Loading...
Audit Report - 2008-2009 FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT CITY OF ATLANTIC BEACH, FLORIDA SEPTEMBER 30, 2009 FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT CITY OF ATLANTIC BEACH, FLORIDA SEPTEMBER 30, 2009 TABLE OF CONTENTS Independent Auditors' Report ~ Management's Discussion and Analysis ..................................................................................................iii-xiv Basic Financial Statements Government-wide Financial Statements Statement of Net Assets .............................................................................................................................1 Statement of Activities ...............................................................................................................................2 Fund Financial Statements Balance Sheet -Governmental Funds ........................................................................................................3 Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Assets ..........................................................................................................................4 Statement of Revenues, Expenditures, and Changes in Fund Balances -Governmental Funds .............................................................................................................5 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities ............................................................................................................................6 Statement of Net Assets -Proprietary Funds 7-8 Statement of Revenues, Expenses, and Changes in Net Assets - Proprietary Funds 9-10 Statement of Cash Flows -Proprietary Funds 11-13 Statement of Fiduciary Net Assets -Fiduciary Funds .............................................................................14 Statement of Changes in Fiduciary Net Assets -Fiduciary Funds .........................................................15 Notes to Financial Statements ........................................................................................................16-36 Required Supplementary Information Schedules of Pension Funding Progress .......................................................................................................37 Schedules of Contributions from Employer and Other Contributing Entities ......................................................................................................................................................38 Other Postemployment Benefits Plan -Schedule of Funding Progress .......................................................39 Other Postemployment Benefits Plan -Schedule of Contribution from Employer ..........................................................................................................................................40 Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual -General Fund ....................................................................................................41-42 Note to Schedule of Revenues, Expenditures, and Changes in Fund Balance -Budget and Actual -General Fund ..........................................................................................43 Supplementary Information Combining Balance Sheet -Nonmajor Governmental Funds 44-45 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances -Nonmajor Governmental Funds 46-47 Combining Statement of Fiduciary Net Assets -Fiduciary Funds ..............................................................48 Combining Statement of Changes in Fiduciary Net Assets - Fiduciary Funds ........................................................................................................................................49 FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT CITY OF ATLANTIC BEACH, FLORIDA SEPTEMBER 30, 2009 TABLE OF CONTENTS (Concluded) Supplementary Information (Concluded) Historical Revenues and Expenses ...............................................................................................................50 Major Utility Customers ................................................................................................................................51 Summary of Water Usage .............................................................................................................................52 Summary of Wastewater Treatment -Atlantic Beach Sewer Division ....................................................................................................................................................53 Summary of Wastewater Treatment -Outside City Sewer Division ...........................................................54 Other Bond Covenant Disclosures ................................................................................................................55 Schedules of Net Revenues in Accordance with Bond Resolutions -Enterprise Funds (Water and Sewer) ................................................................................56 Additional Elements of Report Prepared in Accordance with Government Auditing Standards, Issued by the Comptroller General of the United States; the Rules of the Auditor General of the State of Florida; and Other Contract Requirements Schedule of Expenditures of Federal Awards .........................................................................................57 Note to Schedule of Expenditures of Federal Awards ............................................................................58 Schedule of Source and Expenditure of the City Grant Funds 59 Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Basic Financial Statements Performed in Accordance with Government Auditing Standards 60-61 Management Letter 62-63 Purvis Gray g, Comp INDEPENDENT AUDITORS' REPORT Honorable Mayor, City Commissioners and City Manager Atlantic Beach, Florida We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Atlantic Beach, Florida (the City), as of and for the year ended September 30, 2009, which collectively comprise the City's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the City's management. Our responsibility is to express an opinion on these financial statements based on our audit. The prior year summarized comparative information has been derived from the City's 2008 financial statements and, in our report dated March 3, 2009, we expressed unqualified opinions on the respective financial statements of the governmental activities, the business- type activities, each major fund, and the aggregate remaining fund information. 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. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the basic financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the basic financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. 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, each major fund, and the aggregate remaining fund information of the City, as of September 30, 2009, and the respective changes in financial position and cash flows, where applicable, thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued a report dated January 30, 2010, 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, grant agreements and other matters. The purpose of that report is 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 internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in conjunction with this report in considering the results of our audit. Certified Public Accountants P.O. Box 23999 • 222 N.E. 1st Street • Gainesville, Florida 32602 • (352) 378-2461 • FAX (352) 378-2505 Laurel Ridge Professional Center • 2347 S.E. 17th Street • Ocala, Florida 34471 • (352) 732-3872 • FAX (352) 732-0542 443 East College Avenue • Tallahassee, Florida 32301 • (850) 224-7144 • FAX (850) 224-1762 2201 Cantu Court, Suite #100 • Sarasota, Florida 34232 • (941) 379-2800 • FAX (941) 379-2899 MEMBERS OF AMERICAN AND FLORIDA INSTITUTES OF CERTIFIED PUBLIC ACCOUNTANTS MEMBER OF AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS PRIVATE COMPANIES AND S.E.C. PRACTICE SECTIONS 1 Honorable Mayor, City Commissioners and City Manager Atlantic Beach, Florida INDEPENDENT AUDITORS' REPORT (Concluded) The management's discussion and analysis, budgetary comparison schedules, and the other .required supplementary information as listed in the table of contents, are not a required part of the basic financial statements but are supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. 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 schedule of expenditures of federal awards, the combining and individual nonmajor fund statements and other supplementary information listed in the table of contents is presented for the purpose of additional analysis and are not a required part of the basic financial statements. The combining and individual nonmajor fund financial statements, the schedule of expenditures of federal awards, and the schedule of source and expenditure of City grant funds have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. The other supplementary information has not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we express no opinion on them. ~'tiuko, Gu~av>~ , LLB January 30, 2010 Gainesville, Florida ii CITY OF ATLANTIC BEACH, FLORIDA MANAGEMENT'S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2009 As management of the City of Atlantic Beach, Florida (the City), we offer readers of our financial statements this narrative overview and analysis for the fiscal year ended September 30, 2009. Overview of the Financial Statements This management's discussion and analysis is intended to serve as an introduction to the City's basic financial statements.. The City's basic financial statements are comprised of three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves. The purpose of each of the three components of the basic financial statements is described below. Government-wide Financial Statements The government-wide financial statements are designed to provide readers with a broad overview of the City's finances, in a manner similar to a private sector business. They include the Statement of Net Assets and the Statement of Activities. The Statement of Net Assets presents information on all of the City's assets and liabilities, with the difference between the two reported as net assets. Net assets are reported as one of three categories: invested in capital assets -net of related debt; restricted; or unrestricted. Restricted net assets are further classified as either net assets restricted by enabling legislation or net assets that are otherwise restricted. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position of the City is improving or deteriorating. The Statement of Activities presents information showing how the City's net assets changed during the most recent fiscal year. All changes in net assets are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods. Both of the government-wide financial statements distinguish functions of the City that are principally supported by taxes and intergovernmental revenues, referred to as "governmental activities," from other functions that are intended to recover all or a significant portion of their costs through user fees and charges, referred to as "business-type activities." The governmental activities of the City include public safety, transportation, parks and recreation, conservation and resource management, physical environment (i.e., infrastructure), debt, and general government, which include administration and other support functions. The business-type activities of the City include the utility, comprised of the water and sewer systems, the stormwater system, the sanitation service and the building code enforcement enterprise fund. The government-wide financial statements can be found on pages 1 - 2 of this report. iii CITY OF ATLANTIC BEACH, FLORIDA MANAGEMENT'S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2009 (Continued) Fund Financial Statements A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the City can be categorized into either governmental funds, proprietary funds, or fiduciary funds. ¦ Governmental Funds Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of available resources, as well as on balances of available resources at the end of the fiscal year. Such information may be useful in evaluating a City's near-term financing requirements. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government's near-term financing decisions. Reconciliations are provided between the Governmental Funds Balance Sheet and the Statement of Net Assets and the Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances and Statement of Activities to facilitate this comparison between governmental funds and governmental activities. The City maintains eleven individual governmental funds. Information is presented separately in the Governmental Funds Balance Sheet and in the Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances for the General Fund, which is considered to be a major fund. Data from the other ten governmental funds are combined into a single, aggregated presentation called Nonmajor Governmental Funds. Fund data for these nonmajor governmental funds is provided in the form of combining statements. These combining statements can be found on pages 44 - 47 of this report. The City adopts an annual appropriated budget for all funds but is only required to present a budget comparison for its General Fund. The Schedule of Revenues, Expenditures, and Changes in Fund Balance -Budget and Actual -General Fund budgetary comparison schedule on pages 41 - 42 of this report has been provided to demonstrate compliance with this budget. ¦ Proprietary Funds The City maintains only one type of proprietary fund and that is enterprise funds. The enterprise funds are used to account for the activities of the water and sewer (utility), stormwater, building code enforcement and sanitation activities. The proprietary fund financial statements provide the same type of information as the government- wide financial statements, only in more detail. Separate information of the utility, stormwater, sanitation and building code enforcement activities can be found in the basic proprietary fund financial statements on pages 7 - 13 of this report. iv CITY OF ATLANTIC BEACH, FLORH)A MANAGEMENT'S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2009 (Continued) ¦ Fiduciary Funds Fiduciary funds are used to account for resources held for the benefit of parties outside the City (i.e., pension beneficiaries). Fiduciary funds are not reflected in the government-wide financial statements because the resources of those funds are not available to support the City's own programs. The accounting used for fiduciary funds is much like that used for proprietary funds. The basic fiduciary fund financial statements can be found on pages 14 - 15 of this report. Notes to Financial Statements The notes to financial statements provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. The notes can be found on pages 16 - 36 of this report. Other Information In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information concerning the City's progress in funding its obligation to provide pension benefits to its employees and a budgetary comparison schedule for the General Fund. Required supplementary information can be found on pages 37 - 43 of this report. Government-wide Financial Analysis Net assets may serve over time as a useful indicator of a City's financial position. As can be seen in the summarized table on page vi of this analysis, the City's assets exceeded liabilities by $69,575,000 at the close of the fiscal year ended September 30, 2009. By far the largest portion of the City's net assets, $56,642,000 (82%), reflects its investment in capital assets (i.e., land, buildings, equipment, and infrastructure), less any related, outstanding debt used to acquire those assets. 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 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 A portion of the City's net assets, $4,184,000 (6%), represents resources that are subject to external restrictions on how they may be used. The remaining balance of unrestricted net assets, $8,749,000, is used to meet the government's ongoing obligations to citizens and creditors. v CITY OF ATLANTIC BEACH, FLORIDA MANAGEMENT'S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2009 (Continued) City of Atlantic Beach's Net Assets September 30, 2009 and 2008 (In Thousands) Governmental Business-type Activities Activities Totals 2009 2008 2009 2008 2009 2008 Current and other assets $5,775 $8,623 $10,009 $8,251 $15,784 $16,874 Capital assets 41,090 41,668 32,837 33,694 73,927 75,362 Total Assets 46,865 50,291 42,846 41,945 89,711 92,236 Long-term liabilities outstanding 529 461 16,443 17,247 16,972 17,708 Other liabilities 760 1,352 2,404 2,585 3,164 3,937 Total Liabilities 1,289 1,813 18,847 19,832 20,136 21,645 Net Assets: Invested in capital assets, net of related debt 40,768 41,290. 