CITY OF LEXINGTON, OKLAHOMA

ANNUAL FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR’S REPORTS

AS OF AND FOR THE FISCAL YEAR ENDED JUNE 30, 2024

City Council

Mike Donavan Sarah Callen Max Punneo Ray Romine Raul Trejo

Deana Allen Carey Bonner

CITY OF LEXINGTON, OKLAHOMA

LIST OF PRINCIPAL OFFICALS

Mayor Vice Mayor

Council Member Council Member Council Member

City Manager City Clerk

TABLE OF CONTENTS

FINANCIAL SECTION:

Independent Auditor's Report Management's Discussion and Analysis Basic Financial Statements

Government-Wide Financial Statements:

Statement of Net Position Statement of Activities

Fund Financial Statements:

Balance Sheet - Governmental Funds

Statement of Revenues, Expenditures, and Changes in Fund Balances

Page Number

A 1-3

MDA 1-9

1

2-3

4

INDEPENDENT AUDITOR’S REPORT

DILLON & ASSOCIATES, PC 1401 S. Douglas Blvd., Suite A

Certified Public Accountants Midwest City, OK 73130 Phone: 405-732-1800

INDEPENDENT AUDITOR’S REPORT

To the Honorable Mayor and Members of the City Council City of Lexington, Oklahoma

Report on the Audit of the Financial Statements

Opinions

We have audited the accompanying financial statements of the governmental activities, the business- type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City of Lexington, Oklahoma (“the City”), as of and for the year ended June 30, 2024, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements as listed in the table of contents.

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 units, each major fund, and the aggregate remaining fund information of the City, as of June 30, 2024, and the respective changes in financial position, and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America.

Basis for Opinions

We conducted our audit in 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. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the City and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.

Responsibilities of Management for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for 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 or error.

In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the City’s ability to continue as a going concern for twelve months beyond the financial statement date, including any currently known information that may raise substantial doubt shortly thereafter.

Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinions. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with generally accepted auditing standards and Government Auditing Standards will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.

In performing an audit in accordance with generally accepted auditing standards and Government Auditing Standards, we:

• Exercise professional judgment and maintain professional skepticism throughout the audit.

• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, no such opinion is expressed.

• Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements.

• Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the City’s ability to continue as a going concern for a reasonable period of time.

We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit.

Required Supplementary Information

Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis, the budgetary comparison information, and the pension plan information listed in the table of contents be presented to supplement the basic financial statements. Such information is the responsibility of management and, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it 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 in 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 our 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 an opinion or provide any assurance.

Supplementary Information

Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City’s basic financial statements. The accompanying combining and individual nonmajor fund financial statements, debt service coverage schedules, and state awards information listed in the table of contents are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. The information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining and individual nonmajor fund financial statements and the debt service coverage schedules are fairly stated, in all material respects, in relation to the basic financial statements as a whole.

Other Reporting Required by Government Auditing Standards

In accordance with Government Auditing Standards, we have also issued our report (under separate cover) dated June 30, 2024 on our consideration of the City’s 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 of that report is solely to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the City’s 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 City’s internal control over financial reporting and compliance.

Dillon & Associates, PC

Midwest City, Oklahoma December 12, 2024

MANAGEMENT’S DISCUSSION AND ANALYSIS

As management of the City of Lexington, we offer readers this narrative overview and analysis of the financial activities of the City of Lexington for the fiscal year ended June 30, 2024. We encourage readers to use this information in conjunction with the City’s financial statements, which follow this section.

FINANCIAL AND ACTIVITY HIGHLIGHTS

• For the fiscal year ended June 30, 2024, the City’s total net position increased by $9,738 from the prior year to a total of $3,528,301.

• During the year, the City’s expenses for governmental activities were $1,820,338 and were funded by program revenues and grant revenues of $406,917 and further funded with taxes, other general revenues and transfers that totaled $1,436,484.

• In the City’s business-type activities, such as utilities, revenues excluding transfers exceeded expenses by approximately $421,675.

• At June 30, 2024, the General Fund reported an unassigned fund deficit of $24,020.

• For budgetary reporting purposes, the General Fund reported revenues short of estimates by

  $38,407, while expenditures were under the final appropriations by approximately $44,750.

  
  

  OVERVIEW OF THE FINANCIAL STATEMENTS

  The financial statements presented herein include all of the activities of the City of Lexington (the “City”) and its component unit using the integrated approach as prescribed by GASB Statement No. 14, 34, 39 and 61. Included in this report are government-wide statements for two categories of activities – governmental and business-type activities.

  
  

  The government-wide financial statements present the complete financial picture of the City from the economic resources measurement focus using the accrual basis of accounting. They present governmental activities and business-type of activities separately and combined. For governmental activities, these statements tell how these services were financed in the short term as well as what remains for future spending. Fund financial statements also report the City’s operations in more detail than the government-wide statements by providing information about the City’s most significant funds. These statements include all of the assets of the City (including infrastructure capital assets) as well as all liabilities (including all long-term debt), along with any inflows and outflows that are deferred.

  About the City

  
  

  The City of Lexington is a municipality with a population of approximately 2,032 located in central Oklahoma. The City is a Council-Manager form of government that provides for three branches of government:

  
  

• Legislative – The City Council is the governing body elected by the citizens.

