This CAFR is an internal audit report prepared by the city's Financial Services Department that covers the first half of the calendar year and the end of the the fiscal year in June 2020 - four months into the COVID-19 Pandemic. We are now six months more into unpredictable stronger economic impacts that have destroyed the long-term prior planning strategies as well as the overall budget predictions, estimates and forecasts.
At least one Mesa City Council member has pointed out there are basic serious structural flaws in the city's annual budgets for more than the past four years. Whether those flaws get corrected is an ongoing argument - exacerbated by unexpected external factors that question the city's reliance on certain spending priorities and the use of public taxpayer money for returns on investments.
Here are some data from a meeting of the Audit, Finance & Enterprise Committee from Monday, December 14, 2020: There is a prepared carefully-scripted presentation as well as the entire 191-page CAFR where the Table of Contents is more than three pages.
| File #: | 20-1230 |
| Type: | Presentation | Status: | Agenda Ready |
| In control: | Audit, Finance and Enterprise Committee |
| On agenda: | 12/14/2020 |
| Title: | Hear a presentation, discuss, and provide a recommendation on the City's Comprehensive Annual Financial Report (CAFR) for Fiscal Year Ended June 30, 2020. |
| Attachments: | 1. Presentation, 2. 2020 CAFR |
1 PRESENTATION:
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2 2020 CAFR DOCUMENT
11.8MB 191 Pages
Financial Services Department
14 December 2020
To the Citizens, Honorable Mayor, City Council and City Manager:
The Comprehensive Annual Financial Report of the City of Mesa (the “City”) for the fiscal year ended June 30, 2020 is hereby submitted.
Prepared by the Financial Services Department, this report consists of management’s representations concerning the finances of the City of Mesa. Consequently, management assumes full responsibility for the completeness and reliability of the information presented in this report.
To provide a reasonable basis for making these representations, management of the City has established a comprehensive internal control framework that is designed both to protect the government’s assets from loss, theft, or misuse and to compile sufficient reliable information for the preparation of the City’s financial statements in conformity with accounting principles generally accepted in the United States of America.
Because the cost of internal controls should not outweigh their benefits, the City’s comprehensive framework of internal controls has been designed to provide reasonable rather than absolute assurance that the financial statements will be free from material misstatement.
As management, we assert that to the best of our knowledge and belief, this financial report is complete and reliable in all material respects.
The City’s financial statements have been audited by CliftonLarsonAllen, LLP, a firm of licensed certified public accountants.
The goal of the independent audit was to provide reasonable assurance that the basic financial statements of the City for the fiscal year ended June 30, 2020, are free of material misstatement.
The independent audit involved examining, on a test basis, evidence
> supporting the amounts and disclosures in the financial statements;
> assessing the accounting principles used and significant estimates made by management; and
> evaluating the overall financial statement presentation.
The independent auditor concluded, based upon the audit, that there was a reasonable basis for rendering an unmodified opinion that the City’s financial statements for the fiscal year ended June 30, 2020, are fairly presented in conformity with accounting principles generally accepted in the United States of America.
The independent auditor’s report is presented as the first component of the financial section of this report. The independent audit of the financial statements of the City was part of a broader, federally mandated “Single Audit” designed to meet the special needs of federal grantor agencies.
The standards governing Single Audit engagements require the independent auditor to report not only on the fair presentation of the financial statements, but also on the audited government’s internal controls and compliance with legal requirements, with special emphasis on internal controls and legal requirements involving the administration of federal awards.
These reports are available in the City’s separately issued Single Audit Report.
Accounting principles generally accepted in the United States of America require that management provide a narrative introduction, overview, and analysis to accompany the basic financial statements in the form of Management’s Discussion and Analysis (MD&A) and should be read in conjunction with it.
Accounting principles generally accepted in the United States of America require that management provide a narrative introduction, overview, and analysis to accompany the basic financial statements in the form of Management’s Discussion and Analysis (MD&A) and should be read in conjunction with it.