15,874 15,999 56,642 57,289 Restricted 2,034 1,992 2,150 2,274 4,184 4,266 Unrestricted 2,774 5,196 5,975 3,840 8,749 9,036 Total Net Assets $45,576 $48,478 $23,999 $22,113 $69,575 $70,591 As illustrated in the schedule on page vii of this analysis, the City was able to report positive balances in all categories of net assets, both for the government as a whole, as well as for its separate governmental and business-type activities. The same situation held true for the prior fiscal year. vi CITY OF ATLANTIC BEACH, FLORIDA MANAGEMENT'S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2009 (Continued) City of Atlantic Beach's Change in Net Assets For the Years Ended September 30, 2009 and 2008 (In Thousands) Governmental Business-type Activities Activities Totals 2009 2008 2009 2008 2009 2008 Revenues: Program Revenues: Charges for services $1,722 $],925 $9,430 $8,718 $11,152 $10,643 Operating grants and contributions 860 733 0 121 860 854 Capital grants and contributions 96 101 399 1,272 495 1,373 General Revenues: Property taxes 4,089 4,269 0 0 4,089 4,269 Sales taxes 1,112 1,255 0 0 1,112 1,255 Business and utility taxes 1,162 1,155 0 0 1,162 1,155 State revenue sharing 273 319 0 0 273 319 Discretionary sales surtax 630 686 0 0 630 686 Interest revenue 18 171 25 138 43 309 Miscellaneous 6] 61 0 0 61 61 Impairment (Loss) 0 0 0 (2,659) 0 (2,659) (Loss) gain on disposal of fixed assets 0 0 7 1 7 1 Total Revenues 10,023 10,675 9,861 7,591 19,884 18,266 Expenses: General government 2,163 1,962 0 0 2,163 1,962 Public safety 4,734 4,879 0 0 4,734 4,879 Transportation 2,201 1,733 0 0 2,201 1,733 Parks and recreation 1,139 1,106 0 0 1,139 1,106 Conservation and resource management 21 0 0 0 21 0 Interest on long-term debt 14 16 0 0 14 16 Utility 0 0 7,623 7,685 7,623 7,685 Stormwater 0 0 1,199 1,277 1,199 1,277 Sanitation 0 0 1,504 1,679 1,504 1,679 Building code enforcement 0 0 302 265 302 265 Total Expenses 10,272 9,696 10,628 10,906 20,900 20,602 Transfers (2,653) 1,315 2,653 1,315 0 0 Change in net assets (2,902) (336) 1,886 (2,000) (1,016) (2,336) Net assets-Beginning 48,478 48,814 22,113 24,113 70,591 72,927 Net assets-Ending $45,576 $48,478 $23,999 $22,113 $69,575 $70,591 vii CITY OF ATLANTIC BEACH, FLORIDA MANAGEMENT'S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2009 (Continued) Fund Financial Analysis As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with finance- related legal requirements. Following is a summary of fund activity for the fiscal year: ¦ Governmental Funds At the end of the current fiscal year, the City's governmental funds reported a combined ending fund balance of $5,454,857, a decrease of $2,271,731 in comparison with the prior year. The General Fund is the chief operating fund of the City. At the end of the current fiscal year, unreserved fund balance was $3,224,735, which equated to 25% of total General Fund expenditures and transfers out. The net result of various revenue and expense items resulted in a decrease to the City's General Fund of $2,314,471 or 40.4% during the current fiscal year. This decrease is chiefly due to transferring a significant portion of fund balance to the Public Utility fund for a new well and the design of a sewer plant upgrade. Nonmajor governmental funds consisting of special revenue funds, and the debt service fund, and the capital projects fund have a combined fund balance of $2,034,076. Of this fund balance, $74,617 is reserved for future debt service payments and $160,788 is reserved for contractual obligations unexpended, but encumbered at year end. The net increase in fund balance after transfers in nonmajor governmental funds was $42,740. ¦ Proprietary Funds The City's proprietary funds provide the same type of information found in the government-wide financial statements, but in more detail. Net assets in the proprietary funds increased $1,885,520 during the fiscal year. In fiscal year 2009, the utility incremental rate adjustment of 10% resulted in an increase in customer charges for the year of $599,499. This was achieved by increasing the rate on the lowest block of consumption, so that potential reduced volumes would not dampen the much needed revenue increase. Operating expenses, including depreciation, decreased $263,765. After non-operating revenues and expenses are added, the loss was $1,125,993 before transfers. Offsetting this loss, was an increase to net assets of $1,885,520 from a combination of contributed capital and transfers in. Appearing in the 2008 totals of the statement of revenues and expenses is the presence of a "Special Item." The special item is a reduction of fund balance as the result of writing down the value of the Buccaneer sewer plant in the amount of $2,659,110. This represents an impairment loss on the asset. The City determined that plant abandonment was the most beneficial option to meet new regulatory standards. The impairment loss and depreciation are both non-cash expenses that are not budgeted or recovered through user charges. viii CITY OF ATLANTIC BEACH, FLORIDA MANAGEMENT'S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2009 (Continued) The Stormwater revenues benefited from a 25% rate increase of $1.00 per ERU or equivalent residential unit. Although this added approximately $100,000 in revenue, the operating expenses of the Stormwater Fund continue to be heavily subsidized by the Gas Tax Fund and the General Fund. The $5.00 per ERU rate is approximately one-third of the operating expenses of that program. During fiscal year 2009, the Sanitation Fund was supported by a cost of living rate increase of 4% to cover the increased contract service costs of providing semi-automated collection service. The Sanitation Fund netted an increase to net assets of $63,469, after having contributed $247,800 to the General Fund. The unrestricted net assets of the enterprise funds amounted to $5,975,030 at the end of fiscal year 2009. The total increase in net assets of $1,885,520 from 2008 was primarily due to the large transfers in from the General Fund for capital projects in Royal Palms and Utility water and sewer upgrades. General Fund Budgetary Highlights Differences between the original budget and the final amended budget included a $78,906 (decrease) in revenues, a $310,199 increase in appropriations, and a $2,053,200 increase in transfers and can briefly be summarized as follows: Revenues • ($128,947) Reduction of State-shared revenues such as Saes Taxes • ($94,000) Reduction in interest income due to lower yields and lower cash balances • $93,948 Increased interfund charges for fleet maintenance charges not budgeted • $36,025 Grant Award for public safety • $14,068 Miscellaneous sources were increased Expenditures • $176,075 Items encumbered but not spent by the end of fiscal year 2008 • ($56,200) Public Works ped-path and sidewalk construction • ($52,000) Information Technology upgrades • ($10,000) Gate at Dutton Island • ($5,000) Playground equipment • $36,025 Public Safety DUI Enforcement Grant • $251,990 Employment settlement agreement for a wrongfully terminated police officer • $30,000 Additional attorney fees • ($60,691) Miscellaneous other reductions across all departments Transfers • $124,100 Transfer to the Stormwater utility to compensate for lower interest earnings • $800,000 Transfer to Water Fund for new well project • $1,100,000 Transfer to Sewer Fund for design cost of a sewer plant upgrade • $29,100 Miscellaneous other transfer increases ix CITY OF ATLANTIC BEACH, FLORIDA MANAGEMENT'S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2009 (Continued) Net Budget The overall net difference from the original budget to the adjusted final budget was a budgeted decrease in fund balance of $3,947,460 instead of a decrease of $1,505,155. This represented a change of $2,442,305 from what was originally proposed. The actual decrease in fund balance was $2,314,471 and was due to shifting funds to capital projects as planned. Capital Assets and Debt Administration Capital Assets-The City's investment in capital assets, net of related depreciation, for its governmental and business-type activities as of September 30, 2009, amounted to $73,927,004. This investment in capital assets includes land, buildings and infrastructure improvements, equipment, and construction in progress. The total change in the City's capital assets, net of related depreciation, for the current fiscal year was a decrease of $578,268 (1.4%) for governmental activities and a decrease of $857,508 (2.5%) for business-type activities. Capital asset events during the current fiscal year included the following: ¦ Governmental Activities Land increased $190,000 when the City acquired passive, preservation park land on the Intracoastal marsh, known as the "River Branch Preserve." Building and Improvements reflected a net decrease of $530,000. This represented a capital asset increase of $178,000, offset by an increase to accumulated depreciation of $710,000. Acquisitions this year included: playground equipment replacement in Russell Park, bridge replacement in Howell Park at the Pine Street access, extension of the beach walkover at 3`d Street, Community Development Block Grant (CDBG)-funded sidewalk and drainage improvements on George Street, the "In Search of Atlantis" statute, fencing at the Aquatic Gardens retention pond, and water fountains in various locations in the City. Equipment assets decreased a net $26,000 from last fiscal year to fiscal year ended September 30, 2009. This net decrease was comprised of assets acquired for a value of $366,000, offset by equipment disposed with a net book value of $19,000, and an addition to the allowance for depreciable equipment of $373,000. Assets acquired in this category were: computer software totaling $23,000, including records management and dispatch software; seven outfitted, fleet vehicles for $173,000; computer equipment for $142,000, including a replacement backup server; email server; scanner for plans and maps in the Building Department; new copier at City Hall; and, new network switch for the computer room. The remaining assets acquired for $28,000 were primarily police-related equipment, such as radar units and interview room surveillance equipment, partially funded through grants. The City disposed of $442,000 of equipment, all fully depreciated except for computer equipment with a book value of $19,000. The actual useful lives of this computer equipment did not reach the typical estimated lives used for depreciation purposes. Assets disposed during the fiscal x CITY OF ATLANTIC BEACH, FLORIDA MANAGEMENT'S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2009 (Continued) year included six vehicles, an IBM AS400 mainframe computer and optical drive, a copier, forty-six 800 MHZ radios, a dispatch console and auxiliary radio system, and a diesel tractor. As of September 30, 2009, the City received approximately $9,500 in proceeds from equipment disposed through auction sales. Construction in progress decreased $350,000 upon completion of the Mayport Road median project. Since Mayport Road is owned and financially maintained by the Florida Department of Transportation, the amount spent on these improvements is no longer included as a capital asset of the City. The remaining balance of $137,000 in construction in progress at September 30, 2009 is for construction of new tennis courts at Donner Park, funded through the CDBG, and a spatial needs assessment for a new police building. ¦ Business-tune Activities Building and Improvements decreased a net $779,000. Assets in this category increased by $1,415,000 and were offset by an increase in allowance for depreciation of new and existing assets of $2,194,000. Projects completed and moved from construction in progress and moved to depreciable assets included sewer system rehabilitation of $1,179,000 and the Ardella Road drainage project for $34,000. Developer contributions of water and sewer lines in the Haywood Estates subdivision represented an additional $147,000 of business- type improvement assets. Miscellaneous sewer-related infrastructure improvements accounted for the remaining $55,000 of additions to this category. Equipment decreased a net $44,000. The composition of this net decrease included acquisitions of $87,000 and disposal of $65,000 of fully depreciated (book value of $0) computers, motor vehicles, and office and lab equipment, and an increase in the allowance for depreciation of $131,000. The most notable changes in this category for the fiscal year ending September 30, 2009 were: acquisition of a spare jet mixer pump for the wastewater treatment plant, a replacement tractor, and a new truck for public utilities; and, two roll-off containers for the sanitation division. A fully depreciated tractor was traded in for the new tractor and two trucks were sold at auction, netting proceeds of approximately $6,500. Construction in progress decreased, net of additions and deletions for assets moved into depreciable assets, by $34,000. Of the $748,000 balance in construction in progress at September 30, 2009, sewer system design of the improvements related to the Total Maximum Daily Load (TMDL) of nitrogen discharge accounted for $407,000, Royal Palms area stormwater drainage project for $335,000, and $5,000 had been expended for permitting and engineering services to replace a well at one of the City's water plants. The well project, estimated to cost approximately $600,000, will be funded through the State Revolving Fund loan program. Approximately 25°l0 of the final TMDL design work was complete at September 30, 2009. Both the Royal Palms and well projects are anticipated to be completed within the next twelve months. xi CITY OF ATLANTIC BEACH, FLORIDA MANAGEMENT'S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2009 (Continued) City of Atlantic Beach's Capital Assets (Net of Depreciation) (In Thousands) Governmental Business-type Activities Activities Totals 2009 2008 2009 2008 2009 2008 Land $10,034 $9,844 $1,656 $1,656 $11,690 $11,500 Building and Improvements 29,584 30,114 29,885 30,664 59,469 60,778 Equipment 1,335 1,361 548 592 1,883 1,953 Construction in Progress 137 350 748 782 885 1,132 Total $41,090 $41,669 $32,837 $33,694 $73,927 $75,363 Additional information on the City's capital assets can be found in note 6 on pages 26 - 27 of this report. Long-term Debt At the end of the 2009 fiscal year, the City had total bonded debt outstanding of $17,501,105. This amount was comprised of bonds secured solely by specified revenue sources (i.e., revenue bonds). A detailed listing of the City's debt can be found in the table below. City of Atlantic Beach's Outstanding Debt Revenue Bonds September 30, 2009 (In Thousands) Governmental Business-type Activities Activities Totals Utility System Revenue Bonds, Series 2004 $0 $16,078 $16,078 Utility System Revenue Bonds, Series 1996 0 705 705 SunTrust Revenue Refunding Bonds, Series 1999 322 397 719 Total $322 $17,180 $17,502 The City has been able to pay for ongoing capital projects related to governmental activities since borrowing funds in 1989 (refunded in 1999 to take advantage of reduced interest rates). Therefore, it has a high capacity for additional debt, if needed. In fiscal year 2009, the City was able to replenish the $85,400 of rate stabilization funds used to meet the City's required debt service coverage in 2008, in accordance with the Utility System Revenue Refunding Bonds, Series 2004, and the Utility System Revenue Bonds, Series 1996, bond covenants. A utility rate increase provided sufficient revenues to meet the required coverage ratio. Debt service coverage calculations can be found on page 56. The City's scheduled debt outstanding decreased by $804,778 (4.4%) during the current fiscal year. This decrease was due to scheduled loan repayments. Additional information on the City's long-term debt can be found in note 7 on pages 27 - 29 of this report. xii CITY OF ATLANTIC BEACH, FLORIDA MANAGEMENT'S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2009 (Continued) Economic and Budgetary Highlights The City is faced with many of the same economic hurdles that other cities in Florida are coping with. Decreasing revenues and increasing costs have made the budget itself a strategic planning issue again for 2010. Some of the economic hurdles that the City must overcome this year and into the future are highlighted below. Revenue Highlights: ¦ Taxable property values in the City decreased from the previous year by about 5%. As a result, the City Commission had to raise the millage rate by 5% just to generate the same ad valorem tax revenues as received in 2009. Ad valorem taxes represent about 35% of the General Fund revenues. ¦ State-shared revenues are also on the decline. From 2008 to 2009, the combination of sales tax and revenue sharing revenues decreased $202,339. The projection for 2010 is an additional decrease of $51,301. These two sources accounted for about 13% of the General Fund revenues. ¦ Throughout the year, the City has embraced the investment policy of protecting principal during the economic crises and has kept the excess funds invested fully insured CD's and a public interest- bearing checking account. As a result of having funds in low risk investments, we continue to realize very low returns. Total investment earnings for 2009 were $43,439, down from $309,135 in 2008. This amounted to a decrease of $265,696. Already, it is evident that 2010 interest returns will not be much better. ¦ In 2009, the Utility increased rates to generate an additional estimated 10% to help fund rising costs of operations. To avoid reductions in revenues due to the conservation efforts of our citizens and to fund the issuance of debt for plant upgrades, the rate increase was weighted more towards the first 3,000 gallons of consumption. One more significant rate increase of this type went into effect in October of 2009. The City also passed new system development charges to replace impact fees and connection charges in 2009. Although the charges are significantly higher than the previous charges, the drop in construction due to the economic slowdown has resulted in insignificant revenues in 2009. ¦ The City passed a $1.00 per ERU increase in the Storm Water Utility rates for 2009. This helps to reduce the program's dependency on transfers from the General Fund and the Gas Tax Fund adding an additional $100,000 annually to revenues. ¦ The City passed a 4% garbage collection rate increase for 2009, adding an additional $42,055, to offset the cost of living increase the hauler imposed on the City. This was not as much as planned due to a reduction in the commercial customer services. ¦ The City benefited from the American Recovery and Reinvestment Act (ARRA), in 2009 by receiving $38,538 in stimulus funds to retain two full-time police officers for June through September of 2009. The City also has received approval to continue to fund those positions with a supervisor working in the Mayport Road area during fiscal year 2010 in the amount of $263,558. xiii CITY OF ATLANTIC BEACH,. FLORIDA MANAGEMENT'S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2009 (CvrrcCurfed} Expenditure Highlights: ¦ Upcoming far 2010, the City anticipates that payroll-related costs will increase minimally as no raises were budgeted. Restructuring the health insurance benefit was done to keep those. costs in line but employer pension contributions will increase X150,006 for next year. ¦ The City has planned to incur a large amount of new debt over the next two