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Annual Financial Report - 2018-2019 FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR’S REPORT CITY OF ATLANTIC BEACH, FLORIDA SEPTEMBER 30, 2019 CITY OF ATLANTIC BEACH, FLORIDA FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR’S REPORT SEPTEMBER 30, 2019 INDEPENDENT AUDITOR’S REPORT ...................................................................................................................................... 1 MANAGEMENT’S DISCUSSION AND ANALYSIS ..................................................................................................................... 4 BASIC FINANCIAL STATEMENTS GOVERNMENT-WIDE FINANCIAL STATEMENTS STATEMENT OF NET POSITION ........................................................................................................................................... 12 STATEMENT OF ACTIVITIES ................................................................................................................................................. 13 FUND FINANCIAL STATEMENTS BALANCE SHEET – GOVERNMENTAL FUNDS ...................................................................................................................... 14 RECONCILIATION OF BALANCE SHEET OF GOVENRMENTAL FUNDS TO THE STATEMENT OF NET POSITION ............................................................................................................................................................................ 15 STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - GOVERNMENTAL FUNDS ................................................................................................................................................................................. 16 RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES .................................................................... 17 STATEMENT OF NET POSITION – PROPRIETARY FUNDS ..................................................................................................... 18 STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION – PROPRIETARY FUNDS ................................... 20 STATEMENT OF CASH FLOWS ............................................................................................................................................. 22 STATEMENT OF FIDUCIARY NET POSITION ......................................................................................................................... 24 STATEMENT OF CHANGES IN FIDUCIARY NET POSITION .................................................................................................... 25 NOTES TO FINANCIAL STATEMENTS ..................................................................................................................................... 26 REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES – BUDGET AND ACTUAL – GENERAL FUND ................................................................................................................................................................ 60 NOTES TO THE SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES – BUDGET AND ACTUAL – GENERAL FUND ........................................................................................................................... 62 SCHEDULE OF CHANGES IN NET PENSION LIABILITY AND RELATED RATIOS GENERAL EMPLOYEES’ PENSION PLAN .......................................................................................................................... 63 POLICE OFFICERS’ PENSION PLAN .................................................................................................................................. 65 SCHEDULE OF CONTRIBUTIONS – ALL PENSION PLANS...................................................................................................... 67 NOTES TO THE SCHEDULE OF CONTRIBUTIONS – ALL PENSION PLANS ............................................................................. 68 SCHEDULE OF INVESTMENT RETURNS – ALL PENSION PLANS ........................................................................................... 69 SCHEDULE OF CHANGES IN TOTAL OPEB LIABILITY AND RELATED RATIOS ........................................................................ 70 CITY OF ATLANTIC BEACH, FLORIDA FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR’S REPORT SEPTEMBER 30, 2019 SUPPLEMENTARY INFORMATION COMBINING BALANCE SHEET – NON-MAJOR GOVERNMENTAL FUNDS ............................................................................ 71 COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES – NON- MAJOR GOVERNMENTAL FUNDS ....................................................................................................................................... 73 HISTORICAL REVENUES AND EXPENSES .............................................................................................................................. 75 SCHEDULES OF NET REVENUES IN ACCORDANCE WITH BOND RESOLUTIONS – ENTERPRISE FUNDS (WATER AND SEWER) ......................................................................................................................................................... 76 OTHER BOND COVENANT DISCLOSURES ............................................................................................................................ 77 OTHER STATISTICAL INFORMATION MAJOR UTILITY CUSTOMERS .............................................................................................................................................. 78 ADDITIONAL ELEMENTS OF REPORT PREPARED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS, ISSUED BY THE COMPTROLLER GENERAL OF THE UNITED STATES; THE RULES OF THE AUDITOR GENERAL OF THE STATE OF FLORIDA; AND OTHER CONTRACT REQUIREMENTS SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS AND NOTES TO THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS ................................................................................................................................ 79 INDEPENDENT AUDITOR’S REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE .......................................................................... 80 SCHEDULE OF FINDINGS AND QUESTIONED COSTS – FEDERAL AWARDS .......................................................................... 82 INDEPENDENT AUDITOR’S 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 ................................................................... 84 INDEPENDENT ACCOUNTANT’S REPORT ON COMPLIANCE WITH SECTION 218.415, FLORIDA STATUTES ........................ 86 MANAGEMENT LETTER ....................................................................................................................................................... 87 LETTER OF MANAGEMENT’S RESPONSE ............................................................................................................................. 90 MANAGEMENT’S AFFIDAVIT OF COMPLIANCE WITH SECTION 163.31801, FLORIDA STATUTES ....................................... 92 INDEPENDENT AUDITOR’S REPORT 1 INDEPENDENT AUDITOR’S 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, 2019, 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. Auditor’s 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. 2 Honorable Mayor, City Commissioners, and City Manager City of Atlantic Beach Atlantic Beach, Florida INDEPENDENT AUDITOR’S REPORT We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. 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, 2019, 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. Emphasis of Matter COVID-19 Outbreak We draw attention to Note 15 to the financial statements, which describes the uncertainty related to the COVID-19 pandemic and impact on the City. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis, General Fund – Budgetary to Actual Schedule and notes to the schedule, and Required Pension and OPEB schedules on pages 4-11 and 60–70 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 71–77 and the other statistical information section on page 78 are presented for purposes of additional analysis and are not a required part of the basic financial statements. The schedule of expenditures of federal awards on page 79 is presented for purposes of additional analysis as required by Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, and is also not a required part of the basic financial statements. 3 Honorable Mayor, City Commissioners, and City Manager City of Atlantic Beach Atlantic Beach, Florida INDEPENDENT AUDITOR’S REPORT The supplementary information and the schedule of expenditures of federal awards 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 federal awards 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. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have issued our report dated November 23, 2020, 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 2018 financial statements, and our report dated December 6, 2019, 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, 2018, is consistent, in all material respects, with the audited financial statements from which it was derived. November 23, 2020 Gainesville, Florida 4 CITY OF ATLANTIC BEACH, FLORIDA MANAGEMENT’S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2019 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, 2019. 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 12‐13 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. 5 CITY OF ATLANTIC BEACH, FLORIDA MANAGEMENT’S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2019 (Continued) Fund Financial Statements (Concluded) ■ Governmental Funds (Concluded) However, unlike the government‐wide financial statements, governmental fund financial statements focus on near‐term inflows and outflows of available Resources, as well as on balances of available resources at the end of the fiscal year. Such information may be useful in evaluating a City’s near‐term financing requirements. Because the focus of governmental funds is narrower than that of the government‐wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government‐wide financial statements. By doing so, readers may better understand the long‐term impact of the government’s near‐term financing decisions. Reconciliations are provided between the Governmental Funds Balance Sheet and the Statement of Net 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 12 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 11 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 53‐54 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 60‐61 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 18‐23 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 24‐25 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 26 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 60 of this report. 6 CITY OF ATLANTIC BEACH, FLORIDA MANAGEMENT’S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2019 (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 and deferred outflows of resources exceeded liabilities and deferred inflows of resources by $82,392,995 at the close of the fiscal year ended September 30, 2019. By far the largest portion of the City’s net position, $67,604,870 (82%), reflects its investment in capital assets (i.e., land, buildings, equipment, and infrastructure), less any related, outstanding debt used to acquire those assets. The City uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the City’s investment in capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. A portion of the City’s net position, $6,319,490 (8%), represents resources that are subject to external restrictions on how they may be used. The remaining balance of unrestricted net position, $8,468,635 (10%), is used to meet the government’s ongoing obligations to citizens and creditors. City of Atlantic Beach’s Net Position September 30, 2019 and 2018 (In Thousands) Governmental Business‐type Activities Activities Totals 2019 2018 2019 2018 2019 2018 Current and other assets $9,762 $9,610 $14,513 $11,851 $24,275 $21,461 Capital assets 45,690 45,838 38,128 39,787 83,818 85,625 Total Assets 55,452 55,448 52,641 51,638 108,093 107,086 Deferred Outflow 2,300 2,336 1,526 1,547 3,826 3,883 Long‐term liabilities outstanding 7,828 8,415 17,590 17,806 25,418 26,221 Other liabilities 1,010 816 1,740 3,355 2,750 4,196 Total Liabilities 8,838 9,276 19,330 21,141 28,168 30,417 Deferred Inflow 922 447 436 180 1,358 627 Net Position: Invested in capital assets, net of related debt 44,270 44,438 23,335 23,460 67,605 67,898 Restricted 2,184 2,005 4,135 3,010 6,319 5,015 Unrestricted 1,538 1,618 6,931 5,394 8,469 7,012 Total Net Position $47,992 $48,061 $34,401 $31,864 $82,393 $79,925 As illustrated above, 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. 7 CITY OF ATLANTIC BEACH, FLORIDA MANAGEMENT’S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2019 (Continued) City of Atlantic Beach’s Change in Net Position For the Years Ended September 30, 2019 and 2018 (In Thousands) Governmental Business‐type Activities Activities Totals 2019 2018 2019 2018 2019 2018 Revenues: Program Revenues: Charges for Services $988 $1,053 $12,265 $11,779 $13,253 $12,832 Operating Grants and Contributions 186 129 732 22 918 151 Capital Grants and Contributions 240 0 808 664 1,048 664 General Revenues: Property Taxes 5,519 5,063 0 0 5,519 5,063 Public Service Tax and Franchise Fees 1,819 1,834 0 0 1,819 1,834 Insurance Premium Tax 0 237 0 0 0 237 Fuel Taxes 607 723 0 0 607 723 State Shared Revenue 1,863 1,836 0 0 1,863 1,836 Discretionary Sale Surtax 924 901 0 0 924 901 Investment Earnings (Loss) 248 (19) 399 (20) 647 (39) Miscellaneous 64 62 73 0 137 62 Gain (loss) on disposal of Capital Assets 0 0 0 0 0 0 Total Revenues 12,458 11,819 14,277 12,445 26,735 24,264 Expenses: General Government 2,805 2,819 0 0 2,805 2,819 Public Safety 6,302 6,098 0 0 6,302 6,098 Transportation 2,357 2,062 0 0 2,357 2,062 Parks and Recreation 1,652 1,488 0 0 1,652 1,488 Conservation and Resource Management 24 0 0 0 24 0 Interest/Fiscal Charges on Long‐term Debt 45 0 0 0 45 0 Utility 0 0 7,213 7,322 7,213 7,322 Stormwater 0 0 1,609 1,335 1,609 1,335 Sanitation 0 0 1,710 2,152 1,710 2,152 Building Code Enforcement 0 0 550 520 550 520 Total Expenses 13,185 12,467 11,082 11,329 24,267 23,796 Transfers 658 618 (658) (618) 0 0 Change in Net Position (69) (30) 2,537 498 2,468 468 Net Position‐Beginning 48,061 48,091 31,864 31,366 79,925 79,457 Net Position‐Ending $47,992 $48,061 $34,401 $31,864 $82,393 $79,925 8 CITY OF ATLANTIC BEACH, FLORIDA MANAGEMENT’S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2019 (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 $8,776,416, a decrease of $392,044 in comparison with the prior year. The General Fund is the chief operating fund of the City. At the end of the current fiscal year, the unassigned fund balance was $3,010,834, which equated to 24% of total General Fund expenditures without transfers. The net result of various revenue and expense items resulted in a decrease to the City’s General Fund of $542,759 or 8% during the current fiscal year. Property tax revenues increased by $456,037 or 9% from the previous year. This was a result of an increase in the taxable values. General Fund transfers in decreased by $45,597, and transfers out decreased by $303,000. Overall, general fund expenditures decreased by $1,809,556 or 13%. A large portion of this decrease was due to the$1,400,000 purchase of land for the Selva Preserve in Fiscal Year 2018. Nonmajor governmental funds consisting of special revenue funds, the debt service fund and the capital projects fund have a combined fund balance of $2,241,354. The net increase in fund balance after transfers in nonmajor governmental funds was $150,715. The increase in the fund balance of the nonmajor governmental funds was related to the decrease in Capital Outlay Expenditures and a decrease in transfers out. ■ 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 operating revenues of $12,214,315, operating expenses of $10,560,157, net non‐operating revenue of $731,854 and net capital contributions, grants and transfers of $150,791. The net position in the proprietary funds increased $2,644,113 as a result of the fiscal year’s activities. The unrestricted net position of the enterprise funds amounted to $6,930,815 at the end of fiscal year 2019. Stormwater rates stayed constant in fiscal year 2019 as there were no rate changes. The $8.39 per ERU is approximately 61%, compared to 69% for the prior year, of the total operating expenses of $1,455,126 needed to fully fund the operation with charges for service. During fiscal year 2019, the Sanitation Fund netted an increase in net position of $995,685. This increase was due to an increase in grant revenues related to FEMA reimbursements. General Fund Budgetary Highlights Net Budget The overall net difference from the final budgeted revenues and final budgeted expenses was a deficit of $734,552. The actual decrease in fund balance was $542,759. This resulted in an overall $191,793 favorable budget to actual variance. 