The City’s MD&A can be found immediately following the report of the independent auditors.
Profile of the City
The City was founded in 1878 and incorporated July 15, 1883 with an approximate population of 300 and an area of one square mile. Today, the City’s estimated population is 514,144 compared with the 2010 decennial census count of 439,041. Total land area encompasses 138 square miles. The City is the 35th largest city in the United States and is the third largest city in the State of Arizona. Mesa is located 16 miles east of Phoenix, the State Capitol. The City operates under a charter form of government with citizens electing a Mayor and six Councilmembers to set policy for the City. City Councilmembers are elected from districts and serve terms of four years, with three members being elected every two years. The Mayor is elected at-large every four years. The Mayor and Council are elected on a non-partisan basis, and the Vice Mayor is selected by the City Council.
The Mayor and City Council are responsible for appointing the City Manager, City Attorney, City Auditor, City Clerk and the Presiding City Magistrate.
The Mayor and City Council are responsible for appointing the City Manager, City Attorney, City Auditor, City Clerk and the Presiding City Magistrate.
The City Manager has full responsibility for carrying out City Council policies and administering City operations and is responsible for the hiring of City employees. Additionally, City employees are hired under merit system procedures as specified in the City Charter.
An allocated staff of 4,135 full-time (equivalent) City employees working within 27 different City departments undertakes the various functions of Mesa’s city government and its operation.
An allocated staff of 4,135 full-time (equivalent) City employees working within 27 different City departments undertakes the various functions of Mesa’s city government and its operation.
> The City provides a full range of municipal services, including police and fire protection, parks and recreation, library, transportation, health and certain social services and general administration; and,
> the City owns and operates enterprises including operations of electric, gas, water, wastewater, solid waste, airport and a golf course.
The Mesa Art Center, which includes 212,755 square feet of performing arts, visual arts and art education facilities, is the largest comprehensive arts campus in the Southwest. The Mesa Art Center was awarded the Venue Excellence Award by the International Association of Venue Managers. This prestigious award recognizes venues such as stadiums, convention centers, arenas, performing arts centers, and academic institutions that demonstrate excellence in the following four criteria: service to the community, team building/professional development, safety and security, and operational excellence.
The annual budget serves as the foundation for the City’s financial planning and control. Historical data is analyzed during the creation of a multi-year financial forecast. The forecast provides a framework to assist Mesa’s elected officials and executive team make important decisions about the direction of the City.
The City Council sets the City’s long-term strategic direction and provides staff with budget priorities for the upcoming fiscal year. A proposed budget is presented to the City Council for review and discussion in mid spring with the final adoption of the operating budget by resolution in late spring. The City of Mesa begins the fiscal year on July 1st.
Legal control over the budget derives from State statutes that prohibit the City from exceeding its adopted budget in total, and from the resolution itself that sets the limit. The residents of Mesa
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approved a Home Rule exemption to the State of Arizona’s expenditure limitation requirement. The City can determine the budget level as long as the City can identify resources to cover the expenses.
The City Council sets the City’s long-term strategic direction and provides staff with budget priorities for the upcoming fiscal year. A proposed budget is presented to the City Council for review and discussion in mid spring with the final adoption of the operating budget by resolution in late spring. The City of Mesa begins the fiscal year on July 1st.
Legal control over the budget derives from State statutes that prohibit the City from exceeding its adopted budget in total, and from the resolution itself that sets the limit. The residents of Mesa
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approved a Home Rule exemption to the State of Arizona’s expenditure limitation requirement. The City can determine the budget level as long as the City can identify resources to cover the expenses.
The budget is annually appropriated for all funds by the City Council and consists of all planned expenditures and the associated resources to cover them.
While the State does not require trust fund expenditures to be appropriated, the City chooses to include them in order to fully represent City activity.
Factors Affecting Financial Condition
The information presented in the financial statements is perhaps best understood when it is considered from the broader perspective of the specific environment within which the City operates.