years, due to the new environmental regulations for Total Maximum Daily Load (TMDL) that limit the amount of nitrogen discharged into the St. John's River from the City's wastewater treatment plants. This. will. require a major plant upgrade and abandoning one of our two plants to make operations more efficient. The City will also fund a new well and. water main projects with State Revolving Loan funds at a very low interest rate. ¦ Cun ently underway this year is the design and construction of the Royal Palms drainage project. This project is to be funded from cash reserves and i estimated to cost $2,800,000. This project will significantly reduce the cash on hand for the City this year. ¦ .Fiscal year 2010 will likely see the completion of the design for a new public safety building, using. additional debt. as the primary funding source. The construction. of the building, however, remains unbudgeted. The current. plan is to pledge discretionary half-cent sales tax revenue,. thereby limiting the amount available for mare routine projects in future years. Requests for Information The financial ieport is designed to provide a general overview of the City's finances for all those with an interest in the City's finances. Questions concerning any of the information provided in this report or requests for additional financial information. should be addressed to the City of Atlantic Beach, Finance Director, 800 Seminole Road, Atlantic Beach,. Florida 32233. Jim Hanson Nelson Van Liere City Man er Finance Director xiv BASIC FINANCIAL STATEMENTS These basic financial statements contain Government-wide Financial Statements, Fund Financial Statements, and Notes to Financial Statements. CITY OF ATLANTIC BEACH, FLORIDA STATEMENT OF NET ASSETS SEPTEMBER 30, 2009, WITH COMPARATIVE TOTALS FOR SEPTEMBER 30, 2008 2009 Governmental Business-type 2008 Activities Activities Totals Totals Assets Equity in Pooled Cash and Cash Equivalents $ 4,746,902 $ 6,791,296 $ 11,538,198 $ 11,941,870 Receivables-Net 13,146 557,127 570,273 571,832 Due from Other Governments 890,600 0 890,600 1,589,421 Inventories 14,674 28,224 42,898 65,506 Special Assessments -Current 0 6,455 6,455 30,213 Notes Receivable -Current 760 17,987 18,747 18,544 Restricted Assets: Equity in Pooled Cash and Cash Equivalents 0 2,288,857 2,288,857 2,248,051 Capital Assets: Land 10,034,127 1,656,018 11,690,145 11,499,735 Buildings 4,134,377 4,356,384 8,490,761 8,490,761 Improvements Other Than Buildings 37,799,178 59,417,899 97,217,077 95,622,831 Equipment 3,315,975 1,873,609 5,189,584 5,243,987 Accumulated Depreciation (14,330,629) (35,214,658) (49,545,287) (46,626,731) Construction in Progress 137,122 747,602 884,724 1,132,197 Prepaid Items 105,014 0 105,014 47,400 Special Assessments -Noncurrent 0 0 0 2,380 Notes Receivable -Noncurrent 3,800 102,681 106,481 126,342 Unamortized Loan Costs 0 216,799 216,799 232,397 Total Assets 46,865,046 42,846,280 89,711,326 92,236,736 Liabilities Accounts Payable and Other Current Liabilities 277,442 314,743 592,185 1,398,921 Due to Other Governments ~ 0 6,015 6,015 5,819 Deferred Revenue ].3,168 158,906 172,074 202,643 Deposits 29,429 0 29,429 31,660 Compensated Absences -Current 435,000 132,000 567,000 509,500 Accrued Interest Payable 4,514 0 4,514 5,301 Payable from Restricted Assets: Current Maturities of Bonds Payable 0 874,101 874,101 850,829 Accrued Interest Payable 0 388,853 388,853 403,545 Customer Deposits 0 529,811 529,811 528,465 Noncurrent Liabilities: Due Within One Year 59,305 0 59,305 56,686 Due in More Than One Year 262,224 16,305,475 16,567,699 17,398,370 Compensated Absences 189,166 131,741 320,907 253,309 Other Postemployment Benefits Obligation 18,296 5,778 24,074 0 Total Liabilities 1,288,544 18,847,423 20,135,967 21,645,048 Net Assets Invested in Capital Assets -Net of Related Debt 40,768,621 15,874,077 56,642,698 57,289,293 Restricted for: Renewal and Replacement 0 500,000 500,000 500,000 Debt Service 74,617 861,751 936,368 916,324 Road and Street Expenditures 281,918 0 281,918 253,277 Tourism and Recreation 29,170 0 29,170 244,322 Tree Replacement 14,822 0 14,822 31,183 Public Safety 17,722 0 17,722 17,583 Police Training 140,410 0 140,410 163,678 Building Code Enforcement 0 37,402 37,402 135,142 Capital Projects 1,475,417 750,597 2,226,014 2,003,993 Unrestricted 2,773,805 5,975,030 8,748,835 9,036,893 Total Net Assets $ 45,576,502 $ 23,998,857 $ 69,575.359 $ 70,591,688 See accompanying notes. 1 CITY OF ATLANTIC BEACH, FLORIDA STATEMENT OF ACTIVITIES FOR THE YEAR ENDED SEPTEMBER 30, 2009, WITH COMPARATIVE TOTALS FOR THE YEAR ENDED SEPTEMBER 30, 2008 2009 Program Revenues Net (Expense) Revenue and Changes in Net Assets Operating Capital Primary Government Charges for Grants and Grants and Governmental Business-type 2008 Functions/Programs Expenses Services Contributions Contributions Activities Activities Totals Totals Primary Government Governmental Activities: General Government $ 2,162,898 $ 918,751 $ 171,944 $ 0 $ (1,072,203) $ 0 $ (1,072,203) $ (1,145,611) Public Safety 4,733,908 626,130 83,651 36,025 (3,988,102) 0 (3,988,102) (3,797,379) Transportation 2,201,229 116,836 599,810 0 (1,484,583) 0 (1,484,583) (1,021,030) Parks and Recreation 1,138,730 60,711 4,812 60,067 (1,013,140) 0 (1,013,140) (1,010,764) Conservation and Resource Management 21,275 0 0 0 (21,275) 0 (21,275) 0 Physical Environment 0 0 0 0 0 0 0 53,027 Interest/Fiscal Charges on Long-term Debt 13,885 0 0 0 (13,885) 0 (13,885) (16,274) Total Governmental Activities 10,271,925 1,722,428 860,217 96,092 (7,593,188) 0 (7,593,188) (6,938,031) Business-type Activities: Utility 7,622,924 6,895,575 0 367,092 0 (360,257) (360,257) (1,028,334) Stormwater 1,199,612 519,529 0 32,328 0 (647,755) (647,755) 52,274 Sanitation 1,504,071 1,814,297 0 0 0 310,226 310,226 235,028 Building Code Enforcement 301,667 200,329 0 0 0 (101,338) (101,338) (55,223) Total Business-type Activities 10,628,274 9,429,730 0 399,420 0 (799,124) (799,124) (796,255) Total Primary Government $ 20,900,199 $ 11,152,158 _ $ 860,217 $ 495,512 (7,593,188) (799,124) (8,392,312) (7,734,286) General Revenues Property Taxes 4,089,288 0 4,089,288 4,269,435 Sales Taxes 1,112,294 0 1,112,294 1,255,152 Business and Utility Taxes 1,161,781 0 1,161,781 1,156,042 State Revenue Sharing 272,441 0 272,441 319,140 Discretionary Sales Surtax 629,680 0 629,680 685,927 Interest Revenue 18,081 25,358 43,439 309,135 Miscellaneous 60,590 0 60,590 60,401 Gain on Sale of Fixed Assets 0 6,470 6,470 1,560 Special Item -Impairment Loss 0 0 0 (2,659,110) Transfers (2,652,816) 2,652,816 0 0 Total General Revenues, Special Item, and Transfers 4,691,339 2,684,644 7,375,983 5,397,682 Change in Net Assets (2,901,849) 1,885,520 (1,016,329) (2,336,604) Net Assets, Beginning of Year 48,478,351 22,113,337 70,591,688 72,928,292 Net Assets, End of Year $ 45,576,502 $ 23,998,857 $ 69,575,359 $ 70,591,688 See accompanying notes. 2 CITY OF ATLANTIC BEACH, FLORIDA BALANCE SHEET GOVERNMENTAL FUNDS SEPTEMBER 30, 2009, WITH COMPARATIVE TOTALS FOR SEPTEMBER 30, 2008 2009 Nonmajor Totals Governmental Governmental 2008 General Funds Funds Totals Assets Equity in Pooled Cash and Cash Equivalents $ 2,858,043 $ 1,888,859 $ 4,746,902 $ 7,602,158 Receivables -Net 13,146 0 13,146 21,142 Due from Other Funds 63,844 0 63,844 30,125 Due from Other Governments 635,214 255,386 890,600 921,392 Inventories 14,674 0 14,674 25,510 Special Assessment Receivable -Current 0 0 0 Notes Receivable -Current 760 0 760 760 Prepaid Items 105,014 0 105,014 47,400 Notes Receivable -Noncurrent 3,800 0 3,800 4,560 Total Assets 3,694,495 2,144,245 5,838,740 8,653,047 Liabilities and Fund Balances Liabilities Accounts Payable and Accrued Liabilities 257,086 20,356 277,442 810,752 Due to Other Funds 0 63,844 63,844 30,125 Deposits 3,460 25,969 29,429 31,660 Deferred Revenue 13,168 0 13,168 53,922 Total Liabilities 273,714 110,169 383,883 926,459 Fund Balances Reserved for: Debt Service 0 74,617 74,617 77,300 Inventories 14,674 0 14,674 25,510 Prepaids 105,014 0 105,014 47,400 Encumbrances 76,358 160,788 237,146 317,815 Unreserved -Reported in: General Fund 3,224,735 0 3,224,735 5,486,267 Special Revenue Funds 0 1,169,394 1,169,394 1,439,359 Capita] Projects Fund 0 629,277 629,277 332,937 Total Fund Balances 3,420,781 2,034,076 5,454,857 7,726,588 Total Liabilities and Fund Balances $ 3,694,495 $ 2,144,245 $ 5,838,740 $ 8,653,047 See accompanying notes. 3 CITY OF ATLANTIC BEACH, FLORIDA RECONCILIATION OF BALANCE SHEET OF GOVERNMENTAL FUNDS TO THE STATEMENT OF NET ASSETS SEPTEMBER 30, 2009, WITH COMPARATIVE TOTALS FOR SEPTEMBER 30, 2008 2009 2008 Total Fund Balances of Governmental Funds $ 5,454,857 $ 7,726,588 Amounts Reported for Governmental Activities in the Statement of Net Assets are Different Because: Capital assets used in governmental activities are not financial resources and, therefore, are not reported in the funds: Total Capital Assets $ 55,420,779 $ 55,340,965 (Accumulated Depreciation} (14,330,629) (13,672,547) 41,090,150 41,668,418 Long-term liabilities are not due and payable in the current period and, accordingly, are not reported as fund liabilities. Interest on long-term debt is not accrued in the governmental funds, but rather is recognized as an expenditure when due. All liabilities, both current and long-term, are reported in the statement of net assets. Long-term liabilities at year-end consist of: Revenue Bonds Payable 321,529 378,215 Compensated Absences 624,166 533,139 Other Postemployment Benefits Obligation 18,296 0 Accrued Interest Payable 4,514 5,301 (968,505) (916,655) Total Net Assets of Governmental Activities $ 45,576,502 $ 48,478,351 See accompanying notes. 4 CITY OF ATLANTIC BEACH, FLORIDA STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2009, WITH COMPARATIVE TOTALS FOR THE YEAR ENDED SEPTEMBER 30, 2008 2009 Nonmajor Totals Governmental Governmental 2008 General Funds Funds Totals Revenues Taxes $ 5,251,070 $ 1,155,966 $ 6,407,036 $ 6,627,688 Franchise Fees and Permits 907,771 0 907,771 780,848 State-shared Revenues 1,517,742 0 1,517,742 1,720,081 Other Intergovernmental Revenues 158,770 164,301 323,071 142,895 Charges for Services 684,650 0 684,650 659,411 Fines and Forfeitures 90,881 32,051 122,932 484,294 Interest Income 13,134 4,947 18,081 170,678 Miscellaneous Revenues 34,295 4,914 39,209 39,559 Interfund Charges 1,499,385 0 1,499,385 1,394,394 Total Revenues 10,157,698 1,362,179 11,519,877 12,019,848 Expenditures Current: General Government 3,008,583 42,988 3,051,571 2,701,061 Public Safety 4,429,381 47,019 4,476,400 4,724,100 Transportation 1,441,376 252,227 1,693,603 1,686,775 Parks and Recreation 964,004 0 964,004 969,581 Conservation and Resource Management 0 21,275 21,275 0 Debt Service: Principal 0 56,686 56,686 53,925 Interest and Other 0 14,673 14,673 17,040 Capital Outlay 434,049 436,071 870,120 706,653 (Total Expenditures) (10,277,393) (870,939) (11,148,332) (10,859,135) (Deficiency) Excess of Revenues (Under) Over Expenditures (119,695) 491,240 371,545 1,160,713 Other Financing Sources (Uses) Transfers in 366,700 398,500 765,200 790,599 Transfers (out) (2,571,016) (847,000) (3,418,016) (2,091,860) Sale of General Fixed Assets 9,540 0 9,540 18,535 Total Other Financing (Uses) (2,194,776) (448,500) (2,643,276) (1,282,726) Net Change in Fund Balances (2,314,471) 42,740 (2,271,731) (122,013) Fund Balances, Beginning of Year 5,735,252 1,991,336 7,726,588 7,848,601 Fund Balances, End of Year $ 3,420,781 $ 2,034,076 $ 5,454,857 $ 7,726,588 See accompanying notes. 5 CITY OF ATLANTIC BEACH, FLORIDA RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTNITIES FOR THE YEAR ENDED SEPTEMBER 30, 2004, WITH COMPARATIVE TOTALS FOR THE YEAR ENDED SEPTEMBER 30, 2008 2009 2008 Net Change in Fund Balances -Total Governmental Funds $ (2,271,731) $ (122,013) Amounts Reported for Governmental Activities in the Statement of Activities are Different Because: Governmental funds report capital purchases as expenditures. However, in the statement of activities, the cost of those assets is depreciated over their estimated useful lives and reported as depreciation expense: Expenditures for Capital Assets $ 870,120 $ 706,653 (Current Year Depreciation) (1,082,640) (1,039,077) (212,520) (332,424) Certain revenues related to the acquisition of capital assets are not reported in governmental funds because they do not represent current financial resources, however, they are reported as capital contributions in the statement of activities. 2,400 53,027 Repayment oflong-term debt principal is an expenditure in the governmental funds, but the repayment reduces long-term liabilities in the statement of net assets. 56,686 53,925 Governmental funds report sale of general fixed assets as financial resources. The gain or loss on disposal of general fixed assets is not reflected in the governmental funds: Proceeds from Sale of General Fixed Assets (9,540) (20,830) (Loss) or Gain on Disposal of General Fixed Assets (8,270) (22,277) (17,810) (43,107) Some expenses/revenues reported in the statement of activities do not require the use. of or provide current financial resources and, therefore, are not reported as expenditures in governmental funds: Debt Interest Expense 790 766 Compensated Absences (91,028) 67,309 Other Postremployment Benefits Obligation (18,296) 0 Transfer of Capital Assets (350,340) (13,546) (458,874) 54,529 Change in Net Assets -Governmental Activities $ (2,901,844) $ (336,063} See accompanying notes. 6 CITY OF ATLANTIC BEACH, FLORH)A STATEMENT OF NET ASSETS PROPRIETARY FUNDS SEPTEMBER 30, 2009, WITH COMPARATIVE TOTALS FOR SEPTEMBER 30, 2008 2009 Business-type Activities -Enterprise Funds Building Code 2008 Utility Stormwater Sanitation Enforcement Totals Totals Assets Current Assets: Equity in Pooled Cash and Cash Equivalents $ 2,179,631 $ 4,028,205 $ 525,931 $ 57,529 $ 6,791,296 $ 4,339,712 Accounts Receivable -Net 449,821 26,346 80,960 0 557,127 550,690 Inventories 28,224 0 0 0 28,224 39,996 Due from Other Governments 0 0 0 0 0 668,029 Special Assessments -Current 6,455 0 0 0 6,455 30,213 Notes Receivable -Current 17,987 0 0 0 17,987 17,784 Restricted Assets: Equity in Pooled Cash and Cash Equivalents 2,126,070 162,787 0 0 2,288,857 2,248,051 Capital Assets: Land 749,499 906,519 0 0 1,656,018 1,656,018 Buildings 4,356,384 0 0 0 4,356,384 4,356,384 Improvements Other Than Buildings 46,528,187 12,889,712 0 0 59,417,899 58,002,508 Equipment 1,410,743 253,483 171,883 37,500 1,873,609 1,851,779 (Accumulated Depreciation) (29,138,685) (5,963,610) (80,157) (32,206) (35,214,658) (32,954,184) Construction in Progress 412,992 334,610 0 0 747,602 781,857 Special Assessments -Noncurrent 0 0 0 0 0 2,380 Notes Receivable -Noncurrent 102,681 0 0 0 102,681 121,782 Unamortized Loan Costs 186,839 29,960 0 0 216,799 232,397 Total Assets 29,416,828 12,668,012 698,617 62,823 42,846,280 41,945,396 See accompanying notes. 7 CITY OF ATLANTIC BEACH, FLORIDA STATEMENT OF NET ASSETS PROPRIETARY FUNDS SEPTEMBER 30, 2009, WITH COMPARATIVE TOTALS FOR SEPTEMBER 30, 2008 (Concluded) 2009 Business-type Activities -Enterprise Funds Building Code 2008 Utility Stormwater Sanitation Enforcement Totals Totals Liabilities Current Liabilities Payable from Current Assets: Accounts Payable and Accrued Liabilities $ 150,902 $ 12,333 $ 145,283 $ 6,225 $ 314,743 $ 588,169 Due to Other Governments 5,870 0 0 145 6,015 5,819 Deferred Revenue 81,570 16,884 60,452 0 158,906 148,721 Compensated Absences -Current 120,000 0 0 12,000 132,000 59,500 Current Liabilities Payable from Restricted Assets: Current Maturities of Bonds Payable 762,261 111,840 0 0 874,101 850,829 Accrued Interest Payable 337,906 50,947 0 0 388,853 403,545 Customer Deposits 529,811 0 0 0 529,811 528,465 Noncurrent Liabilities: Due in More Than One Year 14,071,056 2,234,419 0 0 16,305,475 17,076,841 Compensated Absences -Noncurrent 130,780 0 0 961 131,741 170,170 Other Postemployment Benefits Obligation 3,782 1,200 0 796 5,778 0 Total Liabilities 16,193,938 2,427,623 205,735 20,127 18,847,423 19,832,059 Net Assets Invested in Capital Assets -Net of Related Debt 9,672,641 6,104,415 91,727 5,294 15,874,077 15,999,090 Restricted for: Renewal and Replacement 500,000 0 0 0 500,000 500,000 Building Code Enforcement 0 0 0 37,402 37,402 135,142 Debt Service 749,911 111,840 0 0 861,751 839,024 Capital Projects 27,229 723,368 0 0 750,597 800,000 Unrestricted 2,273,109 3,300,766 401,155 0 5,975,030 3,840,081 Total Net Assets $ 13,222,890 $ 10,240,389 $ 492,882 $ 42,696 $ 23,998,857 $ 22,113,337 See accompanying notes. 8 CITY OF ATLANTIC BEACH, FLORIDA STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET ASSETS PROPRIETARY FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2009, WITH COMPARATIVE TOTALS FOR THE YEAR ENDED SEPTEMBER 30, 2008 2009 Business-type Activities -Enterprise Funds Building Code 2008 Utility Stormwater Sanitation Enforcement Totals Totals Operating Revenues Charges for Services: Customer Charges $ 6,840,216 $ 500,126 $ 1,791,797 $ 200,329 $ 9,332,468 $ 8,591,502 Franchise Permits 0 0 2,500 0 2,500 5,000 Miscellaneous Revenues 55,359 19,403 0 0 74,762 108,413 Total Operating Revenues 6,895,575 519,529 1,794,297 200,329 9,409,730 8,704,915 Operating Expenses Personal Services 1,776,755 277,375 25,646 238,774 2,318,550 2,200,291 Contractual Services 811,874 144,083 1,268,936 767 2,225,660 2,702,620 Supplies 286,852 18,644 0 5,496 310,992 398,233 Repairs and Maintenance 178,397 38,361 7,729 7,281 231,768 237,762 Heat, Lights and Power 683,833 0 0 0 683,833 575,344 Depreciation 1,897,004 398,069 26,886 3,344 2,325,303 2,326,596 Intergovernmental Charges 987,079 178,863 164,250 38,806 1,368,998 1,273,498 Other Expenses 250,346 25,848 6,555 7,199 289,948 304,473 (Total Operating Expenses) (6,872,140) (1,081,243) (1,500,002) (301,667) (9,755,052) (10,018,817) Operating Income (Loss) 23,435 (561,714) 294,295 (101,338) (345,322) (1,313,902) Nonoperating Revenues (Expenses) Connection Charges 8,395 0 0 0 8,395 11,490 Franchise Fees 0 0 20,000 0 20,000 13,186 Intergovernmental Revenue (Expense) (3,115) 32,328 (4,069) 0 25,144 129,884 Interest Income 14,849 9,212 1,043 254 25,358 138,457 Interest Expense (732,939) (116,076) 0 0 (849,015) (871,148) Gain on Disposal of Fixed Assets 6,470 0 0 0 6,470 1,560 Amortization of Loan Costs (14,730) (2,293) 0 0 (17,023) (17,023) Total Nonoperating Revenues (Expenses) (721,070) (76,829) 16,974 254 (780,671) (593,594) See accompanying notes. 