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June 24, 2022

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, 2021 . 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, stormwater, solid waste and recycling 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 120,492 and growing .

THE ECONOMIC FACTORS OF 2021

Final US Gross Domestic Product (GDP) grew at an annualized rate of 5 .7%, the largest number since 1984 . This was driven by a 6 .9% increase in the fourth quarter alone . The concept of “transitory inflation” went out

City of Arvada Letter of Transmittal Annual Comprehensive Financial Report

the window with the Fed now trying to slow down the rapidly increasing inflationary rate . After receiving this data, the Fed telegraphed the start of rate hikes in March 2022 . Federal unemployment has dropped to 3 .9%, the lowest since March of 2020 . Job openings still outpace the number of workers available, reducing the production of goods and increasing inflation as demand for goods has remained high .

At the State level, GDP grew at an annualized rate of 5 .5%, slower than the national economy . Per-capita personal income experienced the second largest increase placing Colorado ninth in the country at an average of $68,106 . This has certainly led to an increase in consumer confidence and spending . The state’s unemployment rate finished the year at 4 .2%, above the national average but well below last year’s 6 .6% . Growth continues but there is still a pretty large hole to climb out of .

The City of Arvada’s retail environment closed 2021 the strongest it has been in over 2 years . As mask mandates were lightened, consumers returned to in-person shopping experiences in droves while continuing to take advantage of the convenience of on-line ordering . Overall sales tax receipts ended up the year 15 .4% over 2020 . While some of this can be explained by the increase in inflation, 6 .9%, the rest demonstrates a very strong growth pattern . The largest growth categories by NAICS codes for 2021 were: local messengers/ delivery, 135 .7%, internet retailers 88 .3%, full service restaurants 31 .2%, grocery stores 10 .1%, and limited service restaurants 11 .8% . The categories that experienced reductions as compared to 2020 were: plumbing and heating (15 .8%) and pet supplies (5 .5%) and liquor stores (5 .5%) . The past two years have demonstrated strength with significant year over year growth . The majority of this growth can be attributed to online sales and the collection of sales tax from these transactions . Moving forward, additional growth in sales tax will need to come from retail expansion or a sales tax increase as the majority of transactions on goods are now taxed .

The City was awarded a little over $11 million dollars in American Rescue Plan Act (ARPA) funds . The ARPA funds have a little longer time frame for usage than the CARES Act funds . The City leadership team along with the City Council is working on the best way to put these funds to use . Expected categories include housing, homelessness, premium pay, infrastructure, technology and business reinvestment .

Building activity slowed in 2021 with year over year growth at 2 .6% . Constraints in the labor market along with supply chain challenges made it difficult to get new projects to the market . With the expected interest rate increases in 2022, this revenue category will be under pressure . Auto use tax surged in 2021, up 16 .8% compared to 2020 . With new car inventory being limited, the used car market demand exploded, driving prices up across the board . As the chip crisis is resolved, this industry should see a return to a more normal buying activity .

Total expenditures finished under budget by 2 .6% and were down 6 .5% compared to 2020, with the largest difference being the CARES Act expenditures, a little over $9 million, in 2020 . Excluding CARES Act dollars, total expenditures were up 3% . The work systems continue to do a great job managing their budgets and maximizing the value tax payers receive for their tax dollars .

The 2020-2025 Council Strategic Plan was adopted on September 16, 2019 and included 25 measures in five strategic areas . Updates to the plan were adopted in July of 2021 and included four new results . The new results are as follows: funding alternatives for the streets maintenance deficit, constructing a regional navigation center to address homelessness, encouraging the development of pocket neighborhoods and create a plan to build a hospital .

In 2014, Council approved, by resolution, mandatory reserves for all of the major funds, demonstrating a long-term conservative view of City finances . In 2021, each of the major funds met or exceeded their required reserve goal with the exception of the Golf Fund . By maintaining ten-year operating and capital improvement