

UAAL as Percent of Annual Fiscal Covered Covered Required Actual Percent Year Payroll Payroll Contributions Contributions Contributed 2011 $ 58,112,441 123.1 $ 11,580,085 $ 9,579,358 83% 2012 58,376,960 119.3 11,475,702 10,435,001 91 2013 61,446,004 102.8 12,174,640 12,171,482 100

SCHEDULE OF DENTON FIREMEN'S RELIEF AND RETIREMENT PLAN FUNDING PROGRESS AND CONTRIBUTIONS LAST THREE VALUATION YEARS (Unaudited)

Actuarial Unfunded Accrued Actuarial Actuarial Actuarial Liability (AAL) Accrued Fiscal Valuation Value of Unit Credit Liability Funded Year Date Assets Method (UAAL) Percent 2008 12/31/2007 $ 41,020,648 $ 52,675,541 $ (11,654,893) 78% 2010 12/31/2009 46,256,617 65,874,164 (19,617,547) 70 2012 12/31/2011 54,169,459 75,228,727 (21,059,268) 72

UAAL as Percent of Annual Fiscal Covered Covered Required Actual Percent Year Payroll Payroll Contributions Contributions Contributed 2008 $ 11,320,817 103.0 $ 1,426,906 $ 1,426,906 100% 2010 12,750,355 153.9 1,976,155 1,976,155 100 2012 12,938,426 162.8 2,253,667 2,253,667 100

67 CITY OF DENTON, TEXAS REQUIRED SUPPLEMENTARY INFORMATION Exhibit XIII

SCHEDULE OF OTHER POST EMPLOYMENT BENEFITS FUNDING PROGRESS AND CONTRIBUTIONS LAST THREE VALUATION YEARS (Unaudited)

Actuarial Unfunded Accrued Actuarial Actuarial Actuarial Liability (AAL) Accrued Fiscal Valuation Value of Unit Credit Liability Funded Year Date Assets Method (UAAL) Percent 2008 7/31/2007 - $ 7,926,202 $ (7,926,202) 0% 2010 10/1/2009 - 10,944,544 (10,944,544) 0 2012 10/1/2011 - 12,565,747 (12,565,747) 0

UAAL as Percent of Annual Fiscal Covered Covered Required Actual Percent Year Payroll Payroll Contributions Contributions Contributed 2008 $ 61,668,312 12.9% $ 879,280 $ 69,696 8% 2010 74,045,518 14.8 1,314,901 370,759 28 2012 71,315,386 17.6 1,582,219 1,481,210 94

68 CITY OF DENTON, TEXAS Exhibit XIV SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET TO ACTUAL DEBT SERVICE FUND FOR THE YEAR ENDED SEPTEMBER 30, 2013

Variance with Adjustments - Actual on a Final Budget - Budgeted Amounts Actual Budgetary Budgetary Positive Original Final Amounts Basis Basis (Negative) REVENUES: Taxes $ 14,815,514 $ 14,815,514 $ 14,893,428 $ - $ 14,893,428 $ 77,914 Investment revenue 50,000 50,000 37,305 - 37,305 (12,695) Miscellaneous - - 136 - 136 136 Total revenues 14,865,514 14,865,514 14,930,869 - 14,930,869 65,355

EXPENDITURES: Debt service: Principal, interest and fiscal charges 39,913,999 39,913,999 14,507,961 25,206,732 39,714,693 199,306 Advance refunding escrow - - 110,145 (110,145) - - Bond issuance costs - - 111,932 - 111,932 (111,932) Total expenditures 39,913,999 39,913,999 14,730,038 25,096,587 39,826,625 87,374

Excess (deficiency) of revenues over (under) expenditures (25,048,485) (25,048,485) 200,831 (25,096,587) (24,895,756) 152,729

OTHER FINANCING SOURCES (USES): Refunding bonds issued - - 6,182,405 (6,182,405) - - Payment to refunded bond escrow agent - - (6,547,180) 6,547,180 - - Premium on debt issuance - - 447,895 (447,895) - - Transfers in 25,596,694 25,596,694 464,418 25,206,732 25,671,150 74,456 Total other financing sources (uses) 25,596,694 25,596,694 547,538 25,123,612 25,671,150 74,456

Net change in fund balance 548,209 548,209 748,369 27,025 775,394 227,185

Fund balance at beginning of year 3,824,438 3,824,438 3,824,438 - 3,824,438 - Fund balance at end of year $ 4,372,647 $ 4,372,647 $ 4,572,807 $ 27,025 $ 4,599,832 $ 227,185

Adjustments - Budgetary Basis are pass-through debt service payments budgeted as transfers in from enterprise and internal service funds. Other Financing Sources (Uses) related to refunding are adjusted out as they are non-budgeted items reducing future debt service payments.

69

70

NONMAJOR GOVERNMENTAL FUNDS

SPECIAL REVENUE FUNDS

Special revenue funds are used to account for specific revenues that are legally restricted to expenditures for particular purposes.

Community Development Block Grant (CDBG) – to account for the operations of projects utilizing Community Development Block Grant Funds. Such revenues are restricted to expenditures for specified projects by the Department of Housing and Urban Development.

Recreation – to account for the revenues and expenditures for the recreation programs that are self-supporting. All expenditures will be reimbursed 100%. Various business operations, such as concessions, fall into this account.

Criminal Justice – to account for revenue received from the State of Texas Criminal Justice Division and other grants administered by the police department.

Police Confiscation – to account for revenues received from confiscated goods. Expenditures are restricted to enhancing law enforcement.

Tourist and Convention – to account for taxes received from hotel and motel occupancy for the purpose of promoting tourism.

Street Improvement – to account for street maintenance and improvement activities.

Gas Well Revenues – to account for the receipt of royalty, pooling, tax, and lease revenue related to gas wells.

Citizens’ Park Trusts – to account for several small trust funds that are for park development.

All Other – to account for miscellaneous special revenue sources that are required to finance specific activities.

71 CITY OF DENTON, TEXAS COMBINING BALANCE SHEET NONMAJOR GOVERNMENTAL FUNDS SEPTEMBER 30, 2013

Special Revenue Funds Community Development Criminal Police Block Grant Recreation Justice Confiscation

ASSETS Cash, cash equivalents and investments, at fair value $ 542 $ 557,211 $ - $ 438,091 Receivables (net of allowances): Accrued interest - 1,855 - 1,458 Other - 5,371 - - Interfund receivables - 88,426 - - Due from other governments 227,910 - 8,901 - Total assets $ 228,452 $ 652,863 $ 8,901 $ 439,549 LIABILITIES AND FUND BALANCES LIABILITIES: Accounts payable $ 133,177 $ 98,948 $ - $ - Interfund payables 79,525 - 8,901 - Unearned revenues 912 - 8,901 - Total liabilities 213,614 98,948 17,802 -

FUND BALANCES (DEFICIT): Restricted for: Parks and recreation - - - - Other grants and purposes 14,838 - - 439,549 Committed to: Streets - - - - Parks and recreation - 553,915 - - Other purposes - - - - Assigned to: Other purposes - - - - Unassigned - - (8,901) - Total fund balance (deficit) 14,838 553,915 (8,901) 439,549

Total liabilities and fund balances (deficit) $ 228,452 $ 652,863 $ 8,901 $ 439,549

72 Exhibit XV

Special Revenue Funds (continued) Total Tourist Citizens' Nonmajor and Street Gas Well Park All Governmental Convention Improvement Revenues Trusts Other Funds

$ 1,210,861 $ 2,310,204 $ 3,618 $ 4,849,905 $ 2,232,963 $ 11,603,395

4,030 7,689 12 16,142 7,432 38,618 130,848 101,752 32,517 - 104,135 374,623 - - - - - 88,426 - - - - 459,912 696,723 $ 1,345,739 $ 2,419,645 $ 36,147 $ 4,866,047 $ 2,804,442 $ 12,801,785

$ 94,448 $ 1,089,461 $ - $ 3,000 $ 213,119 $ 1,632,153 - - - - - 88,426 - - - - 166,919 176,732 94,448 1,089,461 - 3,000 380,038 1,897,311

- - - 4,863,047 47,895 4,910,942 1,251,291 - - - 517,948 2,223,626

- 1,330,184 - - - 1,330,184 - - 36,147 - - 590,062 - - - - 1,801,661 1,801,661

- - - - 56,900 56,900 - - - - - (8,901) 1,251,291 1,330,184 36,147 4,863,047 2,424,404 10,904,474

$ 1,345,739 $ 2,419,645 $ 36,147 $ 4,866,047 $ 2,804,442 $ 12,801,785

73 CITY OF DENTON, TEXAS COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NONMAJOR GOVERNMENTAL FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2013

Special Revenue Funds Community Development Criminal Police Block Grant Recreation Justice Confiscation

REVENUES: Tax revenue $ - $ - $ - $ - Franchise fees - - - - Fines and forfeitures - - - 152,652 Fees for services - 1,771,735 - - Investment revenue - 2,738 - 1,759 Intergovernmental 2,115,500 - 57,012 - Miscellaneous 116,826 - - 3,231 Total revenues 2,232,326 1,774,473 57,012 157,642

EXPENDITURES: General government 1,840,292 - - - Public safety - - 71,543 129,831 Public works - - - - Parks and recreation - 1,538,284 - - Capital outlay - - - - Debt service: Principal retirement - - - - Interest and other charges - - - - Total expenditures 1,840,292 1,538,284 71,543 129,831

Excess (deficiency) of revenues over (under) expenditures 392,034 236,189 (14,531) 27,811

OTHER FINANCING SOURCES (USES): Transfers in - - 8,134 - Transfers out (391,901) (252,808) - - Total other financing sources (uses) (391,901) (252,808) 8,134 -

Net change in fund balances 133 (16,619) (6,397) 27,811

Fund balance (deficit) at beginning of year 14,705 570,534 (2,504) 411,738 Fund balance (deficit) at end of year $ 14,838 $ 553,915 $ (8,901) $ 439,549

74 Exhibit XVI

Special Revenue Funds (continued) Total Tourist Citizens' Nonmajor and Street Gas Well Park All Governmental Convention Improvement Revenues Trusts Other Funds

$ 1,910,125 $ - $ - $ - $ 94,381 $ 2,004,506 - 6,304,206 - - - 6,304,206 - - - - 961,207 1,113,859 - 473,978 164,489 434,681 206,566 3,051,449 4,431 3,230 148 18,712 5,015 36,033 - - - - 1,178,350 3,350,862 2,091 11,360 - - 443,923 577,431 1,916,647 6,792,774 164,637 453,393 2,889,442 16,438,346

1,464,362 - - - 430,238 3,734,892 - - - - 1,467,256 1,668,630 - 6,596,757 - - 114 6,596,871 - - - 3,873 145,009 1,687,166 - 57,297 - 42,240 197,031 296,568

- 48,382 - - - 48,382 - 10,115 - - - 10,115 1,464,362 6,712,551 - 46,113 2,239,648 14,042,624

452,285 80,223 164,637 407,280 649,794 2,395,722

- 315,635 - - 288,267 612,036 - (57,616) (797,999) (95,586) (517,585) (2,113,495) - 258,019 (797,999) (95,586) (229,318) (1,501,459)

452,285 338,242 (633,362) 311,694 420,476 894,263

799,006 991,942 669,509 4,551,353 2,003,928 10,010,211 $ 1,251,291 $ 1,330,184 $ 36,147 $ 4,863,047 $ 2,424,404 $ 10,904,474

75 CITY OF DENTON, TEXAS Exhibit XVII SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET TO ACTUAL SPECIAL REVENUE FUNDS: RECREATION FUND FOR YEAR ENDED SEPTEMBER 30, 2013

Variance with Adjustments - Actual on a Final Budget - Budgeted Amounts Actual Budgetary Budgetary Positive Original Final Amounts Basis Basis (Negative) REVENUES: Fees for services $ 1,752,631 $ 1,752,631 $ 1,771,735 $ - $ 1,771,735 $ 19,104 Investment revenue 10,000 10,000 2,738 - 2,738 (7,262) Miscellaneous ------Total revenues 1,762,631 1,762,631 1,774,473 - 1,774,473 11,842

EXPENDITURES: Parks and recreation 1,838,517 1,616,872 1,538,284 (111,831) 1,426,453 190,419 Total expenditures 1,838,517 1,616,872 1,538,284 (111,831) 1,426,453 190,419

Excess (deficiency) of revenues over (under) expenditures (75,886) 145,759 236,189 111,831 348,020 202,261

OTHER FINANCING USES: Transfers out (111,831) (333,476) (252,808) (111,831) (364,639) (31,163) Total other financing uses (111,831) (333,476) (252,808) (111,831) (364,639) (31,163)

Net change in fund balance (187,717) (187,717) (16,619) - (16,619) 171,098

Fund balance at beginning of year 570,534 570,534 570,534 - 570,534 - Fund balance at end of year $ 382,817 $ 382,817 $ 553,915 $ - $ 553,915 $ 171,098

Adjustments - Budgetary Basis are expenditures allocated from and reimbursed to other funds. These expenditures are recorded as operating expenditures but budgeted as cost of service transfers.