9 CITY OF ATLANTIC BEACH, FLORIDA STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET ASSETS PROPRIETARY FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2009, WITH COMPARATIVE TOTALS FOR THE YEAR ENDED SEPTEMBER 30, 2008 (Concluded) 2009 Business-type Activities -Enterprise Funds Building Code 2008 Utility Stormwater Sanitation Enforcement Totals Totals (Loss) Income Before Contributions and Transfers $ (697,635) $ (638,543) $ 311,269 $ (101,084) $ (1,125,993) $ (1,907,496) Capital Contributions and Grants ' and Transfers Capital Contributions and Grants 358,697 0 0 0 358,697 1,251,258 Transfers in 1,146,916 1,867,600 0 0 3,014,516 1,706,840 Transfers (out) (113,900) 0 (247,800) 0 (361,700) (392,033) Total Capital Contributions and Grants and Transfers 1,391,713 1,867,600 (247,800) 0 3,011,513 2,566,065 Special Item -Impairment Loss 0 0 0 0 0 (2,659,110) Change in Net Assets 694,078 1,229,057 63,469 (101,084) 1,885,520 (2,000,541) Net Assets, Beginning of Year 12,528,812 9,011,332 429,413 143,780 22,113,337 24,113,878 Net Assets, End of Year $ 13,222,890 $ 10,240,389 $ 492,882 $ 42,696 $ 23,998,857 $ 22,113,337 See accompanying notes. 10 CITY OF ATLANTIC BEACH, FLORIDA STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2009, WITH COMPARATIVE TOTALS FOR THE YEAR ENDED SEPTEMBER 30, 2008 2009 Business-type Activities -Enterprise Funds Building Code 2008 Utility Stormwater Sanitation Enforcement Totals Totals Cash Flows from Operating Activities Cash Received from Customers $ 6,884,604 $ 514,068 $ 1,792,443 $ 200,329 $ 9,391,444 $ 8,679,835 Cash Paid to Suppliers (2,399,649) (257,998) (1,300,557) (22,075) (3,980,279) (4,010,607) Cash Paid to Employees (1,745,190) (276,175) (25,646) (231,690) (2,278,701) (2,174,502) Cash Paid for Interfund Services (987,079) (178,863) (164,250) (38,806) (1,368,998) (1,273,498) Net Cash Provided by (Used in) Operating Activities 1,752,686 (198,968) 301,990 (92,242) 1,763,466 1,221,228 Cash Flows from Noncapital Financing Activities Connection Charges 8,395 0 0 0 8,395 11,490 Franchise Fees 0 0 20,000 0 20,000 13,186 Transfers in 1,146,916 1,867,600 0 0 3,014,516 1,693,293 Transfers (out) (113,900) 0 (247,800) 0 (361,700) (392,033) Net Cash Provided by (Used in) Noncapital Financing Activities 1,041,411 1,867,600 (227,800) 0 2,681,21 ] 1,325,936 Capital and Related Financing Activities Intergovernmental Revenues 5,789 32,328 116,911 0 155,028 3,247 Collections on Notes Receivable 18,898 0 0 0 18,898 46,756 Collections on Special Assessments 26,138 0 0 0 26,138 30,829 Capital Grants 212,409 538,145 0 0 750,554 642,837 Proceeds from Sale of Fixed Assets 6,470 0 0 0 6,470 1,560 Fixed Asset Additions (943,262) (369,145) (5,600) 0 (1,318,007) (2,199,533) Principal Payments on Bonds Payable (750,682) (109,243) 0 0 (859,925) (832,401) Interest Paid (653,563) (103,238) 0 0 (756,801) (776,564) Net Cash Provided by (Used in) Capital and Related Financing Activities (2,077,803) (11,153) 111,311 0 (1,977,645) (3,083,269) See accompanying notes. 11 CITY OF ATLANTIC BEACH, FLORIDA STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2009, WITH COMPARATIVE TOTALS FOR THE YEAR ENDED SEPTEMBER 30, 2008 (Continued) 2009 Business-type Activities -Enterprise Funds Building Code 2008 Utility Stormwater Sanitation Enforcement Totals Totals Cash Flows from Investing Activities Interest Received $ 14,849 $ 9,212 $ 1,043 $ 254 $ 25,358 $ 138,457 Net Increase (Decrease) in Cash and Cash Equivalents 731,143 1,666,691 186,544 (91,988) 2,492,390 (397,648 Cash and Cash Equivalents, Beginning of Year 3,574,558 2,524,301 339,387 149,517 6,587,763 6,985,411 Cash and Cash Equivalents, End of Year $ 4,305,701 $ 4,190,992 $ 525,931 $ 57,529 $ 9,080,153 $ 6,587,763 R_ econciliation of Operatine Income (Loss) to Net Cash Provided by (Used in) Operating Activities Operating Income (Loss) $ 23,435 $ (561,714) $ 294,295 $ (101,338) $ (345,322) $ (1,313,902) Adjustments to Reconcile Operating Income (Loss) to Net Cash Provided by (Used in) Operating Activities: Depreciation 1,897,004 398,069 26,886 3,344 2,325,303 2,326,596 Provision for Uncollectible Accounts 16,940 3,714 2,726 0 23,380 (12,748) Change in Assets and Liabilities: Accounts Receivable (19,973) (6,320) (3,524) 0 (29,817) (25,932) Inventory 11,772 0 0 0 11,772 1,532 Compensated Absences 27,783 0 0 6,288 34,071 25,789 OPEB Obligation 3,782 1,200 0 796 5,778 0 Accounts Payable and Accrued Liabilities (217,059} (34,776) (20,063) (1,332) (273,230) 219,041 Customer Deposits 1,346 0 0 0 1,346 (12,621) Deferred Revenue 7,656 859 1,670 0 10,185 13,473 Net Cash Provided by (Used in) Operating Activities $ 1,752,686 $ (198,968) $ 301,990 $ (92,242) $ 1,763,466 $ 1,221,228 See accompanying notes. 12 CITY OF ATLANTIC BEACH, FLORIDA STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2009, WITH COMPARATIVE TOTALS FOR THE YEAR ENDED SEPTEMBER 30, 2008 (Concluded) 2009 Business-type Activities -Enterprise Funds Building Code 2008 Utility Stormwater Sanitation Enforcement Totals Totals Reconciliation of Cash and Cash Equivalents to Balance Sheet Equity in Pooled Cash and Cash Equivalents in Current Assets $ 2,179,631 $ 4,028,205 $ 525,931 $ 57,529 $ 6,791,296 $ 4,339,712 Restricted Equity in Pooled Cash and Cash Equivalents 2,126,070 162,787 0 0 2,288,857 2,248,051 Total Cash and Cash Equivalents $ 4,305,701 $ 4,190,992 $ 525,931 $ 57,529 $ 9,080,153 $ 6,587,763 Noncash Activity Noncash Transfers $ 0 $ 0 $ 0 $ 0 $ 0 $ 13,547 Noncash Capital Grants $ 146,288 $ 0 $ 0 $ 0 $ 146,288 $ 70,276 See accompanying notes. 13 CITY OF ATLANTIC BEACH, FLORIDA STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS SEPTEMBER 30, 2009, WITH COMPARATIVE TOTALS FOR SEPTEMBER 30, 2008 Pension Trust Funds 2009 2008 Assets Cash and Cash Equivalents $ 41,878 $ 167,615 Investments 15,224,287 13,792,416 Total Assets 15,266,165 13,960,031 Liabilities Accounts Payable and Accrued Liabilities 58 0 Excess Premium Tax Liability 120,454 120,454 DROP Plan Payable 477,228 586,284 Total Liabilities 597,740 706,738 Net Assets 253,293 Held in Trust for Pension Benefits 14,668,425 13, Total Net Assets $ 14,668,425 $ 13,253,293 See accompanying notes. 14 CITY OF ATLANTIC BEACH, FLORIDA STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS FIDUCIARY FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2009, WITH COMPARATIVE TOTALS FOR THE YEAR ENDED SEPTEMBER 30, 2008 Pension Trust Funds 2009 2008 Additions Contributions: Employer $ 784,900 $ 678,041 Employees 288,763 254,070 State of Florida 86,433 88,806 Total Contributions 1,160,096 1,020,917 Net Increase (Decrease) in Fair Value of Investments 818,849 (2,219,670) Interest and Dividends 417,914 449,592 Total Additions 2,396,859 (749,161) Deductions Refunds of Contributions 35,472 17,595 Benefits 909,137 843,661 Investment Expenses 591 0 Administrative Expenses 36,527 26,030 Total Deductions 981,727 887,286 Net Increase (Decrease) 1,415,132 (1,636,447) Net Assets, Beginning of Year 13,253,293 14,889,740 Net Assets, End of Year $ 14,668,425 $ 13,253,293 See accompanying notes. 15 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2009 Note 1 - Summary of Significant Accounting Policies The accounting policies of the City of Atlantic Beach, Florida (the City), conform to accounting principles generally accepted in the United States of America as applicable to governments. The following is a summary of the more significant policies used in the preparation of these financial statements. Reporting Entity The City was incorporated in 1957, under a charter in accordance with the laws of the State of Florida, Florida Statutes Section 57-1126. The City operates under a form of government which comprises an elected City Commission (four Commissioners and a Mayor- Commissioner) and provides, under the. administration of an appointed City Manager, the following services: public safety, public works (streets and infrastructure), recreation, sanitation, stormwater, planning, zoning, water and sewer, and general government services. As outlined in Governmental Accounting Standards Board (GASB) Statement No. 14, The Reporting Entity, and GASB Statement No. 39, Determining Whether Certain Organizations are Component Units on Amendment to GASB Statement No. 14, the financial reporting entity consists of the primary government, organizations for which the primary government is financially accountable, and other organizations whose exclusions would cause the reporting entity's financial statements to be misleading or incomplete. Each potential component unit is individually evaluated using specific criteria outlined in GASB Statement No. 14 to determine whether the entity is: (1) part of the primary government; (2) a component unit which should be included in the reporting entity (blended or discreetly presented); or (3) an organization which should be excluded from the reporting entity entirely. The principal criteria for classifying a potential component unit include the legal separateness of the organization, the financial accountability of the primary government for the potential component unit resulting from either the primary government's ability to impose its will on the potential component unit, or the potential component unit's fiscal dependency on the primary government. Based upon the application of these criteria, the City has no component units. Government-wide and Fund Financial Statements The government-wide financial statements (i.e., the statement of net assets and the statement of activities) report information on all of the nonfiduciary activities of the City. For the most part, the effect of interfund activity has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support. The statement of activities demonstrates the degree to which the direct expenses of a given function or segment is offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or activity. Indirect costs are included in the program expense reported for individual functions and activities. 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 activity; and (2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or activity. Taxes and other items not properly included among program revenues are reported instead as general revenues. 16 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2009 (Continued) Note 1- Summary of Significant Accounting Policies (Continued) Government-wide and Fund Financial Statements (Concluded) Separate financial statements are provided for governmental funds, proprietary funds, and fiduciary funds, even though the latter are excluded from the government-wide financial statements. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements. Measurement Focus, Basis of Accounting, and Financial Statement Presentation Government-wide Financial Statements The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the proprietary fund and fiduciary fund financial statements. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. As a general rule, the effect of interfund activity has been eliminated from the government-wide financial statements. Exceptions to this general rule are payments-in-lieu of taxes and other charges between the City's water and sewer function and various other functions of the City. Elimination of these charges would distort the direct costs and program revenues reported for the various functions concerned. Amounts reported as program revenues include: (1) charges to customers or applicants for goods, services, or privileges provided; (2) operating grants and contributions; and (3) capital grants and contributions, including special assessments. General revenues include all taxes. Net assets are reported as one of three categories: (1) invested in capital assets, net of related debt; (2) restricted; or (3) unrestricted. Fund Financial Statements Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. 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 government considers revenues to be available if they are collected within sixty days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due. Taxes, intergovernmental revenue, licenses and permits, charges for services, and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. Only the portion of special assessments receivable due within the current fiscal period is considered to be susceptible to accrual as revenue of the current period. All other revenue items are considered to be measurable and available only when cash is received by the City. 17 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2009 (Continued) Note 1- Summary of Significant Accounting Policies (Continued) Measurement Focus, Basis of Accounting, and Financial Statement Presentation {Concluded) Fund Financial Statements (Concluded) The City records reservations for portions of governmental fund balances which are legally segregated for specific use or which do not represent available spendable resources and, therefore, not available for appropriation. Unreserved fund balance indicates the portion of fund balance which is available for appropriation in future periods. Reservations of fund balance are established for debt service, inventories, prepaids, and encumbrances. The City reports the following major governmental fund: ¦ The General Fund is the City's primary operating fund. It accounts for all financial resources of the general government, except those required to be accounted for in another fund. The City reports the following major proprietary funds: ¦ The Utility Fund accounts for the activities of the City's water distribution and sewer collection and treatment systems. ¦ The Sanitation Fund accounts for the activities of the City's sanitation system. ¦ The Stormwater Fund accounts for the activities of the City's stormwater system. ¦ The Building Code Enforcement Fund accounts for the activities of the City's Building Department. Additionally, the City reports the following fund types: ¦ Special Revenue Funds-The special revenue funds are used to account for the proceeds of specific revenue sources (other than major capital projects) that are legally restricted to expenditures for specified purposes. ¦ Debt Service Funds-The debt service fund is used to account for the accumulation of resources for, and the payment of, long-term general obligation debt principal, interest and related costs other than obligations payable from the operations of the proprietary funds. ¦ Capital Projects Funds-The capital projects funds are used to account for the financial resources to be used for the acquisition or construction of major capital facilities and improvement projects (other than those financed by proprietary funds or special revenue funds). ¦ Pension Trust Funds-These funds account for the activities of the Employees Retirement System, which accumulates resources for pension benefit payments to qualified police officers and general employees. 18 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2009 (Continued) Note 1- Summary of Significant Accountine Policies (Continued) Proprietary Funds Private sector standards of accounting and financial reporting issued prior to December 1, 1989, generally are followed in both the government-wide and proprietary fund financial statements to the extent that those standards do not conflict with or contradict guidance of GASB. Governments also have the option of following subsequent private sector guidance for their business-type activities and enterprise funds, subject to this same limitation. The City has elected not to follow subsequent private sector guidance. 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 of the City's enterprise funds are charges to customers for sales and services. Operating expenses for enterprise funds include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. Budgets General governmental revenue and expenditures accounted for in budgetary funds are controlled by a budgetary accounting system in accordance with various legal requirements which govern the City's operations. Budgets are monitored at varying levels of classification detail; however, expenditures cannot legally exceed total appropriations at the individual fund level. The City uses encumbrance accounting. All appropriations lapse at year-end. Unexpended items which are encumbered at year-end are reappropriated in the subsequent year. Encumbrances of governmental funds at September 30, 2009, were $237,146. Budgets are adopted for all governmental funds (general, special revenue, debt service and capital projects). The City Manager is authorized to transfer budgeted amounts within departments within any fund; however, any revisions that increase the total expenditures of any department or fund must be approved by the City Commission. All necessary supplemental appropriations are adopted by the City Commission and are included in the reported budgetary data. The budget presented in the accompanying required supplemental information is prepared in conformity with accounting principles generally accepted in the United States of America. Cash and Investments Except where prohibited, cash resources of the individual funds are combined to form a pool of cash and investments. Investments in the pooled cash fund consist primarily of certificates of deposit. Interest income earned on the pooled cash and investments is distributed to the appropriate funds based on the average monthly balance of investments in each fund. Investments are valued at fair market value (see Note 2). For the purposes of the statement of cash flows, the City's proprietary funds consider cash and cash equivalents to include cash and investments with an original maturity of three months or less. 19 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2009 (Continued) Note 1 - Summary of Significant Accounting Policies (Continued) Receivables Receivables are recorded at their net realizable value. Interfund Receivables 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/from other funds" (i.e., the current portion of interfund loans) or "advances to/from other funds" (i.e., the noncurrent portion of interfund loans). Inventories Inventories consisting principally of expendable materials, supplies and fuel are determined by physical count at the City's year-end on an annual basis and are valued at the lower of cost (first-in, first-out) or market. On the balance sheet -governmental funds, the inventory balance reported is offset by a fund balance reserve which indicates that it does not constitute "available spendable resources" even though it is a component of net current assets. The cost of governmental fund-type inventories is recorded as expenditure when consumed. Restricted Assets Certain enterprise fund assets are required to be segregated from other current assets due to various bond indenture agreements and City ordinances. These assets are legally restricted for specific purposes, such as debt service, new construction, and renewals and replacements. Use of Restricted Funds When both restricted and unrestricted resources are available for use, it is the City's policy to use restricted resources first, then unrestricted resources as they are needed. Fund Balance Designations Designations of fund balance reflect tentative plans for future use of financial resources. The City has designated $300,000 in the general fund for the purpose of acquisition of firefighting equipment and other necessary expenses in connection with potential reestablishment of a City fire department. Capital Assets Capital assets, which include property, plant, equipment, and infrastructure assets (e.g., roads, drainage improvements, sidewalks, and similar items), are reported in the applicable governmental or business-type activities columns in the government-wide financial statements. Property, plant, and equipment with initial, individual costs that equal or exceed $1,000 and estimated useful lives of over one year are recorded as capital assets. Capital assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair market value at the date of donation. Major outlays for capital assets and improvements are capitalized as projects are constructed. Interest incurred during the construction phase of capital assets of business-type activities is included as part of the capitalized value of the assets constructed. 