9 CITY OF ATLANTIC BEACH, FLORIDA MANAGEMENT’S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2019 (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, 2019, amounted to $83,925,254. 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 a decrease of $148,015 or less than 1% for governmental activities and a decrease of $1,551,301 or 4% for business‐type activities. Capital asset events during the current fiscal year included the following:  Governmental Activities Buildings reflected a net decrease of $71,581. This represents capital asset increase of $97,360 offset by depreciation of $168,941. Intangible Assets reflected a net increase of $3,828. This asset category includes land easements and computer software. Improvements Other Than Buildings reflected a net decrease of $261,211. This represents capital asset increase of $404,887 offset by depreciation of $666,098. Equipment reflected a net increase of $24,394. This represents capital asset increase of $540,367, offset by depreciation of $515,973. Construction in progress increased by $156,555. ■ Business‐type Activities Buildings reflected a net decrease in asset value of $8,442 from depreciation. Improvements Other Than Buildings reflected a net decrease of $1,977,088. This represents capital asset increases of $339,366, offset by depreciation of $2,316,454. Equipment reflected a net increase of $123,104. This represents capital asset increase of $375,435, offset by depreciation of $252,331. Construction in Progress had a net increase of $204,005. 10 CITY OF ATLANTIC BEACH, FLORIDA MANAGEMENT’S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2019 (Continued) City of Atlantic Beach’s Capital Assets (Net of Depreciation) (In Thousands) Governmental Business‐type Activities Activities Totals 2019 2018 2019 2018 2019 2018 Land $11,914 $11,914 $1,656 $1,656 $13,570 $13,570 Intangibles 52 48 214 214 266 262 Buildings 6,975 7,047 36 44 7,011 7,091 Improvements‐Other 24,551 24,812 33,536 35,407 58,087 60,219 Equipment 1,299 1,275 1,103 980 2,402 2,255 Construction in Progress 898 741 1,690 1,486 2,588 2,227 Total $45,689 $45,837 $38,235 $39,787 $83,924 $85,624 Additional information on the City’s capital assets can be found in Note 5 on pages 39‐40 of this report. Long‐term Debt At the end of the 2019 fiscal year, the City had total long‐term debt outstanding of $16,834,543. The amount of $15,434,543 represents the City’s debt related to its business type activities. 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, (In Thousands) 2019 2018 Governmental Activities: Capital Improvement Revenue Bonds, Series 2018 $1,400 $1,400 Business‐type Activities: Utilities System Revenue Bond, Series 2014 9,310 10,525 F.D.E.P. State Revolving Funds Loan, 2010 (DW160710) 490 526 F.D.E.P. State Revolving Funds Loan, 2009 (WW160700) 5,430 5,764 Capital Lease Payable ‐ 2018 205 268 Total $16,835 $18,483 Debt service coverage calculations can be found on page 76. Additional information on the City’s long‐term debt can be found in Note 6 on pages 41‐44 of this report. 11 CITY OF ATLANTIC BEACH, FLORIDA MANAGEMENT’S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2019 (Concluded) Revenue Highlights: ■ Total General Fund Revenues for 2019 were $594,563 higher than 2018 revenue (page 16). Increase in property tax revenue of $456,037 is the largest contributor to this increase. ■ The 2019 taxable property values were about 9.36% higher than the 2018 values. The City Commission voted to use the same millage rate of 3.2285 mills. The purpose for adopting the millage rate of 3.2285 was to maintain a level of ad valorem tax revenue sufficient to maintain adequate funding for the existing level of services at the estimated cost and to continue to maintain the city’s infrastructure and adequate reserves. The final gross taxable property value was $1,769,095,284. Ad valorem taxes of $5,519,446 represent 51% of the General Fund revenues for 2019. ■ The 2019 General Fund Intergovernmental revenues of $2,224,731 make up 21% of total general fund revenues. This is an increase of $153,557 over 2018. ■ The City’s investment portfolio is valued at approximately $16,747,722 as of September 30, 2019. The investments showed a gain of $509,892 for the year. Expenditure Highlights: ■ Total expenditures of the Governmental Funds decreased in current year by $1,798,980 when compared to prior year which was mainly due to a change in classification to report the inter‐fund charges that are used to allocate costs to the enterprise fund as a reduction in governmental fund expenditures rather than as revenue as previously reported. This change was necessitated by generally accepted accounting principles. The total inter‐fund charges shown as revenue in 2018 was $1,581,091 and the inter‐fund charges shows as a reduction in expenditures in 2019 totaled $1,608,052. Capital expenditures decreased from $2,375,785 in 2018 to $1,206,655 in 2019. This decrease was a result the purchase of land in 2018 Requests for Information The financial report is designed to provide a general overview of the City’s finances for all those with an interest in the City’s finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the City of Atlantic Beach, Finance Director, 800 Seminole Road, Atlantic Beach, Florida 32233. Melissa Burns Director of Finance BASIC FINANCIAL STATEMENTS These basic financial statements contain Government-wide, Fund Financial Statements and Notes to Financial Statements See accompanying notes. 12 CITY OF ATLANTIC BEACH, FLORIDA STATEMENT OF NET POSITION SEPTEMBER 30, 2019 WITH COMPARATIVE TOTALS FOR SEPTEMBER 30, 2018 Primary Government Governmental Business-type 2018 Activities Activities Total Totals ASSETS Equity in pooled cash and investments $ 6,274,716 $ 8,345,121 $ 14,619,837 $ 14,710,343 Cash with fiscal agent 94,850 1,348,462 1,443,312 1,337,616 Receivables, current: Customer accounts, net 116,007 803,858 919,865 669,264 Intergovernmental and other 914,965 131,817 1,046,782 1,269,094 Notes receivable, net 760 15,759 16,519 16,519 Inventory 42,142 60,763 102,905 94,625 Prepaid expenses 4,852 - 4,852 4,956 Restricted assets: Equity in pooled cash and investments 2,312,277 3,687,769 6,000,046 3,236,620 Capital assets: Non-depreciable 12,811,523 3,346,431 16,157,954 15,797,394 Depreciable, net 32,878,448 34,781,542 67,659,990 69,827,176 Notes receivable, noncurrent 1,520 119,766 121,286 122,543 TOTAL ASSETS 55,452,060 52,641,288 108,093,348 107,086,150 DEFERRED OUTFLOWS OF RESOURCES Deferred outflows related to pensions 2,285,131 872,002 3,157,133 3,103,506 Deferred outflows - loss on refunding - 647,660 647,660 755,602 Deferred outflows related to OPEB 15,310 6,075 21,385 23,456 TOTAL DEFERRED OUTFLOWS OF RESOURCES 2,300,441 1,525,737 3,826,178 3,882,564 LIABILITIES Accounts payable and accrued expenses 790,606 608,275 1,398,881 780,862 Construction costs payable 19,936 6,255 26,191 21,129 Due to other governments - 41,063 41,063 25,973 Unearned revenue 165,588 181,993 347,581 267,085 Accrued interest payable 24,850 176,827 201,677 195,826 Customer deposits 9,543 725,363 734,906 698,345 Long-term obligations: Due within one year 241,064 1,730,735 1,971,799 2,206,852 Due in more than one year 7,586,549 15,859,536 23,446,085 26,220,723 TOTAL LIABILITIES 8,838,136 19,330,047 28,168,183 30,416,795 DEFERRED INFLOWS OF RESOURCES Deferred inflows related to pensions 899,182 427,263 1,326,445 608,819 Deferred inflows related to OPEB 22,839 9,064 31,903 18,602 Total deferred inflows of resources 922,021 436,327 1,358,348 627,421 NET POSITION Net investment in capital assets 44,270,035 23,334,835 67,604,870 67,898,073 Restricted for: General government facilities 257,689 - 257,689 443,666 Public safety 299,845 - 299,845 141,524 Road maintenance and construction 1,318,572 - 1,318,572 1,162,321 Other purposes 308,383 - 308,383 257,310 Debt service - 280,916 280,916 394,939 Renewal and replacement - 250,000 250,000 250,000 Utility rate stabilization - 400,000 400,000 - Utility system improvements - 2,756,853 2,756,853 1,900,438 Building code enforcement - 447,232 447,232 464,680 Unrestricted 1,537,820 6,930,815 8,468,635 7,011,547 TOTAL NET POSITION $ 47,992,344 $ 34,400,651 $ 82,392,995 $ 79,924,498 See accompanying notes. 13 CITY OF ATLANTIC BEACH, FLORIDA STATEMENT OF ACTIVITIES FOR THE YEAR ENDED SEPTEMBER 30, 2019 WITH COMPARATIVE TOTALS FOR THE YEAR ENDED SEPTEMBER 30, 2018 Program Revenues Net (Expense) Revenue and Operating Capital Changes in Net Position Charges for Grant and Grant and Governmental Business-Type 2018 FUNCTIONS/PROGRAMS Expenses Services Contributions Contributions Activities Activities Total Totals PRIMARY GOVERNMENT: Governmental activities: General government $ 2,805,211 $ 182,016 $ 40,813 $ 195,760 $ (2,386,622) $ - $ (2,386,622) $ (1,945,756) Public safety 6,303,138 660,112 18,656 14,427 (5,609,943) - (5,609,943) (5,028,710) Transportation 2,357,000 68,534 112,079 - (2,176,387) - (2,176,387) (1,362,304) Parks and recreation 1,652,337 77,640 - 30,000 (1,544,697) - (1,544,697) (1,282,076) Conservation and resource management 23,519 - 14,821 - (8,698) - (8,698) 27,906 Interest on long-term debt 44,700 - - - (44,700) - (44,700) - Total governmental activities 13,185,905 988,302 186,369 240,187 (11,771,047) - (11,771,047) (9,590,940) Business-type activities Utility 7,213,069 8,905,992 - 808,439 - 2,501,362 2,501,362 1,706,007 Stormwater 1,609,949 894,373 - - - (715,576) (715,576) (448,238) Sanitation 1,709,616 1,948,256 731,746 - - 970,386 970,386 (209,719) Building code enforcement 550,492 516,385 - - - (34,107) (34,107) 89,030 Total business-type activities 11,083,126 12,265,006 731,746 808,439 - 2,722,065 2,722,065 1,137,080 TOTAL PRIMARY GOVERNMENT $ 24,269,031 $ 13,253,308 $ 918,115 $ 1,048,626 $ (11,771,047) $ 2,722,065 $ (9,048,982) $ (8,453,860) GENERAL REVENUES Taxes: Property taxes, levied for general purposes 5,519,446 - 5,519,446 5,063,409 Public service taxes and franchise fees 1,819,333 - 1,819,333 1,100,538 Fuel taxes levied for transportation purposes 607,300 - 607,300 613,294 Discretionary Sales Surtax 924,384 - 924,384 901,165 State shared revenue 1,862,114 - 1,862,114 1,200,683 Investment earnings (loss) 247,852 399,295 647,147 (38,997) Miscellaneous 64,041 73,091 137,132 83,346 Gain (loss) on disposal of capital assets 623 - 623 - TRANSFERS 657,648 (657,648) - - Total general revenues and transfers 11,702,741 (185,262) 11,517,479 8,923,438 CHANGE IN NET POSITION (68,306) 2,536,803 2,468,497 469,578 NET POSITION, beginning of year 48,060,650 31,863,848 79,924,498 79,454,920 NET POSITION, end of year $ 47,992,344 $ 34,400,651 $ 82,392,995 $ 79,924,498 See accompanying notes. 14 CITY OF ATLANTIC BEACH, FLORIDA BALANCE SHEET – GOVERNMENTAL FUNDS AS OF SEPTEMBER 30, 2019 WITH COMPARATIVE TOTALS FOR SEPTEMBER 30, 2018 2019 Non-Major General Governmental 2018 Fund Funds Total Totals ASSETS Equity in pooled cash and investments $ 6,274,716 $ 2,312,277 $ 8,586,993 $ 8,086,548 Cash with fiscal agent - 94,850 94,850 - Receivables, net Customer accounts, net 495 115,512 116,007 350 Intergovernmental and other 675,637 239,328 914,965 1,114,979 Notes receivable, current 760 - 760 760 Inventory 42,142 - 42,142 33,862 Prepaid expenditures 4,852 - 4,852 4,956 Due from other funds 283,396 - 283,396 567,826 Notes receivable, non-current 1,520 - 1,520 1,520 TOTAL ASSETS $ 7,283,518 $ 2,761,967 $ 10,045,485 $ 9,810,801 LIABILITIES Accounts payable and accrued liabilities 572,821 217,785 790,606 328,224 Construction costs payable 3,270 16,666 19,936 21,129 Due to other funds - 283,396 283,396 200,795 Deposits 6,777 2,766 9,543 7,101 Unearned revenue 165,588 - 165,588 85,092 TOTAL LIABILITIES 748,456 520,613 1,269,069 642,341 FUND BALANCE Nonspendable: Inventory 42,142 - 42,142 33,862 Prepaids 4,852 - 4,852 4,956 Restricted for: Public safety - 299,845 299,845 141,524 Road maintenance and construction - 1,318,572 1,318,572 1,162,321 Other capital projects - 257,689 257,689 443,666 Other purposes - 308,383 308,383 257,310 Committed to: Conservation and resource management - 77,940 77,940 86,638 Assigned to: Community redevelopment 50,000 - 50,000 50,000 Operating reserves 3,427,234 - 3,427,234 3,313,444 Unassigned 3,010,834 (21,075) 2,989,759 3,674,739 TOTAL FUND BALANCES 6,535,062 2,241,354 8,776,416 9,168,460 TOTAL LIABILITIES AND FUND BALANCES $ 7,283,518 $ 2,761,967 $ 10,045,485 $ 9,810,801 See accompanying notes. 15 CITY OF ATLANTIC BEACH, FLORIDA RECONCILIATION OF BALANCE SHEET OF GOVENRMENTAL FUNDS TO THE STATEMENT OF NET POSITION SEPTEMBER 30, 2019 WITH COMPARATIVE TOTALS FOR SEPTEMBER 30, 2018 Amounts reported for governmental activities in the statement of net position are different because: 2019 2018 FUND BALANCES - TOTAL GOVERNMENTAL FUNDS $ 8,776,416 $ 9,168,460 Capital assets used in governmental activities are not financial resources and, therefore, are not reported in the governmental funds. 45,689,971 45,837,986 Deferred outflows of resources represent an consumption of net position or fund balance that applies to a future period(s) and, therefore, are not reported in the governmental funds. 2,300,441 2,335,545 Deferred inflows of resources represent an increase in net position or fund balance that applies to a future period(s) and, therefore, are not reported in the governmental funds. (922,021) (447,044) Interest payable on long-term debt does not require current financial resources and therefore, is not reported as a liability in governmental funds. (24,850) - Long-term liabilities (including bonds and notes payable, compensated absences liability, OPEB obligation, and net pension liabilities) are not due and payable in the current period and, therefore, are not reported in the governmental funds. This is the amount of the long-term obligations (7,827,613) (8,834,297) NET POSITION OF GOVERNMENTAL ACTIVITIES $ 47,992,344 $ 48,060,650 See accompanying notes. 