ALTERNATIVE EXPENDITURE LIMITATION-UERS REPORTING Pat Walker, Pat Walker Consulting & Dennis Maschke, CliftonLarsonAllen

©2011 LarsonAllen LLP Overview Why, What, How & When? Home Rule (Alternative Exp. Limitation) Permanent Base Adjustment One-time Override Election/ Timeline Requirements Resources Questions?

©2011 LarsonAllen LLP Why & How… Legislation was designed to “limit” city & town expenditures Property taxes were rising Debt was rising ARS § & Arizona State Constitution, Sections 20 & 21 to Article IX limit city & town spending

©2011 LarsonAllen LLP Why & How… State expenditure limitation base year is actual expenditures Economics Estimate Commission (EEC) adjusts baseline exp. annually for population & inflation Exclusions are allowed – Exp. from specific revenues such as federal grants, bond proceeds, debt, etc. Result—alternatives developed

©2011 LarsonAllen LLP Why and How… State Expenditure limitation formula: Base Limit X Population Factor X Inflation Factor = State Imposed Limitation + Exclusions = Total Allowable Expenditures Under State Imposed Limit

©2011 LarsonAllen LLP Home Rule (Alternative Exp. Limitation) Does what it says “Home Rules” Expenditure limitation set by budget each year Must be renewed every 4 years beginning with fiscal year after voter approval If fails, must wait 2 years Requires resolution by Council and voter approval

©2011 LarsonAllen LLP Home Rule (Alternative Exp. Limitation) Projection of state imposed expenditure limitation & alternative expenditure limitation Uses EEC, ADOA population projections & ADOR inflation factors Determination of whether you need an alternative first! Must estimate revenues by Federal, State or Local Source

©2011 LarsonAllen LLP Home Rule (Alternative Exp. Limitation) Estimate expenditures by “specific areas” not funds Must hold 2 public hearings and publish notice of hearings two consecutive weeks “Projections” provided to Auditor General contained in Detailed and Summary Analysis with approved Council resolution

©2011 LarsonAllen LLP Home Rule (Alternative Exp. Limitation) Projections must be submitted to Auditor General for approval 60 days before election Publicity pamphlet submittal to Auditor General for comment If August 26, 2014 election, you are too late! If November 4, 2014 election, you have until the first week in July.

©2011 LarsonAllen LLP Permanent Base Adjustment No limitation on amount of adjustment Same analysis as HR must be approved by Auditor General Same deadlines No public hearings required Passage of resolution by Council required

©2011 LarsonAllen LLP Detailed Analysis for HR Or Permanent Base Estimate expenditure amounts for next 4 years Areas that they will be spent in i.e. General Government, Public Safety, etc. Estimate revenues for next 4 years with assumptions These is hardest step and will be unique to each community.

©2011 LarsonAllen LLP Summary Analysis Worksheet For HR or Permanent First Formula: Population from ADOA for FY14 Divided by 1978 Population = Population Factor.

©2011 LarsonAllen LLP Summary Analysis Worksheet For HR or Permanent Second Formula: Then to calculate state imposed limitation for next 4 years is taking base limit (provided by EEC) X Population Factor (Calculated in first formula) X Inflation factor (provided by ADOR) = State Imposed Limitation + Exclusions = Total Expenditures allowed under state imposed limit.

©2011 LarsonAllen LLP Summary Analysis For HR or Permanent Takes information from Detailed Analysis and Summary Analysis Worksheet & Summarizes Must be placed in publicity pamphlet Make sure totals match on all analysis & forms!

©2011 LarsonAllen LLP One-Time Override Requires 2 public hearings and Council approval of resolution Requires voter approval of a specific amount Can be at special election (third Tuesday in May) or regular election prior to fiscal year needed Effective 1 year No Auditor General review

©2011 LarsonAllen LLP Elections/Timing Home Rule Regularly scheduled election for nomination or election of council members 2 year waiting period before re-proposal Permanent Base Adjustment Regularly scheduled general election, or nonpartisan election for nomination or election of governing board members One-Time Override Regularly scheduled election for nomination or election of governing board members, or special election on the third Tuesday in May

©2011 LarsonAllen LLP Assistance Arizona League of Cities & Towns at (Tom Belshe is a great resource! Accounting Services Division at call (602) Check out the webinar and forms as well as the FAQ’s on the Auditor General’s website!

©2011 LarsonAllen LLP Questions? Pat Walker Consulting (480)

©2012 CliftonLarsonAllen LLP ©2011 LarsonAllen LLP ©2012 CliftonLarsonAllen LLP UERS Report Dennis V Maschke, CPA, MBA Audit Manager CliftonLarsonAllen LLP

©2012 CliftonLarsonAllen LLP ©2011 LarsonAllen LLP Expenditure Limitation Report - Format Reconciliation Calculate constitutional expenditures Part II Exclude “non- local” revenues Part I Compare to legal limit.