76 CITY OF DENTON, TEXAS Exhibit XVIII SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET TO ACTUAL SPECIAL REVENUE FUNDS: POLICE CONFISCATION FUND FOR YEAR ENDED SEPTEMBER 30, 2013

Variance with Adjustments - Actual on a Final Budget - Budgeted Amounts Actual Budgetary Budgetary Positive Original Final Amounts Basis Basis (Negative) REVENUES: Fines and forfeitures 184,000$ $ 184,000 $ 152,652 $ - 152,652$ $ (31,348) Investment revenue 1,500 1,500 1,759 - 1,759 259 Miscellaneous - - 3,231 - 3,231 3,231 Total revenues 185,500 185,500 157,642 - 157,642 (27,858)

EXPENDITURES: Public safety 155,000 155,000 129,831 - 129,831 25,169 Total expenditures 155,000 155,000 129,831 - 129,831 25,169

Net change in fund balance 30,500 30,500 27,811 - 27,811 (2,689)

Fund balance at beginning of year 411,738 411,738 411,738 - 411,738 - Fund balance at end of year 442,238$ $ 442,238 $ 439,549 $ - 439,549$ $ (2,689)

77 CITY OF DENTON, TEXAS Exhibit XIX SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET TO ACTUAL SPECIAL REVENUE FUNDS: TOURIST AND CONVENTION FUND FOR YEAR ENDED SEPTEMBER 30, 2013

Variance with Adjustments - Actual on a Final Budget - Budgeted Amounts Actual Budgetary Budgetary Positive Original Final Amounts Basis Basis (Negative) REVENUES: Taxes $ 1,508,740 $ 1,508,740 $ 1,910,125 $ - $ 1,910,125 $ 401,385 Investment revenue - - 4,431 - 4,431 4,431 Miscellaneous - - 2,091 - 2,091 2,091 Total revenues 1,508,740 1,508,740 1,916,647 - 1,916,647 407,907

EXPENDITURES: General government 1,508,740 1,508,740 1,464,362 - 1,464,362 44,378 Total expenditures 1,508,740 1,508,740 1,464,362 - 1,464,362 44,378

Net change in fund balance - - 452,285 - 452,285 452,285

Fund balance at beginning of year 799,006 799,006 799,006 - 799,006 - Fund balance at end of year 799,006$ $ 799,006 $ 1,251,291 $ - $ 1,251,291 $ 452,285

78 CITY OF DENTON, TEXAS Exhibit XX SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET TO ACTUAL SPECIAL REVENUE FUNDS: STREET IMPROVEMENT FUND FOR YEAR ENDED SEPTEMBER 30, 2013

Variance with Adjustments - Actual on a Final Budget - Budgeted Amounts Actual Budgetary Budgetary Positive Original Final Amounts Basis Basis (Negative) REVENUES: Franchise fees $ 6,562,039 $ 6,562,039 $ 6,304,206 $ - $ 6,304,206 $ (257,833) Fees for services 321,484 321,484 473,978 - 473,978 152,494 Investment revenue 10,000 10,000 3,230 - 3,230 (6,770) Miscellaneous - - 11,360 - 11,360 11,360 Total revenues 6,893,523 6,893,523 6,792,774 - 6,792,774 (100,749)

EXPENDITURES: Public Works 7,018,104 6,903,871 6,596,757 (81,505) 6,515,252 388,619 Capital outlay - 56,616 57,297 - 57,297 (681) Debt service: Principal retirement 59,165 59,165 48,382 - 48,382 10,783 Interest and other charges - - 10,115 - 10,115 (10,115) Total expenditures 7,077,269 7,019,652 6,712,551 (81,505) 6,631,046 388,606

Excess (deficit) of revenues over (under) expenditures (183,746) (126,129) 80,223 81,505 161,728 287,857

OTHER FINANCING SOURCES (USES): Transfers in 265,251 265,251 315,635 - 315,635 50,384 Transfers out (81,505) (139,122) (57,616) (81,505) (139,121) 1 Total other financing uses 183,746 126,129 258,019 (81,505) 176,514 50,385

Net change in fund balance - - 338,242 - 338,242 338,242

Fund balance at beginning of year 991,942 991,942 991,942 - 991,942 - Fund balance at end of year $ 991,942 $ 991,942 $ 1,330,184 $ - $ 1,330,184 $ 338,242

Adjustments - Budgetary Basis are expenditures allocated from and reimbursed to other funds. These expenditures are recorded as operating expenditures but budgeted as cost of service transfers.

-

79 CITY OF DENTON, TEXAS Exhibit XXI SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET TO ACTUAL SPECIAL REVENUE FUNDS: GAS WELL REVENUES FUND FOR YEAR ENDED SEPTEMBER 30, 2013

Variance with Adjustments - Actual on a Final Budget - Budgeted Amounts Actual Budgetary Budgetary Positive Original Final Amounts Basis Basis (Negative) REVENUES: Fees for service 225,000$ $ 225,000 $ 164,489 $ - $ 164,489 $ (60,511) Investment revenue 6,449 3,500 148 - 148 (3,352) Total revenues 231,449 228,500 164,637 - 164,637 (63,863)

Excess of revenues over expenditures 231,449 228,500 164,637 - 164,637 (63,863)

OTHER FINANCING USES: Transfers out (840,000) (800,000) (797,999) - (797,999) 2,001 Total other financing uses (840,000) (800,000) (797,999) - (797,999) 2,001

Net change in fund balance (608,551) (571,500) (633,362) - (633,362) (61,862)

Fund balance at beginning of year 669,509 669,509 669,509 - 669,509 - Fund balance at end of year 60,958$ $ 98,009 $ 36,147 $ - $ 36,147 $ (61,862)

80 CITY OF DENTON, TEXAS Exhibit XXII SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET TO ACTUAL SPECIAL REVENUE FUNDS: CITIZENS' PARK TRUSTS FOR YEAR ENDED SEPTEMBER 30, 2013

Variance with Adjustments - Actual on a Final Budget - Budgeted Amounts Actual Budgetary Budgetary Positive Original Final Amounts Basis Basis (Negative) REVENUES: Fees for service 301,000$ $ 301,000 $ 434,681 $ - $ 434,681 $ 133,681 Investment revenue 29,000 29,000 18,712 - 18,712 (10,288) Total revenues 330,000 330,000 453,393 - 453,393 123,393

EXPENDITURES: Parks and recreation - - 3,873 - 3,873 (3,873) Capital outlay 300,000 300,000 42,240 - 42,240 257,760 Total expenditures 300,000 300,000 46,113 - 46,113 253,887

Excess of revenues over expenditures 30,000 30,000 407,280 - 407,280 377,280

OTHER FINANCING USES: Transfers out - - (95,586) - (95,586) (95,586) Total other financing uses - - (95,586) - (95,586) (95,586)

Net change in fund balance 30,000 30,000 311,694 - 311,694 281,694

Fund balance at beginning of year 4,551,353 4,551,353 4,551,353 - 4,551,353 - Fund balance at end of year $ 4,581,353 $ 4,581,353 $ 4,863,047 $ - $ 4,863,047 $ 281,694

81

82

INTERNAL SERVICE FUNDS

Internal Service Funds account for the financing of goods or services provided by one department for another.

The City has five Internal Service Funds as follows:

Materials Management Fund – to account for the financing of goods and services provided by Materials Management to other City departments. Such costs provided by Materials Management are billed to the other departments at standard labor charges and cost of parts plus 13 percent. Actual costs include depreciation on machinery and equipment used to provide the service.

Fleet Services Fund – to account for the financing of goods and services provided by the Municipal Garage and Machine Shop to other City departments. Municipal Garage and Machine Shop billings include labor charges and cost of parts plus 25 percent. Actual costs include depreciation on the building, improvements, machinery, and equipment used to provide the service.

Health Insurance Fund – to account for the accumulation of resources for the self-insurance activities of the City for employee medical insurance as well as other employee insurance benefits including long-term disability, short-term disability, dental insurance, and vision insurance.

Risk Retention Fund – to account for the accumulation of resources for the payment of employee insurance claims and insurance policies.

Technology Services Fund – to account for the accumulation of resources to provide computer programming services, systems analysis, imaging, print shop, and office services to City departments.

83 CITY OF DENTON, TEXAS COMBINING STATEMENT OF NET POSITION INTERNAL SERVICE FUNDS SEPTEMBER 30, 2013

Materials Fleet Health Risk Management Services Insurance Retention Fund Fund Fund Fund

ASSETS: Current assets: Cash, cash equivalents and investments, at fair value $ 19,037 $ 854,139 $ 5,281,118 $ 6,939,381 Receivables, net of allowances: Accrued interest 63 2,843 17,577 23,096 Other 134 158,656 308,530 - Merchandise inventory 4,755,594 185,949 - - Debt issuance costs 611 1,923 - - Total current assets 4,775,439 1,203,510 5,607,225 6,962,477 Noncurrent assets: Restricted assets: Escrow deposit - - 180,000 - Debt issuance costs 2,615 5,256 - - Capital assets, net of accumulated depreciation 750,388 4,229,925 - - Total noncurrent assets 753,003 4,235,181 180,000 - Total assets 5,528,442 5,438,691 5,787,225 6,962,477 LIABILITIES: Current liabilities: Accounts payable 239,211 448,319 48,890 132,767 Claims payable - - 1,532,679 397,400 Compensated absences payable 39,876 77,212 - 24,968 Leases payable - - - - Accrued interest 1,860 6,899 - - Interfund payables 3,565,000 - - - Certificate and general obligation bonds 26,527 196,353 - - Total current liabilities 3,872,474 728,783 1,581,569 555,135 Noncurrent liabilities: Payable from restricted assets: General obligation bonds payable 398,337 1,111,791 - - Certificates of obligation - - - - Unamortized gain (loss) on refunding (46,083) (22,266) - - Compensated absences payable 1,478 17,752 - 10,772 Claims payable - - - 1,749,032 Municipal pension obligation 76,605 134,532 - 40,718 Other post employment benefits 38,842 62,345 - 16,636 Total noncurrent liabilities: 469,179 1,304,154 - 1,817,158 Total liabilities 4,341,653 2,032,937 1,581,569 2,372,293

NET POSITION: Net investment in capital assets 371,607 2,944,047 - - Restricted for capital acquisition Unrestricted 815,182 461,707 4,205,656 4,590,184

Total net position $ 1,186,789 $ 3,405,754 $ 4,205,656 $ 4,590,184

84 Exhibit XXIII

Total Technology Internal Services Service Fund Funds

$ 2,831,536 $ 15,925,211

9,424 53,003 - 467,320 - 4,941,543 687 3,221 2,841,647 21,390,298

- 180,000 533 8,404 3,875,462 8,855,775 3,875,995 9,044,179 6,717,642 30,434,477

304,614 1,173,801 - 1,930,079 136,178 278,234 770,260 770,260 802 9,561 - 3,565,000 106,522 329,402 1,318,376 8,056,337

55,716 1,565,844 73,066 73,066 42 (68,307) 12,004 42,006 - 1,749,032 218,914 470,769 76,246 194,069 435,988 4,026,479 1,754,364 12,082,816

3,671,038 6,986,692

1,292,240 11,364,969

$ 4,963,278 $ 18,351,661

85 CITY OF DENTON, TEXAS COMBINING STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET POSITION INTERNAL SERVICE FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2013

Materials Fleet Health Risk Management Services Insurance Retention Fund Fund Fund Fund

