The attachment , is a Comprehensive Annual Financial Report (CAFR) of the city of Austin, Texas. ACAFRincludes an entity's year-end ?nancial statements; it is not the same as its budget. Austin'sCAFRforms the basis of the ''continuing problems'' of these chapters. Attached is the CAFRlabeled Texas and the whole problem labeled Continuing Problem.

\fTHE CITY OF AUSTIN, TEXAS COMPREHENSIVE ANNUAL FINANCIAL REPORT for the year ended SEPTEMBER 30, 2011 Photo credits: front cover- City of Austin All other Photos- 2011 Sam Butler, Butler Photography Comprehensive Annual Financial Report City of Austin, Texas For the year ended September 30, 2011 Prepared by: Financial and Administrative Services Department Elaine Hart, CPA Interim Chief Financial Officer Jeff Knodel, CPA Deputy Chief Financial Officer Greg Canally Deputy Chief Financial Officer Diana Thomas, CPA Controller Members of the Government Finance Officers Association of the United States and Canada City Council Lee Leffingwell Mayor Term expires June 15, 2012 Sheryl Cole Mayor Pro Tem Term expires June 20, 2012 Council Members Chris Riley Mike Martinez Kathie Tovo Laura Morrison Bill Spelman Marc A. Ott City Manager June 15, 2014 June 15, 2012 June 15, 2014 June 15, 2014 June 15, 2012 CITY OF AUSTIN, TEXAS COMPREHENSIVE ANNUAL FINANCIAL REPORT Year Ended September 30, 2011 TABLE OF CONTENTS Exhibit Page INTRODUCTION (Unaudited) Letter of Transmittal City Organization Chart Certificate of Achievement ---- i viii ix FINANCIAL SECTION Independent Auditors' Report -Management's Discussion and Analysis (unaudited) -Basic Financial Statements Government-wide Financial Statements: A-1 Statement of Net Assets A-2 Statement of Activities Fund Financial Statements: B-1 Governmental Funds Balance Sheet Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Assets B-1.1 Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances B-2 Reconciliation of the Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances to the Statement of Activities B-2.1 Proprietary Funds Statement of Net Assets C-1 Proprietary Funds Statement of Revenues, Expenses, and Changes in Fund Net Assets C-2 Proprietary Funds Statement of Cash Flows C-3 D-1 Fiduciary Funds Statement of Fiduciary Net Assets D-2 Fiduciary Funds Statement of Changes in Fiduciary Net Assets Notes to Basic Financial Statements: Note 1 Summary of Significant Accounting Policies -Note 2 Pooled Investments and Cash -Note 3 Investments and Deposits -Note 4 Property Taxes -Note 5 Capital Assets and Infrastructure --Note 6 Debt and Non-Debt Liabilities Note 7 Retirement Plans -Note 8 Other Post-Employment Benefits -Note 9 Derivative Instruments -Note 10 Deficits in Fund Balances and Net Assets -Note 11 Interfund Balances and Transfers -Note 12 Selected Revenues -Note 13 Commitments and Contingencies -Note 14 Litigation --Note 15 Conduit Debt Note 16 Restatement as a Result of the Implementation of a New Accounting Standard -Note 17 Subsequent Events -Required Supplementary Information (RSI) (unaudited) General Fund - Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual-Budget Basis RSI Notes to Required Supplementary Information (RSI-1) - Budget Basis Reporting RSI Retirement Plans-Trend Information RSI Other Post Employment Benefits-Trend Information RSI 1 3 16 18 20 21 22 23 24 30 32 38 39 40 50 50 56 57 64 82 86 87 93 93 94 95 100 100 100 101 106 110 112 112 CITY OF AUSTIN, TEXAS COMPREHENSIVE ANNUAL FINANCIAL REPORT Year Ended September 30, 2011 TABLE OF CONTENTS (continued) Exhibit Page FINANCIAL SECTION, Continued Combining and Individual Fund Financial Statements and Schedules General Fund Schedule of Revenues - Budget and Actual-Budget Basis Schedule of Expenditures - Budget and Actual-Budget Basis Schedule of Transfers - Budget and Actual-Budget Basis Nonmajor Governmental Funds Combining Balance Sheet Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Special Revenue Funds Combining Balance Sheet Combining Statement of Revenues, Expenditures and Changes in Fund Balances Combining Balance Sheet - All Special Revenue Grants Combining Statement of Revenues, Expenditures and Changes in Fund Balances - All Special Revenue Grants Combining Schedule of Expenditures - All Special Revenue Grants Other - Combining Balance Sheet Other - Combining Statement of Revenues, Expenditures and Changes in Fund Balances Other - Combining Schedule of Revenues, Expenditures and Transfers - Budget and Actual-Budget Basis Debt Service Funds Combining Balance Sheet Combining Statement of Revenues, Expenditures and Changes in Fund Balances Combining Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual-Budget Basis Capital Projects Funds Combining Balance Sheet Combining Statement of Revenues, Expenditures and Changes in Fund Balances Permanent Funds Combining Balance Sheet Combining Statement of Revenues, Expenditures and Changes in Fund Balances Nonmajor Enterprise Funds Combining Statement of Net Assets Combining Statement of Revenues, Expenses and Changes in Fund Net Assets Combining Statement of Cash Flows Internal Service Funds Combining Statements of Net Assets Combining Statement of Revenues, Expenses and Changes in Fund Net Assets Combining Statement of Cash Flows E-1 E-2 E-3 113 114 116 E-4 E-5 118 119 E-6 E-7 E-8 121 122 123 E-9 E-10 E-11 E-12 124 125 126 132 E-13 138 E-14 E-15 144 145 E-16 146 E-17 E-18 148 152 E-19 E-20 158 159 F-1 F-2 F-3 162 166 168 G-1 G-2 G-3 174 176 178 CITY OF AUSTIN, TEXAS COMPREHENSIVE ANNUAL FINANCIAL REPORT Year Ended September 30, 2011 TABLE OF CONTENTS (continued) Exhibit Page FINANCIAL SECTION, Continued Fiduciary Funds Private-Purpose Trust Funds Combining Statement of Fiduciary Net Assets Combining Statement of Changes in Fiduciary Net Assets Agency Funds Combining Statement of Changes in Assets and Liabilities Supplemental Schedules Enterprise Related Grants - Combining Balance Sheet Enterprise Related Grants - Combining Schedule of Expenditures Schedule of General Obligation Bonds Authorized and Unissued Schedule of Revenue Bonds Authorized, Deauthorized and Unissued H-1 H-2 183 184 H-3 185 I-1 I-2 I-3 I-4 187 188 189 190 STATISTICAL SECTION - UNAUDITED Table Financial Trends Net Assets by Component - Last Ten Fiscal Years Changes in Net Assets - Last Ten Fiscal Years Program Revenues by Function/Program - Last Ten Fiscal Years Fund Balances, Governmental Funds - Last Ten Fiscal Years Changes in Fund Balances, Governmental Funds - Last Ten Fiscal Years Revenue Capacity Tax Revenues By Source, Governmental Funds - Last Ten Fiscal Years Property Appraised Value, Taxable Value, Tax Rates, Tax Levies and Tax Collections - Last Ten Fiscal Years Assessed Taxable Property Value by Class - Last Ten Fiscal Years Property Tax Rates and Tax Levies for Direct and Overlapping Governments With Applicable Percentages Over 10% - Last Ten Fiscal Years Principal Property Taxpayers - Current Year and Nine Years Ago Direct and Overlapping Sales Tax Rates - Last Ten Fiscal Years Taxable Sales by Category - Last Ten Fiscal Years Debt Capacity Ratios of Outstanding Debt by Type - Last Ten Fiscal Years Ratios of Net General Bonded Debt Outstanding - Last Ten Fiscal Years Direct and Overlapping Governmental Activities Debt Legal Debt Margin Information - Last Ten Fiscal Years Pledged-Revenue Coverage - Last Ten Fiscal Years Demographic and Economic Information Demographic and Economic Statistics - Last Ten Fiscal Years Principal Employers - Current Year and Ten Years Ago Operating Information Full-time Equivalent Employees by Function/Program - Last Ten Fiscal Years Operating Indicators by Function/Program - Last Ten Fiscal Years Capital Asset Statistics by