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Annual Financial Report - 2016-2017 - v FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS’ REPORT CITY OF ATLANTIC BEACH, FLORIDA SEPTEMBER 30, 2017 FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS’ REPORT CITY OF ATLANTIC BEACH, FLORIDA SEPTEMBER 30, 2017 TABLE OF CONTENTS Independent Auditors’ Report ..................................................................................................................... i-iii Management’s Discussion and Analysis.................................................................................................... iv-xi Basic Financial Statements Government-wide Financial Statements Statement of Net Position .......................................................................................................................... 1 Statement of Activities .............................................................................................................................. 2 Fund Financial Statements Balance Sheet -Governmental Funds ....................................................................................................... 3 Reconciliation of Balance Sheet of Governmental Funds to the Statement of Revenues, Expenditures, and Changes in Fund Statement of Net Position....................................................................................................................... 4 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 Position -Proprietary Funds ......................................................................................7-8 Statement of Revenues, Expenses, and Changes in Net Position ­ Proprietary Funds ..............................................................................................................................9-10 Statement of Cash Flows -Proprietary Funds ...................................................................................11-13 Statement of Fiduciary Net Position ....................................................................................................... 14 Statement of Changes in Fiduciary Net Position .................................................................................... 15 Notes to Financial Statements ........................................................................................................ 16-46 Required Supplementary Information General Employees’ Pension Plan: Schedule of Changes in Net Pension Liability and Related Ratios ........................................................ 47 Schedule of Contributions ....................................................................................................................... 48 Schedule of Investment Returns .............................................................................................................. 49 Police Officers’ Pension Plan: Schedule of Changes in Net Pension Liability and Related Ratios ........................................................ 50 Schedule of Contributions ....................................................................................................................... 51 Schedule of Investment Returns .............................................................................................................. 52 Other Postemployment Benefits Plan -Schedule of Funding Progress ...................................................... 53 Schedule of Revenues, Expenditures, and Changes in Fund Balances ­ Note to Schedule of Revenues, Expenditures, and Changes in Fund Budget and Actual -General Fund .....................................................................................................54-55 Balances -Budget and Actual -General Fund........................................................................................ 56 FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS’ REPORT CITY OF ATLANTIC BEACH, FLORIDA SEPTEMBER 30, 2017 TABLE OF CONTENTS (Concluded) Supplementary Information Combining Balance Sheet -Nonmajor Governmental Funds ................................................................57-58 Combining Statement of Revenues, Expenditures, and Changes Schedules of Net Revenues in Accordance with Bond in Fund Balances -Nonmajor Governmental Funds .........................................................................59-60 Combining Statement of Fiduciary Net Position ......................................................................................... 61 Combining Statement of Changes in Fiduciary Net Position ...................................................................... 62 Historical Revenues and Expenses ............................................................................................................... 63 Resolutions -Enterprise Funds (Water and Sewer) ................................................................................ 64 Other Bond Covenant Disclosures ............................................................................................................... 65 Other Statistical Information Major Utility Customers ............................................................................................................................... 66 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 Source and Expenditure of the City Grant Funds ............................................................... 67 Independent Auditors’ Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Basic F inancial Statements Performed in Accordance Independent Accountants’ Report on Compliance with with Government Auditing Standards .......................................................................................... 68-69 Section 218.415, Florida Statutes ....................................................................................................... 70 Management Letter ............................................................................................................................ 71-73 Management Response Letter ........................................................................................................... 74-75 INDEPENDENT AUDITORS’ REPORT INDEPENDENT AUDITORS’ REPORT Honorable Mayor, City Commissioners, and City Manager City of Atlantic Beach Atlantic Beach, Florida Report on the Financial Statements 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, 2017, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements as listed in the table of contents. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express opinions on these financial statements based on our audit. 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 financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the City’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. i Honorable Mayor, City Commissioners, and City Manager City of Atlantic Beach Atlantic Beach, Florida INDEPENDENT AUDITORS’ REPORT (Continued) 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, 2017, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis and other required information on pages iv–xi and 47–56 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by GASB, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City’s basic financial statements. The supplementary information on pages 57–65, the other statistical information section on page 66, and the schedule of expenditures of grant funds per the City of Jacksonville’s Ordinance Code Chapter 118.202(e) on page 67 are presented for purposes of additional analysis and are not a required part of the basic financial statements. The supplementary information and schedule of expenditures of grant funds per the City of Jacksonville’s Ordinance Code Chapter 118.202(e) are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the supplementary information and schedule of expenditures of grant funds per the City of Jacksonville’s Ordinance Code Chapter 118.202(e) are fairly stated, in all material respects, in relation to the basic financial statements as a whole. The other statistical information section has not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on them. ii Honorable Mayor, City Commissioners, and City Manager City of Atlantic Beach Atlantic Beach, Florida INDEPENDENT AUDITORS’ REPORT (Concluded) Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have issued our report dated June 28, 2018, on our consideration of the City’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is 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 internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City’s internal control over financial reporting and compliance. Report on Summarized Comparative Information We have previously audited the City’s 2016 financial statements, and our report dated August 8, 2017, expressed an unmodified opinion on those audited financial statements. In our opinion, the summarized comparative information presented herein as of and for the year ended September 30, 2016, is consistent, in all material respects, with the audited financial statements from which it was derived. June 28, 2018 Gainesville, Florida iii CITY OF ATLANTIC BEACH, FLORIDA MANAGEMENT’S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2017 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, 2017. 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 Position and the Statement of Activities. The Statement of Net Position presents information on all of the City’s assets, deferred outflows of resources, liabilities, and deferred inflows of resources with the difference between reported as net position. Net position is reported as one of three categories: invested in capital assets net of related debt; restricted; or unrestricted. Restricted net position is further classified as either net position restricted by enabling legislation or net position that is otherwise restricted. Over time, increases or decreases in net position 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 position changed during the most recent fiscal year. All changes in net position 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, road maintenance and construction, parks and recreation, conservation and resource management, 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. 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 iv CITY OF ATLANTIC BEACH, FLORIDA MANAGEMENT’S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2017 (Continued) Fund Financial Statements (Concluded) ■ Governmental Funds (Concluded) 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 Position 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 11 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 10 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 57-60 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 and notes on pages 54-55 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. ■ 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 begin on page 16 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 beginning on page 47 of this report. v CITY OF ATLANTIC BEACH, FLORIDA MANAGEMENT’S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2017 (Continued) Government-wide Financial Analysis Net position may serve over time as a useful indicator of a City’s financial position. As can be seen in the summarized table below, the City’s assets exceeded liabilities by $79,316,000 at the close of the fiscal year ended September 30, 2017. By far the largest portion of the City’s net position, $67,379,000 (85%), 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 position, $3,920,000 (5%), represents resources that are subject to external restrictions on how they may be used. The remaining balance of unrestricted net position, $8,017,000 (10%), is used to meet the government’s ongoing obligations to citizens and creditors. City of Atlantic Beach’s Net Position September 30, 2017 and 2016 (In Thousands) Governmental Business-type Activities Activities Totals 2017 2016 2017 2016 2017 2016 Current and other assets $10,264 $12,272 $12,074 $11,365 $22,338 $23,637 Capital assets 44,797 42,460 40,303 41,084 85,100 83,544 Total Assets 55,061 54,732 52,377 52,449 107,438 107,181 Deferred Outflow 2,654 3,578 1,870 2,136 4,524 5,714 Long-term liabilities outstanding 7,803 8,860 19,416 20,955 27,219 29,815 Other liabilities 1,549 1,548 3,661 3,208 5,210 4,756 Total Liabilities 9,352 10,408 23,077 24,163 32,429 34,571 Deferred Inflow 189 225 28 49 217 274 Net Position: Invested in capital assets, net of related debt 44,797 42,087 22,582 22,190 67,379 64,277 Restricted 1,634 3,823 2,286 1,705 3,920 5,528 Unrestricted 1,743 1,767 6,274 6,478 8,017 8,245 Total Net Position $48,174 $47,677 $31,142 $30,373 $79,316 $78,050 vi CITY OF ATLANTIC BEACH, FLORIDA MANAGEMENT’S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2017 (Continued) As illustrated in the schedule on page vi, the City was able to report positive balances in all categories of net position, 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. City of Atlantic Beach’s Change in Net Position For the Years Ended September 30, 2017 and 2016 (In Thousands) Governmental Activities Business-type Activities Totals 2017 2016 2017 2016 2017 2016 Revenues: Program Revenues: Charges for Services Operating Grants and Contributions Capital Grants and Contributions General Revenues: $1,784 628 777 $1,732 667 1,913 $11,717 669 529 $11,538 0 3,828 $13,501 1,297 1,306 $13,270 667 5,741 Property Taxes Sales Taxes Business and Utility Taxes State Revenue Sharing Discretionary Sales Surtax Investment Earnings (Loss) Miscellaneous 4,730 1,362 1,073 345 839 46 40 4,483 1,331 1,123 332 806 168 70 0 0 0 0 0 51 0 0 0 0 0 0 138 0 4,730 1,362 1,073 345 839 97 40 4,483 1,331 1,123 332 806 306 70 Total Revenues 11,624 12,625 12,966 15,504 24,590 28,129 Expenses: General Government Public Safety Road Maintenance and 2,488 5,879 2,330 5,562 0 0 0 0 2,488 5,879 2,330 5,562 Construction Parks and Recreation Conservation and Resource 1,893 1,408 1,901 1,385 0 0 0 0 1,893 1,408 1,901 1,385 Management Interest/Fiscal Charges on Long-term Debt Utility Stormwater Sanitation Building Code Enforcement Total Expenses 19 0 0 0 0 0 11,687 0 0 0 0 0 0 11,178 0 0 7,613 1,298 2,299 427 11,637 0 0 7,130 1,163 1,546 438 10,277 19 0 7,613 1,298 2,299 427 23,324 0 0 7,130 1,163 1,546 438 21,455 Transfers 560 851 (560) (851) 0 0 Change in Net Position 497 2,298 769 4,376 1,266 6,674 Net Position-Beginning 47,677 45,379 30,373 25,997 78,050 71,376 Net Position-Ending $48,174 $47,677 $31,142 $30,373 $79,316 $78,050 vii CITY OF ATLANTIC BEACH, FLORIDA MANAGEMENT’S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2017 (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 financial information for the fiscal year, rounded to the nearest thousand dollars: ■ Governmental Funds At the end of the current fiscal year, the City’s governmental funds reported a combined ending fund balance of $9,014,000, a decrease of $1,917,000 in comparison with the prior year. The decrease in fund balance is due to the increase in capital outlay in relation to the renovation of the public safety building. The General Fund is the chief operating fund of the City. At the end of the current fiscal year, the unassigned fund balance was $4,068,000, which equated to 34% of total General Fund expenditures without transfers. The net result of various revenue and expense items resulted in an increase to the City’s General Fund of $145,000 or 2% during the current fiscal year. Property tax revenues increased by $247,000 or 5.5% from the previous year. This was a result of an increase in the taxable values. General Fund transfers in increased by $285,000, while transfers out decreased by $521,000. Overall, general fund expenditures increased by $422,000 or 3.6%. A large portion of this increase was due to an increase in the City’s contribution to the Police pension plan. Nonmajor governmental funds consisting of special revenue funds and the capital projects fund have a combined fund balance of $1,691,000. The net decrease in fund balance after transfers in nonmajor governmental funds was $2,062,000. The decrease in the fund was related to the progress of the Public Safety Building Project. ■ Proprietary Funds The City’s proprietary funds provide the same type of information found in the government-wide financial statements, but in more detail. During the fiscal year the proprietary funds recorded revenues of $11,608,000, expenses of $11,035,000, net non-operating revenue of $228,325 and net capital contributions, grants and transfers of $(31,615). The net position in the proprietary funds increased $769,000 as a result of the fiscal year’s activities. The unrestricted net position of the enterprise funds amounted to $6,274,000 at the end of fiscal year 2017. Stormwater rates stayed constant in fiscal year 2017 as there were no rate changes. The $8.39 per ERU is approximately 71%, compared to 79% for the prior year, of the total operating expenses of $1,246,000 needed to fully fund the operation with charges for service. During fiscal year 2017, the Sanitation Fund netted a decrease in net position of $329,000. This decrease was due to the significant Hurricane related debris clean-up costs incurred during fiscal year 2017. The City has submitted reimbursement requests to FEMA, and expects that a large amount of the debris clean-up costs will be reimbursed in a future year. General Fund Budgetary Highlights Net Budget The overall net difference from the final budgeted revenues and adjusted final budgeted expenses was a deficit of $794,000. The actual increase in fund balance was $145,000. This resulted in a $503,000 excess variance below what was budgeted. viii CITY OF ATLANTIC BEACH, FLORIDA MANAGEMENT’S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2017 (Continued) 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, 2017, amounted to $85,100,000. This investment in capital assets includes land, land improvements, land easements, 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 an increase of $2,338,000 or 5.51% for governmental activities and a decrease of $(780,820) or 1.9% for business-type activities. Capital asset events during the current fiscal year included the following: Governmental Activities Buildings, reflected a net increase of $4,736,000. This represents capital asset increase of $4,875,000, offset by depreciation of $140,000. Intangible Assets reflected a net increase of $7,000. This represents capital asset increase of $19,000, offset by depreciation of $12,000. This asset category includes land easements and computer software. Improvements Other Than Buildings reflected a net decrease of $683,000 as a result of deprecation. Equipment reflected a net increase of $197,000. This represents capital asset increase of $431,000, offset by depreciation of $234,000. Construction in progress decreased $1,918,000. This was mostly due to the completion of the public safety building during fiscal year 2017. ■ Business-type Activities Buildings reflected a net decrease in asset value of $9,000 from depreciation. Improvements Other Than Buildings reflected a net decrease of $2,064,000. This represents capital asset increases of $980,000, offset by depreciation of $2,589,806. Equipment reflected a net increase of $170,000. This represents capital asset increase of $267,000, offset by depreciation of $97,000. Construction in Progress had a net increase of $667,000. ix CITY OF ATLANTIC BEACH, FLORIDA MANAGEMENT’S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2017 (Continued) City of Atlantic Beach’s Capital Assets (Net of Depreciation) (In Thousands) Governmental Activities Business-type Activities Totals 2017 2016 2017 2016 2017 2016 Land Intangibles Buildings Improvements-Other Equipment Construction in Progress $10,564 62 7,215 25,052 1,265 639 $10,564 56 2,479 25,736 1,068 2,557 $1,656 214 52 36,286 687 1,408 $1,656 214 62 37,895 517 740 $12,220 276 7,267 61,338 1,952 2,047 $12,220 270 2,541 63,631 1,585 3,297 Total $44,797 $42,460 $40,303 $41,084 $85,100 $83,544 Additional information on the City’s capital assets can be found in Note 5 on pages 28-29 of this report. Long-term Debt At the end of the 2017 fiscal year, the City had total bonded debt outstanding of $18,358,000. This amount was comprised of debt secured solely by specified revenue sources. A detailed listing of the City’s debt can be found in the table below. City of Atlantic Beach’s Outstanding Debt September 30, 2017 (In Thousands) Business-type Activities Utilities System Revenue Bond, Series 2014 $11,710 F.D.E.P. State Revolving Funds Loan, 2010 561 F.D.E.P. State Revolving Funds Loan, 2009 6,087 Total $18,358 Debt service coverage calculations can be found on page 64. Additional information on the City’s long- term debt can be found in Note 6 on pages 29-32 of this report. x CITY OF ATLANTIC BEACH, FLORIDA MANAGEMENT' S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2017 (Concluded) Revenue Highlights: • T o tal General Re venu es fo r 201 7 were $35 ,000 hi g he r than 20 16 revenu e (page 2). Increases in pro perty tax e s o f $247,000 and a d ecre ase in in vestme nt e arnings of$209,0 00 ma de up majori ty ofthi s mc re a se . • The 201 7 taxable pro pe rty values w ere a bo ut 4 .7 8% hi g he r than th e 2 01 6 va lu es. The C ity Commi ssion vote d t o use the s am e mill age ra t e of3.2285 mill s . The purpose f or a d o ptin g t he mill age rate of3.2285 was t o mainta in a lev e l o f ad v a lo rem tax re ve nu e s uffi c ient to m a intain ad equa t e fu nding fo r the ex isting leve l of services a t t he e stim a te d cost a nd to co nt inu e to ma intain th e c ity's in f rastruc tu re and a d equa te reserves. The fin a l g ross taxabl e pro pe rty valu e was $ 1,5 0 I ,246,000. A d va lo re m taxes of $4 ,73 0,000 re present 4 3% o f t he Gene ral Fund revenu es for 2 01 7 . • The 2 01 7 In tergovernm e nt a l reve nu es of $ 1,83 4 ,000 ma ke up 16.72% of gene ra l fund revenu es. T hi s is a n in c rea se of $ 14 ,000 over 2 016 . • The C ity's in vestmen .t po rt fo li o is va lued at a pproxim a te ly $ 16 ,22 1,000 as o f Septembe r 3 0,201 7. T he investm e nts s ho we d a gain o f $9 7 ,000 fo r th e year. Expenditure Highlights: • To ta l G o vernm e nta l Fund Ex pendi t ures in c reased in c urre nt year by $ 1,4 03,000 when comp a red to pr io r year. Ca pita l ex pe nditures in c reased from $2,765,000 in 201 6 to $3,470,000 in 2 01 7. This increase was a resul t of th e Public Safe ty Building Proj ect a s well a s oth e r Capital Projects. Requests for Information The fin a nc ial re p o rt is desig ne d to prov id e a ge n e ra l overv iew of t he C ity's fin a nces fo r a ll th ose w ith an interest in t he C ity ' s fin a nces. Q uestio ns concernin g a ny o f th e in fo rm atio n prov ided in thi s report or requests fo r additiona l fin a nc ia l info rm a ti o n s hou ld be a ddressed to the C ity of Atla nti c Beach, Fina nce Director, 800 Semin o le R oad , Atl a ntic Beach, F lo rid a 3 2 233. Director of F in a nce X I 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 POSITION SEPTEMBER 30, 2017, WITH COMPARATIVE TOTALS FOR SEPTEMBER 30, 2016 2017 Governmental Business-type 2016 Activities Activities Totals Totals Assets Equity in Pooled Cash and Investments 9,173,017 $ 8,361,375 $ 17,534,392 $ 19,788,039 $ Receivables - Net 651 664,886 665,537 611,121 Due from Other Governments 1,061,705 350,842 1,412,547 1,083,173 Inventories 23,098 12,827 35,925 21,813 Notes Receivable - Current 760 15,759 16,519 16,519 Restricted Assets: Equity in Pooled Cash and Cash Equivalents 0 2,548,752 2,548,752 1,984,814 Capital Assets: Land 10,563,572 1,656,018 12,219,590 12,219,590 Buildings 9,450,124 4,356,384 13,806,508 8,931,030 Improvements Other Than Buildings 41,339,136 84,055,919 125,395,055 124,414,609 Equipment 4,773,879 2,667,929 7,441,808 6,744,115 Intangibles - Easements and Computer Software 428,352 244,709 673,061 654,506 (Accumulated Depreciation and Amortization) (22,397,170) (54,085,819) (76,482,989) (72,717,793) Construction in Progress 638,681 1,407,887 2,046,568 3,297,456 Prepaid Items 4,141 0 4,141 6,686 Notes Receivable - Noncurrent 1,520 119,321 120,841 124,866 Total Assets 55,061,466 52,376,789 107,438,255 107,180,544 Deferred Outflows of Resources Unamortized Refunding Loss 0 863,546 863,546 971,489 Pension Related 2,653,701 1,006,865 3,660,566 4,743,286 Total Deferred Outflows of Resources 2,653,701 1,870,411 4,524,112 5,714,775 Liabilities Accounts Payable and Other Current Liabilities 1,145,490 711,653 1,857,143 1,640,907 Construction Retainages Payable 4,340 17,638 21,978 148,197 Due to Other Governments 8,500 14,881 23,381 10,934 Unearned Revenue 22,990 195,285 218,275 183,682 Deposits 5,034 0 5,034 4,172 Compensated Absences - Current 362,514 146,514 509,028 414,727 Payable from Restricted Assets: Current Portion of Bonds Payable 0 1,185,000 1,185,000 1,160,000 Current Portion of Loan Payable 0 358,258 358,258 347,412 Accrued Interest Payable 0 227,364 227,364 235,654 Customer Deposits 0 653,012 653,012 609,753 Noncurrent Liabilities: Due in More Than One Year 0 16,814,450 16,814,450 18,357,709 Compensated Absences - Noncurrent 322,944 100,148 423,092 497,048 Other Postemployment Benefits Obligation 222,196 77,361 299,557 271,678 Net Pension Liability 7,258,426 2,575,159 9,833,585 10,689,297 Total Liabilities 9,352,434 23,076,723 32,429,157 34,571,170 Deferred Inflow of Resources Pension Related 188,855 28,451 217,306 274,178 Net Position Net Investment in Capital Assets 44,796,574 22,581,501 67,378,075 64,277,296 Restricted for: Renewal and Replacement 0 250,000 250,000 250,000 Debt Service 0 401,046 401,046 390,038 Public Safety 137,287 0 137,287 161,166 Road Maintenance and Construction 1,078,005 0 1,078,005 1,067,154 System Development Fees 0 1,244,694 1,244,694 735,023 Other Capital Projects 141,328 0 141,328 2,433,056 Other Purposes 277,248 0 277,248 161,958 Building Code Enforcement 0 390,605 390,605 329,553 Unrestricted 1,743,436 6,274,180 8,017,616 8,244,727 Total Net Position $ 48,173,878 $ 31,142,026 $ 79,315,904 $ 78,049,971 See accompanying notes. 1 CITY OF ATLANTIC BEACH, FLORIDA STATEMENT OF ACTIVITIES FOR THE YEAR ENDED SEPTEMBER 30, 2017, WITH COMPARATIVE TOTALS FOR THE YEAR ENDED SEPTEMBER 30, 2016 2017 Program Revenues Net (Expense) Revenue and Changes in Net Position Operating Capital Primary Government Charges for Grants and Grants and Governmental Business-type 2016 Functions/Programs Expenses Services Contributions Contributions Activities Activities Totals Totals Primary Government Governmental Activities: General Government $ 2,487,688 855,815 $ 64,939 $ 0$ (1,566,934) $ 0$ (1,566,934) $ $ (1,279,905) Public Safety 5,878,849 719,427 63,100 0 (5,096,322) 0 (5,096,322) (4,834,099) Road Maintenance and Construction 1,893,907 124,838 467,062 422,767 (879,240) 0 (879,240) 433,237 Parks and Recreation 1,408,110 84,265 0 354,080 (969,765) 0 (969,765) (1,184,263) Conservation and Resource Management 18,765 0 32,586 0 13,821 0 13,821 0 Total Governmental Activities 11,687,319 1,784,345 627,687 776,847 (8,498,440) 0 (8,498,440) (6,865,030) Business-type Activities: Utility 7,612,606 8,439,455 353,245 528,830 0 1,708,924 1,708,924 3,152,322 Stormwater 1,297,356 883,473 0 0 0 (413,883) (413,883) 1,541,558 Sanitation 2,299,021 1,888,827 315,598 0 0 (94,596) (94,596) 308,050 Building Code Enforcement 426,966 505,246 0 0 0 78,280 78,280 87,431 Total Business-type Activities 11,635,949 11,717,001 668,843 528,830 0 1,278,725 1,278,725 5,089,361 Total Primary Government $ 23,323,268 13,501,346 $ 1,296,530 $ 1,305,677 $ (8,498,440) 1,278,725 (7,219,715) (1,775,669) General Revenues Property Taxes 4,730,476 0 4,730,476 4,482,739 Sales Taxes 1,361,838 0 1,361,838 1,330,946 Business and Utility Taxes 1,072,553 0 1,072,553 1,123,011 State Revenue Sharing 344,460 0 344,460 331,606 Discretionary Sales Surtax 839,014 0 839,014 806,405 Investment Earnings (Loss) 46,057 51,012 97,069 305,631 Miscellaneous 40,238 0 40,238 70,435 Transfers 560,445 (560,445) 0 0 Total General Revenues and Transfers 8,995,081 (509,433) 8,485,648 8,450,773 Change in Net Position 496,641 769,292 1,265,933 6,675,104 Net Position, Beginning of Year 47,677,237 30,372,734 78,049,971 71,374,867 Net Position, End of Year 48,173,878 $ 31,142,026 $ 79,315,904 $ $ 78,049,971 See accompanying notes. 2 CITY OF ATLANTIC BEACH, FLORIDA BALANCE SHEET GOVERNMENTAL FUNDS SEPTEMBER 30, 2017, WITH COMPARATIVE TOTALS FOR SEPTEMBER 30, 2016 2017 Nonmajor Governmental Totals Governmental 2016 General Funds Funds Totals Assets Equity in Pooled Cash and Investments Receivables - Net $ 7,180,310 651 1,992,707 $ 0 9,173,017 $ 651 11,206,230 $ 50 Due from Other Funds Due from Other Governments Inventories Notes Receivable - Current 170,515 679,309 23,098 760 0 382,396 0 0 170,515 1,061,705 23,098 760 75,035 1,047,929 8,986 760 Prepaid Items Notes Receivable - Noncurrent Total Assets 4,141 1,520 8,060,304 0 0 2,375,103 4,141 1,520 10,435,407 6,686 1,520 12,347,196 Liabilities and Fund Balances Liabilities Accounts Payable and Accrued Liabilities Construction Retainages Payable Due to Other Funds Due to Pension Trust Funds Deposits Unearned Revenue Total Liabilities 636,742 1,206 0 8,500 4,108 22,990 673,546 508,748 3,134 170,515 0 926 0 683,323 1,145,490 4,340 170,515 8,500 5,034 22,990 1,356,869 1,091,004 141,942 75,035 0 4,172 1,689 1,313,842 Deferred Inflows of Resources 64,939 0 64,939 102,723 Fund Balances Nonspendable: Inventories Prepaids Restricted for: 23,098 4,141 0 0 23,098 4,141 8,986 6,686 Public Safety Road Maintenance and Construction Other Capital Projects Other Purposes Committed to: 0 0 0 0 137,287 1,078,005 141,328 277,248 137,287 1,078,005 141,328 277,248 161,166 1,067,154 2,433,056 161,958 Conservation and Resource Management Assigned to: Community Redevelopment Fund Operating Reserves Unassigned Total Fund Balances 0 50,000 3,176,334 4,068,246 7,321,819 58,732 0 0 (820) 1,691,780 58,732 50,000 3,176,334 4,067,426 9,013,599 34,911 0 2,944,071 4,112,643 10,930,631 Total Liabilities and Fund Balances $ 8,060,304 2,375,103 $ 10,435,407 $ $ 12,347,196 See accompanying notes. 3 CITY OF ATLANTIC BEACH, FLORIDA RECONCILIATION OF BALANCE SHEET OF GOVERNMENTAL FUNDS TO THE STATEMENT OF NET POSITION SEPTEMBER 30, 2017, WITH COMPARATIVE TOTALS FOR SEPTEMBER 30, 2016 2017 2016 Total Fund Balances of Governmental Funds 9,013,599 $ $ 10,930,631 Amounts Reported for Governmental Activities in the Statement of Net Position are Different Because: Capital assets used in governmental activities are not financial resources and, therefore, are not reported in the funds: Total Capital Assets (Accumulated Depreciation) 67,193,744 $ (22,397,170) 44,796,574 $ 63,787,229 (21,327,563) 42,459,666 Nonexchange receivables that do not provide current financial resources and are not reported revenues in the funds. 64,939 102,723 Certain pension related amounts are being deferred and amortized over a period of years or are being deferred as contributions to the pension plan made after the measurement date: Deferred Outflows Related to Pensions Deferred Inflows Related to Pensions 2,653,701 (188,855) 2,464,846 3,578,578 (224,998) 3,353,580 Long-term liabilities are not due and payable in the current period and, therefore, are not reported in the governmental funds: Compensated Absences Other Postemployment Benefits Obligation Net Pension Liability (685,458) (222,196) (7,258,426) (8,166,080) (677,465) (203,704) (8,288,194) (9,169,363) Total Net Position of Governmental Activities $ 48,173,878 $ 47,677,237 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, 2017, WITH COMPARATIVE TOTALS FOR THE YEAR ENDED SEPTEMBER 30, 2016 2017 Nonmajor Totals Governmental Governmental 2016 General Funds Funds Totals Revenues Property Taxes 4,730,476 $ 0$ 4,730,476 $ 4,482,739 $ Nonproperty Taxes 1,072,553 1,414,994 2,487,547 2,521,240 Permits, Fees, and Special Assessments 811,871 0 811,871 848,308 Intergovernmental Revenues 1,834,425 725,124 2,559,549 2,387,469 Fines and Forfeitures 111,427 28,529 139,956 75,922 Charges for Services 774,764 0 774,764 786,053 Investment Earnings (Loss) 31,436 14,621 46,057 167,994 Miscellaneous Revenues 78,493 32,586 111,079 69,629 Interfund Charges 1,522,863 0 1,522,863 1,550,320 Total Revenues 10,968,308 2,215,854 13,184,162 12,889,674 Expenditures Current: General Government 3,363,862 0 3,363,862 3,221,836 Public Safety 5,669,663 168,426 5,838,089 5,434,522 Road Maintenance and Construction 1,399,598 400,000 1,799,598 1,727,849 Parks and Recreation 1,170,861 0 1,170,861 1,109,060 Conservation and Resource Management 0 18,765 18,765 0 Capital Outlay 495,782 2,974,682 3,470,464 2,765,065 (Total Expenditures) (12,099,766) (3,561,873) (15,661,639) (14,258,332) (Deficiency) of Revenues (Under) Expenditures (1,131,458) (1,346,019) (2,477,477) (1,368,658) Other Financing Sources (Uses) Transfers in 1,330,445 349,225 1,679,670 2,186,174 Transfers (out) (54,225) (1,065,000) (1,119,225) (1,335,350) Total Other Financing Sources (Uses) 1,276,220 (715,775) 560,445 850,824 Net Change in Fund Balances 144,762 (2,061,794) (1,917,032) (517,834) Fund Balances, Beginning of Year 7,177,057 3,753,574 10,930,631 11,448,465 Fund Balances, End of Year 7,321,819 $ 1,691,780 $ 9,013,599 $ 10,930,631 $ 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 ACTIVITIES FOR THE YEAR ENDED SEPTEMBER 30, 2017, WITH COMPARATIVE TOTALS FOR THE YEAR ENDED SEPTEMBER 30, 2016 2017 2016 Net Change in Fund Balances - Total Governmental Funds $ (1,917,032) $ (517,834) 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 Donated Infrastructure (Current Year Depreciation) 3,470,464 $ 2,765,065 $ 0 1,178,893 (1,133,555) (1,026,427) 2,336,909 2,917,531 Certain nonexchange revenues reported in the statement of activities are not considered current financial resources and, therefore, are not reported as revenue in the governmental funds. (37,784) 102,723 The changes in net pension liability and pension related deferred outflows and inflows of resources result in an adjustment to pension expense in the statement of activities, but not in the governmental fund statements. 141,034 (74,055) 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: Compensated Absences Other Postemployment Benefits Obligation (7,992) (18,494) (26,486) (104,233) (25,203) (129,436) Change in Net Position - Governmental Activities 496,641 $ $ 2,298,929 See accompanying notes. 6 CITY OF ATLANTIC BEACH, FLORIDA STATEMENT OF NET POSITION PROPRIETARY FUNDS SEPTEMBER 30, 2017, WITH COMPARATIVE TOTALS FOR SEPTEMBER 30, 2016 2017 Business-type Activities - Enterprise Funds Building Code 2016 Utility Stormwater Sanitation Enforcement Totals Totals Assets Current Assets: Equity in Pooled Cash and Investments $ 5,565,389 2,087,483 $ 158,924 $ 549,579 $ $ 8,361,375 $ 8,581,809 Accounts Receivable - Net 532,407 54,682 77,797 0 664,886 611,071 Due from Other Governments 35,244 0 315,598 0 350,842 35,244 Inventories 12,827 0 0 0 12,827 12,827 Notes Receivable - Current 15,759 0 0 0 15,759 15,759 Restricted Assets: Equity in Pooled Cash and Cash Equivalents 2,548,752 0 0 0 2,548,752 1,984,814 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 65,493,352 18,562,567 0 0 84,055,919 83,075,473 Equipment 2,055,780 339,003 189,877 83,269 2,667,929 2,401,082 Intangibles - Easements and Computer Software 226,394 0 0 18,315 244,709 244,709 (Accumulated Depreciation and Amortization) (44,148,098) (9,688,741) (184,446) (64,534) (54,085,819) (51,390,230) Construction in Progress 1,129,063 278,824 0 0 1,407,887 740,411 Notes Receivable - Noncurrent 119,321 0 0 0 119,321 123,346 Total Assets 38,692,073 12,540,337 557,750 586,629 52,376,789 52,448,717 Deferred Outflows of Resources Unamortized Refunding Loss 751,285 112,261 0 0 863,546 971,489 Pension Related 815,362 75,165 48,718 67,620 1,006,865 1,164,708 Total Deferred Outflows of Resources 1,566,647 187,426 48,718 67,620 1,870,411 2,136,197 See accompanying notes. 