City of Galveston Comprehensive Annual Financial Report for FY 2014 March 2015 FINANCE DEPARTMENT MICHAEL LOFTIN, DIRECTOR TAMMY JACOBS, ASSISTANT DIRECTOR 1

CAFR Facts and Background  Scope: All City funds (247 active) and bank accounts (25), including component units over which City has some legal authority or fiduciary responsibility  Timing: Texas law requires to be filed with municipal secretary within 180 days after end of the fiscal year (March 29, 2015)  Independent Review: City Charter and State law require audit by a Certified Public Accountant  Legal Compliance: Demonstrate and report use of public funds to ensure allowable purposes and required approvals  Governing Principles: Generally Accepted Accounting Principles and Governmental Accounting Standards Board  Management Responsibility: Internal controls, safeguarding public assets including cash and physical assets 2

City of Galveston CAFR  Strong local economy: Good revenue performance as recovery continues  Financial results: Strong local economy has helped produce fund balances that meet policy and legal requirements  Physical Assets: Value of City owned infrastructure has increased largely because of influx and use of federal and state grant dollars  Human Resources: Pension funds face challenges  Continuing Management Improvement Needed: Fixed assets, grants, efficient use of systems and people 3

Strong Economy: Regional Employment 4

Strong Finances: Sales Tax Revenue 5

Balances and Reserves to Meet Legal Requirements = $68.4 Million CategoryAmount ($Mil) Water & Sewer Debt$7.8 Water & Sewer Projects$11.5 Streets, Drainage and Transit Projects $10.6 Industrial Development Sales Tax Projects $13.9 General/Hotel Tax Debt Service$6.6 HOT Projects$6.6 City Council General Reserve$3.6 Other$7.8 Total$68.4 6

Physical Assets Increase in Value Since FY10 7

We Own More Than We Owe 8

Pension Funds: City Faces Challenges  Unfunded Actuarial Accrued Liability (UAAL) as of 1/1/2014 (page 83 of CAFR): Employees - $9.89 million, 18.6% underfunded (81.4% funded) Police - $27.66 million, 55.7% underfunded (44.3% funded) Firefighters - $17.25 million, 30.3% underfunded (68.7% funded) Total UAAL - $54.8 million as of 1/1/2014  GASB 68 to require UAAL to be presented not just as a note to the financials but as a part of the balance sheet Total net position (page 18) - $387.6 million Unrestricted assets - $48.5 million  Planning assumptions differ for three funds (see page 81) concerning amortization method, contribution rates, asset valuation, salary increase projections, and inflation 9

Continuing Financial Management Improvement Priorities: Internal controls, management reporting and efficiencies Fixed Assets – Improve accuracy with installation of fixed asset software module available through current software vendor Grant Accounting – Improve inception to date reporting and accounting looking beyond Ike Utility Billing – Look for efficiencies and improved management controls through system installed in 2013 Purchasing - Improve purchasing, receiving and payment procedures in FY