16 CITY OF ATLANTIC BEACH, FLORIDA STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - GOVERNMENTAL FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2019 WITH COMPARATIVE TOTALS FOR THE YEAR ENDED SEPTEMBER 30, 2018 2019 Non-major General Governmental 2018 Fund Funds Total Totals REVENUES: Property taxes $ 5,519,446 $ - $ 5,519,446 $ 5,063,409 Non-property taxes 1,182,199 1,531,684 2,713,883 2,851,769 Licenses and permits 795,447 - 795,447 868,477 Intergovernmental revenue 2,224,731 - 2,224,731 2,113,174 Charges for services 785,278 - 785,278 793,482 Fines and forfeitures 41,115 22,252 63,367 124,366 Investment earnings (loss) 191,557 56,294 247,851 (19,396) Miscellaneous revenues 65,126 14,821 79,947 56,974 Interfund charges - - - 1,581,091 Total revenues 10,804,899 1,625,051 12,429,950 13,433,346 EXPENDITURES: General government 2,796,571 23,519 2,820,090 3,737,331 Public safety 6,330,636 26,478 6,357,114 6,129,773 Physical environment - - - 151 Transportation 1,436,383 270,834 1,707,217 1,873,723 Culture/recreation 1,368,348 368 1,368,716 1,161,859 Capital outlay 508,368 698,287 1,206,655 2,375,785 Debt service - 19,850 19,850 - Total expenditures 12,440,306 1,039,336 13,479,642 15,278,622 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES (1,635,407) 585,715 (1,049,692) (1,845,276) OTHER FINANCING SOURCES (USES) Transfers in 1,092,648 - 1,092,648 1,438,245 Transfers (out) - (435,000) (435,000) (820,300) Loan proceeds - - - 1,400,000 Debt issuance costs - - - (50,000) Sale of general capital assets - - - 32,192 TOTAL OTHER FINANCING SOURCES (USES) 1,092,648 (435,000) 657,648 2,000,137 NET CHANGE IN FUND BALANCE (542,759) 150,715 (392,044) 154,861 FUND BALANCE, beginning of year 7,077,821 2,090,639 9,168,460 9,013,599 FUND BALANCE, end of year $ 6,535,062 $ 2,241,354 $ 8,776,416 $ 9,168,460 See accompanying notes. 17 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, 2019 WITH COMPARATIVE TOTALS FOR THE YEAR ENDED SEPTEMBER 30, 2018 Amounts reported for governmental activities in the statement of net activities are different because: 2019 2018 NET CHANGE IN FUND BALANCES - TOTAL GOVERNMENTAL FUNDS $ (392,044) $ 154,861 Governmental funds report capital outlay as expenditures. However, in the statement of activities, the cost of these assets is allocated over their estimated useful lives and reported as depreciation expense. This is the amount of capital assets recorded in the current period. 1,219,139 2,375,785 This is the amount of depreciation recorded in the current period. (1,367,154) (1,334,374) Revenue not received within the "availability" period are not reported as revenues at the fund level and are recognized as revenue in the statement of activities. This represents the change caused by the "availability" criterion - (64,939) Long-term obligations including bonds and notes payable, compensated absences and other post-employment benefit obligations are reported as liabilities in the government-wide statement of net position but are not reported as liabilities in the governmental funds because they do not require the use of current financial resources: This is the current year proceeds from borrowings - (1,400,000) This is the change in accrued interest payable on long-term obligations. (24,850) - This is the change in accrued compensated absences during the year. (19,568) (57,325) Other postemployment benefit (OPEB) expense is reported in the statement of activities which differs from OPEB expenditures as report in the governmental funds: This amount represents the change in deferred inflows related to OPEB. (10,015) - This amount represents the change in deferred outflows related to OPEB. (859) - This amount represents the change in the total OPEB liability. (22,547) (5,081) Pension expense is reported in the statement of activities which differs from pension expenditures as reported in the governmental finds: This amount represents the change in deferred inflows related to pensions. (464,962) (245,365) This amount represents the change in deferred outflows related to pensions. (34,244) (334,326) This amount represents the change in the net pension liability. 1,048,798 880,807 CHANGE IN NET POSITION OF GOVERNMENTAL ACTIVITIES $ (68,306) $ (29,957) See accompanying notes. 18 CITY OF ATLANTIC BEACH, FLORIDA STATEMENT OF NET POSITION – PROPRIETARY FUNDS SEPTEMBER 30, 2019 WITH COMPARATIVE TOTALS FOR SEPTEMBER 30, 2018 2019 Business Type Activities - Enterprise Funds Building Code 2018 Utility Stormwater Sanitation Enforcement Totals Totals ASSETS Current assets: Equity in pooled cash and investments $ 5,529,981 $ 1,483,581 $ 652,228 $ 679,331 $ 8,345,121 $ 6,623,795 Cash with fiscal agent 1,173,162 175,300 - - 1,348,462 1,337,616 Accounts receivables, net 661,117 53,332 89,409 - 803,858 668,914 Due from other governments 35,244 - 96,573 - 131,817 154,115 Notes receivable - current 15,759 - - - 15,759 15,759 Inventory 60,763 - - - 60,763 - Prepaid expenses - - - - - 60,763 Total current assets 7,476,026 1,712,213 838,210 679,331 10,705,780 8,860,962 Noncurrent assets: Restricted assets: Equity in pooled cash and investments 3,687,769 - - - 3,687,769 3,236,620 Notes receivable - noncurrent 119,766 - - - 119,766 121,023 Capital assets: Non-depreciable 1,934,145 1,412,286 - - 3,346,431 3,142,426 Depreciable, net 26,120,175 8,628,200 3,246 29,921 34,781,542 36,644,158 Total noncurrent assets 31,861,855 10,040,486 3,246 29,921 41,935,508 43,144,227 Total assets 39,337,881 11,752,699 841,456 709,252 52,641,288 52,005,189 DEFERRED OUTFLOWS OF RESOURCES Deferred outflows related to pensions 679,914 73,270 54,748 64,070 872,002 784,131 Deferred outflows - refunding loss 563,464 84,196 - - 647,660 755,602 Deferred outflows related to OPEB 3,849 723 - 1,503 6,075 7,286 Total deferred outflows of resources 1,247,227 158,189 54,748 65,573 1,525,737 1,547,019 Continued… See accompanying notes. 19 CITY OF ATLANTIC BEACH, FLORIDA STATEMENT OF NET POSITION – PROPRIETARY FUNDS SEPTEMBER 30, 2019 WITH COMPARATIVE TOTALS FOR SEPTEMBER 30, 2018 2019 Business Type Activities - Enterprise Funds Building Code 2018 Utility Stormwater Sanitation Enforcement Totals Totals LIABILITIES Current liabilities: Accounts payable and accrued liabilities $ 261,539 $ 192,431 $ 125,811 $ 28,494 $ 608,275 $ 452,638 Construction costs payable 6,255 - - - 6,255 - Due to other governments - - - 41,063 41,063 25,973 Due to other funds - - - - - 367,030 Unearned revenue 90,605 29,898 61,490 - 181,993 181,993 Compensated absences 32,343 2,772 - 9,105 44,220 139,588 Bonds and notes payable, current 1,492,547 193,968 - - 1,686,515 1,647,504 Total current liabilities 1,883,289 419,069 187,301 78,662 2,568,321 2,814,726 Noncurrent liabilities: Liabilities payable from restricted assets: Customer deposits 725,363 - - - 725,363 691,244 Interest payable 162,727 14,100 - - 176,827 195,826 Compensated absences 172,666 10,992 - 22,125 205,783 95,386 Other postemployment obligation payable 84,598 15,879 - 33,037 133,514 141,445 Net pension liability 1,381,822 148,911 111,266 130,212 1,772,211 2,134,761 Bonds and notes payable, noncurrent portion 12,629,428 1,118,600 - - 13,748,028 15,434,595 Total noncurrent liabilities 15,156,604 1,308,482 111,266 185,374 16,761,726 18,693,257 Total liabilities 17,039,893 1,727,551 298,567 264,036 19,330,047 21,507,983 DEFERRED INFLOWS OF RESOURCES Deferred inflows related to pensions 333,144 35,901 26,825 31,393 427,263 174,599 Deferred inflows related to OPEB 5,743 1,078 - 2,243 9,064 5,778 Total deferred inflows of resources 338,887 36,979 26,825 33,636 436,327 180,377 NET POSITION Net investment in capital assets 14,489,554 8,812,114 3,246 29,921 23,334,835 23,460,087 Restricted for: Debt retirement 280,916 - - - 280,916 394,939 Renewal and replacement 250,000 - - - 250,000 250,000 Utility rate stabilization 400,000 - - - 400,000 - Utility system improvements (expendable) 2,756,853 - - - 2,756,853 1,900,438 Building code enforcement - - - 447,232 447,232 464,680 Unrestricted 5,029,005 1,334,244 567,566 - 6,930,815 5,393,704 Total net position $ 23,206,328 $ 10,146,358 $ 570,812 $ 477,153 $ 34,400,651 $ 31,863,848 See accompanying notes. 20 CITY OF ATLANTIC BEACH, FLORIDA STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION – PROPRIETARY FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2019 WITH COMPARATIVE TOTALS FOR THE YEAR ENDED SEPTEMBER 30, 2018 2019 Business Type Activities - Enterprise Funds Building Code 2018 Utility Stormwater Sanitation Enforcement Totals Total OPERATING REVENUES: Charges for services Customer charges $ 8,861,974 $ 894,373 $ 1,860,792 $ 516,385 $ 12,133,524 $ 11,581,596 Franchise permits - - 13,500 - 13,500 9,500 Miscellaneous revenues 67,291 - - - 67,291 64,563 Total operating income 8,929,265 894,373 1,874,292 516,385 12,214,315 11,655,659 OPERATING EXPENSES: Personnel services 1,794,213 349,178 72,032 410,445 2,625,868 2,759,858 Contractual services 643,360 207,304 1,476,130 37,229 2,364,023 2,702,658 Supplies 474,547 53,949 - 6,407 534,903 447,191 Repairs and maintenance 188,756 7 5,696 29,878 224,337 202,597 Utilities 352,529 - - - 352,529 348,357 Depreciation 1,916,264 651,585 1,092 8,476 2,577,417 2,625,880 Intergovernmental charges 1,133,451 162,745 152,276 46,238 1,494,710 1,494,710 Other expenses 234,493 137,668 2,390 11,819 386,370 208,165 Total operating expenses 6,737,613 1,562,436 1,709,616 550,492 10,560,157 10,789,416 OPERATING INCOME (LOSS) 2,191,652 (668,063) 164,676 (34,107) 1,654,158 866,243 NONOPERATING REVENUE (EXPENSE) Connection charges 44,018 - - - 44,018 61,460 Intergovernmental - - 731,746 - 731,746 22,297 Franchise fees - - 73,964 - 73,964 62,066 Investment earnings (loss) 328,612 29,066 25,299 16,318 399,295 (19,600) Interest expense (475,456) (47,513) - - (522,969) (545,711) Gain (loss) on disposal of capital assets - - - - - 6,820 Other, net 5,800 - - - 5,800 - Total nonoperating revenues (expense) (97,026) (18,447) 831,009 16,318 731,854 (412,668) Continued… See accompanying notes. 21 CITY OF ATLANTIC BEACH, FLORIDA STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION – PROPRIETARY FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2019 WITH COMPARATIVE TOTALS FOR THE YEAR ENDED SEPTEMBER 30, 2018 2019 Business Type Activities - Enterprise Funds Building Code 2018 Utility Stormwater Sanitation Enforcement Totals Total INCOME (LOSS) BEFORE CONTRIBUTIONS AND TRANSFERS $ 2,094,626 $ (686,510) $ 995,685 $ (17,789) $ 2,386,012 $ 453,575 CAPITAL CONTRIBUTIONS System development charges 808,439 - - - 808,439 663,905 Capital grants and contributions - - - - - - Total capital contributions 808,439 - - - 808,439 663,905 TRANSFERS Transfers in - 200,000 - - 200,000 285,000 Transfers out (857,648) - - (857,648) (902,945) Total transfers (857,648) 200,000 - - (657,648) (617,945) CHANGE IN NET POSITION 2,045,417 (486,510) 995,685 (17,789) 2,536,803 499,535 NET POSITION, beginning of year 21,160,911 10,632,868 (424,873) 494,942 31,863,848 31,364,313 NET POSITION, end of year $ 23,206,328 $ 10,146,358 $ 570,812 $ 477,153 $ 34,400,651 $ 31,863,848 See accompanying notes. 22 CITY OF ATLANTIC BEACH, FLORIDA STATEMENT OF CASH FLOWS FOR THE YEAR ENDED SEPTEMBER 30, 2019 WITH COMPARATIVE TOTALS FOR THE YEAR ENDED SEPTEMBER 30, 2018 2019 Business Type Activities - Enterprise Funds Building Code 2018 Utility Stormwater Sanitation Enforcement Total Totals CASH FLOWS FROM OPERATING ACTIVITIES: Receipts from customers $ 8,846,480 $ 889,512 $ 1,862,370 $ 531,475 $ 12,129,837 $ 11,685,961 Payments to suppliers (3,019,117) (435,518) (1,630,306) (116,294) (5,201,235) (5,728,267) Payments for salaries and benefits (1,997,454) (334,471) (66,113) (413,992) (2,812,030) (2,884,219) Net cash flows from operating activities 3,829,909 119,523 165,951 1,189 4,116,572 3,073,475 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES: Transfers from (to) other funds (857,648) 200,000 - - (657,648) (617,945) Change in amounts due from/to other funds - - (367,030) - (367,030) 367,030 Connection charges received 44,018 - - - 44,018 61,460 Operating grants - - 731,746 - 731,746 - Franchise fees received - - 73,964 - 73,964 62,066 Net cash flows from noncapital financing activities (813,630) 200,000 438,680 - (174,950) (127,389) CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Acquisition and construction of capital assets, net of related payables (630,914) (273,502) - (8,135) (912,551) (1,448,870) Principal paid on notes, bonds and lease obligations (1,458,050) (189,506) - - (1,647,556) (1,610,153) Interest paid on borrowings and other debt costs (398,705) (35,321) - - (434,026) (469,306) Proceeds from the sale of capital assets - - - - - 6,820 Capital contributions and impact fees received, net of change in related receivables 808,439 - 22,298 - 830,737 882,930 Net cash flows from capital and related financing activities (1,679,230) (498,329) 22,298 (8,135) (2,163,396) (2,638,579) CASH FLOWS FROM INVESTING ACTIVITIES Interest on invested funds 328,612 29,066 25,299 16,318 399,295 (1,268,225) Other income 5,800 - - - 5,800 (19,600) Net cash flows from investing activities 334,412 29,066 25,299 16,318 405,095 (1,287,825) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,671,461 (149,740) 652,228 9,372 2,183,321 (980,318) CASH AND CASH EQUIVALENTS, beginning of year 8,719,451 1,808,621 - 669,959 11,198,031 12,178,349 CASH AND CASH EQUIVALENTS, end of year $ 10,390,912 $ 1,658,881 $ 652,228 $ 679,331 $ 13,381,352 $ 11,198,031 As shown in the Accompanying Financial Statements Equity in cash and investments $ 5,529,981 $ 1,483,581 $ 652,228 $ 679,331 $ 8,345,121 $ 6,623,795 Cash with fiscal agent 1,173,162 175,300 - - 1,348,462 1,337,616 Restricted equity in cash and investments 3,687,769 - - - 3,687,769 3,236,620 Total cash and cash equivalents $ 10,390,912 $ 1,658,881 $ 652,228 $ 679,331 $ 13,381,352 $ 11,198,031 Noncash financing and investing activities: Amortization of refunding loss $ 93,910 $ 14,033 $ - $ - $ 107,943 $ 107,943 Continued… See accompanying notes. 23 CITY OF ATLANTIC BEACH, FLORIDA STATEMENT OF CASH FLOWS FOR THE YEAR ENDED SEPTEMBER 30, 2019 WITH COMPARATIVE TOTALS FOR THE YEAR ENDED SEPTEMBER 30, 2018 2019 Business Type Activities - Enterprise Funds Building Code 2018 Utility Stormwater Sanitation Enforcement Total Totals Reconciliation of operating income (loss) to net cash provided (used) by operating activities: Operating income (loss) $ 2,191,652 $ (668,063) $ 164,676 $ (34,107) $ 1,654,158 $ 866,243 Adjustments to reconcile operating income to net cash provided (used) by operating activities: Depreciation expense 1,916,264 651,585 1,092 8,476 2,577,417 2,625,880 (Increase) decrease in inventory and prepaids - - - - - (47,936) (Increase) decrease in accounts receivable (118,161) (4,861) (11,922) - (134,944) (5,730) (Increase) decrease in notes receivable 1,257 - - - 1,257 - (Increase) decrease in amounts due from other governments - - - 15,090 15,090 11,092 Increase (decrease) in accounts payable 8,019 126,155 6,186 15,277 155,637 (276,653) Increase (decrease) in compensated absences 8,565 4,033 - 2,431 15,029 (11,688) Increase (decrease) in customer deposits 34,119 - - - 34,119 38,232 (Increase) decrease in OPEB related deferred outflows 970 39 - 202 1,211 (5,762) Increase (decrease) in the total OPEB liability (8,951) 1,088 - (68) (7,931) 3,797 Increase (decrease) in OPEB related deferred inflows 1,922 474 - 890 3,286 5,778 (Increase) decrease in pension related deferred outflows (42,010) (20,590) (14,944) (10,327) (87,871) 177,764 Increase (decrease) in the net pension liability (354,842) 5,492 2,901 (16,101) (362,550) (440,398) Increase (decrease) in pension related deferred inflows 191,105 24,171 17,962 19,426 252,664 146,148 Increase (decrease) in unearned revenue and other - - - - - (13,292) Net cash flows from operating activities $ 3,829,909 $ 119,523 $ 165,951 $ 1,189 $ 4,116,572 $ 3,073,475 See accompanying notes. 