• Agency Funds.Does the government operate a tax agency fund or participate in a tax agency fund operated by another government? Does the government act as an agent for owners of property within a special assessment district and for the creditors of those property owners? Does the government operate one or more pass-through agency funds? If so, describe.
• Investment Trust Funds.Does the government operate, or participate in, a cash and investment pool? If so, is the pool operated as an investment trust fund? If there is a cash and investment pool and it is not reported as an investment trust fund, how is it reported? Explain.

Private-purpose Trust Funds.Does the government operate one or more private-purpose trust funds? If yes, explain the purpose(s).

• Pension Trust Funds.Are the government employees covered by a retirement fund operated by the government, by the state, by the federal Social Security Administration, or by two or more of these? If the government operates one or more pension plans, or retirement systems, is a reference made to the actuary's report in the notes to the financial statements? Is a net pension liability reported in the government-wide statement of net position and/or in a proprietary fund? Is all the pension information specified by GASB standards and discussed in Chapter 8 presented in the notes to the financial statements? Are all required supplementary schedules and related notes reported in the comprehensive annual financial report?
• Fiduciary Fund Financial Statements.Are all fiduciary funds shown in a statement of fiduciary net position and a statement of changes in fiduciary net position? Does the financial report state the basis of accounting used for trust and agency funds? Are agency funds properly disclosed in the financial statements? Does the report contain a schedule or list of investments of trust funds? Are investments reported at fair value? Is the net increase (decrease) shown separately from interest and dividend income? If trust funds own depreciable assets, is depreciation taken?
• Hedge Accounting.Describe how hedge accounting affects governmental entities? What is the relationship between hedge accounting and foreign currency?

City of Lucas, Texas COMPREHENSIVE ANNUAL FINANCIAL REPORT FISCAL YEAR ENDED SEPTEMBER 30, 2016 City of Lucas, Texas TABLE OF CONTENTS September 30, 2016 INTRODUCTORY SECTION Letter of Transmittal Certificate of Achievement for Excellence in Financial Reporting Organization Chart List of Principal Officials FINANCIAL SECTION Independent Auditor's Report Management's Discussion and Analysis Basic Financial Statements GovernmentWide Financial Statements Statement of Net Position Statement of Activities Fund Financial Statements Governmental Funds: Balance Sheet Reconciliation of the Balance Sheet to the Statement of Net Position Governmental funds Statement of Revenues, Expenditures, and Changes in Fund Balance Governmental Funds Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities Proprietary Funds: Statement of Net Position Statement of Revenues, Expenses, and Changes in Fund Net Position Statement of Cash Flows Notes to Financial Statements REQUIRED SUPPLEMENTARY INFORMATION Schedule of Revenues, Expenditures, and Changes in Fund Balances Budget and Actual General Fund Schedule of Changes in Net Pension Liability and Related RatiosTMRS 1 7 8 9 11 15 31 32 34 37 38 41 42 43 44 46 82 84 Schedule of Employer ContributionsTexas Municipal Retirement System 85 Schedule of Changes in Net Pension Liability and Related RatiosTexas Emergency Services Retirement System (TESRS) Schedule of Employer ContributionsTESRS OTHER SUPPLEMENTARY INFORMATION Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual: Debt Service Fund Capital Improvement Fund Lucas Fire District STATISTICAL SECTION Net Position by Component Changes in Net Position Fund Balances, Government Funds Changes in Fund Balance, Governmental Funds Assessed Value and Estimated Actual Value of Taxable Property Property Tax Rates - Direct and Overlapping Governments Principal Property Taxpayers Property Tax Levies and Collections Ratios of Outstanding Debt by Type Ratio of General Bonded Debt Outstanding Direct and Overlapping Governmental Activities Debt Demographic and Economic Statistics Full-Time Equivalent City Employees by Function/Program Operating Indicators by Function/Program Capital Asset Statistics by Function/Program 86 87 90 91 92 94 96 100 102 105 106 109 110 112 114 116 117 119 120 122 INTRODUCTORY SECTION 1 2 3 4 5 6 7 City\u0003of\u0003Lucas Citizens\u0003of\u0003Lucas City\u0003Council Legal City\u0003Attorney Municipal Judge Finance\u0003 Department Purchasing AP/AR Budget Auditing / Auditing\u0003/ Reporting Utility\u0003Billing /d\u0003> Human\u0003Resources\u0003 Department Payroll Benefits Administration Employment Law Municipal\u0003Court City\u0003Manager Development\u0003 Services\u0003 Department Building\u0003\u0003Insp. Code Enforcement Facility\u0003Maint. Permitting Development\u0003& Zoning 8 City\u0003Secretary\u0003 Fire\u0003Department\u0003 Fire Suppression EMS Prevention\u0003/ Community Outreach Emergency Management Public\u0003Works\u0003 Department Water Streets Drainage E i Engineering i t W\u0003D CITY OF LUCAS, TEXAS ELECTED OFFICIALS AND ADMINISTRATIVE OFFICERS\u0003SEPTEMBER 30, 201\u0019 City Council: Mayor -LP\u00032ON\u0003 Kathleen Peele\u0003 Mayor Pro Tem, Seat 6 Wayne Millsap\u0003 Seat 1 7LP\u0003%DQH\\ Seat 2 Steve Duke\u0003 Seat 3 Philip Lawrence\u0003 Seat 4 Debbie Fisher Seat 5 Administrative Officers: City Manager Joni Clarke Finance Director Liz Exum\u0003 City Engineer/Public Works Director Stanton Foerster\u0003 Fire Chief 7HG\u00036WHSKHQV\u0003 Development Services Director Joe Hilbourn 9 FINANCIAL SECTION 10 BrooksCardiel, PLLC Certified Public Accountants INDEPENDENT AUDITOR'S REPORT To the Honorable Mayor and Members of the City Council City of Lucas, Texas: Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the businesstype activities, each major fund, and the aggregate remaining fund information of the City of Lucas, Texas (the \"City\"), as of and for the year ended September 30, 2016, and the related notes to the financial statements, which collectively comprise the City's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the City's management. Our responsibility is to express opinions on these financial statements based on our audit. Management's Responsibility for the Financial Statements The City's 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. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit 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 1095 Evergreen Circle | Suite 200 | The Woodlands, TX 77380 | Tel: 281.907.8788 | Fax: 888.875.0587 | www.BrooksCardiel.com 11 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 opinion. Opinion In our opinion the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the businesstype activities, the discretely presented component unit, each major fund, and the aggregate remaining fund information of the City as of September 30, 2016 and the respective changes in financial position and cash flows, where applicable, thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. Emphasis of Matter As discussed in Note V.D. the City restated to correct for deferred outflows recorded in the prior year. Our opinion is not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management's discussion and analysis, the budgetary comparison information, the schedule of changes in net pension liability and related ratios, and the schedule of employer contributions to pension plan 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. 