OPERATING REVENUES: Charges for goods and services $ 4,779,101 $ 9,860,889 $ 20,030,358 $ 2,576,154 Miscellaneous 57,693 9,879 297,360 32,012

Total operating revenues 4,836,794 9,870,768 20,327,718 2,608,166

OPERATING EXPENSES: Operating expenses before depreciation 5,057,650 9,636,472 19,568,503 814,147 Depreciation 24,732 157,077 - -

Total operating expenses 5,082,382 9,793,549 19,568,503 814,147

Operating income (loss) (245,588) 77,219 759,215 1,794,019

NONOPERATING REVENUES (EXPENSES): Investment revenue - 2,201 14,061 27,677 Interest expense and fiscal charges (14,902) (57,998) - - Loss on disposal of capital assets - - - -

Total non-operating revenues (expenses) (14,902) (55,797) 14,061 27,677

Income (loss) before contributions and transfers (260,490) 21,422 773,276 1,821,696

Capital contributions - 30,329 - - Transfers in - 24,000 - - Transfers out (14,444) - (39,858) -

Change in net position (274,934) 75,751 733,418 1,821,696

Total net position at beginning of year 1,461,723 3,330,003 3,472,238 2,768,488

Total net position at end of year $ 1,186,789 $ 3,405,754 $ 4,205,656 $ 4,590,184

86 Exhibit XXIV

Total Technology Internal Services Service Fund Funds

$ 8,772,873 $ 46,019,375 1,678 398,622

8,774,551 46,417,997

6,527,829 41,604,601 1,329,063 1,510,872

7,856,892 43,115,473

917,659 3,302,524

4,649 48,588 (63,783) (136,683) (41,485) (41,485)

(100,619) (129,580)

817,040 3,172,944

228,439 258,768 49,083 73,083 (37,000) (91,302)

1,057,562 3,413,493

3,905,716 14,938,168

$ 4,963,278 $ 18,351,661

87 CITY OF DENTON, TEXAS COMBINING STATEMENT OF CASH FLOWS INTERNAL SERVICE FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2013

Materials Fleet Health Management Services Insurance Fund Fund Fund CASH FLOWS FROM OPERATING ACTIVITIES: Cash received from customers $ 4,836,660 $ 9,865,524 $ 20,621,973 Cash paid to employees for services (1,037,992) (1,488,833) (19,169,662) Cash paid to suppliers (3,746,070) (8,546,728) - Net cash provided (used) by operations 52,598 (170,037) 1,452,311 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES: Transfers out (14,444) - (39,858) Transfers in - 24,000 - Net cash provided (used) by noncapital financing activities (14,444) 24,000 (39,858) CASH FLOWS FROM CAPITAL FINANCING ACTIVITIES: Principal payments on capital debt (25,373) (196,298) - Interest and fiscal charges (14,749) (56,881) - Principal payments under capital lease obligation - - - Proceeds from the sale of fixed assets - 7,436 - Acquisition and construction of capital assets - (38,082) - Net cash used by capital financing activities (40,122) (283,825) - CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale and maturities of investment securities 2,234 821,864 499,454 Purchase of investment securities - (413,238) (1,671,430) Interest received on investments 13 3,965 10,371 Net cash provided (used) by investing activities 2,247 412,591 (1,161,605) Net increase (decrease) in cash and cash equivalents 279 (17,271) 250,848 Cash and cash equivalents at beginning of year 1,851 112,862 340,189 Cash and cash equivalents at end of year 2,130 95,591 591,037 Investments, at fair value 16,907 758,548 4,690,081 Cash, cash equivalents and investments, at fair value $ 19,037 $ 854,139 $ 5,281,118

RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES: Operating income (loss) $ (245,588) $ 77,219 $ 759,215 Adjustments: Depreciation expense 24,732 157,077 - Decrease (Increase) in receivables (134) (5,245) 294,255 Increase in inventories (712,953) (4,537) - Decrease in prepaid items 1,658 - 155,918 Decrease in escrow deposits items - - 61,000 Increase (Decrease) in accounts payable 15,863 (419,109) 181,923 Increase (Decrease) in compensated absences (818) 13,567 - Increase in interfund payables 962,562 - - Increase in municipal pension obligation 645 1,134 - Increase in other post employment benefits 6,631 9,857 - Total adjustments 298,186 (247,256) 693,096 Net cash provided (used) by operating activities $ 52,598 $ (170,037) $ 1,452,311

NONCASH CAPITAL AND RELATED FINANCING ACTIVITIES: Decrease in fair value of investments (19) (1,249) (3,075) Capital asset contributions - 30,329 -

88 Exhibit XXV

Total Risk Technology Internal Retention Services Service Fund Fund Funds

$ 2,608,166 $ 8,775,031 $ 46,707,354 (537,503) (2,757,873) (24,991,863) (1,961,098) (3,824,420) (18,078,316) 109,565 2,192,738 3,637,175

- (37,000) (91,302) - 49,083 73,083

- 12,083 (18,219)

- (244,605) (466,276) - (64,521) (136,151) - (860,264) (860,264) - - 7,436 - (64,097) (102,179) - (1,233,487) (1,557,434)

2,942,564 - 4,266,116 (2,904,193) (820,202) (5,809,063) 29,058 1,913 45,320 67,429 (818,289) (1,497,627) 176,994 153,045 563,895 599,628 163,847 1,218,377 776,622 316,892 1,782,272 6,162,759 2,514,644 14,142,939 $ 6,939,381 $ 2,831,536 $ 15,925,211

$ 1,794,019 917,659$ $ 3,302,524

- 1,329,063 1,510,872 - 480 289,356 - - (717,490) - - 157,576 - - 61,000 (1,689,417) (74,673) (1,985,413) 1,615 5,164 19,528 - - 962,562 343 1,845 3,967 3,005 13,200 32,693 (1,684,454) 1,275,079 334,651 $ 109,565 $ 2,192,738 $ 3,637,175

(6,024) (1,408) (11,775) - 228,439 258,768

89 CITY OF DENTON, TEXAS Exhibit XXVI COMBINING STATEMENT OF ASSETS AND LIABILITIES AGENCY FUNDS AS OF SEPTEMBER 30, 2013

Agency Funds Other Total Payroll Developers' Agency Agency Fund Escrow Fund Funds Funds ASSETS: Cash, cash equivalents and investments, at fair value $ 1,346,134 $ 227,951 $ 340,224 $ 1,914,309 Accrued interest - 759 - 759 Other assets - - 78,271 78,271 Total assets $ 1,346,134 $ 228,710 $ 418,495 $ 1,993,339

LIABILITIES: Accounts payable $ 1,346,134 $ 228,710 $ 418,495 $ 1,993,339 Total liabilities $ 1,346,134 $ 228,710 $ 418,495 $ 1,993,339

90 CITY OF DENTON, TEXAS Exhibit XXVII COMBINING STATEMENT OF CHANGES IN ASSETS AND LIABILITIES AGENCY FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2013 Balance Balance October 1, 2012 Additions Deductions September 30, 2013 PAYROLL FUND ASSETS Cash and deposits $ 1,213,680 $ 45,212,600 $ 45,080,146 $ 1,346,134 Total assets $ 1,213,680 $ 45,212,600 $ 45,080,146 $ 1,346,134

LIABILITIES Accounts payable $ 1,213,680 $ 45,212,600 $ 45,080,146 $ 1,346,134 Total liabilities $ 1,213,680 $ 45,212,600 $ 45,080,146 $ 1,346,134

DEVELOPERS' ESCROW FUND ASSETS Cash and deposits $ 226,958 $ 1,301 $ 308 $ 227,951 Accrued interest 817 759 817 759 Total assets $ 227,775 $ 2,060 $ 1,125 $ 228,710

LIABILITIES Accounts payable $ 227,775 $ 2,060 $ 1,125 $ 228,710 Total liabilities $ 227,775 $ 2,060 $ 1,125 $ 228,710

OTHER AGENCY FUNDS ASSETS Cash, cash equivalents and investments, at fair value $ 299,981 $ 1,837,788 $ 1,797,545 $ 340,224 Other assets 82,375 292,560 296,664 78,271 Total assets $ 382,356 $ 2,130,348 $ 2,094,209 $ 418,495

LIABILITIES Accounts payable $ 382,356 $ 2,130,348 $ 2,094,209 $ 418,495 Total liabilities $ 382,356 $ 2,130,348 $ 2,094,209 $ 418,495

TOTAL AGENCY FUNDS ASSETS Cash, cash equivalents and investments, at fair value $ 1,740,619 $ 47,051,689 $ 46,877,999 $ 1,914,309 Accrued interest 817 759 817 759 Other assets 82,375 292,560 296,664 78,271 Total assets $ 1,823,811 $ 47,345,008 $ 47,175,480 $ 1,993,339

LIABILITIES Accounts payable $ 1,823,811 $ 47,345,008 $ 47,175,480 $ 1,993,339 Total liabilities $ 1,823,811 $ 47,345,008 $ 47,175,480 $ 1,993,339

91

92 CITY OF DENTON, TEXAS Exhibit XXVIII CAPITAL ASSETS USED IN THE OPERATION OF GOVERNMENTAL FUNDS COMPARATIVE SCHEDULES BY SOURCE* SEPTEMBER 30, 2012 AND 2013

2013 2012 Governmental funds capital assets: Land $ 13,814,315 $ 13,814,315 Work in progress 28,496,558 19,892,620 Buildings 57,660,509 57,660,509 Plant, machinery and equipment 221,510,615 51,726,037 Infrastructure 58,665,988 210,713,088 Total governmental funds capital assets $ 380,147,985 $ 353,806,569

Investments in governmental funds capital assets by source: General fund $ 179,096,226 $ 170,580,857 Special revenue funds 6,414,037 6,217,006 Capital projects funds 194,637,722 177,008,706 Total governmental funds capital assets $ 380,147,985 $ 353,806,569

*This schedule presents only the capital asset balances related to governmental funds. Accordingly, the capital assets reported in internal service funds are excluded from the above amounts. Generally, the capital assets of internal service funds are included as governmental activities in the statement of net assets.

93 CITY OF DENTON, TEXAS Exhibit XXIX CAPITAL ASSETS USED IN THE OPERATION OF GOVERNMENTAL FUNDS SCHEDULE BY FUNCTION AND ACTIVITY* SEPTEMBER 30, 2013

Plant, Machinery Work and in Function and Activity Land Buildings Equipment Infrastructure Progress Total

General government: Finance $ - $ - $ 23,100 $ - $ - $ 23,100 Legal - - 380,570 - - 380,570 Municipal court/judge/clerks - - 491,777 - - 491,777 Human resources - - 6,643 - 12,611 19,254 City manager/economic development - 808,462 390,195 - 10,440 1,209,097 Facilities management 286,074 15,529,855 7,446,960 570,021 1,931,929 25,764,839 Library - 12,050,477 6,988,395 14,715 - 19,053,587 Building inspections - - 224,498 - 71,389 295,887 Planning/community development - 494,500 485,318 24,057 - 1,003,875 Engineering - - 359,827 769,237 757,293 1,886,357 Code Enforcement - - 173,062 - - 173,062 Gas Well Review - - 62,349 - - 62,349 Total general government 286,074 28,883,294 17,032,694 1,378,030 2,783,662 50,363,754

Public works: Traffic operations - 14,600 1,532,287 17,722,390 2,555,066 21,824,343 Streets 792,665 5,000 4,153,514 187,989,332 16,451,486 209,391,997 Total public works 792,665 19,600 5,685,801 205,711,722 19,006,552 231,216,340

Parks and recreation 9,706,807 16,248,837 10,161,002 14,415,863 2,423,467 52,955,976

Public safety: Fire administration - - 169,450 - - 169,450 Fire operations 2,024,704 12,109,983 11,558,705 5,000 2,571,044 28,269,436 Fire prevention - - 1,163,137 - - 1,163,137 Emergency medical services - - 381,368 - - 381,368 Police - 11,993 12,154,122 - 486,944 12,653,059 Animal services 1,004,065 386,802 359,709 - 1,224,889 2,975,465 Total public safety 3,028,769 12,508,778 25,786,491 5,000 4,282,877 45,611,915

Total governmental funds capital assets $ 13,814,315 $ 57,660,509 $ 58,665,988 $ 221,510,615 $ 28,496,558 $ 380,147,985

*This schedule presents only the capital asset balances related to governmental funds. Accordingly, the capital assets reported in internal service funds are excluded from the above amounts. Generally, the capital assets of internal service funds are included as governmental activities in the statement of net assets.

