Independent Auditor’s Report

June 11, 2021

Citizens of the City of Arvada, Honorable Mayor, Members of City Council and City Manager

We are pleased to submit the Comprehensive Annual Financial Report for Arvada, Colorado for the fiscal year ended December 31, 2020 . Responsibility for both the accuracy of the data and the completeness and fairness of the presentation, including all disclosures, rests with the management of the City . To the best of our knowledge and belief, the enclosed data is accurate in all material respects and is reported in a manner designed to present the financial position and results of operations of various funds and component units of the City in accordance with Generally Accepted Accounting Principles (GAAP) . All disclosures necessary to enable the reader to gain an understanding of the City’s financial activities have been included .

In addition to an annual audit of the City’s financial records performed by an independent auditor, the City is required to have an annual single audit in conformity with the provisions of Title 2 U .S . Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) . Information related to this single audit, including the schedules of federal financial assistance, findings and recommendations, and independent auditor’s reports on the internal control structure and compliance with applicable laws and regulations are available in the single audit section listed in the table of contents .

In conformity with generally accepted accounting principles, as set forth in Governmental Accounting Standards Board (GASB) Statement 39, Determining Whether Certain Organizations Are Component Units, - an amendment of GASB Statement No. 14, Statement 61, The Financial Reporting Entity: Omnibus - an amendment of GASB Statements No. 14 and No. 34 and Statement 84, Fiduciary Activities, this report includes all funds of the primary government and the City’s component units . For this report the City of Arvada and all its departments, funds and blended component units comprise the Reporting Entity . Our only discretely presented component unit is the Arvada Urban Renewal Authority .

The City is required to provide a narrative introduction, overview and analysis to accompany the basic financial statements in the form of management’s discussion and analysis (MD&A) . This letter of transmittal is intended to complement the MD&A and should be read in conjunction with it .

PROFILE OF THE CITY OF ARVADA

The City of Arvada is located approximately 20 miles to the northwest of the City of Denver, Colorado along Interstate 70 . The City provides a full range of services, including police protection, physical parks, planning and zoning, transportation planning, street improvements and maintenance, a housing authority, two golf courses, municipal court services, water, wastewater and stormwater services and facilities, along with various administrative functions . The area has separate governmental units that provide fire protection and recreational services . The population of the City is 124,785 and growing .

THE ECONOMIC FACTORS OF 2020

The most recent financial expansion came to a screeching halt in March due to the onset of the COVID-19 pandemic . The expansion lasted 128 months, the longest in history . A flash recession occurred over the next few months as leaders figured out the safest way to address the health risks . Second quarter Gross Domestic Product (GDP) was down 31 .4% as many small businesses and industries were shut down . Luckily, the 2020 recession was short lived

City of Arvada Letter of Transmittal Comprehensive Annual Financial Report

with only two quarters showing lower gross domestic product (GDP) . The quick actions of the Federal Government, Congress and the Federal Reserve through the Paycheck Protection Program (PPP), passing the Coronavirus Aid, Relief and Economic Security (CARES) Act, lowering short term interest rates and initiating two stimulus programs has provided much needed aid to the areas most effected . Another stimulus package, the America Rescue Plan (ARP), has been passed in 2021 to continue the aid .

The City received a little over $9 .4 million dollars from the CARES Act and immediately put these funds to work . The direction from the City Council was to get the funds into the community and the City team followed . Four broad categories made up the funding allocation, with 61% going towards local businesses, 13% for local non-profits, 11% for residents and 15% for use by the City . All funds were distributed and spent by December 31, 2020 .

Consumers changed their spending habits overnight, with funds flowing into stay at home products and services . Businesses that changed their service model experienced tremendous growth while others that rely on outdoor and inperson services struggled . New products sprung on the scene and everyone needed technology . Unemployment at the national level spiked to a high of 14 .7% and then slowly moved down to 6 .7% at year end . As was stated above, the Federal Reserve moved quickly, lowering interest rates to 0%- .25% and has held them steady ever since . Expectations are that the Federal Reserve will leave rates alone and “let the economy run hot” .

The State of Colorado was hit hard initially by the COVID-19 pandemic but ended up better than originally expected . Unemployment spiked to 12 .2% but moved quickly back down to 6 .9% where it has remained . Industries that relied on in-person attendance have continued to struggle, hurting the overall economy . On-line, e-commerce and “essential” industries have thrived with many unable to keep up with the increased demand . The housing industry has experienced a growth boom with year over year average sales prices growing more than 10% . Individuals and families wanted out of the cities and into single family homes with safe places to play . This has continued into 2021 with no end in sight .

