CITYOFTOLAR  ANNUALFINANCIALANDCOMPLIANCE: REPORT YEAR ENDED SEPTEMBER 30, 2016    CITYOFTOLAR TABLEOECONTENIS  Page  Financial Section Independent Auditors' Report-- Management's] Discussion and Analysis Basic) Financial Statements Government-wide) Financial Statements: Statement ofl Net Position- Statement of Activities Governmental Fund Financial Statements: Balance Sheet- Governmental: Funds- Reconciliation oft the Governmental Funds Balance Sheett to the Statement ofNetl Position Statement of Revenues, Expenditures, and Changes in Fund) Balance - Governmental Funds- Reconciliation oft the Statement of] Revenues, Expenditures, Changes inl Fund Balance ofGovernmental Fundst tot the Statement of Activities- Proprietary Fund] Financial Statements Statement ofE Fund Net Position Proprietary Funds Statement of Revenues, Expenses and Changes inl Fundi Net Position - Proprietary Funds Statement of Cash] Flows - Proprietary Funds Notes to) Financial Statements Required Supplementary Information Actual - General Fund- Schedule of Contributions- Other Supplementary Information Actual - Water Fund- Other Information Required by GAO  Statement ofl Revenues, Expenditures and Changes in Fund Balance - Budget and Schedule of Changes inl Net] Pension) Liability and Related Ratios--m  39  Statement of] Revenues, Expenses and Changes inl Fund] Net] Position - Budget and  Independent Auditors' Report onl Internal Control over Financial Reporting and on Compliance. and Other Matters. Based on an Audit of Financial Statements Performed InA Accordance with Government. Auditing Standards----  Schedule of] Findings and Responses Schedule of] Prior Year Findings    FINANCIAL SECTION    INDEPENDENT AUDITORS' REPORT  To the! Honorable Mayor and Members of the City Council City ofTolar, Texas Report on the Financial Statements  We have audited the accompanying financial statements of the governmental activities, the business-type activities, the aggregate discretely presented component unit, and each major fund, of the City ofTolar, Texas, as of and for the year ended September 30, 2016, and the related notes to the financial statements, which collectively comprise the City's basic financial statements as listedi int the table of contents. Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud ore error. Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit ina accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence aboutt the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment oft the risks of material misstatement oft the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness oft the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation oft the financial statements. We believe that the audit evidence wel have obtained is sufficient and appropriate toj provide a basis for our 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, the aggregate discretely presented component unit, and each major fund of the City ofTolar, Texas, as of September 30, 2016, and the respective changes in financial position, and, where applicable, cash flows thercof for the year then ended in accordance with accounting principles generally accepted in the United States of  Management's Responsibility for thel Financial Statements  Auditor's Responsibility  audit opinions. Opinions  America.  -1-    Other Matters Required: Supplementary. Information  Accounting principles generally accepted in the United States of America require that the management's disçussion and analysis, budgetary comparison information, and pension funding schedules on pages 3 through 9 and pages 39 through 42 be presented to supplement the basic financial statements,. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers itt to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted ini the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to ouri inquiries, the basic financial statements, and other! knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express and opinion Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City's basic financial statements. The budgetary information - proprietary fundi is presented for purposes ofa additional analysis and is not ai required part oft the basic finançial statements. The budgetary information- -1 proprietary fund has not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any Ina accordance with Government. Auditing Standards, we have also issued our report dated March 3, 2017, on our consideration oft the City ofTolar, Texas' internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose oft that report is to describe the scope of our testing ofi internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government. Auditing Standards in considering the City of Tolar, Texas' internal control  orp provide any assurance. Other Information  assurance oni it.  Other Reporting Required by Government. Auditing Standards  over financial reporting and compliance.  MERRITT, MCLANE & HAMBY,P.C.  Abilene, Texas March 3,2 2017    MANAGEMENT'S DISCUSSION AND ANALYSIS    MANAGEMENT'S) DISCUSSION AND. ANALYSIS  This section of City of Tolar's annual financial report presents our discussion and analysis of the City's financial performance during the fiscal year that ended on September 30, 2016. Please read it in  conjunction with the City's financial statements, which follow this section.  FINANCIAL HIGHLIGHTS  The City's total net position increased $50,483 from prior year. Net Position of our business-type activities decreased $25,247 (2.0%), while net position of our governmental activities increased During the year, the City's expenses were $75,730 less thant the $421,480 generated in taxes, other In the City's business-type activities, revenues were $383,650, including transfers of $13,312,  $75,730 (or 7.0%) after prior period adjustment. revenues, and transfers forg governmental; programs. while expenses were $408,897. Thet total cost oft the City's programs was $754,647. The general fund reported fund balance of$136,840. OVERVIEW OF THEI FIMANCIALSTATEMENTS  Management's Discussion and Analysis introduces the City's basic financial statements. The basic financial statements include: (1). government-wide financial statements, (2) fund financial statements, and (3) notes to the financial statements. The City also includes in this report additional information to  supplement the basic financial statements. Government-wide. Financial Statements  The City's annual report includes two government-wide financial statements. These statements provide bothl long-term and short-term information about the City'soveral!: status. Financial reporting at this level uses a perspective similar to that found in the private sector with its basis in full accrual accounting and The first of these government-wide statements is the Statement of Net Position. This is the City-wide statement of financial position presenting information that includes all of the City's assets, deferred outflows of resources, liabilities, and deferred inflows of resources with the difference reported as net position. Over time, increases or decreases ini net position may serve as a useful indicator of whether the financial position of the City as a wholei isi improving or deteriorating. Evaluation of the overall economic health oft the City would extend to other nonfinançial factors such as diversification oft the taxpayer base or the condition of Cityi infrastructure in addition to the financial information provided int thisi report. The second goverment-wide statement is the Statement of Activities which reports how the City's net position changed during the current fiscal year. All current year revenues and expenses are included regardless of when cash is received or paid. An important purpose of the design of the statement of activities ist tos show the financial reliance oft the City's distinct activities or functions on revenues provided  elimination or reclassification ofi internal activities.  by the City's taxpayers.    Both govemment-wide financial statements distinguish governmental activities of the City that are principally supported by taxes and intergovernmental revenues, such as grants, from business-type activities that are intended to recover all or a significant portion of their costs through user fees and charges. Governmental activities include general government, public safety, and public service. Business- The City's financial reporting entity does not include the funds for which the City is not accountable (component units). These organizations, such as the Tolar Economic Development Corporation are reported separately from the primary government though included in the City's overall reporting entity. This entity operates more independently or provides services directly to the citizens though the City  type activities include water and sewer activities.  remains accountable fort their activities. Fund Financial. Statements  Af fundi is an accountability unit used to maintain control over resources: segregated for specific activities or objectives. The City uses funds to ensure and demonstrate compliance with finance-related laws and regulations. Within the basic financial statements, fund financial statements focus on the City's most significant funds rather than the City as a whole. Major funds are separately reported while all others are  combined: into as single, aggregated presentation. The City has twol kinds oft funds:  Governmental, funds are reported in the fund financial statements and encompass essentially the same functions reported as governmental activities in the government-wide financial statements. However, the focus is very different with fund statements providing a distinctive view oft the City's governmental funds. These statements report short-term fiscal accountability focusing on the use of spendable resources during the year and' balances of spendable resources available at the end oft the year. They are useful in evaluating annual financing requirements of governmental programs and the commitment of spendable resources for Since the goverment-wide focus includes the long-term view, comparisons between these two perspectives may provide insight into the long-term impact of short-term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provides a reconciliation to the government-wide statements to assist in A1 budgetary comparison schedule for the general fund can bei foundi in required supplementary! information. This statement demonstrates compliance with the City's adopted and final revised budget. In addition, a budgetary comparison schedule for the proprietary fund can be foundi in other supplementary information. Proprietary, funds are required in the fund financial statements and generally report services for which the City charges customers a fee. There are two kinds of proprietary funds. These are enterprise funds and internal service funds. Enterprise funds essentially encompass thes same functions: reported as business-type activities in the government-wide statements. Services are provided to customers external to the City organization such as the water and sewer. Internal service funds provide services and charge fees to customers within the city organization such as equipment services (repair and maintenance of City vehicles) and the print shop (mail and printing services for City departments). The City has noi internal Proprietary fund statements and statements for discretely presented component units (reporting iss similar to proprietary funds) provide both long-term and short-term financial information consistent with the focus provided by the government-wide financial statements, but with more detail for major enterprise funds.  the near-term.  understanding the differences between theset two perspectives.  service funds.  -4-    Notes to the Financial, Statements  Thea accompanying notest to the financial statements provide information essential to a full understanding of the government-wide and fund financial statements. The notes to the financial statements begin  immediately following the basic financial statements.  Other Information GAO.  