12 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, budgetary comparison information, and statistical section are presented for additional analysis and are not a required part of the basic financial statements. The individual fund financial statements noted above are the responsibility of management and were derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the supplementary information is fairly stated, in all material respects, in relation to the basic financial statements as a whole. The introductory section and the statistical section has 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 it. BrooksCardiel, PLLC Certified Public Accountants The Woodlands, Texas March 10, 2017 13 14 MANAGEMENTS DISCUSSION AND ANALYSIS 15 16 City of Lucas, Texas MANAGEMENT'S DISCUSSION AND ANALYSIS September 30, 2016 As management of the City of Lucas, Texas (the \"City\"), we offer readers of the City's financial statements this narrative overview and analysis of the financial activities of the City for the fiscal year ended September 30, 2016. We encourage readers to consider the information presented here in conjunction with additional information that we have furnished in our letter of transmittal, which can be found on pages 16 of this report. Financial Highlights The assets of the City exceeded its liabilities (net position) at September 30, 2016 by $46,774,603. Of this amount, $9,632,421 (unrestricted net position) may be used to meet the governments ongoing obligations to citizens and creditors. The Citys total net position increased by $4,980,014. The majority of the Citys net position are invested in capital assets and restricted for specific purposes. The Citys governmental funds reported combined ending fund balances of $12,392,146 at September 30, 2016, an increase of $1,076,715 from the prior fiscal year; this includes an increase of $144,397 in the debt service fund, a decrease of $674,533 in the capital improvement fund, increase of $3,060 in the nonmajor Lucas Fire District fund, and an increase of $1,603,791 in the general fund. At the end of the fiscal year, unassigned fund balance for the general fund was $7,545,674 or 182% of total general fund expenditures. Overview of the Financial Statements The discussion and analysis provided here are intended to serve as an introduction to the City's basic financial statements. The City's basic financial statements consist of three components: 1) government wide financial statements, 2) fund financial statements, and 3) the notes to financial statements. This report also includes supplementary information intended to furnish additional detail to support the basic financial statements themselves. GovernmentWide Statements The governmentwide financial statements are designed to provide readers with a broad overview of the City's finances, in a manner similar to a privatesector business. 17 City of Lucas, Texas MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued) September 30, 2016 The statement of net position presents information on all of the City's assets and liabilities. The difference between the two is 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. Other nonfinancial factors, such as the City's property tax base and the condition of the City's infrastructure, need to be considered in order to assess the overall health of the City. The statement of activities presents information showing how the City's net position changed during the most recent fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes and earned but unused vacation leave). Both of the governmentwide financial statements distinguish functions of the City that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business type activities). The governmental activities of the City include general government, public safety, public works, culture and recreation, and community development. The businesstype activities of the City include water and sewer operations. The governmentwide financial statements only include the City itself (known as the primary government), and does not include any other legally separate entities for which the City is financially accountable. FUND FINANCIAL STATEMENTS A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with financerelated legal requirements. All of the funds of the City can be divided into three categories: governmental funds, proprietary funds, and fiduciary funds. Governmental Funds Governmental funds are used to account for essentially the same functions reported as governmental activities in the governmentwide financial statements. However, unlike the governmentwide financial statements, governmental fund financial statements focus on nearterm inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in assessing a government's nearterm financing requirements. Because the focus of governmental funds is narrower than that of the governmentwide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the governmentwide financial statements. By 18 City of Lucas, Texas MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued) September 30, 2016 doing so, readers may better understand the longterm impact of the government's nearterm financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The City maintains four individual governmental funds. Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures, and changes in fund balances for the general fund, debt service fund, and capital projects fund, which are considered to be major funds. The Lucas fire district fund is considered nonmajor for reporting purposes. The City adopts an annual appropriated budget for its general fund, debt service fund, and capital projects fund. A budgetary comparison statement has been provided for each fund to demonstrate compliance with the budget. Proprietary Funds The City maintains one type of proprietary fund. Enterprise funds are used to report the same functions presented as businesstype activities in the governmentwide financial statements. The City uses an enterprise fund to account for its water and sewer operations. All activities associated with providing such services are accounted for in this fund, including administration, operation, maintenance, debt service, capital improvements, meter maintenance, billing and collection. The Citys intent is that costs of providing the services to the general public on a continuing basis is financed through user charges in a manner similar to a private enterprise. Proprietary financial statements provide the same type of information as the governmentwide financial statements, only in more detail. The proprietary fund financial statements provide separate information for the water and sewer fund since it is considered a