• Executive – The City Manager is the Chief Executive Officer and is appointed by the City Council.

• Judicial – The Municipal Judge is a practicing attorney appointed by the City Mayor and approved by the City Council.

  The City provides or contracts for typical municipal services such as public safety, street maintenance, culture, parks and recreation, and certain utility services including electric, water, wastewater, and sanitation.

  
  

  The City’s Financial Reporting Entity

  
  

  This annual report includes all activities for which the City of Lexington City Council is fiscally responsible. These activities, defined as the City’s financial reporting entity, are operated within separate legal entities that make up the primary government.

  
  

  The City’s financial reporting entity includes the primary government (City of Lexington). One active blended component unit and one discretely presented component unit as follows:

  
  

• The City of Lexington – that operates the public safety, streets, culture, parks and recreation, and administrative activities

• The Lexington Public Works Authority (LPWA) – that operates or contracts for the electric, water, sewer, and sanitation services of the City (blended component unit).

  Using This Annual Report

  This annual report is presented in a format that substantially meets the presentation requirements of the Governmental Accounting Standards Board (GASB) in accordance with generally accepted accounting principles. The presentation includes financial statements that communicate the City’s financial condition and changes therein on the accrual basis of accounting at two district levels:

  
  

• The City as a Whole (a government-wide presentation)

• The City’s Funds (a presentation of the City’s major and aggregate non-major funds)

  REPORTING ON THE CITY AS A WHOLE

  
  

  The Statement of Net Position and the Statement of Activities

  
  

  One of the most frequently asked questions about the City’s finances is, “Has the City’s overall financial condition improved, declined, or remailed steady over the past year?” The Statement of Net Position and the Statement of Activities report information about the City as a whole and about its activities in a way that helps answer this question. These statements include all assets and liabilities using the accrual basis of accounting. All of the current year’s revenues and expenses are taken into account regardless of when cash is received or paid.

  These two government-wide statements report on the City’s net position and changes in net position from the prior year. You can think of the City’s net position – the difference between assets and deferred outflows of resources and liabilities and deferred inflows of resources – as one way to measure the City’s financial condition, or position.

  Over time, increases or decreases in the City’s net position are one indicator of whether the financial position of the City is improving, deteriorating, or remaining steady. However, you must consider other non-financial factors, such as changes in the City’s tax base, the condition of the City’s roads, and the quality of services to assess the overall health and performance of the City.

  
  

  The Statement of Net Position and the Statement of Activities, we divide the City into two kinds of activities:

  
  

• Governmental activities – Most of the City’s basic services are reported here, including the police, fire, general administration, streets, and parks. Sales taxes, franchise fees, fines, and state and federal grants finance most of these activities.

  
  

• Business-type activities – The City’s activities that charge a fee to customers to help cover all or most of the cost of certain services it provides. The City’s electric, water, wastewater and sanitation utilities are reported here.

The financial statements also include notes that explain some of the information in the statements and provide more detailed data.

Reporting the City’s Most Significant Funds – Fund Financial Statements

The fund financial statements provide detailed information about the most significant funds – not the City as a whole. Some funds are required to be established by State law and by bond covenants. However, management establishes many other funds to help it control and manage money for particular purposes or to show that it is meeting legal responsibilities for using certain taxes, grants, and other money.

Governmental funds - Most of the City’s basic services are reported in governmental funds. Governmental fund financial statements are prepared on the modified accrual basis. Under the modified accrual basis, revenues are recognized when they become measurable and available, and expenditures are recognized when the related fund liability is incurred, with the exception of long- term debt and other similar items which are recorded when due. The governmental fund statements provide a detailed short-term view of the City’s general government operations and the basis of service it provides. Governmental fund information helps determine whether there are more or fewer financial resources that can be spent in the near future to finance the City’s programs. The differences of results in the Governmental Fund financial statements to the Government-Wide financial statements are explained in a reconciliation following each Government Fund financial statement.

Proprietary fund - When the City charges customers for the services it provides – whether to outside customers or to other units of the City – these services are generally reported in proprietary funds. Proprietary funds are reported in the same way that all activities are reported in the Statement of Net Position and the Statement of Revenues, Expenses, and Changes in Fund Net Position. In fact, the City’s enterprise funds are essentially the same as the business-type activities we report in the government-wide statements but provide more detail and additional information, such as cash flows.

The City uses enterprise funds to account for its electric, water, wastewater, and sanitation utility operations.

Notes to the Financial Statements

The notes provide additional information that is essential to gain an understanding of the data provided in the government-wide and fund financial statements. The notes to the Financial Statements can be found following the Statement of Cash Flows for Proprietary Funds.

A FINANCIAL ANALYSIS OF THE CITY AS A WHOLE

Net Position

As noted earlier, net position may serve over time as a useful indicator of a government’s financial position. In the case of the primary government, assets and deferred outflows exceeded liabilities and deferred inflows by $3,528,301 at the close of the most recent fiscal year.

The following table is a summary comparison of changes in net position from last year for the City:

Table 1 Net Position (In Thousands)

A portion of the City’s net position reflects its net investment in capital assets (e.g., land, buildings, machinery, and equipment). For 2024, this net investment in capital assets amounted to $1,116,858. The City uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the City’s investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities.