Function/Program - Last Ten Fiscal Years Page 1 2 3 4 5 194 195 197 198 199 6 200 7 8 201 202 9 10 11 12 203 204 205 206 13 14 15 16 17 207 208 209 210 211 18 19 212 213 20 21 22 214 215 219 This page intentionally blank. INTRODUCTION City Hall 301 West 2nd St., P.O. Box 1088, Austin, Texas 78767 March 30, 2012 Honorable Mayor, Mayor Pro Tem and Councilmembers, and Citizens of Austin City of Austin, Texas We are pleased to submit to you the Comprehensive Annual Financial Report (CAFR) of the City of Austin, Texas for the fiscal year ended September 30, 2011. The CAFR is provided to give detailed information about the financial position and activities of the City to citizens, City Council, City staff and other readers. City management is responsible for both the accuracy of the presented data and the completeness and fairness of the presentations, including all disclosures. We believe the data, as presented, are accurate in all material respects and are presented in a manner which fairly sets forth the financial position and results of operations of the City. These financial statements have been prepared by the Financial and Administrative Services Department, Controller's Office, in accordance with generally accepted accounting principles (GAAP) for local governments. The basic financial statements and related notes have been audited by the independent firm of Certified Public Accountants Deloitte & Touche LLP. This audit satisfies Article VII, Section 16 of the City Charter, which requires an annual audit of all accounts of the City by an independent Certified Public Accountant. Grant awards are being audited under the provisions of the Single Audit Act of 1996, as amended, and the State of Texas Uniform Grants Management Standards. The Single Audit reports will be issued separately. Management's discussion and analysis (MD&A) immediately follows the independent auditor's report. It provides a narrative introduction, overview, and analysis to accompany the basic financial statements. This letter of transmittal is intended to complement the MD&A and should be read in conjunction with it. REPORTING ENTITY This CAFR includes all funds of the City, including those organizations required to be included because the City is financially accountable for them. The City provides a full range of services, including general government, public safety, transportation, planning and sustainability, public health, public recreation and culture, urban growth management, electric, water, wastewater, airport, convention, and other enterprise services. In addition, the financial statements include these separate legal entities (and the fund where reported): Austin Housing Finance Corporation (Housing Assistance Fund), Austin Industrial Development Corporation (Austin Industrial Development Corporation Fund), Mueller Local Government Corporation (Mueller Local Government Corporation Fund), and Waller Creek Local Government Corporation (Waller Creek Local Government Corporation Fund). These entities are reported as governmental activities. AUSTIN'S GOVERNMENT, ECONOMY AND OUTLOOK General Information The City of Austin, chartered in 1839, has a Council-Manager form of government with a Mayor and six Councilmembers. The Mayor and Councilmembers are elected at large for three-year staggered terms with a maximum of two consecutive terms. The City Manager, appointed by the City Council, is responsible to them for the management of all City employees and the administration of all City affairs. Austin, the capital of Texas, is the fourth largest city in the state (behind Houston, Dallas, and San Antonio) with a September 2011 population of 805,662, according to the City's estimates. Over the past ten years, Austin's population has increased by approximately 134,600 residents or 20.1%. Geographically, Austin consists of approximately 308 square miles. The current estimated median household income for Austin residents is $46,689, according to Claritas, a Nielsen company. Austin's per capita income is estimated to be $38,484 based on analysis of the Bureau of Economic Analysis information. i Austin is nationally recognized as a great place to live due in part to its diverse and eclectic population, as well as its promotion of a year-round outdoor active lifestyle. Austin draws its special character from its physical setting along the Balcones Escarpment, a city wedged between coastal plain and dramatic cliffs, canyons and junipercarpeted rolling hills; it sits on the edge of the Chihuahuan desert existing as a physical and cultural oasis where talented, entrepreneurial, hard-working people are drawn from all over the world. Austin's quality of life has become its biggest economic development engine, and the City's diverse demographic structure serves to support and enrich its quality of life. The City of Austin is fortunate to offer a host of broad-ranged educational opportunities for those individuals with a desire to learn. Austin is a highly educated city, with approximately 44 percent of adults twenty-five years or older holding a bachelor's or advanced degree, compared to 28 percent for the U.S. as a whole. Higher education is a significant aspect of life in the Austin area. The Austin metropolitan area is host to seven universities and six other institutions of higher learning. The University of Texas at Austin (UT), the fifth largest public university in the nation, th th is known as a world-class center of education and research and was ranked 45 nationally and 13 among public universities by U.S. News and World Report in 2011. Local Economy The City of Austin's vision of being the most livable city in the country means that Austin is a place where all residents participate in its opportunities, vibrancy and richness of culture and diversity. Austin residents share a sense of community pride and a determination that the City's vision is not just a slogan, but a reality for everyone who lives here. Local government plays a critical role in determining a city's quality of life. When Austin is compared to other cities, it receives high marks. For instance, the 2011 Community Survey shows that Austin residents rate Austin's city services high, especially when compared to other large cities. Among 13 cities with populations greater than 500,000, Austin had the highest overall satisfaction rating. In addition, Austin is rated at or above the national average for large cities with populations over 200,000 in 89% of the 46 service areas assessed. Our success is attributable to the hard work, thoughtfulness, and passion of our Council, City employees, and Austinites themselves. Austin's rankings reflect a City government that keeps its vision in the forefront while planning for the future. In December 2011, the Brookings Institute Metropolitan Policy Program published the MetroMonitor: Tracking Economic Recession and Recovery in America's 100 Largest Metropolitan Areas, a study that ranked Austin among the strongest-performing metro areas recovering from the economic recession, noting income and employment growth, and a stable housing market. Austin's diversified economy, including employment in government, education, and a robust high tech-sector were contributing factors in their analysis. As reported in the same article, through September 2011, Austin had regained more than half of the jobs lost between the prerecession high and post-recession low. In the third quarter of 2011, only 19 large U.S. metropolitan areas, including Austin, had a quarterly output growth rate of at least 0.8% which is indicative of a sustained economic recovery. Austin's unemployment rate ended 2011 at 