In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information, other supplementary information, and other information required by  Financial Analysis of the City as a Whole  Net Position. As year-to-year: financial information is accumulated on a consistent basis, changes in net position may be observed and used to discuss the changing financial position ofthe City as a whole. The City's net position at fiscal year-end is $2,418,209. This is a $50,483 increase over last year's net position of $2,367,726, after adjusting the beginning net position: for debt payments erroneously: recorded in the previous year. The following Table. A-1 provides a summary of the City's net position at September  30,2016 and 2015  Table A-1 City ofTolar's! Net Position Govemmental Activities 2016 2015 176,876 116,216 18,752 4,250 34,988 49,042 994  Business-type Activities 2016 2015 96,244 173,072 28,521 8,258 42,853 102,667 1,512 2,941  Totals 2016 2015 273,120 289,288 47,273 12,508 77,841 151,709 264,025 346,033 2,506 4,455 20,270 20,270 196,850 170,873  Current and Other Assets Capitala and Non-Current Assets Total Assets Deferred Outflows of Resources Current] Liabilities LongT Term Liabilities Totall Liabilities Deferred Inflows of Resources Net Position Neti investmenti inc capital assets Restricted Unrestricted Totall Netl Position  1,050,383 1,084,536 1,313,964 149,323 2,364,347 1,233,859 1,227,259 1,200,752 1,410,208 322,395 2,637,467 1,523,147 59,838 62,544 126,346 131,780 186,184 194,324 94,826 111,586 169,199 234,447  1,514  989,033 981,433 1,212,056 1,212,591 2,201,089 2,194,024 1,150,191 1,091,902 1,268,018 1,293,265 2,418,209 2,385,167  20,270 20,270 140,888 90,199  55,962 80,674  Net Position in the City's governmental activities increased 7.0% (after the prior period adjustment) to $1,150,191. Net Position decreased 2.0% to $1,268,018 in business-type activities of the government. $2,201,089 of total net position is invested in capital assets (distribution and collection system, equipment, etc) and $20,270 is restricted for debt service. Consequently, unrestricted net position showed a $196,850 Changes in! Net Position. The City'st total revenues were: $780,501, excluding transfers. Half(50%) oft the City'sr revenue comes from fees charged for services, and 43 cents of every dollar raised comes from some  balance at the end ofthis year, type oftax. (See Figure A-1)    The total cost of all programs and services was $754,647. The City's expenses cover ai range of services, with approximately fifty-four percent related to business-type activities. (See Figure A-2).  Figure A-1 City Sources ofl Revenue for Fiscal) Year 2016  FigureA2  Gty Finctional Bpenses for Fiscal Véar 2016  Property Other Taxes 1%, 21%  Chargesf for. Services 50%  Non- property Taxes 22%  Operating- grants 6%  Governmental Activities  Revenues and transfers for the City's governmental activities were $421,480, while total expenses were $345,750. The City isi increasing its tax base by bringing ini new businesses and homes, andt thei increasing property tax rate shouldi increase property tax revenue. The increase oft new business adds revenue through  two avenues; 1)p property tax, and 2) salest tax.  TableA A-2  Changesi in City ofTolar, Texas' Net Position Governmental Activities 2016 2015 200  Business-type Activities 2016 2015  Total 2016 2015  Revenues Program Revenues Chargesf for Services Operating Grants and Contributions General] Revenues Salest tax Propertyt tax Franchiset tax Investment Eamings Otheri income Totall Revenues Expenses Generalg government Police Streets Debt service Water utilities Totall Expenses  63,117 $ 71,997 $ 324,162 $ 307,757 $ 387,279 $ 379,754  46,061 209,348  46,061 209,548 146,572 60,983 167,576 160,048 26,924 25,946 655 79 5,434 10,132 312,645 224,173 28,166 27,513 4,939 6,458  146,572 60,983 167,576 160,048 26,924 25,946 540 53 5,434 10,132 312,645 224,173 28,166 27,513 4,939 6,458  115  26  410,163 329,359 370,338 517,131 780,501 846,490  408,897 369,173 408,897 369,173  345,750 258,144 408,897 369,173 754,647 627,317  -6-    Excess (deficiency) beforet transfers Transfers Increase (decrease)i inr netp position Governmental Funds balances of$157,110.  64,413 71,215 11,317 13,658 75,730 84,873  (38,559) 147,958 (25,247) 178,000  25,854 219,173 50,483 262,873  13,312 30,042 24,629 43,700  As discussed, governmental funds are reported in the fund statements with a short-term, inflow and outflow ofs spendable resources focus. This information is useful in assessing resources available att the end ofthe year in comparison with upcoming financial requirements. Governmental funds reported ending fund The total ending fund balances of governmental funds show an increase of $71,416 over the prior year.  This increase is primarily the result of ani increasei ins sales tax and property tax. delivery. The fund balance oft the General Fundi increasedi to $136,840.  Major Governmental Funds  The General Fund is the City's primary operating fund and the largest source of day-to-day service  Proprietary Funds  The proprietary fund statements share the same focus as the government-wide statements, reporting both  short-term and long-term information about financial status.  Major Proprietary Funds  The City's major proprietary fund is the Water Fund. Total net position at the end of the year was  $1,268,018. The Water Fund had a decrease ini net position 1of$25,247.  General Fund Budgetary Highlights  The General Fund Budget for fiscal year 2016 was approximately $320,000. This was an increase of approximately $90,0001 from the previous year's actual expenditures. Int the current year, the City budgeted for the payments to the Economic Development Corporation, increases ins salary and related expenses, and The City amended the budget several times during the fiscal year. The City's budget increased $14,500. Several line items were adjusted to better reflect the actual expenditures. Actual expenditures were  increases inj professional services and repair andi maintenance  $10,089 under budget. Capital Assets  CAPITALASSET/ ANDI DEBT ADMINISTRATION  The City's investment in capital assets, net of accumulated depreciation, for governmental and business- type activities as of September 30, 2016, was $1,050,383 and $1,313,964, respectively. Thet total change in net capital assets was a decrease of3.0% in the governmental and a decrease of 2.5% for business-type activities. The overall decrease was 2.7%1 for the City as a whole. Major capital asset additions during the current fiscal year included improvements on the park adjacent to city hall. See Table A-3 for additional  information about changes in capital assets during the fiscal year.  -7-    Cityo ofTolar City's Capital Assets  Governmental Activities 2016 2015 58,837 58,837 734,642 734,642 536,302 478,498  Business-type Activities 2016 2015 41,605 41,605  Total 2016 2015 100,442 100,442 734,642 734,642 349,019 325,479 536,302 478,498 259,234  Land Buildings andi improvements Distribution: ando collection system Fumiture ande equipment Infrastructure Construction inp progress Total ath historical cost Totala accumulated depreciation Net capitala assets Long-term Debt  2,630,177 2,372,828 2,630,177 2,372,828  135,252 135,252 213,767 190,227  43,700  215,534  1,465,033 1,450,929 2,885,549 2,820,194 4,350,582 4,271,123 414,650 367,602 1,571,585 1,473,221 1,986,235 1,840,823 1,050,383 1,083,327 1,313,964 1,346,973 2,364,347 2,430,300  At ycar-end, the City had $155,000 in bonds payable and $8,258 inr notes payable. See' Table A-4.  TableA A-4 City'sOutstanding Debt  Governmental Activities 2016 2015 20,444 61,350 81,450 61,350 $_ 101,894  Business-type Activities 2016 2015 8,258 $ 10,832 93,650 123,550 101,908 $ 134,382  Total 2016 2015 8,258  31,276 155,000 205,000 163,258 $ 236,276  Note payable Bonds payable  CONOMICFACTORS ANDI NEXT) YEAR'S BUDGETS  The City is working on bringing residentsi into the City ofTolar by adding residential areas. By bringing in new residents, revenue oft the City isi increased through sales tax revenues and property tax revenues. Appraised property value used for the 2016-2017 budget preparation increased approximately $3.3 Water rates increased inl November 2016. Water revenue ise expected toi increase with the increase in rates. Sewer sales are expected to remain substantially the same for the fiscal year 2017. The These indiçators were taken into account when adopting the general fund and water fund budgets for 2017. The General Funds expenditures arel budgeted at $382,101, which is ani increase of approximately $70,000 from prior year expenditures. The City! has added no major new programs or initiative to the: 20171 budget. Ift these estimates are realized, the City's budgetary general fund fund balance is expected to remain the  million, or 9.7% fromt thej previous year.  City budgeted fori increases in contracted services and street repairs.  same.  -8-    CONTACTING THE CITY'S FINANCIALI MANAGEMENT ofTolar'sl Mayor, 8712 W.I Hwy 377, Tolar, Texas' 76476.  This financial report is designed to provide our citizens, taxpayers, customers, and investors and creditors with ag general overview oft the City's finances andt to demonstrate the City'sa accountability for the money it receives. Ifyoul have questions about this report or need additional financial information, contact the City  -9-    BASIC FINANCIAL STATEMENTS    CITYOFTOLAR, TEXAS STATEMENTOFH NETPOSITION SEPTEMBER. 30, 2016  Primary Government Activities  Governmental Business-Type Activities $ 150,543 $ 5,863 (985) 5,435 24,030 (8,010) 176,876 58,837 685,662 16,335 289,549 1,050,383 1,227,259 18,752 18,752  Component Unit 56,319  Total  ASSETS  Current Assets Cash and cash equivalents Receivables: Property tax Allowance: for uncollectible tax Accounts receivables Right ofv way Sales tax Duet to/from other funds Inventory Total current assets Non-current. Assets Capital assets: Land Buildings and improvements Distribution: and collection: system Furniture and equipment Infrastructure Total non-current: assets Total Assets  42,321 $ 192,864 42,831 11,092 96,244 41,605 1,224,822 47,537 1,313,964 2,364,347 1,410,208 2,637,467 28,521 28,521  5,863 (985) 42,831 5,435 24,030 (8,010) 11,092 273,120 100,442 685,662 1,224,822 63,872 289,549  8,010 64,329  64,329  DEFERRED OUTFLOWS OF RESOURCES Deferred outflows related tol TMRS Total Deferred Outflows of Resources  47,273 47,273  The accompanying notes are ani integral part oft this statement.    Primary Government Activities 3,764 6,496 2,693 29,900 42,853 30,698 1,352 24,981 5,565 63,750 126,346 169,199 1,512 1,512 1,212,056 55,962 1,268,018 2,418,209  Govermenta! Business-Type Activities 9,919 762 4,207 20,100 34,988 2,163 16,425 41,250 59,838 94,826 994 994 989,033 20,270 140,888 1,150,191  Component Unit  Total 13,683 762 10,703 2,693 50,000 77,841 30,698 3,515 41,406 5,565 105,000 186,184 264,025 2,506 2,506 2,201,089 20,270 196,850  LIABILITIES  Current Liabilities Accounts payable Sales tax payable Accrued wages payable Notep payable- current Bonds payable- current Total current liabilities Non-current! Liabilities Utility deposits Accrued vacation Net pension liability Note payable- non current Bonds payable- nond current Total non-current liabilities Total Liabilities DEFERRED: INFLOWS OFI RESOURCES Deferred inflows related to TMRS Total Deferred Inflows of Resources NETI POSITION Neti investment inc capital assets Restricted Unrestricted Total Net Position  64,329 64,329  -10-    CITYOFTOLAR, TEXAS STATEMENT OF ACTIVITIES YEARI ENDED: SEPTEMBER: 30, 2016  Program Revenues Charges for Services 63,117 $ 63,117 324,162 324,162 387,279 $  Operating Grants and Contributions  Functions/Programs Primary Government Governmental Activities: General government Publics service Streets Debt service Total govemmental activities Business-type. Activities: Water utilities Total business-types activities Total Primary Government Component Unit Economic Development Corporation  Expenses $ 312,645 $ 28,166 4,939 345,750 408,897 408,897 754,647 $  46,061 46,061 46,061  General Revenues: Taxes: Sales tax Property tax Right of way Investment! Earnings Miscellaneous Income Transfers Total General Revenues and' Transfers Change in! Net) Position Net Position- Beginning Prior Period Adjustment Net Position- Beginning, As Restated Net Position- Ending  The accompanying notes are ani integral part oft this statement.    Net (Expense)) Revenue and Changes inl Net Position Governmental Business-Type Activities $ (249,528)$ (28,166) (4,939) (282,633)  Component Unit  Activities  Total $ (249,528) (28,166) (4.939) (282,633) (38,674) (38,674) (321,307)  (38,674) (38,674) (38,674)  (282,633)  146,572 167,576 26,924 540 5,434 11,317 358,363 75,730 1,091,902 (17,441) 1,074,461 1,150,191 $  146,572 167,576 26,924 655 5,434 24,629 371,790 50,483 2,385,167 (17,441)  48,857  115 13,312 13,427 (25,247) 1,293,265 1,293,265 2,367,726 1,268,018 $ 2,418,209 $.  (24,629) 24,228 24,228 40,101 40,101 64,329  -11-    GOVERNMENTAL FUND FINANCIALSTATEMENTS    CTYOFTOLAR,TEXAS BALANCESHEET-COVERNMENTALI FUNDS SEPTEMBER: 30,2 2016  Total Funds $ 150,543 1,492 5,863 (270) (985) 5,435 24,030 20,270 20,270 21,492 205,156 9,919 762 4,207 20,270 8,010 43,168 4,878 4,878 20,270 136,840 157,110 205,156  General Fund 150,543 $ 4,371 (715) 5,435 24,030 183,664 $ 9,919 $ 762 4,207 20,270 8,010 43,168 3,656 3,656  Debt Service Governmental Fund  ASSETS:  Current: Cash and cashe equivalents Receivables: Property tax Allowance for uncollectible tax Right of way Salest tax Due from other funds Total Assets Current Liabilities Accounts payable Sales tax payable Accrued liabilities Duet to other funds Duet tol EDC Total Liabilities Unavailable revenue- property tax Total Deferred] Inflows of Resources  LIABILITIES:  $  DEFERRED INFLOWS OFI RESOURCES:  1,222 1,222 20,270 20,270 21,492_,  FUNDI BALANCE:  Restricted: Debt service Unassigned Total Fund Balance  136,840 136,840 183,664 $  Total Liabilities, Deferred Inflows of Resources, and] Fund Balances  The accompanying notes are an integral part oft this statement.  -12-    CITYOFTOLAR, TEXAS TOTHESTATEMENTOFT NETI POSITION SEPTEMBER: 30, 2016  RECONCILIATION: OFT TECOVARMANTALPUNDS BALANCE: SHEET  Total fund balances- governmental funds balance sheet (SNP) are different because:  $ 157,110  Amounts reported for governmental activities int thes statement ofn net position  Capital assets used in governmental activities are not financial resources and therefore are not reported in govermental funds. At the beginning of the year, the cost of these assets was Current year capital outlays are expenditures int the fund financial statements, but are shown as Long-term liabilities att the beginning oft the year of $101,894, including bonds of $81,450 are not dues and payablei int thec current period, and therefore are not reported as liabilities int thei funds, Long-term debt principal payments are expenditures in the fund financial statements but they should bes shown as reductions inl long-term debti int theg goverment-wide: financial statements. Included int ther noncurrent. liabilities ist the recognition oft the city's net pension liability required by GASB 68 int the amount of $16,425, a deferred resource inflow in the amount of $994, and a deferred resource outflow int the amount of$ $18,752. This resulted in ani increasei ini net position by Vacation accrual isr recorded int thes statement ofr net position. The balance decreases net position Various other reclassifications and eliminations including recognizing unavailable revenue as revenue and adjusting current year revenue to show the revenue eamed from the current year's tax  $1,450,929 and thes accumulated depreciation was $367,602. increases toc capital assets int thes statement ofr net position.  1,083,327 14,104 (101,894) 40,544  $1,333.  1,333 (2,163) 4,878 (47,048) $ 1,150,191  levy.  Depreciation expense decreases net positioni ins SNP. Net position ofg govemmental activities statement ofn net position  The accompanying notes are ani integral part oft this statement,  -13-    CYOFTOLAKIENAS STATEMENT OFF REVENUES, EXPENDITURES, AND CHANGESI IN EUNDBALANCE-GOVERMMENTALFINDS YEARI ENDEDS SEPTEMBER: 30, 2016  Total Debt Service Governmental Fund Funds $ 146,572 45,824 167,281 26,924 17,855 44,721 541 540 5,434 409,868 273,560 16,622 45,483 335,665 74,203 (2,787) (2,787) 71,416 103,135 (17,441) 85,694 157,110  General Fund $ 146,572 $ 121,457 26,924 17,855 44,721 541 540 5,434 364,044 273,560 16,622 21,289 311,471 52,573 18,843 18,843 71,416 82,865 (17,441) 65,424 136,840 $  REVENUES Sales tax Property tax Right of way License and permits Garbage collection income Fines and forfeitures Investment income Miscellaneous income Total Revenues EXPENDITURES Current: General government Publics service Streets Debts service Total! Expenditures Excess (Deficiency) of Revenues over (Under) Expenditures Other Financing Uses Operating transfers out Total Other Financing Uses Net Changei inF Fund Balances Fund) Balance- Beginning Prior Period Adjustment Fund] Balance- Beginning, as Restated Fund Balance Ending  45,824  24,194 24,194 21,630 (21,630) (21,630) 20,270 20,270 20,270  The accompanying notes are ani integral! part oft this statement.  -14-    CITYOFTOLAR, TEXAS YEARI ENDEDS SEPTEMBER. 30, 2016  RECONCILIATION OF THESTATEMENT OFE REVENUES, EXPENDITURES, AND CHANGES INFUNDBALANCESOF: COVIRMMENTALEINDSI TOTHESTATEMENTOEACTIVITES  Total changei inf fund balances- total governmental funds (SOA) are different because:  $ 71,416  Amounts reported for governmental activities int thes statement ofa activities Depreciation expense decreases net positioni in SNP. increases toc capital assets int thes statement ofr net position.  (47,048) 14,104 40,544  Current year capital outlays are expenditures int the fund financial statements, but are shown as Long-term debt principal payments are expenditures in the fund finançial statements but they should bes shown as reductions inl long- term debt int the government-widei financial statements. The implementation of GASB No. 68 required that certain expenditures be de-expended and recorded as deferred resource inflows. These contributions made after the measurement date of December 31, 2015, caused the change in the ending net position to increase in the amount of $3,685. Contributions madel beforet ther measurement date but after the previous measurement date were reversed from deferred resource outlfows and recorded as a current year enxpense. This caused a decrease in the change ini net position totaling $2,884. The City's reported TMRS net pension expense had to ber recorded. Thei net pension expense decreased the changei inr net position by $3,414. The result oft these changes ist to decrease the changei in net position by $2,613. Vacation accrual is recorded int thes statement ofr net position. Thel balance decreases net position Various other reclassifications and eliminations including recognizing unavailable revenue as revenue and adjusting current year revenue tos show ther revenue earned from the current year'st tax  (2,613) (968) 295 $ 75,730  levy.  Total changei inr net position ofg governmental activities- statement ofa activities  Thea accompanying notes are an integral parto of this statement.  -15-    PROPRIETARY FUND FINANCIAL STATEMENTS    CIYOFTOLAR,TEXAS SEPTEMBER: 30,2016  STATEMENTOFI FUNDN NETPOSTTON-PROPROPRIETARYFUNDS  Total Proprietary Funds 42,321 42,831 11,092 96,244 41,605 1,224,822 47,537 1,313,964 1,410,208 28,521 28,521 3,764 6,496 2,693 29,900 42,853 30,698 1,352 24,981 5,565 63,750 126,346 169,199 1,512 1,512 1,212,056 55,962 1,268,018  Water 42,321 $ 42,831 11,092 96,244 41,605 1,224,822 47,537 1,313,964 1,410,208 28,521 28,521 3,764 6,496 2,693 29,900 42,853 30,698 1,352 24,981 5,565 63,750 126,346 169,199 1,512 1,512 1,212,056 55,962 1,268,018 $  ASSETS  Current: Cash and cash equivalents Receivables, net Inventory Total current Non current: Land  Distribution: and collection: system, net of depreciation Equipment, net ofdepreciation Total non current TOTALASSETS  DEFERRED OUTFLOWS OFI RESOURCES Deferred outflows relatedt tol TMRS Total Deferred Outflows ofF Resources LIABILITIES  Current Accounts payable Accrued expenses Current portion- notes payable Current portion- bonds payable Total current Non current: Utility deposits Accrued vacation Net pensionl liability Notes payable Bonds payable Total non current TOTALLIABILITIES  DEFERRED. INFLOWS OFI RESOURCES Deferred inflows relatedt to TMRS Total Deferred Inflows of Resources NETI POSITION Neti investment inc capital assets Unrestricted TOTALNETR POSITION  The accompanying notes are ani integral part oft this. statement.  -16-    COFTOLAKIENAS STATEMENT OF REVENUES, EXPENSES. AND CHANGESI IN FUNDNETI POSITION-I PROPRIETARY FUNDS YEARI ENDED: SEPTEMBER: 30, 2016  Total Proprietary Funds 324,162 324,162 402,116 402,116 (77,954) 115 46,061 (6,781) 13,312 52,707 (25,247) 1,293,265 1,268,018  Water 324,162_$ 324,162 402,116 402,116 (77,954) 115 46,061 (6,781) 13,312 52,707 (25,247) 1,293,265 1,268,018 $  Operating Revenues: Charges fors services Waters sales and fees Total operating revenues Operating Expenses: Water department Total operating expenses Net operating loss Nonoperating revenues (expenses): Interesti income Granti income Interest expense Transfers in Changei inl Net] Position Net Position- Beginning of Year Netl Position- End of Year  Total nonoperating revenues (expenses)  The accompanying notes are an integral partc oft this statement.  -17-    CITYOFTOLAR,TEXAS STATEMENTOECASII FLOWS-F PROPRIFTAR/FUNDS YEARI ENDEDS SEPTEMBER: 30, 2016  Total Enterprise Funds 395,414 (171,313) (187,585) 36,516 13,312 5,639 18,951 (65,355) 46,061 (6,781) (2,574) (29,900) (58,549) 115 115 (2,967) 45,288 42,321 6,781 (77,954) 98,364 591 2,609 (61,339) 4,744 (1,160) (34,145)  Water $ 395,414 $ (171,313) (187,585) 36,516 13,312 5,639 18,951 (65,355) 46,061 (6,781) (2,574) (29,900) (58,549) 115 115 (2,967) 45,288 42,321 6.781 $  Cash flows from operating activities: Cashr received from customers Cash payments fors salary and related expenses Cashj payments tos suppliers for goods and services Neto cash provided by operating activities Cash flows from noncapital financing activities: Transfers from/to other funds Pensioni funding Neto cash provided by noncapital financing activities Cash flows from capital andr related financinga activities: Acquisition ofp property and equipment Grant income Interest paid on! longt term debt Principal paid onc capitall leases Principal paid onb bonds and notes payable Neto cash used by capital and related financing activities Cash flows from investing activities Interesti income Net Increase in Cash Cash atl Beginning of Year Cash at Endo of Year: Supplementary Information Interest paid Reconciliation of operatingi inçome tor net cash provided by operating activities: Operating income (loss) Adjustments tor reconcile operating inçome (loss) tor net cash provided (used) by operating activities; Depreciation (Increase) decreasei inc operating: assets Receivables Grant receivable Inventory Increase (decrease) inc operating liabilities Accounts payable Utility deposits Accrued expenses Net cash provided by operating activities The accompanying notes are ani integral parto oft this statement.  Neto cash provided fromi investing activities  $ (77,954)$ 98,364 591 70,661 2,609 (61,339) 4,744 (1.160) 36,516  -18-    CITYOFTOLAR NOTESTOFINANCIALSTATEMENTS  NOTE1: SUMMARYOFS/GNIFICANTACCOUNTING POLICIES  The accounting and reporting framework and the more significant accounting principles and practices oft the City of Tolar, Texas (City) are discussed in subsequent sections oft this Note. The remainder of the Notes is organized to provide explanations, including required disclosures, oft the City's financial activities for the fiscal year ended September 30, 2016. Pensions: For purposes ofi measuring the net pension liability, deferred outflows ofr resources and deferred inflows oft resources related to pensions, and pension expense, information about the Fiduciary Net Position of the Texas Municipal Retirement System (TMRS) and additions to/deductions from TMRS's Fiduciary Net Position have been determined on the same basis as they are reported by TMRS. For this purpose, plan contributions are recognized in the period that compensation is reported for the employee, which is when contributions are legally due. Benefit payments and refunds are recognized. when due and payable in accordance withi the benefit terms. Investments are reported at fair value.  Financial Reporting! Entity  The City is a Type A' "general law" municipality and operates under al Mayor-Council: form of government. The City provides the following services as authorized by its charter: public Asr required by the accounting principles generally accepted in the United States of America, these financial statements present the primary government and its component unit, an entity for which the government is considered to be financially accountable. The discretely presented component unit is reported in a separate column in the government-wide statements  safety, public works, waterworks, and general government.  to emphasize iti is legally separate fromi thej primary government.  