Another large portion of the City’s net position, $1,710,379, represents resources that are subject to external restrictions on how it might be used. The remaining balance of unrestricted net position of

$701,064 is available to meet the government’s ongoing obligations to citizens and creditors.

Change in Net Position

For the year ended June 30, 2024, net position of the primary government changed as follows:

Table 2 Changes in Net Position

(In Thousands)

Governmental Activities

Under Governmental Activities, the public safety expense includes pension income (expense) from the City’s proportionate share of the Oklahoma Police Pension and Retirement Fund and the Oklahoma Firefighter’s Pension and Retirement Fund. The annual pension plan estimates can cause significant fluctuations in public safety expense.

To aid in the understanding of the Statement of Activities on page 2 of the Basic Financial Statements, some additional explanation is given. Of particular interest is the format that is significantly different than a typical Statement of Revenues, Expenditures, and Changes in Fund Balance. You will notice that expenses are listed in the first column with revenues from that particular program reported to the right. The result is a Net (Expense)/Revenue. The reason for this kind of format is to highlight the relative financial burden of each of the functions on the City’s taxpayers. It also identifies how much each function draws from general revenues or if it is self-financing through fees and grants or contributions. All other governmental revenues are reported as general. It is important to note all taxes are classified as general revenue even if restricted for a specific purpose.

Table 3

Net Revenue (Expenses) of Governmental Activities (In Thousands)

Total Expenses of Services

% Inc. (Dec.)

Net Revenue (Expenses) of Services

% Inc. (Dec.)

Business-type Activities

The City’s business-type activities include utility services for electric, water, sewer, sanitation and capital outlays.

Table 4

Net Revenue (Expenses) of Business-type Activities (In Thousands)

Total Expenses of Services

% Inc. (Dec.)

Net Revenue (Expenses) of Services

% Inc. (Dec.)

A FINANCIAL ANALYSIS OF THE CITY’S FUNDS

As the City completed its 2024 fiscal year, the governmental funds reported a combined fund balance of $1,389,541 an increase of $204,401 from the prior year. The largest increase was $224,907 in the Restricted Sales Tax Fund.

The proprietary fund reported a combined net position of $1,357,109, a decrease of $13,325 from the prior year.

General Fund Budgetary Highlights

Actual revenues were under final estimates by $38,407. Expenditures were under final appropriations by $44,750.

CAPITAL ASSETS AND DEBT ADMINISTRATION

Capital Assets

At the end of June 30, 2024, the City had $4,015,681 invested in capital assets, net of depreciation, including land, buildings, machinery and equipment, park facilities, electric, water, sewer and stormwater systems, roads, and bridges. This represents a net decrease of $323,538 over last year.

Table 5

Primary Government Capital Assets (In Thousands)

(Net of Accumulated Depreciation)

Major capital asset events during the current fiscal year included the following:

• Street improvements.

• Infrastructure upgrades.

• Vehicle purchases.

• Machinery and equipment for various departments.

See Note 5 to the financial statements for more detailed information on the City’s capital assets and changes therein.

Long-Term Debt and Other Obligations

At year-end, the City had $2,922,617 in long-term debt outstanding, excluding accrued compensated absences, due to depositors and net pension liability, which represents a $255,809 decrease from the prior year.

Table 6 Outstanding Debt (In Thousands)

Total

Governmental Activities

Business-type Activities

Total

Percentage Change

See Note 7 to the financial statements for more detailed information on the City’s long-term debt and changes therein.

ECONOMIC OUTLOOK

• The unemployment rate for the Oklahoma City metropolitan area which includes Lexington is currently 2.8 percent, which is a decrease of 1.6 percent from a year ago. This compares favorably to the state’s average unemployment rate of 2.7 percent and favorably to the national average rate of 3.5 percent.

  
  

• Inflationary trends in the region compare favorably to national indices.

  
  

• The City’s major source of revenue is sales and use tax revenue. Sales and use tax revenue increased $69,504 over the prior year total.

All of these factors were considered in preparing the City’s budget for the 2025-2024 fiscal year.

CONTACTING THE CITY’S FINANCIAL MANAGEMENT

This financial report is designed to provide our citizens, taxpayers, customers, bond rating agencies and creditors with a general overview of the City's finances reflecting the City's accountability for the money it receives. If you have questions about this report or need additional financial information, contact the Finance Office at 111 E. Broadway St., Lexington, Oklahoma 73051.

BASIC FINANCIAL STATEMENTS

Statement of Net Position

June 30, 2024

Primary Government

See accompanying notes to the basic financial statement.

Statement of Activities

For the Year Ended June 30, 2024

Statement of Activities

For the Year Ended June 30, 2024

Change in Net Position:

Primary Government Governmental Business-type

Activities Activities Total

Net (expense) revenue $ (1,413,421) 379,788 (1,033,633)

General revenues:

Taxes:

See accompanying notes to the basic financial statement.

Amounts reported for governmental activities in the statement of net position are different because:

Capital assets used in governmental activities are not financial resources

and therefore are not required in the funds, net of accumulated depreciation of $2,750,324 578,543

Other long-term assets are not available to pay for current period expenditures and therefore are deferred in the funds:

Net pension asset 10,163

Pension related deferred outflows 296,736

Certain liabilities are not due and payable in the current period form current

See accompanying notes to the basic financial statement.