6.3% in December, down from 6.9% in December 2010; the State and National unemployment rates in December 2011 were 7.4% and 8.5%, respectively. As reported to Council during the fiscal year 2012 budget process, housing sales have remained stable and median home sales prices have increased 5.3% since June 2010, a reflection of the area's positive job growth. Sales tax revenue has shown positive growth over the past two fiscal years. Fiscal year 2011 experienced a 4.4% increase over fiscal year 2010, which was a 3.5% increase over the previous fiscal year. During 2011, Austin-Bergstrom International Airport (ABIA) passenger activity experienced a record high of more than 9 million travelers, a 5% increase over 2010. For the sixth consecutive year, ABIA was highly ranked for customer service, ranking fourth among airports in North America, regardless of size, by Airport Council International's 2011 Airport Service Quality (ASQ) passenger survey. ABIA's consistently high ASQ ranking earned the airport a place in the first Airport Council International's Director General's Roll of Excellence. Only 14 airports in the world received this recognition. ii Austin continues to be a destination for both business and recreational activities. The Austin metropolitan area is consistently recognized as among the most inventive, creative, wired, educated, fit, and loved cities in which to live and work. Austin is known around the world as the \"Live Music Capital of the World\". In March 2011, South by Southwest (SXSW) hosted its 25th annual music festival, conference, and trade show, providing a unique convergence of original music, independent films, and emerging technologies. According to economic impact analysis posted on the SXSW website and prepared by Greyhill Advisors, the festival was responsible for injecting more than $167 million into the Austin economy. In January 2012, Austin was named to the Top Seven List of Intelligent Communities for 2012 by the Intelligent Community Forum, a think tank that studies the economic and social development of the 21st Century community. Austin's selection came as a result of its commitment to utilize information and communication technologies in innovative ways that serve the community to address workforce challenges. The City of Austin Economic Growth and Redevelopment Services Office received three Excellence in Economic Development Awards for communities with populations over 500,000 from the International Economic Development Council (IEDC). The awards are for the Small Business Development Program (SBDP) in the category of Entrepreneurship, Independent Business Investment Zone (IBIZ) District in the category of Neighborhood Development Initiatives, and the 2nd Street District in the category of Public-Private Partnerships. Austin has ranked at the top of lists such as Forbes, Kiplinger's, Milken Institute, and others in regards to career choice, income, recreation opportunities, housing, and business start-up: 10 Best Cities to Find a Job Ajilon Professional Staffing - March 2011 Best-Performing Cities 2011, Where America's Jobs are created and sustained Milken Institute - December 2011 America's Best Cities for Young Adults Forbes - December 2010 The 10 Most Popular Cities for College Grads The Atlantic - January 2011 America's Best and Worst Job Markets Forbes - January 2011 10 U.S. Cities With the Cheapest Cost of Living Kiplinger's Personal Finance Magazine - June 2011 Tracking Economic Recession and Recovery in America's 100 Largest Metropolitan Areas The Brookings Institution - December 2011 The Next Biggest Boom Towns in the U.S. Forbes - July 2011 Only 13 of top 100 U.S. metros have bounced back from recession The Business Journals On Numbers - February 2012 The 10 Hottest Spots to Start a Small Business (Austin ranked number 1) The Fiscal Times - July 2011 Zilker Metropolitan Park, Austin's most-loved park, received an honored designation as a Lone Star Legacy Park by the Texas Recreation and Parks Society earlier this year. A Lone Star Legacy Park is classified as a park that holds special prominence in the local community and the state of Texas. To qualify for consideration, the park must have endured the test of time and become iconic to those who have visited, played, and rested on its grounds. This 351-acre park is home to a variety of recreation opportunities and special events for individuals and families. Long-term Financial Planning A key City financial policy requires annual preparation of a five-year financial forecast projecting revenues and expenditures for all operating funds. This forecast is used as a planning tool to develop the following year's operating budget. The City's budgeting approach emphasizes fiscal responsibility by limiting spending in a given year to projected revenue collections. iii In December 2011, following a year-long public participation process, Austin Energy presented a proposal to City Council for a new rate structure that will balance rate increases fairly across customer groups that would result in an 8.5% increase this year and a 3.8% increase in 2015 if adopted by the City Council as proposed. Due to successful conservation efforts Austin Water Utility pumps 50 gallons less per capita per day than it did in 1995. It is projected that the typical residential customer's average monthly water usage will decrease by 6.5% in the future. With 80% of the utility's costs fixed and less than 20% of fixed revenues, this can inhibit the utility's ability to cover costs during extreme weather or economic events. To help improve the financial position, Austin Water Utility is implementing a 5.1% combined water and wastewater rate increase in fiscal year 2012 and a new fixed Water Sustainability Fee that strengthens the future financial health and stability of the utility. On November 2, 2010, Austin voters approved a $90 million bond program designed to enhance mobility in the region. Over the next two years, this bond program will invest in streets, sidewalks, bike paths, trails, and transit infrastructure in all parts of Austin. The Austin City Council established the Bond Oversight Committee to ensure efficiency, equity, timeliness, and accountability in the implementation of the 2006 and 2010 bond programs, as well as all future bond programs. The City has also formed a Bond Election Advisory Task Force to make recommendations to City Council regarding a potential bond package for November 2012. In August 2011, all three major U.S. financial rating agencies reaffirmed Austin's \"AAA\" long-term rating, the highest attainable bond rating that a city can achieve, with a stable outlook on the City's general obligation debt. Standard and Poor's report noted that key factors supporting the \"AAA\" rating included Austin's strong and diverse economic base, strong financial management and moderate overall debt levels. Fitch Ratings noted that one of the key factors driving affirmation of the \"AAA\" rating was due to consistently sound financial performance, stable taxable values, a resilient regional economy and a moderate debt profile. Moody's Investors Services, Inc. described Austin's financial policies, expenditure controls, and conservative budget practices as \"favorable factors considered in the rating\". Budgetary Information The fiscal year 2012 Approved Budget totals $2.8 billion and includes $690.2 million for the General Fund to provide public safety, health, library, parks, and other needed services to the Austin community. It is a structurally balanced budget, maintaining the high quality core services that our residents expect and contribute to Austin's top