Component Unit:  The Tolar Economic Development Corporation was incorporated in the State of Texas on November 18, 2013. The Corporation was organized exclusively for the purpose of benefiting and accomplishing public purposes of the City of Tolar, Texas, by promoting, assisting, and enhancing economic development activities for the city as provided under Section 4A of the Texas Development Corporation Act of 1979, and as authorized by the governing body of the City of Tolar, Texas. The Corporation receives its primary funding from al local sales tax approved byt the voters. Al Board of Directors manages the affairs ofthe Corporation. The fiscal year oft the Corporation ist the same as the City ofTolar, Texas.  Government-wide: and Fund] Financial Statements Govermment-wide, financial. statements  The government-wide financial statements include the statement of net position and the statement of activities. These statements report financial information for the City as a whole. The primary govemment and component units are presented separately within the financial statements with the focus on the primary government. Individual funds are not displayed but the statements distinguish governmental activities, generally supported by taxes and City general revenues, from business-type activities, generally financed in whole or in part with fees charged to external customers. Fiduciary funds or component units that are fiduciary in The statement of activities reports the expenses of a given function offset by program revenues directly connected with the functional program. A function is an assembly of similar activities and mayi include portions ofa fund or summarize more than one: fundt to  nature are excluded from government-wide financial statements.  -19-    CITYOFTOLAR NOTESTOFINANCIALSTATEMENTS  NOTEI: SUMMARYOFSIGNIFICANTACCOUNTINGPOLICIES-continued.  capture the expenses and program revenues associated with a distinct functional activity. Program revenues include: (I) charges for services which report fees, fines and forfeitures, and other charges and uses of the City's services; and (2) operating grants and contributions which finance annual operating activities including restricted investment income. These revenues are subject to externally imposed restrictions tot these program uses. Taxes and other revenue sources not properly included with program revenues are reported as general  revenues. Fund fnancial. statements  Fund financial statements are provided for governmental and proprietary funds. Major individual governmental and enterprise funds are reported ins separate columns. Measurement! Focus Basis of Accounting, and Financial Statement Presentation The financial statements of the City are prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The City's reporting entity applies all relevant Governmental Accounting Standards Board (GASB) pronouncements. The government-wide statements report using the economic resources measurement focus and the accrual basis of accounting, generally including the reclassification or elimination of internal activity (between or within funds). Reimbursements are reported as reductions to expenses. Proprietary financial statements also report using this same focus and basis of accounting, although internal activity is not eliminated in these statements. Revenues are recorded when earned and expenses are recorded when a liability isi incurred, regardless oft the timing oft related cash flows. Property tax revenues are recognized in the year for which they are levied, while grants are recognized when grantor eligibility requirements are met. Governmental fund financial statements report using the current finançial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized when they are both measurable and available. Available means collectible within the current period or soon enough thereafter to pay current liabilities. The City considers revenues to be available ift they are çollected within 60 days of the end of the fiscal year. Expenditures are Major revenue sources susceptible to accrual include: sales and use taxes, hotel/motel taxes, property taxes, right of way (fees), intergovernmental revenues, and investment income. In Operating inçome reported in proprietary fund financial statements includes revenues and expenses related to the primary, continuing operations of the fund. Principal operating revenues for proprietary funds are charges to customers for sales or services. Principal operating expenses are the costs of providing goods or services and include administrative expenses and depreciation of capital assets. Other revenues and expenses are classified as When both restricted and unrestricted resources are available for use, iti ist the City's policyt to  recorded whent the related fundl liability isi incurred.  general, other revenues: are recognized when cashi is received.  non-operating int the finançial statements.  use restricted resources: first, then unrestricted. resources as needed.  -20-    CITY OF TOLAR NOTEST TOFINANCIALSTATEMENTS  NOTE1: SUMIMARYOFSIGNIFICANTACCOUNTING. POLICIES- continued  Fund" Types and Major Funds Governmental, funds  The City reports the following major governmental: fund: all finançial resources not reported inc other funds.  General Fund- - reports as the primary fund of the City. This fundi is usedt to account for In addition, the City reports the following as a fund, not considered tol be amajor fund: Debt Service Fund - accounts for resources accumulated and payments made for principal andi interest on long-term general obligation debt of governmental funds.  Proprietary funds  The City reports the following major enterprise fund: citizens oft the City. Assets. Liabilities. and] Net Position orl Equity Cash and cash equivalents  Water Fund - reports for revenues and expenses associated with water services for the  For purposes of the statement of cash flows, highly liquid investments are considered to be cash equivalents ifthey! have an original maturity oft three months or less when purchased. Inventory is valued at cost which approximates market, using the first-in-first-out (FIFO) method. The cost of inventory is recorded as expenditures when used (consumption method). The City's property, plant, ande equipment with useful lives ofmore than one year ares stated at historical cost and comprehensively reported in the government-wide finançial statements. Proprietary capital assets are also reported in their respective fund's financial statements. Donated assets are stated at fair value on the date donated. The City generally capitalizes assets with costs of $5,000 or more, as purchase and construction outlays occur. The costs of normal maintenance and repairs that do not add to the asset value or materially extend useful lives are not capitalized. Capital assets are depreciated using the straight-line method. When capital assets are disposed of, the cost and applicable accumulated depreciation are removed from the respective accounts, and the resulting gain or loss is recorded in non-operating revenues and expenses in the proprictary fund statements and on general revenues in the  Inventory  Capital assets, depreciation, and amortization  government-wide statements.  Estimated useful lives for depreciable assets are asi follows:  Water and sewer lines Buildings Equipment Vehicles  40 years 30) years 10 years 5ycars  -21-    CITY OF' TOLAR NOTES TOI FIMANCALSTATEMIENTS  NOTEI: SUMMARYOFSIGNIFICANTACCOUNTING POLICIES- continued  Long-term debt liabilities. expenditures. Compensated absences  In the government-wide and proprietary financial statements, outstanding debt is reported as The governmental fund financial statements recognize the proceeds for debt as other financing sources of the current period. Issuance costs and debt payments are reported as  The City's policy permits employees to accumulate up to 128 hours of eamed but unused vacation benefits. Upon termination of employment, employees will be paid for any unused  vacation benefits that have been earned through thel last day of work.  Deferred Outflows /Inflows of Resources  Deferred outflows ofr resources refer to the consumption of net assets that are applicable toa future reporting period. Deferred outflows oft resources have ap positive effect on net position, similar to assets. The City has no amounts recorded as deferred outflows of resources in the governmental fund financial statements and $47,273 and $28,521 ofdeferred outflows related toTMRS in the government -wide financial statements and the proprietary fund statements, Deferred inflows of resources refer to the acquisition of net assets that are applicable to a future reporting period. Deferred inflows of resources have a negative effect on net position, similar to liabilities. For the current period, the difference in delinquent taxes receivable and the associated allowance for uncollectible taxes of $4,878 is considered a deferred inflow of resources ini the governmental fund financial statements, while $2,506 and $1,512 of deferred inflows related to TMRS is considered deferred inflow of resources in the government-wide financial statements and the proprietary funds statements, respectively.  respectively.  Fund balance classification  The governmental fund financial statements present fund balances based on classifications that comprise al hierarchy that is based primarily on the extent to which the City is bound to honor constraints on the specific purposes for which amounts in the respective governmental funds can be spent. The classifications used int the governmental fund financial statements are Nonspendable - This classification includes amounts that cannot be spent because they are either a) not in spendable form or b) are legally or contractually required to be maintained intact. The Cityl had $0 classified as nonspendable at September 30, 2016. Restricted- - This classification includes amounts for which constraints have been placed on the use of the resources either a) externally imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments, or b) imposed by law through constitutional provisions or enabling legislation. Debt service resources are to be used for future servicing of the revenue note and are restricted through debt covenants. The City classified $20,270 as restricted for debt service at September 30,  as follows:  2016.  -22-    CITY OF1 TOLAR NOTES TOIMANCALSTATMENES  NOTE1: SUMMARYOFSIGNIFICANTACCOUNTING POLICIES- continued  Committed - This classification includes amounts that can be used only for specific purposes pursuant to constraints imposed by formal action of the City Council. These amounts cannot be used for any other purpose unless the Council removes or changes the specified use byt takingt thes same type of action (ordinance or resolution) that was employed when the funds were initially committed. This classification also includes contractual obligations to the extent that existing resources. have been specifically committed for use in satisfying those contractual requirements. The City classified $0 as committed funds at Assigned- - This classification includes amounts that are constrained by the Council's intent tol be used for a specific purpose but are neither restricted nor committed. This intent can be expressed by the City Council or through the Council delegating this responsibility tot the City Secretary through the budgetary process. This classification also includes the remaining positive fund balance for all governmental funds except for the General Fund. The City has no amounts classified: as assigned at September 30, 2016. Unassigned- - This classification includes the residual fund balance for the General Fund. The unassigned classification also includes negative residual fund balance of any other governmental fund that cannot be eliminated by offsetting of assigned fund balance The City would typically use restricted fund balances first, followed by committed fund balances, and then assigned fund balances, as appropriate opportunities arise, but reserves the right to selectively spend unassigned fund balances first to defer the use of these other  September 30, 2016.  amounts.  classified funds. Estimates  The preparation of the finançial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities and disclosures of contingent assets and liabilities at the date of the finançial statements and the reported amounts of revenues and expenditures during the reporting period. As such, actual results could differ from those estimates.  