Local Economy
The COVID-19 pandemic put an end to the nation’s longest modern economic expansion. Over the past several months, citizens and small businesses across Arizona have been impacted by the various policies regarding business closures and stay-at-home policies.
The City of Mesa received support from the Federal Government from the Coronavirus Aid, Relief, and Economic Security Act to support the City and the community during the COVID-19 emergency.
The Mesa CARES program was implemented using the federal funds to support City services and programs such as the Feeding Mesa Program which supplies additional food distribution through non-profits and Mesa-based restaurants and the Small Business Reemergence Program which provides financial assistance to businesses to cover operating expenses such as utilities and rent.
Due to the economic challenges brought on by the pandemic, the City’s economic indicator for commercial construction in fiscal year (FY) 2020 fell around 40% from FY 2019 or approximately $400 million in commercial valuation.
Due to the economic challenges brought on by the pandemic, the City’s economic indicator for commercial construction in fiscal year (FY) 2020 fell around 40% from FY 2019 or approximately $400 million in commercial valuation.
Residential construction, however, increased by 1.5% from FY 2019. This represents an increase of approximately $12 million in dollar valuation.
While the COVID-19 health crisis has had an impact on economic activity, the related stay-athome policy has influenced Mesa residents to buy local and online more than they would have previously.
> Beginning in May, we have seen over 20% year over year increases in retail sales tax through the month of September.
> For the year ending June 30, 2020, retail sales tax was up 20.6% while overall sales tax revenues were up 15.8%.
> Not surprisingly, tourism was negatively impacted by the pandemic as evidenced by a 15.5% decrease in the transient lodging (‘bed’) tax.
Conservative budget practices and willingness to respond to economic indicators continues to allow the City to maintain unrestricted fund balance reserve levels as established in the City’s financial policies.
Conservative budget practices and willingness to respond to economic indicators continues to allow the City to maintain unrestricted fund balance reserve levels as established in the City’s financial policies.
The FY 2021 budget continues the City’s fiscally conservative approach and reinforces the City’s effort to invest in economic development, improve public safety and attract and retain excellent employees. All fund balances were maintained at or above the levels prescribed by financial policy and prudent practice.
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Major Initiatives
During the year, various major accomplishments were realized. Some of these were:
• Mesa’s strong and resilient financial position was recognized this fall as Fitch Ratings assigned the top rating of AAA to the City’s 2020 General Obligation (GO) bonds. S&P maintained their rating of AA for the City’s GO bonds and reaffirmed their AA- rating on the City’s utility revenue bonds. Moody’s maintained their Aa2 rating to both our general obligation and utility revenue bonds. • At the end of last year, Mesa became the first ever Autism Certified City in the nation by the International Board of Credentialing and Continuing Education Standards (IBCCES). This recognition was the result of nearly a year-long quest to tailor travel experiences for individuals with autism and their families. In total, almost 60 businesses and organizations in Mesa and the surrounding area completed autism certification training. • Norwegian company Nammo announced its intentions to merge all of its existing smaller units in the U.S. into a single entity in the City of Mesa. The new entity will be called Nammo Defense Systems and will combine the company’s manufacturing operations from Arizona, Mississippi, Utah, Pennsylvania and Maryland. • In March, the Associated General Contractors of America announced that the Gilbert Road Light Rail Extension (GRLRE) was among the most significant construction projects of 2020, and awarded the project the Construction Risk Partners Build America Merit Award for best new highway and transportation project. Just a month prior, the GRLRE project also won the Arizona Chapter of the Associated General Contractors of America Build Arizona Award for Public-New Construction Project over $50 million. • In July, Davcon Aviation in partnership with the City began construction of nearly 400,000 square feet of hanger and office space in the Falcon Field district. The 23-acre development will offer significant opportunities for new and expanding aviation businesses. • Like the rest of the aviation industry, Phoenix-Mesa Gateway Airport saw a near disappearance of passenger traffic due to the COVID-19 outbreak. When compared to the same months a year before, passenger traffic at the airport was down 93% in April and 61% in May. This trend paralleled airport activity throughout the country as people stayed home. However, beginning in June, Gateway Airport started to reverse that trend and has continued to show significant gains in passenger activity throughout the summer. In August 2020, the Airport was down only 35% when compared to last year. In fact, by Labor Day Weekend, more travelers passed through Gateway Airport than last year. • In August, Amazon announced it will make a significant investment in facilities across the Phoenix-Mesa metro area including a 150,000-square-foot delivery station in Mesa’s Falcon District, just east of Boeing’s manufacturing facility. Delivery stations power the last mile of Amazon’s order fulfillment process. Packages are transported to delivery