major fund of the City. 19 City of Lucas, Texas MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued) September 30, 2016 Notes to Financial Statements The notes provide additional information that is necessary to acquire a full understanding of the data provided in the governmentwide and fund financial statements. Other Information In addition to the basic financial statements and accompanying notes, this report also presents required supplementary information concerning the City's progress in funding its obligation to provide pension benefits to its employees and budgetary comparison for the general fund. GOVERNMENTWIDE FINANCIAL ANALYSIS As noted previously, net position may serve over time as a useful indicator of the City's financial position. For the City of Lucas, assets exceed liabilities by $46,774,603 as of September 30, 2016 in the primary government. The largest portion of the City's net position, $31,939,188, reflects its investments in capital assets (e.g., land, city hall, police station, streets, and drainage systems, as well as the public works facilities), less any debt used to acquire those assets that are 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 assets themselves cannot be used to liquidate these liabilities. 20 City of Lucas, Texas MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued) September 30, 2016 Statement of Net Position: The following table reflects the condensed Statement of Net Position: 2016 Governmental BusinessType Activities Activities 2015 Governmental BusinessType Activities Activities 19,737,771 $ 12,392,608 $ 5,547,219 Total Total Current and other assets $ Capital assets, net 13,307,414 $ 6,430,357 $ $ 17,939,827 22,152,645 18,034,289 40,186,934 19,918,842 18,107,861 38,026,703 35,460,059 24,464,646 59,924,705 32,311,450 23,655,080 55,966,530 327,534 112,965 440,499 173,779 86,730 260,509 Other liabilities 1,281,136 836,410 2,117,546 1,758,787 659,492 2,418,279 Longterm liabilities 7,452,007 3,752,817 11,204,824 7,912,749 4,099,066 12,011,815 8,733,143 4,589,227 13,322,370 9,671,536 4,758,558 14,430,094 268,231 268,231 2,356 2,356 17,827,089 14,112,099 31,939,188 15,687,778 13,793,927 29,481,705 Restricted 4,827,994 375,000 5,202,994 5,101,359 365,000 5,466,359 Unrestricted 4,131,136 5,501,285 9,632,421 2,022,200 4,824,325 6,846,525 Total Assets Total Deferred Outflows Total Liabilities Total Deferred Inflows Net Position: Net investment nin capital assets Total Net Position $ 26,786,219 $ 19,988,384 $ 46,774,603 $ 22,811,337 $ 18,983,252 $ 41,794,589 During the current year, the City's current assets increased while liabilities decreased. Longterm liabilities also demonstrated a decrease due to the issuance of debt in the prior year. The City's total assets demonstrated an increase of $3,958,175. This increase is mainly caused by contributions of capital assets and the City's own investments in capital assets made during the current year. 21 City of Lucas, Texas MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued) September 30, 2016 Statement of Activities: The following table provides a summary of the City's changes in net position: For the Year Ended September 30, 2016 For the Year Ended September 30, 2015 Total Total Governmental BusinessType Primary Governmental BusinessType Primary Activities Activities Government Activities Activities Government 5,806,861 $ 1,370,715 $ 3,879,602 2,280,176 2,666,277 1,299,604 3,965,881 Revenues Program revenues: Charges for services $ Grants and contributions 1,474,364 $ 4,332,497 $ $ 5,250,317 1,862,087 418,089 Property taxes 2,988,174 2,988,174 2,500,042 2,500,042 Sales taxes 1,349,475 1,349,475 1,180,171 1,180,171 324,537 324,537 333,591 333,591 31,531 8,478 40,009 25,026 3,342 28,368 183,261 183,261 120,443 111,210 231,653 8,213,429 4,759,064 12,972,493 8,196,265 5,293,758 13,490,023 955,548 955,548 934,322 934,322 Public safety 1,866,920 1,866,920 1,693,535 1,693,535 Public works 883,514 883,514 1,091,137 1,091,137 Parks and recreation 159,565 159,565 78,233 78,233 Development services 279,699 279,699 352,718 352,718 Interest and fiscal charges 254,227 153,351 407,578 331,834 107,810 439,644 3,439,655 3,439,655 3,129,478 3,129,478 4,399,473 3,593,006 7,992,479 4,481,779 3,237,288 7,719,067 3,813,956 1,166,058 4,980,014 3,714,486 2,056,470 5,770,956 General revenues: Franchise and local taxes Investment income Other revenues Total Revenues Expenses General government Water & Sewer Total Expenses Change in Net Position Before Transfers Transfers 160,926 (160,926) 320,244 (320,244) Total 160,926 (160,926) 320,244 (320,244) Change in Net Position 3,974,882 1,005,132 4,980,014 4,034,730 1,736,226 5,770,956 22,811,337 18,983,252 41,794,589 18,776,607 17,247,026 36,023,633 Beginning Net Position Ending Net Position $ 26,786,219 $ 19,988,384 $ 46,774,603 $ 22,811,337 $ 18,983,252 $ 41,794,589 22 City of Lucas, Texas MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued) September 30, 2016 Graphic presentations of selected data from the summary tables are displayed below to assist in the analysis of the City's activities. For the year ended September 30, 2016, revenues from governmental activities totaled $8,213,429. Property tax, sales tax and franchise tax are the City's largest general revenue sources. Overall revenue increased $17,164 which is a negligible increase. Grants and contributions decreased by $804,190 compared to the prior year. Property tax revenue increased $488,132 or 20% due to increase property values and a growing tax base. Sales tax increased by $169,304 or 14% due to growth and development within the City as well as the Lucas Fire District's ability to receive sales tax revenue. Charges for services increased by $103,649, primarily from development and permit fees. All other revenues remained relatively stable when compared to the previous year. 23 City of Lucas, Texas MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued) September 30, 2016 This graph shows the governmental function expenses of the City: For the year ended September 30, 2016, expenses for governmental activities totaled $4,399,473. This represents a decrease of $82,306 or 2% from the prior year. The City's largest functional expense is public safety of $1,866,920. General government increased $21,226 or 2%, public works decreased $207,623 or 19% and development services decreased $73,019 . In addition, interest and fiscal charges decreased $77,607 or 23%. This category demonstrated a large decrease due to bond issuance costs incurred in the prior year. 24 City of Lucas, Texas MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued) September 30, 2016 Businesstype activities are shown comparing operating costs to revenues generated by related services. For the year ended September 30, 2016, charges for services by businesstype activities totaled $4,332,497. This is an increase of $452,895, or 12%, from the previous year. This increase directly relates to water usage within the City. Total expenses increased $310,177 to a total of $3,593,006, due primarily to an increase in the North Texas Municipal Water District contract, the City's source of water. FINANCIAL ANALYSIS OF THE CITY'S FUNDS As noted earlier, fund accounting is used to demonstrate and ensure compliance with financerelated legal requirements. Governmental Funds The focus of the City's governmental funds is to provide information of near term inflows, outflows and balances of spendable resources. Such information is useful in assessing the City's financing requirements. In particular, unassigned fund balance may serve as a useful measure of the City's net resources available for spending at the end of the year. At September 30, 2016, the City's governmental funds reported combined fund balances of $12,392,146, an increase of $1,076,715 in comparison with the prior year. Approximately 61% of this amount $7,545,674 constitutes unassigned fund balance, which is available for spending at the government's discretion. The remainder of the fund balance is restricted. 