94 CITY OF DENTON, TEXAS Exhibit XXX CAPITAL ASSETS USED IN THE OPERATION OF GOVERNMENTAL FUNDS SCHEDULE OF CHANGES BY FUNCTION AND ACTIVITY* FOR THE YEAR ENDED SEPTEMBER 30, 2013

Governmental Governmental Funds Capital Funds Capital Assets Assets Function and Activity October 1, 2012 Additions Deductions September 30, 2013

General government: Finance $ 23,100 $ - $ - $ 23,100 Legal 358,150 22,420 - 380,570 Municipal court/judge/clerks 482,608 9,169 - 491,777 Human resources 6,643 - - 6,643 City manager/economic development 1,183,907 14,750 - 1,198,657 Facilities management 23,232,257 600,653 - 23,832,910 Library 18,560,943 492,644 - 19,053,587 Building inspections 237,710 25,777 (38,989) 224,498 Planning/community development 1,003,875 - - 1,003,875 Engineering 1,129,064 - - 1,129,064 Code Enforcement 209,496 15,628 (52,062) 173,062 Gas Well Review 62,349 - - 62,349 Total general government 46,490,102 1,181,041 (91,051) 47,580,092

Public works: Traffic operations 17,647,501 1,705,135 (83,359) 19,269,277 Streets 185,876,176 7,251,238 (186,903) 192,940,511 Total public works 203,523,677 8,956,373 (270,262) 212,209,788

Parks and recreation 45,039,867 5,657,341 (164,699) 50,532,509

Public safety: Fire administration 169,450 - - 169,450 Fire operations 24,551,379 1,604,943 (457,930) 25,698,392 Fire prevention 989,251 173,886 - 1,163,137 Emergency medical services 381,368 - - 381,368 Police 11,056,042 1,452,601 (342,528) 12,166,115 Animal services 1,712,813 37,763 - 1,750,576 Total public safety 38,860,303 3,269,193 (800,458) 41,329,038

Work in progress 19,892,620 19,448,755 (10,844,817) 28,496,558

Total governmental funds capital assets $ 353,806,569 $ 38,512,703 $ (12,171,287) $ 380,147,985

*This schedule presents only the capital asset balances related to governmental funds. Accordingly, the capital assets reported in internal service funds are excluded from the above amounts. Generally, the capital assets of internal service funds are included as governmental activities in the statement of net assets.

95

96 STATISTICAL SECTION

This part of the City of Denton’s comprehensive annual financial report presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the city’s overall financial health.

Contents

Financial Trends These schedules contain trend information to help the reader understand how the city’s financial performance and well-being have changed over time. (Tables 1 – 4)

Revenue Capacity These schedules contain information to help the reader assess the city’s most significant local revenue source, the property tax. These tables do not include the Electric fund information due to confidentiality of information necessary for competitive rates. (Tables 5 – 8)

Debt Capacity These schedules present information to help the reader assess the affordability of the city’s current level of outstanding debt and the city’s ability to issue additional debt in the future. (Tables 9 – 12)

Demographic and Economic Information These schedules offer demographic and economic indicators to help the reader understand the environment within which the city’s financial activities take place. (Tables 13 – 14)

Operating Information These schedules contain service and infrastructure data to help the reader understand how the information in the city’s financial report relates to the services the city provides and the activities it performs. (Tables 15 – 17)

Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year.

97 CITY OF DENTON, TEXAS NET POSITION BY COMPONENT LAST TEN FISCAL YEARS (accrual basis of accounting)

2004 2005 2006 2007 2008 Governmental activities Net investment in capital assets $ 107,754,576 $ 107,112,321 $ 107,410,289 $ 99,858,383 $ 102,040,021 Restricted 296,731 451,046 439,658 886,141 1,454,579 Unrestricted 14,615,294 18,519,185 30,352,691 30,738,026 37,610,966 Total governmental activities net position 122,666,601 126,082,552 138,202,638 131,482,550 141,105,566

Business-type activities Net investment in capital assets 172,589,102 193,657,258 213,074,701 242,015,614 263,325,859 Restricted 35,812,117 30,863,580 30,974,925 31,015,188 33,087,609 Unrestricted 78,543,929 76,726,025 90,843,185 107,837,825 107,545,434 Total business-type activities net position 286,945,148 301,246,863 334,892,811 380,868,627 403,958,902

Primary government Net investment in capital assets 280,343,678 300,769,579 320,484,990 341,873,997 365,365,880 Restricted 36,108,848 31,314,626 31,414,583 31,901,329 34,542,188 Unrestricted 93,159,223 95,245,210 121,195,876 138,575,851 145,156,400 Total primary government net position $ 409,611,749 $ 427,329,415 $ 473,095,449 $ 512,351,177 $ 545,064,468

Source: Comprehensive Annual Financial Reports

98 Table 1

2009 2010 2011 2012 2013

$ 102,110,134 $ 104,636,239 $ 103,073,465 $ 101,784,929 $ 116,146,838 1,947,553 2,894,676 2,839,556 3,460,027 4,116,256 38,252,078 46,480,569 34,590,673 35,005,109 35,136,072 142,309,765 154,011,484 140,503,694 140,250,065 155,399,166

282,463,031 277,356,195 296,006,601 315,479,026 347,780,207 33,380,595 30,598,923 30,454,314 28,559,731 28,654,879 109,826,810 131,497,936 158,120,736 169,653,341 158,145,443 425,670,436 439,453,054 484,581,651 513,692,098 534,580,529

384,573,165 381,992,434 399,080,066 417,263,955 463,927,045 35,328,148 33,493,599 33,293,870 32,019,758 32,771,135 148,078,888 177,978,505 192,711,409 204,658,450 193,281,515 $ 567,980,201 $ 593,464,538 $ 625,085,345 $ 653,942,163 $ 689,979,695

99 CITY OF DENTON, TEXAS CHANGES IN NET POSITION LAST TEN FISCAL YEARS (accrual basis of accounting)

2004 2005 2006 2007 2008 EXPENSES Governmental activities: General government $ 26,411,608 $ 26,675,799 $ 22,165,661 $ 22,145,804 $ 26,408,949 Public safety 30,508,765 33,642,445 36,626,635 42,161,674 43,426,526 Public works 11,053,131 11,986,881 12,485,281 14,008,867 15,448,473 Parks and recreation 9,418,580 9,912,996 10,497,241 11,564,247 12,927,020 Interest expense 4,494,851 4,175,466 4,333,428 4,658,128 5,372,868 Total governmental activities expenses 81,886,935 86,393,587 86,108,246 94,538,720 103,583,836 Business-type activities: Electric system 119,650,157 132,829,976 145,368,132 123,926,967 138,791,009 Water system 21,278,791 22,380,589 26,708,095 25,839,614 26,226,068 Wastewater system 18,528,348 18,808,374 19,027,926 18,785,353 19,413,247 Solid waste 11,301,940 13,168,880 13,454,556 15,451,025 17,065,295 Airport - - - - - Total business-type activities expenses 170,759,236 187,187,819 204,558,709 184,002,959 201,495,619 Total primary government expenses 252,646,171 273,581,406 290,666,955 278,541,679 305,079,455

PROGRAM REVENUES Governmental activities: Charges for services: General government 3,417,657 3,333,866 3,904,941 3,694,869 3,310,592 Public safety 3,382,791 4,965,056 6,023,100 6,160,611 6,461,037 Public works 1,280,423 1,086,387 802,711 800,378 853,091 Parks and recreation 2,143,756 2,613,567 3,234,347 3,220,837 3,292,528 Operating grants and contributions 3,264,777 2,995,978 3,712,817 2,991,224 3,306,325 Capital grants and contributions 14,046,071 7,426,194 5,536,786 5,399,220 7,308,398 Total governmental activities program revenues 27,535,475 22,421,048 23,214,702 22,267,139 24,531,971 Business-type activities: Charges for services: Electric system 111,742,276 129,343,037 149,419,800 128,973,477 138,467,222 Water system 24,331,555 24,890,289 33,436,651 27,830,767 30,843,797 Wastewater system 19,210,529 20,423,424 23,670,458 22,634,454 23,184,369 Solid waste 13,172,556 13,600,512 14,624,132 15,967,051 16,660,375 Airport - - - - - Capital grants and contributions 8,415,470 9,808,842 10,022,654 8,440,634 5,742,139 Total business-type activities program revenues 176,872,386 198,066,104 231,173,695 203,846,383 214,897,902 Total primary government program revenues 204,407,861 220,487,152 254,388,397 226,113,522 239,429,873 NET (EXPENSE)/REVENUE Governmental activities (54,351,460) (63,972,539) (62,893,544) (72,271,581) (79,051,865) Business-type activities 6,113,150 10,878,285 26,614,986 19,843,424 13,402,283 Total primary government program net expense $ (48,238,310) $ (53,094,254) $ (36,278,558) $ (52,428,157) $ (65,649,582)

100 Table 2

2009 2010 2011 2012 2013

$ 27,482,131 $29,569,535 $28,198,604 $29,421,275 $27,686,735 45,368,783 47,998,906 49,154,371 52,496,010 52,906,985 15,816,065 15,767,926 16,089,302 18,662,029 18,663,884 12,755,037 12,854,336 12,421,893 12,968,426 13,714,245 5,733,268 5,121,329 5,046,724 4,755,938 4,464,309 107,155,284 111,312,032 110,910,894 118,303,678 117,436,158

124,901,262 114,903,831 117,769,599 122,428,808 146,246,880 28,636,190 27,219,944 28,293,109 26,822,690 26,814,020 19,909,229 20,560,600 20,455,424 20,890,614 21,467,088 18,036,331 18,028,832 20,008,746 21,695,322 21,730,796 - - 1,326,397 1,472,155 1,608,989 191,483,012 180,713,207 187,853,275 193,309,589 217,867,773 298,638,296 292,025,239 298,764,169 311,613,267 335,303,931

4,792,856 3,551,733 4,108,687 3,873,349 4,105,648 6,554,619 6,431,007 7,075,328 7,069,770 7,767,083 586,377 1,425,683 525,024 1,086,269 1,159,605 2,990,921 3,372,579 3,964,517 3,951,433 4,059,383 2,281,136 3,407,085 4,270,697 2,598,157 3,118,105 3,641,296 15,206,424 7,497,908 4,292,468 14,671,571

20,847,205 33,394,511 27,442,161 22,871,446 34,881,395

128,511,236 119,156,314 131,435,554 132,352,950 136,655,892 30,067,774 28,407,954 36,790,720 36,265,061 37,586,306 22,342,174 21,917,651 23,338,841 24,570,095 26,588,179 18,386,616 18,432,245 20,979,967 22,944,272 24,468,976 - - 3,203,426 1,909,619 1,880,812 8,099,722 5,153,568 5,053,024 4,317,463 9,877,185

207,407,522 193,067,732 220,801,532 222,359,460 237,057,350

228,254,727 226,462,243 248,243,693 245,230,906 271,938,745

(86,308,079) (77,917,521) (83,468,733) (95,432,232) (82,554,763) 15,924,510 12,354,525 32,948,257 29,049,871 19,189,577

$ (70,383,569) $ (65,562,996) $ (50,520,476) $ (66,382,361) $ (63,365,186) (continued)

101 CITY OF DENTON, TEXAS CHANGES IN NET POSITION LAST TEN FISCAL YEARS (accrual basis of accounting)

2004 2005 2006 2007 2008 GENERAL REVENUES AND OTHER CHANGES IN NET POSITION Governmental activities: Taxes: Property tax $ 23,149,916 $ 26,678,783 $ 30,000,847 $ 34,756,356 $ 41,499,791 Sales tax1 17,871,380 18,998,057 20,343,413 20,653,932 21,440,839 Franchise tax 13,215,882 14,250,484 16,499,994 15,197,943 16,197,042 Hotel occupancy tax 911,505 988,573 1,132,500 1,268,627 1,369,667 Beverage tax 208,855 215,872 257,950 294,623 319,541 Bingo tax 21,127 25,466 24,260 23,708 23,653 Investment income 1,332,568 1,148,517 1,967,473 3,632,744 3,287,282 Miscellaneous 4,213,163 4,218,245 3,892,087 3,199,131 4,214,028 Transfers 1,410,947 864,493 895,106 (13,475,571) 323,038 Total governmental activities 62,335,343 67,388,490 75,013,630 65,551,493 88,674,881 Business-type activities: Investment income 2,698,551 3,252,342 7,298,870 12,108,632 7,817,671 Miscellaneous 914,087 1,035,581 627,198 548,189 195,055 Transfers (1,410,947) (864,493) (895,106) 13,475,571 (323,038) Total business-type activities 2,201,691 3,423,430 7,030,962 26,132,392 7,689,688 Total primary government 64,537,034 70,811,920 82,044,592 91,683,885 96,364,569