24 CITY OF ATLANTIC BEACH, FLORIDA STATEMENT OF FIDUCIARY NET POSITION SEPTEMBER 30, 2019 WITH COMPARATIVE TOTALS FOR SEPTEMBER 30, 2018 Pension Trust Funds ASSETS 2019 2018 Cash and cash equivalents $ 318,445 $ 199,406 Due from other governments ‐ 123,068 Accrued income 35,719 40,374 Investments at fair value 32,403,671 31,647,582 Other assets ‐ 542 Total assets 32,757,835 32,010,972 LIABILITIES Due to City 11,652 136,343 Total Liabilities 11,652 136,343 NET POSITION Restricted for pension benefits $ 32,746,183 $ 31,874,629 See accompanying notes. 25 CITY OF ATLANTIC BEACH, FLORIDA STATEMENT OF CHANGES IN FIDUCIARY NET POSITION FOR THE YEAR ENDED SEPTEMBER 30, 2019 WITH COMPARATIVE TOTALS FOR THE YEAR ENDED SEPTEMBER 30, 2018 Pension Trust Funds 2019 2018 ADDITIONS Contributions: City $ 2,251,184 $ 2,186,899 Plan members 249,769 249,034 State of Florida - 236,772 Total contributions 2,500,953 2,672,705 Investment income 1,039,693 2,507,611 Less investment expenses: (111,228) (106,903) Net investment income 928,465 2,400,708 Total additions 3,429,418 5,073,413 DEDUCTIONS Administrative expenses 86,926 62,237 Payments to retirees and participants 2,470,938 2,192,144 Total deductions 2,557,864 2,254,381 CHANGE IN NET POSITION 871,554 2,819,032 NET POSITION, beginning of year 31,874,629 29,055,597 NET POSITION, end of year $ 32,746,183 $ 31,874,629 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2019 26 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. Measurement Focus, Basis of Accounting, and Financial Statement Presentation 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 non-fiduciary activities of the City. For the most part, the effect of inter-fund 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. 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. CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2019 27 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont…) Measurement Focus, Basis of Accounting, and Financial Statement Presentation (cont…) 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 inter-fund 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. 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. CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2019 28 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont…) Measurement Focus, Basis of Accounting, and Financial Statement Presentation (cont…) 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 – non-spendable, restricted, committed, assigned, and unassigned: • Non-Spendable 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. • 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. CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2019 29 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont…) Measurement Focus, Basis of Accounting, and Financial Statement Presentation (concluded) 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 non-operating 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 non-operating 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. 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. These pooled cash, investments and related accrued investment earnings are reported in the financial statements as “Equity in pooled cash and investments” under the City’s “pooling” concept (see Note 2). 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. CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2019 30 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont…) The proprietary funds use this pool as a demand deposit accounts, and accordingly, all amounts in the pool are considered cash and cash equivalents for the purposes of the statement of cash flows. Investments are valued at fair market value (see Note 2). Receivables Receivables are recorded at their net realizable value. Inter-Fund 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 inter-fund loans) or “advances to/from other funds” (i.e., the non-current portion of inter-fund 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 non-spendable 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. 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 acquisition 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. CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2019 31 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont…) 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. Deferred Inflows/Outflows of Resources Deferred inflows of resources reported on applicable governmental fund types represent revenues, which are measurable 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 and OPEB Related—the difference between expected and actual experience with regard to economic or demographic factors and changes to assumptions in the measurement of total pension and OPEB liability and the differences between expected and actual earnings on pension plan investments, are reported as deferred inflows or outflows of resources, to be recognized in expense in future years. Contributions made subsequent to the measurement date, but prior to the reporting date, are reported as deferred outflows of resources. CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2019 32 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont…) 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. Inter-Fund Transactions During the course of normal operations, the City has various transactions between funds to construct assets and comply with local ordinances and other legal restrictions. These transactions are reflected as transfers. In addition, certain transfers have been made between systems and accounts of the utility enterprise fund as required by bond covenants. Prior Period Information The financial statements include certain prior year summarized comparative information in total. Such information does not include sufficient detail to constitute a presentation in conformity with generally accepted accounting principles. Accordingly, such information should be read in conjunction with the City’s financial statements for the year ended September 30, 2018, from which the summarized information was derived. Future GASB Pronouncement Implementations The City is currently evaluating the effects that the following GASB Statements, which will be implemented in future financial statements, will have on its financial statements for subsequent fiscal years: • Statement No 83, “Certain Asset Retirement Obligations (AROs).” This Statement addresses accounting and financial reporting for certain AROs. An ARO is a legally enforceable liability associated with the retirement of a tangible capital asset. A government that has legal obligations to perform future asset retirement activities related to its tangible capital assets should recognize a liability. This Statement establishes criteria for determining the timing and pattern of recognition of a liability and a corresponding deferred outflow of resources for AROs. This statement is currently under review and the City will consider the impact, if any, upon financial reporting. The provisions of this statement are effective for fiscal years beginning after June 15, 2019. CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2019 33 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont…) • Statement No. 87, “Leases.” This Statement increases the usefulness of governments’ financial statements by requiring recognition of certain lease assets and liabilities for leases that previously were classified as operating leases and recognized as inflows of resources or outflows of resources based on the payment provisions of the contract. It establishes a single model for lease accounting based on the foundational principle that leases are financings of the right to use an underlying asset. Under this Statement, a lessee is required to recognize a lease liability and an intangible right-to-use lease asset, and a lessor is required to recognize a lease receivable and a deferred inflow of resources, thereby enhancing the relevance and consistency of information about governments’ leasing activities. This statement is currently under review and the City will consider the impact, if any, upon financial reporting. The provisions of this statement are effective for fiscal years beginning after June 15, 2021. • Statement 84, “Fiduciary Activities.” The requirements of this Statement will enhance consistency and comparability by (1) establishing specific criteria for identifying activities that should be reported as fiduciary activities and (2) clarifying whether and how business-type activities should report their fiduciary activities. The provisions of this statement are effective for fiscal years beginning after December 15, 2019. • Statement 97, “Certain Component Unit Criteria, and Accounting and Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans.” This statement increases consistency and comparability related to the reporting of fiduciary component units in circumstances in which a potential component unit does not have a governing board and the primary government performs the duties that a governing board typically would perform; (2) mitigate costs associated with the reporting of certain defined contribution pension plans, defined contribution other postemployment benefit (OPEB) plans, and employee benefit plans other than pension plans or OPEB plans (other employee benefit plans) as fiduciary component units in fiduciary fund financial statements; and (3) enhance the relevance, consistency, and comparability of the accounting and financial reporting for Internal Revenue Code (IRC) Section 457 deferred compensation plans (Section 457 plans) that meet the definition of a pension plan and for benefits provided through those plans. The provisions of this statement are effective for fiscal years beginning after June 15, 2021. CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2019 34 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, 2019, the carrying amount of cash on hand and on deposit with banks, including interest-bearing deposits was $4,064,322, and the related bank balance was $4,124,361. 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. 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, 2019: Investment Maturities Fair Less than 1-5 6-10 More than Investment Type Value 1 Year Years Years 10 Years Total Accrued interest $ 87,998 $ 87,998 $ - $ - $ - 87,998 Investment sale receivable 43,593 43,593 - - - 43,593 Money market funds / cash 53,875 53,875 - - - 53,875 Corporate bonds 5,994,714 1,084,184 4,880,074 30,456 - 5,994,714 U.S. Treasury Obligations and Federal Agency Securities 10,674,902 1,879,340 8,480,236 315,326 - 10,674,902 Florida PRIME 24,231 24,231 - - - 24,231 Total $ 16,879,313 $ 3,173,221 $ 13,360,310 $ 345,782 $ - $ 16,879,313 The Florida PRIME component of the cash and investments is an investment in an investment pool administered by the State Board of Administration, under the regulatory oversight of the State of Florida. Florida PRIME meets all the necessary criteria to report their investments at amortized cost in accordance with GASB Cod. Sec. In5. As of September 30, 2019, there were no redemption fees, maximum transaction amounts or any other requirements that service to limit the City’s access to one hundred percent of their account value. The fair value of the City’s position in the pool in the same as the value of the pool shares. CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2019 35 NOTE 2 – CASH AND INVESTMENTS (cont…) The City’s fixed income investment balances as of at September 30, 2019, are comprised of the following items: Percentage of S & P Credit Total Fixed Income Investment Type Rating Investments Corporate Bonds AA+ 0.31% Corporate Bonds AA 0.39% Corporate Bonds AA- 1.66% Corporate Bonds A+ 1.80% Corporate Bonds A 8.42% Corporate Bonds A- 7.23% Corporate Bonds BBB+ 5.94% Corporate Bonds BBB 3.68% Corporate Bonds BBB- 0.06% Corporate Bonds Not Rated 6.35% U.S. Treasury Obligations and Federal Agency Securities AAA 55.59% U.S. Treasury Obligations and Federal Agency Securities Not Rated 8.57% 100.00% Listed below are the investments, credit ratings and maturities in the City’s pension trust funds at September 30, 2019: Investment Maturities Fair Less than 1-5 6-10 More than Investment Type Value 1 Year Years Years 10 Years Total Money market funds / cash $ 514,259 $ 514,259 $ - $ - $ - $ 514,259 Corporate bonds 3,098,477 99,108 1,570,248 1,429,121 - 3,098,477 U.S. Treasury Obligations and Federal Agency Securities 3,079,786 60,721 1,642,688 694,177 682,200 3,079,786 Fixed Income Mutual Funds 4,749,357 4,749,357 - - - 4,749,357 Total $ 11,441,879 $ 5,423,445 $ 3,212,936 $ 2,123,298 $ 682,200 $ 11,441,879 The City’s pension trust fund fixed income investment balances as of September 30, 2019, are comprised of the following items: Percentage of S & P Credit Total Fixed Income Investment Type Rating Investments Corporate Bonds AAA 3.33% Corporate Bonds A 4.05% Corporate Bonds A- 2.31% Corporate Bonds BB+ 2.36% Corporate Bonds BB 9.43% Corporate Bonds BB- 7.02% Mutual Funds - Fixed Income Not Rated 43.32% U.S. Treasury Obligations and Federal Agency Securities AAA 21.96% U.S. Treasury Obligations and Federal Agency Securities Not Rated 6.22% 100.00% CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2019 36 NOTE 2 – CASH AND INVESTMENTS (cont…) 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%. 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. CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2019 37 NOTE 2 – CASH AND INVESTMENTS (concluded) The fair value measurements for the City’s investments are as follows at September 30, 2019: Fair Value Measurements Using Quoted Prices in Significant Other Significant Active Markets for Observable Unobservable Identical Assets Inputs Inputs Investments by Fair Value Level Amount (Level 1) (Level 2) (Level 3) City Investments: Accrued interest $ 87,998 $ 87,998 $ - $ - Investment sale receivable 43,593 43,593 - - Money Markets 53,875 53,875 - - Corporate Bonds 5,994,714 - 5,994,714 - U.S. Treasury Obligations and Federal Agency Securities 10,674,902 - 10,674,902 - Subtotal - City Investments 16,855,082 185,466 16,669,616 - General Employees' Pension Plan: Money Markets 327,810 327,810 - - Corporate Bonds 1,971,682 - 1,971,682 - U.S. Treasury Obligations and Federal Agency Securities 1,939,234 - 1,939,234 - Mutual Funds - Fixed Income 2,981,555 2,981,555 - - Mutual Funds - Equities 2,624,480 2,624,480 - - ETFs 3,427,462 3,427,462 - - Equities 7,208,860 7,208,860 - - ICMA Self Directed - - - - Subtotal - General Employees' Pension Plan 20,481,083 16,570,167 3,910,916 - Police Officers' Pension Plan: Money Markets 186,449 186,449 - - Corporate Bonds 1,126,795 - 1,126,795 - U.S. Treasury Obligations and Federal Agency Securities 1,140,552 - 1,140,552 - Mutual Funds - Fixed Income 1,767,802 1,767,802 - - Mutual Funds - Equities 1,548,765 1,548,765 - - ETFs 1,746,854 1,746,854 - - Equities 4,232,640 4,232,640 - - ICMA Self Directed 172,731 172,731 - - Subtotal - Police Officers' Pension Plan 11,922,588 9,655,241 2,267,347 - Total Investments Measured at Fair Value $ 49,258,753 $ 26,410,874 $ 22,847,879 $ - CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2019 38 NOTE 3 – RECEIVABLES Receivables, net of the allowance for doubtful accounts at September 30, 2019, consist of the following: Less Total Allowance Accounts Accounts for Doubtful Receivable Fund Receivable Accounts Net General Fund $ 495 $ - $ 495 Capital projects fund 115,512 - 115,512 Utility Fund 1,110,938 (449,821) 661,117 Stormwater Fund 68,929 (15,597) 53,332 Sanitation Fund 143,011 (53,602) 89,409 Total $ 1,438,885 $ (519,020) $ 919,865 Included in accounts receivable are $242,623 of water and sewer revenues earned, but not billed as of September 30, 2019. 