7 CITY OF ATLANTIC BEACH, FLORIDA STATEMENT OF NET POSITION PROPRIETARY FUNDS SEPTEMBER 30, 2017, WITH COMPARATIVE TOTALS FOR SEPTEMBER 30, 2016 (Concluded) 2017 Business-type Activities - Enterprise Funds Building Code 2016 Utility Stormwater Sanitation Enforcement Totals Totals Liabilities Current Liabilities Payable from Current Assets: Accounts Payable and Other Current Liabilities 198,719 $ 131,205 $ 375,160 $ 6,569 $ $ 711,653 $ 549,903 Construction Retainages Payable 6,255 11,383 0 0 17,638 6,255 Due to Other Governments 6,844 0 0 8,037 14,881 10,934 Unearned Revenue 103,897 29,898 61,490 0 195,285 181,993 Compensated Absences - Current 127,624 3,525 0 15,365 146,514 106,084 Current Liabilities Payable from Restricted Assets: Current Portion of Bonds Payable 1,030,950 154,050 0 0 1,185,000 1,160,000 Current Portion of Loans Payable 358,258 0 0 0 358,258 347,412 Accrued Interest Payable 207,872 19,492 0 0 227,364 235,654 Customer Deposits 653,012 0 0 0 653,012 609,753 Noncurrent Liabilities: Due in More Than One Year 15,446,200 1,368,250 0 0 16,814,450 18,357,709 Compensated Absences - Noncurrent 87,235 2,410 0 10,503 100,148 128,226 Other Postemployment Benefits Obligation 53,934 12,162 0 11,265 77,361 67,974 Net Pension Liability 2,085,372 192,242 124,601 172,944 2,575,159 2,401,103 Total Liabilities 20,366,172 1,924,617 561,251 224,683 23,076,723 24,163,000 Deferred Inflows of Resources Pension Related 23,039 2,124 1,377 1,911 28,451 49,180 Net Position Net Investment in Capital Assets 13,570,379 8,968,641 5,431 37,050 22,581,501 22,190,215 Restricted for: Renewal and Replacement 250,000 0 0 0 250,000 250,000 Debt Service 401,046 0 0 0 401,046 390,038 System Development Fees 1,244,694 0 0 0 1,244,694 735,023 Building Code Enforcement 0 0 0 390,605 390,605 329,553 Unrestricted 4,403,390 1,832,381 38,409 0 6,274,180 6,477,905 Total Net Position 19,869,509 $ 10,801,022 $ 43,840 $ 427,655 $ $ 31,142,026 $ 30,372,734 See accompanying notes. 8 CITY OF ATLANTIC BEACH, FLORIDA STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION PROPRIETARY FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2017, WITH COMPARATIVE TOTALS FOR THE YEAR ENDED SEPTEMBER 30, 2016 2017 Business-type Activities - Enterprise Funds Building Code 2016 Utility Stormwater Sanitation Enforcement Totals Totals Operating Revenues Charges for Services: Customer Charges $ 8,324,682 883,473 $ 1,824,594 $ 505,246 $ $ 11,537,995 $ 11,361,102 Franchise Permits 0 0 4,500 0 4,500 8,500 Miscellaneous Revenues 65,608 0 0 0 65,608 63,299 Total Operating Revenues 8,390,290 883,473 1,829,094 505,246 11,608,103 11,432,901 Operating Expenses Personal Services 2,102,206 321,057 113,408 344,688 2,881,359 2,668,433 Contractual Services 551,554 139,057 2,042,524 21,317 2,754,452 2,097,172 Supplies 292,616 48,183 0 4,273 345,072 351,357 Repairs and Maintenance 133,608 22,283 5,595 5,475 166,961 155,160 Utilities 353,574 0 0 0 353,574 360,485 Depreciation 2,171,727 518,117 1,543 4,202 2,695,589 2,338,587 Intergovernmental Charges 1,093,219 150,033 135,897 37,498 1,416,647 1,447,424 Other Expenses 364,933 47,367 54 9,513 421,867 229,513 (Total Operating Expenses) (7,063,437) (1,246,097) (2,299,021) (426,966) (11,035,521) (9,648,131) Operating Income (Loss) 1,326,853 (362,624) (469,927) 78,280 572,582 1,784,770 Nonoperating Revenues (Expenses) Connection Charges 49,165 0 0 0 49,165 38,663 Intergovernmental 353,245 0 315,598 0 668,843 0 Franchise Fees 0 0 59,733 0 59,733 66,114 Investment Earnings (Loss) 38,736 8,753 2,035 1,488 51,012 137,638 Interest Expense (455,259) (37,226) 0 0 (492,485) (520,676) Amortization of Refunding Loss (93,910) (14,033) 0 0 (107,943) (107,943) Total Nonoperating Revenues (Expenses) (108,023) (42,506) 377,366 1,488 228,325 (386,204) See accompanying notes. 9 CITY OF ATLANTIC BEACH, FLORIDA STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION PROPRIETARY FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2017, WITH COMPARATIVE TOTALS FOR THE YEAR ENDED SEPTEMBER 30, 2016 (Concluded) 2017 Income (Loss) Before Contributions and Transfers $ Utility 1,218,830 Building Code Stormwater Sanitation Enforcement (405,130) $ (92,561) $ 79,768 $ Business-type Activities - Enterprise Funds $ Totals 800,907 $ 2016 Totals 1,398,566 Capital Contributions and Grants and Transfers Capital Contributions and Grants Transfers in Transfers (out) Total Capital Contributions and Grants and Transfers 528,830 0 (623,819) (94,989) 0 300,000 0 300,000 0 0 (236,626) (236,626) 0 0 0 0 528,830 300,000 (860,445) (31,615) 3,828,433 0 (850,824) 2,977,609 Change in Net Position 1,123,841 (105,130) (329,187) 79,768 769,292 4,376,175 Net Position, Beginning of Year 18,745,668 10,906,152 373,027 347,887 30,372,734 25,996,559 Net Position, End of Year $ 19,869,509 10,801,022 $ 43,840 $ 427,655 $ $ 31,142,026 $ 30,372,734 See accompanying notes. 10 CITY OF ATLANTIC BEACH, FLORIDA STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2017, WITH COMPARATIVE TOTALS FOR THE YEAR ENDED SEPTEMBER 30, 2016 2017 Business-type Activities - Enterprise Funds Building Code 2016 Utility Stormwater Sanitation Enforcement Totals Totals Cash Flows from Operating Activities Cash Received from Customers $ 8,417,208 878,425 $ 1,821,272 $ 505,246 $ $ 11,622,151 $ 11,397,858 Cash Paid to Suppliers (1,752,089) (164,431) (1,904,785) (47,487) (3,868,792) (3,022,235) Cash Paid to Employees (1,891,185) (249,532) (49,198) (358,535) (2,548,450) (2,515,156) Cash Paid for Interfund Services (1,093,219) (150,033) (135,897) (37,498) (1,416,647) (1,447,424) Net Cash Provided by (Used in) Operating Activities 3,680,715 314,429 (268,608) 61,726 3,788,262 4,413,043 Cash Flows from Noncapital Financing Activities Connection Charges 31,265 0 59,733 0 90,998 104,777 Transfers in 0 300,000 0 0 300,000 0 Transfers (out) (623,819) 0 (236,626) 0 (860,445) (850,824) Net Cash Provided by (Used in) Noncapital Financing Activities (592,554) 300,000 (176,893) 0 (469,447) (746,047) Capital and Related Financing Activities Capital Grants 899,975 0 0 0 899,975 454,198 Fixed Asset Additions (1,669,806) (222,045) 0 (22,917) (1,914,768) (441,189) Principal Payments on Long-term Debt (1,356,613) (150,800) 0 0 (1,507,413) (1,426,896) Interest Paid (471,172) (37,226) 0 0 (508,398) (537,506) Net Cash Provided by (Used in) Capital and Related Financing Activities (2,597,616) (410,071) 0 (22,917) (3,030,604) (1,951,393) See accompanying notes. 11 CITY OF ATLANTIC BEACH, FLORIDA STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2017, WITH COMPARATIVE TOTALS FOR THE YEAR ENDED SEPTEMBER 30, 2016 (Continued) 2017 Business-type Activities - Enterprise Funds Building Code 2016 Utility Stormwater Sanitation Enforcement Totals Totals Cash Flows from Investing Activities Sale (Purchase) of Investments (435,587) $ (173,663) $ 354,804 $ (36,491) $ $ (290,937) $ (1,514,070) Interest Received 38,736 8,752 2,035 5,769 55,292 137,412 Net Cash Provided by (Used in) Investing Activities (396,851) (164,911) 356,839 (30,722) (235,645) (1,376,658) Net Increase (Decrease) in Cash and Cash Equivalents 93,694 39,447 (88,662) 8,087 52,566 338,945 Cash and Cash Equivalents, Beginning of Year 1,512,477 373,764 120,121 100,701 2,107,063 1,768,118 Cash and Cash Equivalents, End of Year 1,606,171 $ 413,211 $ 31,459 $ 108,788 $ $ 2,159,629 $ 2,107,063 Reconciliation of Operating Income (Loss) to Net Cash Provided by (Used in) Operating Activities Operating Income (Loss) 1,326,853 $ (362,624) $ (469,927) $ 78,280 $ $ 572,582 $ 1,784,770 Adjustments to Reconcile Operating Income (Loss) to Net Cash Provided by (Used in) Operating Activities: Depreciation 2,171,727 518,118 1,543 4,202 2,695,590 2,338,587 Change in Assets and Liabilities: Accounts Receivable (36,920) (5,048) (7,822) 0 (49,790) (61,605) Due from/to other Governments (335) 0 0 0 (335) 0 Prepaids 0 0 0 0 0 16,105 Compensated Absences (541) 5,463 0 0 4,922 26,488 OPEB Obligation 5,690 1,421 0 2,276 9,387 8,176 Accounts Payable and Accrued Liabilities (55,804) 92,458 143,388 (6,909) 173,133 155,347 Customer Deposits 50,881 0 0 7,430 58,311 22,859 Unearned Revenue 13,292 0 0 0 13,292 3,703 Change in Deferred Outflow 171,684 (26,095) (36,876) 49,130 157,843 (161,507) Change in Deferred Inflow (20,272) 334 863 (1,654) (20,729) 49,180 Change in Net Pension Liability 54,460 90,402 100,223 (71,029) 174,056 230,940 Net Cash Provided by (Used in) Operating Activities 3,680,715 $ 314,429 $ (268,608) $ 61,726 $ $ 3,788,262 $ 4,413,043 See accompanying notes. 12 CITY OF ATLANTIC BEACH, FLORIDA STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2017, WITH COMPARATIVE TOTALS FOR THE YEAR ENDED SEPTEMBER 30, 2016 (Concluded) 2017 Reconciliation of Cash and Cash Equivalents to Balance Sheet Utility Building Code Stormwater Sanitation Enforcement Business-type Activities - Enterprise Funds Totals 2016 Totals Equity in Pooled Cash and Cash Equivalents in Current Assets Restricted Equity in Pooled Cash and Cash Equivalents Equity in Pooled Investments Total Cash and Cash Equivalents $ $ 5,565,389 2,548,752 (6,507,970) 1,606,171 2,087,483 $ 158,924 $ 549,579 $ 0 0 0 (1,674,272) (127,465) (440,791) 413,211 $ 31,459 $ 108,788 $ $ $ 8,361,375 2,548,752 (8,750,498) 2,159,629 $ $ 8,581,809 1,984,814 (8,459,560) 2,107,063 Supplemental Disclosure of Noncash Activities Amortization of Refunding Loss $ 93,910 14,033 $ $ 0 0$ $ 107,943 $ 107,943 Contributed Assets $ 0 $ 0 $ 0 $ 0 $ 0 $ 3,374,332 See accompanying notes. 13 CITY OF ATLANTIC BEACH, FLORIDA STATEMENT OF FIDUCIARY NET POSITION SEPTEMBER 30, 2017, WITH COMPARATIVE TOTALS FOR SEPTEMBER 30, 2016 Pension Trust Funds 2017 2016 Assets Cash and Cash Equivalents 566,377 $ $ 358,042 Money Markets 2,167,967 1,975,324 Due from Other Governments 0 112,972 Due from City 8,500 0 Interest Receivable 31,813 17,821 Investments at Fair Value 26,318,283 23,535,349 Total Assets 29,092,940 25,999,508 Liabilities Accounts Payable and Accrued Liabilities 37,343 0 Total Liabilities 37,343 0 Net Position Net Position Restricted for Pensions 29,055,597 $ $ 25,999,508 See accompanying notes. 14 CITY OF ATLANTIC BEACH, FLORIDA STATEMENT OF CHANGES IN FIDUCIARY NET POSITION FOR THE YEAR ENDED SEPTEMBER 30, 2017, WITH COMPARATIVE TOTALS FOR THE YEAR ENDED SEPTEMBER 30, 2016 Pension Trust Funds 2017 2016 Additions Contributions: Employer 2,121,100 $ 1,841,817 $ Employees 253,576 245,218 State of Florida 0 112,972 Total Contributions 2,374,676 2,200,007 Net Increase in Fair Value of Investments 2,334,700 2,032,332 Interest and Dividends 509,548 390,564 Miscellaneous Revenues 8,500 0 Total Additions 5,227,424 4,622,903 Deductions Refunds of Contributions 35,562 55,569 Benefits 1,927,417 1,906,700 Investment Expenses 101,608 100,158 Administrative Expenses 106,748 62,428 Total Deductions 2,171,335 2,124,855 Change in Net Position 3,056,089 2,498,048 Net Position, Beginning of Year 25,999,508 23,501,460 Net Position, End of Year 29,055,597 $ 25,999,508 $ See accompanying notes. 15 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2017 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, conservation and resource management, sanitation, stormwater, reuse, planning, zoning, water and sewer, and general government services. In accordance with the Codification of Governmental and Financial Reporting Standards, 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. The Governmental Accounting Standards Board (GASB) has set forth criteria for consideration in determining financial accountability. These criteria include appointing a majority of an organization’s governing body and: (1) the ability of the City to impose its will on that organization; or (2) the potential for that organization to provide specific benefits to or impose specific financial burdens on the City. Other considerations are whether the organization is legally separate, whether the City holds the corporate powers of the organization, and whether there is fiscal dependency by the organization on the City. 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 position 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, 2017 (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. The major exception to this general rule is 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 position is reported as one of three categories: (1) Net Investment in Capital Assets; (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, other postemployment benefits, pension expense, 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. 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, 2017 (Continued) Note 1 -Summary of Significant Accounting Policies (Continued) Fund Financial Statements (Concluded) 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, sewer collection and treatment systems, and reuse system. ■ 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. ■ 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. Fund Balance Classification Fund Balance is reported in five components – nonspendable, restricted, committed, assigned, and unassigned: ■ Nonspendable Fund Balance—amounts that are not in spendable form (such as inventory) or are required to be maintained intact. ■ Restricted Fund Balance—amounts constrained to specific purposes by their providers (such as grantors, bondholders, and higher levels of government), through constitutional provisions, or by enabling legislation. 18 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2017 (Continued) Note 1 -Summary of Significant Accounting Policies (Continued) Fund Balance Classification (Concluded) ■ Committed Fund Balance—amounts constrained to specific purposes by the City itself, using its highest level of decision-making authority (i.e., ordinance passed by City Commission). To be reported as committed, amounts cannot be used for any other purpose unless the City takes the same highest level action to remove or change the constraint. ■ Assigned Fund Balance—amounts the City intends to use for a specific purpose. Intent can be expressed by the City Commission or by an official or body to which the City Commission delegates the authority. ■ Unassigned Fund Balance—amounts that are available for any purpose. Positive amounts are reported only in the General Fund. When both restricted and unrestricted resources are available for use, it is the City’s practice to use restricted resources first, then unrestricted resources as they are needed. When unrestricted resources (committed, assigned, and unassigned) are available for use in any governmental fund, it is the City’s practice to use committed resources first, then assigned, and then unassigned as needed. The City Commission establishes (and modifies or rescinds) fund balance commitments by passage of an ordinance. This is typically done through adoption and amendment of the budget. A fund balance commitment is further indicated in the budget document as a designation or commitment of the fund. Assigned fund balance is established by City Commission through adoption or amendment of the budget as intended for specific purpose (such as the purchase of fixed assets, construction, debt service, or for other purposes). In the General Fund, the City strives to maintain a fund balance operating reserve of approximately 25% of the subsequent year’s budgeted General Fund payroll and operating expenditures. Proprietary Funds 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. 19 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2017 (Continued) Note 1 -Summary of Significant Accounting Policies (Continued) Budgets (Concluded) Budgets are adopted for all governmental funds (general, special revenue, 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. Investment earnings and losses on the pooled cash and investments are 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. 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 considered nonspendable fund balance, 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 in the City’s funds, it is the City’s policy to use restricted resources first, then unrestricted resources as they are needed. 20 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2017 (Continued) Note 1 -Summary of Significant Accounting Policies (Continued) Capital Assets Capital assets, which include property, plant and 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. 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 position. Bond premiums, discounts, and refunding losses are deferred and amortized over the life of the bonds using the effective interest method. Bond issuance costs are expensed when incurred with the exception of bond insurance, which is 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. 