The City of Arvada finished 2020 with positive overall financial results . Total General Fund revenues exceeded the revised budget by 5 .9% and were up over 2019 by 4 .6% with removal of one-time items . Sales tax revenues were up 8 .0% over 2019, far exceeding the revised budget of 1% . The large sales tax categories of grocery stores, merchant wholesalers, liquor stores, hardware stores and internet sales led the growth with utilities (power and heat) and full service restaurants losing the most . With the stay at home mandates and regulatory changes made at the state and local levels, internet sales tax revenue collected grew 81 .2% over 2019 .

Auto use tax revenue grew in 2020 up 4 .1% over 2019 and surpassing the revised budget by 23 .5% . Auto sales were down over 7 .5% for the first 3 quarters of 2020 but a strong 4th quarter pushed revenues over the budget . This revenue source will be carefully monitored in the upcoming years as it can be highly cyclical and current chip shortages are affecting production capacity .

Building revenues again exceeded their budget and grew 13 .4% over 2019 actuals . As was stated above, high demand for single family homes helped to bolster this revenue source . Other major revenue categories including interest income, property tax and grant revenue exceeded their budgets . General Use tax, court fines and fees and franchise fees were all under budget .

Total expenditures finished under budget by 5 .6% and were down 3 .2% compared to 2019, with small increases in capital and debt costs and a decrease in operating costs . The departments continue to do a great job managing their budgets and maximizing the value tax payers receive for their tax dollars especially during the COVID-19 pandemic .

City of Arvada Letter of Transmittal Comprehensive Annual Financial Report

The 2020-2025 Council Strategic Plan was adopted on September 16, 2019 and included 25 measures in five strategic areas . With the onset of COVID-19, Council revisited the measures but did not feel compelled to make any changes . Updates to the plan will be made after the 2021 Council retreat, scheduled for the summer .

In 2014, Council approved, by resolution, mandatory reserves for all of the major funds, demonstrating a long-term conservative view of City finances . In 2020, each of the major funds met or exceeded their required reserve goal with the exception of the Golf Fund . The Golf fund does meet the required reserve goal in the ten-year operation plan . By maintaining ten-year operating and capital improvement plans for these funds, the City is able to identify future challenges and work towards meeting them . The long-range financial planning process also makes sure that any decisions to add expenditures today can be paid for in the future .

FUTURE ECONOMIC FACTORS

The first quarter of 2021 brought increased hope in the battle against COVID-19 . As of the writing of this document, over 142 million individuals have received their first vaccine with over 97 million fully vaccinated . Restrictions have been reduced with some states fully open and others moving from 25% to 50% in-person capacity . The Centers for Disease Control and Prevention (CDC) issued a statement that if you are fully vaccinated and are outside with other people that are fully vaccinated, you do not have to wear a mask . They have not yet removed the requirement on inside mask wearing as the CDC would like to see that more of the population gets vaccinated .

Unemployment has stayed flat, currently sitting just above 6% . The Fed has kept short term interest rates at 0 to .25% with no intention of rising until the market “runs hot” . Projected US GDP year over year growth for 2021 sits at 5 .4% . Tremendous pent up consumer demand for travel and leisure activities is expected to drive growth over the second half of the year .

The City of Arvada’s current sales tax base is largely supported by supermarkets, grocery, health, small retail stores and now on-line retail . Businesses like Costco, Sam’s Club, King Soopers, Safeway, Target, Walmart, Home Depot and Lowes provide essential items to the residents of Arvada and its surrounding communities . Other retailers like Ulta Beauty, Michael’s, Big 5, Kohl’s and Floor and Décor meet specific needs and offer the in-person buying experience desired by many consumers . A diverse offering of restaurant and bar establishments helps to round out the in-person sales tax portfolio . The wild card continues to be on-line retail and what consumer habits will be after the pandemic . Expected annual sales tax growth is 3 .5% with all categories increasing as compared to 2020 .

Building activity is expected to return to more of a normal pattern in 2021 . Single-family detached building permits, multi-family apartments and new businesses are still coming to the market, just at a slower more consistent pace . One large multi-family project, Olde Town Residences (252 units) has received final approval and will begin construction later this year . Haskins Station and Sabell Subdivisions, two large residential infill projects, have broken ground and the first residents will move in this summer .

Three major development areas continue to be keys to the growth of the City . These are the “Ralston Fields” urban renewal area, Transit-Oriented Development (TOD) in and around the G Line stations and the Candelas/Jefferson Center Metropolitan District (JCMD) project area, including completion of the 470 beltway . Each one of these areas has its own challenges; however, if properly developed, all will be favorable economic drivers in the years to come .

The “Ralston Fields” area was established in 2003 by City Council as an economic development area . The first phase of redevelopment included the addition of a Target, Big 5 and many smaller retail restaurants and shops . The area has seen increased usage with the addition of three multi-family projects, including a 380-unit complex, a 298-unit