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 due to the City at September 30, 2019: Notes Receivable $ 135,525 (Current Portion) (15,759) Total Notes Receivable - Noncurrent $ 119,766 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2019 39 NOTE 5 – CAPITAL ASSETS Capital asset activity for the fiscal year ended September 30, 2019, is as follows: Balance Balance October 1, September 30, 2018 Transfers Increases Decreases 2019 Governmental Activities: Capital assets, not being depreciated: Land $ 11,913,572 $ - $ - $ 11,913,572 Construction in process 741,396 (17,007) 173,562 - 897,951 Total capital assets, not being depreciated 12,654,968 (17,007) 173,562 - 12,811,523 Capital assets, being depreciated: Buildings 9,450,124 4,160 93,200 - 9,547,484 Intangible assets 428,352 12,847 7,123 - 448,322 Improvements other than buildings 41,817,798 - 404,887 - 42,222,685 Machinery and equipment 5,117,155 - 540,367 - 5,657,522 Total capital assets, being depreciated 56,813,429 17,007 1,045,577 - 57,876,013 Less accumulated depreciation for: Buildings (2,403,207) - (168,941) - (2,572,148) Intangible assets (380,002) - (16,142) - (396,144) Improvements other than buildings (17,005,388) - (666,098) - (17,671,486) Machinery and equipment (3,841,814) - (515,973) - (4,357,787) Total accumulated depreciation (23,630,411) - (1,367,154) - (24,997,565) Total capital assets being depreciated, net 33,183,018 17,007 (321,577) - 32,878,448 Governmental activities capital assets, net $ 45,837,986 $ - $ (148,015) $ - $ 45,689,971 Business-type activities: Capital assets, not being depreciated: Land $ 1,656,018 $ - $ - $ - $ 1,656,018 Construction-in-progress 1,486,408 (247,258) 451,263 - 1,690,413 Total capital assets, not being depreciated 3,142,426 (247,258) 451,263 - 3,346,431 Capital assets, being depreciated: Buildings 4,356,384 - - - 4,356,384 Intangible assets 244,709 - - - 244,709 Improvements other than buildings 85,317,678 211,271 128,095 - 85,657,044 Machinery and equipment 3,127,810 35,987 339,448 - 3,503,245 Total capital assets, being depreciated 93,046,581 247,258 467,543 - 93,761,382 Less accumulated depreciation for: Buildings (4,312,327) - (8,442) - (4,320,769) Intangible assets (31,044) - (190) - (31,234) Improvements other than buildings (49,911,446) - (2,316,454) - (52,227,900) Machinery and equipment (2,147,606) - (252,331) - (2,399,937) Total accumulated depreciation (56,402,423) - (2,577,417) - (58,979,840) Total capital assets being depreciated, net 36,644,158 247,258 (2,109,874) - 34,781,542 Business-type activities capital assets, net $ 39,786,584 $ - $ (1,658,611) $ - $ 38,127,973 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2019 40 NOTE 5 – CAPITAL ASSETS (concluded) Depreciation expense was charged to functions/programs as follows: Governmental Activities: General government $ 221,950 Public safety 283,017 Transportation 535,919 Parks and recreation 326,268 Total depreciation expense - governmental activities $ 1,367,154 Business-type Activities: Utility $ 1,916,264 Stormwater 651,585 Sanitation 1,092 Building Code Enforcement 8,476 Total depreciation expense - business-type activities $ 2,577,417 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2019 41 NOTE 6 – LONG-TERM OBLIGATIONS The following is a summary of the changes in long-term obligations of the City for the year ended September 30, 2019: Balance Balance Amounts October 1, September 30, Due within 2018 Increases Decreases 2019 One Year Governmental Activities: Long-term debt: Capital Improvement Revenue Bond, Series 2018 $ 1,400,000 $ - $ - $ 1,400,000 $ 70,000 Total long-term debt 1,400,000 - - 1,400,000 70,000 Other liabilities: OPEB obligation 313,894 22,547 - 336,441 - Net pension liability 6,377,619 - (1,048,798) 5,328,821 - Compensated absences 742,783 19,568 - 762,351 171,064 Total other liabilities 7,434,296 42,115 (1,048,798) 6,427,613 171,064 Total long-term obligations $ 8,834,296 $ 42,115 $ (1,048,798) 7,827,613 $ 241,064 Less amounts due in one year (241,064) Total noncurrent obligations due in more than one year $ 7,586,549 Business-type Activities: Long-term debt: Utility System Revenue Refunding Bond, Series 2014 $ 10,525,000 $ - $ (1,215,000) $ 9,310,000 $ 1,240,000 FDEP Loan DW160710 525,873 - (35,867) 490,006 36,848 FDEP Loan WW160700 5,763,576 - (333,574) 5,430,002 344,131 Capital Lease Payable - 2018 267,650 - (63,115) 204,535 65,536 Total bonds and notes payable 17,082,099 - (1,647,556) 15,434,543 1,686,515 Other liabilities: OPEB obligation 141,445 - (7,931) 133,514 - Net pension liability 2,134,761 - (362,550) 1,772,211 - Compensated absences 234,974 15,029 - 250,003 44,220 Total other liabilities 2,511,180 15,029 (370,481) 2,155,728 44,220 Total long-term liabilities $ 19,593,279 $ 15,029 $ (2,018,037) 17,590,271 $ 1,730,735 Less amounts due in one year (1,730,735) Net long-term liabilities in excess of one year $ 15,859,536 Notes to the Long-Term Obligations Table: Long term liabilities, including accumulated compensated absences, OPEB liability and the City’s net pension liabilities, are typically liquidated by the individual fund to which the liability is directly associated. All of the City’s long-term debt arose through direct borrowings or direct placements. Governmental Activities: • Capital Improvement Revenue Bond, Series 2019 – Payable in annual installment of principal and semiannual installments of interest through October 1, 2033, bearing coupon rates of 3.550%, secured solely by a pledge of non-advalorem revenues. CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2019 42 NOTE 6 – LONG-TERM OBLIGATIONS (cont…) Notes to the Long-Term Obligations Table: Business-type Activities • 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. • Florida Department of Environmental Protection,(FDEP) 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. • Florida Department of Environmental Protection (FDEP), 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. • Capital Lease Payable – 2018 - The City entered into a lease agreement for financing the acquisition of a Vac-Con Vacuum Truck. Lease payments including principal and interest are due each September 1, until 2022 at an interest rate of 3.98%. The asset acquired through the capital lease are as follows: Business-type Activities Asset: Vac-Con vacuum truck $ 334,544 Less: accumulated depreciation (74,343) Net book value $ 260,201 The future minimum lease obligations and the net present value of these minimum lease payments as of September 30, 2019, were as follows: Year Ending September 30 Principal Interest Total 2020 $ 65,535 $ 8,140 $ 73,675 2021 68,144 5,532 73,676 2022 70,856 2,820 73,676 2023 $ 204,535 $ 16,492 $ 221,027 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2019 43 NOTE 6 – LONG-TERM OBLIGATIONS (cont…) Notes to the Long-Term Obligations Table: The annual requirements to amortize all revenue bonds and loans payable outstanding at September 30, 2019, are as follows: Governmental Activities Business-type Activities Fiscal Year Ending Principal Interest Principal Interest 2020 $ 70,000 $ 48,458 $ 1,620,979 $ 462,297 2021 75,000 47,215 1,657,876 409,835 2022 80,000 44,553 1,705,143 356,031 2023 80,000 41,713 1,747,795 300,790 2024 85,000 38,873 1,790,842 244,183 2025-2029 460,000 147,868 5,179,662 536,231 2030-2034 550,000 60,350 1,527,711 82,968 Total $ 1,400,000 $ 429,030 $ 15,230,008 $ 2,392,335 Interest and amortization incurred during the year ended September 30, 2019, amounted to $567,669. 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, 2019, and during the year then ended, the City was in compliance with those ratios. Pledged Revenue The City has pledged certain revenues to repay certain bonds and notes outstanding as of September 30, 2019. 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, 2019: Percentage of Net Revenue Total Principal Current Year Revenues to Pledged and Interest Principal and Current Year Principal and Description Pledged Revenue Through Outstanding Interest Paid Net Revenue Interest Paid 2014 - Utility System Refunding Bonds Utility Net Revenues 2026 $ 10,393,348 $ 1,446,078 $ 4,107,916 FDEP Loan DW160710 Utility Net Revenues 2031 $ 573,606 $ 49,879 $ 4,107,916 FDEP Loan WW160700 Utility Net Revenues 2032 $ 6,655,389 $ 511,953 $ 4,107,916 Total $ 17,622,343 $ 2,007,910 $ 4,107,916 204.59% CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2019 44 NOTE 6 – LONG-TERM OBLIGATIONS (concluded) Remedies in the Event of Default The City’s debt obligations all allow for the obligors to take whatever legal actions necessary to collect the amounts due in the event of default. The following debt obligations have additional remedies in the event of default as follows: • FDEP Loans DW160710 and WW160700 - The lender, subject to the rights of superior liens on the pledged revenues, may request a court to appoint a receiver to manage the water and sewer systems, intercept the delinquent amount from any unobligated funds due to the City under any revenue or tax sharing fund established by the State of Florida, impose a penalty in the amount not to exceed a rate of 18 percent per annum on the amount due, notify financial market credit rating agencies and potential creditors and may accelerate the repayment schedule or increase the interest rate on the unpaid principal of the loan to as much as three times the loan interest rate. 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, 2019, there are two series of Health Facility Revenue and Refunding Bonds outstanding, with an aggregate principal amount payable of $166,630,000 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2019 45 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 (the 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, 2019 and 2018, is as follows: September 30 September 30 2018 2017 Inactive plan members or beneficiaries currently receiving benefits 74 69 Inactive plan members entitled to but not yet receiving benefits 7 10 Active plan members 34 37 Total 115 116 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, 2019, Plan net position included $0 of DROP account balances. Contributions The City is required to contribute at an actuarially determined rate (79.3%) of valuation payroll for the year ended September 30, 2019. City contributions to the Plan were $1,424,479 for the year ended September 30, 2019. 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. CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2019 46 NOTE 7 – DEFINED BENEFIT PENSION PLANS (cont…) 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, 2018, 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, 2019, are also included below. Net Pension Liability The components of the changes in the net pension liability for the Plan for the year ended September 30, 2019 is shown below. Increase (Decrease) Total Pension Plan Fiduciary Net Pension Liability Net Position (Asset) Liability (a) (b) (a)-(b) Reporting period ending 9/30/2018 $ 22,894,177 $ 18,243,134 $ 4,651,043 Changes for the year: Service cost 345,019 - 345,019 Interest 1,574,193 - 1,574,193 Difference between actual and expected experience (473,189) - (473,189) Change in assumptions 695,507 - 695,507 Contributions - City - 1,332,119 (1,332,119) Contributions - employee - 117,536 (117,536) Net investment income - 1,554,225 (1,554,225) Benefit payments, including refunds of employee contributions (1,501,456) (1,501,456) - Administrative expense - (31,261) 31,261 Net changes 640,074 1,471,163 (831,089) Reporting period ending 9/30/2019 $ 23,534,251 $ 19,714,297 $ 3,819,954 *Note: Plan Net Position per Fiduciary Statement of Net Position on page 52 is different than the Plan Net Position noted above primarily due to reporting differences between the actuarially determined changes in the net pension liability above and the Fiduciary Statement of Net Position. Differences are immaterial. CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2019 47 NOTE 7 – DEFINED BENEFIT PENSION PLANS (cont…) The components of the net pension liability for the Plan as of the September 30, 2019 measurement date were as follows: Total pension liability $ 24,146,186 Plan fiduciary net position (20,497,952) Net pension liability (asset) $ 3,648,234 Plan fiduciary net position as a percentage of the total pension liability 85% For the year ended September 30, 2019, the City recognized total pension expense of $962,776. The City reported deferred outflows of resources and deferred inflows of resources related to the General Employees’ Pension Plan from the following sources: Deferred Deferred Outflows of Inflows of Description Resources Resources Differences between expected and actual experience $ 61,974 $ 267,455 Change in assumptions 393,113 - Difference between projected and actual earnings on Plan investments - 653,498 City contributions subsequent to the measurement date 1,424,490 - Total $ 1,879,577 $ 920,953 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, 2020. Other amounts reported as deferred outflows of resources related to pensions will be recognized in pension expense as follows: Year ending September 30, Amount 2020 $ 48,761 2021 (256,766) 2022 (192,736) 2023 (65,125) $ (465,866) 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 4.04% and 8.67% for the years ended September 30, 2019 and 2018, respectively. CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2019 48 NOTE 7 – DEFINED BENEFIT PENSION PLANS (cont…) Actuarial Assumptions The total pension liability was determined by actuarial valuations for the Plan as of September 30, 2018, rolled forward to September 30, 2019, using the following actuarial assumptions, applied to all periods included in the measurement: Inflation: 2.50% Salary Increases: Age based ranging from 4.80% to 9.50% (including 2.50% price inflation. Investment Rate of Return: 6.75% per year compounded annually, net of investment expenses. Mortality: RP-2000 Combined Healthy Participant Mortality Table for males and females with generational projections from the Year 2000 Projection Scale BB. Date of Experience Study: Dated August 9, 2017 for the period October 1, 2009 to September 30, 2016 Long Term Expected Rate of Return 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% 7.40% US Large-Cap Value Stocks 12% 7.00% US Mid-Cap Growth Stocks 3% 8.60% US Mid-Cap Value Stocks 4% 7.80% US Mid-Cap Core Stocks 3% 6.90% US Small-Cap Growth Stocks 5% 9.60% US Small-Cap Value Stocks 5% 8.60% International Equities 5% 7.20% US Investment Grade Bonds 40% 1.80% Cash (US 90-day T-Bill) 10% 0.20% 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 6.75%. 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 (6.75%) was applied to all periods of projected benefit payments to determine the total pension liability. CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2019 49 NOTE 7 – DEFINED BENEFIT PENSION PLANS (cont…) 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 noted below, 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 or 1-percentage-point higher than the current rate for both the measurement date of September 30, 2018 and the financial reporting date of September 30, 2019. Current As of Discount September, Rate 1% Decrease Current Rate 1% Increase 9/30/2018 6.75% $ 6,422,922 $ 3,819,954 $ 1,519,301 9/30/2019 6.75% $ 6,263,183 $ 3,648,234 $ 1,407,059 Police Officers’ Retirement Plan Plan Description The Police Officers’ Retirement Plan (the 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, 2019 and 2018, is as follows: September 30 September 30 2018 2017 Inactive plan members or beneficiaries currently receiving benefits 22 22 Inactive plan members entitled to but not yet receiving benefits 4 4 Active plan members 24 23 Total 50 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, 2019, Police Plan net position included $0 of DROP account balances. CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2019 50 NOTE 7 – DEFINED BENEFIT PENSION PLANS (cont…) 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 46.57% of valuation payroll for the year ended September 30, 2019). City and State contributions to the Police Plan were $826,705 for the year ended September 30, 2019. 