21 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2017 (Continued) Note 1 -Summary of Significant Accounting Policies (Continued) Deferred Inflows/Outflows of Resources Deferred inflows of resources reported on applicable governmental fund types represent revenues, which are measureable but not available in accordance with the modified accrual basis of accounting. The deferred inflows will be recognized as revenue in the fiscal year they are earned or become available. Deferred outflows of resources represent consumption of net position that is applicable to a future reporting period. Deferred outflows have a positive effect on net position, similar to assets. Deferred inflows of resources represent the acquisition of net position that is applicable to a future reporting period. Deferred inflows have a negative effect on net position, similar to liabilities. Unamortized Refunding Loss—the difference between the net reacquisition cost of new debt and the net carrying amount of the old debt is recorded as a deferred outflow of resources. The unamortized refunding loss is recognized as expense over the remaining term of the new debt using the straight-line method. Pension Related—Pension Related Deferred Inflows and Outflows represent the difference between expected and actual experience with regard to economic or demographic factors and changes to assumptions in the measurement of total pension liability, and the differences between expected and actual earnings on pension plan investments. These amounts are reported as deferred inflows or outflows of resources, to be recognized in expense over time. Also included in deferred outflows are amounts contributed to the pension plans subsequent to the measurement date. See Note 7 for information on Pension Related Deferred Inflows and Outflows. Revenue Recognition Utility revenues are reported on the accrual basis in the accompanying financial statements. 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 unearned 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 property taxes are recorded as received, in cash, which approximates taxes levied less discounts for the current fiscal year. 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. 22 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2017 (Continued) Note 1 -Summary of Significant Accounting Policies (Concluded) 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, 2016, from which the summarized information was derived. Future GASB Pronouncement Implementations GASB Statement No. 75 (GASB 75), Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, replaces the requirements of Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions, as amended, and Statement No. 57, OPEB Measurements by Agent Employers and Agent Multi- Employer Plans, for Other Postemployment Benefits (OPEB). GASB 75 establishes new accounting and financial reporting requirements for governments whose employees are provided with OPEB, including the recognition and measurement of liabilities, deferred outflows of resources, deferred inflows of resources, and expenses. For each qualifying plan providing postemployment benefits other than pensions, employers are required to report the difference between the actuarial OPEB liability and the related plan’s fiduciary net position as the net OPEB liability on the statement of net position. Previously, a liability was recognized only to the extent that contributions made to each plan were exceeded by the actuarially calculated contributions for those plans. Additionally, GASB 75 sets forth note disclosure and required supplementary disclosure requirements for defined contribution OPEB. The City is currently evaluating the impact that adoption of this Statement will have on its financial statements. GASB 75 is effective for fiscal years beginning after June 15, 2017. 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, 2017, the carrying amount of cash on hand and on deposit with banks, including interest-bearing deposits was $4,405,204, and the related bank balance was $4,865,546. 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 (the 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 25% to 125% depending upon the depository’s financial condition and establishment period. All collateral must be deposited with an approved financial institution. 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 elected to adopt a written investment policy as authorized under Florida Statutes. 23 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2017 (Continued) Note 2 -Cash and Investments (Continued) Under the City’s investment policies, general investments’ activities are authorized to invest in obligations of the U.S. Treasury, demand deposits, U.S. government agency securities, certificates of deposit, U.S. government sponsored enterprises, government and corporate fixed income mutual funds, corporate notes and bonds, and local government investment pools. Pension trust funds can invest in the aforementioned and, additionally, authorized investments include domestic and foreign equity securities, domestic and foreign fixed income securities, and cash equivalent securities. Following are the investments, credit ratings, and maturities of the City’s governmental and business-type activities at September 30, 2017: Investment Maturities Less More Investment Fair Than 1-5 6-10 Than Type Value 1 Year Years Years 10 Years Total Money Market Funds/Cash $ 82,734 $ 82,734 $ 0 $ 0 $ 0 $ 82,734 Corporate Bonds 4,928,188 1,089,315 3,640,861 198,012 0 4,928,188 U.S. Government Securities 10,106,174 1,045,606 9,060,568 0 0 10,106,174 Federal Agency Securities 1,103,947 0 560,718 543,229 0 1,103,947 Florida PRIME 23,183 23,183 0 0 0 23,183 Total $ 16,244,226 $ 2,240,838 $ 13,262,147 $ 741,241 $ 0 $ 16,244,226 Moody’s Percent Investment Credit of Type Rating Total U.S. Government Securities Aaa 54.57% Corporate Bonds Aaa 0.32% Corporate Bonds Aa1 0.37% Corporate Bonds Aa2 1.09% Corporate Bonds Aa3 2.23% Corporate Bonds A1 3.48% Corporate Bonds A2 3.22% Corporate Bonds A3 5.88% Corporate Bonds Baa1 7.09% Corporate Bonds Baa2 2.21% Corporate Bonds Baa3 0.19% Corporate Bonds NR 4.31% U.S. Government Securities NR 7.73% Federal Agencies NR 6.81% Cash and Money Market NR 0.50% 24 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2017 (Continued) Note 2 -Cash and Investments (Continued) Listed below are the investments and maturities in the City’s pension trust funds at September 30, 2017: Investment Maturities Investment Fair Less Than 1-5 6-10 More Than Type Value* 1 Year Years Years 10 Years Total Cash Deposits and Money Markets $ 2,167,967 $ 2,167,967 $ 0 $ 0 $ 0 $ 2,167,967 Common Stocks 15,655,372 15,655,372 0 0 0 15,655,372 Corporate Bonds 4,006,091 251,459 2,711,912 1,042,720 0 4,006,091 Mutual Funds 3,884,291 3,884,291 0 0 0 3,884,291 Government and GSE Bonds 2,261,319 0 1,611,430 368,106 281,783 2,261,319 ICMA Self Directed 543,023 543,023 0 0 0 543,023 Total $ 28,518,063 $ 22,502,112 $ 4,323,342 $ 1,410,826 $ 281,783 $ 28,518,063 * Fair value balances reported include interest receivable. The total pension investment balances of the City at September 30, 2017, are comprised of the following items: Moody’s Percent Investment Credit of Type Rating Total Corporate Bonds Aaa 1.48% Corporate Bonds Aa1 0.45% Corporate Bonds Aa3 0.44% Corporate Bonds A1 1.34% Corporate Bonds A2 0.45% Corporate Bonds A3 1.78% Corporate Bonds Baa1 3.58% Corporate Bonds Baa2 1.78% Corporate Bonds Baa3 2.75% Government and GSE Bonds Aaa 6.63% Federal MBS Pool NR 1.30% Mutual Funds NR 13.62% Stocks NR 54.90% Cash and Money Market NR 7.60% ICMA Self Directed NR 1.90% Credit Risk—It is the City’s Police Officers’ Retirement System Trust Fund’s and the City’s General Employees’ Retirement System Trust Fund’s investment policies to, at a minimum, limit 80% of the total fixed income portfolio to those that are rated investment grade of higher. The Police Officers’ Retirement System Trust Fund’s investment policy defines investment grade as “BBB”, Baa”, or their equivalent. Also, no more than 10% (at cost) of the fixed income portfolio total value can be invested in the securities of any single corporate issuer. The maximum allocation to International Equities is 25%. 25 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2017 (Continued) Note 2 -Cash and Investments (Continued) 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 the possession 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. Fair Value Measurements The fair value hierarchy categorizes the inputs to valuation techniques used to measure fair value into three levels: Level 1 Inputs―are quoted prices (unadjusted) for identical assets or liabilities in active markets that a government can access at the measurement date. Level 2 Inputs―are inputs other than quoted prices included within Level 1 that are observable for an asset or liability, either directly or indirectly. Level 3 Inputs―are unobservable inputs for an asset or liability. The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. If a price for an identical asset or liability is not observable, a government should measure fair value using another valuation technique that maximizes the use of relevant observable inputs and minimizes the use of unobservable inputs. The City’s investments are measured at fair value on a recurring basis. Fair value measurements are categorized based on the valuation inputs used to measure an asset’s fair value in the hierarchy described above. The fair value measurements for the City’s operating investments are as follows at September 30, 2017: 26 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2017 (Continued) Note 2 -Cash and Investments (Concluded) Fair Value Measurements (Concluded) Fai r Val ue Measurements Usi ng Quoted Pri ces i n Si gni fi cant Other Si gni fi cant Acti ve Markets for Oberservabl e Unobservabl e Identi cal Assets Inputs Inputs Investments by Fai r Val ue Level Amount (Level 1) (Level 2) (Level 3) Ci ty Investments: Corporate Bonds $ 4,928,188 $ 0 $ 4,928,188 $ 0 U.S. Government Securities 10,106,174 10,106,174 0 0 Federal Agency Securities 1,103,947 0 1,103,947 0 Subtotal - City Investments 16,138,309 10,106,174 6,032,135 0 G eneral Empl oyees' Pensi on Pl an: U.S. Treasury Obligations and Federal Agency Securities 1,562,662 1,279,438 283,224 0 Corporate Bonds 2,760,186 0 2,760,186 0 Mutual Funds 2,131,975 2,131,975 0 0 Equities 10,289,648 10,289,648 0 0 ICMA Self Directed 55,232 55,232 0 0 Subtotal - General Employees' Pension Plan 16,799,703 13,756,293 3,043,410 0 Pol i ce Offi cers' Pensi on Pl an: U.S. Treasury Obligations and Federal Agency Securities 698,658 572,433 126,225 0 Corporate Bonds 1,245,905 0 1,245,905 0 Mutual Funds 1,752,315 1,752,315 0 0 Equities 5,365,724 5,365,724 0 0 ICMA Self Directed 487,791 487,791 0 0 Subtotal - Police Officers' Pension Plan 9,550,393 8,178,263 1,372,130 0 Total Investments Measured at Fai r Val ue $ 42,488,405 $ 32,040,730 $ 10,447,675 $ 0 Weighted Inves tments Meas ured at the Net As s et Average Credit Value (NAV) Amount Maturity Ris k Governmental Funds: State Board of Administration (SBA): Florida Prime $ 23,183 50 Days AAAm (S&P) Restricted cash and investments at September 30, 2017, in the enterprise funds follows: Renewal System Enterprise Customer and Debt Development Funds Deposits Replacement Service Fees Totals Utility Fund $ 653,012 $ 250,000 $ 401,046 $ 1,244,694 $ 2,548,752 Note 3 -Receivables Receivables, net of the allowance for doubtful accounts at September 30, 2017, consist of the following: 27 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2017 (Continued) Note 3 -Receivables (Concluded) Less Total Allowance Accounts Accounts for Doubtful Receivable Fund Receivable Accounts Net General $ 651 $ 0 $ 651 Utility 552,339 (19,932) 532,407 Stormwater 54,682 0 54,682 Sanitation 88,504 (10,707) 77,797 Total $ 696,176 $ (30,639) $ 665,537 Included in accounts receivable are $221,283 of water and sewer revenues earned, but not billed as of September 30, 2017. Note 4 -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, 2017: Notes Receivable $ 135,080 (Current Portion) (15,759) Total Notes Receivable -Noncurrent $ 119,321 Note 5 -Capital Assets Capital asset activity for the fiscal year ended September 30, 2017, is as follows: Beginning Ending Balance Increases (Decreases) Balance Governmental Activities Capital Assets Not Being Depreciated: Land $ 10,563,572 $ 0 $ 0 $ 10,563,572 Construction in Progress 2,557,045 2,957,114 (4,875,478) 638,681 Total Capital Assets Not Being Depreciated 13,120,617 2,957,114 (4,875,478) 11,202,253 Capital Assets Being Depreciated: Buildings 4,574,646 4,875,478 0 9,450,124 Intangible Assets 409,797 18,555 0 428,352 Improvements Other Than Buildings 41,339,136 0 0 41,339,136 Machinery and Equipment 4,343,033 494,794 (63,948) 4,773,879 Total Capital Assets Being Depreciated 50,666,612 5,388,827 (63,948) 55,991,491 Less Accumulated Depreciation for: Buildings (2,095,496) (140,448) 0 (2,235,944) Intangible Assets (354,245) (12,127) 0 (366,372) Improvements Other Than Buildings (15,602,903) (683,140) 0 (16,286,043) Machinery and Equipment (3,274,919) (297,840) 63,948 (3,508,811) Total Accumulated Depreciation (21,327,563) (1,133,555) 63,948 (22,397,170) Total Capital Assets Being Depreciated, Net 29,339,049 4,255,272 0 33,594,321 Governmental Activities Capital Assets, Net $ 42,459,666 $ 7,212,386 $ (4,875,478) $ 44,796,574 28 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2017 (Continued) Note 5 -Capital Assets (Concluded) Beginning Ending Balance Increases (Decreases) Balance Business-type Activities Capital Assets Not Being Depreciated: Land $ 1,656,018 $ 0 $ 0 $ 1,656,018 Construction in Progress 740,411 1,301,344 (633,868) 1,407,887 Total Capital Assets Not Being Depreciated 2,396,429 1,301,344 (633,868) 3,063,905 Capital Assets Being Depreciated: Buildings 4,356,384 0 0 4,356,384 Intangible Assets 244,709 0 0 244,709 Improvements Other Than Buildings 83,075,472 980,447 0 84,055,919 Machinery and Equipment 2,401,083 266,846 0 2,667,929 Total Capital Assets Being Depreciated 90,077,648 1,247,293 0 91,324,941 Less Accumulated Depreciation for: Buildings (4,294,702) (8,812) 0 (4,303,514) Intangible Assets (30,663) (190) 0 (30,853) Improvements Other Than Buildings (45,180,927) (2,589,806) 0 (47,770,733) Machinery and Equipment (1,883,938) (96,781) 0 (1,980,719) Total Accumulated Depreciation (51,390,230) (2,695,589) 0 (54,085,819) Total Capital Assets Being Depreciated, Net 38,687,418 (1,448,296) 0 37,239,122 Business-type Activities Capital Assets, Net $ 41,083,847 $ (146,952) $ (633,868) $ 40,303,027 Depreciation expense was charged to functions/programs as follows: Governmental Activities General Governmental $ 170,629 Public Safety 177,406 Road Maintenance and Construction 555,827 Parks and Recreation 229,693 Total Depreciation Expense -Governmental Activities $ 1,133,555 Business-type Activities Utility $ 2,171,727 Stormwater 518,117 Sanitation 1,543 Building Code Enforcement 4,202 Total Depreciation Expense -Business-type Activities $ 2,695,589 Note 6 -Long-term Debt Revenue Bonds and Loans payable are comprised of the following: Revenue Bond Payable Utilities System Revenue Refunding Bond, Series 2014, Payable in Annual Installments of Principal and Semiannual Installments of Interest Through October 1, 2025, Bearing Coupon Rates of 2.330%, Secured Solely by a Pledge of and Lien on Net Water and Sewer System Revenues and Certain Other Revenues as Defined in the Bond Ordinance $ 11,710,000 29 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2017 (Continued) Note 6 -Long-term Debt (Continued) Loans Payable Florida Department of Environmental Protection, Disbursements and Capitalized Interest for a $773,030 State of Florida Revolving Loan #DW160710, Issued to Finance the Construction Costs to Replace a Well at Water Treatment Plant No. 1 and a Transmission Main on Ocean Boulevard, Payable in Semiannual Installments of Principal and Interest Through November 15, 2030, with Financing Rates of 2.71%, Secured Solely by a Pledge of Net Water and Sewer System Revenues, After Payment of all Yearly Payment Obligations on Account of the Senior Revenue Obligations, as Defined in the Loan Agreement $ 560,790 Florida Department of Environmental Protection, Disbursements, Service Fee, and Capitalized Interest for a Combined $9,368,576 State of Florida Revolving Loan #WW160700, Issued to Finance the Construction of Treatment and Transmission Facilities for the Buccaneer WWTP Phase-out Improvements and TMDL Compliance Program WWTP #1, Payable in Semiannual Installments of Principal and Interest Through May 15, 2032, with Financing Rates of 3.14% and 2.88%, Secured Solely by a Pledge of Net Water and Sewer System Revenues, After Payment of all Yearly Payment Obligations on Account of the Senior Revenue Obligations, as Defined in the Loan Agreement 6,086,918 Total Revenue Bond and Loans Payable $ 18,357,708 The annual requirements to amortize all revenue bonds and loans payable outstanding at September 30, 2017, are as follows: Business-type Activities Year Ending Long-term Debt September 30 Principal Interest Total 2018 $ 1,543,259 $ 462,611 $ 2,005,870 2019 1,584,443 423,466 2,007,909 2020 1,620,979 383,330 2,004,309 2021 1,657,875 342,251 2,000,126 2022 1,705,143 300,101 2,005,244 2023-2027 7,728,593 845,769 8,574,362 2028-2032 2,517,416 216,923 2,734,339 Total $ 18,357,708 $ 2,974,451 $ 21,332,159 Interest and amortization incurred during the year ended September 30, 2017, amounted to $492,485. Of the amount incurred, no interest was capitalized. The City is also required to maintain certain debt service coverage ratios in accordance with bond resolutions. As of September 30, 2017, and during the year then ended, the City was in compliance with those ratios. 30 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2017 (Continued) Note 6 -Long-term Debt (Continued) The following is a summary of the changes in long-term debt of the City for the year ended September 30, 2017: Balance Balance Due October 1, 2016 Additions Reductions September 30, 2017 Within One Year Governmental Activities Compensated Absences OPEB Obligation Net Pension Liability Total Governmental Activities ­ Long-term Liabilities $ $ 677,465 $ 203,704 8,288,194 9,169,363 $ 383,082 $ 18,492 0 401,574 $ (375,089) $ 0 (1,029,768) (1,404,857) $ 685,458 $ 222,196 7,258,426 8,166,080 $ 362,514 0 0 362,514 Business-type Activities State Revolving Fund Loans Revenue Bonds Payable Total Bonds/Loans Payable Compensated Absences OPEB Obligation Net Pension Liability Total Business-type Activities ­ Long-term Liabilities $ $ 6,995,121 $ 12,870,000 19,865,121 234,310 67,974 2,401,103 22,568,508 $ 0 $ 0 0 139,987 9,387 174,056 323,430 $ (347,413) $ (1,160,000) (1,507,413) (127,635) 0 0 (1,635,048) $ 6,647,708 $ 11,710,000 18,357,708 246,662 77,361 2,575,159 21,256,890 $ 358,258 1,185,000 1,543,258 146,514 0 0 1,689,772 Conduit Debt The City has issued Health Facility Revenue and Refunding 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, 2017, there are two series of Health Facility Revenue and Refunding Bonds outstanding, with an aggregate principal amount payable of $54,060,000. Pledged Revenue The City has pledged certain revenues to repay certain bonds and notes outstanding as of September 30, 2017. 