25 City of Lucas, Texas MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued) September 30, 2016 As of the end of the year the general fund reflected a total fund balance of $8,733,428, the total of which is unassigned. As a measure of the general fund's liquidity, it may be useful to compare total fund balance to total fund expenditures. The total fund balance of General Fund is 210% of total general fund expenditures. The unassigned (the amount available for spending) fund balance of the general fund of $7,545,674 is 182% of total general fund expenditures. The debt service fund had an ending fund balance of $704,397 at September 30, 2016 compared to the previous year's balance of $560,000. The capital projects fund ending fund balance is $2,901,186. During the year, the City expended $1,320,679 on various projects, utilizing funds from the 2011 certificates of obligation, impact fees, and reserves. Proprietary Funds The City's proprietary funds provide the same type of information found in the governmentwide financial statements, but in more detail. Net position in the utility fund totaled $19,988,384. Unrestricted net position of the enterprise fund at the close of the fiscal year amounted to $5,501,285. Total net position demonstrated an increase of $1,005,132. The fund had an investment in capital assets, net of related debt of $14,112,099. The City operates and maintains a water and sewer distribution system with force mains and lift stations. The City has six water storage facilities with a total capacity of approximately 2.6 million gallons. The following are additional comments regarding operations of the enterprise fund: The City received capital contributions of $418,089 consisting of water and sewer infrastructure. Operational expenses excluding depreciation and amortization were $2,783,007. Cash and cash equivalents in the utility fund were $5,579,746 at fiscal year end. GENERAL FUND BUDGETARY HIGHLIGHTS There were two budget amendments approved during the fiscal year, and increased budgeted expenditures totaling $172,762. There was a positive variance of $216,872 over budgeted general fund revenues. The following are additional comments regarding appropriations: There was a total positive variance of $435,246 in budgeted appropriations. $652,118 is the surplus of revenues over expenditures before transfers. There was a net positive change in fund balance of $1,603,791. CAPITAL ASSETS As of the end of the year, the City's governmental activities funds had invested $22,152,645 in a variety of capital assets and infrastructure, net of accumulated depreciation. The City's businesstype activities funds had invested $18,034,289 in a variety of capital assets and infrastructure, net of accumulated depreciation. This investment in capital assets includes land, buildings, vehicles, equipment, park 26 City of Lucas, Texas MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued) September 30, 2016 improvements, and infrastructure. The City's total investment in capital assets increased by $2,160,230, net of depreciation. Major capital asset events during the current year include the following: Contribution of assets by a developer. Infrastructure expansion More detailed information about the City's capital assets is presented in note IV. C to the financial statements. LONGTERM DEBT At the end of the current fiscal year, the City had total bonded debt obligations of $11,179,227 including premiums. Of this amount, $3,948,733 is selfsupporting through revenues collected from the rates of the Citys utility fund. All of the Citys debt is backed by a fullfaith credit pledge of property taxes with a limited pledge of revenues of the enterprise/utility system. The City monitors its debt obligations and callable bonds for refinancing opportunities with market conditions. More detailed information about the City's longterm liabilities is presented in note IV. D to the financial statements. ECONOMIC FACTORS AND NEXT YEAR'S BUDGET The following known factors were considered in preparing the City's operating budget for FY 2016 2017: This budget will raise more total property taxes than last year's budget by $288,189, or 11.28%, and of that amount, $133,558 is tax revenue to be raised from new property added to the tax roll. The approved budget for all funds for FY 20162017 reflects total anticipated revenues of $10,204,974 and total anticipated expenditures of $9,779,427. The City tax rate is set each fall and is enacted via ordinance. The rate for fiscal year 20162017 was enacted by Ordinance #20160900841 and is set to $0.317948 cents per $100 of valuation. CONTACTING THE CITY'S FINANCIAL MANAGEMENT The financial report is designed to provide our citizens, customers, investors and creditors with a general overview of the Citys finances. If you have questions about this report or need any additional information, contact the Department of Finance at 665 Country Club Rd., Lucas, Texas 75002 or call (972) 7278999. 27 28 FINANCIAL STATEMENTS 29 30 City of Lucas, Texas STATEMENT OF NET POSITION September 30, 2016 Governmental Activities Assets Current assets: Cash and cash equivalents Restricted cash Receivables, net $ Total Current Assets $ 5,579,746 375,000 475,611 6,430,357 Total Assets 1,560,238 20,592,407 22,152,645 35,460,059 435,939 17,598,350 18,034,289 24,464,646 1,996,177 38,190,757 40,186,934 59,924,705 Total Deferred Outflows of Resources 186,037 81,277 23,224 36,996 327,534 45,313 27,092 14,017 26,543 112,965 231,350 108,369 37,241 63,539 440,499 326,031 244,414 44,008 16,800 649,883 1,281,136 179,460 25,189 239,250 392,511 836,410 505,491 244,414 69,197 256,050 1,042,394 2,117,546 6,812,257 639,750 8,733,143 3,573,733 179,084 4,589,227 10,385,990 818,834 13,322,370 268,231 268,231 17,827,089 14,112,099 31,939,188 1,116,079 704,397 2,901,186 35,527 53,135 17,670 4,131,136 26,786,219 375,000 5,501,285 $ 19,988,384 1,116,079 1,079,397 2,901,186 35,527 53,135 17,670 9,632,421 46,774,603 Deferred Outflows of Resources Pension contributions Pension investment earnings Pension gain on investments Deferred charge on refunding Liabilities Current liabilities: Accounts payable and accrued liabilities Unearned revenue Accrued interest payable Customer deposits Long term debt due within one year Noncurrent liabilities: Due in more than one year Net pension liabilities Total