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, 2018, 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, 2019, are also included below. Net Pension Liability The components of the changes in the net pension liability for the Police Plan for the year ended September 30, 2019 (September 30, 2018 measurement date) is shown below: Increase (Decrease) Total Pension Plan Fiduciary Net Pension Liability Net Position (Asset) Liability (a) (b) (a)-(b) Reporting period ending 9/30/2018 $ 14,664,876 $ 10,803,540 $ 3,861,336 Changes for the year: Service cost 329,254 - 329,254 Interest 1,016,983 - 1,016,983 Difference between actual and expected experience (209,232) - (209,232) Changes of assumptions 454,983 - 454,983 Changes in the excess State money (120,454) - (120,454) Contributions - City - 854,780 (854,780) Contributions - State - 236,772 (236,772) Contributions - employee - 131,498 (131,498) Net investment income - 853,894 (853,894) Benefit payments, including refunds of employee contributions (690,688) (690,688) - Administrative expense - (25,152) 25,152 Net changes 780,846 1,361,104 (580,258) Reporting period ending 9/30/2019 $ 15,445,722 $ 12,164,644 $ 3,281,078 *Note: Plan Net Position per Fiduciary Statement of Net Position on page 52 is different than the Plan Net Position noted above primarily due to reporting differences between the actuarially determined changes in the net pension liability above and the Fiduciary Statement of Net Position. Differences are immaterial. CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2019 51 NOTE 7 – DEFINED BENEFIT PENSION PLANS (cont…) The components of the net pension liability for the Police Plan as of the September 30, 2019 measurement date were as follows: Total pension liability $ 15,309,524 Plan fiduciary net position (12,258,376) Net pension liability (asset) $ 3,051,148 Plan fiduciary net position as a percentage of the total pension liability 80% For the year ended September 30, 2019, the City recognized total pension expense of $962,776. The City reported deferred outflows of resources and deferred inflows of resources related to the General Employees’ Pension Plan from the following sources: Deferred Deferred Outflows of Inflows of Description Resources Resources Differences between expected and actual experience $ 109,614 $ 167,717 Change in assumptions 341,237 12,128 Net difference between projected and actual earnings on Plan investments - 225,647 City contributions subsequent to the measurement date 826,705 - Total $ 1,277,556 $ 405,492 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, 2019. 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, Amount 2018 $ 80,050 2019 (3,525) 2020 (9,657) 2021 (21,509) $ 45,359 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 4.38% and 8.26% for the years ended September 30, 2019 and 2018, respectively. CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2019 52 NOTE 7 – DEFINED BENEFIT PENSION PLANS (cont…) Actuarial Assumptions The total pension liability was determined by actuarial valuations for the Plan as of September 30, 2018, rolled forward to September 30, 2019, using the following actuarial assumptions, applied to all periods included in the measurement: Inflation: 2.50% Salary Increases: Age based ranging from 4.80% to 9.50% (including 2.50% price inflation. Investment Rate of Return: 6.75% per year compounded annually, net of investment expenses. Mortality: RP-2000 Combined Healthy Participant Mortality Table for males and females with generational projections from the Year 2000 Projection Scale BB. Date of Experience Study: Dated August 9, 2017 for the period October 1, 2009 to September 30, 2016 Long Term Expected Rate of Return 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% 7.40% US Large-Cap Value Stocks 12% 7.00% US Mid-Cap Growth Stocks 3% 8.60% US Mid-Cap Value Stocks 4% 7.80% US Mid-Cap Core Stocks 3% 6.90% US Small-Cap Growth Stocks 5% 9.60% US Small-Cap Value Stocks 5% 8.60% International Equities 5% 7.20% US Investment Grade Bonds 40% 1.80% Cash (US 90-day T-Bill) 10% 0.20% 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 6.75%. 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 (6.75%) was applied to all periods of projected benefit payments to determine the total pension liability. CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2019 53 NOTE 7 – DEFINED BENEFIT PENSION PLANS (cont…) 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 noted below, 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 or 1-percentage-point higher than the current rate for both the measurement date of September 30, 2018 and the financial reporting date of September 30, 2019. Current As of Discount September, Rate 1% Decrease Current Rate 1% Increase 9/30/2018 6.75% $ 5,147,498 $ 3,281,078 $ 1,727,757 9/30/2019 6.75% $ 4,821,956 $ 3,051,148 $ 1,406,207 The Statements of Fiduciary Net Position for the City’s pension trust funds for the year ended September 30, 2019 were as follows: Pension Trust Funds General Police Employees' Officers' Retirement Retirement 2019 2018 Plan Plan Totals Totals ASSETS Cash and cash equivalents $ - $ 318,445 $ 318,445 $ 199,406 Due from other governments - - - 123,068 Accrued income 22,881 12,838 35,719 40,374 Investments at fair value 20,481,083 11,922,588 32,403,671 31,647,582 Other assets - - - 542 Total assets 20,503,964 12,253,871 32,757,835 32,010,972 LIABILITIES Due to City 11,652 - 11,652 136,343 Total Liabilities 11,652 - 11,652 136,343 NET POSITION Restricted for pension benefits $ 20,492,312 $ 12,253,871 $ 32,746,183 $ 31,874,629 REMAINDER OF PAGE INTENTIONALLY LEFT BLANK CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2019 54 NOTE 7 – DEFINED BENEFIT PENSION PLANS (concluded) The Statements of Changes in Fiduciary Net Position for the City’s pension trust funds for the year ended September 30, 2019 were as follows: Pension Trust Funds General Police Employees' Officers' Retirement Retirement 2019 2018 Plan Plan Totals Totals ADDITIONS Contributions: City $ 1,424,479 $ 826,705 $ 2,251,184 $ 2,186,899 Plan members 107,745 142,024 249,769 249,034 State of Florida - - - 236,772 Total contributions 1,532,224 968,729 2,500,953 2,672,705 Investment income 692,904 346,789 1,039,693 2,507,611 Less investment expenses: (71,982) (39,246) (111,228) (106,903) Net investment income 620,922 307,543 928,465 2,400,708 Total additions 2,153,146 1,276,272 3,429,418 5,073,413 DEDUCTIONS Administrative expenses 44,725 42,201 86,926 62,237 Payments to retirees and participants 1,327,161 1,143,777 2,470,938 2,192,144 Total deductions 1,371,886 1,185,978 2,557,864 2,254,381 CHANGE IN NET POSITION 781,260 90,294 871,554 2,819,032 NET POSITION, beginning of year 19,711,052 12,163,577 31,874,629 29,055,597 NET POSITION, end of year $ 20,492,312 $ 12,253,871 $ 32,746,183 $ 31,874,629 REMAINDER OF PAGE INTENTIONALLY LEFT BLANK CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2019 55 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 an additional fixed contribution of 4% of earnings for a total of 10%. Employees have the option to voluntarily contribute to the 457 Plan. Employer matching contributions from the City were $77,725 and $64,100 for the years ended September 30, 2019 and 2018, 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 (the Plan) that provides medical insurance benefits to its employees and their eligible dependents. In accordance with Section 112.0801 of the Florida Statutes, because the City provides a medical plan to active employees of the City and their eligible dependents, the City is also required to provide retirees with the opportunity to participate in this Plan. Benefit provisions for the Plan are established by the City Commission and may be amended by the City Commission. The City does not issue stand-alone financial statements for the Plan. Membership in the Plan consisted of the following, as of September 30, 2017, the date of the latest actuarial valuation: September 30, 2017 Inactive plan members or beneficiaries currently receiving benefits 4 Inactive plan members entitled to but not yet receiving benefits - Active plan members 104 Total 108 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 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. CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2019 56 NOTE 9 – POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS (cont…) Actuarial Methods and Assumptions For the September 30, 2017 actuarial valuation, the Entry Age Normal Actuarial Cost Method was used. This method determines a service cost rate as a fixed percentage of compensation for each active participant. The current years’ service cost is the participant’s compensation multiplied by the service cost rate. Under this method, service cost for each individual participant, payable from date of employment to date of retirement, is sufficient to pay for the participant’s benefit at retirement. Other actuarial assumptions are as follows: Discount Rate: 3.83% Investment Rate of Return: 0.0% Salary Increases: Rates used in the October 1, 2017 actuarial valuation of the City’s pension plans. Healthcare Cost Trend: Based on Getzen Model, with trend of 7.09% for 2018 and 5.00% for 2019, 6.50% for 2020 and gradually decreasing to an ultimate trend rate of 4.24% plus 0.38% increase for excise tax. Mortality: Mortality tables used for Regular and Special Risk Class members in the July 1, 2016 actuarial valuation of the Florida Retirement System. They are based on the results of a statewide experience study covering the period 2008 through 2013. Discount Rate The discount rate used to measure the total OPEB liability was 3.83% as of September 30, 2018, which is equal to the single rate of return developed pursuant to GASB 75. The discount rate used to determine the liabilities under GASB 75 depends on the City’s funding policy. Since the City does not prefund benefits, the discount rate required to be used is based on the Fidelity 20-Year Municipal General Obligation AA Index. This index includes only federally tax-exempt municipal bonds and the yield curves are constructed using option adjusted analytics of a diverse population of over 10,000 tax exempt securities. Annual OPEB Cost and Net OPEB Obligation The City’s total OPEB liability was measured as of September 30, 2018 and was determined by an actuarial valuation as of September 30, 2017. Changes in the Total OPEB liability were as follows: Total OPEB Liability Reporting period ending September 30, 2018 $ 455,339 Changes for the year: Service cost 39,404 Interest 16,906 Changes of assumptions (18,238) Benefit payments (23,456) Net changes 14,616 Reporting period ending September 30, 2019 $ 469,955 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2019 57 NOTE 9 – POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS (cont…) Sensitivity of the Total OPEB Liability to Changes in the Discount Rate. The following presents the total OPEB liability of the City, as well as what the City’s total OPEB liability would be if it were calculated using a discount rate that is 1-percentage-point lower or 1-percentage-point higher than the current discount rate: 1% Decrease Rate Assumption 1% Increase Total OPEB liability $ 528,866 $ 469,955 $ 420,304 Sensitivity of the Total OPEB Liability to Changes in Healthcare Cost Trend Rates. The following presents the total OPEB liability for the City, as well as what the City’s total OPEB liability would be if it were calculated using healthcare trend rates that are 1-percentage-point lower or 1-percentage-point higher than the current healthcare cost trend rates: Current Healthcare Cost Trend Rate 1% Decrease Assumption 1% Increase Total OPEB liability $ 399,130 $ 469,955 $ 560,236 OPEB Expense and Deferred Inflows of Resources Related to OPEB For the year ended September 30, 2019, the City recognized OPEB expense of $51,372. At September 30, 2020, the City reported deferred outflows of resources and deferred inflows of resources related to OPEB from the following sources: Deferred Deferred Outflows of Inflows of Resources Resources Changes of assumptions or other inputs $ - $ 31,903 City contributions subsequent to the measurement date 21,385 - Total $ 21,385 $ 31,903 Of the total amount reported as deferred outflows of resources related to OPEB, $21,385 resulting from benefits paid subsequent to the measurement date and before the end of the fiscal year will be included as a reduction of the total OPEB liability in the year ended September 30, 2020. Other amounts reported as deferred inflows of resources related to OPEB will be recognized in OPEB expense as follows: Year ended September 30, Amount 2020 $ (4,938) 2021 (4,938) 2022 (4,938) 2023 (4,938) 2024 (4,938) Thereafter (7,213) Total $ (31,903) CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2019 58 NOTE 10 – INTERFUND ACCOUNTS Individual fund inter-fund receivables and payables at September 30, 2019, consist of the following: Due Due from Other to Other Funds Funds General Fund $ 283,396 $ - Community Development Block Grants Fund - 116,546 Police Grants Fund - 8,083 Capital Projects Fund - 44,067 Debt Service Fund - 114,700 $ 283,396 $ 283,396 Inter-fund 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 inter-fund transfers for the year ended September 30, 2019: Transfer In: General Stormwater Fund Fund Total Transfers Out: Utility Fund $ 857,648 $ - $ 857,648 Local Option Gas Tax Fund 235,000 - 235,000 Half-cent Sales Tax Fund - 200,000 200,000 Total $ 1,092,648 $ 200,000 $ 1,292,648 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. CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2019 59 NOTE 12 – COMMITMENTS 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, 2019, the City incurred $1,200,419 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. 