CHANGE IN NET POSITION Governmental activities 7,983,883 3,415,951 12,120,086 (6,720,088) 9,623,016 Business-type activities 8,314,841 14,301,715 33,645,948 45,975,816 21,091,971 Total primary government $ 16,298,724 $ 17,717,666 $ 45,766,034 $ 39,255,728 $ 30,714,987

Source: Comprehensive Annual Financial Reports

1 Sales tax figures in fiscal years 2010 and prior present amounts net of economic incentive payments.

102 Table 2

2009 2010 2011 2012 2013

$ 43,187,433 $43,144,645 $44,144,844 $45,174,160 $47,275,552 20,466,772 20,484,954 22,871,282 25,886,940 26,522,473 15,669,981 17,457,994 19,324,244 19,336,701 19,901,459 1,239,261 1,302,617 1,513,468 1,555,347 1,910,125 338,700 347,940 359,671 345,032 392,192 22,915 22,611 21,963 20,889 20,774 2,413,339 684,709 459,615 581,849 354,089 3,327,758 5,690,969 2,370,682 1,390,398 1,428,907 846,119 482,801 (10,430,082) 887,287 (101,707) 87,512,278 89,619,240 80,635,687 95,178,603 97,703,864

6,075,453 1,653,515 1,472,078 1,638,830 1,085,856 557,690 257,379 278,180 (690,967) 511,291 (846,119) (482,801) 10,430,082 (887,287) 101,707 5,787,024 1,428,093 12,180,340 60,576 1,698,854 93,299,302 91,047,333 92,816,027 95,239,179 99,402,718

1,204,199 11,701,719 (2,833,046) (253,629) 15,149,101 21,711,534 13,782,618 45,128,597 29,110,447 20,888,431 $ 22,915,733 $ 25,484,337 $ 42,295,551 $ 28,856,818 $ 36,037,532

103 CITY OF DENTON, TEXAS FUND BALANCES OF GOVERNMENTAL FUNDS LAST TEN FISCAL YEARS (modified accrual basis of accounting)

2004 2005 2006 2007 General fund Reserved for encumbrances $ 112,292 $ 210,818 $ 242,088 $ - Unreserved, designated - - 1,550,000 4,360,649 Committed to streets - - - - Assigned to use of reserves - - - - Unreserved, undesignated, unassigned 9,504,988 9,718,368 13,264,027 18,199,161 Total general fund 9,617,280 9,929,186 15,056,115 22,559,810

All other governmental funds Reserved for: Debt service 296,731 451,046 439,658 886,141 Capital projects 26,548,130 27,671,252 32,840,640 48,971,610 Encumbrances - - - - Unreserved, undesignated reported in: Special revenue funds 3,607,200 3,614,489 5,534,701 8,896,111 Restricted for: Debt Service - - - - Parks and recreation - - - - Streets and drainage projects - - - - Other capital projects - - - - Other grants and purposes - - - - Committed to: Streets - - - - Parks and recreation - - - - Other purposes - - - - Assigned to: Streets and drainage projects - - - - Other capital projects - - - - Other purposes - - - - Unassigned - - - - Total all other governmental funds $ 30,452,061 $ 31,736,787 $ 38,814,999 $ 58,753,862

Source: Comprehensive Annual Financial Reports

1The City adopted GASB Statement No. 54 which changed the classification of governmental fund balances to nonspendable, restricted, committed, assigned, and unassigned.

104 Table 3

2008 2009 2010 20111 2012 2013

$ 123,696 $ - $ - $ - $ - $ ------921,779 - - - - - 668,116 664,894 1,377,039 25,253,797 22,794,955 21,526,779 22,834,108 25,171,186 24,378,139 25,377,493 22,794,955 21,526,779 24,424,003 25,836,080 25,755,178

1,954,955 2,414,288 3,354,535 - - - 57,887,531 35,339,606 44,970,571 - - - 5,515 - - - - -

9,534,627 16,435,449 13,838,425 - - -

- - - 3,279,080 3,824,438 4,572,807 - - - 9,561,244 10,496,887 9,220,953 - - - 21,857,670 22,004,377 23,759,574 - - - 5,907,877 8,444,073 12,231,061 - - - 1,223,822 1,789,241 2,223,626

- - - - 991,942 1,330,184 - - - 1,427,717 570,534 590,062 - - - 1,867,639 1,468,837 1,801,661

- - - 724,241 - 144,485 - - - 1,332,105 3,003,344 2,599,101 - - - 77,341 49,026 56,900 - - - (758,734) (91,145) (8,901) $ 69,382,628 $ 54,189,343 $ 62,163,531 $ 46,500,002 $ 52,551,554 $ 58,521,513

105 CITY OF DENTON, TEXAS CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS LAST TEN FISCAL YEARS (modified accrual basis of accounting)

2004 2005 2006 2007 REVENUES: Taxes: Property tax $ 22,986,590 $ 26,640,930 $ 30,019,657 $ 34,662,336 Sales tax1 17,684,899 18,998,058 20,343,413 20,653,932 Hotel occupancy tax 911,505 988,573 1,132,500 1,268,627 Beverage tax 208,855 215,872 257,950 294,623 Bingo tax 21,127 25,465 24,260 23,708 Licenses and permits 1,700,044 1,235,337 1,383,169 1,097,323 Franchise fees 13,215,882 14,250,484 16,499,994 15,197,943 Fines and forfeitures 3,338,979 3,959,476 4,639,922 5,065,049 Fees for services 10,022,001 8,255,342 6,779,904 7,624,265 Investment revenue 1,332,568 1,148,517 1,967,473 3,632,744 Intergovernmental 6,655,240 5,443,517 5,254,058 3,852,513 Miscellaneous 5,012,607 1,931,762 3,424,786 3,006,751 Total revenues 83,090,297 83,093,333 91,727,086 96,379,814

EXPENDITURES: General government 24,894,438 22,272,681 20,539,006 20,158,739 Public safety 29,689,083 33,057,120 35,813,329 37,755,272 Public works 4,752,409 5,247,546 5,206,224 5,624,287 Parks and recreation 8,404,074 9,176,686 9,548,416 10,234,361 Capital outlay 13,463,619 11,760,356 9,056,102 17,237,922 Debt service: Principal retirement 5,502,897 5,642,487 5,914,819 6,808,439 Advance refunding escrow - 216,148 - - Bond issuance costs - 293,668 70,745 314,286 Interest and other charges 4,544,502 4,018,765 4,210,628 4,389,307 Total expenditures 91,251,022 91,685,457 90,359,269 102,522,613 Excess (deficiency) of revenues over (under) expenditures (8,160,725) (8,592,124) 1,367,817 (6,142,799)

OTHER FINANCING SOURCES (USES): Refunding bonds issued - 7,316,688 - 24,780,000 Payment to refunded bond escrow agent - (7,491,938) - - Issuance of long-term debt 11,805,000 9,070,000 9,550,000 - Premium on debt issuance - 404,361 49,644 528,630 Insurance recoveries - - - - Proceeds of capital lease - - - 1,108,131 Sale of capital assets - - - - Transfers in 3,496,765 3,341,047 4,095,018 12,323,132 Transfers (out) (2,162,259) (2,451,402) (2,857,338) (5,154,536) Total other financing sources (uses) 13,139,506 10,188,756 10,837,324 33,585,357

NET CHANGE IN FUND BALANCES $ 4,978,781 $ 1,596,632 $ 12,205,141 $ 27,442,558

Debt service as a percentage of noncapital expenditures 12.9% 12.7% 12.5% 13.5%

Source: Comprehensive Annual Financial Reports

1 Sales tax figures in fiscal years 2010 and prior present amounts net of economic incentive payments.

106 Table 4

2008 2009 2010 2011 2012 2013

$ 41,436,012 $ 42,980,209 $ 43,326,427 $ 44,147,706 $ 45,116,485 $ 47,330,522 21,440,839 20,466,772 20,484,954 22,871,282 25,886,940 26,522,473 1,369,667 1,239,261 1,302,617 1,513,468 1,555,347 1,910,125 319,541 338,700 347,940 359,671 345,032 392,192 23,653 22,915 22,611 21,963 20,889 20,774 1,080,580 1,265,733 1,198,552 1,460,548 1,436,215 1,446,580 16,197,042 15,669,981 17,457,994 19,324,244 19,336,701 19,901,459 5,262,189 4,972,905 4,828,159 4,929,110 5,462,133 5,342,966 7,951,665 7,595,440 12,244,258 8,395,583 8,519,763 8,683,278 3,287,282 2,415,817 684,709 459,615 581,849 354,089 8,094,307 4,049,439 16,639,038 10,896,063 6,739,864 9,914,834 3,778,673 3,183,891 1,002,133 1,911,634 1,171,618 1,322,762 110,241,450 104,201,063 119,539,392 116,290,887 116,172,836 123,142,054

24,110,329 25,223,041 26,909,485 25,784,296 24,359,018 25,047,062 40,855,112 42,540,423 44,398,442 46,561,747 48,118,051 51,303,825 6,596,191 6,753,314 6,517,717 7,483,926 8,608,554 9,425,446 11,557,168 11,444,577 11,072,061 10,913,450 11,315,951 12,274,908 23,275,703 21,863,647 14,164,662 12,937,053 10,983,987 20,038,064

8,479,136 9,479,243 9,277,804 9,670,892 9,770,660 10,017,719 - 148,575 - - 130,111 110,145 530,137 105,392 78,919 29,156 163,811 181,308 5,261,346 5,570,770 5,095,245 5,070,734 4,758,305 4,552,348 120,665,122 123,128,982 117,514,335 118,451,254 118,208,448 132,950,825

(10,423,672) (18,927,919) 2,025,057 (2,160,367) (2,035,612) (9,808,771)

24,595,000 6,120,000 3,460,000 - 10,173,303 6,182,405 (25,117,336) (6,265,255) (3,774,764) - (11,432,581) (6,547,180) 22,230,000 - 6,905,000 5,680,000 8,020,000 14,765,000 937,755 246,012 498,682 32,628 2,016,193 1,232,674 - - - - 19,961 - 69,897 - - - - - 582,087 44,865 160,495 303,307 153,127 148,417 2,406,678 10,286,496 5,815,769 1,968,253 4,741,735 2,980,448 (1,833,960) (9,280,022) (8,384,227) (7,915,382) (4,192,497) (3,063,936) 23,870,121 1,152,096 4,680,955 68,806 9,499,241 15,697,828

$ 13,446,449 $ (17,775,823) $ 6,706,012 $ (2,091,561) $ 7,463,629 $ 5,889,057

14.7% 15.1% 14.0% 14.0% 13.8% 13.2%

107 CITY OF DENTON, TEXAS Table 5 ASSESSED VALUE AND ESTIMATED ACTUAL VALUE OF TAXABLE PROPERTY LAST TEN FISCAL YEARS

Estimated Market Value Less: Total Taxable Total Direct Fiscal Real Personal Tax-Exempt Assessed Tax Year Property Property Property Value Rate 2004 4,129,344,174 659,848,833 746,990,136 4,042,202,871 0.54815 2005 4,468,428,305 695,572,385 789,056,859 4,374,943,831 0.59815 2006 4,876,565,660 733,405,037 820,593,886 4,789,376,811 0.60815 2007 5,475,770,871 952,273,984 986,815,946 5,441,228,909 0.62652 2008 6,159,567,238 969,219,527 1,039,286,990 6,089,499,775 0.66652 2009 6,443,103,507 938,547,047 1,090,291,442 6,291,359,112 0.66652 2010 6,619,118,472 922,539,801 1,213,749,251 6,327,909,022 0.66652 2011 6,744,096,534 879,202,496 1,393,181,072 6,230,117,958 0.68975 2012 6,903,311,493 933,580,101 1,424,516,590 6,412,375,004 0.68975 2013 7,083,330,127 1,125,646,116 1,492,264,875 6,716,711,368 0.68975

Source: Denton Central Appraisal District

108 CITY OF DENTON, TEXAS Table 6 PROPERTY TAX RATES (PER $100 OF ASSESSED VALUE) DIRECT AND OVERLAPPING1 GOVERNMENTS LAST TEN FISCAL YEARS

Overlapping Rates Denton City of Denton Independent Total Direct Fiscal Operating Debt Service Total Denton School & Overlapping Year Rate Rate Direct Rate County District Rates 2004 0.34928 0.19887 0.54815 0.247170 1.86400 2.659320 2005 0.39928 0.19887 0.59815 0.254800 1.86400 2.716950 2006 0.42928 0.17887 0.60815 0.246480 1.86400 2.718630 2007 0.44765 0.17887 0.62652 0.231920 1.76400 2.622440 2008 0.44765 0.21887 0.66652 0.235770 1.49000 2.392290 2009 0.44765 0.21887 0.66652 0.249800 1.49000 2.406320 2010 0.44765 0.21887 0.66652 0.249800 1.49000 2.406320 2011 0.47088 0.21887 0.68975 0.273900 1.53000 2.493650 2012 0.47088 0.21887 0.68975 0.277357 1.53000 2.497107 2013 0.47088 0.21887 0.68975 0.282867 1.53000 2.502617

Source: Denton County Tax Office Denton County Central Appraisal District

1Overlapping rates are those of local and county governments that apply to property owners with the City of Denton.