NOTE2: STEWARDSHIP, COMPLLANCE,ANDACCOUNTABILITY  Budgctary Information Budget! policy and practice  The City Secretary submits an annual budget to the City Council in accordance with the requirements of the State of Texas. The budget is presented to the City Council for review, and public hearings are held to address citizen conçerns. In September, the City Council adopts the annual fiscal year budgets for City operating funds. Once approved, the City Council may amend the legally adopted budget when unexpected modifications are required  ine estimated revenues and appropriations.  -23-    CITY OF TOLAR NOTESTOF FINANCIAL STATEMENTS  NOTE2: STEWARDSHIP, COMPLIANCE,ANDACCOUNTABILITY-continmued  Basis of budgeting  Each fund's appropriated budget is prepared on a detailed line item basis. Revenues are budgeted bys source. Expenditures are budgeted by department and class as follows: general governmental services, public service - highways and streets, and debt serviçe. Budget Budgets for the governmental funds and proprietary fund operations are budgeted on the modified accrual basis of accounting. Revenues are budgeted in the year receipt is expected; and expenditures are budgeted in the year that the expenditure is incurred. The budget and actual financial statements are reported on this basis. Budgets for the proprietary fund are prepared on the accrual basis of accounting with the exception of depreciation expense and capital outlay. The budget and actual statements are reported on this basis. The budget for the general fund is presented as required supplementary information and the budget for the  revisions att this level are subject tof final review by the City Council.  water fundi is presented ass supplementary: information. The Cityl hadi negative budget variances int the following departments:  Genral Fund General. services Water Fund  $ 21,169 95,252  NOTE3: DEPOSITS. AND INVESTMENTS  The City's funds are required to be deposited and invested under the terms ofa depository contract. The depository bank deposits for safekeeping and trust with the City's agent bank approved pledged securities in an amount sufficient to protect City funds on a day-to-day basis during the period of the contract. Thej pledge of approved securities is waived only to the extent of the depository bank's dollar amount of Federal Deposit Insurance Corporation  (FDIC) insurance. Cash) Deposits  The City's cash deposits were entirely covered by FDIC insurance or by pledged collateral held by the City's agent! bank int the City'si name at September 30, 2016. Tolar Economic Development Corporation's cash deposits were entirely covered by FDIC  insurance at September 30, 2016. Investments  The City is required by Government Code Chapter 2256, The Public Funds Investment Act ("ACT"), to adopt, implement, and publicize an investment policy. That policy must be written; primarily emphasize safety of principal and liquidity; address investment diversification, yield, and maturity and the quality and capability ofi investment management; andi include a list of the types of authorized investments in which the investing entity's funds may be invested; and the maximum allowable stated maturity of any individual investment The ACT requires an annual audit of investment practices. Audit procedures in this area conducted as ap part of the audit of the general purpose financial statements disclosed that in the areas ofi investment practices, management reports an establishment of appropriate  owned byt the entity.  -24-    CITY OFTOLAR NOTESTOFINANCIALSTATEMENTS  NOTE3: DEPOSITS, AND INVESTMENTS- continued  policies, the City adhered tot the requirements oft the ACT. Additionally, investment practices Statutes authorize the entity to invest in (1) obligations of the U.S. Treasury, certain U.S. agencies, and the State ofTexas; (2) certificates of deposit, (3) certain municipal securities, (4) money market savings accounts, (5) repurchase agreements, (6) bankers acceptances, (7) mutual funds, (8) investment pools, (9) guaranteed investment contracts, (10) and common trust funds. The City has demand deposits andi money market accounts.  ofthe City were in accordance with local policies.  Investment Accounting Policy  The City's general policy ist to report money market investments and short-term participating interest-carning investment contracts at amortized cost and to report nonparticipating interest- caming investment contracts using a cost-based measure. However, if the fair value of an investment iss significantly: affected by thei impairment oft the credit standing of thei issuer or by other factors, iti is reported at fair value. The term "short-term" refers toi investments which have a remaining term of one year or less at time of purchase. The term nonparticipating" means that the investment's value does not vary with market interest rate changes. Nonnegotiable certificates of deposit are examples of nonparticipating interest-carning  investment contracts.  Analysis of Specific) Deposit and Investment Risks  Credit Risk the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The ratings of securities by nationally recognized rating agencies are designed to give ani indication of credit risk. At year end, the City was Custodial Credit] Risk- - Deposits andi investments are exposed to custodial credit risk ifthey are not covered by depository insurance and the deposits are uncollateralized, collateralized with securities held by the pledging financial institution, or collateralized with securities held by the pledging financial institution's trust department or agent but not in the city's name. At September 30, 2016, the City's deposits were entirely collateralized and therefore, not exposed to custodial credit Concentration of Credit Risk the risk of loss attributed to the magnitude of a government's investment in as single issuer. At September 30, 2016, since the City has noi investments, the City was not exposed to concentration of crediti risk. Interest Rate Risk - the risk that changes in interest rates will adversely affect the fair value of an investment. In accordance with its investment policy, the City manages its exposure to declines in fair values by limiting the maturity of investments to less than one year. The City monitors the interest rates to minimize Foreign Currency Risk the risk that exchange rates will adversely affect the fair value of ani investment. As of September 30, 2016, the City was not exposed to  not significantly exposed to credit risk.  risk.  the exposure toi interest rate risk. foreign currency risk.  -25-    CITYOFTOLAR NOTES1 TOFPANCALSTATMENES  NOTE4: RECEIVABLES, UNCOLLECTIBLEA ACCOUNTS, AND UNAVAILABLE REVENUE  Enterprise Receivables  Significant receivables include amounts due from customers primarily for utility services. These receivables are due within one year. The City estimates an allowançe for uncollectible accounts which represent the City's estimate of the amount of accounts receivable that are uncollectible based on collection history and individual specific circumstances. As of September 30, 2016, the City hadi recorded an allowance: for uncollectible accounts of$3,523.  Receivables at September 30, 2016 are shown asi follows:  Primary government: Water fund Total primary government  $. 42.831 $ 42.831  PropertyTaxes) Receivable, Unavailable Revenue and Property Tax Calendar Property taxes are levied by October 1 on the assessed value listed as of the prior January 1 for all real and business personal property in conformity with Subtitle E, Texas Property Tax Code. Taxes are due on receipt of the tax bill anda are delinquent ifnot paid before February 1 oft the year following the year in which tax isi imposed. On January 1 ofe eachy year, a tax lien attaches to property to secure the payment of all taxes, penalties, and interest ultimately imposed. Property tax revenues are considered available when they become due or past due Allowance for uncollectible taxes receivable within the General Fund are based upon historical experience in collecting property taxes. Uncollectible personal property taxes are periodically reviewed and written off, but the City is prohibited from writing off real property In the governmental fund financial statements, property tax receivables are recorded in the General Fund. At fiscal year-end, the receivables represent delinquent tax receivables. Ifthe receivables are not paid within 60 days of year-end, they are recorded as unavailable revenue. In the government-wide financial statements, property tax receivable and related revenue include all amounts duet the City regardless of when cash ist received. Over time, substantially  and receivable within the current period.  taxes without specific statutory authority for the Texas Legislature.  all property taxes are collected.  NOTES: CAPITALASSETS  The following schedule provides a summary of changes in capital assets:  Beginning Balance 58,837 $ 43,700 102,537  Ending Balance 58,837 58,837  Increases Decreases $ 14,104 57,804 14,104 57,804  Goemmentalactiniles. Capitala assetsn not beingo depreciated: Land Construction inp progress Total capital assets noth beingo depreciated  -26-    CITYOFTOLAR OTASTDIRANCALSTATENN  NOTE5: CAPITALASSETS- continued  Capitala assetsb beingd depreciated Buildings Equipment Landi improvements Infrastructure Total capital assets beingo depreciated Less accumulated depreciation for: Buildings Equipment Infrastructure Total accumulated depreciation Total capital assets being depreciated, net Govermental: activities capitala assets, net Depreciation) was chargedt to functions as follows: Governmental activities: General goverment Police Streets  734,642 135,252 57,804 478,498 1,348,392 57,804 (86,183) (20,601) (106,904) (12,013) (174,515) (14,434). (367,602) (47,048) 980,790 10,756 1,083,327 24,860 $ 26,519 8,985 11,544 47,048  734,642 135,252 57,804 478,498 1,406,196 (106,784) (118,917) (188,949) (414,650) 991,546 57,804 1,050,383  Total depreciatione expense- governmental activities  Beginning Balance 41,605 215,534 257,139 2,372,828 190,227 2,563,055 (1,320,704) (152,517) (1,473,221) 1,089,834 1,346,973 2,430,300  Ending Balance 41,605 41,605 2,630,177 213,767 2,843,944 (1,405,355) (166,230) (1,571,585) 1,272,359 257,349 1,313,964 315,153 2,364,347  Increases Decreases 41,815 41,815 257,349 23,540 280,889 (84,651) (13,713) (98,364) 182,525 224,340 249,200  Business- type activities: Capitala assets notb beingd depreciated: Land Constructioni inp progress Total capitala assets notb being depreciated Capitala assets beingd depreciated Distributiona ando collections system Equipment Total capitala assets beingo depreciated Lessa accumulated deprociationf for: Distribution: ando collections system Equipment Total accumulated depreciation Total capitala assets beingd depreciated, net Business-typea activities, net Total Primary Government  257,349 257,349  -27-    CITY OF TOLAR NOTES TOIRANCALSTATMENTS  NOTE6: LONG-TERM. DEBT  Combination Tax and Revenue Certificate ofObligation, Series 2005  A series of bonds dated January 13, 2005, for $425,000, was issued for the construction of public works and the purchase of materials, supplies, equipment, machinery, buildings, land and rights-of-way for authorized needs and purposes and for the payment of contractual obligations for professional services. The bonds were issued with interest rates ranging from 3.00% to 5.15% and mature annually through September 15, 2019, with interest due semiannually. The balance oft these bonds at September 30, 20161 is as follows:  Governmental activities Business-type activities  $ 23,100 86,900 110,000  General Obligation Refunding Bonds, Series 2005  A series of bonds dated January 13, 2005, for $415,000, was issued for the purpose of refunding the Series 2001 bonds in the amounts of $285,000 and $215,000, for a total of $500,000. The bonds were issued with interest rates ranging from 3.00% to 5.15% and mature annually through September 15,2019, withi interest due: semiannually. The balance of  these bonds at September 30, 20161 is as follows: Governmental activities Business-type activities Note Payable to Heritage National. Bank  $ 38,250 6.750 $ 45,000  On September 8, 2004, the Cityt took out a note payable toj purchase thej property at 409 Tolar Cemetery Road, Tolar, Texas. The principal amount of the note was $33,000 with ani interest rate of 4.5%, secured by the property. Payments are due monthly with the final payment being October 1, 2019. Payments are $252 per month. The balance of this note payable is  $8,258 at September 30, 2016. Note Payable to Government Capital  On October 1,2 2012, the City entered into a note agreement with Government Capital for the purchase ofa copsync system. The principal amount ofther note was $44,927, with an interest rate of 4.1%, secured by hardware and software. Annual payments of $12,394 are due with the final payment on April 1,2016. This note payable was paid in full during the year ended  September 30, 2016. Note Payable to First National. Bank  On. June 3, 2013, the city entered into ai note agreement with First National Bank for the costs off furnishing the city! hall. The principal amount oft the note was $25,000, with ani interest rate of 4.0%. This note is unsecured. Quarterly payments of $2,223 are due with the final payment on. June 1,2016. The balance on this note payable was paid in full during the year  ended September 30, 2016.  -28-    CITY OF TOLAR NOTES TO MANCALSTATEMENIS  NOTE6: LONG-TERM. DEBT- continued  The following provides a summary of changes in long-term debt:  Balance at  Balance at Due Within  9/30/2015 Additions Retirements 9/30/2016 One Year  Governmental. Activities Combination' Tax &I Revenue CertofObi, Series 2005 $ 30,450 $ General Obligation Refunding Bonds Series 2005 Copsync Firstl Nationall Bank Business-type Activities Combination' Tax &E Revenue CertofObl, Series 2005 $ 114,550 $ General Obligation Refunding Bonds Series 2005 Heritagel Nationall Bank  $ 7,350 $ 23,100 $ 7,350 12,750 38,250 11,904 8,540 40,544 61,350  51,000 11,904 8,540 101,894  12,750 20,100  $ 27,650 $ 86,900 $ 27,650 2,250 2,574 32,474 101,908  9,000 10,832 134,382  6,750 8,258  2,250 2,693 32,593  Annual requirements to amortize debt outstanding as of September 30, 2016 are as follows:  Govermmental. Activities Interest 2018 2,104 2019 1,090 6,303 Business-lype. Activities 2018 3,467 2019 1,827 10,379  Principal Total 20,100 22,204 21,150 22,240 61,350 67,653 32,716 36,183 36,599 38,426 101,908 112,287  2017$ 3,109 $ 20,100 $ 23,209  2017$ 5,085 $ 32,593 $ 37,678  The amount ofi interest cost charged to expenses during the year ended September 30, 2016,  was $11,805.  NOTE7: RISKI MANAGEMENT- CLAIMS. AND. JUDGEMENTS  The City is exposed to various risks of loss relatedt tot torts; theft of, damage to and destruction of assets; errors and omissions; injuries to employces; and natural disasters. These risks are covered by commercial insurance purchased from independent third parties and through the Texas Municipal League (TML) Intergovemmental. Risk Pool, ap publice entity risk pool for the benefit of 2,800 individual governmental units located within the state. TML Intergovernmental Risk Pool (Pool) is considered a self-sustaining risk pool that provides coverage for its members. The City's contributions to the Pool are limited to the amount of premiums as calculated at the beginning ofe each fund year. Thel Pool's liability is limited to the coverage that the City elects as stated in the Pool's Declaration of Coverage for that fund year. Settled claimsl have not exceeded insurance coverage limits for the past three years.  -29-    CITY OFTOLAR NOTES TOFMANCALSTATMENES  NOTE8: TRANSFERS/PAYMENTS WITHINTHE. REPORTING. ENTITY  Transfers and] Payments subsidizing operating functions.  Transfers and payments within the reporting entity are substantially for the purposes of The following schedule reports transfers and payments within the reporting entity:  Transfer In Transfer Out Total  General fund Water fund  11,317 $ 13,312  11,317 13,312  Economic Development Corporation  (24,629) (24,629)  The following schedule reports payables and receivables with funds.  Due To  Due From Debt Service fund $ 20,270  General fund  Economic development Corporation  (8,010)  NOTE9: DEFINED BENEFITI PENSIONI PLAN  Plan] Description  The City of Tolar participates as one of 866 plans in the nontraditional, joint contributory, hybrid defined benefit pension plan administered byt the Texas Municipal Retirement System (TMRS). TMRS is an agency created by the State of Texas and administered in accordance with the' TMRS. Act, Subtitle G, Title 8, Texas Government Code (the" TMRS Act) as an agent multiple-employer retirement system for municipal employees in the State of Texas. The TMRS Act places the general administration and management of the System with a six- member Board of Trustees. Although the Govemor, with the advice and consent of the Senate, appoints the Board, TMRS is not fiscally dependent on the State of Texas. TMRS's defined benefit pension plan is a tax-qualified plan under Section 401(a) of the Internal Revenue Code. TMRS issues a publicly available comprehensive annual financial report  (CAFR) that can be obtained at www. tmrs.com.  All eligible employees of the city are required toj participate in' TMRS.  Benefits Provided TMRS.  TMRS provides retirement, disability, and death benefits. Benefit provisions are adopted by the governing body of the city, within the options available in the state statutes governing At retirement, the benefit is calculated as if the sum of the employee's contributions, with interest, and the city-financed monetary credits with interest were used to purchase an annuity. Members may choose to reccive their retirement benefit in one of seven payment options. Members may also choose to receive a portion oftheir benefit as al Partial Lump Sum Distribution in ana amount equal to 12,24, or 361 monthly payments, which cannot exceed 75% The plan. provisions are adopted by the governing body of the City, within the options availablei in the: state statutes governing TMRS. Planj provisions for the City were as follows:  oft the member's deposits andi interest.  -30-    CITY OF TOLAR NOTES TOFMANCALSTATMINTS  NOTE9: DEFINED. BENEFITPENSION, PLAN- continued  Plan Year 2016 2015 7.0% 7.0% 2tol 2tol 5 5 60/5,0/25 60/5,0/25 0% 0% 0%ofCPI 0%ofCPI  Employee deposit rate Matching ration (city to employee) Years required for vesting Servicer retirement eligibility (expressed as age/years of service). Updated Service Credit Annuity Increase (tot retirees) Employees covered by benefit terms. covered by thel benefit terms:  At the December 31, 2015 valuation and measurement date, the following employees were  2014 2015 0 5 5.  Inactive employees or beneficiaries currently receiving benefits Inactive employees entitledt tol but not yet receiving benefits  0 6 5 11  Active employees Contributions  The contribution rates for employees in' TMRS are either 5%, 6%, or 7% of employee gross earnings, and the city matching percentages are either 100%, 150%, or 200%, both as adopted by the governing body of the city. Under the: state law governing" TMRS, the contribution rate for each city is determined annually by the actuary, using the Entry Age Normal (EAN) actuarial cost method. The actuarially determined rate is the estimated amount necessary to finance the cost oft benefits earned by employees during the year, with an additional amount to Employees for the City ofTolar were required to contribute 7% of their annual gross earnings during the fiscal year. The contribution rates for the City ofTolar were 6.46% and 7.54%in calendar years 2015 and 2016, respectively. The city's contributions to TMRS for the year ended September 30, 2016, were $14,787, and were equal to the required contributions. The City's Net] Pension Liability (NPL) was measured as ofI December 31, 2015, andt the' Total Pension Liability (TPL) used to calculate the Net Pension Liability was determined by an  finance any unfunded accrued liability.  Net Pension Liability  actuarial valuation as oft that date. Actuarial Assumptions  The Total Pension Liability in the December 31, 2015 actuarial valuation was determined  using the following actuarial assumptions: Inflation Overall payroll growth Investment. Rate ofl Return  2.5%! per year 3.0%! per year including inflation  6.75%, net of pension investment expense,  -31-    CITYOFTOLAR NOTESTOFINANCIALSTATEMENTS  NOTE9: DEFINED. BENEFIT, PENSION. PLAN- continued  Salary increases were based on a service-related table. Mortality rates for active members, retirees, and beneficiaries were based on the gender-distinct RP2000 Combined Healthy Mortality Table withl Blue Collar Adjustment, with male rates multiplied by 109% and female rates multiplied by 103%. Because the city is considered a small city by TMRS, these percentages were reduced by 4% for a load of life factor to create a more conservative estimate. The rates are projected on a fully generational basis by scale BB to account for future mortality improvements. For disabled annuitants, the gender-distinct RP2000 Combined Healthy Mortality Tables with Blue Collar Adjustment are used with males rates multiplied by 109% and female rates multiplied by 103% with a 3-year set-forward for both males and females. In addition, a 3% minimum mortality rate is applied to reflect the impairment for younger members who become disabled. The rates are projected on a fully generational basis bys scale BB to account: for future mortality improvements subject tot the 3% Actuarial assumptions used int the December 31, 2015, valuation were based on the results of actuarial experience studies. The experience study in' TMRS was for the period December 31, 2010 through December 31, 2014. Healthy post-retirement mortality rates and annuity purchase rates were updated based on a Mortality Experience Investigation Study covering 2009 through 2011, and dated December 31, 2013. These assumptions were first used in the December 31, 2013 valuation, along with a change to the Entry Age Normal (EAN) actuarial cost method. Assumptions are reviewed annually. No additional changes were made for the 2014 valuation. After the Asset Allocation Study analysis and experience investigation: study, the Board amended the long-term expected rate of retum on pension plan investments from 7% to 6.75%. Plan assets are managed on a total return basis with an emphasis on both capital appreciation as well as the production of income, in order to satisfy the short-term and The long-term expected rate of retum on pension plan investments was determined using a building-block method in which best estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. In determining their best estimate of a recommended investment return assumption under the various alternative asset allocation portfolios, GRS focused on the area between (1) arithmetic mean (aggressive) without an adjustment for time (conservative) and (20 the geometric mean (conservative) with an adjustment for time (aggressive). Ati its meeting on. July 30, 2015, the" TMRS Board approved a new portfolio target allocation. The target allocation and best estimates of real rates of return for each major asset class are summarized int the following table:  floor.  long-term funding needs OfTMRS.  -32-    CITY OFTOLAR NOTESTOENANCIAL STATEMENTS  NOTE9: DEFINED. BENEFIT, PENSION, PLAN- continued  Long-Term Expected Real Rate ofRetum (Arithmetic) 4:55% 6.10% 1.00% 3,65% 4.03% 5.00% 4.00% 8,00%  Target Allocation 17,5% 17.5% 10,0% 20.0% 10,0% 10.0% 10.0% 5.0% 100.0%  Asset Class Domesticl Equity Intemational Equity Core Fixed Income Non-Core Fixed] Income Reall Return Reall Estate Absolutel Return Privatel Equity Total Discount Rate  The discount rate used to measure the Total Pension Liability was 6.75%. The projection of cash flows used to determine the discount rate assumed that employee and employer contributions will be made at the rates specified in statute. Based on that assumption, the pension plan's Fiduciary Net Position was projected to be available to make all projected future benefit payments of current active and inactive employees. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected  benefit payments to determine the Totall Pension) Liability. Changes in the Net Pension Liability  Increase/(Decrease) Total Plan Pension Fiduciary) Net Liability Position (a) (b) 369,922 $ 373,481 26,769 26,831 5,248 11,509  Net Pension Liabiliy (C) (3559) 26,769 26,831 5,248 11,509 (11,914) (13,280) (551) 336 17 44,965 41,406  Balancea at 12/31/14 Changesf fort they ycar: ServiceCost Interest Changeso ofbenefit (erms Differenceb between expecteda anda actuale experience Changeso ofassumptions Contributions- employer Contributions- employee Netin investmenti income Administrativee expanes Other charges Netc changes Balancea atl 12/31/15  11,914 13,280 551 (336) (17). 