20 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2009 (Continued) Note 1 - Summary of Significant Accounting Policies (Continued) Capital Assets (Concluded) 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 are depreciated using the straight-line method over the following estimated useful lives: Assets Years Buildings and Improvements 10 - 40 Improvements Other Than Buildings 10 - 50 Infrastructure 25 - 100 Machinery and Equipment 3 - 40 Long-term Obligations In the government-wide financial statements, and proprietary fund types in the fund financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities, business-type activities, or proprietary fund type statement of net assets. Bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds using the effective interest method. Bonds payable are reported net of the applicable bond premium or discount. Bond issuance costs are reported as deferred charges and amortized over the term of the related debt. In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. Compensated Absences Accumulated unpaid vacation and sick pay are accrued when incurred in the government-wide and proprietary fund financial statements. A liability for these amounts is reported. The computed liability is in accordance with GASB Statement No. 16, Accounting for Compensated Absences. Revenue Recognition Utility revenues are reported on the accrual basis in the accompanying financial statements. Accordingly, grant revenues are recorded using the modified accrual basis in governmental funds and the accrual basis in the proprietary funds. Restricted grant revenues, which are received but not expended, are recorded as deferred revenues. Property Taxes The assessment of all properties and the collection of all property taxes are made through the Property Appraiser and Tax Collector of the City of Jacksonville, Florida. General properly taxes are recorded as received, in cash, which approximates taxes levied less discounts for the current fiscal year. 21 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2009 (Continued) Note 1- Summary of Significant Accounting Policies (Concluded) Property Taxes (Concluded) Taxes are levied on November 1 of each year. All taxes become delinquent on April 1 of the following year. Discounts are allowed for early payment. On or prior to June 1, interest- bearing certificates are sold for all uncollected real property taxes. Unsold certificates are held by the City of Jacksonville, Florida. Interfund Transactions During the course of normal operations, the City has various transactions between funds to construct assets and comply with local ordinances and other legal restrictions. These transactions are reflected as transfers. In addition, certain transfers have been made between systems and accounts of the utility enterprise fund as required by bond covenants. Prior Period Information The financial statements include certain prior year summarized comparative information in total. Such information does not include sufficient detail to constitute a presentation in conformity with generally accepted accounting principles. Accordingly, such information should be read in conjunction with the City's financial statements for the year ended September 30, 2008, from which the summarized information was derived. Reclassifications Certain accounts in the prior year financial statements have been reclassified for comparative purposes to conform with the presentation in the current year financial statements. Note 2 - Cash and Investments The City maintains a cash and investment pool that is designed for use by all funds, except for those monies which are periodically transferred for pension investment purposes. In addition, investments are separately held and individually accounted for where contractual arrangements and bond covenants provide for and require such arrangements. At September 30, 2009, the carrying amount of cash on hand and on deposit with banks, including interest-bearing deposits was $5,848,010, and the related bank balance was $5,974,431. Monies which are placed on deposit with financial institutions in the form of demand deposit accounts, time deposit accounts, and certificates of deposit are defined as public deposits. All of the City's public deposits are held in qualified public depositories pursuant to Florida Statutes Chapter 280, Florida Security for Public Deposits Act. Under the Act, all qualified public depositories are required to pledge eligible collateral having a market value equal to or greater than the average daily or monthly balance of all public deposits, times the depository's collateral pledged level. The pledging level may range from 50% to 125% depending upon the depository's financial condition and establishment period. All collateral must be deposited with an approved financial institution. 22 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2009 (Continued) Note 2 - Cash and Investments (Continued) Any losses to public depositors are covered by applicable deposit insurance, sale of securities pledged as collateral and, if necessary, assessments against other qualified public depositories of the same type as the depository in default. The City's investment practices are also governed by Florida Statutes, which allow the City to invest in certificates of deposit, money market certificates, obligations of the U.S. Treasury, its agencies and instrumentalities, repurchase and reverse repurchase agreements collateralized by U.S. securities, and the State Board of Administration. The pension trust funds are also authorized to invest in corporate bonds, preferred stocks, common stocks, and mutual funds. The total cash and cash equivalents and investment balances of the City at September 30, 2009, are comprised of the following items: Cash and Cash Equivalents Petty Cash on Hand $ 2 900 Cash in Banks 5,845,110 Fifth Third Bank -Certificates of Deposit 8,019,642 State Board of Administration Investment Pool 1,280 Total Cash and Cash Equivalents 13,868,932 (Cash and Cash Equivalents -Restricted, Including $41,878 of Cash and Cash Equivalents in Pension Trust Fund) (2,330,735) Total Cash and Cash Equivalents, Unrestricted $ 11.538.197 Pension Trust Investments UBS -Growth Fund of America $ 2,492,316 UBS -Washington Mutual 2,234,986 UBS -Baron Asset 1,163,917 UBS -Royce Pennsylvania Mutual 1,221,816 UBS - Europacific Growth 2,229,385 UBS - PIMCO Total Return 5,403,787 UBS - RMA Money Market 852 ICMA 401 DROP -Participant Directed 477,228 Total Pension Trust Investment $ 15.224.287 Restricted cash and investments at September 30, 2009, in the enterprise funds follows: Renewal System and Develop- Enterprise Customer Replace- Debt ment Funds Deposits ment Service Charges Totals Utility Fund $ 529 811 $ 500 000 $ 1 069 030 $ 27 229 $ 2.126.070 Stormwater Fund $ 0 $ 0 $ 162 787 $ 0 $ 162.787 23 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2009 (Continued) Note 2 - Cash and Investments (Concluded) Credit Risk-It is the City's Police Officers' Retirement System and General Employees' Retirement System Pension Trust Funds' policy to limit its investment in corporate debt issues to those that meet or exceed a credit rating of "A" by Moody's or Standard & Poor's rating services, and no more than 10% (at cost) of the fixed income portfolio total value can be invested in the securities of any single corporate issuer. At September 30, 2009, the City's retirement systems' fixed income security portfolio consisted of only mutual funds and other pooled investments and, therefore, were not rated by a nationally recognized rating agency. Custodial Credit Risk-For an investment, custodial credit risk is the risk that, in the event of the failure of the counterparty, the City will not be able to recover the value of its investments or collateral securities that are in thepossession of an outside party. The City's investment policy does not contain legal or policy requirements that would limit the exposure to custodial credit risk for deposits or investments, other than the following provision for deposits: The Finance Director may execute a third party Custodial Safekeeping Agreement with a commercial bank having trust powers or a trust company which is chartered by the United States government or the State of Florida. All securities purchased and/or collateral obtained by the City shall be properly designated as an asset of the City and held in safekeeping by the trust department or trust company, and no withdrawal of such securities, in whole or in part, shall be made from safekeeping, except by an authorized City staff member. The third party Custodial Safekeeping Agreement shall include letters of authority from the City with details as to responsibilities of parties, notification of security purchases, sales, deliver, repurchase agreements, wire transfers, safekeeping and transaction costs, procedures in case of wire failure or other unforeseen mishaps, including liability of each party. Note 3 - Special Assessments During 1991, the City imposed a special assessment on residents in a certain area of the City known as "Section H" to recover a portion of the costs of water and wastewater improvements constructed by the City in that area. Assessments are payable in equal annual installments through 2011 plus interest at 5.35% (reduced from 8% in 1999). During 1998, the City imposed a special assessment on residents in a certain area of the City known as "Beach Avenue" to recover the costs of sewer improvements constructed by the City in that area. Assessments are payable in equal monthly installments through 2010 plus interest at 6.00%. 24 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2009 (Continued) Note 3 - Special Assessments (Concluded) Following is a summary of the outstanding balances at September 30, 2009: Beach Section H Avenue Assessment Assessments Totals Special Assessment Receivable $ 5,444 $ 1,011 $ 6,455 (Current Portion) (5.444) X1,011) _ X6,455) Tatal Special Assessment Receivable -Noncurrent $ 0 $ 0 $ 0 Note 4 - Receivables Receivables, net of the allowance for doubtful accounts at September 30, 2009, consist of the following: Less Total Allowance Accounts Accounts for Doubtful Receivable Fund Receivable Accounts Net General $ 193,328 $ (l 80,182) $ 13,146 Utility 483,318 (33,497) 449,821 Stormwater 30,957 (4,611) 26,346 Sanitation 88,625 _7,665) 80,960 Total $ 796,228 (225.955) $ 570.273 Included in accounts receivable are $207,239 of water and sewer revenues earned, but not billed as of September 30, 2009. Note 5 - Notes Receivable It is the City's policy to allow its water and sewer customers to pay connection fees over an extended period. Following is a summary of the outstanding balance at September 30, 2009: Notes Receivable $ 120,668 (Current Portion) (17,987) Total Note Receivable -Noncurrent $ 102.681 25 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2009 (Continued) Note 6 - Capital Assets Capital asset activity for the fiscal year ended September 30, 2009, is as follows: Beginning Ending Balance Increases Decreases Balance Governmental Activities Capital Assets Not Being Depreciated: Land $ 9,843,717 $ 190,410 $ 0 $ 10,034,127 Construction in Progress 350.340 137.122 (350,340) 137,122 Total Capital Assets Not Being Depreciated 10,194,057 327.532 (350,340) 10,171,249 Capital Assets Being Depreciated: Buildings 4,134,377 0 0 4,134,377 Improvements Other Than Buildings 37,620,323 178,855 0 37,744,178 Machinery and Equipment 3,392,208 366.136 (442,369) 3,315,975 Total Capital Assets Being Depreciated 45,146,908 544,991 (442.369) 45.249,530 Less Accumulated Depreciation for: Buildings (1,245,183) (96,191) 0 (1,341,374) Improvements Other Than Buildings (10,395,971) (614,011) 1,435 (11,008,547) Machinery and Equipment (2,031,393) (372,438) 423.123 (1.980,708) Total Accumulated Depreciation (13,672,547) (1,082,640) 424,558 (14.330,629) Total Capital Assets Being Depreciated, Net 31,474,361 (537,649) (17,811) 30,418,901 Governmental Activities Capital Assets, Net 41.668.418 (210.117) (368.151) $ 41.090.150 Business-type Activities Capital Assets Not Being Depreciated: Land $ 1,656,018 $ 0 $ 0 $ 1,656,018 Construction in Progress 781.857 613.549 (647,804) 747,602 Total Capital Assets Not Being Depreciated 2,437,875 613.549 (647.804) 2.403.620 Capital Assets Being Depreciated: Buildings 4,356,384 0 0 4,356,384 Improvements Other Than Buildings 58,002,508 1,415,391 0 59,417,899 Machinery and Equipment 1,851,779 86,b59 (64.829) 1,873,609 Total Capital Assets Being Depreciated 64,210,671 1.502,050 (64,829) 65,647,892 Less Accumulated Depreciation for: Buildings (3,703,424) (138,271) 0 (3,841,645) Improvements Other "Than Buildings (27,991,052) (2,056,094) 0 (30,047,146) Machinery and Equipment (1,259,708) _130,938) 64.829 (1,325,817) Tota]AccumulatedDepreciation (32.954,184) (2.325,303) 64,829 X35.214,658) Total Capital Assets Being Depreciated, Net 31,25b,487 (823,253) 0 30,433,234 Business-type Activities Capital Assets, Net $ 33 694.362 (209.7041 (647.804) $ 32.836.854 Depreciation expense was charged to functions/programs as follows: 26 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2009 (Continued) Note 6 - Capital Assets (Concluded) Governmental Activities General Governmental $ 172,987 Public Safety 227,588 Transportation 515,042 Parks and Recreation 167,023 Total Depreciation Expense -Governmental Activities 1.082.640 Business-type Activities Utility $ 1,897,004 Stormwater 398,069 Sanitation 26,886 Building Code Enforcement 3,334 Total Depreciation Expense -Business-type Activities $ 2.325.303 Note 7 - Long-term Debt Revenue bonds payable are comprised of the following: Utilities System Revenue Refunding Bonds, Series 2004, Payable in Annual Installments of Principal and Semiannual Installments of Interest Through October 1, 2025, Bearing Coupon Rates of 2.00% to 4.50%, Secured Solely by a Pledge of and Lien on Net Water and Sewer System Revenues and Certain Other Revenues as Defined in the Bond Ordinances $ 17,655,000 Utilities System Revenue Bonds, Series 1996, Payable in Annual Installments of Principal and Semiannual Installments of Interest Through October 1, 2025, Bearing Coupon Rates of 3.90% to 5.50%, Secured Solely by a Pledge of and Lien on Net Water and Sewer System Revenues and Certain Other Revenues as Defined in the Bond Ordinances 725,000 SunTrust Revenue Refunding Bonds, Series 1999, Payable in Annual Installments of Principal and Semiannual Installments of Interest at a Rate of 4.20%; the Note is Secured by the City's Utility Service Taxes 723,272 Total Revenue Bonds Payable 19,103,272 (Unamortized Discount) (185,137) (Unamortized Refunding Loss) (1,417,030) Total Long-term Debt, Net 17.501.105 The annual requirements to amortize all revenue bonds payable outstanding at September 30, 2009, are as follows: 27 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2009 (Continued) Note 7 - Long-term Debt (Continued) Governmental Activities Business-type Activities Year Ending Lon¢-term Debt Lone-term Debt Seatember 30 Princiaal Interest Total Princiaal Interest Total 2010 $ 59,305 $ 12,262 $ 71,567 $ 874,101 $ 732,855 $ 1,606,956 2011 61,620 9,723 71,343 901,994 705,627 1,607,621 2012 63,690 7,101 70,791 929,581 675,671 1,605,252 2013 67,712 4,324 72,036 959,606 643,489 1,603,095 2014 69,202 1,457 70,659 996,461 608,865 1,605,326 201.5 - 2019 0 0 0 5,075,000 2,481,350 7,556,350 2020-2024 0 0 0 6,180,000 1,333,254 7,513,254 2025 - 2029 0 0 0 2.865,000 130,826 2.995,826 Total $ 321 529 $ 34.867 $ 356.396 18.781.743 7.311. $26 093.680 Interest and amortization incurred during the year ended September 30, 2009, was $14,673 in the debt service fund and $849,015 in the enterprise funds. Of the amount incurred in the enterprise funds, $0 was capitalized. The City is also required to maintain certain debt service coverage ratios in accordance with bond resolutions. As of September 30, 2009, and during the year then ended, the City was in compliance with those ratios. The following is a summary of the changes in long-term debt of the City for the year ended September 30, 2009: Balance Balance Due October 1, September 30, Within 2008 Additions Reductions 2009 One Year Governmental Activities Revenue Bonds Payable $ 378,215 $ 0 $ (56,686) $ 321,529 $ 59,305 Compensated Absences 533,139 559,049 (468,022) 624,166 435,000 OPEB Obligation 0 18.296 0 18,296 0 Total Governmental Activities - Long-term Liabilities $ 911.354 $ 577.345 (524.708) $ 963 991 $ 49Q,305 Business-type Activities Revenue Bonds Payable $ 19,632,571 $ 0 $ (850,828) $ 18,781,743 $ 874,101 Less Deferred Amounts: For Issuance Discounts (198,346) 0 13,209 (185,137) (13,209) Loss on Bond Refunding (1,506,557) 0 89.527 (1,417,030) (89,527) Total Revenue Bonds Payable 17,927,668 0 (748,092) 17,179,576 771,365 Compensated Absences 229,670 176,210 (142,139) 263,741 132,000 OPEB Obligation 0 5.778 0 5.778 0 Total Business-type Activities - Long-term Liabilities $ 18 157.338 $ 181 988 (890.231) 17.449.095 $ 903365 28 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2009 (Continued) Note 7 - Lons?