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 • Automobile Liability • Automobile Physical Damage • Accidental Death and Dismemberment • General Liability • Public Officials’ Liability • Property Coverage 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. NOTE 15 – SUBSEQUENT EVENT The COVID-19 pandemic has created economic disruptions throughout the country as of the date of this report causing significant declines in the financial markets and economic activity overall. The City expects to experience losses of various local and state shared revenues, declines in user fees, declines in investment values for both the government and in pension plans which could result in increased pension contributions and declines in financial reserves as a result. The ultimate effects of these items are expected to be significant but is not quantifiable at this time. Page Intentionally Left Blank REQUIRED SUPPLEMENTARY INFORMATION 60 CITY OF ATLANTIC BEACH, FLORIDA SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES – BUDGET AND ACTUAL – GENERAL FUND FOR THE YEAR ENDED SEPTEMBER 30, 2019 Actual Amounts Variance with Budgeted Amounts (Budgetary Final Budget Basis) see Positive Original Final Note A (Negative) REVENUES Property taxes $ 5,454,505 $ 5,519,446 $ 5,519,446 $ - Non-property taxes 1,187,466 1,328,507 1,182,199 (146,308) Licenses and permits 913,961 915,989 795,447 (120,542) Intergovernmental revenue 2,207,407 2,295,469 2,224,731 (70,738) Charges for services 773,902 814,714 785,278 (29,436) Fines and forfeitures 112,890 112,890 41,115 (71,775) Investment earnings (loss) 159,001 159,001 191,557 32,556 Miscellaneous revenues 30,382 30,382 65,126 34,744 Interfund charges 1,569,920 1,569,920 1,608,052 38,132 Total revenues 12,409,434 12,746,318 12,412,951 (333,367) EXPENDITURES City Administration: City Commission 48,558 39,553 40,194 (641) City Clerk 350,860 350,860 317,875 32,985 City Attorney 241,667 218,348 165,954 52,394 City Manager 418,570 438,139 437,648 491 Human resources 231,503 242,718 242,047 671 Information technology 923,407 923,407 772,608 150,799 Finance 990,537 1,086,325 1,019,090 67,235 Total City administration 3,205,102 3,299,350 2,995,416 303,934 Planning and zoning 412,891 440,729 445,214 (4,485) General government 706,169 706,169 630,921 75,248 Public safety: Police 4,848,988 5,196,848 5,108,167 88,681 Animal control 93,865 93,865 89,472 4,393 Fire control 1,591,334 1,591,334 1,475,750 115,584 Code enforcement 96,749 82,749 70,667 12,082 Total public safety 6,630,936 6,964,796 6,744,056 220,740 Continued… 61 CITY OF ATLANTIC BEACH, FLORIDA SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES – BUDGET AND ACTUAL – GENERAL FUND FOR THE YEAR ENDED SEPTEMBER 30, 2019 Actual Amounts Variance with Budgeted Amounts (Budgetary Final Budget Basis) see Positive Original Final Note A (Negative) Public works: Administration and streets 1,672,281 1,672,281 1,538,995 133,286 Fleet maintenance 344,776 344,776 263,988 80,788 Total public works 2,017,057 2,017,057 1,802,983 214,074 Parks and recreation Recreation and special events 503,926 503,926 477,386 26,540 Parks maintenance 965,216 965,216 952,382 12,834 Total parks and recreation 1,469,142 1,469,142 1,429,768 39,374 Total expenditures 14,441,297 14,897,243 14,048,358 848,885 EXCESS (DEFICIENCY) OF REVENUE OVER (UNDER) EXPENDITURES (2,031,863) (2,150,925) (1,635,407) 515,518 OTHER FINANCING SOURCES (USES): Transfers in 1,386,373 1,386,373 1,092,648 293,725 Sale of general capital assets 30,000 30,000 - (30,000) Total other financing sources (uses) 1,416,373 1,416,373 1,092,648 263,725 NET CHANGE IN FUND BALANCE $ (615,490) $ (734,552) $ (542,759) $ 191,793 62 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO THE SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES – BUDGET AND ACTUAL – GENERAL FUND FOR THE YEAR ENDED SEPTEMBER 30, 2019 Note A - 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. Explanation of differences between budgetary inflows and outflows and GAAP revenues and expenditures Sources/inflows of resources Total revenue from the budgetary comparison schedule $ 12,412,951 Differences - budget to GAAP: For GAAP, General Fund inter-fund charges are reported as a reduction in the applicable expenditure function rather than revenues. (1,608,052) (*) Total revenues as reported on the statement of revenues, expenditures and changes in fund balances (page 16) $ 10,804,899 Uses/outflows of resources Actual amounts (budgetary basis) "total charges to appropriations" from the Total expenditures from the budgetary comparison schedule $ 14,048,358 Differences - budget to GAAP: For GAAP, General Fund inter-fund charges are reported as a reduction in the applicable expenditure function rather than revenues. (1,608,052) (*) Total expenditures as reported on the statement of revenues, expenditures and changes in fund balances (page 16) $ 12,440,306 (*) - Interfund charges by Division City Manager $ 160,747 Finance 744,738 Public Works Admin 274,137 Fleet and Equipment Maintenance 98,160 Human Resources 58,049 Information Technology 186,443 Facility Maintenance 85,778 $ 1,608,052 63 CITY OF ATLANTIC BEACH, FLORIDA SCHEDULE OF CHANGES IN NET PENSION LIABILITY AND RELATED RATIOS - GENERAL EMPLOYEES’ PENSION PLAN City reporting period date 9/30/2020 9/30/2019 9/30/2018 Measurement date 9/30/2019 9/30/2018 9/30/2017 Total pension liability Service cost $ 332,673 $ 345,019 $ 346,460 Interest 1,566,226 1,574,193 1,485,239 Change in assumptions - 695,507 559,117 Difference between expected and actual experience 40,197 (473,189) 291,669 Benefit payments, including refunds of of employee contributions (1,327,161) (1,501,456) (1,319,107) Employee buy-back - - - Net change in total pension liability 611,935 640,074 1,363,378 Total pension liability, beginning 23,534,251 22,894,177 21,530,799 Total pension liability, ending (a) $ 24,146,186 $ 23,534,251 $ 22,894,177 Plan fiduciary net position Contributions - City $ 1,424,479 $ 1,332,119 $ 1,175,572 Contributions - Employee 107,745 117,536 124,024 Net investment income (loss) 619,176 1,554,225 1,792,192 Benefit payments, including refunds Of employee contributions (1,327,161) (1,501,456) (1,319,107) Administrative expenses (40,584) (31,261) (53,880) Net change in plan fiduciary net position 783,655 1,471,163 1,718,801 Plan fiduciary net position, beginning 19,714,297 18,243,134 16,524,333 Plan fiduciary net position, ending (b) $ 20,497,952 $ 19,714,297 $ 18,243,134 Net pension liability (asset) (a)-(b) $ 3,648,234 $ 3,819,954 $ 4,651,043 Plan fiduciary net position as a percentage of total pension liability 84.89% 83.77% 79.68% Covered payroll $ 1,795,750 $ 1,958,933 $ 2,067,067 Net pension liability as a percentage of covered payroll 203.16% 195.00% 225.01% Continued… 64 CITY OF ATLANTIC BEACH, FLORIDA SCHEDULE OF CHANGES IN NET PENSION LIABILITY AND RELATED RATIOS - GENERAL EMPLOYEES’ PENSION PLAN City reporting period date 9/30/2017 9/30/2016 9/30/2015 Measurement date 9/30/2016 9/30/2015 9/30/2014 Total pension liability Service cost $ 348,604 $ 402,093 $ 399,576 Interest 1,437,296 1,404,316 1,386,245 Change in assumptions - - 1,814,460 Difference between expected and actual experience 164,601 (162,280) - Benefit payments, including refunds of of employee contributions (1,207,804) (1,031,191) (707,218) Employee buy-back - - - Net change in total pension liability 742,697 612,938 2,893,063 Total pension liability, beginning 20,788,102 20,175,164 17,282,101 Total pension liability, ending (a) $ 21,530,799 $ 20,788,102 $ 20,175,164 Plan fiduciary net position Contributions - City 1,112,344 $ 863,613 $ 950,980 Contributions - Employee 128,204 136,191 157,383 Net investment income (loss) 1,515,746 162,326 778,981 Benefit payments, including refunds Of employee contributions (1,207,804) (1,031,191) (707,218) Administrative expenses (32,495) (41,909) (31,529) Net change in plan fiduciary net position 1,515,995 89,030 1,148,597 Plan fiduciary net position, beginning 15,008,338 14,919,308 13,770,711 Plan fiduciary net position, ending (b) $ 16,524,333 $ 15,008,338 $ 14,919,308 Net pension liability (asset) (a)-(b) $ 5,006,466 $ 5,779,764 $ 5,255,856 Plan fiduciary net position as a percentage of total pension liability 76.75% 72.20% 73.95% Covered payroll $ 2,136,733 $ 2,269,850 $ 2,623,050 Net pension liability as a percentage of covered payroll 234.30% 254.63% 200.37% Additional years will be added to this schedule annually until 10 years’ data is presented. Change of Assumptions: For measurement date September 30, 2018: • The assumed investment return assumption was reduced from 7.00% to 6.75%. • The assumed rates of salary increase, retirement and withdrawal were revised based on a 7-year experience study performed for the Plan. 65 CITY OF ATLANTIC BEACH, FLORIDA SCHEDULE OF CHANGES IN NET PENSION LIABILITY AND RELATED RATIOS - POLICE OFFICERS’ PENSION PLAN City reporting period date 9/30/2020 9/30/2019 9/30/2018 Measurement date 9/30/2019 9/30/2018 9/30/2017 Total pension liability Service cost $ 332,419 $ 329,254 $ 335,185 Interest 1,026,422 1,016,983 970,877 Change in excess State money - (120,454) - Difference between expected and actual experience (351,261) (209,232) 187,216 Change of assumptions - 454,983 (40,955) Benefit payments, including refunds of of employee contributions (1,143,778) (690,688) (643,872) Net change in total pension liability (136,198) 780,846 808,451 Total pension liability, beginning 15,445,722 14,664,876 13,856,425 Total pension liability, ending (a) $ 15,309,524 $ 15,445,722 $ 14,664,876 Plan fiduciary net position Contributions - City $ 826,705 $ 854,780 $ 945,540 Contributions - State of Florida - 236,772 - Contributions - Employee 142,024 131,498 129,552 Net investment income (loss) 307,543 853,894 950,447 Benefit payments, including refunds of employee contributions (1,143,777) (690,688) (643,872) Administrative expenses (38,763) (25,152) (51,481) Other (change in excess State money) - - - Net change in plan fiduciary net position 93,732 1,361,104 1,330,186 Plan fiduciary net position, beginning 12,164,644 10,803,540 9,473,354 Plan fiduciary net position, ending (b) $ 12,258,376 $ 12,164,644 $ 10,803,540 Net pension liability (asset) (a)-(b) $ 3,051,148 $ 3,281,078 $ 3,861,336 Plan fiduciary net position as a percentage of total pension liability 80.07% 78.76% 73.67% Covered payroll $ 1,775,300 $ 1,643,725 $ 1,619,400 Net pension liability as a percentage of covered payroll 171.87% 199.61% 238.44% Continued... 66 CITY OF ATLANTIC BEACH, FLORIDA SCHEDULE OF CHANGES IN NET PENSION LIABILITY AND RELATED RATIOS - POLICE OFFICERS’ PENSION PLAN City reporting period date 9/30/2017 9/30/2016 9/30/2015 Measurement date 9/30/2016 9/30/2015 9/30/2014 Total pension liability Service cost $ 279,863 $ 291,761 $ 269,182 Interest 931,370 900,982 879,486 Change in excess State money - 120,454 - Difference between expected and actual experience (2,998) (213,426) - Change of assumptions - - 1,275,669 Benefit payments, including refunds of of employee contributions (754,465) (553,042) (585,616) Net change in total pension liability 453,770 546,729 1,838,721 Total pension liability, beginning 13,402,655 12,855,926 11,017,205 Total pension liability, ending (a) $ 13,856,425 $ 13,402,655 $ 12,855,926 Plan fiduciary net position Contributions - City $ 729,483 $ 574,014 $ 563,203 Contributions - State of Florida 112,972 103,528 96,217 Contributions - Employee 117,274 112,354 103,095 Net investment income (loss) 804,901 43,534 642,480 Benefit payments, including refunds of employee contributions (754,465) (553,042) (585,616) Administrative expenses (29,933) (35,984) (22,742) Other (change in excess State money) - 120,454 - Net change in plan fiduciary net position 980,232 364,858 796,637 Plan fiduciary net position, beginning 8,493,122 8,128,264 7,331,627 Plan fiduciary net position, ending (b) $ 9,473,354 $ 8,493,122 $ 8,128,264 Net pension liability (asset) (a)-(b) $ 4,383,071 $ 4,909,533 $ 4,727,662 Plan fiduciary net position as a percentage of total pension liability 68.37% 63.37% 63.23% Covered payroll $ 1,465,925 $ 1,404,425 $ 1,472,786 Net pension liability as a percentage of covered payroll 299.00% 349.58% 321.00% Additional years will be added to this schedule annually until 10 years’ data is presented. Change of Assumptions: For measurement date September 30, 2018: • The assumed investment return assumption was reduced from 7.00% to 6.75%. • The assumed rates of salary increase, retirement and withdrawal were revised based on a 7-year experience study performed for the Plan. 67 CITY OF ATLANTIC BEACH, FLORIDA SCHEDULE OF CONTRIBUTIONS – ALL PENSION PLANS Contributions in Relation to Contributions Year Actuarially the Actuarially Contribution as a % of Ended Determined Determined Excess Covered Covered September 30, Contribution Contribution (Deficiency) Payroll Payroll General Employees' Plan 2019 $ 1,424,479 $ 1,424,479 $ - $ 1,795,750 79.33% 2018 $ 1,332,118 $ 1,332,119 $ 1 $ 1,958,933 68.00% 2017 $ 1,175,572 $ 1,175,572 $ - $ 2,067,067 56.87% 2016 $ 1,112,344 $ 1,112,344 $ - $ 2,136,733 52.06% 2015 $ 863,613 $ 863,613 $ - $ 2,269,850 38.05% 2014 $ 950,980 $ 950,980 $ - $ 2,623,050 36.25% Police Officers' Plan 2019 $ 826,705 $ 826,705 $ - $ 1,775,300 46.57% 2018 $ 841,726 $ 1,091,552 $ 249,826 $ 1,643,725 66.41% 2017 $ 849,061 $ 945,540 $ 96,479 $ 1,619,400 58.39% 2016 $ 825,700 $ 842,455 $ 16,755 $ 1,465,925 57.47% 2015 $ 665,091 $ 677,542 $ 12,451 $ 1,404,425 48.24% 2014 $ 654,280 $ 659,420 $ 5,140 $ 1,472,786 44.77% Additional years will be added to this schedule annually until 10 years; data is presented. 68 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO THE SCHEDULE OF CONTRIBUTIONS – ALL PENSION PLANS Significant methods and assumptions used in calculating the actuarially determined contributions: The following pertain to both City’s defined benefit pension plans unless separately stated. • Valuation Date: September 30, 2017. Actuarially determined contribution rates are calculated as of September 30, two years prior to the end of the fiscal year in which contributions are required. • Actuarial Cost Method: Entry Age Normal Cost Method • Amortization Method: o General Employees’ Plan – Closed, Level Dollar Method o Police Officers’ Plan - Closed, Level % of Pay Method • Remaining Amortization Period: o General Employees’ Plan – 10 Years. o Police Officers’ Plan - 30 years. • Asset Valuation Method: 4-year smoothed market value where the difference between the expected and actual return on market value of assets is phased in over a period of four years at a rate of 25% per year. • Inflation:2.50% • Salary Increases: o General Employees Plan – Age Based ranging from 4.8% to 9.5% (including 2.5% price inflation). o Police Officers’ Plan – Age Based ranging from 4.5% to 18.5% (including 2.5% price inflation). • Investment Rate of Return: 6.75% per year compounded annually, net of investment expenses, including inflation. • Retirement Age: Experience-based table of rates (from Experience Study dated August 9, 2017 for the period October 1 2009 to September 30, 2016) that vary by age. • Mortality:RP-2000 Combined Healthy Participant Mortality Table (for preretirement mortality) and the RP-2000 Mortality Table for Annuitants (for postretirement mortality), with mortality improvements projected to all future years after 2000 using Scale BB. o General Employees’ Plan – For males, the base mortality rates include a 50% blue collar adjustment and a 50% white collar adjustment and for females, the base mortality rates include a 100% white collar adjustment. o Police Officers’ Plan - For males, the base mortality rates include a 90% blue collar adjustment and a 10% white collar adjustment and for females, the base mortality rates include a 100% white collar adjustment. 69 CITY OF ATLANTIC BEACH, FLORIDA SCHEDULE OF INVESTMENT RETURNS – ALL PENSION PLANS Year Ended September 30, 2019 2018 2017 2016 2015 General Employees' Plan Annual money-weighted rate of return net of invest expense 4.04% 8.67% 10.92% 10.18% 1.10% Police Officers' Plan Annual money-weighted rate of return net of invest expense 4.38% 8.26% 10.80% 9.93% 0.53% Additional years will be added to this schedule annually until 10 years; data is presented. 