Governmental Funds

Statement of Revenues, Expenditures, and Changes in Fund Balances

For the Year Ended June 30, 2024

EXPENDITURES

Current:

See accompanying notes to the basic financial statement.

Reconciliation of the Statement of Revenues,

Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities

For the Year Ended June 30, 2024

Net change in fund balances - total governmental funds $ 204,401 Amounts reported for governmental activities in the statement of activities are

different because:

Governmental funds report capital outlays as expenditures while governmental activities report depreciation expense to allocate those expenditures over the life of the assets:

Some expenses reported in the Statement of Activities do not require the use of current financial resources and these are not reported as expenditures in governmental funds:

Change in accrued compensated absences (14,876)

Change in net position of governmental activities $ 23,063

Statement of Net Position - Proprietary Funds

June 30, 2024

ASSETS

Current assets:

Business-type Activities - Enterprise Funds Lexington Public Works Authority

Light LPWA Meter

Fund Fund Deposits Total

See accompanying notes to the basic financial statement.

Statement of Revenues, Expenses and Changes in Fund Net Position - Proprietary Funds

For the Year Ended June 30, 2024

Business-type Activities - Enterprise Funds Lexington Public Works Authority

See accompanying notes to the basic financial statement.

Statement of Cash Flows - Proprietary Funds

For the Year Ended June 30, 2024

Business-type Activities - Enterprise Funds Lexington Public Works Authority

See accompanying notes to the basic financial statement.

NOTES TO BASIC FINANCIAL STATEMENTS

The accounting and reporting policies of the City of Lexington, Oklahoma (the “City”) conforms to accounting principles generally accepted in the United States of America for state and local governments. Generally accepted accounting principles for municipalities are defined as those principles promulgated by the Governmental Accounting Standards Board (“GASB”). The following represent the more significant accounting and reporting policies and practices of the City.

Financial Reporting Entity – The City is an incorporated municipality located in central Oklahoma. The City operates under a council-manager form of government with a charter that provides for three branches of government:

• Legislative – the governing body includes an elected five-member City Council

• Executive – the City Manager is the Chief Executive Officer and appointed by the City Council

• Judicial – the Municipal Judge is a practicing attorney appointed by the City Council

  In determining the financial reporting entity, the City complies with the provisions of Governmental Accounting Standards Board Statement No. 14, The Financial Reporting Entity, and GASB Statement 61, The Financial Reporting Entity: Omnibus, an amendment of GASB Statements No. 14 and No. 34, and includes all component units for which the City is financially accountable.

  
  

  The accompanying financial statements present the government and its component units, entities for which the City is considered to be financially accountable. Blended component units, although legally separate entities, are, in substance, part of the City’s operations and therefore data from these units are combined with the data of the City. Each blended component unit has a June 30 year end.

  
  

  Blended Component Units. The Lexington Public Works Authority (LPWA) was created on January 30, 1989, pursuant to a Trust Indenture to finance, develop, and operate the electric, water, wastewater, and solid waste activities of the City. Council members serve as Trustees and the City Manager is the General Manager. The rates for user charges and debt authorization are approved by the city council. The LPWA is reported as an enterprise fund type. Separate financial statements have not been prepared for LPWA.

  Each component unit is a Public Trust established pursuant to Title 60 of the Oklahoma State law. Public Trusts (Authorities) have no taxing power. The Authorities are generally created to finance City services through the issuance of revenue bonds or other non-general obligation debt and to enable the City Council to delegate certain functions to the governing body (Trustees) of the Authority. In accordance with state law, all debt obligations incurred by public trusts require two- thirds approval by the City Council. In addition, the City has leased certain existing assets at the creation for the Authority to the Trustees on a long-term basis. The City, as beneficiary of the Public Trust, receives title to any residual assets when a Public Trust is dissolved.

  
  

  The City follows Governmental Accounting Standards Board (“GASB”) statements in the preparation of its financial statements. The presentation includes financial statements that communicate the City’s financial condition and changes therein at two distinct levels:

  
  

• The City as a Whole (a government-wide presentation)

• The City’s Funds (a presentation of the City’s major and aggregate non-major funds)

  Government-wide and fund financial statements – The government-wide financial statements (i.e., the Statement of Net Position and the Statement of Activities) report information on all of the nonfiduciary activities of the primary government and its component units. For the most part, the effect of interfund activity has been removed from these statements. In the Statement of Net Position and the Statement of Activities, we divide the City into two kinds of activities.

  
  

  Governmental activities – Most of the City’s basic services are reported here, including police, fire, general administration, streets, parks and recreation. Sales taxes, franchise fees, fines, and state and federal grants finance most of the activities.

  
  

  Business-type activities – Services where the City charges a fee to customers to help cover all or most of the cost of the services it provides. The City’s electric, water, sewer and sanitation systems are reported here. Additionally, operation of the golf course and municipal airport are reported as business-type activities.

  The statement of activities demonstrates the degree to which the direct expenses of a given function or segment are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues.