25,392 398,873  Benefitp paymenets,i includingr refundso ofemployeec contributions  70,357 440,279  -33-    CITYOFTOLAR NOTESTOFINANCIALSTATEMENTS  NOTE9: DEFINED. BENEFIT. PENSION. PLAN- continued  Sensitivity of ther net pension liability to changes in the discount rate  The following presents the net pension liability oft the City, calculated using the discount rate of6.75%, as well as what the City's net pension liability would be ifit were calculated using a discount rate thati is I-percentag-point lower (5.75%) or l-percentage point higher (7.75%)  than the current rate:  1%I Decrease inD Discount  1%] Increase in Discount (6,938)  Discount Rate (6.0%) Rate (7.0%) Rate(8.0)% 99,371 $ 41,406 $  City's Net Pension Liability Pension. Plan Fiduciary Net Pension  Detailed information about the pension plan's Fiduciary Net Position is available in a separately-issued TMRS financial report. That report may be obtained on the Internet at Pension Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Fort the year ended September 30, 2016, the city recognized pension expense of $22,696. At September 30, 2016, the city reported deferred outflows of resources and deferred inflows  www.mrs.com. Related to) Pensions  ofresources related toj pensions from thei following sources:  Deferred Outflows of Resources 3,949 $ 8,660 23,022 11,642 47,273  Deferred Inflowsof Resources 2,506  Difference between expected and actual economic experience Changes ina actuarial assumptions Diffèrencel between projected and actual investment earnings Contributions subsequent tot the measurement date Total  2,506  $11,642 reported as deferred outflows of resources related to pensions resulting from contributions subsequent tot the measurement date will be recognized as a reduction of the net pension liability for the year ending September 30, 2016. Other amounts reported as deferred outflows and inflows of resources related to pensions willl be recognized inj pension expense  as follows: Year Endedl December 31: 2016 2017 2018 2019 2020 Thereafter  $  8,167 9,559 10,114 5,285 33,125 -34-    CITYOF TOLAR NOTES TO] FNANCIALSTATEMENIS  NOTE. 10: SUPPLEMENTAL DEATH BENEFITS. FUND  The City also participates in the cost sharing multiple-employer defined benefit group-term lifei insurance plan operated by the Texas Municipal Retirement System (TMRS) knows ast the Supplemental Death Benefits Fund (SDBF). The City elected, by ordinance, to provide group-term life insurance coverage to both current and retired employees. The City may terminate coverage under and discontinue participation in the SDBF by adopting an ordinance before November lof any: year tol be effective the following January 1. The death benefit for active employees provides al lump-sum payment approximately equal to the employee's annual salary (calculated based on the employee's actual earnings, for the 12- month period preceding the month of death); retired employees are insured for $7,500; this  coverage is an "other postemployment benefit," or OPEB.  Contributions  The City contributes to the SDBF at a contractually required rate as determined by an annual actuarial valuation. The rate is equal to the cost of providing one-year term life insurance. The funding policy for the SDBF program is to assure that adequate resources are available to meet all death benefit payments for the upcoming year; the intent is not to pre-fund retiree  term life insurance during employees' entire careers.  Schedule of Contribution Rates: (RETIREE-only: portion oft the rate) Annual Required Contribution (Rate) 0.15% 0.16% 0.17% 0.18% 0.17%  Plan/ Calendar Year 2012 2013 2014 2015 2016  Actual Contribution Made ARC (Rate) 0.15% 0.16% 0.17% 0.18% 0.17%  Percentage of Contributed 100.0% 100.0% 100.0% 100.0% 100.0%  NOTE11: HEALTH CARE COVERAGE  The City pays the employee's portion of health coverage. The city's annual cost was $42,135. Employees are responsible for the cost of dependent coverage and any additional coverage over the basic amount. All premiums were paid to al licensed insurer. Thel Plan was authorized by Article 3.51-2, Texas Insurance Code and was documented by contractual  agreement.  NOTE. 12: GARBAGE COLECTIONSERVICE CONTRACT  The City has a sanitation contract with Progressive Waste Solutions of Texas wherein Progressive Waste Solutions ofTexas picks up all garbage oft the City and disposes ofit. The rates charged flow through to the residents anda arei included int the water billings they receive. Revenue collected for garbage servicei isr recordedi int the General Fund. Total collected during  the year ended September 30, 2016 was $44,721.  -35-    CITYOFTOLAR NOTES TOI FNANCIALSTATEMENIS  NOTE 13: PRIOR PERIOD. ADJUSTMENT  During fiscal year 2016, it was noted that debt payments in the amount of $17,441 were erroneously recorded int the prior year. The City recognized a decrease ini fund balance ini the  amount of $17,441.  NOTE 14: NEWGASB. STATEMENTS  In June 2015, the GASB issued Statement No. 74. Financial. Reporting. for Postemployment Benefit Plans Other Than Pension Plans. This statement replaces Statements No. 43 Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, as amended, and No. 57 OPEB Measurements by Agent Employers and Agent Multiple- Employer Plans. It also includes requirements for defined contribution OPEB plans that replace the requirements for those OPEB plans in Statement No. 25 Financial Reporting. for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans, as amended, Statement No. 43, and Statement No. 50 Pension Disclosures. The: requirements of this statement are effective for financial statements for periods beginning after June 15,2016. The City has not determined the impact, if any, upon its financial position, results of InJ June 2015, the GASB issued Statement No. 75 Accounting and Financial Reporting. for Postemployment Benefits Other Than Pensions. This statement replaces the requirements of Statement No. 45 Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions, as amended, and No 57 OPEB Measurements by Agent Employers and Agent Multiple-Emplyer Plans, for OPEB. Statement No. 74 Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, establishes new accounting and financial reporting requirements for OPEB plans. The requirements of this statement are effective for financial statements for periods beginning after. June 15, 2017.The City hast not determined the impact, ifany, uponi its financial position, results of operations or In June 2015, the GASB issued Statement No. 76 The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments. This statement supersedes Statement No. 55 The Hierarchy of Generally Accepted. Accounting Principles for State and Local Governments. The requirements of this statement are effective for financial statements for periods beginning after June 15, 2015, and should be applied retroactively. The City In August 2015, the GASB issued Statement No 77 Tax Abatement Disclosures. This statement requires governments that enter into tax abatement agreements to disclose the Brief descriptive information, such as the tax being abated, the authority under which tax abatements are provided, eligibility criteria, the mechanism by which taxes are abated, provisions for recapturing abated taxes, and the types of commitments made Commitments made by a government, other than to abate taxes, as part of a tax The requirements oft this statement are effective for financial statements for periods beginning after December 15, 2015. The City has not determined the impact, if any, upon its financial  operations or cash flows upon adoption.  cash flows upon adoption.  implemented this statement.  followingi information: about the agreements:  by tax abatement recipients. abatement agreement  The gross dollar amount oft taxes abated during thej period  position, results of operations or cash flows upon adoption.  -36-    CITYOFTOLAR NOTESTOFINANCIALSTATFMENTS  NOTE1 14: NEW GASBA STATEMENTS- continued  In December 2015, the GASB issued Statement No. 78 Pensions Provided Through Certain Multple-Employer Defined Benefit Pension Plans. This statement amends the scope and applicability of Statement No. 681 to exclude pensions provided to employees of state or local governmental employers through a cost-sharing multiple-employer defined benefit pension plan that (1) is not a state or local governmental pension plan, (2)i is used to provide defined benefit pensions both to employees of state or local governmental employers and to employees of employers that are not state or local governmental employers, and (3) has no predominant state or local governmental employer (either individually or collectively with other state or local governmental employers that provide pensions through the pension plan.) Thiss statement establishes requirements for recognition and measurement of pension expense, expenditures, and liabilities; note disclosures; and required supplementary information for pensions that have the characteristics described above. The requirements of this Statement are effective for reporting periods after December 15, 2015. The City has not determined the impact, ifa any, upon its financial position, results of operations or cashi flows upon adoption. Inl December 2015, the GASB issued Statement No. 79 Certain External Investment Pools and Pool. Participants. This Statement establishes additional note disclosure requirements for qualifying external investment pools that measure all of their investments at amortized cost for financial reporting purposes. and for governments that participate in those pools. Those disclosures for both the qualifying external investment pools and their participants include information about any limitations or restrictions on participant withdrawals. The requirements of this Statement are effective for reporting periods beginning after June 15, 2015, except for certain provisions on portfolio quality, custodial credit risk, and shadow pricing. Those provisions are effective for reporting periods beginning after December 15, 2015. The City has not determined the impact, ifany, upon its financial position, results of In January 2016, the GASB issued Statement No. 80 Blending Requirements. for Certain Component Units - an Amendment of GASB Statement No. 14. The objective of this statement is to improve financial reporting by clarifying the financial statement presentation requirements for certain component units. This statement amends the blending requirements established in paragraph 53 of Statement No. 14. The requirements of this statement are effective for reporting periods beginning after June 15, 2016. The City has not determined the impact, ifa any, upon its financial position, results of operations or cash flows upon adoption. In March 2016, the GASB issued Statement No. 81 Irrevocable Split-Interest Agreements. The objective of this statement is to improve accounting and financial reporting for irrevocable split-interest agreements by providing recognition and measurement guidance for situations in which a government is al beneficiary oft the agreement. The requirements oft this statement are effective for financial statements for periods beginning after December 15, 2016, and should be applied retroactively. The City has not determined the impact, if any, uponi its finançial position, results of operations or cash: flows upon adoption. In! March 2016, the GASB issued Statement: No. 82. Pension. Issues- - An Amendment ofGASB Statements No. 67, No. 68, and. No. 73. The objective oft this statement is to address certain issues that have been raised with respect to Statements No. 67, No. 68, and No. 73. Specifically, this statement addresses issues regarding (1) the presentation of payroll-related measures in required supplementary information, (2) the selection of assumptions and the treatment of deviations from the guidance in an Actuarial Standard of Practice for financial reporting purposes, and (3) the classification of payments made by employers to satisfy employee (plan member) contribution requirements. The requirements of this statement are effective for reporting periods beginning after June 15,2016. The City has not determined the impact, ifa any, uponi its financial position, results ofc operations or cashf flows upon adoption.  