-term Debt (Concluded) Conduit Debt The City has issued Health Facility Revenue Bonds to provide financial assistance to private sector entities for the acquisition and construction of health care facilities deemed to be in the public interest. These bonds are secured by the financed property and are payable solely from the payments received on the underlying mortgage loans. There is no obligation on the part of the City or any political subdivision for repayment of the bonds. Accordingly, the bonds are not reported as liabilities in the accompanying financial statements. As of September 30, 2009, there were two series of Health Facility Revenue Bonds outstanding, with an aggregate principal amount payable of $53,335,000. Pledged Revenue The City has pledged certain revenues to repay certain bonds and notes outstanding as of September 30, 2009. The following table reports the revenues, sometimes net of related operating expenses, pledged for each debt issue, the amounts of such revenues received in the current year, the current year principal and interest paid on the debt, the approximate percentage of each revenue which is pledged to meet the debt obligation, and the date through which the revenue is pledged under the debt agreement, and the total pledged future revenues for each debt, which is the amount of the remaining principal and interest on the bonds and notes at September 30, 2009: Outstanding Principal Estimated Principal Pledged Revenue and Interest Percentage and Pledged Description of Bonds Revenue Received Paid Pled¢ed Interest Throueh 1996 -Utility System Revenue Utility Bonds Revenues $ 2,093,474 $ 65,445 3.13% $ 1,115,293 2025 1999 -Utility System Refunding Utility Bonds Service Tax $ 456,608 $ 160,522 35.16% $ 801,702 2014 2004 -Utility System Refunding Utility Bonds Revenues $ 2,093,474 $ 1,453,022 69.41% $ 24,533,081 2025 Note 8 - Defined Benefit Pension Plans Plan Descriptions and Contribution Information The City maintains two separate single-employer pension plans, one for police officers and one for general employees, which cover substantially all full-time City employees. The pension plans do not issue separate stand-alone financial statements. Membership of each plan consists of the following at September 30, 2008, the date of the latest actuarial valuation: 29 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2009 (Continued) Note 8 - Defined Benefit Pension Plans (Continued) Plan Descriptions and Contribution Information (Concluded) General Employees Police Retirees and Beneficiaries Receiving Benefits 34 13 Disabled Members and Beneficiaries Receiving Benefits 4 3 Terminated Plan Members Entitled to but Not Yet Receiving Benefits 14 3 Active Plan Members 83 26 Total 135 45 ¦ General Employees' Retirement Plan Plan Description The General Employees' Retirement Plan (Plan) provides retirement, disability and death benefits to Plan members and their beneficiaries. The City Commission has the authority to establish and amend the benefit provisions of the Plan. • Contributions The City is required to contribute at an actuarially determined rate (14.03% of valuation payroll for the year ended September 30, 2008). Plan members are required to contribute 5.0% of their annual covered salary. Contribution requirements are established by City code, which may be amended by the City Commission. ¦ Police Retirement Plan • Plan Description The Police Retirement Plan (Plan) provides retirement, disability and death benefits to Plan members and their beneficiaries. The Plan is governed by the Policemen's Pension Board of Trustees, although the City Commission retains the authority to establish and amend the benefit provisions of the Plan. • Contributions Plan members are required to contribute 4.815% of their annual covered salary. The City is required to contribute at actuarially determined rates, if State of Florida contributions are not sufficient (combined City and State contributions were 21.9% of valuation payroll for the year ended September 30, 2008). Per City Code, the City Commission may amend established contribution requirements. Other Pension Plan Information The ARC for the current year were determined as part of the September 30, 2008, actuarial valuations for the General Employees' and Police Retirement Plans using the entry-age actuarial cost method. The actuarial assumptions include an 8.0% rate of return on investments, projected salary increases of 5.5% per year attributable to inflation, and projected salary increases of 0% to 6.3% attributable to seniority/merit. The assumptions did not include postretirement benefit increases. 30 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2009 (Continued) Note 8 - Defined Benefit Pension Plans (Continued) Other Pension Plan Information (Concluded) The actuarial value of assets was determined using techniques that spread the effects of short- term volatility in the market value of investments over afour-year period. The unfunded actuarial accrued liabilities are being amortized over remaining amortization periods of 1 to 30 years as a level percentage of active member payroll. Three-year trend information: Fiscal Year Ended Annual Pension Percentage of Net Pension September 30 Cost (APCI APC Contributed Asset/(Liability) General Employees 2007 $ 482,364 100% $ 0 2008 457,005 100% 0 2009 528,428 100% 0 Police 2007 $ 390,494 100% $ 0 2008 309,841 100% 0 2009 345,280 100% 0 Funded Status and Funding Progress The following is funded status information for each Plan as of September 30, 2008, the most recent actuarial valuation date and is intended to help users assess (i) the Plan's funded status on a going concern basis, and (ii) progress being made toward accumulating the assets needed to pay benefits when due. General Employees' Retirement Plan Actuarial Accrued Liability: Active Participants $ 7,971 310 Retired Participant and Beneficiaries Currently Receiving Benefits 3,808,057 Vested Terminated Participants Not Yet Receiving Benefit 844,717 Total Actuarial Accrued Liability 12,624,084 Actuarial Value of Assets (Market Value was $8,167,648) 9.208,773 Unfunded Actuarial Accrued Liability $ 3.415.311 The General Employees' Retirement Plan is 72.9% funded and the Unfunded Actuarial Accrued Liability represents 91.6% of covered payroll as of September 30, 2008. Police Retirement Plan Actuarial Accrued Liability: Active Participants $ 3,141,605 Retired Participant and Beneficiaries Currently Receiving Benefits 4,861,603 Vested Terminated Participants Not Yet Receiving Benefit 108,525 Total Actuarial. Accrued Liability 8,111,733 Actuarial Value of Assets (Market Value was $5,085,645) 5,763,883 Unfunded Actuarial Accrued Liability $ 2.347.850 31 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2009 (Continued) Note 8 - Defined Benefit Pension Plans (Concluded) Funded Status and Funding Progress (Concluded) The Police Retirement Plan is 71.1% funded and the Unfunded Actuarial Accrued Liability represents 159.1% of covered payroll as of September 30, 2008. The schedule of funding progress, presented as RSI following the notes to the financial statements, presents multiyear trend information about whether the actuarial value of Plan assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits. Note 9 - Postemployment Benefits Other Than Pensions For the fiscal year ended September 30, 2009, the City implemented GASB Statement No. 45, Accounting and Reporting by Employers for Postemployment Benefits Other than Pensions (OPEB), for certain postemployment health care benefits provided by the City. The requirements of this statement were implemented prospectively. Plan Description The City of Atlantic Beach administers asingle-employer defined benefit health care plan (the Plan) that provides medical insurance benefits to its employees and their eligible dependents. In accordance with Section 112.0801 of the Florida Statutes, because the City provides a medical plan to active employees of the City and their eligible dependents, the City is also required to provide retirees with the opportunity to participate in this Plan. Benefit provisions for the Plan are established by the City Commission and may be amended by the City Commission. The City does not issue stand-alone financial statements for the Plan. Membership in the Plan consisted of the following at September 30, 2006, the date of the latest actuarial valuation: Retirees and Beneficiaries Receiving Benefits 3 Terminated Plan Members Entitled to but Not Yet Receiving Benefits 6 Active Plan Members 105 Total 114 Funding Policy Contribution rates for the Plan are established on an annual basis by the City Commission. Eligible retirees and their covered dependents receiving benefits contribute 100% of the blended (active and retiree combined) equivalent premium rates. For the year ended September 30, 2009, the total retiree contributions for health insurance premiums from the three retirees that received health care benefits were $15,309. While the City does not directly contribute towards the costs of retiree premiums via an explicit subsidy, the ability of retirees to obtain health insurance coverage at a blended, group rate constitutes a significant economic benefit to retirees, or an "implicit" subsidy. This implicit subsidy is considered to be an other postemployment benefit (OPEB) obligation of the City. The City is currently funding this OPEB obligation on apay-as-you-go basis. Annual required contributions (ARC) amounted to $49,133 for the current fiscal year. The annual required contribution is based on 32 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2009 (Continued) Note 9 - Postemployment Benefits Other Than Pensions (Continued) Funding Policy (Concluded) a rate of 1.02% of projected payroll of $4,812,000 or an average $468 per active participant. For the year ended September 30, 2009, the City estimated it implicitly subsidized $25,059 of health care costs for its retirees and covered dependents. This implied subsidy reduced the annual ARC to a net expense of $24,074. Annual OPEB Cost and Net OPEB Obligation The City's annual OPEB cost (expense) is calculated based on the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement No. 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year to amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed 30 years. The following table shows the components of the City's annual OPEB cost for the year, the amount actually contributed to the Plan, and changes in the City's net OPEB obligation to the retiree health plan: Annual Required Contribution $ 49,133 Interest on Net OPEB Obligation 0 Adjustment to Annual Required Contribution 0 Annual OPEB Cost (Expense) 49,133 Employer Contribution (25,059) Interest on Employer Contributions 0 Increase in Net OPEB Obligation 24,074 Net OPEB Obligation -Beginning of Year 0 Net OPEB Obligation -End of Year $ 24,074 The City reflected the $24,074 increase in net OPEB obligation at September 30, 2009, by recording an obligation of $18,296 for governmental activities and $5,778 for business-type activities in its government-wide statement of net assets. The utility fund reported a net OPEB obligation of $3,782, while the sanitation fund, stormwater fund, and building code enforcement fund reported $0, $1,200 and $796, respectively. The OPEB obligation is a function of annual required contributions, interest, adjustments to the annual required contribution, annual pension costs and actual employers' contributions made to the Plan. No trust or agency fund has been established for the Plan and there were no adjustments to the annual required contribution or interest earnings. The City's annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation as of September 30, 2009, are presented below. Data is only presented for the fiscal year ending September 30, 2009, the first year in which GASB Statement No. 45 implementation is required. 33 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2009 (Continued) Note 9 - Postemployment Benefits Other Than Pensions (Concluded) Annual OPEB Cost and Net OPEB Obligation (Concluded) Percentage Fiscal Annual of Annual Net Year OPEB OPEB Cost OPEB Ended Cost Contributed Obligation September 30, 2009 $ 49,133 51.0% $ 24,074 Funded Status and Funding Progress As of September 30, 2006, the date of the latest actuarial valuation, the unfunded actuarial accrued liability for benefits was $470,703, all of which was unfunded. The covered payroll (annual payroll of active employees covered by the Plan) was $4,812,000, and the ratio of the unfunded actuarial accrued liability to the covered payroll was 9.78%. The projection of future benefit payments for an ongoing plan involves estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the health care cost trend. Amounts determined regarding the funded status of the Plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multiyear trend information about whether the actuarial value of Plan assets is increasing or decreasing over time, relative to the actuarial accrued liabilities for benefits. Actuarial Methods and Assumptions Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities, consistent with the long-term perspective of the calculations. In the actuarial valuation as of September 30, 2006, the date of the latest actuarial valuation, the Individual Entry-Age Actuarial Cost method was used to determine all liabilities, with the liability for each active employee assumed to accrue over his/her working lifetime based on elapsed time from his/her date of hire until retirement. The unfunded actuarial accrued liability is being amortized using a level (principal and interest combined) percent of payroll contribution method. The valuation is based on an open amortization period (open basis), i.e., one that begins again or is recalculated at each actuarial valuation date. Using the maximum number of years allowed by GASB, a 30-year amortization period, the period may increase, decrease, or remain stable. Other significant actuarial assumptions include a 4% discount rate, an annual health care cost trend rate of 11% initially, reduced by decrements to an ultimate rate of 4% after 10 years, projected salary increases of 4% to 7% annually, and future participation rates of 20% for general employees and 10% for police up to Medicare eligibility with a 2% participation rate thereafter. 34 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2009 (Continued) Note 10- Interfund Accounts Individual fund Interfund receivables and payables at September 30, 2009, consist of the following: Due Due from Other to Other Funds Funds General $ 63,844 $ 0 Nonmajor Governmental 0 63,844 Note 11 - Interfund Transfers Transfers of resources from a fund receiving revenue to the fund through which the resources are to be expended are recorded as transfers and are reported as other financing sources (uses) in the governmental funds and as transfers in (out) in the proprietary funds. Following is a summary of Interfund transfers for the year ended September 30, 2009: Transfers In Nonmajor Utility General Governmental Stormwater Total Transfers Out Fund Fund Funds Fund Transfers Nonmajor Governmental Funds $ 0 $ 5,000 $ 398,500 $ 443,500 $ 847,000 Utility Fund 0 113,900 0 0 113,900 Sanitation Fund 0 247,800 0 0 247,800 General Fund 1.146.916 0 0 1.424,100 2.571,016 Total Transfers 1.146.916 $ 366 700 $ 398.500 1.867.600 x_3.779.716 Transfers are used to move revenues from the fund that ordinance or budget requires to collect them to the fund that ordinance or budget requires to expend them. Note 12 - Commitments As of September 30, 2009, the City had outstanding commitments on contracts in progress as follows: Unexpended Project Tvae Contract Amounts Utility System Improvements $ 1,143,592 Stormwater System Improvements 3,114,613 General Government Improvements 219,482 On June 2, 1999, the City entered into an agreement with the City of Jacksonville, Florida, whereas the City of Jacksonville will provide advanced life support and fire services to the residents and businesses located in the City. The term of the agreement shall be from the effective date and continuing for a period of 25 years unless terminated earlier by the parties (such parties must provide a one year notice). For the year ended September 30, 2009, the 35 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2009 (Concluded) Note 12 - Commitments (Concluded) City incurred $893,224 in services under this agreement. The amount will be adjusted annually by an amount equal to 103% of the previous year's amount for all services provided by the City of Jacksonville. The City is in the process of making utility system improvements to meet the Total Maximum Daily Load (TMDL) of nitrogen being discharged into the St. Johns River. The allowable load will be allocated between the wastewater point sources and the City's stormwater systems which discharge to the river or its tributaries. The new nitrogen limit resulted in the City having to upgrade one wastewater treatment plant and discontinue another. An impairment loss of $2,659,110 was recorded in 2008 to account for discontinuation of this plant. Design of the new lift station and force main is underway. Construction of the force main is anticipated in 2010. The lift station construction will begin after the upgrades to Wastewater Treatment Plant #1 are complete. The Florida Department of Environmental Protection (FDEP) will determine individualized timelines for completing plant and stormwater upgrades. The FDEP will be allowing 2-to-4-year time periods to complete plant upgrades. The stormwater upgrades are complete. Plant upgrades are accommodating the remaining stormwater nitrogen loads. The estimated range of costs for the treatment plant upgrades, force main, lift station, and a reclaimed water facility will be from $5 to $11 million. The City anticipates some grant funds to be available for the reclaimed water facility, treatment plant upgrades and stormwater improvements related to TMDL. The point-source improvements will be less expensive than stormwater improvements to remove similar amounts of nitrogen, so trading point-source projects that go beyond the TMDL requirements to offset stormwater needs will save the City a considerable amount. It is undetermined, at this time, what the net cost will be to the City. Note 13 - Contingencies The City is a defendant in ,several lawsuits which arose in the ordinary course of the City's business. To the extent the outcome of such litigation has been determined to result in probable loss to the City, an estimated loss has been accrued in the accompanying financial statements. The outcome of the remaining claims cannot be determined at this time. Note 14 - Risk Management The City is exposed to various risks of loss related to torts; theft of, damage to and destruction of assets; errors and omissions; and natural disasters for which the City carries commercial insurance. Insurance against losses are provided through the Florida League of Cities, Inc. and Risk Management Associates, Inc. for the following types of risk: ¦ Workers' Compensation and Employer's Liability ¦ General Liability ¦ Automobile Liability ¦ Public Officials' Liability ¦ Automobile Physical Damage ¦ Property Coverage ¦ Accidental Death and Dismemberment The City's coverage for workers' compensation is under a retrospectively rated policy. Premiums are accrued based on the ultimate cost to-date of the City's experience for this type of risk. 36 REQUIRED SUPPLEMENTARY INFORMATION CITY OF ATLANTIC BEACH, FLORIDA REQUIRED SUPPLEMENTARY INFORMATION SCHEDULES OF PENSION FUNDING PROGRESS SEPTEMBER 30, 2009 General Emaloyees' Retirement Plan Actuarial UAAL as Actuarial Accrued Annual Percentage Valuation Value of Liability Unfunded Funded Covered of Covered Date Assets (AALI AAL Ratio Pavroll Pavroll 9/30/04 $ 6,273,000 $ 9,005,000 $ 2,732,000 69.7% $ 3,051,000 89.5% 9/30/OS* 6,802,000 9,822,000 3,020,000 69.3% 3,182,000 94.9% 9l30l06* 7,609,000. 