  Fund Financial Statements –

  
  

  Governmental Funds – Most of the City’s basic services are reported in governmental funds, which focus on how much money flows into and out of those funds and the balances left at year-end that are available for spending. Governmental funds report their activities on the modified accrual basis of accounting and current financial resources measurement focus that is different from other funds. For example, these funds report the acquisition of capital assets and payments for debt principal as expenditures and not as changes to asset and debt balances. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the City considers revenues to be available if they are collected within 60 days of the end of the current fiscal period except for reimbursement type grants that are recorded as revenues when the related expenditures are recognized. Expenditures are generally recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences, claims, judgments, and pension liabilities are recorded only when payment is due.

  
  

  Sales and use taxes, franchise taxes, licenses, and interest associated with the current fiscal period are all considered susceptible to accrual and have been recognized as revenues of the current fiscal period. Expenditure driven grants are recognized as revenues when qualifying expenditures have been incurred and all eligibility requirements have been met. All other revenue items are considered to be measurable and available only when cash is received by the City.

  
  

  The governmental fund statements provide a detailed short-term view of the City’s general government operations and the basic services it provides. Governmental fund information helps one determine (through a review of changes in fund balance) whether there are more or fewer financial resources that can be spent in the near future to finance the City’s programs.

  The following are the City’s major governmental funds:

  
  

• General Fund – accounts for general operations of the City including public safety, parks, public facilities, street maintenance and internal service support.

  
  

• Restricted Sales Tax Fund – accounts for and reports financial resources that are restricted, committed, or assigned to expenditure for the construction and repair of streets and other infrastructure as approved by a special sales tax ordinance.

  The following are the City’s aggregate non-major governmental funds:

  
  

• Street & Alley Fund

  The reconciliation of the governmental fund financial statements to the governmental activities presentation in the government-wide financial statements is the result of the use of the accrual basis of accounting and economic resources measurement focus on the government-wide level.

  Proprietary Funds – When the City charges customers for the services it provides, these services are generally reported as proprietary funds. Proprietary funds include enterprise funds and internal service funds. Enterprise funds are used to account for business-like activities provided to the general public. Internal service funds are used to account for business-like activities provided to other funds or departments of the City. Proprietary funds are reported on the accrual basis of accounting and economic resources measurement focus. For example, proprietary fund capital assets are capitalized and depreciated and principal payments on long-term debt are recorded as reductions to the liability.

  Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund’s principal ongoing operations. The principal operating revenues are charges to customers for sales and services. Operating expenses for enterprise funds and internal service funds include the cost of sales and services, administrative expenses, and depreciation of capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses.

  
  

• Lexington Public Works Authority (LPWA) – accounts for the revenues from operations of electric, water, sanitary sewer, and sanitation.

Accounting Policies -

Assets, Liabilities, Deferred Outflows/Inflows of Resources and Fund Equity

1. Cash and Cash Equivalents – The City considers all highly liquid investments with an original maturity of three months or less when purchased to be cash and cash equivalents.

2. Pooled Cash and Investments – The City requires all cash belonging to the City to be placed in the custody of the Financial Services Department of the City. A “Pooled Cash” concept is used in maintaining the cash and investment accounts in the accounting records. Under this method, all cash is pooled for investment purposes and each fund has equity in the pooled amounts. Investments are allocated to the individual participating funds based upon a percentage determined by the Financial Services Department of the City. An interfund receivable/payable is recognized if the allocation of investments to a particular fund exceeds the fund’s pooled cash amount before the allocation of the pooled investments.

   
   

   The purchases and maturities of the pooled investments, as reported in the fund’s statement of cash flow, are allocated to the participating proprietary funds based on their portion of total pooled investments.

   
   

3. Investments – Investments are stated at fair value. Fair value is the amount at which a financial instrument can be exchanged in a current transaction between willing parties. The City considers the quoted market price on June 30, 2024, to be the fair value of its investments.

   
   

   Oklahoma Statutes authorize the City to invest in obligations of the United States government, its agencies and instrumentalities; collateralized or insured certificates of deposit and other evidences of deposit at banks, savings banks, savings and loan associations and credit unions located in this state, or fully insured certificates of deposit at banks, savings bank, savings and loan associations and credit unions located out of state; negotiable certificates of deposit issued by a nationally or state-chartered bank, a savings bank, a savings and loan association or a state- licensed branch of a foreign bank; prime banker’s acceptances which are eligible for purchases by the Federal Reserve System and which do not exceed 270 days’ maturity; prime commercial paper which shall not have a maturity that exceeds 180 days nor represent more than 10% of the outstanding paper of an issuing corporation; repurchase agreements that have underlying collateral consisting of those items specified above; and money market funds regulated by the Securities and Exchange Commission and which investments consist of those items noted above.

   
   

4. Receivables and payables – In the government-wide financial statements, receivables consist of all revenues earned at year-end and not yet received. Allowances for uncollectible accounts receivable are based upon historical trends and the periodic aging of accounts receivable.

   
   

   In the governmental fund financial statements, receivables are recorded when they are both measurable and available. Proprietary fund receivables consist of all revenues earned at year- end and not yet received.

   
   

5. Interfund Receivable and Payables – Activity between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as either “due to / due from other funds” (i.e., the current portion of interfund loans) or “advances to / from other funds” (i.e., the non-current portion of interfund loans). All other outstanding balances between funds are reported as “due to / from other funds.” Any residual balances outstanding between the governmental activities and business-type activities are reported in the government-wide financial statements as “internal balances.”