Liabilities Deferred Inflows of Resources Unavailable revenue unearned intergovernmental revenue Net Position Net investment in capital assets Restricted for: Impact fees Debt service Capital improvements Municipal court Fire protection Cable fees Unrestricted Total Net Position 31 $ $ Total 7,694,364 5,319,545 293,505 13,307,414 Capital assets: Nondepreciable Net depreciable capital assets See Notes to Financial Statements. Primary Government BusinessType Activities $ 13,274,110 5,694,545 769,116 19,737,771 City of Lucas, Texas STATEMENT OF ACTIVITIES For the Year Ended September 30, 2016 Functions/Programs Primary Government Governmental Activities General government Public safety Public works Parks and recreation Development services Interest and fiscal charges Total Governmental Activities BusinessType Activities Utility fund Total BusinessType Activities Total Primary Government Expenses Charges for Services Program Revenues Operating Grants and Contributions $ 955,548 1,866,920 883,514 159,565 279,699 254,227 4,399,473 $ 413,588 402,068 658,708 1,474,364 $ 37,600 37,600 $ 1,824,487 1,824,487 3,593,006 3,593,006 $ 7,992,479 4,332,497 4,332,497 $ 5,806,861 $ 37,600 418,089 418,089 2,242,576 Capital Grants and Contributions General Revenues: Taxes Property taxes Sales taxes Franchise and local taxes Investment income Other revenues Transfers Total General Revenues and Transfers Change in Net Position Beginning Net Position Ending Net Position See Notes to Financial Statements. 32 Net (Expense) Revenue and Changes in Net Position Primary Government Governmental BusinessType Activities Activities Total $ (955,548) (1,453,332) 1,380,641 (159,565) 379,009 (254,227) (1,063,022) $ $ (955,548) (1,453,332) 1,380,641 (159,565) 379,009 (254,227) (1,063,022) (1,063,022) 1,157,580 1,157,580 1,157,580 1,157,580 1,157,580 94,558 2,988,174 1,349,475 324,537 31,531 183,261 160,926 5,037,904 8,478 (160,926) (152,448) 2,988,174 1,349,475 324,537 40,009 183,261 4,885,456 3,974,882 1,005,132 4,980,014 22,811,337 $ 26,786,219 18,983,252 $ 19,988,384 41,794,589 $ 46,774,603 33 City of Lucas, Texas BALANCE SHEET GOVERNMENTAL FUNDS September 30, 2016 General Debt Service Capital Projects Nonmajor Lucas Fire District $ 7,690,737 225,675 $ 18,322 $ $ 3,627 49,508 1,325,089 $ 9,241,501 704,397 $ 722,719 3,290,059 $ 3,290,059 $ 53,135 Liabilities Accounts payable and accrued liabilities Unearned revenue Customer deposits Total Liabilities $ 181,572 16,800 198,372 $ $ 144,459 244,414 388,873 $ Deferred Inflows of Resources Unavailable revenue Property taxes Intergovernmental revenue Total Deferred Inflows 41,470 268,231 309,701 18,322 18,322 Fund Balances Restricted for: Impact fees Debt service Capital improvements Municipal court Fire protection Cable fees Miscellaneous Unassigned Total Fund Balances 1,116,079 51,623 17,670 2,382 7,545,674 8,733,428 704,397 704,397 2,901,186 2,901,186 53,135 53,135 Assets Cash and cash equivalents Receivables, net Cash and cash equivalents restricted Total Assets Total Liabilities, Deferred Inflows of Resources, and Fund Balances See Notes to Financial Statements. $ 9,241,501 $ 722,719 34 $ 3,290,059 $ 53,135 Total Governmental Funds $ 7,694,364 293,505 5,319,545 $ 13,307,414 $ 326,031 244,414 16,800 587,245 59,792 268,231 328,023 1,116,079 704,397 2,901,186 51,623 53,135 17,670 2,382 7,545,674 12,392,146 $ 13,307,414 35 36 City of Lucas, Texas RECONCILIATION OF THE BALANCE SHEET TO THE STATEMENT OF NET POSITION GOVERNMENTAL FUNDS September 30, 2016 Fund Balances Total Governmental Funds $ 12,392,146 Adjustments for the Statement of Net Position: Capital assets used in governmental activities are not current financial resources and, therefore, not reported in the governmental funds. Capital assets nondepreciable Capital assets net depreciable 1,560,238 20,592,407 Other longterm assets are not available to pay for currentperiod expenditures and, therefore, are deferred in the governmental funds. Property tax receivable 59,792 Deferred outflows of resources represent a consumption of net position that applies to a future period(s) and is not recognized as an outflow of resources (expense/expenditure) until then. Pension contributions Pension investment earnings Pension gains Deferred charge on refunding Some liabilities, including bonds payable and deferred charges, are not reported as liabilities in the governmental funds. Accrued interest Bond premium Noncurrent liabilities due in one year Noncurrent liabilities due in more than one year Net pension liabilities Net Position of Governmental Activities See Notes to Financial Statements. 186,037 81,277 23,224 36,996 $ (44,008) (120,494) (649,883) (6,691,763) (639,750) 26,786,219 37 City of Lucas, Texas STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE GOVERNMENTAL FUNDS For the Year Ended September 30, 2016 Nonmajor Lucas Fire District General Debt Service Capital Projects $ 1,996,066 1,048,583 324,537 568,630 402,068 413,144 37,600 90,522 22,030 140,006 5,043,186 $ 968,355 2,580 970,935 $ 6,921 6,921 $ 300,892 300,892 882,248 1,640,309 338,831 279,243 106,408 55,940 6,749 845,089 4,154,817 560,000 266,538 826,538 468,045 468,045 888,369 144,397 (461,124) 300,892 672,167 43,255 (213,409) (297,832) 715,422 (213,409) (297,832) Net Change in Fund Balances 1,603,791 144,397 (674,533) Beginning fund balances Ending Fund Balances 7,129,637 $ 8,733,428 560,000 $ 704,397 3,575,719 $ 2,901,186 50,075 $ 53,135 Revenues Property tax Sales tax Franchise and local taxes Licenses and permits Impact fees Fire department agreements Contributions Fines and forfeitures Investment income Other revenue Total Revenues Expenditures Current: General government Public safety Public works Development services Parks and recreation Debt Service: Principal Interest and fiscal charges Bond issuance costs Capital outlay Total Expenditures Excess of Revenues Over (Under) Expenditures Other Financing Sources (Uses) Transfers in Transfers (out) Sale of capital assets Total Other Financing Sources (Uses) See Notes to Financial Statements. 38 3,060 Total Governmental Funds $ 2,964,421 1,349,475 324,537 568,630 402,068 413,144 37,600 90,522 31,531 140,006 6,321,934 882,248 1,640,309 338,831 279,243 106,408 615,940 273,287 1,313,134 5,449,400 872,534 672,167 (511,241) 43,255 204,181 1,076,715 11,315,431 $ 12,392,146 39 40 City of Lucas, Texas 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, 2016 Amounts reported for governmental activities in the statement of activities are different because: Net changes in fund balances total governmental funds $ 1,076,715 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. Capital outlay Depreciation expense 1,320,679 (911,363) The effect of capital assets contributed to the City during the current year. 1,824,487 Revenues in the statement of activities that do not provide current financial resources are not reported as revenues in the funds. 