10,505,000 2,896,000 72.4% 3,195,000 90.6% 9130/07 8,594,000 11,668,000 3,074,000 73.7% 3,476,000 88.4% 9/30/08* 9,209,000 ]2,624,000 3,415,000 72.9% 3,727,000 91.6% Police Retirement Plan Actuarial UAAL as Actuarial Accrued Annual Percentage Valuation Value of Liability Unfunded Funded Covered of Covered Date Assets (AALI AAL Ratio Pavroll Pavroll 9/30/04 $ 4,534,000 $ 6,405,000 $ 1,871,000 70.8% $ 1,360,000 137.6% 9/30/OS* 4,775,000 6,997,000 2,222,000 68.2% 1,402,000 158.5% 9/30/06 5,175,000 7,034,000 1,859,000 73.6% 1,254,000 148.2% 9/30/07* 5,663,000 7,620,000 1,957,000 74.3% 1,453,000 134.7% 9130/08 5,764,000 8,112,000 2,348,000 71.1% 1,476,000 159.1% * After changes in benefits and/or actuarial assumptions andlor actuarial cost methods. Analysis of the dollar amounts of actuarial value of assets, actuarial accrued liability, or unfunded actuarial accrued liability in isolation can be misleading. Expressing the actuarial value of assets as a percentage of the actuarial accrued liability provides one indication of the system's funded status on a going concern basis. Analysis of this percentage over time indicates whether the system is becoming financially stronger or weaker. Generally, the greater this percentage, the stronger the plan. The unfunded actuarial accrued liability and annual covered payroll are both affected by inflation. Expressing the unfunded actuarial accrued liability as a percentage of covered payroll approximately adjusts for the effects of inflation and aids analysis of the progress being made in accumulating sufficient assets to pay benefits when due. Generally, the smaller this percentage, the stronger the plan. 37 CITY OF ATLANTIC BEACH, FLORH)A REQUIRED SUPPLEMENTARY INFORMATION SCHEDULES OF CONTRIBUTIONS FROM EMPLOYER AND OTHER CONTRIBUTING ENTITIES SEPTEMBER 30, 2009 General Employees' Retirement Plan Annual Required Year Ended Contributed Percentage September 30 (ARC) Contributed 2005 $ 464,893 100% 2006 4$0,029 100% 2007 482,364 100% 2008 4S7,OOS 100% 2009 528,428 100% Police Retirement Plan Annual Required Year Ended Contributed Percentage September 30 (ARC) Contributed 2005 $ 297,361 100% 2006 350,161 100% 2007 390,494 100% 2008 309,841 ]00% 2009 345,280 100% The information presented in the required supplementary schedules was determined as part of the actuarial valuation at the dates indicated. Additional information for the general employees' and police retirement plans as of the latest actuarial valuation follows: Valuation Date September 30, 2008 Actuarial Cost Method Entry-Age Actuarial Cost Method Amortization Method Level Percent of Payroll, Closed Remaining Amortization Period 1 to 30 Years Asset Valuation Method Funding Value Actuarial Assumptions Investment Rate of Return 8.00% Projected Inflationary Salary Increases S.SO% Projected Merit Salary Increases 0.00% to 6.30% Inflation 5.00% 38 CITY OF ATLANTIC BEACH, FLORIDA REQUIRED SUPPLEMENTARY INFORMATION OTHER POSTEMPLOYMENT BENEFITS PLAN SCHEDULE OF FUNDING PROGRESS SEPTEMBER 30, 2009 Actuarial UAAL as Actuarial Accrued Annual Percentage Valuation Value of Liability Unfunded Funded Covered of Covered Date Assets (AAL) AAL Ratio Pavroll Pavroll 9/30/06 $ 0 $ 470,703 $ 470,703 0.0% $ 4,812,000 9.78% Analysis of the dollar amounts of actuarial value of assets, actuarial accrued liability, or unfunded actuarial accrued liability in isolation can be misleading. Expressing the actuarial value of assets as a percentage of the actuarial accrued liability provides one indication of the system's funded. status on a going concern basis. Analysis of this percentage over time indicates whether the system is becoming financially stronger or weaker. Generally, the greater this percentage, the stronger the plan. The unfunded actuarial accrued liability and annual covered payroll are both affected by inflation. Expressing the unfunded actuarial accrued liability as a percentage of covered payroll approximately adjusts for the effects of inflation and aids analysis of the progress being made in accumulating sufficient assets to pay benefits when due. Generally, the smaller this percentage, the stronger the plan. 39 CITY OF ATLANTIC BEACH, FLORIDA REQUIRED SUPPLEMENTARY INFORMATION OTHER POSTEMPLOYMENT BENEFITS PLAN SCHEDULE OF CONTRIBUTIONS FROM EMPLOYER. SEPTEMBER 30, 2009 Annual Required Year Ended Contributed Percentage September 30, (ARC) Contributed 2009 $ 49,133 51 40 CITY OF ATLANTIC BEACH, FLORIDA REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL -GENERAL FUND FOR THE YEAR ENDED SEPTEMBER 30, 2009 Variance With Final Budget - Budgeted Amounts Actual Positive Original Final Amounts (Negative) Revenues Property Taxes $ 4,117,874 $ 4,117,874 $ 4,089,288 $ (28,586) Nonproperty Taxes 1,143,676 1,143,676 1,161,782 18,106 Franchise Fees and Permits 790,725 790,725 907,771 117,046 State-shared Revenues 1,711,812 1,582,865 1,517,742 (65,123) Other Intergovernmental Revenues 43,250 93,343 158,770 65,427 Charges for Services 660,608 660,608 684,650 24,042 Fines and Forfeitures 81,100 81,100 90,881 9,781 Interest Income 140,000 46,000 13,134 (32,866) Miscellaneous Revenues 25,300 25,300 34,295 8,995 lnterfund Charges 1,379,729 1,473,677 1,499,385 25,708 Total Revenues 10,094,074 10,015,168 10;15?,698 142,530 Expenditures General Government: Legislative 48,076 48,076 41,586 6,490 Legal Counsel 114,614 114,614 110,453 4,161 Planning and Zoning 211,567 224,428 202,960 21,468 City Clerk 264,832 278,851 237,079 41,772 City Manager 556,068 556,068 535,306 20,762 Finance and Accounting 962,234 963,666 945,419 18,247 Human Resources 217,756 213,856 190,784 23,072 Information Technology 515,333 518,926 455,202 63,724 Other 424,942 430,010 423,335 .6,675 Total General Government 3,315,422 3,348,495 3,142,124 206,371 Public Safety: Law Enforcement 3,448,496 3,783,084 3,431,746 351,338 Lifeguards 194,897 194,900 183,546 11,354 Fire Control 918,128 918,128 909,661 8,467 Code Enforcement 67,115 67,254 65,396 1,858 Total Public Safety 4,628,636 4,963,366 4,590,349 373,017 Transportation: Public Works Administration 465,698 457,595 456,863 732 Streets and Roads 853,685 775,914 743,992 31,922 Fleet Maintenance 247,329 258,379 253,193 5,186 Total Transportation 1,566,712 1,491,888 1,454,048 37,840 Parks and Recreation 1,194,259 1,211,479 1,090,872 120,607 (Total Expenditures) (10,705,029) (11,015,228) (10,277,393) 737,835 41 CITY OF ATLANTIC BEACH, FLORIDA REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL -GENERAL FUND FOR THE YEAR ENDED SEPTEMBER 30, 2009 (Concluded) Variance With Final Budget - Budgeted Amounts Actual Positive Original Final Amounts (Negative) (Deficiency) of Revenues (Under) Expenditures $ (610,955) $ (1,000,060) $ (119,695) $ 880,365 Other Financing Sources (Uses) Transfers in 395,800 366,700 366,700 0 Transfers (out) (1,300,000) (3,324,100) (2,571,016) 753,084 Sale of General Fixed Assets 10,000 10,000 9,540 (460) Total Other Financing Sources (Uses) (894,200) (2,947,400) (2,194,776) 752,624 (Deficiency) of Revenues and Other Financing Sources (Under) Expenditures and Other Financing Uses (1,505,155) (3,947,460) (2,314,471) 1,632,989 Fund Balances, Beginning of Year 6,140,718 5,569,919 5,735,252 165,333 Fund Balances, End of Year $ 4,635,563 $ 1,622,459 $ 3,420,781 $ 1,798,322 42 CITY OF ATLANTIC BEACH, FLORIDA REQUIRED SUPPLEMENTARY INFORMATION NOTE TO SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL -GENERAL FUND FOR THE YEAR ENDED SEPTEMBER 30, 2009 Budgets and Budgetary Accounting General governmental revenues and expenditures accounted for in budgetary funds are controlled by a budgetary accounting system in accordance with various legal requirements which govern the City's operations. Budgets are monitored at varying levels of classification detail; however, expenditures cannot legally exceed total appropriations at the individual fund level. Encumbrances are recorded. Unexpended items which are unencumbered at year-end must be reappropriated in the subsequent year. Budgets are adopted for all governmental funds (general, special revenue, debt service and capital projects funds). The City Manager is authorized to transfer budgeted amounts within departments within any fund; however, any revisions that increase the total expenditures of any department or fund must be approved by the City Commission. All necessary supplemental appropriations are adopted by the City Commission and are included in the reported budgetary data. The budget presented in the accompanying required supplemental information is prepared in conformity with accounting principles generally accepted in the United States of America. 43 SUPPLEMENTARY INFORMATION CITY OF ATLANTIC BEACH, FLORIDA COMBINING BALANCE SHEET NONMAJOR GOVERNMENTAL FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2009, WITH COMPARATIVE TOTALS FOR THE YEAR ENDED SEPTEMBER 30, 2008 2009 Special Revenue Funds Convention Tree Local Option Development Half-cent Court Cost Radio Replacement Gas Tax Tax Sales Tax Training Communication Assets Equity in Pooled Cash and Cash Equivalents $ 14,822 $ 222,381 $ 20,094 $ 720,685 $ 134,767 $ 18,749 Due from Other Governments 0 66,597 9,076 104,667 648 2,112 Total Assets 14,822 288,978 29,170 825,352 135,415 20,861 Liabilities and Fund Balances Liabilities Accounts Payable and Accrued Liabilities 0 7,060 0 0 755 3,139 Due to Other Funds 0 0 0 0 0 0 Deposits 0 0 0 0 0 0 Total Liabilities 0 7,060 0 0 755 3,139 Fund Balances Reserved for: Debt Service 0 0 0 0 0 0 Encumbrances 0 140,000 0 0 0 0 Unreserved -Reported in: Special Revenue Funds 14,822 141,918 29,170 825,352 134,660 17,722 Capital Projects Funds 0 0 0 0 0 0 Total Fund Balances 14,822 281,918 29,170 825,352 134,660 17,722 Total Liabilities and Fund Balances $ 14,822 $ 288,978 $ 29,170 $ 825,352 $ 135,415 $ 20,861 44 2009 Special Revenue Funds Totals Totals Community Special Nonmajor Contraband Development Revenues Debt Capital Governmental 2008 Forfeiture Block Grant Funds Service Projects Funds Totals $ 32,679 $ 0 $ 1,164,177 $ 74,617 $ 650,065 $ 1,888,859 $ 2,095,233 0 72,286 255,386 0 0 255,386 223,756 32,679 72,286 1,419,563 74,617 650,065 2,144,245 2,318,989 960 8,442 20,356 0 0 20,356 269,9]8 0 63,844 63,844 0 0 63,844 30,125 25,969 0 25,969 0 0 25,969 27,610 26,929 72,286 110,169 0 0 110,169 327,653 0 0 0 74,617 0 74,617 77,300 0 0 140,000 0 20,788 160,788. 141,740 5,750 0 1,169,394 0 0 1,169,394 1,439,359 0 0 0 0 629,277 629,277 332,937 5,750 0 1,309,394 74,617 650,065 2,034,076 1,991,336 $ 32,679 $ 72,286 $ 1,419,563 $ 74,617 $ 650,065 $ 2,144,245 $ 2,318,989 45 CITY OF ATLANTIC BEACH, FLORIDA COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES NONMAJOR GOVERNMENTAL FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2009, WITH COMPARATIVE TOTALS FOR THE YEAR ENDED SEPTEMBER 30, 2008 2009 Special Revenue Funds Convention Tree Local Option Development Half-cent Court Cost Radio Replacement Gas Tax Tax Sales Tax Training Communication Revenues Taxes $ 0 $ 466,220 $ 60,066 $ 629,680 $ 0 $ 0 Other Intergovernmental Revenues 0 0 0 0 0 0 Fines and Forfeitures 0 0 0 0 5,868 18,912 Interest Income 671 189 2,038 370 62 Miscellaneous Revenues 4,914 0 0 0 0 0 Total Revenues 4,914 466,891 60,255 631,718 6,238 18,974 Expenditures Current: General Government 0 0 40,000 0 0 0 Public Safety 0 0 0 0 24,660 18,835 Transportation 0 178,750 0 73,477 0 0 Conservation and Resource Management 21,275 0 0 0 0 0 Debt Service: Principal 0 0 0 0 0 0 Interest and Other 0 0 0 0 0 0 Capital Outlay 0 0 235,407 16,445 0 0 (Total Expenditures) (21,275) (178,750) (275,407) (89,922) (24,660) (18,835) (Deficiency) Excess of Revenues (Under) Over Expenditures (16,361) 288,141 (215,152) 541,796 (18,422) 139 Other Financing Sources (Uses) Transfers in 0 0 0 0 0 0 Transfers (out) 0 (259,500) 0 (587,500) 0 0 Total Other Financing Sources (Uses) 0 (259,500) 0 (587,500) 0 0 Net Change in Fund Balances (16,361) 28,641 (215,152) (45,704) (18,422) 139 Fund Balances, Beginning of Year 31,183 253,277 244,322 871,056 153,082 17,583 Fund Balances, End of Year $ 14,822 $ 281,918 $ 29,170 $ 825,352 $ 134,660 $ 17,722 46 2009 Special Revenue Funds Totals Totals Community Special Nonmajor Contraband Development Revenue Debt Capital Governmental 2008 Forfeiture Block Grant Funds Service Projects Funds Totals $ 0 $ 0 $ 1,155,966 $ 0 $ 0 $ 1,155,966 $ 1,202,211 0 164,301 164,301 0 0 164,301 36,418 7,271 0 32,051 0 0 32,051 183,875 101 0 3,431 ]76 1,340 4,947 40,717 0 0 4,914 0 0 4,914 23,765 7,372 164,301 1,360,663 176 1,340 1,362,179 1,486,986 0 2,988 42,988 0 0 42,988 40,000 3,524 0 47,019 0 0 47,019 48,605 0 0 252,227 0 0 252,227 244,493 0 0 21,275 0 0 21,275 0 0 0 0 56,686 0 56,686 53,925 0 0 0 14,673 0 14,673 ] 7,040 8,694 161,313 421,859 0 ]4,212 436,071 302,195 (12,218) (164,301) (785,368) (71,359) (]4,212) (870,939) (706,258) (4,846) 0 575,295 (71,183) (12,872) 491,240 780,728 0 0 0 68,500 330,000 398,500 398,566 0 0 (847,000) 0 0 (847,000) (1,446,566) 0 0 (847,000) 68,500 330,000 (448,500) (1,048,000) (4,846) 0 (271,705) (2,683) 317,128 42,740 (267,272) 10,596 0 1,581,099 77,300 332,937 1,991,336 2,258,608 $ 5,750 $ 0 $ 1,309,394 $ 74,617 $ 650,065 $ 2,034,076 $ 1,991,336 47 CITY OF ATLANTIC BEACH, FLORIDA COMBINING STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS SEPTEMBER 30, 2009, WITH COMPARATIVE TOTALS FOR SEPTEMBER 30, 2008 Pension Trust Funds Police General Officers' Employees' Retirement Retirement 2009 2008 Plan Plan Totals Totals Assets Cash and Cash Equivalents $ 33.,754 $ 8,124 $ 41,878 $ 167,615 Investments 5,922,208 9,302,079 15,224,287 13,792,416 Total Assets 5,955,962 9,310,203 15,266,165 13,960,031 Liabilities Accounts Payable and Accrued Liabilities 29 29 58 0 Excess Premium Tax Liability 120,454 0 120,454 120,454 DROP Plan Payable 380,373 96,855 477,228 586,284 Total Liabilities 500,856 96,884 597,740 706,738 Net Assets Held in Trust for Pension Benefits 5,455,106 9,213,319 14,668,425 13,253,293 Total Net Assets $ 5,455,106 $ 9,213,319 $ 14,668,425 $ 13,253,293 48 CITY OF ATLANTIC BEACH, FLORIDA COMBINING STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS FHUCIARY FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2009, WITH COMPARATIVE TOTALS FOR THE YEAR ENDED SEPTEMBER 30, 2008 Pension Trust Funds Police General Officers' Employees' Retirement Retirement 2009 2008 Plan Plan Totals Totals Additions Contributions: Employer $ 256,474 $ 528,426 $ 784,900 $ 678,041 Employees 88,691 200,072 288,763 254,070 State of Florida 86,433 0 86,433 88,806 Total Contributions 431,598 728,498 1,160,096 1,020,917 Net Increase (Decrease) in Fair Value of Investments 271,938 546,911 818,849 (2,219,670) Interest and Dividends 159,931 257,983 417,914 449,592 Total Additions 863,467 1,533,392 2,396,859 (749,161) Deductions Refunds of Contributions 3,440 32,032 35,472 17,595 Benefits 474,002 435,135 909,137 843,661 Investment Expenses 591 0 591 0 Administrative Expenses 15,973 20,554 36,527 26,030 Total Deductions 494,006 487,721 981,727 887,286 Net Increase (Decrease) 369,461 1,045,671 1,415,132 (1,636,447) Net Assets, Beginning of Year 5,085,645 8,167,648 13,253,293 14,889,740 Net Assets, End of Year $ 5,455,106 $ 9,213,319 $ 14,668,425 $ 13,253,293 49 CITY OF ATLANTIC BEACH, FLORIDA HISTORICAL REVENUES AND EXPENSES FOR THE YEARS ENDED SEPTEMBER 30, 2005 THROUGH SEPTEMBER 30, 2009 (UNAUDITED) 2005 2006 2007 2008 2009 Revenues Operating Revenues: Water: Customer Charges $ 2,459,456 $ 2,554,325 $ 2,531,304 $ 2,514,161 $ 2,738,565 Miscellaneous Charges 22,567 59,667 38,809 82,737 40,906 Total Water 2,482,023 2,613,992 2,570,113 2,596,898 2,779,471 Sewer: Customer Charges 3,524,134 3,609,816 3,529,947 3,726,556 4,116,104 Total Operating