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, 2017: 31 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2017 (Continued) Note 6 -Long-term Debt (Concluded) Pledged Revenue (Concluded) Outstanding Net Principal Estimated Principal Pledged Revenue and Interest Percentage and Pledged Description Revenue Received Paid Pledged Interest Through 2014 – Utility System Utility Refunding Bonds Revenues $ 3,586,481 $ 1,446,357 40.33% $ 12,979,499 2026 Florida Department of Environmental Utility Protection, SRF Loan Revenues 3,586,481 49,879 1.39% 673,364 2031 Florida Department of Environmental Utility Protection, SRF Loan Revenues 3,586,481 511,935 14.27% 7,679,297 2032 Note 7 -Defined Benefit Pension Plans Plan Descriptions The City maintains two separate single-employer defined benefit pension plans, one for police officers and one for general employees, which cover substantially all full-time City employees hired before September 1, 2008. The general employees’ defined benefit plan is closed to new entrants. Full-time general employees hired on or after September 1, 2008, are covered by the defined contribution plan disclosed in Note 8. The pension plans do not issue separate stand­ alone financial statements. Combining statements are included in the supplementary information to the basic financial statements. 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. The Plan is governed by a Retirement Plan Board appointed by the City Commission and comprised of five members, two of which will be eligible legal residents of the City, two of which will be general employees elected by the majority of general employees who are members of the Plan, and one of which will be elected by the other four members. Plan membership in the General Employees’ Retirement Plan as of September 30, 2017 and 2016, is as follows: September 30, September 30, Retirees and Beneficiaries 2017 2016 Inactive Plan Members or Beneficiaries Currently Receiving Benefits 69 67 Inactive Plan Members Entitled to but Not Yet Receiving Benefits 10 11 Active Plan Members 37 39 Total 116 117 32 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2017 (Continued) Note 7 -Defined Benefit Pension Plans (Continued) General Employees’ Retirement Plan (Continued) Plan Benefits Normal retirement is available upon the attainment of age sixty and the completion of five years of credited service. Early retirement is available with a reduced benefit upon the attainment of age fifty-five and the completion of five years of credited service. For members hired before April 24, 2005, the normal retirement benefit shall equal 2.85% of average final compensation for each year of credited service. For members hired on or after April 24, 2005, the normal retirement benefit shall equal 2.50% of average final compensation for each year of credited service. The Plan includes a deferred retirement option program (DROP) under which members eligible for normal retirement may have their monthly pension benefit credited to an account while continuing to be actively employed for up to five years. As of September 30, 2017, Plan net position included $55,232 of DROP account balances. Contributions The City is required to contribute at an actuarially determined rate (56.87%) of valuation payroll for the year ended September 30, 2017. City contributions to the Plan were $1,175,572 for the year ended September 30, 2017. Plan members are required to contribute 6.0% of their annual covered salary. Contribution requirements are established by City code, which may be amended by the City Commission. Measurement Date The City elected to use a measurement date to value the net pension liability and related deferred inflows and outflows as of September 30, 2016, one year prior to the reporting date. The City’s Pension Plans do not issue separate financial statements. Therefore, the disclosures required for the Plan as of September 30, 2017, are also included below: Total Pens ion Plan Fiduciary Net Pens ion Liability Net Pos ition Liability Balances at S eptember 30, 2015 20,788,102 $ 15,008,338 $ 5,779,764 $ Changes for the Year: Service Cos t 348,604 0 348,604 Interes t 1,437,296 0 1,437,296 Change of As s umptions 501,656 0 501,656 Difference Between Expected and Actual Experience of the Total Pens ion Liability 164,601 0 164,601 Contributions - Employer 0 1,112,344 (1,112,344) Contributions - State 0 0 0 Contributions - Employee 0 128,204 (128,204) Net Inves tment Income 0 1,515,746 (1,515,746) Benefit Payments , Including Refunds of Contributions (1,207,804) (1,207,804) 0 Adminis trative Expens es 0 (32,495) 32,495 Net Changes 1,244,353 1,515,995 (271,642) Balances at S eptember 30, 2016 22,032,455 $ 16,524,333 $ 5,508,122 $ 33 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2017 (Continued) Note 7 -Defined Benefit Pension Plans (Continued) General Employees’ Retirement Plan (Continued) Measurement Date (Concluded) General Employee’s Plan (Concluded) September 30, 2017 Total Pension Liability $ 22,894,177 Plan Net Position (18,243,134) Net Pension Liability $ 4,651,043 *Note: Plan Net Position per Fiduciary Statement of Net Position on page 61 is different than the Plan Net Position noted above primarily due to the booking of a $4,250 receivable from the City for a reimbursement. General Employees’ Retirement Plan Net Position as a Percentage of Total Pension Liability 79.68% For the year ended September 30, 2017, the City recognized total pension expense of $1,495,605. The City reported deferred outflows of resources and deferred inflows of resources related to the General Employees’ Pension Plan from the following sources: Deferred Outflows of Resources Changes in Assumptions $ 581,702 Difference Between Expected and Actual Experience 105,815 Net Difference Between Projected and Actual Earnings 290,538 Contributions Made Subsequent to Measurement Date 1,175,572 Total Deferred Outflows of Resources $ 2,153,627 Deferred Inflows of Resources Difference Between Expected and Actual Experience $ 60,854 Total Deferred Inflows of Resources $ 60,854 Contributions made after the measurement date (shown above) will be recognized as a reduction of net pension liability in the fiscal year ended September 30, 2018. Other amounts reported as deferred outflows of resources related to pensions will be recognized in pension expense as follows: Year Ending September 30 2018 2019 2020 2021 Total Amount $ 596,798 330,572 82,861 (93,030) $ 917,201 Plan Investments The Retirement Plan Board is responsible for establishing and amending the Plan’s investment policies. The Plan’s current investment policy gives the Board discretion to allocate assets with assistance of the Plan’s investment consultant. No formal targets are stated in the investment policy although the maximum allocation to international equities is 25%. The money-weighted rate of return on Plan investments, net of investment related expenses, was 10.92% and 10.18% for the years ended September 30, 2017 and 2016, respectively. 34 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2017 (Continued) Note 7 -Defined Benefit Pension Plans (Continued) General Employees’ Retirement Plan (Continued) Actuarial Assumptions The total pension liability was determined by actuarial valuations for the Plan as of September 30, 2016, rolled forward to September 30, 2017, using the following actuarial assumptions, applied to all periods included in the measurement: Inflation: 2.50% Salary Increases: Age based ranging from 5.00% - 13.50% Investment Rate of Return: 7.00%, net of investment expenses, including inflation Mortality: RP2000 Combined Health Participant Mortality Table (for preretirement mortality) and the RP­ 2000 Mortality Table for Annuitants (for postretirement mortality), with mortality improvements projects to all future years after 2000 using Scale BB. Date of Experience Study: Other significant actuarial assumptions used in the September 30, 2016 valuation were based on the results of an actuarial experience study (dated February 15, 2011) for the period October 1, 2001 - September 30, 2010 The long-term expected rate of return on pension plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense of 0.50% and inflation of 2.50%) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. Best estimates of arithmetic real rates of return for each major asset class included in the pension plan's target asset allocation (see the discussion of the pension plans’ investment policy) are summarized in the following table: Target Long-term Expected Asset Class Allocation Real Net Rate of Return US Large-Cap Growth Stocks 13% 7.4% US Large-Cap Value Stocks 12% 7.0% US Mid-Cap Growth Stocks 3% 8.6% US Mid-Cap Value Stocks 4% 7.8% US Mid-Cap Core Stocks 3% 6.9% US Small-Cap Growth Stocks 5% 9.6% US Small-Cap Value Stocks 5% 8.6% International Equities 5% 7.2% US Investment Grade Bonds 40% 1.8% Cash (US 90-day T-bill) 10% 0.2% 35 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2017 (Continued) Note 7 -Defined Benefit Pension Plans (Continued) General Employees’ Retirement Plan (Concluded) Actuarial Assumptions (Concluded) Discount rate. A single discount rate was used to measure the total pension liability. The single discount rate was based on the expected rate of return on Plan investments of 7.00%. The projection of cash flows used to determine the single discount rate assumed that plan member contributions will be made at the current contribution rate and that City contributions will be made at rates equal to the difference between actuarially determined contribution rates and the member rate. Based on those assumptions, the Plan’s fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on Plan investments (7.00%) was applied to all periods of projected benefit payments to determine the total pension liability. Sensitivity of the net pension liability to changes in the discount rate. The following presents the net pension liability of the City, calculated using the discount rate of 7.00%, as well as what the City's net pension liability would be if it were calculated using a discount rate that is 1-percentage-point lower (6.00%) or 1-percentage-point higher (8.00%) than the current rate: As of September 30, 2017: Net Pension Liability General Employees’ Pension Plan 1% Decrease (6.00%) $ 7,144,341 Current Discount Rate (7.00%) $ 4,651,043 1% Increase (8.00%) $ 2,517,190 As of September 30, 2016: Net Pension Liability General Employees’ Pension Plan 1% Decrease (6.00%) $ 7,969,619 Current Discount Rate (7.00%) $ 5,508,122 1% Increase (8.00%) $ 3,407,262 Police Officers’ Retirement Plan Plan Description The Police Officers’ Retirement Plan (Police Plan) provides retirement, disability, and death benefits to Police Plan members and their beneficiaries. The Police 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 Police Plan. The Policemen’s Pension Board of Trustees is appointed by the City Commission and comprised of five members, two of which will be eligible legal residents of the City, two of which will be police officers elected by the majority of police officers who are members of the Police Plan, and one of which will be elected by the other four trustees. Membership in the Police Officers’ Retirement Plan as of September 30, 2017 and 2016, is as follows: 36 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2017 (Continued) Note 7 -Defined Benefit Pension Plans (Continued) Police Officers’ Retirement Plan (Continued) Plan Description (Concluded) Retirees and Beneficiaries Inactive Plan Members or Beneficiaries Currently Receiving Benefits Inactive Plan Members Entitled to but Not Yet Receiving Benefits Active Plan Members Total September 30, 2017 22 4 23 49 September 30, 2016 21 5 23 49 Plan Benefits For members hired before January 1, 2013, normal retirement is available upon the attainment of age fifty and the completion of twenty years of credited service, the attainment of age fifty-five and the completion of ten years of credited service, the completion of twenty-five years of credited service regardless of age, or the attainment of age sixty and the completion of five years of credited service. For members hired on or after January 1, 2013, normal retirement is available upon the attainment of age fifty-five and the completion of ten years of credited service or the attainment of age fifty-two and the completion of twenty-five years of credited service. Early retirement is available with a reduced benefit upon the attainment of age fifty and the completion of ten years of credited service. For members hired before January 1, 2013, the normal retirement benefit shall equal 3.00% of average final compensation for each year of credited service. For members hired on or after January 1, 2013, the normal retirement benefit shall equal 2.00% of average final compensation for each year of credited service. The Police Plan includes a DROP under which members eligible for normal retirement may have their monthly pension benefit credited to an account while continuing to be actively employed for up to five years. As of September 30, 2017, Police Plan net position included $487,791 of DROP account balances. Contributions The City is required to contribute, at actuarially determined rates, if State of Florida contributions are not sufficient (combined City and State contributions were 58.39% of valuation payroll for the year ended September 30, 2017). City and State contributions to the Police Plan were $945,540 for the year ended September 30, 2017. Police Plan members are required to contribute 8.0% of their annual covered salary. Per City Code, the City Commission may amend established contribution requirements. Measurement Date The City elected to use a measurement date to value the net pension liability and related deferred inflows and outflows as of September 30, 2016, one year prior to the reporting date. The City’s Pension Plans do no issue separate financial statements. Therefore, the disclosures required for the Plan as of September 30, 2017, are also included below: 37 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2017 (Continued) Note 7 -Defined Benefit Pension Plans (Continued) Police Officers’ Retirement Plan (Continued) Measurement Date (Continued) Total Pens ion Plan Fiduciary Net Pens ion Liability Net Pos ition Liability Balances at S eptember 30, 2015 13,402,655 $ 8,493,122 $ 4,909,533 $ Changes for the Year: Service Cos t 279,863 0 279,863 Interes t 931,370 0 931,370 Change of As s umptions (57,608) 0 (57,608) Difference Between Expected and Actual Experience of the Total Pens ion Liability (2,998) 0 (2,998) Contributions - Employer 0 729,483 (729,483) Contributions - State 0 112,972 (112,972) Contributions - Employee 0 117,274 (117,274) Net Inves tment Income 0 804,901 (804,901) Benefit Payments , including Refunds of Contributions (754,465) (754,465) 0 Pens ion Plan Adminis trative Expens e 0 (29,933) 29,933 Net Changes 396,162 980,232 (584,070) Balances at S eptember 30, 2016 13,798,817 $ 9,473,354 $ 4,325,463 $ September 30, 2017 Total Pension Liability $ 14,664,876 Plan Net Position (10,803,540) Net Pension Liability $ 3,861,336 Police Officers’ Retirement Plan Net Position as a Percentage of Total Pension Liability 73.67% *Note: Plan Net Position per Fiduciary Statement of Net Position on page 61 is different than the Plan Net Position noted above primarily due to the booking of a $4,250 receivable from the City for a reimbursement. For the year ended September 30, 2017, the City recognized total pension expense of $795,643. The City reported deferred outflows of resources and deferred inflows of resources related to the Police Plan from the following sources: Deferred Outflows of Resources Net Difference Between Projected and Actual Earnings on Pension Plan Investments $ 136,175 Assumption Changes 425,223 Contributions Made Subsequent to Measurement Date 945,540 Total Deferred Outflows of Resources $ 1,506,938 Deferred Inflows of Resources Differences Between Project and Actual Experience $ 114,003 Assumption Changes 42,448 Total Deferred Inflows of Resources $ 156,451 38 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2017 (Continued) Note 7 -Defined Benefit Pension Plans (Continued) Police Officers’ Retirement Plan (Continued) Measurement Date (Concluded) Contributions made after the measurement date (shown above) will be recognized as a reduction of net pension liability in the fiscal year ending September 30, 2018. Other amounts reported as deferred outflows and inflows of resources related to pensions will be recognized in pension expense as follows: Year Ending September 30 2018 2019 2020 2021 Total Amount $ 272,406 130,666 42,725 (40,850) $ 404,947 Plan Investments The Policemen’s Pension Board of Trustees is responsible for establishing and amending the Police Plan’s investment policies. The Police Plan’s current investment policy gives the Board discretion to allocate assets with assistance of the Police Plan’s investment consultant. No formal targets are stated in the investment policy although the maximum allocation to international equities is 25%. The money-weighted rate of return on Plan investments, net of investment related expenses, was 10.80% and 9.93% for the years ended September 30, 2017 and 2016, respectively. Actuarial Assumptions The total pension liability was determined by actuarial valuations for the Plan as of September 30, 2016, rolled forward to September 30, 2017, using the following actuarial assumptions, applied to all periods included in the measurement: Inflation: 2.50% Salary Increases: Age based ranging from 4.50% - 22.50% (including 2.5% price inflation) Investment Rate of Return: 7.00% per year compounded annually, net of investment expenses Mortality: RP-2000 Combined Health Participant Mortality Table for males and females with generational projections from the Year 2000 Projection Scale BB Date of Experience Study: Other significant actuarial assumptions used in the September 30, 2016, valuation were based on the results of an actuarial experience study (dated February 15, 2011) for the period October 1, 2001 ­ September 30, 2010. 