operations or cash flows upon adoption,  -37-    CITYOFTOLAR NOTESTOFINANCIALSTATEMENTS  NOTEI 14: NEWGASESTATEMENTS- continued  In! November 2016, the GASB issued Statement. No. 83 Certain. Asset Retirement Obligations. This statement establishes criteria for determining the timing and pattern of recognition ofa liability and a corresponding deferred outflow ofr resources for AROS. This statement requires that recognition occur when the liability is both incurred and reasonably estimable. The determination of when the liability is incurred should be based on the occurrence of external laws, regulations, contracts, or court. judgments, together with the occurrence of an interal event that obligates a government to perform asset retirement activities. Laws and regulations may require governments tot take specific actions tor retire certain tangible capital assets att the end of the useful lives oft those capital assets, such as decommissioning nuclear reactors and dismantling and removing sewage treatment plants. Other obligations to retire tangible capital assets may arise from contracts or court judgments. Internal obligating events include the occurrence of contamination, placing into operation at tangible capital asset thati is required to be retired, abandoning a tangible capital asset before it is placed into operation, or acquiring a tangible capital asset that has an existing ARO. The requirements of this Statement are effective for reporting periods beginning after June 15, 2018. The City has not determined the impact, if any, upon its financial position, results of operations or cash flows In. January 2017, the GASB issued Statement No 84. Fiduciary Activities. The objective of this statement is to improve guidance regarding the identification of fiduciary activities for accounting and financial reporting purposes and howi those activities should be reported. This statement establishes criteria for identifying fiduciary activities of all sate and local governments. The focus of the criteria generally is on (1) whether a government is controlling the assets of the fiduciary activity and (2)t the beneficiaries with whom a fiduciary relationship exists. Separate criteria are included to identify fiduciary component units and postemployment benefit arrangements that are fiduciary activities. The requirements of this statement are effective for reporting periods beginning after December 15, 2018. The City hast not determined thei impact, ifany, uponi its finançial position, results ofo operations or cash  upon adoption.  flows upon adoption.  -38-    REQUIRED SUPPLEMENTARY INFORMATION    CITYOF: TOLAR, TEXAS BUDGET AND ACTUAL- GENERALFUND YEARI ENDED: SEPTEMBER: 30, 2016  STATEMENT OF REVENUES, EXPENDITURES, ANDCHANGES INF FUNDBALANCE-  Variançe with Final Budget Positive (Negative) 51,572 1,354 52,926 2,924 (5,245) (2,321) (109) 490 4,128 924 56,038  Budgeted Amounts Original 163,448 258,448 24,000 7,600 31,600 650 50 40,593 4,510 335,851  Final  Actual  REVENUES Taxes: Sales tax Property tax Total taxes License &p permits Right ofv way Liçense andp permits Total license & permits Fines andi forfeitures Investment income Garbage collection income Miscellaneous income Total Revenues EXPENDITURES General government General services: Insurance Contract sanitation Election expense Economic Development Corporation Miscellaneous Office supplies Payroll Payroll Tax Retirement Printing & copies Professional services Repair &i maintenance Postage and delivery Reference books Software Technical support Telephone Travel Utilities Total general government Publics service: Streets Repair  95,000 $ 95,000 $ 146,572 $  120,103 121,457 215,103 268,029 24,000 23,100 47,100 650 50 40,593 4,510 308,006  26,924 17,855 44,779 541 540 44,721 5,434 364,044  4,072 40,593 3,000 31,667 1,650 2,849 97,010 5,869 5,785 400 14,827 1,000 500 400 3,200 400 4,470 1,000 19,199 237,891 23,433 23,433  4,072 40,593 3,341 31,667 1,400 3,050 97,010 5,869 5,785 525 17,577 10,000 625 400 4,000 1,200 4,674 1,404 19,199 252,391 23,433 23,433  3,660 43,817 3,341 48,857 1,285 2,922 97,474 5,960 5,639 2,660 20,367 6,811 535 249 3,978 700 4,670 1,434 19,201 273,560 16,622 16,622  412 (3,224) (17,190) 115 128 (464) (91) 146 (2,135) (2,790) 3,189 90 151 22 500 4 (30) (2) (21,169) 6,811 6,811  -39-    CITYOFTOLAR,TEXAS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES INE FUNDBALANCE- BUDGET ANDA ACTUAL- GENFRALFUND- CONTINUED YEARI ENDED: SEPTEMBER: 30, 2016  Variance with Final Budget Positive (Negative) 21,145 3,302 24,447 10,089 66,127 47,357 47,357 113,484  Budgeted. Amounts Original 41,591 4,145 45,736 307,060 28,791 (28,514) (28,514) 277 82,865 82,865  Final 41,591 4,145 45,736 321,560 311,471 (13,554) (28,514) (28,514) (42,068) 82,865 82,865  Actual 20,446 843 21,289  Debts service: Note principal payments Interest payments Total debts service Total expenditures Excess (Deficiency) of] Revenues Over (Under) Expenditures OTHERI FINANCING USES Transfers out Total Other Financing Uses Neto change inf fund balance Fund Balance- Beginning Prior periode adjustment Fund] Balance- Beginning, as Restated Fund) Balance Ending  52,573 18,843 18,843 71,416 82,865 (17,441) 65,424  83,142_$ $ 40,797 $ 136,840 $  113,484  -40-    CITY OFTOLAR YEARI ENDED: SEPTEMBER 30, 2016  SCHEDULE OF CHANGES INI NETI PENSIONI LIABILITY ANDRELATEDRATIOS  2015 26,769 $ 22,156 26,831 5,248 11,509 70,357 369,922 440,279 11,914 $ 10,360 13,280 551 (336) (17) 25,392 373,481 398,873 41,406 $ (3,559) 90.60% 189,713 21.83%  2014 23,895 (6,404) 39,647 330,275 369,922 11,641 19,038 (199) (16) 40,824 332,657 373,481 100.96% 166,300 -2.14%  Total Pension Liability Service cost Interest (ont thet total pension liability) Changes oft benefit terms Difference between expected and actual experience Change of assumptions Benefit payments, including refunds ofe employee contributions Net Change in7 Totall Pension Liability Total Pensionl Liability- Beginning Totall Pensionl Liability Ending Plan Fiduciary Net] Position Contributions- employer Contributions- employee Neti investment income Benefit payments, including refunds ofe employee contributions Administrative expense Other Net Change inl Plan Fiduciary Net Position Plan! Fiduciaryl Net Position- Beginning Plan Fiduciary Net] Position- Ending Net Pension Liability- Ending Covered Employee Payroll  Planf fiduciary Net Position as a Percentage ofT Total Pensionl Liability Net Pensionl Liability as a Percentage ofC Covered Employee Payroll  -41-    CITY OFTOLAR SCHEDULEOF CONTRIBUTIONS YEAR ENDEDSEPTEMBER: 30, 2016  2016 2015 14,787$ 12,036 (14,787) (12,036) $ $ 203,094 $ 185,434 7.28%  Actuarially determined contribution Contribution deficiency (excess) Covered employce payroll  Contributions inr relation toa actuarially determined contribution  Contributions asap percentage of covered employee payroll Notest to Schedule of Contributions Valuation Date:  6,49%  Actuarially determined contribution rates are calculated as of December 31 and  become effective inj January, 131 months later.  Methods and Assumptions Used tol Determine Contribution Rates:  Actuarial Costl Method Amortization: Method Remaining. Amortization Period 25 years Asset Valuation Method Inflation Salary Increases Investment Rate ofF Return Retirement. Age Mortality Other Information  Entry Agel Normal Level Percentage ofI Payroll, Closed 101 Year Smoothed Market; 15% Soft Corridor 3.50%1 to 10.5% includingi inflation  2.50% 6.75%  Experience-based table based on rates that are specific to the city's plan of benefits. Last updated for the 2015 valuation pursuant to an experience study of RP2000 Combined Mortality Table with) Blue Collar Adjustment with male rates multiplied by 109% andi female rates multiplied by 103% andp projected ona ai fully  the period 2010-2014. enerational basis with scale BB. There were no benefito changes during the year.  -42-    OTHER SUPPLEMENTAL INFORMATION    CIYOFTOLARTENAS AUDOETANDACTUAL-WATR: FUND YEARI ENDEDS SEPTEMBER: 30, 2016  STATEMENTOF REVENUES, EXPENSES, AND CHANGES! INF FUNDI NETI POSITION-  Variance Favorable (Unfavorable) 9,562 9,562 8 (98,364) 108 801 (329) 22,254 (9,938) (14,704) 184 8,453 (4,374) 169 (156) (275) (32) 943 (95,252) (85,690) 95 (70,660) (422) (15,202) (86,189) (171,879) (171,879)  Budgeted. Amounts Original 308,080 $ 308,080 1,200 11,836 6,600 3,750 170,565 9,675 7,580 6,193 11,233 3,184 2,880 30,333 5,000 270,029 38,051 20 (6,214) 28,514 22,320 60,371 1,293,265 1,353,636 $ 1,439,897  Final 314,600 $ 314,600 1,200 12,049 9,260 6,698 167,765 9,765 9,000 34,600 10,280 3,684 1,105 1,065 35,393 5,000 306,864 7,736 20 116,721 (6,359) 28,514 138,896 146,632 1,293,265  Actual 324,162_$ 324,162 1,192 98,364 11,941 8,459 7,027 145,511 9,938 14,704 9,581 9,000 26,147 14,654 3,515 1,261 1,340 35,425 4,057 402,116 (77,954) 115 46,061 (6,781) 13,312 52,707 (25,247) 1,293,265 1,268,018 $  OPERATING REVENUES: Waters sales Total Operating Revenues OPERATINGI EXPENSES: Contract labor Depreciation expense Insurance Labt tests Office expense Payroll expenses Payroll taxes Retirement Permit fees Professional: services Repairs andt maintenance Supplies Telephone Travel Uniforms Utilities Vehicle expense Total Operating Expenses Net operating income (loss) Nonoperating revenues (expenses) Interesti income Granti income Intereste expense Transfers in Neti income (loss) Net Position- Beginning of Year Net Position- End ofYear  Total nonoperating revenues (expenses)  -43-    OTHER INFORMATION REQUIRED BY GAO    INDEPENDENT, AUDITORS' REPORT ON INTERNAL CONTROLOVER: FINANCIALI REPORTING ANDONCOMPLIANCE: ANDOTHER, MATTERS BASED ON AN AUDIT OF FINANCIAL  STATEMENTS: PERFORMED IN ACCORDANCE WITH GOVPRMMENTAUDTING STANDARDS  Tot the City Council City ofTolar, Texas  We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the governmental activities, the business-type activities, and the aggregate discretely presented component unit of the City of Tolar, Texas, as of and for the year ended September 30, 2016, and the related notes to the financial statements, which collectively comprise the City of Tolar, Texas' basic financial statements and have Inj planning and performing our audit of the financial statements, we considered the City ofTolar, Texas' internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City of Tolar, Texas' internal control. Accordingly, we do not express an opinion on the effectiveness of the City of Tolar, Texas' A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiencyi is a deficiency, or a combination of deficiencies, in internal control that is less severe than ai material weakness, yeti important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that were: not identified. Given these limitations, during our audit we did not identify any deficiencies ini internal control that we consider to be material weaknesses. However, material weaknesses may exist As part of obtaining reasonable assurance about whether the City of Tolar, Texas' financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that is required  issued our report thereon dated March: 3,2017. Internal Control over Financial Reporting  internal control.  that have not been identified. Compliance and Other Matters  to ber reported under Government. Auditing Standards,  -44-    Purpose oft this Report  The purpose of this report is solely to describe the scope of our testing ofi internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government. Auditing Standards in considering the entity'si internal control and compliance. Accordingly,  this communication is not suitable for any other purpose.  MERRITT, MCLANE &1 HAMBY,P.C.  Abilene, Texas March3,2017  -45-    CITY OFTOLAR, TEXAS SCHEDULEOF FINDINGS/ AND] RESPONSES YEARI ENDED SEPTEMBER 30, 2016  L.Summary of Auditor's Results: opinion.  a.The type of report issued ont the financial statements oft the City ofTolar, Texas was an unqualified b.No significant deficiencies or material weaknesses relating to the audit of the financial statements are reported int the report on internal control over: financial reporting and on compliance and other c. No instances of noncompliance material to the financial statements of the City ofTolar, Texas were II. Findings Relating to the Financial Statements which are Required to be Reported in Accordance with Generally Accepted Government. Auditing Standards.  matters required by the GAO's Government. Auditing Standards.  disclosed during the audit.  a. No findings required to bei reported.  -46-    CITY OFTOLAR, TEXAS SCHEDULEOFI PRIOR YEARI FINDINGS YEARI ENDED SEPTEMBER 30, 2016  PRIOR YEAR  indneAoncomplance None  -47-