6. Restricted Assets – Restricted assets include cash and investments of both governmental activities and business-type activities that are legally restricted as to their use. The restricted assets are primarily related to debt trustee accounts and guaranty deposits.

   
   

7. Capital Assets – Capital assets, which include property, plant and equipment and infrastructure assets (e.g., roads, bridges, sidewalks, and similar items), are reported in the applicable governmental or business-type activities columns in the government-wide financial statements. Capital assets are defined by the government as assets with an initial, individual cost of more than $2,500 (amount not rounded) and an estimated useful life in excess of two years. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets, the majority of which generally consists of donated land and infrastructure which is recorded in the governmental funds and donated water and sewer distribution systems which are recorded in the proprietary funds, are recorded at estimated fair value at the date of donation.

   
   

   The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets’ lives are not capitalized.

   Property, plant, and equipment is depreciated using the straight-line method over the following estimated useful lives:

   Buildings 40 years

   Infrastructure 40 years

   Improvements other than buildings & infrastructure 40 years Machinery and equipment 5 years

   Vehicles 5 years

   
   

8. Inventory – The City records parts and fuel inventory as expenses within the General Fund. Parts inventory is recorded using actual cost.

   
   

   NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued

   
   

9. Long-term Debt - Accounting treatment of long-term debt varies depending upon the source of repayment and the measurement focus applied, and whether the debt is reported in the government-wide or fund financial statements.

   
   

   All long-term debt to be repaid from governmental activities, business-type activities and proprietary funds are reported as liabilities as incurred. The long-term debt presently is primarily comprised of revenue bonds payable, net pension liability, and accrued compensated absences. This long-term debt is reported not of unamortized discounts and premiums.

   Long-term debt of governmental funds is not reported as liabilities in the fund financial statements. The debt proceeds are reported as other financing sources and payments of principal and interest are reported as expenditures.

   
   

10. Claims and Judgments Payable - Under state law, judgments against the City can be paid over three years or can be paid immediately. A liability would be recorded within the government- wide, proprietary, and fiduciary fund financial statements for claims and judgments payable. A liability for these amounts is reported in governmental funds only if they are paid from current financial resources. On June 30, 2024, the City did not have any outstanding judgments.

11. Compensated Absences – Under the terms of City personnel policies, City employees are granted vacation and sick leave in varying amounts. In the event of termination, an employee is paid for vacation leave accumulated and vested accumulated sick leave. Vesting of sick leave by employees and maximum number of hours that can be accumulated for vacation and sick leave are dependent upon an employees’ service as contained in the City’s personnel manual.

    
    

12. Pensions – For the purpose of measuring the net pension liability, deferred outflows of resources and deferred inflow of resources related to pensions and pension expense, information about the fiduciary net position of the City’s multiemployer pension plans and additions to/deductions from the multiemployer pension plans have been determined on the same basis as they are reported by the plans. For this purpose, benefit payments (including refunds of employee contributions) are recognized when they are due and payable in accordance with the benefit terms. Investments are reported at fair value.

    
    

13. Fund Equity – In the government-wide financial statements, equity is classified as net position and displayed in three components:

    
    

    1. Net investment in capital assets – Consists of capital assets, net of accumulated depreciation and reduced by the outstanding balances of any notes or other borrowings attributable to those assets.

       
       

    2. Restricted net position – Consists of net position with constraints placed on the use either by external groups, such as grantors or laws and regulations of other governments, or law through constitutional provisions or enabling legislation.

    3. Unrestricted net position – All other assets that do not meet the definition of “restricted” or “invested in capital assets, net of related debt.”

       
       

       NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued

       
       

       When both restricted and unrestricted net positions are available for use, generally it is the City’s policy to use restricted resources first. For projects funded with tax-exempt debt proceeds and other sources, the debt proceeds are used first.

       Governmental fund equity is classified as fund balance. Fund balance is further classified as follows and based on the nature of any limitations requiring the use of resources for specific purposes.

       
       

       1. Nonspendable – Includes fund balance amounts that cannot be spent either because they are not in spendable form or because of legal or contractual requirements.

          
          

       2. Restricted – Includes fund balance amounts that are constrained for specific purposes which are externally imposed by providers, such as creditors or amounts constrained due to constitutional provisions or enabling legislation.

          
          

       3. Committed – Includes fund balance amounts that are constrained for specific purposes that are internally imposed by the City through formal action of the highest level of decision- making authority. The City Council is the highest level of decision-making authority that can, by adoption of an Ordinance prior to the end of the fiscal year, commit fund balance. Once adopted, the limitation imposed by the ordinance remains in place until a similar action by the City Council is taken (the adoption of another ordinance) to remove or revise the limitation.

       4. Assigned – Amounts in the assigned fund balance classification are intended to be used by the government for specific purposes but do not meet the criteria to be classified as committed. The City Council may assign fund balance as it does when appropriating fund balance to cover the gap between estimated revenue and appropriations in the subsequent year’s appropriated budget. Unlike commitments, assignments generally only exist temporarily. In other words, an additional action does not normally have to be taken for the removal of an assignment. Conversely, as discussed above, an additional action is essential to either remove or revise a commitment.

          
          

       5. Unassigned – Includes the residual balance of the General Fund that has not been assigned to other funds and that has not been restricted, committed, or assigned to specific purposes with the General Fund.

