Comprehensive Annual Financial Report 2020

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Committed fund balance includes fund balance amounts that are constrained for specific purposes that are internally imposed by the City through formal action of the highest level of decision making authority. Committed fund balance is reported pursuant to resolution passed by the City Council. This classification includes campus activity funds, local special revenue funds and potential litigation, claims and judgments. Assigned fund balance includes fund balance amounts that are self-imposed by the City to be used for a particular purpose. Fund balance can be assigned by the City Council, the City Manager, or the Finance Director. This classification includes insurance deductibles, encumbrances, program start-up costs, projected budget deficit for subsequent years and other legal uses. Unassigned fund balance includes residual positive fund balance within the General Fund which has not been classified within the other above mentioned categories. Unassigned fund balance may also include negative balances for any governmental fund if expenditures exceed amounts restricted, committed, or assigned for those specific purposes. Net Position Flow Assumption Sometimes the City will fund outlays for a particular purpose from both restricted (e.g., restricted bond or grant proceeds) and unrestricted resources. In order to calculate the amounts to report as restricted – net position and unrestricted – net position in the government-wide and proprietary fund financial statements, a flow assumption must be made about the order in which the resources are considered to be applied. It is the City’s policy to consider restricted – net position to have been depleted before unrestricted – net position is applied. Fund Balance Flow Assumption Sometimes the City will fund outlays for a particular purpose from both restricted and unrestricted resources (the total of committed, assigned, and unassigned fund balance). In order to calculate the amounts to report as restricted, committed, assigned, and unassigned fund balance in the governmental fund financial statements a flow assumption must be made about the order in which the resources are considered to be applied. It is the City’s policy to consider restricted fund balance to have been depleted before using any of the components of unrestricted fund balance. Further, when the components of unrestricted fund balance can be used for the same purpose, committed fund balance is depleted first, followed by assigned fund balance. Unassigned fund balance is applied last. II. STEWARDSHIP, COMPLIANCE, AND ACCOUNTABILITY Budgetary Control Annual budgets are adopted on a basis consistent with generally accepted accounting principles for all governmental funds. The annual budget for the utility fund is prepared on the budgetary basis of accounting. All annual appropriations lapse at fiscal year-end. The legal level of budgetary control is the fund level. III. DEPOSITS AND INVESTMENTS Statutes authorize the City to invest in obligations of the U.S. Treasury and U.S. Agencies, municipal bonds, managed public fund investment pools, and certificates of deposit The Interlocal Cooperation Act, Chapter 791 of the Texas Government Code, and the Public Funds Investment Act, Chapter 2256 of the Texas Government Code (the “Act”), provide for the creation of public funds investment pools, such as Texas Short-term Reserve Fund (“TexStar”), Local Government Investment Cooperative (“LOGIC”), TexasDAILY, and Lone Star Investment Pool (“Lone Star”), through which political subdivisions and other entities may invest public funds. TexPool, TexSTAR and LOGIC have a redemption notice period of one day and may redeem daily. The investment pool’s authority may only impose restrictions on redemptions in the event of a general suspension of trading on major securities markets, general banking moratorium or national state of emergency that affects the pool’s liquidity. 29
The City's investments as of September 30, 2020 are: Weighted Credit Carrying Average Maturity Rating Value (days) Investment Pool: TexPool AAAm $ 118,703 38 TexSTAR AAAm 1,973,876 44 LOGIC AAAm 24,868,343 52 Total $ 26,960,922 Portfolio 51 Interest rate risk: In accordance with its investment policy, the City manages its exposure to declines in fair values by limiting the weighted average of maturity not to exceed five years; structuring the investment portfolio so that securities mature to meet cash requirements for ongoing operations; monitoring credit ratings of portfolio position to assure compliance with rating requirements imposed by the Public Funds Investment Act; and invest operating funds primarily in short-term securities or similar government investment pools. Credit risk: The City's investment policy limits investments to obligations of the United States, State of Texas, or their agencies and instrumentalities with an investment quality rating of not less than "A" or its equivalent, by a nationally recognized investment rating firm. Other obligations must be unconditionally guaranteed (either express or implied) by the full faith and credit of the United States Government or the issuing U.S. agency and investment pools with an investment quality not less than AAA or AAA-m, or equivalent, by at least one nationally recognized rating service. As of September 30, 2020, the City's investment in investment pools were rated AAAm and AAA by Standard & Poor's. Custodial credit risk — deposits: In the case of deposits, this is the risk that in the event of a bank failure, the City's deposits may not be returned to it. State statutes require that all deposits in financial institutions be insured or fully collateralized by U.S. government obligations or its agencies and instrumentalities or direct obligations of Texas or its agencies and instrumentalities that have a market value of not less than the principal amount of the deposits. As of September 30, 2020, the market values of pledged securities and FDIC insurance exceeded bank balances. Custodial credit risk — investments: For an investment, this is the risk that, in the event of the failure of the counterparty, the City will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. The City's investment policy requires that it will seek to safekeeping securities at financial institutions, avoiding physical possession. Further, all trades, where applicable, are executed by delivery versus payment to ensure that securities are deposited in the City's safekeeping account prior to the release of funds. IV. RECEIVABLES The City’s receivables as of September 30, 2020 consisted of the following: Industrial Economic General Development Development Debt Storm Fund Corporation Corporation Service Utility Water Total Due from other governments $ 695,806 $ - $ - $ - $ - $ - $ 695,806 Due from developer - 206,901 - - - - 206,901 Taxes 650,353 232,342 232,242 38,391 - - 1,153,328 Fines & fees 417,926 Accounts 51,020 - - - 2,472,346 27,182 2,523,366 Gross receivables 1,815,105 439,243 232,242 38,391 2,472,346 27,182 4,579,401 Less: allowance for uncollectible accounts ( 429,255) - - ( 10,275) ( 1,361,743) - ( 1,801,273) Net receivables $ 1,385,850 $ 439,243 $ 232,242 $ 28,116 $ 1,110,603 $ 27,182 $ 2,778,128 30
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Comprehensive Annual Financial Report 2020

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