109

110 CITY OF DENTON, TEXAS Table 7 PRINCIPAL PROPERTY TAXPAYERS CURRENT YEAR AND NINE YEARS AGO

2013 2004 Percentage of Percentage of Taxable Total Taxable Taxable Total Taxable Assessed Assessed Assessed Assessed Name of Taxpayer Value Value1 Name of Taxpayer Value Value2 Columbia Medical Center of Denton PACCAR Inc (Denton Regional (Peterbilt) $ 86,165,759 1.28% Hospital) $ 59,830,053 1.45% Columbia Medical Center of Denton (Denton Regional PACCAR Inc Hospital) 78,858,310 1.17% (Peterbilt) 55,462,035 1.35% Inland Western Crossing (Denton Verizon Southwest Crossing) 48,545,001 0.72% (Telephone Company) 43,136,755 1.05%

Cypress Denton Station LTD (Forum Anderson at Denton Station Merchandisers Apartments) 41,777,266 0.62% (Distribution Center) 38,905,727 0.95%

Flowers Baking Triad Denton Hospital Company of Denton (Hospital and LLC 33,140,418 0.49% professional building) 36,990,083 0.90% Verizon Southwest (Telephone United Copper (Copper Company) 28,442,640 0.42% Wire Plant) 29,703,148 0.72% HRA University Courtyard LLC (University James Wood Motors Courtyard (Automobile Apartments) 28,000,000 0.42% Dealership) 26,585,528 0.65% Enervest Operating Tetra Pak, Inc. LLC (Energy (Packaging Company) 27,968,770 0.42% Manufacturer) 24,360,293 0.59%

DP Funding Corp (The Retreat at Wal-Mart Supercenter Denton apartments) 26,292,705 0.39% (Retail) 19,579,184 0.48%

Anderson Merchandisers LP Acme Brick (Brick (Distribution Center) 25,262,921 0.38% Manufacturing) 18,833,157 0.46% Total $ 424,453,790 6.32% Total $ 353,385,963 8.59%

Source: Denton Central Appraisal District

1Total taxable assessed value for tax year 2012 (fiscal year 2013) is $6,716,711,368 2Total taxable assessed value for tax year 2003 (fiscal year 2004) is $4,112,454,803

111 CITY OF DENTON, TEXAS PROPERTY TAX LEVIES AND COLLECTIONS LAST NINE FISCAL YEARS

Taxes Levied Adjustments Adjusted Collected Within the Within the to Levy in Taxes Levied Fiscal Year of the Levy Collections Total Collections to Date Fiscal Fiscal Year Subsequent for the Percentage in Subsequent Year of the Levy Years Fiscal Year Amount of Levy Years 2005 $ 26,457,399 $ 170,608 $ 26,628,007 $ 26,016,239 97.70% $ 553,737 2006 29,545,033 126,882 29,671,915 29,162,978 98.28% 457,414 2007 34,273,862 331,982 34,605,844 33,872,404 97.88% 676,493 2008 40,816,256 47,282 40,863,538 40,354,528 98.75% 392,119 2009 43,086,123 57,423 43,143,546 42,423,707 98.33% 564,467 2010 42,898,414 38,722 42,937,136 42,448,364 98.86% 342,263 2011 43,890,121 (24,588) 43,865,533 43,447,508 99.05% 272,198 2012 44,856,277 (26,879) 44,829,398 44,461,501 99.18% 192,674 2013 46,965,495 - 46,965,495 46,638,975 99.30% -

Source: Denton Central Appraisal District Only nine years of data included due to inability to obtain correct data from previous tax software.

112 Table 8

Total Collections to Date Percentage Amount of Levy $ 26,569,976 99.78% 29,620,392 99.83% 34,548,897 99.84% 40,746,647 99.71% 42,988,174 99.64% 42,790,627 99.66% 43,719,706 99.67% 44,654,175 99.61% 46,638,975 99.30%

113 CITY OF DENTON, TEXAS RATIO OF OUTSTANDING DEBT BY TYPE LAST TEN FISCAL YEARS

Governmental Activities Business-Type Activities General Certificates General Certificates Fiscal Obligation of Other Revenue Obligation of Other Year Bonds Obligation Obligations Bonds Bonds Obligation Obligations 2004 55,893,370 40,540,162 1,244,678 293,105,000 2,046,630 11,325,838 3,141,222 2005 58,870,849 41,791,588 2,210,846 281,120,000 3,904,151 9,233,412 3,141,222 2006 58,742,900 46,700,000 3,559,742 277,305,000 3,582,100 11,975,000 3,141,222 2007 70,650,317 51,355,100 2,393,684 281,750,000 3,099,683 13,889,900 7,032,986 2008 80,814,594 55,097,550 1,819,298 282,200,000 4,865,406 12,952,450 5,713,041 2009 77,358,650 48,611,150 2,769,671 266,705,000 4,366,350 11,243,850 3,161,549 2010 77,314,650 45,727,950 1,771,952 209,885,000 39,600,350 126,207,050 1,824,177 2011 73,395,650 43,036,419 1,879,906 187,525,000 47,209,350 150,553,581 1,279,130 2012 80,013,439 33,910,342 1,891,895 156,855,000 59,301,561 181,314,658 713,408 2013 80,719,761 37,514,485 983,249 144,225,000 55,970,239 222,955,515 363,487

Source: Comprehensive Annual Financial Reports

Note: Details regarding the City's outstanding debt can be found in the notes to the financial statements. 1See Table 13 for personal income and population data.

114 Table 9

Total Percentage Primary of Personal Per Government Income1 Capita1 407,296,900 0.01852% 4,071.91 400,272,068 0.01740% 3,869.76 405,005,964 0.01665% 3,790.66 430,171,670 0.01778% 3,947.25 443,462,339 0.01754% 3,989.41 414,216,220 0.01678% 3,653.25 502,331,129 0.01916% 4,386.52 504,879,036 0.01926% 4,408.77 514,000,303 0.02065% 4,443.99 542,731,736 0.01960% 4,623.05

115 CITY OF DENTON, TEXAS Table 10 RATIO OF GENERAL BONDED DEBT OUTSTANDING LAST TEN FISCAL YEARS

General Bonded Debt Outstanding Less: Amounts Percentage of General Certificates Less: Amounts Payable from Actual Taxable Fiscal Obligation of Available in Debt Business-type Value of Per Year Bonds Obligation Service Fund Activity Debt Total Property1 Capita2 2004 57,940,000 51,866,000 296,731 13,372,468 96,136,801 2.38% 995.04 2005 62,775,000 51,025,000 451,046 13,137,563 100,211,391 2.29% 1,001.85 2006 62,325,000 58,675,000 439,658 15,557,100 105,003,242 2.19% 1,015.15 2007 73,750,000 65,245,000 886,141 16,989,583 121,119,276 2.23% 1,133.62 2008 85,680,000 68,050,000 1,954,955 17,817,856 133,957,189 2.20% 1,229.19 2009 81,725,000 59,855,000 2,414,288 15,610,200 123,555,512 1.96% 1,111.51 2010 116,915,000 171,935,000 3,354,535 165,807,400 119,688,065 1.89% 1,055.61 2011 120,605,000 193,590,000 3,279,080 197,762,931 113,152,989 1.82% 988.09 2012 139,315,000 215,225,000 3,824,438 240,616,219 110,099,343 1.72% 951.91 2013 136,690,000 260,470,000 4,572,807 278,925,754 113,661,439 1.69% 968.18

Source: Comprehensive Annual Financial Reports

Note: Details regarding the City's outstanding debt can be found in the notes to the financial statements. 1See Table 5 for property value data. 2See Table 13 for population data.

116 CITY OF DENTON, TEXAS Table 11 DIRECT AND OVERLAPPING GOVERNMENTAL ACTIVITIES DEBT AS OF SEPTEMBER 30, 2013

Estimated Estimated Share of Debt Percentage Overlapping Governmental Unit Outstanding Applicable1 Debt

Debt repaid with property taxes:

Denton Independent School District $ 608,536,278 63.32% $ 385,325,171 Denton County 553,915,000 11.99% 66,414,409 Argyle Independent School District 53,388,027 9.17% 4,895,682 Aubrey Independent School District 52,125,148 0.58% 302,326 Krum Independent School District 46,344,033 3.79% 1,756,439 Pilot Point Independent School District 18,243,268 0.07% 12,770 Ponder Independent School District 27,590,000 2.49% 686,991 Sanger Independent School District 26,226,810 1.65% 432,742

Subtotal, overlapping debt 459,826,530

City of Denton, direct debt 100.00% 119,217,495

Total direct and overlappping debt $ 579,044,025

Source: Compiled by First Southwest Company using data from the "Texas Municipal Report" prepared for the Municipal Advisory Council. Note: Overlapping governments are those that coincide, at least in part, with the geographic boundaries of the city. This schedule estimates the portion of the outstanding debt of those overlapping governments that is borne by the residents and businesses of the City of Denton. This process recognizes that, when considering the City of Denton's ability to issue and repay long-term debt, the entire debt burden borne by the residents and businesses should be taken into account. However, this does not imply that every taxpayer is a resident, and therefore responsible for repaying the debt, of each overlapping government.

1The percentage of overlapping debt applicable is estimated using taxable assessed property values. Applicable percentages were estimated by determining the portion of the overlapping government's taxable assessed value that is within the City of Denton's boundaries and dividing it by the overlapping government's total taxable assessed value.

117 CITY OF DENTON, TEXAS PLEDGED REVENUE COVERAGE LAST TEN FISCAL YEARS

Utility System1 Revenue Bonds

Less: Add: Fair Market Less: Franchise Fees Value Operating and Return Adjustment Expenses on Investment Fiscal Operating Investment to Investment Impact Fee Before Paid to Year Revenue Revenue Revenue2 Revenue Depreciation General Fund3 2004 148,512,689 2,618,296 (1,523,523) 6,771,671 134,885,329 9,596,617 2005 170,450,120 3,114,254 (2,027,258) 4,206,630 150,549,007 10,922,442 2006 200,970,560 7,061,556 721,058 5,556,349 166,537,867 12,839,184 2007 173,879,713 11,390,142 2,710,742 5,558,985 142,890,603 11,283,647 2008 185,874,450 7,458,605 69,292 6,620,938 158,245,885 11,862,151 2009 176,464,357 5,817,918 930,936 4,456,827 147,392,056 11,325,647 2010 166,295,694 1,593,161 (550,830) 3,186,225 137,201,402 12,828,293 2011 186,359,226 1,340,539 (66,712) 5,205,889 136,774,866 14,304,393 2012 189,645,277 1,477,452 110,626 3,542,829 139,801,421 14,414,769 2013 197,126,041 983,424 (227,534) 3,704,336 164,688,198 14,582,800

Source: Comprehensive Annual Financial Reports

1The Utility System includes the Electric, Water, and Wastewater funds. 2For the coverage calculation, the fair market adjustment to the value of investments is excluded. 3For the coverage calculation, franchise fees and return on investment payments to the General Fund are excluded from operating expenses. 4Revenue bond covenants require a times coverage of 1.25 or greater. 5Total times coverage provided to assess total bond debt related to the Utility System.