When both restricted and unrestricted sources (the total of committed, assigned, and unassigned fund balance) are available for use, generally it is the City’s policy to use restricted resources first. Further, when the components of unrestricted fund balance can be used for the same purpose, committed fund balance is depleted first, followed by assigned fund balance. Unassigned fund balance is applied last.

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued

Cost Sharing Defined Benefit Pension Plans

The City participates in two cost-sharing multiple-employer defined benefit pension plans, the Oklahoma Police Pension & Retirement System (OPPRS) and the Oklahoma Firefighters Pension and Retirement System (OFPRS), (the Plans). For purposes of measuring the net pension asset, liability, deferred outflows of resources and deferred inflows of resources related to the pensions, and pension expense, information about the fiduciary net position of the Plan and additions to/deductions from the Plan’s fiduciary net position have been determined on the same basis as they are reported by the Plan. For this purpose, benefit payments (including refunds of employee contributions) are recognized when they are due and payable in accordance with the benefit terms. Investments are reported at fair value.

Deferred Outflows/inflows of Resources

Deferred outflows of resources represent a consumption of net position that applies to a future period(s) and so will not be recognized as an outflow of resources (expense) until then. The City has deferred outflows related to pensions, with one being the amount of contributions made to pension plans after the measurement date, and the other the difference in investment experience between actual earnings and projected earnings on pension plan investments and the difference in assumption changes. Deferred outflows related to contributions made after the measurement date will be recognized as a reduction of pension liability in the following year. The remaining amounts will be amortized to pension expense over future periods. See Note 4 for additional information.

Deferred inflows of resources represent an acquisition of net position that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until that time. The City has a deferred inflow related to pensions. This consists of the difference between expected and actual experience related to pension plans as well as the difference in assumption changes. These amounts are amortized over future periods to pension expense.

Revenues, Expenditures and Expenses

1. Sales Taxes – Sales taxes are collected by vendors and required to be remitted to the State of Oklahoma by the 20th of the month following collection. The tax is then paid to the City by the 10th of the next month. A two-month lag exists between collection by the vendor and payment to the City by the State. Revenue received in July and August from sales made in May and June, respectively, is available for prior year expenses and is accrued in both the government-wide and fund financial statements.

   
   

2. Charges for Services – Charges for service consist primarily of charges made by one fund for services such as insurance and other benefits provided to the other funds of the City.

3. Intergovernmental Revenues/Capital Grants Earned – Revenues from Federal and State operating grants are recognized when expenditures are made. Similarly, capital grants are considered earned when the expenditures are made. The earned portion of capital grants in Proprietary Funds is treated as a capital contribution within the statement of revenues, expenses, and changes in fund net position.

   
   

   NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – Continued

   
   

4. Investment Earnings – Investment earnings on pooled cash and investments are allocated on a pro-rata basis to the City’s funds based on the percentage of each fund’s average month-end pooled cash balance.

   Use of Estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

   
   

   NOTE 2 – STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY

   
   

   Budgetary Compliance

   
   

   The City prepares its annual operating budget under the provisions of the Oklahoma Municipal Budget Act of 1979 (the “Budget Act”). In accordance with those provisions, the following process is used to adopt the annual budget:

   1. Prior to June 1, the City Manager submits to the City Council a proposed operating budget for the fiscal year commencing July 1.

      
      

   2. Public hearings are conducted to obtain citizen comments. At least one public hearing is held no later than 15 days prior to the beginning of the budget year.

   3. Subsequent to the public hearings but no later than seven days prior to July 1, the budget is legally enacted through the passage of a resolution by the City Council.

   4. Subsequent to City Council enactment, the adopted budget is filed with the office of the State Auditor and Inspector.

      
      

   5. The legal level of control at which expenditures may not legally exceed appropriations is the department level within a fund.

All fund decreases of appropriation and supplemental appropriations require City Council approval. The City Manager may transfer appropriations between departments within a fund without City Council approval. Supplemental appropriations must also be filed with the Office of the State Auditor and Inspector.

In accordance with Title 60 of the Oklahoma State Statutes, the Lexington Public Works Authority is required to prepare an annual budget and submit a copy to the City as beneficiary. However, there are no further requirements such as form of budget, approval of budget or definition of a legal level of control; and, therefore, no budget and actual financial presentation for the LPWA funds is included in this report.

NOTE 2 – STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY - Continued

Deposits and Investment Laws and Regulations Deposits

Custodial credit risk for deposits is the risk that in the event of a bank failure, the City may not recover its deposits. The City’s policy to minimize its exposure to custodial credit risk for deposit is that all deposits shall either be insured by the Federal Deposit Insurance Corporation (FDIC) or collateralized by securities held by the cognizant Federal Reserve Bank or invested in United States government obligations, and direct debt obligations of municipalities, counties, and school districts in the State of Oklahoma, in the City’s name. On June 30, 2024, the City’s bank balances of approximately $2,077,303 were fully insured or collateralized with securities.

Investments

Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. The City minimizes its exposure to interest rate risk by limiting the duration of certificates of deposits or other fixed-income securities.