39 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2017 (Continued) Note 7 -Defined Benefit Pension Plans (Continued) Police Officers’ Retirement Plan (Continued) Actuarial Assumptions (Continued) The long-term expected rate of return on pension plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense of 0.50% and inflation of 2.50%) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. Best estimates of arithmetic real rates of return for each major asset class included in the pension plan's target asset allocation (see the discussion of the pension plans’ investment policy) are summarized in the following table: Long-term Expected Asset Class Target Allocation Real Net Rate of Return US Large-Cap Growth Stocks 13% 7.4% US Large-Cap Value Stocks 12% 7.0% US Mid-Cap Growth Stocks 3% 8.6% US Mid-Cap Value Stocks 4% 7.8% US Mid-Cap Core Stocks 3% 6.9% US Small-Cap Growth Stocks 5% 9.6% US Small-Cap Value Stocks 5% 8.6% International Equities 5% 7.2% US Investment Grade Bonds 40% 1.8% Cash (US 90-day T-bill) 10% 0.2% Discount rate. A single discount rate was used to measure the total pension liability. The single discount rate was based on the expected rate of return on Police Plan investments of 7.00%. The projection of cash flows used to determine the single discount rate assumed that plan member contributions will be made at the current contribution rate and that City contributions will be made at rates equal to the difference between actuarially determined contribution rates and the member rate. Based on those assumptions, the Police Plan’s fiduciary net position was projected to be available to make all projected future benefit payments of current Police Plan members. Therefore, the long-term expected rate of return on Police Plan investments (7.00%) was applied to all periods of projected benefit payments to determine the total pension liability. Sensitivity of the net pension liability to changes in the discount rate. The following presents the net pension liability of the City, calculated using the discount rate of 7.00%, as well as what the City's net pension liability would be if it were calculated using a discount rate that is 1-percentage-point lower (6.00%) or 1-percentage-point higher (8.00%) than the current rate: September 30, 2017 Net Pension 1% Decrease Current Discount 1% Increase Liability (6.00%) Rate (7.00%) (8.00%) Police Officers’ Pension Plan $ 5,625,875 $ 3,861,336 $ 2,387,826 40 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2017 (Continued) Note 7 -Defined Benefit Pension Plans (Concluded) Police Officers’ Retirement Plan (Concluded) Actuarial Assumptions (Concluded) September 30, 2016 Net Pension 1% Decrease Current Discount 1% Increase Liability (6.00%) Rate (7.00%) (8.00%) Police Officers’ Pension Plan $ 5,991,394 $ 4,325,463 $ 2,936,220 Note 8 -Defined Contribution Plan The City passed an ordinance in 2013 closing the General Employees’ defined benefit plan to new entrants and creating the City of Atlantic Beach Defined Contribution Plan. The City’s 457 defined contribution plan is administered through ICMA, which covers all eligible employees employed with the City on or after September 1, 2008, who are not covered by the City’s Police Officers’ defined benefit plan. Under the 457 Plan, the City contributes an employer matching contribution of up to 6% of earnings during the first ten years of service. Following ten years of service, the City contributes a fixed contribution of 4% of earnings. Employees have the option to voluntarily contribute to the 457 Plan. Employer matching contributions from the City were $60,944 and $64,723 for the years ended September 30, 2017 and 2016, respectively. Under the 457 Plan, an employee is considered fully vested after 5 years of completed service. Note 9 -Postemployment Benefits Other Than Pensions Plan Description The City of Atlantic Beach administers a single-employer defined benefit health care plan (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, as of October 1, 2015, the date of the latest actuarial valuation: Retirees and Beneficiaries Receiving Benefits 2 Active Plan Members 108 Total 110 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. While the City does not directly 41 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2017 (Continued) Note 9 -Postemployment Benefits Other Than Pensions (Continued) Funding Policy (Concluded) 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 another postemployment benefit (OPEB) obligation of the City. The City is currently funding this OPEB obligation on a pay-as-you -go basis. Annual Required Contribution (ARC) amounted to $51,765 for the current fiscal year. The ARC is based on a rate of 0.9% of projected payroll of $5,459,992 or an average $456 per active participant. For the year ended September 30, 2017, the City estimated it contributed $22,404 towards the implicitly subsidy of health care costs for its retirees and covered dependents. This implied subsidy reduced the annual OPEB cost to a net expense of $50,283 after interest on the Net OPEB Obligation and adjustments to ARC. Annual OPEB Cost and Net OPEB Obligation The City’s annual OPEB cost (expense) is calculated based on the ARC of the employer, 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 $ 51,765 Interest on Net OPEB Obligation 10,867 Adjustment to Annual Required Contribution (12,349) Annual OPEB Cost (Expense) 50,283 Employer Contribution (22,404) Increase in Net OPEB Obligation 27,879 Net OPEB Obligation -Beginning of Year 271,677 Net OPEB Obligation -End of Year $ 299,556 The City reflected the $27,879 increase in net OPEB obligation at September 30, 2017, by recording an obligation of $222,196 for governmental activities and $77,361 for business-type activities in its government-wide statement of net position. The utility fund reported a net OPEB obligation of $53,934, while the stormwater fund and building code enforcement fund reported $12,162 and $11,265, respectively. The OPEB obligation is a function of ARCs, interest, adjustments to the ARC, annual pension costs, and actual employers’ contributions made to the Plan. No trust or agency fund has been established for the Plan. 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, 2017, are presented below. 42 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2017 (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, 2015 $ 49,357 39.99% $ 238,298 September 30, 2016 48,421 31.07% 271,677 September 30, 2017 50,283 44.56% 299,556 Funded Status and Funding Progress As of October 1, 2015, the date of the latest actuarial valuation, the actuarial accrued liability for benefits was $406,200, all of which was unfunded. The covered payroll (annual payroll of active employees covered by the Plan) was $5,459,992, and the ratio of the unfunded actuarial accrued liability to the covered payroll was 7.44%. 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 ARCs 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 October 1, 2015, the date of the latest actuarial valuation, the Entry- Age Normal Actuarial Cost Method was used, which spreads the costs evenly as a percent of pay throughout the collective careers of those in the covered workforce. The unfunded actuarial accrued liability is being amortized using a level (principal and interest combined) percent of payroll over a 23-year period. Other significant actuarial assumptions include a 4% discount rate, an annual health care cost trend rate of 9%, followed by 8% for the next year, followed by 6.25% for the next year, reduced by decrements of 0.45% each year to the ultimate value of 4.45%, and projected salary increases of 4% annually (including general price inflation of 2.5%). 43 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2017 (Continued) Note 10 -Interfund Accounts Individual fund interfund receivables and payables at September 30, 2017, consist of the following: Due Due from Other to Other Funds Funds General $ 170,515 $ 0 Nonmajor Governmental 0 170,515 Interfund receivable/payables are due to timing differences associated with grant reimbursements. The receivable/payables are expected to be received/paid within one year. 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, 2017: Transfers In Nonmajor General Governmental Transfers (Out) Fund Funds Stormwater General Fund $ 0 $ 54,225 $ 0 Nonmajor Governmental Funds 470,000 295,000 300,000 Utility Fund 623,819 0 0 Sanitation Fund 236,626 0 0 Total Transfers $ 1,330,445 $ 349,225 $ 300,000 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, 2017, the City had outstanding commitments on contracts in progress as follows: Unexpended Project Type Contract Amounts Utility System Improvements $ 911,064 Stormwater System Improvements 21,684 Building Department 8,854 General Government Improvements 880,245 44 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2017 (Continued) Note 12 -Commitments (Concluded) 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, 2017, the City incurred $1,132,123 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. 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. Hurricanes In September 2017, most of the State of Florida was affected by Hurricane Irma, including the City. The President of the United States and the Governor of Florida declared most of the State a designated disaster area and issued relief to the State through public assistance grants, coordinated by Federal Emergency Management Agency (FEMA). Expenses were incurred by the City for hurricane preparedness, debris removal, repairs, and other hurricane-related costs; most of which occurred in fiscal year 2018. The City is working with state and federal liaisons to recover these costs. The City has submitted a total of $795,698 FEMA reimbursement requests related to Hurricane Irma. As of the date of the financial statements, it has not been determined the exact amounts that will be reimbursed by FEMA. The City has accrued $343,986 of Federal and $34,585 of State FEMA receivables in relation to Hurricane Matthew. FEMA has obligated these funds and has reimbursed the City as of the date of the financial statements in the amount of $292,052. 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 Public Risk Insurance Agency and LB Bryan and Company 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. 45 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2017 (Concluded) Note 15 -Other Disclosures Deficit Fund Balance CDBG Fund The City has an accumulated negative fund balance of $820 at September 30, 2017, in the CDBG fund. This is due to a timing difference between when the expenditures occurred and when the related reimbursements were received. This negative fund balance will be recovered in fiscal year 2018. 46 REQUIRED SUPPLEMENTARY INFORMATION CITY OF ATLANTIC BEACH, FLORIDA GENERAL EMPLOYEES' PENSION PLAN SCHEDULE OF CHANGES IN NET PENSION LIABILITY AND RELATED RATIOS September 30, September 30, September 30, September 30, 2017 2016 2015 2014 Total Pension Liability Service Cost $ 346,460 $ 348,604 $ 402,093 $ 399,576 Interest 1,485,239 1,437,296 1,404,316 1,386,245 Difference Between Actual and Expected Experience 291,669 164,601 (162,280) 0 Changes in Assumptions 559,117 0 0 1,814,460 Benefit Payments (1,296,640) (1,175,906) (1,031,191) (697,702) Refunds (22,467) (31,898) 0 (9,516) Net Change in Total Pension Liability 1,363,378 742,697 612,938 2,893,063 Total Pension Liability - Beginning 21,530,799 20,788,102 20,175,164 17,282,101 Total Pension Liability - Ending (a) 22,894,177 21,530,799 (1) 20,788,102 20,175,164 Plan Fiduciary Net Position Contributions - Employer 1,175,572 1,112,344 863,613 950,980 Contributions - Employee 124,024 128,204 136,191 157,383 Net Investment Income 1,792,192 1,515,746 162,326 778,981 Benefit Payments (1,296,640) (1,175,906) (1,031,191) (697,702) Refunds (22,467) (31,898) 0 (9,516) Administrative Expenses (55,702) (32,495) (41,909) (31,529) Other 1,822 0 0 0 Net Change in Plan Fiduciary Net Position 1,718,801 1,515,995 89,030 1,148,597 Plan Fiduciary Net Position - Beginning 16,524,333 15,008,338 14,919,308 13,770,711 Plan Fiduciary Net Position ­ Ending (b) 18,243,134 16,524,333 15,008,338 14,919,308 Net Pension Liability ­ Ending (a) - (b) $ 4,651,043 $ 5,006,466 $ 5,779,764 $ 5,255,856 (1) The total pension liability noted above does not agree with the amount reported in the City's financial statements and disclosed in Note 7 due to a timing difference in the recognition of assumption changes. An updated mortality table was recognized in 2016 for employer reporting (GASB 68), but 2017 for Plan (GASB 67) reporting. Plan Fiduciary Net Position as a Percentage of the Total Pension Liability 79.68% 76.75% 72.20% 73.95% Covered Employee Payroll $ 2,067,067 $ 2,136,733 $ 2,269,850 $ 2,623,050 Net Pension Liability as a Percentage of Covered Employee Payroll 225.01% 234.30% 254.63% 200.37% The data presented above was measured using actuarial methods prescribed by GASB 67/68. Additional years will be added to this schedule annually, until 10 years of data is presented. 47 CITY OF ATLANTIC BEACH, FLORIDA GENERAL EMPLOYEES' PENSION PLAN SCHEDULE OF CONTRIBUTIONS September 30, September 30, September 30, September 30, 2017 2016 2015 2014 Actuarially Determined Contribution 1,175,572 $ 1,112,344 $ 863,613 $ 950,980 $ Contributions in Relation to the Actuarially Determined Contribution 1,175,572 1,112,344 863,613 950,980 Contribution Deficiency (Excess) $ 0 $ 0 $ 0 $ 0 Covered Employee Payroll 2,067,067 $ 2,136,733 $ 2,269,850 $ 2,623,050 $ Contributions as a Percentage of Covered Employee Payroll 56.87% 52.06% 38.05% 36.25% Additional years will be added to this schedule annually until 10 years of data is presented. NOTES TO SCHEDULE OF CONTRIBUTIONS Valuation Date: September 30, 2015 Actuarially determined contribution rates are calculated as of September 30, two years prior to the end of the fiscal year in which contributions are reported. Methods and assumptions used to determine contribution rates: Funding Method: Entry Age Normal Cost Method Amortization Method: Closed, Level Dollar Method Remaining Amortization Period: 10 years Asset Valuation Method: 4-year Smoothed Market Value: Difference between the expected and actual return on market value of assets phased in over a period of four (4) years (at the rate of 25% per year), adjusted to be no greater than 120% and no less than 80% of the fair market value. Inflation: 2.5% per year Salary Increases: Age Based Ranging from 5.0% to 13.5% (including 2.5% price inflation) Interest Rate: 7.0% per year compounded annually, net of investment related expenses. Retirement Age: Experience-based table of rates that vary by age. Post Retirement COLA: None Mortality: RP2000 Combined Healthy Participant Mortality Table for males and females with generational projections from the year 2000 Projection Scale AA. Date of the Most Recent Experience Study: Other significant actuarial assumptions used in the September 30, 2015 valuation were based on the results of an actuarial experience study for the period October 1, 2001 ­ September 30, 2010. 48 CITY OF ATLANTIC BEACH, FLORIDA GENERAL EMPLOYEES' PENSION PLAN SCHEDULE OF INVESTMENT RETURNS FOR THE YEAR ENDED SEPTEMBER 30, 2017 September 30, September 30, September 30, 2017 2016 2015 Annual Money - Weighted Rate of Return Net of Investment Expense 10.92% 10.18% 1.10% Additional years will be added to this schedule annually until 10 years of data is presented. 49 CITY OF ATLANTIC BEACH, FLORIDA POLICE OFFICERS' PENSION PLAN SCHEDULE OF CHANGES IN NET PENSION LIABILITY AND RELATED RATIOS September 30, September 30, September 30, September 30, 2017 2016 2015 2014 Total Pension Liability Service Cost $ 335,185 $ 279,863 $ 291,761 $ 269,182 Interest on the Total Pension Liability 970,877 931,370 900,982 879,486 Difference Between Actual and Expected Experience 187,216 (2,998) (213,426) 0 Changes in Assumptions (40,955) 0 0 1,275,669 Benefit Payments (630,777) (730,794) (524,537) (524,537) Refunds (13,095) (23,671) (28,505) (61,079) Other (Excess Premium Tax Liability) 0 0 120,454 0 Net Change in Total Pension Liability 808,451 453,770 546,729 1,838,721 Total Pension Liability - Beginning 13,856,425 13,402,655 12,855,926 11,017,205 Total Pension Liability - Ending (a) 14,664,876 13,856,425 (1) 13,402,655 12,855,926 Plan Fiduciary Net Position Contributions - Employer 945,540 729,483 574,014 563,203 Contributions - State 0 112,972 103,528 96,217 Contributions - Member 129,552 117,274 112,354 103,095 Net Investment Income 950,447 804,901 43,534 642,480 Benefit Payments (630,777) (730,794) (524,537) (524,537) Refunds (13,095) (23,671) (28,505) (61,079) Administrative Expenses (51,481) (29,933) (35,984) (22,742) Other (Excess Premium Tax Liability) 0 0 120,454 0 Net Change in Plan Fiduciary Net Position 1,330,186 980,232 364,858 796,637 Plan Fiduciary Net Position - Beginning 9,473,354 8,493,122 8,128,264 7,331,627 Plan Fiduciary Net Position - Ending (b) 10,803,540 9,473,354 8,493,122 8,128,264 Net Pension Liability - Ending (a) - (b) $ 3,861,336 $ 4,383,071 $ 4,909,533 $ 4,727,662 (1) The total pension liability noted above does not agree with the amount reported in the City's financial statements and disclosed in Note 7 due to a timing difference in the recognition of assumption changes. An updated mortality table was recognized in 2016 for employer reporting (GASB 68), but 2017 for Plan (GASB 67) reporting. Plan Fiduciary Net Position as a Percentage of the Total Pension Liability 73.67% 68.37% 63.37% 63.23% Covered Employee Payroll $ 1,619,400 $ 1,465,925 $ 1,404,425 $ 1,472,786 Net Pension Liability as a Percentage of Covered Employee Payroll 238.44% 299.00% 349.58% 321.00% The data presented above was measured using actuarial methods prescribed by GASB 67/68. Additional years will be added to this schedule annually until 10 years of data is presented. 