118 Table 12

Certificate of Obligation & Net Revenue Bond Debt General Obligation Bond Debt Total Available Times Times Times Revenue Principal Interest Coverage4 Principal Interest Coverage Coverage5 34,137,467 11,255,000 15,979,950 1.25 - - N/A 1.25 40,171,697 12,545,000 14,429,925 1.49 - - N/A 1.49 59,168,724 12,330,000 13,798,811 2.26 - - N/A 2.26 56,511,142 13,325,000 12,265,461 2.21 - - N/A 2.21 53,500,967 14,840,000 13,088,928 1.92 - - N/A 1.92 49,741,757 15,670,000 13,073,992 1.73 - - N/A 1.73 47,252,801 15,935,000 12,267,799 1.68 - - N/A 1.68 70,501,893 13,180,000 9,208,682 3.15 4,610,000 7,315,189 5.91 2.05 69,168,280 8,460,000 7,982,284 4.21 11,880,000 7,477,233 3.57 1.93 51,935,937 12,630,000 7,028,800 2.64 9,940,000 9,115,348 2.73 1.34

119 CITY OF DENTON, TEXAS Table 13 DEMOGRAPHIC AND ECONOMIC STATISTICS LAST TEN FISCAL YEARS

Fiscal Estimated Personal Per Capita Median Grade School University Unemployment Year Population1 Income Income2 Age2 Enrollment3 Enrollment4 Rate5 2004 96,616 2,118,982,112 21,932 27.1 16,932 39,618 5.8% 2005 100,026 2,199,071,610 21,985 27.1 18,395 41,204 3.3% 2006 103,436 2,300,106,332 22,237 27.1 19,701 42,408 3.5% 2007 106,843 2,431,746,680 22,760 27.1 20,880 43,133 3.4% 2008 108,980 2,419,464,980 22,201 27.9 22,221 43,770 4.4% 2009 111,160 2,527,667,240 22,739 28.8 22,761 45,658 6.5% 2010 113,383 2,467,894,378 21,766 28.9 24,047 47,236 6.3% 2011 114,517 2,621,408,647 22,891 28.9 24,901 47,720 6.7% 2012 115,662 2,489,161,902 21,521 27.0 25,791 48,227 5.0% 2013 117,397 2,769,630,024 23,592 26.9 26,339 48,584 4.9%

Sources: 1City of Denton Planning and Development Department estimate. Prior population figures have been adjusted to reflect the 2010 census data. 2United States Census and Denton Chamber of Commerce 3Denton Independent School District 4University of North Texas' and Texas Woman's University's Denton campus enrollment 5Texas Workforce Commission estimate

120 CITY OF DENTON, TEXAS Table 14 PRINCIPAL EMPLOYERS CURRENT YEAR AND NINE YEARS AGO

2013 2004

Percentage Percentage of Total City of Total City Name of Employer Employees Employment Name of Employer Employees Employment

University of North Texas 8,887 14.12% University of North Texas 6,995 13.98%

Denton Independent School Denton Independent 3,300 5.24% 2,030 4.06% District School District

Peterbilt Motors- 2,100 3.34% Peterbilt Motors 1,800 3.60% Headquarters & Plant

Texas Woman's University 1,787 2.84% Denton State School 1,430 2.86%

Denton County Denton County 1,554 2.47% 1,200 2.40% (in Denton) (in Denton)

Denton State School 1,500 2.38% City of Denton 1,200 2.40%

Texas Woman's City of Denton 1,401 2.23% 1,000 2.00% University

Federal Emergency Denton Regional Medical 1,100 1.75% 800 1.60% Management Agency Center

Presbyterian Hospital of Federal Emergency 1,074 1.71% 800 1.60% Denton Management Agency

Denton Regional Medical Denton Community 911 1.45% 500 1.00% Center Hospital

Total 23,614 37.53% Total 17,755 35.50%

Source: Office of Economic Development & Denton Chamber of Commerce

121 CITY OF DENTON, TEXAS FULL-TIME EQUIVALENT CITY GOVERNMENT EMPLOYEES BY FUNCTION/PROGRAM LAST TEN FISCAL YEARS

Full-time Equivalent Employees for Fiscal Year Function / Program 2004 2005 2006 2007 2008

General government 202.75 211.75 192.50 192.38 197.38 Public safety Police 183.73 198.23 206.23 212.23 217.23 Fire 152.25 160.25 162.25 162.25 162.25 Animal services 8.00 8.00 8.00 8.00 8.00 Public works 84.00 77.00 37.00 38.00 39.00 Parks and recreation 152.34 149.62 141.85 142.07 144.15 Electric system 109.50 110.50 110.50 112.00 120.50 Water system 120.00 130.00 161.75 164.50 165.00 Wastewater system 80.12 83.22 83.12 82.87 83.37 Solid waste 88.50 82.50 85.00 87.00 88.00 Airport - - - - - Materials management 15.00 14.00 12.50 12.50 12.50 Fleet services 19.00 16.00 17.00 18.00 19.00 Technology services 33.75 29.75 26.00 24.50 25.00 Risk Retention - - - 5.00 5.00 Total 1,248.94 1,270.82 1,243.70 1,261.30 1,286.38

Source: City of Denton Budget Office

122 Table 15

Full-time Equivalent Employees for Fiscal Year 2009 2010 2011 2012 2013

208.38 212.13 213.50 223.75 229.75

217.23 217.23 222.23 217.23 219.23 163.25 163.25 163.25 163.25 167.75 8.00 8.00 8.00 9.00 11.00 39.00 39.00 39.00 41.00 44.00 144.15 143.08 142.58 141.08 143.35 125.00 129.50 129.50 131.50 143.00 160.50 158.00 158.50 158.00 154.00 84.87 86.37 88.37 92.37 97.25 93.50 93.50 98.50 105.50 115.00 - - 5.00 5.50 6.50 13.50 13.50 13.50 12.00 13.00 21.00 21.00 21.00 22.00 22.00 25.00 25.00 26.00 27.00 29.00 5.00 5.00 5.00 6.00 6.00 1,308.38 1,314.56 1,333.93 1,355.18 1,400.83

123 CITY OF DENTON, TEXAS OPERATING INDICATORS BY FUNCTION/PROGRAM LAST TEN FISCAL YEARS

Fiscal Year Function / Program 2004 2005 2006 2007 Public Safety Police Calls for service 69,312 73,154 73,346 74,397 Traffic citations issued 34,804 36,757 39,483 31,131 Fire Fire calls for service 2,917 3,013 3,495 3,539 EMS calls for service 7,012 6,527 6,840 6,544 Inspections (Businesses) 3,000 3,727 3,882 3,144 Animal Services Animals sheltered 5,166 4,320 4,443 5,427 Animals adopted, transferred, or returned 1,777 2,091 2,167 2,297 Public Works Street repaving (lane miles) 32.41 19.44 16.41 23.38 Pot holes repaired 4,004 5,479 3,971 8,153 Cutouts base failures (square feet) 79,010 124,442 171,543 44,566 Crack seal maintenance (linear feet) NA 40,338 79,314 42,624 Parks and Recreation Attendance Leisure Services 981,883 952,866 985,778 1,048,500 Water Park 107,198 141,495 162,039 163,000 Total Acres Maintained 2,190 2,208 2,262 2,293 Water System Number of customers 25,303 26,715 27,884 28,898 Annual finished water production (in thousand gallons) 5,369,957 5,901,750 7,097,403 5,671,124 Wastewater System Number of customers 23,550 24,894 26,079 27,185 Annual wastewater discharge (in thousand gallons) 4,967,440 5,039,240 4,428,700 5,174,100 Solid Waste Number of customers (residential and commercial) 25,154 26,062 27,805 28,954 MSW Landfilled (tons) 122,113 122,477 114,060 128,644 Recycling collections (tons) 16,353 16,195 17,762 21,179 Source: Various city departments

Note: Fire calls for 1997-2002 were rounded to the nearest hundred by department.

124 Table 16

2008 2009 2010 2011 2012 2013

80,117 83,557 83,746 84,899 81,104 81,084 31,610 36,598 33,990 29,162 28,327 30,166

3,703 3,391 3,199 3,423 3,316 3,845 6,862 7,017 7,255 7,458 7,657 7,717 3,591 3,622 4,739 4,370 4,310 4,366

4,967 4,341 5,042 4,936 5,467 5,420 2,119 2,193 3,264 3,730 4,332 4,209

41.28 17.43 10.27 8.33 15.43 10.26 6,841 11,593 20,988 10,535 10,807 7,227 75,877 126,691 169,396 146,925 102,879 114,448 40,288 55,894 53,712 116,556 117,780 155,838

1,010,351 1,031,530 1,153,632 1,093,705 969,858 909,395 169,000 179,386 193,361 200,553 212,123 215,605 2,633 2,633 2,633 2,570 2,405 2,272

29,679 30,288 30,889 31,222 31,372 31,837 6,582,151 6,210,472 6,209,966 7,331,902 6,750,840 6,827,186

28,019 28,647 29,105 29,519 29,772 30,103 5,263,780 4,733,839 5,617,490 4,852,097 4,966,250 4,943,270

30,680 31,173 32,044 32,621 33,049 34,003 136,024 160,378 140,284 149,930 164,436 176,076 24,248 44,540 50,246 73,912 86,887 96,055

125 CITY OF DENTON, TEXAS CAPITAL ASSET STATISTICS BY FUNCTION/PROGRAM LAST TEN FISCAL YEARS

Fiscal Year Function / Program 2004 2005 2006 2007 2008

Public safety Police Police stations 1 1 1 1 1 Police patrol units 143 148 149 149 147 Fire Fire stations 6 6 6 7 7 Emergency vehicles 22 21 22 24 24 Animal services Animals shelters 1 1 1 1 1

Public works Lane miles added per year 14.79 24.56 25.34 22.66 10.10 Streetlights 6,931 7,104 7,118 7,008 7,011

Parks and recreation Parks 34 34 37 30 37 Park acreage 1,240 1,205 1,272 1,218 1,292 Recreation centers 12 13 13 13 13

Water system Water mains (miles) 497 511 520 530 533 Raw water (in thousand gallons) 6,046,070 6,234,076 7,322,361 5,801,994 6,694,734

Wastewater system Wastewater mains (miles) 442 452 459 470 481 Maximum daily capacity (in million gallons) 21 21 21 21 21

Solid waste Landfills 1 1 1 1 1

Source: Various city departments

126 Table 17

2009 2010 2011 2012 2013

1 1 1 1 1 149 149 143 139 137

7 7 7 7 7 26 30 30 30 31

1 1 1 1 1

14.79 41.77 1.56 2.45 12.00 7,015 7,016 6,996 6,987 7,020

37 37 37 37 37 1,438 1,341 1,332 1,431 1,461 13 13 13 13 13

550 558 560 565 572 6,471,258 6,416,086 7,572,149 7,013,351 6,776,717

488 495 496 501 509 25 25 25 25 25

1 1 1 1 1

127

128 CITY OF DENTON, TEXAS Exhibit XXXI SCHEDULE OF EXPENDITURES - BUDGET AND ACTUAL GENERAL FUND FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2013

Variance with Actual on a Final Budget - Budgeted Amounts Budgetary Positive Original Final Basis (Negative) EXPENDITURES: Personal Service $ 2,157,051 $ 2,167,051 $ 2,108,014 $ 59,037 Materials and Supplies 34,208 39,665 32,586 7,079 Maintenance and Repairs 4,428 7,571 6,887 684 Insurance 29,483 29,483 29,483 - Miscellaneous 38,075 67,075 61,173 5,902 Operations, Services 130,371 145,371 140,109 5,262 Transfers - Interfund 134,841 151,591 151,591 - Fixed Assets - 18,350 14,750 3,600 City Manager's Office 2,528,457 2,626,157 2,544,593 81,564