23,753 Some expenses reported in the statement of activities do not require the use of current financial resources and, therefore, are not reported as expenditures in governmental funds. Compensated absences Accrued interest Pension expense (3,204) 8,533 8,815 The issuance of longterm debt (e.g., bonds, leases, certificates of obligation) provides current financial resources to governmental funds, while the repayment of the principal of longterm debt consumes the current financial resources of governmental funds. Neither transaction, however, has any effect on net position. Also, governmental funds report the effect of premiums, discounts, and similar items when they are first issued; whereas, these amounts are deferred and amortized in the statement of activities. This amount is the net effect of these differences in the treatment of longterm debt and related items. Amortization of deferred charges on refunding Amortization of debt premium Debt payments Change in Net Position of Governmental Activities See Notes to Financial Statements. $ (7,400) 17,927 615,940 3,974,882 41 City of Lucas, Texas STATEMENT OF NET POSITION PROPRIETARY FUND September 30, 2016 Utility Fund Assets Current Assets Cash and cash equivalents Restricted cash Receivables, net $ Total Current Assets 5,579,746 375,000 475,611 6,430,357 Total Noncurrent Assets Total Assets 435,939 17,598,350 18,034,289 24,464,646 Total Deferred Outflows of Resources 45,313 27,092 14,017 26,543 112,965 Noncurrent Assets Capital assets: Nondepreciable Net depreciable capital assets Deferred Outflows of Resources Pension contributions Pension investment earnings Pension gain on investments Deferred charge on refunding Liabilities Current Liabilities Accounts payable and accrued liabilities Accrued interest Customer deposits Current portion of long term debt Total Current Liabilities 179,460 25,189 239,250 392,511 836,410 Total Liabilities 3,573,733 179,084 4,589,227 Noncurrent Liabilities Noncurrent portion of long term debt Net pension liability Net Position Net investment in capital assets Restricted for: Debt service Unrestricted 14,112,099 Total Net Position See Notes to Financial Statements. 42 375,000 5,501,285 $ 19,988,384 City of Lucas, Texas STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET POSITION PROPRIETARY FUND For the Year Ended September 30, 2016 Businesstype Activities Utility Fund Operating Revenues Charges for services Impact fees $ Total Operating Revenues 3,781,098 551,399 4,332,497 Total Operating Expenses 602,791 1,689,235 392,308 22,574 76,099 655,987 3,438,994 Operating Income 893,503 Operating Expenses Personnel Contractual services Trash services Supplies and materials Maintenance and repair Depreciation NonOperating Revenues (Expenses) Amortization expense Investment income Interest expense (661) 8,478 (153,351) (145,534) Total NonOperating Revenues (Expenses) 747,969 Income Before Capital Contributions and Transfers Contributed capital Transfers (out) 418,089 (160,926) Change in Net Position 1,005,132 Ending Net Position 18,983,252 19,988,384 Beginning net position See Notes to Financial Statements. 43 $ City of Lucas, Texas STATEMENT OF CASH FLOWS PROPRIETARY FUND (Page 1 of 2) For the Year Ended September 30, 2016 Businesstype Activities Utility Fund Cash Flows from Operating Activities Receipts from customers Payments to suppliers Payments to employees Net Cash Provided by Operating Activities $ 4,759,525 (2,028,366) (592,898) 2,138,261 Cash Flows from Noncapital Financing Activities Transfer (out) Net Cash (Used for) Noncapital Financing Activities (160,926) (160,926) Cash Flows from Capital and Related Financing Activities Capital purchases Principal paid on debt Interest paid on debt Net Cash (Used for) Capital and Related Financing Activities (164,327) (365,000) (162,272) (691,599) Cash Flows from Investing Activities Interest on investments Net Cash Provided by Investing Activities 8,478 8,478 Net increase in Cash and Cash Equivalents 1,294,214 Beginning cash and cash equivalents 4,660,532 Ending Cash and Cash Equivalents See Notes to Financial Statements. 44 $ 5,954,746 City of Lucas, Texas STATEMENT OF CASH FLOWS PROPRIETARY FUND (Page 2 of 2) For the Year Ended September 30, 2016 Businesstype Activities Utility Fund Reconciliation of Operating Income to Net Cash Provided by Operating Activities Operating Income Adjustments to reconcile operating income to net cash provided: Depreciation Changes in Operating Assets and Liabilities: (Increase) Decrease in: Accounts receivable Increase (Decrease) in: Accounts payable and accrued liabilities Compensated absences Customer deposits Deferred outflows pension contributions Deferred outflows investment earnings Deferred inflows pension (gains) losses Net pension liability Net Cash Provided by Operating Activities Schedule of Noncash Capital and Related Financing Activities: Contributions of capital assets See Notes to Financial Statements. 45 $ 893,503 655,987 411,078 151,850 5,128 15,950 14,873 (27,092) (14,017) 31,001 $ 2,138,261 $ 418,089 City of Lucas, Texas NOTES TO FINANCIAL STATEMENTS September 30, 2016 I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Reporting Entity The City of Lucas, Texas (the \"City\") is a municipal corporation of the State, duly organized and existing under the laws of the State of Texas including the City's Home Rule Charter. The City was incorporated in 1959, and first adopted its Home Rule Charter in September 2008. The City operates under a Council/Manager form of government with a City Council composed of the Mayor and sixmember Council. The City provides the following services as authorized by its charter: public safety, public works, water and sanitary sewer utilities, culturerecreation, planning and zoning, and general administrative services. The City is an independent political subdivision of the State of Texas governed by an elected council and a mayor and is considered a primary government. As required by generally accepted accounting principles, these basic financial statements have been prepared based on considerations regarding the potential for inclusion of other entities, organizations, or functions as part of the Citys financial reporting entity. The Lucas Fire District (the \"LFD\"), although legally separate, is considered part of the reporting entity. No other entities have been included in the Citys reporting entity. Additionally, as the City is considered a primary government for financial reporting purposes, its activities are not considered a part of any other governmental or other type of reporting entity. Considerations regarding the potential for inclusion of other entities, organizations or functions in the Citys financial reporting entity are based on criteria prescribed by generally accepted accounting principles. These same criteria are evaluated in considering whether the City is a part of any other governmental or other type of reporting entity. The overriding elements associated with prescribed criteria considered in determining that the Citys financial reporting entity status is that of a primary government are that it has a separately elected governing body; it is legally separate; and is fiscally independent of other state and local governments. Additionally prescribed criteria under generally accepted accounting principles include considerations pertaining to organizations for which the primary government is financially accountable, and considerations pertaining to organizations for which the nature and significance of their relationship with the primary government are such that exclusion would cause the reporting entitys financial statements to be misleading or incomplete. Blended Component Unit Lucas Fire District The City created the Lucas Fire District in January 2014 to fund and improve fire control, prevention, and emergency medical service within the City's limits. The creation of this district allows the City to collect extra sales tax that is restricted for this purpose. Currently, the City's Mayor and Council serve as directors of this district. 