Investment credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligation. The City minimizes its exposure to investment credit risk by adopting investment policies that comply with the Oklahoma State statutes. As a result, investments are limited to the following:

• Direct obligations of the U.S. Government, its agencies, and instrumentalities to which the full faith and credit of the U.S. Government is pledged, or obligations to the payment of which the full faith and credit of the State of Oklahoma is pledged.

  
  

• Certificates of deposit or savings accounts that are either insured or secured with acceptable pledged collateral with in-state financial institutions, and fully insured certificates of deposit or savings accounts in out-of-state financial institutions.

  
  

• County, municipal or school district tax supported debt obligations, bond or revenue anticipation notes, money judgments, or bond or revenue anticipation notes of public trusts whose beneficiary is a county, municipality, or school district.

  
  

• Notes or bonds secured by mortgage or trust deed insured by the Federal Housing Administrator and debentures issued by the Federal Housing Administrator, and in obligations of the National Mortgage Association.

  
  

• Money market funds and repurchase agreements which consist of the authorized investments of the United States government agency obligations with restrictions as specified in state law.

NOTE 2 – STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY - Continued

Public trusts created under O.S. Title 60 are not subject to the above-mentioned investment limitations and are primarily governed by restrictions in their trust or bond indentures.

The City has no formal policy limiting investments based on credit rating but discloses any such credit risk associated with their investments by reporting the credit quality ratings of investments in debt securities as determined by nationally recognized statistical rating organizations and agencies as of the end of year end. Unless there is information to the contrary, obligations of the United States government or obligations explicitly guaranteed by the United States government are not considered to have credit risk and do not require disclosure of credit quality.

Custodial credit risk for investments is the risk that in the event of a bank failure, the City may not recover the value of its investments. The City’s policy to minimize its exposure to custodial credit risk for investments is that all investments shall either be insured by the Federal Deposit Insurance Corporation (FDIC) or collateralized by securities held by the cognizant Federal Reserve Bank or invested in United States government obligations, and direct debt obligations of municipalities, counties, and school districts in the State of Oklahoma, in the City’s name. On June 30, 2024, the City’s investments are certificates of deposit in local banks. On June 30, 2024, the certificates of deposits were fully insured or collateralized.

Debt Restrictions and Covenants

General Obligation Debt

Article 10, Sections 26 and 27 of the Oklahoma Constitution limits the amount of certain outstanding general obligation bonded debt of the municipality for non-utility or non-street purposes to no more than 10% of the net assessed valuation. As of June 30, 2024, the City did not have any general obligation debt outstanding.

Other Long-term Debt

As required by the Oklahoma State Constitution, the City (excluding Public Trusts) may not incur any indebtedness that would require payment from resources beyond the current fiscal year revenue, without first obtaining voter approval.

Revenue Note Debt

The debt indentures relating to the revenue note issues of the Lexington Public Works Authority contain a number of restrictions or covenants that are financial related. These include covenants such as a required flow of funds through special accounts, debt service coverage requirements and required reserve account balances.

Fund Equity/Net Position Restrictions

Restricted Net Position

Restricted net position at the government-wide financial statements is required to restrict funds in accordance with various laws and regulations, specifically those laws and regulations dealing with debt service and the use of restricted revenues. See Note 3 for details of restricted net position.

NOTE 3 - DETAILED NOTES CONCERNING THE FUNDS

The following notes present detailed information to support the amounts reported in the basic financial statements for the City’s various assets, liabilities, equity, revenues, and expenditures/expenses.

Deposits and Investment Risks

The City of Lexington, including its blended component units, held the following deposits and investments on June 30, 2024:

Credit Carrying

Type Maturities Rating Value

Deposits:

Demand deposits $ 1,193,534

Cash on hand 800

Time deposits Due within 1 year 1,160,617

2,354,951

Investments:

Trustee money market account AAAm 74,968 74,968

Total deposits and investments $ 2,429,919

NOTE 3 - DETAILED NOTES CONCERNING THE FUNDS - Continued

Restricted Assets

The amounts reported as restricted assets on the Statement of Net Position are comprised of cash and investments held by the trustee bank on behalf of the public trusts (Authorities) related to its required revenue bond accounts as described in Note 2 and amounts due to depositors related to utility deposits.

The restricted assets as of June 30, 2024 were as follows:

Governmental Business-type

Activities Activities

Current Current Cash and cash Cash and cash Equivalents Equivalents

Receivables and Uncollectible Accounts

Accounts receivable for governmental and business-type activities consist of sales tax, franchise tax and fees, grants funds due, customer utilities services provided, both billed and unbilled, all reported net of allowance for uncollectible amounts are as follows:

Governmental Business-type

Activities Activities

Accounts receivable, net of allowance $           156,254              275,920  

NOTE 3 - DETAILED NOTES CONCERNING THE FUNDS - Continued

Capital Assets

Capital asset balances and activities for the year ended June 30, 2024, were as follows:

Beginning Additions Transfers Retirements Ending

Governmental activities

Capital assets not being depreciated :

Land $ 7,500 - - - 7,500

Construction in progress - - - - -

Depreciation expense for governmental activities is charged to functions as follows:

Governmental activities:

NOTE 3 - DETAILED NOTES CONCERNING THE FUNDS – Continued

Capital asset activity for business-type activities for the year ended June 30, 2024 was as follows:

Business-type activities

Capital assets not being depreciated :

Land

Construction in progress

Total capital assets not being depreciated