Personal Service 223,506 223,506 224,761 (1,255) Materials and Supplies 950 950 975 (25) Maintenance and Repairs 1,500 1,500 735 765 Insurance 3,076 3,076 3,076 - Miscellaneous 349 349 745 (396) Operations, Services 16,158 16,158 9,092 7,066 Transfers - Interfund 24,146 24,146 24,146 - Cable Television 269,685 269,685 263,530 6,155

Materials and Supplies - - 32 (32) Insurance 906 906 906 - Operations, Services 150,000 150,000 109,905 40,095 Internal Audit 150,906 150,906 110,843 40,063

Personal Service 296,768 296,768 294,790 1,978 Materials and Supplies 28,397 28,397 19,044 9,353 Insurance 2,797 2,797 2,797 - Operations, Services 109,199 109,199 90,884 18,315 Transfers - Interfund 15,334 15,334 15,334 - Public Communications 452,495 452,495 422,849 29,646

Personal Service 1,169,497 1,169,497 1,181,524 (12,027) Materials and Supplies 24,750 24,750 26,397 (1,647) Maintenance and Repairs 500 500 90 410 Insurance 12,349 12,349 12,349 - Miscellaneous 50,873 50,873 50,362 511 Operations, Services 191,115 191,115 157,788 33,327 Transfers - Interfund 86,308 86,308 86,308 - Human Resources $ 1,535,392 $ 1,535,392 $ 1,514,818 $ 20,574 (continued)

129 CITY OF DENTON, TEXAS Exhibit XXXI SCHEDULE OF EXPENDITURES - BUDGET AND ACTUAL GENERAL FUND FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2013

Variance with Actual on a Final Budget - Budgeted Amounts Budgetary Positive Original Final Basis (Negative) EXPENDITURES: Personal Service $ 1,665,500 $ 1,665,500 $ 1,652,111 $ 13,389 Materials and Supplies 12,900 12,900 12,807 93 Insurance 11,188 11,188 11,188 - Operations, Services 197,426 197,426 70,826 126,600 Transfers - Interfund 65,779 65,779 65,779 - Fixed Assets 17,774 17,774 22,420 (4,646) Legal Administration 1,970,567 1,970,567 1,835,131 135,436

Personal Service 376,061 321,061 297,553 23,508 Materials and Supplies 4,943 4,943 1,502 3,441 Insurance 4,266 4,266 4,266 - Operations, Services 4,488 4,488 4,308 180 Transfers - Interfund 30,706 85,706 85,706 - Municipal Judge 420,464 420,464 393,335 27,129

Personal Service 1,716,235 1,761,235 1,465,170 296,065 Materials and Supplies 38,582 38,582 55,955 (17,373) Insurance 46,265 46,265 46,265 - Miscellaneous 86,981 36,981 38,549 (1,568) Operations, Services 234,424 236,024 86,198 149,826 Transfers - Interfund 215,687 234,087 215,687 18,400 Planning 2,338,174 2,353,174 1,907,824 445,350

Personal Service 1,660,585 1,660,585 1,609,238 51,347 Materials and Supplies 51,032 45,532 40,118 5,414 Maintenance and Repairs 6,000 8,500 7,672 828 Insurance 18,538 18,538 18,538 - Miscellaneous - - 55 (55) Operations, Services 86,385 88,235 74,736 13,499 Transfers - Interfund 179,970 179,970 179,970 - Building Inspections 2,002,510 2,001,360 1,930,327 71,033

Personal Service 273,412 274,506 269,333 5,173 Materials and Supplies 5,951 5,951 7,439 (1,488) Maintenance and Repairs 100 100 - 100 Insurance 1,571 1,571 1,571 - Operations, Services 57,413 14,113 2,160 11,953 Transfers - Interfund 7,916 51,216 10,216 41,000 Development Review 346,363 347,457 290,719 56,738

Personal Service 336,399 336,399 335,760 639 Materials and Supplies 2,000 3,312 3,674 (362) Insurance 3,617 3,617 3,617 - Miscellaneous 50 220 220 - Operations, Services 76,518 124,406 132,517 (8,111) Transfers - Interfund 38,188 38,818 38,818 - Gas Well Review $ 456,772 $ 506,772 $ 514,606 $ (7,834) (continued)

130 CITY OF DENTON, TEXAS Exhibit XXXI SCHEDULE OF EXPENDITURES - BUDGET AND ACTUAL GENERAL FUND FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2013

Variance with Actual on a Final Budget - Budgeted Amounts Budgetary Positive Original Final Basis (Negative) EXPENDITURES: Personal Service $ 1,036,398 $ 1,036,398 $ 939,125 $ 97,273 Materials and Supplies 42,616 46,616 52,008 (5,392) Insurance 13,173 13,173 13,173 - Operations, Services 182,431 129,581 99,838 29,743 Transfers - Interfund 89,015 89,015 89,015 - Code Enforcement 1,363,633 1,314,783 1,193,159 121,624

Personal Service 1,123,595 1,123,595 1,086,058 37,537 Materials and Supplies 65,782 53,724 58,478 (4,754) Insurance 14,982 14,982 14,982 - Miscellaneous 5,200 5,200 5,200 - Operations, Services 20,193 29,067 29,872 (805) Transfers - Interfund 108,237 110,352 110,352 - Fixed Assets - 9,169 9,169 - Municipal Court 1,337,989 1,346,089 1,314,111 31,978

Personal Service 2,369,906 2,338,100 2,201,588 136,512 Materials and Supplies 70,178 68,328 87,478 (19,150) Maintenance and Repairs 675 675 705 (30) Insurance 20,598 20,598 20,598 - Miscellaneous 1,915 1,915 2,234 (319) Operations, Services 793,166 795,266 799,031 (3,765) Transfers - Interfund 180,185 193,391 193,391 - Finance 3,436,623 3,418,273 3,305,025 113,248

Personal Service 518,112 506,410 500,303 6,107 Materials and Supplies 34,877 27,371 39,939 (12,568) Insurance 4,416 4,416 4,416 - Miscellaneous 82,897 82,397 79,905 2,492 Operations, Services 1,587,740 1,610,448 1,543,016 67,432 Transfers - Interfund 30,348 30,348 103,848 (73,500) Economic Development 2,258,390 2,261,390 2,271,427 (10,037)

Personal Service 6,508,145 6,500,513 6,357,365 143,148 Materials and Supplies 671,000 642,490 636,411 6,079 Maintenance and Repairs 783,977 777,321 762,989 14,332 Insurance 150,590 150,590 150,590 - Miscellaneous 150 150 - 150 Operations, Services 2,137,682 2,077,102 2,115,874 (38,772) Transfers - Interfund 563,313 668,343 682,031 (13,688) Parks & Recreation $ 10,814,857 $ 10,816,509 $ 10,705,260 $ 111,249 (continued)

131 CITY OF DENTON, TEXAS Exhibit XXXI SCHEDULE OF EXPENDITURES - BUDGET AND ACTUAL GENERAL FUND FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2013

Variance with Actual on a Final Budget - Budgeted Amounts Budgetary Positive Original Final Basis (Negative) EXPENDITURES: Personal Service $ 1,233,052 $ 1,233,052 $ 1,239,813 $ (6,761) Materials and Supplies 47,248 46,817 37,675 9,142 Maintenance and Repairs 634,213 614,213 620,265 (6,052) Insurance 14,668 14,668 14,668 - Miscellaneous 1,503 1,503 1,570 (67) Operations, Services 1,077,619 1,077,619 1,075,220 2,399 Transfers - Interfund 115,160 135,591 135,591 - Facilities Management 3,123,463 3,123,463 3,124,802 (1,339)

Personal Service 3,343,119 3,315,119 3,141,933 173,186 Materials and Supplies 151,197 172,951 176,023 (3,072) Maintenance and Repairs 45,226 45,806 39,872 5,934 Insurance 63,947 63,947 63,947 - Operations, Services 417,385 420,585 407,731 12,854 Transfers - Interfund 913,874 913,874 913,860 14 Fixed Assets 490,179 492,645 492,644 1 Library 5,424,927 5,424,927 5,236,010 188,917

Personal Service 177,130 177,130 179,536 (2,406) Materials and Supplies 4,332 3,782 253 3,529 Maintenance and Repairs - 300 292 8 Insurance 786 786 786 - Miscellaneous 400 400 127 273 Operations, Services 176,126 188,626 183,377 5,249 Transfers - Interfund 13,458 13,458 6,458 7,000 Transportation Operations 372,232 384,482 370,829 13,653

Personal Service 1,026,528 1,026,528 1,014,560 11,968 Materials and Supplies 21,724 21,724 18,368 3,356 Maintenance and Repairs 479,242 481,048 479,114 1,934 Insurance 27,221 27,221 27,221 - Miscellaneous 2,366 2,366 2,030 336 Operations, Services 177,912 177,912 154,619 23,293 Transfers - Interfund 84,812 299,256 314,165 (14,909) Fixed Assets 200,000 - - - Traffic Operations 2,019,805 2,036,055 2,010,077 25,978

Operations, Services 735,000 718,750 665,462 53,288 Street Lighting $ 735,000 $ 718,750 $ 665,462 $ 53,288 (continued)

132 CITY OF DENTON, TEXAS Exhibit XXXI SCHEDULE OF EXPENDITURES - BUDGET AND ACTUAL GENERAL FUND FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2013

Variance with Actual on a Final Budget - Budgeted Amounts Budgetary Positive Original Final Basis (Negative) EXPENDITURES: Personal Service $ 20,959,417 $ 20,959,417 $ 21,298,682 $ (339,265) Materials and Supplies 211,905 208,405 230,458 (22,053) Maintenance and Repairs 186,338 189,838 190,824 (986) Insurance 319,337 319,337 319,337 - Miscellaneous 101,210 101,210 101,210 - Operations, Services 1,039,731 1,039,731 1,069,071 (29,340) Transfers - Interfund 1,336,281 1,336,281 1,336,281 - Police 24,154,219 24,154,219 24,545,863 (391,644)

Personal Service 655,898 655,898 659,868 (3,970) Materials and Supplies 44,925 44,925 47,261 (2,336) Maintenance and Repairs 12,564 18,620 18,935 (315) Insurance 7,915 7,915 7,915 - Operations, Services 281,266 275,210 265,614 9,596 Transfers - Interfund 46,878 46,878 46,878 - Animal Services 1,049,446 1,049,446 1,046,471 2,975

Personal Service 20,029,290 20,029,290 19,886,147 143,143 Materials and Supplies 444,323 439,323 449,679 (10,356) Maintenance and Repairs 251,316 251,316 238,762 12,554 Insurance 255,236 255,236 255,236 - Miscellaneous 48,350 53,350 48,293 5,057 Operations, Services 1,216,426 1,216,426 1,133,521 82,905 Transfers - Interfund 535,580 535,580 535,580 - Fixed Assets 80,000 80,000 77,216 2,784 Fire 22,860,521 22,860,521 22,624,434 236,087

Personal Service 199,577 199,577 188,889 10,688 Insurance 3,026 3,026 3,026 - Miscellaneous 170,000 170,000 169,991 9 Operations, Services 3,142 3,142 2,271 871 Transfers - Interfund 28,802 28,802 28,802 - Agency Contributions 404,547 404,547 392,979 11,568

Personal Service (289,318) (344,664) 65,074 (409,738) Materials and Supplies 20,000 20,000 20,022 (22) Miscellaneous 425,000 389,900 69,926 319,974 Operations, Services 1,172,271 1,127,271 885,758 241,513 Transfers - Interfund 1,164,896 1,179,896 1,383,502 (203,606) Miscellaneous/Finance 2,492,849 2,372,403 2,424,282 (51,879)

Personal Service 68,765,863 68,632,471 68,197,195 435,276 Materials and Supplies 2,033,820 2,001,438 2,054,582 (53,144) Maintenance and Repairs 2,406,079 2,397,308 2,367,142 30,166 Insurance 1,029,951 1,029,951 1,029,951 - Miscellaneous 1,015,319 963,889 631,590 332,299 Operations, Services 12,271,587 12,163,271 11,308,798 854,473 Transfers - Interfund 6,009,714 6,514,020 6,753,309 (239,289) Fixed Assets 787,953 617,938 616,199 1,739 TOTAL GENERAL FUND $ 94,320,286 $ 94,320,286 $ 92,958,766 $ 1,361,520

133

134