46 City of Lucas, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30, 2016 B. Basis of Presentation GovernmentWide and Fund Financial Statements While separate governmentwide and fund financial statements are presented, they are interrelated. The governmental activities column incorporates data from governmental funds while businesstype activities incorporate data from the government's enterprise funds. Separate financial statements are provided for governmental funds and the proprietary funds. As a general rule, the effect of interfund activity has been eliminated from the government wide financial statements. Exceptions to this general rule are payments in lieu of taxes where the amounts are reasonably equivalent in value to the interfund services provided and other charges between the government's water and transit functions and various other functions of the government. Elimination of these charges would distort the direct costs and program revenues reported for the various functions concerned. The fund financial statements provide information about the government's funds, including its fiduciary funds and blended component units. Separate statements for each fund category; governmental and proprietary are presented. The emphasis of fund financial statements is on major governmental and enterprise funds, each displayed in a separate column. All remaining governmental and enterprise funds are aggregated and reported as nonmajor funds. Major individual governmental and enterprise funds are reported as separate columns in the fund financial statements. The government reports the following governmental funds: General Fund The general fund is used to account for all financial transactions not properly includable in other funds. The principal sources of revenues include local property taxes, sales and franchise taxes, licenses and permits, fines and forfeitures, and charges for services. Expenditures include general government, public safety, public works, culture and recreation, community development, and nondepartmental. This fund is considered to be a major fund. Debt Service Fund The debt service fund is used to account for the payment of interest and principal on all general obligation bonds and other longterm debt of governmental funds. The primary source of revenue for debt service is local property taxes. This fund is considered to be a major fund. 47 City of Lucas, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30, 2016 Capital Improvements Fund The capital projects fund accounts for the acquisition and construction of the government's major capital facilities, other than those financed by proprietary funds. This fund is considered to be a major fund. Lucas Fire District Fund The fund accounts for the activity of the aforementioned Lucas Fire District. This fund is a nonmajor fund. The government reports the following major enterprise fund: Utility Fund This fund is used to account for the provision of water and sewer services to the residents of the City. Activities of the fund include administration, operations and maintenance of the water production and distribution system, water collection and treatment systems. The fund also accounts for the accumulation of resources for and the payment of long term debt. All costs are financed through charges to utility customers. During the course of operations the government has activity between funds for various purposes. Any residual balances outstanding at year end are reported as due from/to other funds and advances to/from other funds. While these balances are reported in fund financial statements, certain eliminations are made in the preparation of the governmentwide financial statements. Balances between the funds included in governmental activities (i.e., the governmental and internal service funds) are eliminated so that only the net amount is included as internal balances in the governmental activities column. Similarly, balances between the funds included in businesstype activities (i.e., the enterprise funds) are eliminated so that only the net amount is included as internal balances in the businesstype activities column. Further, certain activity occurs during the year involving transfers of resources between funds. In fund financial statements these amounts are reported at gross amounts as transfers in/out. While reported in fund financial statements, certain eliminations are made in the preparation of the governmentwide financial statements. Transfers between the funds included in governmental activities are eliminated so that only the net amount is included as transfers in the governmental activities column. Similarly, balances between the funds included in businesstype activities are eliminated so that only the net amount is included as transfers in the businesstype activities column. 48 City of Lucas, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30, 2016 C. Measurement focus and basis of accounting The accounting and financial reporting treatment is determined by the applicable measurement focus and basis of accounting. Measurement focus indicates the type of resources being measured such as current financial resources or economic resources. The basis of accounting indicates the timing of transactions or events for recognition in the financial statements. The governmentwide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. 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. The governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the 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. General capital asset acquisitions are reported as expenditures in governmental funds. Issuance of longterm debt and acquisitions under capital leases are reported as other financing sources. Property taxes, sales taxes, franchise taxes, licenses, and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. Entitlements are recorded as revenues when all eligibility requirements are met, including any time requirements, and the amount is received during the period or within the availability period for this revenue source (within 60 days of year end). Expendituredriven grants are recognized as revenue when the qualifying expenditures have been incurred and all other eligibility requirements have been met, and the amount is received during the period or within the availability period for this revenue source (within 60 days of year end). All other revenue items are considered to be measurable and available only when cash is received by the government. The proprietary, pension and other postemployment benefit trust, and privatepurpose trust funds are reported using the economic resources measurement focus and the accrual basis of accounting. 