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stations from Amazon fulfillment and sortation centers, and then loaded into vehicles for delivery to customers. • In August, Commercial Metals Company (CMC) announced that it will be building its second micro mill in Mesa. The mill represents a $300 million investment by CMC, which expects to create 185 jobs once the plant is fully operational. • In September, Boeing unveiled plans to build a new fabrication center that will be approximately 155,000 square feet and will be located on 21.5 acres of vacant land within the western part of the existing Boeing campus. • In September, the International City/County Management Association (ICMA) recognized the City of Mesa for its commitment to data-driven government management and reporting with a Certificate of Distinction in Performance Management. Mesa is among 19 jurisdictions receiving the Certificate of Distinction, and one of only 60 recognized overall. ICMA awards Certificates of Distinction to those agencies that collect and verify data to ensure reliability, train staff in performance measurement, and report data to the public through budgets, newsletters, and/or information provided to elected officials.
• In September, the Center for Digital Government announced the winners of its 4th annual competition, honoring U.S. governments who are leveraging innovative digital services to enhance services and citizen experience. The awards recognize the achievements and best practices of states, cities, and counties that are radically improving the experience of government interaction and pushing the boundaries of how citizen services are delivered. The City of Mesa placed 4th for Overall Government Experience. In addition, special awards were given this year to state, local, and federal government agencies and departments whose methods of response and assistance to employees and citizens in coping with the COVID-19 pandemic were innovative and effective. Mesa was one of five cities to receive this special COVID-19 Response Award for using various digital platforms to deliver Mesa CARES information and encourage program participation via online methods.
• Mesa’s strong and resilient financial position was recognized this fall as Fitch Ratings assigned the top rating of AAA to the City’s 2020 General Obligation (GO) bonds. S&P maintained their rating of AA for the City’s GO bonds and reaffirmed their AA- rating on the City’s utility revenue bonds. Moody’s maintained their Aa2 rating to both our general obligation and utility revenue bonds. • At the end of last year, Mesa became the first ever Autism Certified City in the nation by the International Board of Credentialing and Continuing Education Standards (IBCCES). This recognition was the result of nearly a year-long quest to tailor travel experiences for individuals with autism and their families. In total, almost 60 businesses and organizations in Mesa and the surrounding area completed autism certification training. • Norwegian company Nammo announced its intentions to merge all of its existing smaller units in the U.S. into a single entity in the City of Mesa. The new entity will be called Nammo Defense Systems and will combine the company’s manufacturing operations from Arizona, Mississippi, Utah, Pennsylvania and Maryland. • In March, the Associated General Contractors of America announced that the Gilbert Road Light Rail Extension (GRLRE) was among the most significant construction projects of 2020, and awarded the project the Construction Risk Partners Build America Merit Award for best new highway and transportation project. Just a month prior, the GRLRE project also won the Arizona Chapter of the Associated General Contractors of America Build Arizona Award for Public-New Construction Project over $50 million. • In July, Davcon Aviation in partnership with the City began construction of nearly 400,000 square feet of hanger and office space in the Falcon Field district. The 23-acre development will offer significant opportunities for new and expanding aviation businesses. • Like the rest of the aviation industry, Phoenix-Mesa Gateway Airport saw a near disappearance of passenger traffic due to the COVID-19 outbreak. When compared to the same months a year before, passenger traffic at the airport was down 93% in April and 61% in May. This trend paralleled airport activity throughout the country as people stayed home. However, beginning in June, Gateway Airport started to reverse that trend and has continued to show significant gains in passenger activity throughout the summer. In August 2020, the Airport was down only 35% when compared to last year. In fact, by Labor Day Weekend, more travelers passed through Gateway Airport than last year. • In August, Amazon announced it will make a significant investment in facilities across the Phoenix-Mesa metro area including a 150,000-square-foot delivery station in Mesa’s Falcon District, just east of Boeing’s manufacturing facility. Delivery stations power the last mile of Amazon’s order fulfillment process. Packages are transported to delivery