ranked quality of life. The 2012 Budget was developed in a manner true to the City's unwavering commitment to openness, transparency, and public engagement. The City's Budget is organized around activities and services. The budget development process integrates the City's finances with business planning, performance measurement, and resident input, thereby elevating budget discussions to meaningful conversations about outcomes that impact our residents. Input was gathered and evaluated to address the many issues, concerns, and priorities identified by Austin's citizens, employees, and Councilmembers. Those top priorities, identified through public engagement efforts, are addressed in the fiscal year 2012 Budget and include enhanced funding for public safety, health and human services, parks and recreation, energy reliability, and water quality. The fiscal year 2012 Approved Budget was passed with an increase to the property tax rate of 2.4 cents, from 45.71 to 48.11 cents per $100 of taxable value. Included in the approved budget are moderate pay increases for employees; a 2% wage adjustment for all civilian employees and 3% wage adjustment for uniformed personnel based on the approved contract terms. Also included in the fiscal year 2012 Budget is the addition of 49 new police officers and the annualized cost of 42 new paramedic positions and 10 new firefighters added during the previous fiscal year. The fiscal year 2012 Budget authorizes the use of approximately $11 million of the budget stabilization reserves to address capital replacement and other critical needs. The Approved Budget projects budget stabilization reserves of $36.2 million at the end of fiscal year 2012. iv Austin includes several enterprise activities, including a municipal owned electric utility, water/wastewater utility, airport, and other miscellaneous operations. The City's largest enterprise department, Austin Energy, is the ninth largest municipal-owned electric utility in the United States in terms of customers served. Austin Energy serves more than 400,000 customers with a service territory of approximately 437 square miles and an approved budget for fiscal year 2012 of $1.14 billion in annual revenues, including transfers. The utility has a diverse generation mix that includes nuclear, coal, natural gas, and renewable energy sources. Austin Energy's capital improvement spending plan of $220.4 million includes projects for the System Control Center, Holly Power Plant decommissioning, Customer Information Billing System replacement, new substations, and various generation unit improvements. The City's enterprise activities also include the Austin Water Utility, which provides water and wastewater services to nearly 212,000 customers within Austin and surrounding areas. The fiscal year 2012 budget projects revenues from the sale of water and wastewater service and other revenue to be $463.4 million. Other enterprise funds and their fiscal year 2012 revenue budgets include Aviation of $98.1 million and the Convention Center - all funds combined of $54.7 million. Major Initiatives The City of Austin's vision is to be the most livable City in the country. In April 2007 and amended in 2009, the Austin City Council adopted the following policy priorities: Rich Social and Cultural Community Vibrant Urban Fabric Healthy, Family-Friendly, Safe City Sustainable Economic Development and Financial Health PRIDE. In order to achieve Austin's vision to be the most livable City in the country, Austin's city government has made it its mission to be the best-managed city in the country. The City Manager is committed to creating an environment that fosters creative thinking and innovation by the workforce to tackle challenges today and in the future. City employees take enormous pride in their work. PRIDE reflects the City's core values of public service and how employees relate to customers and each other. Being \"best managed\" means everybody in the organization is providing the best service possible to the community. The elements of PRIDE are as follows: Public Service & Engagement - We will partner with one another and with our community to provide the best service possible. Responsibility & Accountability - We take responsibility for achieving results and hold ourselves accountable for our actions. Innovation & Sustainability - We actively seek out good ideas that have a lasting, positive impact on our work, our community and our environment. Diversity & Inclusion - We recognize and respect a variety of perspectives, experiences and approaches that will help us achieve our organizational goals. Ethics & Integrity - Our actions will maintain the trust and confidence of the public and the organization. The City's Finance and Administrative Services mission is to maintain the financial integrity of the City. Energy Efficiency. The U.S. Environmental Protection Agency (EPA) has awarded Austin Energy a 2012 ENERGY STAR Sustained Excellence Award in recognition of its continued leadership and achievement in the delivery of energy efficiency services to its customers. It is the eighth year in a row that Austin Energy has been recognized by ENERGY STAR for continued excellence in helping residential customers reduce their energy use and lower their bills by making their homes more energy efficient. Over the last five years, some 13,000 Austin Energy residential customers used rebates or loans to make energy efficiency improvements such as replacing air conditioners, adding insulation or sealing ducts. Combined, those customers reduced their energy use by 26 million kilowatt-hours of electricity for annual savings of $2.6 million. v Innovative. In October 2010, the City unveiled Austin Finance Online, a one-stop web-based portal containing financial documents, Online Contract Catalog, Vendor Connection, eCheckbook, and other financial information of the City. The Online Contract Catalog is a service that provides details on each of the City's active purchasing contracts; Vendor Connection is a public clearinghouse to view detailed information about current business opportunities with the City. eCheckbook shares the City's payment register information in an interactive, userfriendly format. Through eCheckbook, citizens can search the City's payment records, download reports and drill down into transaction-level details. Recognizing the City's efforts in achieving the highest standards in financial transparency, the Texas State Comptroller awarded this site the Gold Level Leadership Circle Award. ARRA. In 2009, the City established a Recovery Office to coordinate the City's efforts with other entities in applying for and reporting on funding received through the American Recovery and Reinvestment Act (ARRA). The City has successfully pursued various ARRA funding opportunities in areas ranging from transportation to energy to health care. At year end, the City had been awarded $86.6 million either directly or as pass-through funds with a total of 81% of those funds being obligated. In fiscal year 2011, the City received $1.2 million in new funding to add solar power to the George Washington Carver Museum, establish a public computing center for job seekers at the Carver Library, convert 60 City fleet vehicles from unleaded gasoline to propane and test 14 plug-in hybrid Ram 1500 CrewCab vehicles for 3 years. The City also received extra funds for on-going programs. In addition, four grants were completed including the three S.T.O.P. Violence Against Women grants awarded to the Police department and the Public Works grant for the Loop 360 Bike and Pedestrian Improvements. Financial Policies The City