Revenues 6,006,157 6,223,808 6,100,060 6,323,454 6,895,575 Nonoperating Revenues: Interest Income: Water 50,946 83,149 117,793 53,378 7,963 Sewer 57,008 76,810 82,266 26,901 6,886 Total Nonoperating Revenues 107,954 159,959 200,059 80,279 14,849 Total Revenues 6,114,111 6,383,767 6,300,119 6,403,733 6,910,424 Expenses Operating Expenses: Water 945,643 1,067,498 1,159,651 1,019,907 1,087,283 Sewer 1,827,176 1,977,608 1,891,016 2,275,505 2,111,097 Total Operating Expenses 2,772,819 3,045,106 3,050,667 3,295,412 3,198,380 Administrative, Nondivisional and Other: Water 538,189 582,858 553,519 628,122 634,541 Sewer 883,224 937,010 1,072,794 1,071,893 1,142,214 Total Administrative, Nondivisional and Other 1,421,413 1,519,868 1,626,313 1,700,015 1,776,755 (Total Expenses) (4,194,232) (4,564,974) (4,676,980) (4,995,427) (4,975,135) Net Revenues Available for Debt Service 1,919,879 1,818,793 1,623,139 1,408,306 1,935,289 Nonoperating Income (Expense) Interest Expense (819,620) (798,991) (769,816) (752,384) (732,939) Loan Amortization (13,672) (15,289) (15,289) (14,730) (14,730) Total Nonoperating (Expense) (833,292) (814,280) (785,105) (767,114) (747,669) Net Income Before Depreciation and Operating Transfers $ 1,086,587 $ 1,004,513 $ 838,034 $ 641,192 $ 1,187,620 50 CITY OF ATLANTIC BEACH, FLORIDA MAJOR UTILITY CUSTOMERS FOR THE YEAR ENDED SEPTEMBER 30, 2009 (UNAUDITED) Annual Billings Fleet Landing (Retirement Community) $ 327,308 Navy (Federal Government) 274,245 Oaks of Atlantic Beach (Mobile Home Park) 145,304 Atlantic Arms (Apartment Complex) 137,472 Sea Oats (Apartment Complex) 128,601 Lakes of Mayport (Apartment Complex) 122,334 City of Atlantic Beach, Florida 115,264 John Creek Estate (Mobile Home Park) 109,769 Hanna Park (Regional Park) 93,238 One Ocean (Hotel) 69,589 Total $ 1,523,124 5] CITY OF ATLANTIC BEACH, FLORIDA SUMMARY OF WATER USAGE FOR THE YEARS ENDED SEPTEMBER 30, 2000 THROUGH SEPTEMBER 30, 2009 (UNAUDITED) Annual Water System Customers Average Average Total Percentage Single Unit Multi-Unit Demand Percentage Year Population Change CAB BUC Total CAB BUC Total (MGD) Change 2000* 23,944 0.3% 4,956 2,361 7,317 1,560 2,211 3,771 3.29 0.12% 2001 23,898 -0.2% 5,008 2,472 7,480 1,580 2,111 3,691 3.10 -5.92% 2002 24,167 1.1% 5,248 2,507 7,755 1,473 2,315 3,788 3.20 3.16% 2003 23,441 -3.0% 5,324 2,504 7,828 1,569 2,305 3,874 3.09 -3.38% 2004 24,007 2.4% 5,222 2,593 7,815 2,006 2,281 4,287 2.93 -5.15% 2005 22,914 -4.5% 5,263 2,590 7,853 2,367 1,939 4,306 2.75 -6.14% 2006 23,208 1.3% 5,256 2,430 7,686 2,107 2,164 4,271 2.73 -0.73% 2007 23,151 -0.2% 5,283 2,346 7,629 1,895 2,079 3,974 2.69 -1.47% 2008 23,200 0.2% 5,285 2,341 7,626 2,006 2,288 4,294 2.50 -7.06% 2009 23,058 -0.6% 5,166 2,342 7,508 1,917 2,159 4,076 2.30 -8.00% Atlantic Beach Division (CAB) Buccaneer Division (BUC) * Per 2000 Census, prior and subsequent years are estimated. 52 CITY OF ATLANTIC BEACH, FLORIDA SUMMARY OF WASTEWATER TREATMENT ATLANTIC BEACH SEWER DIVISION FOR THE YEARS ENDED SEPTEMBER 30, 2000 THROUGH SEPTEMBER 30, 2009 (UNAUDITED) Annual Average Annual Percentage Sewer Customers Flow Percentage Year Population Change Single Unit Multi-Unit Totat (MGD) Change 2000* 13,368 -1.8% 4,467 1,921 6,388 1.6220 6.00% 2001 13,568 1.5% 4,587 1,892 6,479 1.5600 -3.82% 2002 13,771 1.5% 4,651 1,837 6,488 1.6830 7.88% 2003 13,418 -2.6% 4,822 1,960 6,782 1.7380 3.27% 2004 13,911 3.7% 4,913 1,978 6,891 1.5980 -8.06% 2005 14,064 1.1 % 4,999 2,3 87 7,3 86 1.8160 13.64% 2006 14,079 0.1% 5,020 2,111 7,131 1.5990 -11.95% 2007 14,015 -0.5% 5,057 1,900 6,957 1.6370 2.38% 2008 13,819 -1.4% 5,086 1,904 6,990 1.6380 0.06% 2009 13,819 0.0% 4,997 1,903 6,900 1.5820 -3.42% * Per 2000 Census, prior and subsequent years are estimated. 53 CITY OF ATLANTIC BEACH, FLORIDA SUMMARY OF WASTEWATER TREATMENT OUTSIDE CITY SEWER DIVISION FOR THE YEARS ENDED SEPTEMBER 30, 2000 THROUGH SEPTEMBER 30, 2009 (UNAUDITED) - Annual Average Annual Percentage Sewer Customers Flow Percentage Year Population Change _ Single Unit Multi-Unit Total (MGD) Change 2000* 10,576 15.40% 2,563 2,491 5,054 0.918 -3.47% 2001 10,330 1.50% 2,378 2,555 4,933 0.875 -4.68% 2002 10,396 1.50% 2,409 2,489 4,898 0.905 3.43% 2003 10,023 -2.60% 2,398 2,668 5,066 0.843 -6.85% 2004 10,096 -5.00% 2,504 2,497 5,001 0.824 -2.25% 2005 8,850 -0.12% 2,503 2,145 4,648 0.746 -9.47% 2006 9,129 3.00% 2,356 2,268 4,624 0.682 -8.58% 2007 9, l36 0.00% 2,267 2,268 4,535 0.712 4.40% 2008 9,381 0.03% 2,263 2,482 4,745 0.704 -1.12% 2009 9,239 -0.02% 2,258 2,355 4,613 0.651 -7.53% * Per 2000 Census, prior and subsequent years are estimated. 54 CITY OF ATLANTIC BEACH, FLORIDA OTHER BOND COVENANT DISCLOSURES FOR THE YEARS ENDED SEPTEMBER 30, 2005 THROUGH SEPTEMBER 30, 2009 (UNAUDITED) Utility Service Tax Collections (Last Five Years) Year Electricity Telecom Gas Fuel Oil Total 2005 $ 367,186 $ 586,369 $ 28,015 $ 77 $ 981,647 2006 372,226 596,368 23,711 132 992,437 2007 363,285 602,177 22,413 35 987,910 2008 392,842 612,671 28,758 33 1,034,304 2009 430,774 600,716 25,815 18 1,057,323 Ad Valorem Tax Collections (Last Five Years) Year Total 2005. $ 2,990,075 2006 3,529,832 2007 3,868,172 2008 4,269,435 2009 4,089,288 55 CITY OF ATLANTIC BEACH, FLORIDA SCHEDULES OF NET REVENUES IN ACCORDANCE WITH BOND RESOLUTIONS ENTERPRISE FUNDS (WATER AND SEWER) FOR THE YEARS ENDED SEPTEMBER 30, 2009 AND SEPTEMBER 30, 2008 (UNAUDITED) 2009 2008 Gross Revenues Utility $ 6,840,216 $ 6,240,717 Connection Charges 89,169 144,566 Interest 14,849 80,279 Transfer from (to) Rate Stabilization Fund (85,400) (a) 85,400 (a) Total Gross Revenues 6,858,834 6,550,962 Operating Expenses Personal Services 1,776,755 1,700,015 Contractual Services 787,291 924,969 Supplies 296,697 345,432 Repairs and Maintenance 185,504 206,383 Heat, Lights and Power 683,833 575,344 Intergovernmental Charges 987,079 948,969 Loss (Gain) on Disposal of Fixed Assets (6,470) (1,560) Other Expenses 233,469 253,719 (Total Operating Expenses) (4,944,158) (4,953,271) Total Net Revenues in Accordance with Bond Resolutions 1,914,676 ],597,691 Capital Facilities Charges 178,799 170,894 Special Assessments -New 0 0 Net Revenues Plus Capital Facilities Charges and Special Assessments $ 2,093,475 $ 1,768,585 Total Debt Service $ 1,518,467 $ 1,521,583 Debt Service Coverage Ratio 137.87% 116.23% Debt Service Coverage Ratio Excluding Capital Facilities Charges 126.09% 105.00% Required Debt Service Coverage Ratio 110.00% 110.00% Required Debt Service Coverage Ratio, Excluding Capital Facilities Charges 105.00% 105.00% (a) Rate Stabilization Fund: Balance, Beginning of Year $ 314,600 $ 400,000 Transfer/Redeposit to Revenue Fund 85,400 (85,400) Balance, End of Year $ 400,000 $ 314,600 56 ADDITIONAL ELEMENTS OF REPORT PREPARED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS, ISSUED BY THE COMPTROLLER GENERAL OF THE UNITED STATES; THE RULES OF THEAUDITOR GENERAL OF THE STATE OF FLORIDA; AND OTHER CONTRACT REQUIREMENTS CITY OF ATLANTIC BEACH, FLORIDA SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE YEAR ENDED SEPTEMBER 30, 2009 CFDA Grant/Contract Program Grantor/Pass-Through Entity Number Number Awards Expenditures Federal Awards U.S Department of Housing and Urban Development Indirect Programs: Passed Through City of Jacksonville, Florida: Community Development Block Grant (CDBG) 14.218 5629-43 $ 214,284 $ 164,301 U.S Department of Homeland Security Indirect Programs: Passed Through City of Jacksonville, Florida: Homeland Security Grant Program 97.067 09-DS-48-04-26-01 48,650 0 U.S. Department of Justice Direct Programs: Bulletproof Vest Partnership Program 16.607 2009-BUBX-08055226 2,628 2,628 Recovery Act -Edward Byrne Memorial Justice Assistance Grant Program ARRA-16.804 2009-SB-B9-1335 33,538 33,538 Indirect Programs: Passed Through Florida Department of Law Enforcement: Edward Byrne Memorial Justice Assistance Grant Program 16.738 2009-JAGC-DUVA-3-T7-I 10 43,455 43,455 Edward Byrne Memorial Justice Assistance Grant Program 16.738 2009-JAGD-DUVA-2-T8-104 1,735 1,735 Subtotal Expenditures - 16.738 45,190 45,190 Total U.S. Department of Justice 81,356 81,356 U.S Department of Transportation Indirect Programs: Passed Through Florida Department of Transportation State and Community Highway Safety 20.600 AL-09-05-OS 36,025 36,025 Total Expenditures of Federal Awards $ 380,315 $ 281,682 * Includes grant expenditures only (matching funds not reported). 57 CITY OF ATLANTIC BEACH, FLORIDA NOTE TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE YEAR ENDED SEPTEMBER 30, 2009 Note 1 - Basis of Presentation The accompanying schedule of expenditures of federal awards includes the federal awards activity of the City of Atlantic Beach, Florida, and is presented on the modified accrual basis of accounting. 58 CITY OF ATLANTIC BEACH, FLORIDA SCHEDULE OF SOURCE AND EXPENDITURE OF CITY GRANT FUNDS PER ORDINANCE CODE CHAPTER 118.205(e) FOR FISCAL YEAR 2008-2009 City of Jacksonville Public Service Grants Received as a Subgrant Recipient Per Interlocal Agreement Receipt of City Funds Fiscal Year 2008 - 2009 Grant No. 5629-43 Amount of Award (Per City of Jacksonville Budget Ordinance) $ 214,284 (A) Actual Funds Received from City of Jacksonville in Last Audit Period 0 Actual Amount Received This Period (155,859) (B) Amount Remaining to be Distributed $ 58,425 Expenditures of City Funds City Fiscal Year 2008-2009 Grant No. 5629-43 - $214,284 (A) Actual 10/01/2008 - Remaining Item Budgeted 9/30/2009 Balance Septic Tank to Sewer Conversions No. 003917 $ 15,552 $ 2,988 $ 12,564 Tennis Courts and Park Improvements at Donner Park No. 003914 147,000 113,618 33,382 Sidewalk Construction and Improvements No. 003702 51,732 39,253 12,479 Total $ 214,284 $ 155,859 $ 58,425 (A) $99,353 in unspent funds from the prior fiscal year and $10,669 of housing rehabilitation funds refunded from prior year recipients, due to eligibility status change, was included in the 2008-2009 grant agreement, in addition to the original budgeted appropriation of $104,262. (B) Expenditures on the Schedule of Expenditures of Federal Awards (page 52) of $164,301 includes retainage for work completed on project No. 003914 of $8,442, but not paid, as of September 30, 2009. 59 Purvis Grey g, Comp REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF BASIC FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENTAUDITINGSTANDARDS Honorable Mayor, City Commissioners and City Manager Atlantic Beach, Florida We have audited the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Atlantic Beach, Florida (the City), as of and for the year ended September 30, 2009, which collectively comprise the City's basic financial statements and have issued our report thereon dated January 30, 2010. 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. Internal Control Over Financial Reporting In planning and performing our audit, we considered the City's internal control over financial reporting as a basis for designing our auditing procedures 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's internal control over financial reporting.. Accordingly, we do not express an opinion on the effectiveness of the City's internal control over financial reporting. 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. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in internal control that might be significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control that we consider to be material weaknesses, as defined above. Certified Public Accountants P.O. Box 23999 • 222 N.E. 1st Street • Gainesville, Florida 32602 • (352) 378-2461 • FAX (352) 378-2505 Laurel Ridge Professional Center • 2347 S.E. 17th Street • Ocala, Florida 34471 • (352) 732-3872 • FAX (352) 732-0542 443 East College Avenue • Tallahassee, Florida 32301 • (850) 224-7144 • FAX (850) 224-7 762 2201 Cantu Court, Suite #100 • Sarasota, Florida 34232 • (941) 379-2800 • FAX (941) 379-2899 MEMBERS OF AMERICAN AND FLORIDA INSTITUTES OF CERTIFIED PUBLIC ACCOUNTANTS MEMBER OF AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS PRIVATE COMPANIES AND S.E.C. PRACTICE SECTIONS 60 Honorable Mayor, City Commissioners and City Manager Atlantic Beach, Florida REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF BASIC FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENTAUDITINGSTANDARDS (Concluded) Compliance and Other Matters As part of obtaining reasonable assurance about whether the City's basic financial statements are free of 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 are required to be reported under GovernmentAuditing Standards. This report is intended solely for the information and use of management, the City Commissioners, the office of the Florida Auditor General, and agencies providing state and federal financial assistance and is not intended to be and should not be used by anyone other than these specified parties. , LLB January 30, 2010 Gainesville, Florida 61 Purvis Grey g, Comp MANAGEMENT LETTER Honorable Mayor, City Commissioners and City Manager Atlantic Beach, Florida We have audited the basic financial statements of the City of Atlantic Beach, Florida (the City), as of and for the fiscal year ended September 30, 2009, and have issued our report thereon dated January 30, 2010. 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. We have issued our report on internal control over financial reporting and compliance and other matters. Disclosures in this report, which is dated January 30, 2010, should be considered in conjunction with this management letter. Additionally, our audit was conducted in accordance with the provisions of Chapter 10.550, Rules of the Auditor General, which governs the conduct of local governmental entity audits performed in the State of Florida. This letter includes the following information, which is not included in the aforementioned auditor's report: Section 10.554(1)(1)1., Rules of the Auditor General, requires that we determine whether or not corrective actions have been taken to address findings and recommendations made in the preceding annual financial audit report. There were no comments made in the preceding annual financial audit report. Section 10.554(1)(1)2., Rules of the Auditor General, requires our audit to include a review of the provisions of Section 218.415, Florida Statutes, regarding investment of public funds. In connection with our audit, we determined that the City complied with Section 218.415, Florida Statutes. Section 10.554(1)(1)3., Rules of the Auditor General, requires that we address in the management letter any recommendations to improve financial management. In connection with our audit, we did not have any such recommendations. Sections 10.554(1)(1)4., Rules of the Auditor General, requires that we address violations of provisions of contracts or grant agreements, or abuse, that have an effect on the financial statements that is less than material. but more than inconsequential. In connection with the audit, we did not have any such findings. Certified Public Accountants P.O. Box 23999 • 222 N,E. 1 st Street • Gainesville, Florida 32602 • (352) 378-2461 • FAX (352) 378-2505 Laurel Ridge Professional Center • 2347 S.E. 17th Street • Ocala, Florida 34471 • (352) 732-3872 • FAX (352) 732-0542 443 East College Avenue • Tallahassee, Florida 32301 • (850) 224-7144 • FAX (850) 224-1762 2201 Cantu Court, Suite #100 • Sarasota, Florida 34232 • (941) 379-2800 • FAX (941) 379-2899 MEMBERS OF AMERICAN AND FLORIDA INSTITUTES OF CERTIFIED PUBLIC ACCOUNTANTS MEMBER OF AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS PRIVATE COMPANIES AND S.E.C. PRACTICE SECTIONS 62 Honorable Mayor, City Commissioners and City Manager Atlantic Beach, Florida MANAGEMENT LETTER (Concluded) Section 10.554(1)(1)5., Rules of the Auditor General, provides that the auditor may, based on professional judgment, report the following matters that have an inconsequential effect on financial statements, considering both quantitative and qualitative factors: (1) violations of provisions of contracts or grant agreements, fraud, illegal acts, or abuse, and (2) control deficiencies that are not significant deficiencies. In connection with our audit, we did not have any such findings. Section 10.554(1)(1)6., Rules of the Auditor General, requires that the name or official title and legal authority for the primary government be disclosed in this management letter, unless disclosed in the notes to the financial statements. This information is included in Note 1 to the financial statements. Section 10.554(1)(i)7.a., Rules of the Auditor General, requires a statement to be included as to whether or not the local government has met one or more of the conditions described in Section 218.503(1), Florida Statutes, and identification of the specific condition(s) met. In connection with our audit, we determined that the City does not meet any of the conditions described in Section 218.503(1), Florida Statutes. Section 10.554(1)(i)7.b., Rules of the Auditor General, requires that we determine whether the annual financial report for the City for the fiscal year ended September 30, 2009, was filed with the Florida Department of Financial Services pursuant to Section 218.32(1)(a), Florida Statutes, is in agreement with the annual financial audit report for the fiscal year ended September 30, 2009. In connection with our audit, we determined that these two reports were in agreement. Pursuant to Section 10.554(1)(i)7.c. and 10.556(7), Rules of the Auditor General, we applied financial condition assessment procedures. It is management's responsibility to monitor the City's financial condition, and our financial condition assessment was based in part on representations made by management and the review of financial information provided by same. Pursuant to Chapter 119, Florida Statutes, this management letter is a public record and its distribution is not limited. Auditing standards generally accepted in the United States of America require us to indicate that this letter is intended solely for the information and use of management, the City Commissioners, the office of the Florida Auditor General, and agencies providing state and federal financial assistance and is not intended to be and should not be used by anyone other than these specified parties. f~~l ~u~a~ , LLf January 30, 2010 Gainesville, Florida 63