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stations from Amazon fulfillment and sortation centers, and then loaded into vehicles for delivery to customers. • In August, Commercial Metals Company (CMC) announced that it will be building its second micro mill in Mesa. The mill represents a $300 million investment by CMC, which expects to create 185 jobs once the plant is fully operational. • In September, Boeing unveiled plans to build a new fabrication center that will be approximately 155,000 square feet and will be located on 21.5 acres of vacant land within the western part of the existing Boeing campus. • In September, the International City/County Management Association (ICMA) recognized the City of Mesa for its commitment to data-driven government management and reporting with a Certificate of Distinction in Performance Management. Mesa is among 19 jurisdictions receiving the Certificate of Distinction, and one of only 60 recognized overall. ICMA awards Certificates of Distinction to those agencies that collect and verify data to ensure reliability, train staff in performance measurement, and report data to the public through budgets, newsletters, and/or information provided to elected officials.
• In September, the Center for Digital Government announced the winners of its 4th annual competition, honoring U.S. governments who are leveraging innovative digital services to enhance services and citizen experience. The awards recognize the achievements and best practices of states, cities, and counties that are radically improving the experience of government interaction and pushing the boundaries of how citizen services are delivered. The City of Mesa placed 4th for Overall Government Experience. In addition, special awards were given this year to state, local, and federal government agencies and departments whose methods of response and assistance to employees and citizens in coping with the COVID-19 pandemic were innovative and effective. Mesa was one of five cities to receive this special COVID-19 Response Award for using various digital platforms to deliver Mesa CARES information and encourage program participation via online methods.
Awards and Acknowledgements
The Government Finance Officers Association (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the City for its comprehensive annual financial report for the fiscal year ended June 30, 2019. In order to be awarded a Certificate of Achievement, the City published an easily readable and efficiently organized comprehensive annual financial report. This report satisfied both accounting principles generally accepted in the United States of America and applicable legal requirements.
A Certificate of Achievement is valid for a period of one year only. We believe that our current comprehensive annual financial report continues to meet the Certificate of Achievement Program’s requirements, and we are submitting it to the GFOA to determine its eligibility for another certificate.
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The efficient and dedicated services of the City’s Financial Services Director, Irma Ashworth, and the devoted staff of the Financial Services Division has made the preparation of the comprehensive annual financial report possible. Also, I want to thank the Mayor, members of the City Council and the City Manager for their continued interest and support of the staff’s efforts in planning and conducting the financial operations of the City.
Respectfully submitted,
Michael Kennington, Deputy City Manager/Chief Financial Officer
A Certificate of Achievement is valid for a period of one year only. We believe that our current comprehensive annual financial report continues to meet the Certificate of Achievement Program’s requirements, and we are submitting it to the GFOA to determine its eligibility for another certificate.
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The efficient and dedicated services of the City’s Financial Services Director, Irma Ashworth, and the devoted staff of the Financial Services Division has made the preparation of the comprehensive annual financial report possible. Also, I want to thank the Mayor, members of the City Council and the City Manager for their continued interest and support of the staff’s efforts in planning and conducting the financial operations of the City.
Respectfully submitted,
Michael Kennington, Deputy City Manager/Chief Financial Officer
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