50 CITY OF ATLANTIC BEACH, FLORIDA POLICE OFFICERS' PENSION PLAN SCHEDULE OF CONTRIBUTIONS September 30, September 30, September 30, September 30, 2017 2016 2015 2014 Actuarially Determined Contribution* 849,061 $ 825,700 $ 665,091 $ 654,280 $ Contributions in Relation to the Actuarially Determined Contribution* 945,540 842,455 677,542 659,420 Contribution Deficiency (Excess) $ (96,479) $ (16,755) $ (12,451) $ (5,140) Covered Employee Payroll 1,619,400 $ 1,465,925 $ 1,404,425 $ 1,472,786 $ Contributions as a Percentage of Covered Employee Payroll 58.39% 57.47% 48.24% 44.77% *Amounts include the contribution from the State of Florida. Additional years will be added to this schedule annually until 10 years of data is presented. NOTES TO SCHEDULE Valuation Date: September 30, 2015 Actuarially determined contribution rates are calculated as of September 30, two years prior to the end of the fiscal year in which contributions are reported. Methods and assumptions used to determine contribution rates: Funding Method: Entry Age Normal Cost Method Amortization Method: Closed, Level % of Pay Method Remaining Amortization Period: 30 years Asset Valuation Method: Smoothed market value over a period of four (4) years, as prescribed under Internal Revenue Procedure 2000-40, adjusted to be no greater than 120% and no less than 80% of the fair market value. Inflation: 2.5% per year Salary Increases: Age Based Ranging from 4.5% to 22.5% (including 2.5% price inflation) Payroll Growth: 3.50% Interest Rate: 7.0% per year compounded annually, net of investment related expenses. Retirement Age: Experience-based table of rates that vary by age Post Retirement COLA: None Mortality: RP2000 Combined Healthy Participant Mortality Table for males and females with generational projections from the year 2000 Projection Scale AA. Date of the Most Recent Experience Study: Significant assumptions used in the September 30, 2015 valuation were based on the results of an actuarial experience study (dated 2/15/2011) for the period of October 1, 2001 ­ September 30, 2010. 51 CITY OF ATLANTIC BEACH, FLORIDA POLICE OFFICERS' PENSION PLAN SCHEDULE OF INVESTMENT RETURNS FOR THE YEAR ENDED SEPTEMBER 30, 2017 September 30, September 30, September 30, 2017 2016 2015 Annual Money - Weighted Rate of Return Net of Investment Expense 10.80% 9.93% 0.53% Additional years will be added to this schedule annually until 10 years of data is presented. 52 CITY OF ATLANTIC BEACH, FLORIDA REQUIRED SUPPLEMENTARY INFORMATION OTHER POSTEMPLOYMENT BENEFITS PLAN SCHEDULE OF FUNDING PROGRESS SEPTEMBER 30, 2017 Actuarial UAAL as Actuarial Accrued Unfunded Annual Percentage Valuation Value of Liability AAL Funded Covered of Covered Date Assets (AAL) (UAAL) Ratio Payroll Payroll 10/1/09 $ 0 $ 497,883 $ 497,883 0.0% $ 5,828,339 8.54% 10/1/12 0 360,584 360,584 0.0% 4,204,177 8.58% 10/1/15 0 406,200 406,200 0.0% 5,459,992 7.44% 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. The actuarial accrued liability (AAL) decreased significantly from the last valuation due to a decrease in the number of retirees receiving post- employment health benefits, as well as a change in the medical trend assumption. 53 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, 2017 Variance With Final Budget ­ Budgeted Amounts Actual Positive Original Final Amounts (Negative) Revenues Property Taxes 4,625,962 $ 4,625,962 $ 4,730,476 $ 104,514 $ Nonproperty Taxes 1,094,844 1,094,844 1,072,553 (22,291) Permits, Fees, and Special Assessments 883,630 883,630 811,871 (71,759) Intergovernmental Revenues 1,844,120 1,844,120 1,834,425 (9,695) Fines and Forfeitures 70,304 70,304 111,427 41,123 Charges for Services 798,258 798,258 774,764 (23,494) Interest Income 56,302 56,302 31,436 (24,866) Miscellaneous Revenues 50,432 50,432 78,493 28,061 Interfund Charges 1,522,588 1,522,588 1,522,863 275 Total Revenues 10,946,440 10,946,440 10,968,308 21,868 Expenditures City Administration: City Commission 48,079 48,079 38,722 9,357 City Clerk 317,215 317,308 279,176 38,132 City Attorney 155,000 281,368 281,368 0 City Manager 253,905 351,753 353,961 (2,208) Human Resources 217,935 217,935 220,351 (2,416) Information Technology 769,019 775,225 699,121 76,104 Finance 942,557 944,918 901,040 43,878 Total City Administration 2,703,710 2,936,586 2,773,739 162,847 Planning and Zoning 186,210 193,917 154,168 39,749 General Government 580,178 585,582 496,923 88,659 Public Safety: Police 4,300,695 4,452,131 4,321,232 130,899 School Crossing Guards 10,138 10,138 10,122 16 Animal Control 119,816 119,875 108,380 11,495 Fire 1,411,167 1,412,131 1,388,562 23,569 Code Enforcement 72,275 72,420 70,478 1,942 Total Public Safety 5,914,091 6,066,695 5,898,774 167,921 54 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, 2017 (Concluded) Variance With Final Budget ­ Budgeted Amounts Actual Positive Original Final Amounts (Negative) Expenditures (Concluded) Public Works: Administration and Streets 1,393,899 $ 1,429,375 $ 1,246,127 $ 183,248 $ Fleet Maintenance 281,290 281,290 244,742 36,548 Total Public Works 1,675,189 1,710,665 1,490,869 219,796 Parks and Recreation: Recreation and Special Events 473,990 478,618 406,128 72,490 Parks Maintenance 823,416 848,520 879,165 (30,645) Total Parks and Recreation 1,297,406 1,327,138 1,285,293 41,845 (Total Expenditures) (12,356,784) (12,820,583) (12,099,766) 720,817 (Deficiency) of Revenues (Under) Expenditures (1,410,344) (1,874,143) (1,131,458) 742,685 Other Financing Sources (Uses) Transfers in 1,330,445 1,330,445 1,330,445 0 Transfers (out) (50,000) (250,000) (54,225) 195,775 Total Other Financing Sources (Uses) 1,280,445 1,080,445 1,276,220 195,775 Excess of Revenues and Other Financing Sources Over Expenditures and Other Financing Uses (129,899) (793,698) 144,762 938,460 Fund Balances, Beginning of Year 6,414,266 6,414,266 7,177,057 762,791 Fund Balances, End of Year 6,284,367 $ 5,620,568 $ 7,321,819 $ 1,701,251 $ 55 CITY OF ATLANTIC BEACH, FLORIDA REQUIRED SUPPLEMENTARY INFORMATION NOTE TO SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL -GENERAL FUND FOR THE YEAR ENDED SEPTEMBER 30, 2017 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 re-appropriated in the subsequent year. Budgets are adopted for all governmental funds (general, special revenue, 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. 56 SUPPLEMENTARY INFORMATION CITY OF ATLANTIC BEACH, FLORIDA COMBINING BALANCE SHEET NONMAJOR GOVERNMENTAL FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2017, WITH COMPARATIVE TOTALS FOR THE YEAR ENDED SEPTEMBER 30, 2016 2017 Special Revenue Funds Assets Equity in Pooled Cash and Investments Due from Other Governments Total Assets Tree Replacement 58,732 $ 0 58,732 $ Local Convention Option Development Half-cent Gas Tax Tax Sales Tax 451,270 243,653 $ 833,807 $ 80,071 33,595 142,216 531,341 277,248 976,023 Court Cost Training 76,037 $ 485 76,522 Liabilities, Deferred Inflows of Resources, and Fund Balances Liabilities Accounts Payable and Accrued Liabilities Construction Retainages Payable Due to Other Funds Deposits Total Liabilities 0 0 0 0 0 314,860 0 0 0 314,860 0 0 0 0 0 114,499 0 0 0 114,499 0 0 0 0 0 Deferred Inflows of Resources 0 0 0 0 0 Fund Balances Restricted for: Public Safety Road Maintenance and Construction Other Capital Projects Other Purposes Committed: Conservation and Resource Management Assigned: Community Redevelopment Fund Unassigned Total Fund Balances 0 0 0 0 58,732 0 0 58,732 0 216,481 0 0 0 0 0 216,481 0 0 0 277,248 0 0 0 277,248 0 861,524 0 0 0 0 0 861,524 76,522 0 0 0 0 0 0 76,522 Total Liabilities, Deferred Inflows of Resources, and Fund Balances 58,732 $ $ 531,341 277,248 $ 976,023 $ 76,522 $ 57 2017 Radio Communication Community Contraband Development Forfeiture Block Grants Special Revenue Funds Police Grants Totals Special Revenues Funds Capital Projects Totals Nonmajor Governmental Funds 2016 Totals 35,553 $ $ 25,340 0$ 9,126 $ $ 1,733,518 259,189 $ 1,992,707 $ $ 4,100,757 2,335 37,888 0 25,340 118,860 118,860 4,834 13,960 382,396 2,115,914 0 259,189 382,396 2,375,103 411,657 4,512,414 989 0 0 0 989 2,741 0 0 926 3,667 0 3,134 116,546 0 119,680 1,865 0 9,902 0 11,767 434,954 3,134 126,448 926 565,462 73,794 0 44,067 0 117,861 508,748 3,134 170,515 926 683,323 437,714 141,942 75,035 1,426 656,117 0 0 0 0 0 0 0 102,723 36,899 21,673 0 2,193 137,287 0 137,287 161,166 0 0 0 0 0 0 0 0 0 0 0 0 1,078,005 0 277,248 0 141,328 0 1,078,005 141,328 277,248 1,067,154 2,433,056 161,958 0 0 0 0 58,732 0 58,732 34,911 0 0 36,899 0 0 21,673 0 (820) (820) 0 0 2,193 0 (820) 1,550,452 0 0 141,328 0 (820) 1,691,780 0 (104,671) 3,753,574 37,888 $ 25,340 $ 118,860 $ 13,960 $ $ 2,115,914 259,189 $ 2,375,103 $ $ 4,512,414 58 CITY OF ATLANTIC BEACH, FLORIDA COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES NONMAJOR GOVERNMENTAL FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2017, WITH COMPARATIVE TOTALS FOR THE YEAR ENDED SEPTEMBER 30, 2016 2017 Special Revenue Funds Revenues Taxes Other Intergovernmental Revenues Fines and Forfeitures Investment Earnings Miscellaneous Revenues Total Revenues Tree Replacement 0$ 10,000 0 0 32,586 42,586 $ Local Option Gas Tax 461,457 0 0 538 0 461,995 Convention Development Tax 114,523 $ 0 0 767 0 115,290 Half-cent Sales Tax 839,014 $ 0 0 2,062 0 841,076 Court Cost Training 0$ 0 4,427 311 0 4,738 Expenditures Current: Public Safety Road Maintenance and Construction Conservation and Resource Management Capital Outlay (Total Expenditures) 0 0 18,765 0 (18,765) 0 314,860 0 0 (314,860) 0 0 0 0 0 0 85,140 0 67,220 (152,360) 15,882 0 0 0 (15,882) Excess (Deficiency) of Revenues Over (Under) Expenditures 23,821 147,135 115,290 688,716 (11,144) Other Financing Sources (Uses) Transfers in Transfers (out) Total Other Financing Sources (Uses) 0 0 0 0 (230,000) (230,000) 0 0 0 0 (595,000) (595,000) 0 0 0 Net Change in Fund Balances 23,821 (82,865) 115,290 93,716 (11,144) Fund Balances, Beginning of Year 34,911 299,346 161,958 767,808 87,666 Fund Balances, End of Year 58,732 $ $ 216,481 277,248 $ 861,524 $ 76,522 $ 59 2017 Radio Communication 0$ 0 17,829 64 0 17,893 Special Revenue Funds Community Contraband Development Forfeiture Block Grants 0$ 0$ 0 422,767 6,273 0 184 0 0 0 6,457 422,767 Police Grants 0$ 62,800 0 0 0 62,800 Totals Special Revenue Funds 1,414,994 $ 495,567 28,529 3,926 32,586 1,975,602 Capital Projects 0$ 229,557 0 10,695 0 240,252 Totals Nonmajor Governmental Funds 1,414,994 $ 725,124 28,529 14,621 32,586 2,215,854 $ 2016 Totals 1,398,230 567,734 21,589 60,534 15,955 2,064,042 5,440 3,459 0 62,800 87,581 80,845 168,426 84,547 0 0 0 0 400,000 0 400,000 308,532 0 0 0 0 18,765 0 18,765 0 0 23,186 318,916 0 409,322 2,565,360 2,974,682 2,187,647 (5,440) (26,645) (318,916) (62,800) (915,668) (2,646,205) (3,561,873) 2,580,726 12,453 (20,188) 103,851 0 1,059,934 (2,405,953) (1,346,019) (516,684) 0 0 0 0 0 349,225 349,225 1,140,300 0 (5,000) 0 0 (830,000) (235,000) (1,065,000) (760,050) 0 (5,000) 0 0 (830,000) 114,225 (715,775) 380,250 12,453 (25,188) 103,851 0 229,934 (2,291,728) (2,061,794) (136,434) 24,446 46,861 (104,671) 2,193 1,320,518 2,433,056 3,753,574 3,890,008 $ 36,899 $ 21,673 $ (820) $ 2,193 $ 1,550,452 $ 141,328 $ 1,691,780 $ 3,753,574 60 CITY OF ATLANTIC BEACH, FLORIDA COMBINING STATEMENT OF FIDUCIARY NET POSITION SEPTEMBER 30, 2017, WITH COMPARATIVE TOTALS FOR SEPTEMBER 30, 2016 Pension Trust Funds Police General Officers' Employees' Retirement Retirement 2017 2016 Plan Plan Totals Totals Assets Cash and Cash Equivalents 468,175 $ 98,202 $ $ 566,377 358,042 $ Money Markets 804,121 1,363,846 2,167,967 1,975,324 Due from Other Governments 0 0 0 112,972 Due from City 4,250 4,250 8,500 0 Interest Receivable 9,830 21,983 31,813 17,821 Investments at Fair Value 9,540,563 16,777,720 26,318,283 23,535,349 Total Assets 10,826,939 18,266,001 29,092,940 25,999,508 Liabilities Accounts Payable and Accrued Liabilities 18,714 18,629 37,343 0 Total Liabilities 18,714 18,629 37,343 0 Total Net Position Held in Trust for Pension Benefits 10,808,225 $ 18,247,372 $ $ 29,055,597 $ 25,999,508 61 CITY OF ATLANTIC BEACH, FLORIDA COMBINING STATEMENT OF CHANGES IN FIDUCIARY NET POSITION FOR THE YEAR ENDED SEPTEMBER 30, 2017 WITH COMPARATIVE TOTALS FOR THE YEAR ENDED SEPTEMBER 30, 2016 Pension Trust Funds Additions Contributions: Employer Employees State of Florida Total Contributions Net Increase in Fair Value of Investments Interest and Dividends Miscellaneous Revenues Total Additions Police Officers' Retirement Plan 945,540 $ 129,552 0 1,075,092 804,503 180,852 4,250 2,064,697 General Employees' Retirement Plan 1,175,560 $ 124,024 0 1,299,584 1,530,197 328,696 4,250 3,162,727 $ 2017 Totals 2,121,100 253,576 0 2,374,676 2,334,700 509,548 8,500 5,227,424 $ 2016 Totals 1,841,817 245,218 112,972 2,200,007 2,032,332 390,564 0 4,622,903 Deductions Refunds of Contributions Benefits Investment Expenses Administrative Expenses Total Deductions 13,095 630,777 34,907 51,047 729,826 22,467 1,296,640 66,701 55,701 1,441,509 35,562 1,927,417 101,608 106,748 2,171,335 55,569 1,906,700 100,158 62,428 2,124,855 Change in Net Position 1,334,871 1,721,218 3,056,089 2,498,048 Net Position, Beginning of Year 9,473,354 16,526,154 25,999,508 23,501,460 Net Position, End of Year 10,808,225 $ 18,247,372 $ $ 29,055,597 $ 25,999,508 62 CITY OF ATLANTIC BEACH, FLORIDA HISTORICAL REVENUES AND EXPENSES FOR THE YEARS ENDED SEPTEMBER 30, 2012 THROUGH SEPTEMBER 30, 2017 2012 2013 2014 2015 2016 2017 Revenues Operating Revenues: Water: Customer Charges Miscellaneous Charges Total Water Sewer: $ 3,069,998 48,815 3,118,813 $ 3,006,787 52,996 3,059,783 $ 2,955,863 54,852 3,010,715 $ 2,992,677 62,286 3,054,963 $ 3,177,331 62,477 3,239,808 $ 3,262,314 65,198 3,327,512 Customer Charges Miscellaneous Charges Total Sewer Total Operating Revenues 5,015,358 3,303 5,018,661 8,137,474 5,109,868 1,651 5,111,519 8,171,302 4,938,510 1,237 4,939,747 7,950,462 4,934,151 107 4,934,258 7,989,221 5,045,673 0 5,045,673 8,285,481 5,111,353 590 5,111,943 8,439,455 Nonoperating Revenues: Investment Income (Loss): Water Sewer Total Nonoperating Revenues Total Revenues 197,492 (21,010) 176,482 8,313,956 (115,023) 18,426 (96,597) 8,074,705 186,681 (43,954) 142,727 8,093,189 (7,718) (4,257) (11,975) 7,977,246 58,092 38,929 97,021 8,382,502 21,455 17,281 38,736 8,478,191 Expenses Operating Expenses: Water Sewer Total Operating Expenses 1,303,708 2,493,500 3,797,208 1,228,763 2,005,653 3,234,416 1,287,783 2,170,495 3,458,278 1,442,578 2,055,780 3,498,358 1,379,495 2,064,614 3,444,109 1,488,854 2,309,637 3,798,491 Administrative, Nondivisional and Other: Water Sewer Total Administrative, Non- divisional and Other (Total Expenses) 518,506 696,922 1,215,428 (5,012,636) 521,600 674,514 1,196,114 (4,430,530) 530,715 677,464 1,208,179 (4,666,457) 563,356 734,839 1,298,195 (4,796,553) 561,069 725,248 1,286,317 (4,730,426) 502,058 591,161 1,093,219 (4,891,710) Net Revenues Available for Debt Service 3,301,320 3,644,175 3,426,732 3,180,693 3,652,076 3,586,481 Nonoperating Income (Expense) Interest Expense Loan Amortization Total Nonoperating Income (Expense) (726,058) (25,712) (751,770) (766,111) (12,787) (778,898) (896,571) (162,552) (1,059,123) (556,635) (98,507) (655,142) (481,693) (93,910) (575,603) (455,259) (93,910) (549,169) Net Income Before Depreciation and Operating Transfers $ 2,549,550 $ 2,865,277 $ 2,367,609 $ 2,525,551 $ 3,076,473 $ 3,037,312 63 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, 2017 AND SEPTEMBER 30, 2016 2017 2016 Gross Revenues Utility 8,390,290 $ $ 8,246,818 Connection Charges 49,165 38,664 Interest 38,736 97,020 Total Gross Revenues 8,478,191 8,382,502 Operating Expenses Personal Services 2,102,206 2,074,762 Contractual Services 551,554 552,627 Supplies 292,616 307,175 Repairs and Maintenance 133,608 121,248 Utilities 353,574 360,845 Intergovernmental Charges 1,093,219 1,113,777 Other Expenses 364,933 199,992 (Total Operating Expenses) (4,891,710) (4,730,426) Total Net Revenues in Accordance with Bond Resolutions 3,586,481 $ $ 3,652,076 Total Debt Service 2,015,811 $ $ 2,104,658 Debt Service Coverage Ratio 177.92% 173.52% Required Debt Service Coverage Ratio 110.00% 110.00% 64 CITY OF ATLANTIC BEACH, FLORIDA OTHER BOND COVENANT DISCLOSURES FOR THE YEARS ENDED SEPTEMBER 30, 2012 THROUGH SEPTEMBER 30, 2016 Utility Service Tax Collections (Last Five Years) Year Electricity Communications Gas Fuel Oil Total 2012 $ 452,183 $ 567,909 $ 23,187 $ 14 $ 1,043,293 2013 459,672 576,839 20,849 17 1,057,377 2014 473,097 522,654 16,911 29 1,012,691 2015 476,997 526,996 15,555 7 1,019,555 2016 483,516 500,295 17,881 6 1,001,698 2017 475,895 479,551 15,229 0 970,675 Ad Valorem Tax Collections (Last Five Years) Year Total 2012 $ 3,961,395 2013 3,843,755 2014 3,908,365 2015 4,113,476 2016 4,482,739 2017 4,730,476 65 OTHER STATISTICAL INFORMATION CITY OF ATLANTIC BEACH, FLORIDA MAJOR UTILITY CUSTOMERS FOR THE YEAR ENDED SEPTEMBER 30, 2017 (UNAUDITED) Annual Billings Fleet Landing (Retirement Community) $ 380,411 Navy (Federal Government) 313,102 City of Atlantic Beach, Florida 153,791 John Creek Estate (Mobile Home Park) 128,049 Oaks of Atlantic Beach (Mobile Home Park) 125,399 Hanna Park (Regional Park) 114,256 Arium Atlantic Beach (Apartment Complex) 110,244 PBH Mayport LLC 109,291 Sea Turtle Inn 103,666 Avesta Homes (Apartment Complex) 69,252 Total $ 1,607,461 66 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 CITY OF ATLANTIC BEACH, FLORIDA SCHEDULE OF SOURCE AND EXPENDITURE OF THE CITY GRANT FUNDS PER ORDINANCE CODE CHAPTER 118.301(e) FOR FISCAL YEAR 2016-2017 City of Jacksonville Public Service Grants Received as a Subgrant Recipient Per Interlocal Agreement Source of City Funds Fiscal Year Fiscal Year 2016-2017 2016-2017 Grant No. 5629-57 Grant No. 5629-61 Amount of Award (Per City of Jacksonville Budget Ordinance) $ 676,549 (A) $ 118,760 Actual Funds Received from City of Jacksonville in Last Audit Period (335,318) 0 Actual Funds Received this Period (303,907) 0 Amount Earned but Not Received this Period 0 (118,760) Unspent Award Amount $ 37,324 (B) $ 0 Expenditure of City Funds (A) City Fiscal Year 2015-16 Grant #5629-57, Includes Total Award Amount Including Amendments (B) Project Complete, Amount Spent Less Than Total Award Actual 10/1/2016 Remaining Project/Federal Grant Number Budgeted 9/30/2017 Balance Donner Park/Jordan Park Improvements #005546 B1516UC120017 $ 118,760 $ 118,760 $ 67 0 INDEPENDENT AUDITORS’ 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 Honorable Mayor, City Commissioners, and City Manager City of Atlantic Beach Atlantic Beach, Florida We have audited, in accordance with the 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, the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of City of Atlantic Beach, Florida, (the City), as of and for the year ended September 30, 2017, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements, and have issued our report thereon dated June 28, 2018. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the City’s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances 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. Accordingly, we do not express an opinion on the effectiveness of City’s internal control. 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 a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the City’s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or, significant deficiencies. We consider the following deficiencies in internal control to be material weaknesses: 15-1 – Financial Close and Reporting Condition―At the commencement of final fieldwork it was noted that the preliminary working trial balance did not reflect all of the required closing entries. As a result, several adjustments were required after we began the audit process, including entries to adjust beginning fund balance, accrue unrecorded receivables and liabilities, and reverse prior year accruals. 68 Honorable Mayor, City Commissioners, and City Manager City of Atlantic Beach Atlantic Beach, Florida INDEPENDENT AUDITORS’ 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 (Concluded) Internal Control Over Financial Reporting (Concluded) 15-1 – Financial Close and Reporting (Concluded) Effect―The lack of an effective financial close and reporting process increases the risk that material misstatements will not be detected in a timely manner. It also results in delays in performing and completing the audit. Recommendation―We recommend that the City’s finance department evaluates their monthly and yearly financial close and reporting process. In addition, the finance department should perform variance analysis throughout the year over major balance sheet and income statement accounts in order to identify and correct any errors in a timely manner. 17-1 – Timeliness and Accuracy of Bank Reconciliations Condition―The timely reconciliation of bank accounts is one of the key components of a sound system of internal controls. During the audit we noted that bank reconciliations for September 2017 had not been completed as of December 2017. The bank reconciliation was provided during final fieldwork in February 2018, but we noted errors in the reconciling items. Management made corrections to the September 2017 bank reconciliation, however, there remains a $10,000 unreconciled difference. Effect―Inaccurate or delayed bank reconciliations result in an increased risk that errors or irregularities will go undetected for extended periods of time. Recommendation―We recommend that the City implement procedures to ensure that all bank accounts are reconciled within 20 days of month-end. Compliance and Other Matters As part of obtaining reasonable assurance about whether the City’s financial statements are free from 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 Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the City’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. June 28, 2018 Gainesville, Florida 69 INDEPENDENT ACCOUNTANTS’ REPORT ON COMPLIANCE WITH SECTION 218.415, FLORIDA STATUTES Honorable Mayor, City Commissioners, and City Manager City of Atlantic Beach Atlantic Beach, Florida We have examined the City of Atlantic Beach, Florida’s (the City) compliance with Section 218.415, Florida Statutes during the period ended September 30, 2017, as required by Section 10.556(10)(a), Rules of the Auditor General. Management is responsible for the City’s compliance with those requirements. Our responsibility is to express an opinion on the City’s compliance based on our examination. Our examination was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants (AICPA) and, accordingly, included examining, on a test basis, evidence about the City’s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our examination provides a reasonable basis for our opinion. Our examination does not provide a legal determination of the City’s compliance with specified requirements. In our opinion, the City complied, in all material respects, with the aforementioned requirements for the year ended September 30, 2017. This report is intended solely for the information and use of the Legislative Auditing Committee, members of the Florida Senate and the Florida House of Representatives, the Florida Auditor General, the City, its management, and is not intended to be, and should not be, used by anyone other than these specified parties. June 28, 2018 Gainesville, Florida 70 MANAGEMENT LETTER Honorable Mayor, City Commissioners, and City Manager City of Atlantic Beach Atlantic Beach, Florida Report on the Financial Statements We have audited the financial statements of the City of Atlantic Beach, Florida (the City) as of and for the year ended September 30, 2017, and have issued our report thereon dated June 28, 2018. Auditors’ Responsibility We conducted our audit in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and Chapter 10.550, Rules of the Auditor General. Other Reporting Requirements We have issued our Independent Auditors’ Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of the Financial Statements Performed in Accordance with Government Auditing Standards, and Independent Accountants’ Report on an examination conducted in accordance with AICPA Professional Standards, AT-C Section 315, regarding compliance requirements in accordance with Chapter 10.550, Rules of the Auditor General. Disclosures in those reports and schedule, which are dated June 28, 2018, should be considered in conjunction with this management letter. Prior Audit Findings Section 10.554(1)(i)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 report. Corrective actions have not been taken to address the prior year audit finding 15-01, which has not been corrected in the two preceding audit periods. Corrective actions have been taken to address prior audit findings 16-01, 16-02, and 16-03. Official Title and Legal Authority Section 10.554(1)(i)4., Rules of the Auditor General, requires that the name or official title and legal authority for the primary government and each component unit of the reporting entity 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. Financial Condition and Management Sections 10.554(1)(i)5.(a) and 10.556(7), Rules of the Auditor General, require that we apply appropriate procedures and report the results of our determination as to whether or not the City 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 did not meet any of the conditions described in Section 218.503(1), Florida Statutes. 71 Honorable Mayor, City Commissioners, and City Manager City of Atlantic Beach Atlantic Beach, Florida MANAGEMENT LETTER (Continued) Financial Condition and Management (Concluded) Pursuant to Sections 10.554(1)(i)5(c) and 10.556(8), 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. Section 10.554(1)(i)2., Rules of the Auditor General, requires that we communicate any recommendations to improve financial management. In connection with our audit, we have the following recommendations: 17-2 – Police Officers’ and General Employees’ Retirement Plans Expenses Condition―During review of the Police Officers’ and General Employees’ Retirement Plans (Pension Plans), we noted that the Pension Plans paid for the City’s other postretirement employee benefits (OPEB) actuarial valuation. Florida Statutes 112.0801 requires municipalities and other governmental entities to allow retirees to participate in City’s health insurance plan, and governmental accounting standards require that an actuarial valuation be performed to determine the cost of providing that benefit. However, the cost of obtaining the actuarial valuation is the responsibility of the City, not the Pension Plans. Recommendation―We recommend that all OPEB actuarial valuation be paid by the City, not the Pension Plans. Prior to finalizing the audit, management recorded a receivable in the Pension Plans to recover the cost of the actuarial valuation for OPEB. We also recommend that the City perform a look back analysis to determine if further reimbursements need to be made to the Pension Plans for prior years. 17-3 – Insurance Premium Tax Revenues Condition―During review of the Police Officers’ Retirement Plan, we noted that the fiscal year 2017 insurance premium tax revenues were withheld by the State of Florida for several months due to reporting issues identified by the State of Florida that were not corrected timely. The City contributed additional funds to the Plan during 2017 to cover the contribution shortfall. The reporting issues were corrected during fiscal year 2018 and the City ultimately received the withheld funds. Recommendation―The timely correction of any reporting errors is important to avoid monies being withheld by the State of Florida and minimize the loss of potential investment earnings. 17-4 – Police Officers’ Retirement Plan Pooled Cash Balances Condition―During the review of the Police Officers’ Retirement Plan (the Plan) it was noted that the fund has accumulated a large equity in pooled cash balance. Typically, the pooled cash is used to pay current benefit payments and earns modest interest until funds are paid out. Any excess funds should be transferred to the Plan’s investment bank and invested in accordance with the Plan’s policy. Recommendation―We recommend that the City transfer any excess cash into the Plan’s investment portfolio to maximize the potential investment earnings of the Plan. 72 Honorable Mayor, City Commissioners, and City Manager City of Atlantic Beach Atlantic Beach, Florida MANAGEMENT LETTER (Concluded) Annual Financial Report Sections 10.554(1)(i)5.(b.) and 10.556(7), Rules of the Auditor General, require that we apply appropriate procedures and report the results of our determination as to whether the annual financial report for the City for the fiscal year ended September 30, 2017, 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, 2017. In connection with our audit, we determined that these two reports were in agreement. Special District Component Units Section 10.554(1)(i)5.(d), Rules of the Auditor General, requires that we determine whether or not a special district that is a component unit of a county, municipality, or special district, provided the financial information necessary for proper reporting of the component unit, within the audited financial statements of the county, municipality, or special district in accordance with Section 218.39(3)(b), Florida Statutes. In connection with our audit, we determined that there were no special district component units that were required to be reported in accordance with Section 218.39(3)(b), Florida Statutes. Other Matters Section 10.554(1)(i)3., Rules of the Auditor General, requires that we address noncompliance with provisions of contracts or grant agreements, or abuse, that have occurred, or are likely to have occurred, that have an effect on the financial statements that is less than material but which warrants the attention of those charged with governance. In connection with our audit, we did not have any such findings. Purpose of this Letter Our management letter is intended solely for the information and use of the Legislative Auditing Committee, members of the Florida Senate and the Florida House of Representatives, the Florida Auditor General, Federal and other granting agencies, and applicable management, and is not intended to be and should not be used by anyone other than these specified parties. June 28, 2018 Gainesville, Florida 73 June 28,2018 Purvis, Gray and Company, LLP P.O. Box 141270 Gainesville, FL 32614 RE: Management Letter dated June 28,2018 Internal Control Over Financial Reporting 15-1-Financial Close and Reporting City of Atlantic Beach 800 Seminole Road Atlantic Beach, Florida 32233-5445 Telephone (904) 247-5800 Fax (904) 247-5819 http://www.coab.us Condition-At the commencement of final fieldwork it was noted that the preliminary working trial balance did not reflect all of the required closing entries. As a result, several adjustments were required after we began the audit process, including entries to adjust beginning fund balance, accrue unrecorded receivables and liabilities, and reverse prior year accruals. Recommendation-We recommend that the City's finance department evaluates their monthly and yearly financial close and reporting process. In addition, the finance department should perform variance analysis throughout the year over major balance sheet and income statement accounts in order to identify and correct any errors in a timely manner. Management Response to Comment 15-1-Financial Close and Reporting The City has delegated year-end closeout responsibilities to additional staff members to speed up the closeout process. Additionally, as needed, the City will engage a third-party vendor who specializes in year-end closeout process. Other Matters 17-2-Police Officers' and General Employees' Retirement Plans Expenses Condition-During review of the Police Officers' and General Employees' Retirement Plans (Pension Plans), we noted that the Pension Plans paid for the City's other postretirement employee benefits (OPEB) actuarial valuation. Florida Statutes 112.0801 requires municipalities and other governmental entities to allow retirees to participate in City's health insurance plan, and governmental accounting standards require that an actuarial valuation be performed to determine the cost of providing that benefit. However, the cost of obtaining the actuarial valuation is the responsibility of the City, not the Pension Plans. Recommendation-We recommend that all OPEB actuarial valuation be paid by the City, not the Pension Plans. Prior to finalizing the audit, management recorded a receivable in the Pension Plans to recover the cost of the actuarial valuation for OPEB. We also recommend that the City perform a look back analysis to determine if further reimbursements need to be made to the Pension Plans for prior years. 74 Management Response to Comment 17-2 – Police Officers’ and General Employees’ Retirement Plans Expenses The City will analyze prior years and identify any other similar payments. If additional similar payments have been made, a transfer from the general fund will be made in those amounts. 17-3 – Premium Tax Revenues Condition―During the review of the Police pension plan it was noted that the fiscal year 2017 premium tax revenues were held by the State of Florida. This was due to reporting issues noted by the State of Florida. It was noted in fiscal year 2018 that these reporting issues were corrected and the City has since received the withheld premium tax monies. Recommendation―The timely correction of any reporting errors is important to avoid monies being withheld by the State of Florida. In addition, due to monies being withheld this potentially results in loss investment earnings. Management Response to Comment 17-3 – Premium Tax Revenues The City has taken steps to ensure the state report will be filed earlier than prior years. 17-4 – Police Officers’ Retirement Plan Pooled Cash Balances Condition―During the review of the Police Officers’ Retirement Plan (the Plan) it was noted that the fund has accumulated a large equity in pooled cash balance. Typically, the pooled cash is used to pay current benefit payments and earns modest interest until funds are paid out. Any excess funds should be transferred to the Plan’s investment bank and invested in accordance with the Plan’s policy. Recommendation―We recommend that the City transfer any excess cash into the Plan’s investment portfolio to maximize the potential investment earnings of the Plan. Management Response to Comment 17-4 – Police Officers’ Retirement Plan Pooled Cash Balances The City will make the necessary adjustment and set metrics that will trigger when future transfers are needed. 75