has adopted a comprehensive set of Financial Policies to ensure that the City's financial resources are managed in a prudent manner. These policies dictate that current revenue will be sufficient to support current expenditures (defined as \"structural balance\"). Assigned and unassigned fund balances in excess of what is required shall normally be used to fund capital items in the operating and capital budgets. The City maintains the goal of a structurally balanced budget to achieve long-term financial stability for the Austin community. These policies are reviewed as part of the annual budget process and are published in the Approved Budget. Internal Controls City management is responsible for establishing, implementing, and maintaining a framework of internal controls designed to ensure that City assets are protected from loss, theft, or misuse and to ensure that adequate accounting data is compiled to allow for the preparation of financial statements in conformity with GAAP. The system of internal control is designed to provide reasonable, but not absolute, assurance that these objectives are met. The concept of reasonable assurance recognizes that the cost of control should not exceed the benefits likely to be derived, and the evaluation of costs and benefits requires estimates and judgments by management. Budgetary Control The annual operating budget is proposed by the City Manager and approved by the City Council after public discussion. Annual updates to the Capital Improvements Program budgets follow a similar process. Primary responsibility for fiscal analysis of budget to actual expense or revenue and overall program fiscal standing rests with the department operating the program. As demonstrated by the statements and schedules included in the City's 2011 CAFR, the City continues to meet its responsibility for sound financial management. Awards The Government Finance Officers Association of the United States and Canada (GFOA) awards a Certificate of Achievement for Excellence in Financial Reporting to a governmental unit that publishes a Comprehensive Annual Financial Report that meets the GFOA program standards. GFOA awarded a Certificate of Achievement for Excellence in Financial Reporting to the City for its 2010 CAFR. A Certificate of Achievement is valid for a period of one year only. City management believes that this 2011 CAFR conforms to the Certificate of Achievement Program requirements, and we are submitting it to GFOA for review. vi viii The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of Austin, Texas for its Comprehensive Annual Financial Report for the Fiscal Year Ended September 30, 2010. In order to be awarded a Certificate of Achievement, a governmental unit must publish an easily readable and efficiently organized Comprehensive Annual Financial Report, whose contents conform to program standards. Such reports must satisfy both generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. City management believes that this 2011 CAFR conforms to the Certificate of Achievement Program requirements, and we are submitting it to GFOA for their review. ix This page intentionally blank. FINANCIAL SECTION Deloitte & Touche LLP Suite 1700 400 West 15th Street Austin, TX 78701-1648 USA Tel: 1+ 512 691 2300 Fax: 1+ 512 708 1035 www.deloitte.com INDEPENDENT AUDITORS' REPORT The Honorable Mayor and Members of the City Council, City of Austin, Texas 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 Austin, Texas (the \"City\"), as of and for the year ended September 30, 2011, 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 an opinion 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 includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the City's internal controls over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City, as of September 30, 2011 and the respective changes in financial position and, where applicable, cash flows, thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 16, the City implemented Government Accounting Standards Board (GASB) Statement No. 54 \"Fund Balance Reporting and Governmental Fund Type Definitions\" and restated the beginning fund balance or net assets to reflect the retrospective impact of adopting GASB Statement No. 54. Management's Discussion and Analysis, the General Fund - Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual-Budget Basis, the Retirement Plans - Trend Information, and the Other Post-Employment Benefits - Trend Information are not a required part of the basic financial statements but are supplementary information required by accounting principles generally accepted in the United States of America. This supplementary information is the responsibility of the City's management. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. 1 Member of Deloitte Touche Tohmatsu Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City of Austin's basic financial statements. The accompanying introduction, combining and individual fund financial statements and schedules, supplemental schedules and the statistical section listed in the table of contents are presented for purposes of additional analysis and are not a required part of the basic financial statements. This supplementary information is the responsibility of the City's management. The combining and individual fund financial statements and schedules and supplemental schedules have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. The introduction and the statistical section have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we express no opinion on them. March 30, 2012 2 Management's Discussion and Analysis September 30, 2011 City of Austin, Texas 3/30/2012 1:08 PM The Management's Discussion and Analysis (MD&A) section of the City of Austin's (the City) Comprehensive Annual Financial Report presents a narrative overview and analysis of the financial activities of the City for the fiscal year ended September 30, 2011. The financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) for local governments as prescribed by the Governmental Accounting Standards Board (GASB). The City has implemented GASB Statements No. 1 through No. 59. FINANCIAL HIGHLIGHTS Government-wide financial statements The assets of the City exceeded its liabilities at the end of the fiscal year 2011, resulting in $4.5 billion of net assets. Net assets associated with governmental activities are approximately $1.5 billion, or 33% of the total net assets of the City. Net assets associated with business-type activities are approximately $3 billion, or 67% of the total net assets of the City. The largest portion of net assets consists of investment in capital assets, net of related debt, which is $3.6 billion, or 80% of total net assets. Unrestricted net assets, which may be used to meet the City's future obligations, are $274.1 million, or 6.1% of the City's total net assets. Unrestricted net assets for governmental activities are a deficit of $164.1 million, while unrestricted net assets for business-type activities are approximately $438.2 million, or 14.4% of total business-type net assets. The deficit in governmental unrestricted net assets is largely due to the recognition of $234.0 million in other post employment benefit liabilities for governmental activities. During fiscal year 2011, total net assets for the City of Austin increased $65.4 million or 1.5%. Of this amount, governmental activities decreased $65.9 million, or 4.2% from the previous year and business-type activities increased $131.3 million, or 4.5% from the previous year. Total revenues for the City increased $225.3 million; revenues for governmental activities increased $7.0 million; revenues for business-type activities increased $218.3 million. Total expenses for the City increased $148.6 million; expenses for governmental activities increased $48.6 million; expenses for business-type activities increased $100.0 million. OVERVIEW OF THE FINANCIAL STATEMENTS This discussion and analysis is intended to serve as an introduction to the City's basic financial statements, consisting of three components: government-wide financial statements, fund financial statements, and notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements, including information on individual funds. a -- 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 comparable to a private-sector business. The two government-wide financial statements are, as follows: The Statement of Net Assets presents information on all of the City's assets and liabilities, with the difference between the two reported as net assets. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position of the City of Austin is improving or deteriorating. The Statement of Activities presents information showing how the City's net assets changed during the most recent fiscal year. All changes in net assets are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods, such as revenues for uncollected taxes and expenses for future general obligation debt payments. The statement includes the annual depreciation for infrastructure and governmental assets. 3 Management Discussion and Analysis September 30, 2011 3/30/2012 1:08 PM City of Austin, Texas (Continued) OVERVIEW OF THE FINANCIAL STATEMENTS, continued Both of the government-wide 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; transportation, planning and sustainability; public health; public recreation and culture; and urban growth management. The business-type activities include electric, water, wastewater, airport, convention, environmental and health services, public recreation, and urban growth management. The government-wide financial statements include the City as well as blended component units: the Austin Housing Finance Corporation (AHFC), the Austin Industrial Development Corporation (AIDC), the Mueller Local Government Corporation (MLGC), and the Waller Creek Local Government Corporation (WCLGC). The operations of AHFC, AIDC, MLGC, and WCLGC are included within the governmental activities of the government-wide financial statements. AHFC is reported as the Housing Assistance Fund. Although legally separate from the City, these component units are blended with the City because of their governance or financial relationships to the City. b -- Fund financial statements The fund financial statements are designed to report information about groupings of related accounts used to maintain control over resources that have been segregated for specific activities or objectives. The City, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the City can be divided into the following three categories: governmental, proprietary, and fiduciary funds. Within the governmental and proprietary categories, the emphasis is on the major funds. Governmental funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. Most of the City's basic services are reported in governmental funds. These funds focus on current sources and uses of liquid resources and on the balances of available resources at the end of the fiscal year. This information may be useful in determining what financial resources are available in the near term to finance the City's future obligations. Because the focus of governmental fund level statements is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented in the government-wide statements. In addition to the governmental funds balance sheet and statement of revenues, expenditures, and changes in fund balance, separate statements are provided that reconcile between the government-wide and fund level financial statements. The City's General Fund is reported as a major fund and information is presented separately in the governmental fund balance sheet and statement of revenues, expenditures, and changes in fund balances. In addition, the City maintains several individual governmental funds organized according to their type (special revenue, debt service, capital projects, and permanent funds). Data from these governmental funds are combined into a single column labeled nonmajor governmental funds. Individual fund data for the funds is provided in the form of combining statements in the supplementary section of this report. Proprietary funds. Proprietary funds are generally used to account for services for which the City charges customers - either outside customers or internal units or departments of the City. Proprietary fund statements provide the same type of information shown in the government-wide financial statements, only in more detail. The City maintains the following two types of proprietary funds: Enterprise funds are used to report the same functions presented as business-type activities in the government-wide financial TM statements. The City uses enterprise funds to account for the operations of three of the City's major funds, Austin Energy , Austin Water Utility, and Austin-Bergstrom International Airport (Airport), as well as the nonmajor enterprise funds. Internal Service funds are used to report activities that provide supplies and services for many City programs and activities. The City's internal service funds include: Capital Projects Management; Combined Transportation, Emergency and Communications Center (CTECC); Employee Benefits; Fleet Maintenance; Information Systems; Liability Reserve; Support Services; Wireless Communication; and Workers' Compensation. Because these services predominantly benefit governmental operations rather than business-type functions, they have been included in governmental activities in the government-wide financial statements. 4 Management Discussion and Analysis September 30, 2011 3/30/2012 1:08 PM City of Austin, Texas (Continued) OVERVIEW OF THE FINANCIAL STATEMENTS, continued The nonmajor enterprise funds and the internal service funds are combined into separately aggregated presentations in the proprietary fund financial statements. Individual fund data for the funds are provided in the form of combining statements in the supplementary section of this report. Fiduciary funds. Fiduciary funds are used to account for resources held for the benefit of parties outside City government. Since the resources of fiduciary funds are not available to support the City's own programs, they are not reflected in the governmentwide financial statements. The accounting policies applied to fiduciary funds are much like those used for proprietary funds. Comparison of gov ernment-wide and fund fina ncial components. The following chart compares how the City's funds are included in the government-wide and fund financial statements: Fund Types / Other General Fund Special revenue funds Debt service funds Capital project funds Permanent funds Internal service funds Governmental capital assets, including infrastructure assets Governmental liabilities not expected to be liquidated with available expendable financial resources Austin Energy Austin Water Utility Airport Convention Environmental and health services Public recreation Urban growth management Fiduciary funds Governmentwide Governmental Governmental Governmental Governmental Governmental Governmental Fund Financials Governmental - Major Governmental - Nonmajor Governmental - Nonmajor Governmental - Nonmajor Governmental - Nonmajor Proprietary Governmental Excluded Governmental Business-type Business-type