©2012 CliftonLarsonAllen LLP ©2011 LarsonAllen LLP Reconciliation Base Expenditures Governmental – Fund Expenditures, including special and extraordinary items. (Not transfers) Enterprise – All expenses, operating and non-operating. (Not transfers) Subtractions Items that do not involve cash payout, but are reported as expense Expenditures of legal separate entities (MPC’s, Special Districts) Present value of minimum capital leases (Governmental Funds Only) (Capital Lease Proceeds) Involuntary court judgments (See Attorney General Opinion I86-031) Additions Principal payments on long-term debt Capital asset acquisitions Claims paid in the CY but reported as expense incurred but not reported in PY Landfill closure as expended in previous year

©2012 CliftonLarsonAllen LLP ©2011 LarsonAllen LLP Reconciliation – Items not requiring working capital Depreciation Loss on Disposal Bad Debt Expense Claims incurred but not reported Landfill Closure

©2012 CliftonLarsonAllen LLP ©2011 LarsonAllen LLP Reconciliation - Example Flows through to Part II – Line A

©2012 CliftonLarsonAllen LLP ©2011 LarsonAllen LLP Reconciliation – Example (continued) – Statement of Expenditures, Revenues, and Changes in Fund Balance

©2012 CliftonLarsonAllen LLP ©2011 LarsonAllen LLP Reconciliation – Example (continued) – Statement of Revenues, Expenses, and Changes in Net Position

©2012 CliftonLarsonAllen LLP ©2011 LarsonAllen LLP Reconciliation – Example (continued) – Footnotes

©2012 CliftonLarsonAllen LLP ©2011 LarsonAllen LLP Reconciliation – Example – Statement of Cash Flows

©2012 CliftonLarsonAllen LLP ©2011 LarsonAllen LLP Part II - Exclusions Revenue Exclusions Excludability determined by revenue Non-local revenue excluded only once Unspent non-local revenues carried forward Interfund transfers, excluded when spent Expenditure Exclusions Can’t exceed non-local revenue Excludable only once No carry-forward Excludability determined by actual expense

©2012 CliftonLarsonAllen LLP ©2011 LarsonAllen LLP Part II – Exclusions Debt Service Bond Proceeds Proceeds from other long term obligations (capital lease, etc.) Debt service requirements on bond indebtedness Debt service requirements on other long term obligations (capital leases, etc.) Dividends/ Interest Includes dividends, interest, and gains on investment Includes interest on delinquent property taxes Does not include gains on the sale of capital assets Trustee/ Custodian Usually Agency fund where the municipality is holding monies for other Fire Fighters Pension Fund Fiduciary Trust Funds

©2012 CliftonLarsonAllen LLP ©2011 LarsonAllen LLP Part II – Exclusions (continued) Intergovernmental Revenue Federal Grants (should not exceed amount reported on SEFA) State funds (hotel excise taxes, state grants) Private Donations (does not include amounts in-lieu of taxes) Quasi-external Interfund transactions Reported as revenue in enterprise fund, from payments made from governmental funds. (Example: water/sewer fees) Amounts for purchase of land/buildings Needs voter approval Only the amount spent during the current year is excludable

©2012 CliftonLarsonAllen LLP ©2011 LarsonAllen LLP Part II – Exclusions (continued) Contracts with other Political Subdivisions Revenue related to contracts with other governments School Districts Community Colleges Counties Etc. Refunds, Reimbursements or Recoveries Events that occur in a prior year and reimbursement is received after. Prior Year Carry Forward Prior year carry forward amounts used in the current year as exclusions.

©2012 CliftonLarsonAllen LLP ©2011 LarsonAllen LLP Part II - Example

©2012 CliftonLarsonAllen LLP ©2011 LarsonAllen LLP Part II – Example (continued)

©2012 CliftonLarsonAllen LLP Footnotes - Example Note 1 – Should explain where amounts can be found in the financial statements Subsequent notes should recap how additional amounts can be derived Intergovernmental Revenues Federal Grants $30,000 State Grants 9,816 HURF Revenue excess 530,177 Total Intergovernmental$569,993

©2012 CliftonLarsonAllen LLP Part II – HURF Calculation Maximizing Carry Forward HURF Revenue $ 530,177 Base Limit 200,000 Available for Exclusion 330,177 HURF Expenditures $ 520,000 Base Limit Revenues (200,000) Non-HURF Revenues (15,000) Excludable Revenues Expended in the CY $ 305,000 Available for Exclusion 330,177 Revenue Expended and claimed as exclusion in the CY 305,000 Excludable Revenues Carried Forward $ 25,177 Maximizing Exclusions HURF Revenue $ 530,177 Base Limit 200,000 Available for Exclusion 330,177 HURF Expenditures $ 520,000 Available for Exclusion (330,177) Non-HURF Revenues (15,000) Based Limit Expended $ 174,823 Base Limit 200,000 Base Limit Expended 174,823 Unspent Base Limit Revenues Not excludable in future years. $ 25,177 CY Exclusion Used

©2012 CliftonLarsonAllen LLP Part I Calculates the “bottom line” The individual signing the report needs to be communicated to the AG’s office Adjustments –Disasters declared by Governor –Voter approval one time excess If over budget – a hearing will be held and entity may lose tax revenue

©2012 CliftonLarsonAllen LLP ©2011 LarsonAllen LLP Common Pitfalls Double recorded exclusionsExclusion exceeds expendituresMiscalculated HURF carry forwardCarry Forward exclusion with no fund balanceImproperly recorded notes to the AELRCarry Forward amounts not utilized on line B.13.

©2012 CliftonLarsonAllen LLP 38 ©2013 CliftonLarsonAllen LLP cliftonlarsonallen.com twitter.com/ CLA_CPAs facebook.com/ cliftonlarsonallen linkedin.com/company/ cliftonlarsonallen Dennis V Maschke, MBA, CPA Manager, State and Local Government