49 City of Lucas, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30, 2016 D. Assets, Liabilities, and Fund Equity or Net Position 1. Deposits and Investments The City's cash and cash equivalents are considered to be cash on hand, demand deposits and short term investments with original maturities of three months or less from the date of acquisition. For the purpose of the statement of cash flows, the proprietary fund types consider temporary investments with maturity of three months or less when purchased to be cash equivalents. In accordance with GASB Statement No. 31, Accounting and Reporting for Certain Investments and External Investment Pools, the City reports all investments at fair value, except for \"money market investments\" and \"2a7like pools.\" Money market investments, which are short term highly liquid debt instruments that may include U.S. Treasury and agency obligations, are reported at amortized costs. Investment positions in external investment pools that are operated in a manner consistent with the SEC's Rule 2a7 of the Investment Company Act of 1940, such as TexPool and LOGIC, are reported using the pools' share price. The City has adopted a written investment policy regarding the investment of its funds as defined in the Public Funds Investment Act, Chapter 2256, of the Texas Governmental Code. In summary, the City is authorized to invest in the following: Direct obligations of the U.S. Government, State of Texas and agencies thereof Fully collateralized certificates of deposit and money market accounts Statewide investment pools 2. Fair Value Measurement The City has applied Governmental Accounting Standards Board (\"GASB\") Statement No. 72, Fair Value Measurement and Application. GASB Statement No. 72 provides guidance for determining a fair value measurement for reporting purposes and applying fair value to certain investments and disclosures related to all fair value measurements. 3. Receivables and Interfund Transactions Transactions between funds that are representative of lending/borrowing arrangements outstanding at the end of the year are referred to as either \"interfund receivables/payables\" (i.e., the current portion of interfund loans) or \"advances to/from other funds\" (i.e., the non current portion of interfund loans). All other outstanding balances between funds are reported as \"due to/from other funds\" in the fund financial statements. If the transactions are between the primary government and its component unit, these receivables and payables are classified as \"due to/from component unit/primary government.\" Any residual balances outstanding between the governmental activities and businesstype activities are reported in the governmentwide financial statements as \"internal balances.\" 50 City of Lucas, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30, 2016 Advances between funds are offset by a nonspendable fund balance account in the applicable governmental fund to indicate they are not available for appropriation and are not expendable available financial resources. All trade receivables are shown net of any allowance for uncollectible amounts. 4. Inventories and Prepaid Items The costs of governmental fund type inventories are recorded as expenditures when the related liability is incurred, (i.e., the purchase method). The inventories are valued at the lower of cost or market using the firstin/firstout method. Certain payments to vendors reflect costs applicable to future accounting periods (prepaid expenditures) are recognized as expenditures when utilized (the consumption method). 5. Capital Assets Capital assets, which include property, plant, equipment, and infrastructure assets (e.g., roads, bridges, sidewalks, and similar items) are reported in the applicable governmental or businesstype activities columns in the governmentwide financial statements. Capital assets are defined by the government, 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 market value at the date of donation. Major outlays for capital assets and improvements are capitalized as projects are constructed. Interest costs incurred in connection with construction of enterprise fund capital assets are capitalized when the effects of capitalization materially impact the financial statements. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets' lives are not capitalized. Property, plant, and equipment of the primary government, as well as the component units, are depreciated using the straightline method over the following estimated useful years. Estimated Asset Description Useful Life Vehicles 5 to 10 years Machinery and equipment 5 to 10 years Infrastructure 5 to 30 years Buildings and improvements 25 years 51 City of Lucas, Texas NOTES TO FINANCIAL STATEMENTS, Continued September 30, 2016 6. Net Position Flow Assumption Sometimes the government will fund outlays for a particular purpose from both restricted (e.g., restricted bond or grant proceeds) and unrestricted resources. In order to calculate the amounts to report as restricted - net position and unrestricted - net position in the governmentwide and proprietary fund financial statements, a flow assumption must be made about the order in which the resources are considered to be applied. It is the government's policy to consider restricted - net position to have been depleted before unrestricted - net position is applied. 7. Fund Balance Flow Assumptions Sometimes the government will fund outlays for a particular purpose from both restricted and unrestricted resources (the total of committed, assigned, and unassigned fund balance). In order to calculate the amounts to report as restricted, committed, assigned, and unassigned fund balance in the governmental fund financial statements a flow assumption must be made about the order in which the resources are considered to be applied. It is the government's policy to consider restricted fund balance to have been depleted before using any of the components of unrestricted fund balance. Further, when the components of unrestricted fund balance can be used for the same purpose, committed fund balance is depleted first, followed by assigned fund balance. Unassigned fund balance is applied last. The general fund is the only fund that reports a positive unassigned fund balance amount. In other governmental funds it is not appropriate to report a positive unassigned fund balance amount. However, in governmental funds other than the general fund, if expenditures incurred for specific purposes exceed the amounts that are restricted, committed, or assigned to those purposes, it may be necessary to report a negative unassigned fund balance in the fund. 8. Fund Balance Policies Fund balance of governmental funds is reported in various categories based on the nature of any limitations requiring the use of resources for specific purposes. The government itself can establish limitations on the use of resources through either a commitment (committed fund balance) or an assignment (assigned fund balance). The committed fund balance classification includes amounts that can be used o