Business-type Business-type Business-type Business-type Business-type Excluded Excluded Proprietary - Major Proprietary - Major Proprietary - Major Proprietary - Nonmajor Proprietary - Nonmajor Proprietary - Nonmajor Proprietary - Nonmajor Fiduciary Basis of re porting -- The government-wide statements and fund-level proprietary statements are reported using the flow of economic resources measurement focus and the full accrual basis of accounting. The governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. c -- Notes to the financial statements The notes to the financial statements provide additional information that is essential to fully understanding the data provided in the government-wide and fund financial statements. d -- Other information The Required Supplementary Information (RSI) section immediately follows the basic financial statements and related notes section of this report. The City adopts an annual appropriated budget for the General Fund plus four separately budgeted activities, all of which comprise the General Fund for GAAP reporting. RSI provides a comparison of revenues, expenditures and other financing sources and uses to budget and demonstrates budgetary compliance for each fund/activity. In addition, trend information related to the City's retirement and other post employment benefits plans is presented in RSI. Following the RSI are other statements and schedules, including the combining statements for nonmajor governmental and enterprise funds, internal service funds, and fiduciary funds. 5 Management Discussion and Analysis September 30, 2011 City of Austin, Texas (Continued) 3/30/2012 1:08 PM FINANCIAL ANALYSIS OF THE GOVERNMENT-WIDE STATEMENTS a -- Net assets The following table reflects a summary statement of net assets compared to prior year (in thousands): Condensed Statement of Net Assets as of September 30 (in thousands) Governmental Activities 2011 Current assets Capital assets Other noncurrent assets Total assets Deferred outflows of resources Current liabilities Noncurrent liabilities Total liabilities Deferred inflows of resources Net assets: Invested in capital assets, net of related debt Restricted Unrestricted (deficit) Total net assets $ Business-Type Activities 2010 2011 2010 Total 2011 2010 573,550 2,423,967 15,022 3,012,539 -- 606,064 2,372,210 10,566 2,988,840 -- 1,105,313 6,748,854 941,962 8,796,129 186,369 1,094,991 6,576,192 848,606 8,519,789 212,884 1,678,863 9,172,821 956,984 11,808,668 186,369 1,701,055 8,948,402 859,172 11,508,629 212,884 246,696 1,275,299 1,521,995 -- 279,013 1,151,279 1,430,292 -- 519,251 5,418,451 5,937,702 7,076 618,289 5,202,364 5,820,653 7,710 765,947 6,693,750 7,459,697 7,076 897,302 6,353,643 7,250,945 7,710 1,562,046 92,650 (164,152) $ 1,490,544 1,544,834 71,716 (58,002) 1,558,548 2,048,964 550,516 438,240 3,037,720 1,998,753 502,211 403,346 2,904,310 3,611,010 643,166 274,088 4,528,264 3,543,587 573,927 345,344 4,462,858 In the current fiscal year, total assets increased $300.0 million and deferred outflows of the City decreased by $26.5 million. Total liabilities increased $208.8 million and deferred inflows decreased by $0.6 million. Governmental-type total assets increased by $23.7 million and business-type increased by $276.3 million, while governmental-type liabilities increased by $91.7 million and business-type increased by $117.0 million. Significant factors in the increase of governmental total assets include a decrease in cash and investments of $22.0 million and an increase in capital assets of $51.8 million. Factors in the increase of governmental-type liabilities include increases in the pension obligation payable of $8.7 million, other post employment benefits of $64.6 million, and bonds payable of $38.6 million. Significant factors in the increase of business-type total assets include an increase in capital assets of $172.7 million. Significant factors in the increase in total liabilities include increases in commercial paper notes payable of $104 million and other post employment benefits payable of $48.5 million. As noted earlier, net assets may serve as a useful indicator of a government's financial position. For the City, assets exceeded liabilities by $4.5 billion at the end of the current fiscal year. However, the largest portion of the City's net assets are invested in capital assets, net of related debt (e.g. land, building, and equipment), which are $3.6 billion, or 80% of the total amount of the City's net assets. The City uses these capital assets to provide services to citizens. Capital assets are generally not highly liquid; consequently, they are not considered future available resources. 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 liquidated for these liabilities. An additional portion, $643.2 million of the City's net assets, represents resources that are subject to external restrictions on how they may be used in the future. The remaining balance, $274.1 million of unrestricted net assets, may be used to meet the government's future obligations. Unrestricted net assets decreased $71.3 million in the current fiscal year. At the end of the current fiscal year, the City is able to report positive balances in all three categories of net assets for the government as a whole, as well as for business-type activities. However, governmental activities report a deficit of $164.2 million for unrestricted net assets. 6 Management Discussion and Analysis September 30, 2011 City of Austin, Texas (Continued) 3/30/2012 1:08 PM FINANCIAL ANALYSIS OF THE GOVERNMENT-WIDE STATEMENTS, continued b -- Changes in net assets Total net assets of the City increased by $65.4 million in the current fiscal year. Governmental net assets decreased by $65.9 million after restatement (see Note 16). The decrease is attributable to expenses exceeding revenues by $163.0 million before transfers from other funds of $97.1 million. Business-type net assets increased by $131.3 million after restatement (see Note 16) due to revenues exceeding expenses by $228.4 million, before transfers to other funds of $97.1 million. Governmental Activities Program revenues: Charges for services Operating grants and contributions Capital grants and contributions General revenues: Property tax Sales tax Franchise fees and gross receipts tax Interest and other Total revenues Program expenses: General government Public safety Transportation, planning and sustainability Public health Public recreation and culture Urban growth management Interest on debt Electric Water Wastewater Airport Convention Environmental and health services Public recreation Urban growth management Total expenses Excess (deficiency) before transfers Transfers Increase (decrease) in net assets Beginning net assets, as previously reported Restatement adjustment Beginning net assets, as restated Ending net assets $ Business-Type Activities 2011 2010 2011 101,735 66,348 51,182 109,136 66,831 50,546 2,019,742 -47,850 355,185 151,125 95,029 19,364 839,968 341,812 144,710 87,996 31,960 832,991 99,780 485,611 74,835 61,865 106,488 129,258 45,154 --------1,002,991 2011 2010 1,814,907 -31,703 2,121,477 66,348 99,032 1,924,043 66,831 82,249 ---11,274 2,078,866 ---13,935 1,860,545 355,185 151,125 95,029 30,638 2,918,834 341,812 144,710 87,996 45,895 2,693,536 89,315 455,760 65,565 63,215 91,732 143,884 44,889 --------- -------1,136,850 178,712 170,514 102,774 54,231 91,151 5,209 110,996 -------1,086,470 169,708 166,979 92,780 51,818 66,380 9,715 106,618 99,780 485,611 74,835 61,865 106,488 129,258 45,154 1,136,850 178,712 170,514 102,774 54,231 91,151 5,209 110,996 89,315 455,760 65,565 63,215 91,732 143,884 44,889 1,086,470 169,708 166,979 92,780 51,818 66,380 9,715 106,618 954,360 1,850,437 1,750,468 2,853,428 2,704,828 (163,023) 97,100 (65,923) (121,369) 96,031 (25,338) 1,558,548 (2,081) 1,583,886 -- 2,904,310 2,081 2,886,129 4,135 4,462,858 -- 4,470,015 4,135 1,583,886 1,558,548 2,906,391 3,037,720 2,890,264 2,904,310 4,462,858 4,528,264 4,474,150 4,462,858 1,556,467 $ 1,490,544 7 228,429 (97,100) 131,329 2010 Total 110,077 (96,031) 14,046 65,406 -65,406 (11,292) -(11,292) Management Discussion and Analysis September 30, 2011 3/30/2012 1:08 PM City of Austin, Texas (Continued) FINANCIAL ANALYSIS OF THE GOVERNMENT-WIDE STATEMENTS, continued c -- Program revenues and expenses -- governmental activities Governmental activities decreased the City's net assets by $65.9 million in fiscal year 2011, a 4.24% decrease of governmental net assets from the previous year. Key factors for the change from fiscal year 2010 to 2011 are as follows: The City's property tax revenue increased by $13.4 million from the previous year as a result of an increase in assessed property values and an increase in the City's tax rate from 42.09 cents to 45.71 per $100 valuation. Sales tax collections for fiscal year 2011 were $6.4 million more than fiscal year 2010. Franchise fees and gross receipts taxes increased $7.0 million due largely to an increased service area for cable franchise fees. General government expenses increased $10.5 million primarily due to increases in other post employment benefits expenses and increases to payments to internal service funds for services provided. Public safety expenses increased $29.9 million primarily due to increase in salaries, public recreation and culture expenses increased $14.8 million due to increases in salaries and capital outlay expenses, and urban growth management expenses decreased $14.6 million primarily as a result of the implementation of GASB Statement No. 54. The chart below illustrates the City's governmental expense and revenues by function: general government; public safety; transportation, planning and sustainability; public health; public recreation and culture; urban growth management; and interest on debt. Government-wide Program Expenses and Revenues - Governmental Activities (in thousands) $525,000 $500,000 $475,000 $450,000 $425,000 $400,000 $375,000 $350,000 $325,000 $300,000 $275,000 $250,000 $225,000 $200,000 $175,000 $150,000 $125,000 $100,000 $75,000 $50,000 $25,000 $0 Expense Program Revenue General government Public safety Transportation, planning and sustainability Public health 8 Public recreation and culture Urban growth management Interest on debt Management Discussion and Analysis September 30, 2011 City of Austin, Texas (Continued) 3/30/2012 1:08 PM FINANCIAL ANALYSIS OF THE GOVERNMENT-WIDE STATEMENTS, continued General revenues such as property taxes, sales taxes, and franchise fees are not shown by program, but are used to support all governmental activities. Property taxes are the largest source of governmental revenues, followed by sales taxes and charges for goods and services. Government-wide Revenues by Source -- Governmental Activities Franchise fees and gross receipts tax 11% Other 8% Charges for Services 12% Operating Grants and Contributions 8% Sales tax 18% Property tax 43% d -- Program revenues and expenses -- business-type activities Business-type activities increase the City's net assets by approximately $131.3 million, accounting for a 2.9% increase in the City's total net assets. Key factors include: Austin Energy net assets increased approximately $28.5 million. Revenues increased 8.8% largely due to higher electric sales (base) due to above normal temperatures. Implementation of a Transmission Rider and higher fuel revenue was another major contribution. Expenses increased 5.1% primarily due to higher fuel costs, particularly in the summer months. Austin Water Utility net assets increased approximately $85.7 million. Revenues increased 24.2% due primarily to fee increases and the severe drought experienced during the year. Water revenue for 2011 increased by approximately 41.9% and Wastewater revenue increased 8.2% from prior year. Airport net assets increased approximately $10.4 million. Revenues increased 7.5% due to an increase in passenger traffic and expenses increased 4.9% due mainly to wage and benefit increases. Convention net assets increased approximately $2.4 million. Revenues and transfers from the Hotel Occupancy Tax Fund increased 20.1% due in part to the Texas State Legislature being in session during 2011. Expenses increased due to increases in operations and maintenance costs. Environmental activities are comprised of the Solid Waste Services nonmajor enterprise fund. Net assets decreased by approximately $13.8 million. This decrease is primarily attributed to a reduction in the accrual of environmental remediation costs during the year. Public recreation activities are comprised of nonmajor enterprise funds that include the Golf Fund and Parks and Recreation Fund. Net assets increased by $168 thousand. This net increase is a result of a combination of wage and benefit increases, debt service requirements, and the transfer of assets and liabilities of the Parks and Recreation Fund to governmental activities. Urban growth management activities are comprised of nonmajor enterprise funds that include the Drainage Fund and Transportation Fund. Net assets increased by approximately $21.9 million. Drainage revenues increased 2.3% primarily from customer growth due to development and annexations. Drainage expenses increased 4.3% due mainly to infrastructure and waterway maintenance. Transportation Fund revenues increased approximately 12.2% primarily due to increased license and permit fees and increased parking meter and pay station revenues. 9 Management Discussion and Analysis September 30, 2011 City of Austin, Texas (Continued) 3/30/2012 1:08 PM FINANCIAL ANALYSIS OF THE GOVERNMENT-WIDE STATEMENTS, continued As shown in the following chart, the electric utility, with expenses of $1.14 billion is the City's largest business-type activity, followed by water ($179 million), wastewater ($171 million), urban growth management ($111 million), airport ($103 million), environmental ($91 million), convention ($54 million), and public recreation ($5 million). For the fiscal year, operating revenues exceeded operating expenses for all business-type activities except convention, environmental, and public recreation. Government-wide Expenses and Program Revenues -- Business-type Activities (Excludes General Revenues and Transfers) (in thousands) $1,300,000 $1,200,000 Expense $1,100,000 Program Revenue $1,000,000 $900,000 $800,000 $700,000 $600,000 $500,000 $400,000 $300,000 $200,000 $100,000 $0 Electric Water Wastewater Airport Convention Environmental and health services Public recreation Urban growth management For all business-type activities, charges for services provide the largest percentage of revenues (97%), followed by capital grants and contributions (2%), and interest and other revenues (1%). Government-wide Revenue by Source - Business-type Activities Capital Grants and Contributions 2% Interest and other 1% Charges for Services 97% 10 Management Discussion and Analysis September 30, 2011 3/30/2012 1:08 PM City of Austin, Texas (Continued) FINANCIAL ANALYSIS OF THE GOVERNMENT'S FUND LEVEL STATEMENTS In comparison to the government-wide statements, the fund-level statements focus on the key funds of the City. The City uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. a -- Governmental funds The City reports the following types of governmental funds: the general fund, special r