70 CITY OF ATLANTIC BEACH, FLORIDA SCHEDULE OF CHANGES IN TOTAL OPEB LIABILITY AND RELATED RATIOS Reporting date 9/30/2019 9/30/2018 Measurement date 9/30/2018 9/30/2017 Total OPEB Liability Service cost $ 39,404 $ 41,222 Interest 16,906 14,667 Changes in assumptions (18,238) (21,261) Benefit payments (23,456) (22,404) Net change in total OPEB Liability 14,616 12,224 Total OPEB Liability - beginning 455,339 443,115 Total OPEB Liability - ending $ 469,955 $ 455,339 Covered-employee payroll $ 6,647,363 $ 6,272,956 Total OPEB liability as a percentage of covered-employee payroll 7.07% 7.26% Notes to Schedule: No assets are being accumulated in a trust to pay for plan benefits. Changes in Assumptions: Changes in assumptions reflect the effects of changes in the discount rate of each period. The following are the discount rates used for each measurement date. Measurement Date Discount Rate September 30, 2018 3.83% September 30, 2017 3.50% September 30, 2016 3.10% Additional years will be added to this schedule annually until 10 years; data is presented. SUPPLEMENTARY INFORMATION 71 CITY OF ATLANTIC BEACH, FLORIDA COMBINING BALANCE SHEET – NON-MAJOR GOVERNMENTAL FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2019 WITH COMPARATIVE TOTALS FOR THE YEAR ENDED SEPTEMBER 30, 2018 2019 Special Revenue Funds Local Convention Tree Option Development Half-Cent Court Cost Radio Replacement Gas Tax Tax Sales Tax Training Communication ASSETS Equity in pooled cash and investments $ 81,090 $ 172,605 $ 314,856 $ 1,122,941 $ 40,070 $ 74,093 Cash with fiscal agent - - - - - - Receivables, net Customer accounts, net - - - - - - Intergovernmental and other - 83,037 - 156,191 - - TOTAL ASSETS $ 81,090 $ 255,642 $ 314,856 $ 1,279,132 $ 40,070 $ 74,093 LIABILITIES Accounts payable and accrued liabilities 3,150 21,301 6,473 181,369 - - Construction costs payable - - - 13,532 - - Due to other funds - - - - - - Deposits - - - - - - TOTAL LIABILITIES 3,150 21,301 6,473 194,901 - - FUND BALANCE Restricted for: Public safety - - - - 40,070 74,093 Road maintenance and construction - 234,341 - 1,084,231 - - Other capital projects - - - - - - Debt service - - - - - - Other purposes - - 308,383 - - - Committed to: Conservation and resource management 77,940 - - - - - Unassigned - - - - - - TOTAL FUND BALANCES 77,940 234,341 308,383 1,084,231 40,070 74,093 TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND FUND BALANCE $ 81,090 $ 255,642 $ 314,856 $ 1,279,132 $ 40,070 $ 74,093 72 2019 Special Revenue Funds Total Totals Community Special Non-Major Contraband Development Police Revenue Debt Capital Governmental 2018 Revenue Block Grants Grants Funds Service Projects Funds Totals $ 7,356 $ 118,760 $ 10,273 $ 1,942,044 $ - $ 370,233 $ 2,312,277 $ 1,996,467 - - - - 94,850 - 94,850 - - - - - - 115,512 115,512 - - 100 - 239,328 - - 239,328 313,079 $ 7,356 $ 118,860 $ 10,273 $ 2,181,372 $ 94,850 $ 485,745 $ 2,761,967 $ 2,309,546 4,995 - (3) 217,285 - 500 217,785 - - 3,134 - 16,666 - - 16,666 16,346 - 116,546 8,083 124,629 114,700 44,067 283,396 200,795 2,766 - - 2,766 - - 2,766 1,766 7,761 119,680 8,080 361,346 114,700 44,567 520,613 218,907 - - 2,193 116,356 - 183,489 299,845 141,524 - - - 1,318,572 - - 1,318,572 1,162,321 - - - - - 257,689 257,689 443,666 - - - - - - - - 308,383 - - 308,383 257,310 - - - 77,940 - - 77,940 86,638 (405) (820) - (1,225) (19,850) - (21,075) (820) (405) (820) 2,193 1,820,026 (19,850) 441,178 2,241,354 2,090,639 $ 7,356 $ 118,860 $ 10,273 $ 2,181,372 $ 94,850 $ 485,745 $ 2,761,967 $ 2,309,546 73 CITY OF ATLANTIC BEACH, FLORIDA COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES – NON-MAJOR GOVERNMENTAL FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2019 WITH COMPARATIVE TOTALS FOR THE YEAR ENDED SEPTEMBER 30, 2018 2019 Special Revenue Funds Local Convention Tree Option Development Half-Cent Court Cost Radio Replacement Gas Tax Tax Sales Tax Training Communication REVENUES: Non-property taxes $ - $ 486,678 $ 120,622 $ 924,384 $ - $ - Intergovernmental revenue - - - - - - Fines and forfeitures - - - - 3,596 18,656 Investment earnings (loss) - 18,458 7,313 27,974 (585) 1,640 Miscellaneous revenues 14,821 - - - - - Total revenues 14,821 505,136 127,935 952,358 3,011 20,296 EXPENDITURES: General government 23,519 - - - - - Public safety - - - - 23,478 - Transportation - 213,010 17,838 39,986 - - Culture/recreation - - 368 - - - Capital outlay - - 58,656 613,247 - - Debt service - - - - - - Total expenditures 23,519 213,010 76,862 653,233 23,478 - EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES (8,698) 292,126 51,073 299,125 (20,467) 20,296 OTHER FINANCING SOURCES (USES) Transfers in - - - - - - Transfers (out) - (235,000) - (200,000) - - TOTAL OTHER FINANCING SOURCES (USES) - (235,000) - (200,000) - - NET CHANGE IN FUND BALANCE (8,698) 57,126 51,073 99,125 (20,467) 20,296 FUND BALANCE, beginning of year 86,638 177,215 257,310 985,106 60,537 53,797 FUND BALANCE, end of year $ 77,940 $ 234,341 $ 308,383 $ 1,084,231 $ 40,070 $ 74,093 74 2019 Special Revenue Funds Total Totals Community Special Non-Major Contraband Development Police Revenue Debt Capital Governmental 2018 Revenue Block Grants Grants Funds Service Projects Funds Totals $ - $ - $ - $ 1,531,684 $ - $ - $ 1,531,684 $ 1,514,459 - - - - - - - 42,000 - - - 22,252 - - 22,252 33,585 (518) - - 54,282 - 2,012 56,294 (1,102) - - - 14,821 - - 14,821 52,977 (518) - - 1,623,039 - 2,012 1,625,051 1,641,919 - - - 23,519 - - 23,519 - - - - 23,478 - 3,000 26,478 96,134 - - - 270,834 - - 270,834 386,854 - - - 368 - - 368 31,799 24,884 - - 696,787 - 1,500 698,287 513,973 - - - - 19,850 - 19,850 24,884 - - 1,014,986 19,850 4,500 1,039,336 1,028,760 (25,402) - - 608,053 (19,850) (2,488) 585,715 613,159 - - - - - - - 303,000 - - - (435,000) - - (435,000) (517,300) - - - (435,000) - - (435,000) (214,300) (25,402) - - 173,053 (19,850) (2,488) 150,715 398,859 24,997 (820) 2,193 1,646,973 - 443,666 2,090,639 1,691,780 $ (405) $ (820) $ 2,193 $ 1,820,026 $ (19,850) $ 441,178 $ 2,241,354 $ 2,090,639 75 CITY OF ATLANTIC BEACH, FLORIDA HISTORICAL REVENUES AND EXPENSES FOR THE YEARS ENDED SEPTEMBER 30, 2015, THROUGH SEPTEMBER 30, 2019 2019 2018 2017 2016 2015 Revenues Operating Revenues: Water: Customer charges $ 3,462,039 $ 3,206,520 $ 3,262,314 $ 3,177,331 $ 2,992,677 Miscellaneous charges 67,291 64,563 65,198 62,477 62,286 Total water 3,529,330 3,271,083 3,327,512 3,239,808 3,054,963 Sewer: Customer charges 5,399,935 5,092,613 5,111,353 5,045,673 4,934,151 Miscellaneous charges - - 590 - 107 Total sewer 5,399,935 5,092,613 5,111,943 5,045,673 4,934,258 Total operating revenues 8,929,265 8,363,696 8,439,455 8,285,481 7,989,221 Non-operating revenues Investment income (loss): Water 163,209 (7,606) 21,455 58,092 (7,718) Sewer 115,389 (8,249) 17,281 38,929 (4,257) Total non-operating revenues 278,598 (15,855) 38,736 97,021 (11,975) Total revenues 9,207,863 8,347,841 8,478,191 8,382,502 7,977,246 Expenses Operating expenses: Water 1,299,974 1,348,985 1,488,854 1,379,495 1,442,578 Sewer 2,387,924 2,393,828 2,309,637 2,064,614 2,055,780 Total operating expenses 3,687,898 3,742,813 3,798,491 3,444,109 3,498,358 Administrative, non divisional and other Water 508,655 508,655 502,058 561,069 563,356 Sewer 624,796 624,796 591,161 725,248 734,839 Total administrative non- divisional and other 1,133,451 1,133,451 1,093,219 1,286,317 1,298,195 Total expenses 4,821,349 4,876,264 4,891,710 4,730,426 4,796,553 Net revenues available for debt service 4,386,514 3,471,577 3,586,481 3,652,076 3,180,693 Non-operating income(expense) Interest expense (381,546) (404,297) (455,259) (481,693) (556,635) Loan amortization (93,910) (93,910) (93,910) (93,910) (98,507) Total non-operating income (expense) (475,456) (498,207) (549,169) (575,603) (655,142) Change in net position before depreciation expense and interfund transfers $ 3,911,058 $ 2,973,370 $ 3,037,312 $ 3,076,473 $ 2,525,551 76 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, 2019 AND SEPTEMBER 30, 2018 2019 2018 Gross revenues: Utility $ 8,929,265 $ 8,302,234 Connection charges 44,018 61,460 Interest 328,612 (15,856) Total Gross Revenues 9,301,895 8,347,838 Operating Expenses Personnel services 1,794,213 2,056,311 Contractual services 643,360 604,079 Supplies 474,547 398,803 Repairs and maintenance 188,756 159,229 Utilities 352,529 348,357 Intergovernmental charges 1,133,451 1,133,451 Other expenses 234,493 146,239 Total operating expenses 4,821,349 4,846,469 Total net revenues in accordance with Bond resolutions $ 4,480,546 $ 3,501,369 Total debt service $ 1,856,755 $ 1,999,898 Debt service coverage ratio 241.31% 175.08% Required debt service coverage ratio 110.00% 110.00% 77 CITY OF ATLANTIC BEACH, FLORIDA OTHER BOND COVENANT DISCLOSURES FOR THE YEAR ENDED SEPTEMBER 30, 2015, THROUGH SEPTEMBER 30, 2019 Utility Service Tax Collections (last five years) Year Electricity Communications Gas Fuel Oil Total 2019 $ 587,563 $ 484,505 $ 12,518 $ - $ 1,084,586 2018 498,379 497,133 16,262 - 1,011,774 2017 475,895 479,551 15,229 - 970,675 2016 483,516 500,295 17,881 6 1,001,698 2015 476,997 526,996 15,555 7 1,019,555 Ad Valorem Tax Collections (last five years) Year Total 2019 $ 5,519,446 2018 5,063,409 2017 4,730,476 2016 4,482,739 2015 4,113,476 OTHER STATISTICAL INFORMATION 78 CITY OF ATLANTIC BEACH, FLORIDA MAJOR UTILITY CUSTOMERS FOR THE YEAR ENDED SEPTEMBER 30, 2019 (UNAUDITED) Annual Billings Fleet Landing (retirement community) $ 381,284 Navy (Federal Government) 251,496 City of Atlantic Beach, Florida 145,132 Hanna Park (regional park) 129,256 John's Creek Estates (mobile home park) 127,020 PAC-2160 Mayport GP, LLC 124,123 PBG MAYPORT LLC 112,620 Sea Turtle Inn 98,085 Oaks of Atlantic Beach (mobile home park) 87,890 Avesta Homes (apartment complex) 69,275 $ 1,526,181 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 79 CITY OF ATLANTIC BEACH, FLORIDA SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS AND NOTES TO THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE YEAR ENDED SEPTEMBER 30, 2019 Federal Contract/Grant Award Federal Federal Grantor/Pass-through Grantor/Program Title CFDA# Identification Amount Expenditures U.S. Department of Homeland Security Indirect Programs passed through: Florida Division of Emergency Management (FEMA): Disaster Grants - Public Assistance 97.036 Z0433 $782,319 $782,319 U.S. Department of Justice Indirect Programs passed through: Florida Department of Law Enforcement: Edward Byrne Memorial Justice Assistance Grant Program 16.738 2019-JAGC-DUVA-3-N2-032 14,427 14,427 U.S. Department of Commerce Indirect Programs passed through: Florida Department of Environmental Protection: Coastal Zone Management Administration 11.419 CM922 30,000 30,000 Total Expenditures of Federal Awards $ 826,746 $ 826,746 NOTES TO THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS: Basis of Presentation – The information in this schedule is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations Part 220, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards Subpart F. Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in the preparation of, the basic financial statements of the City. Basis of Accounting – The schedule of expenditures of federal awards are presented using the same basis of accounting as the fund in which the grant is recorded, generally the accrual or modified accrual basis, as described in Note 1 to the City’s financial statements. The City’s federal awards did not include indirect cost reimbursement and, therefore, the City did not elect to use the 10 percent de minimis cost rate as covered by 2 CFR 200.414. Contingencies - The grant revenue amounts received are subject to audit and adjustment. If any expenditures or expenses are disallowed by the grantor agencies as a result of such an audit, any claim for reimbursement to the grantor agencies would become a liability of the City. In the opinion of management, all grant expenditures are in compliance with the terms of the grant agreements and applicable federal and state laws and regulations. U.S. Department of Homeland Security - During the year ended September 30, 2019, FEMA approved $782,319 of eligible expenditures that were incurred in a prior year and are included in the accompanying schedule of expenditures of federal awards. 80 INDEPENDENT AUDITOR’S REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE Honorable Mayor, City Commissioners, and City Manager City of Atlantic Beach Atlantic Beach, Florida Report on Compliance for Each Major Federal Program We have audited the City of Atlantic Beach, FL (the City) compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of the City’s major federal programs for the year ended September 30, 2019. The City’s major federal programs are identified in the summary of auditor’s results section of the accompanying schedule of findings and questioned costs. Management’s Responsibility Management is responsible for compliance with federal statutes, regulations, and the terms and conditions of its federal awards applicable to its federal programs. Auditor’s Responsibility Our responsibility is to express an opinion on compliance for each of the City’s major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance 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 the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether non-compliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes 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 audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of the City’s compliance. Opinion on Each Major Federal Program In our opinion, the City, complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended September 30, 2019. 81 Honorable Mayor, City Commissioners, and City Manager City of Atlantic Beach Atlantic Beach, Florida INDEPENDENT AUDITOR’S REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE Report on Internal Control over Compliance Management of the City, is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the City’s internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, non-compliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material non-compliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose. November 23, 2020 Gainesville, Florida 82 CITY OF ATLANTIC BEACH, FLORIDA SCHEDULE OF FINDINGS AND QUESTIONED COSTS - FEDERAL AWARDS FOR THE YEAR ENDED SEPTEMBER 30, 2019 Summary of Auditor’s Results Financial Statements 1. The independent auditor’s report expresses an unmodified opinion on the financial statements of the City of Atlantic Beach, Florida (the City). 2. The audit did report a material weakness on internal control over financial reporting and on compliance and other matters based on an audit of financial statements performed in accordance with Government Auditing Standards. The finding is detailed in the accompanying Independent Auditor’s Report on Financial Reporting and Compliance as finding 15-1. 3. There were no instances of non-compliance identified during the audit of the financial statements reported in the report on internal control over financial reporting and on compliance and other matters based on an audit of financial statements performed in accordance with Government Auditing Standards. Federal Awards 4. The audit did report any significant deficiencies or material weaknesses in internal control over major federal programs that are required to be reported in the schedule of findings and questioned costs. 5. The report on compliance for the major federal programs expresses an unmodified opinion. 6. The audit disclosed findings as noted above that are required to be reported in accordance with the Uniform Guidance. 7. The programs tested as major federal program included: Federal Programs CFDA No. Disaster Grant – Public Assistance - FEMA 97.036 8. The threshold for distinguishing Type A and B programs was $750,000 for federal programs. 9. The City did not qualify as a low risk auditee for federal grant programs. Financial Statement Findings Financial statement findings, if any, are reported in the Independent Auditor’s Report on Internal Control over Financial Reporting and Compliance. 83 CITY OF ATLANTIC BEACH, FLORIDA SCHEDULE OF FINDINGS AND QUESTIONED COSTS - FEDERAL AWARDS FOR THE YEAR ENDED SEPTEMBER 30, 2019 Findings and Questioned Costs for Major Federal Programs and State Projects The audit disclosed no findings for major federal programs and state projects to be reported under the Uniform Guidance and Chapter 10.550, Rules of the Auditor General. Status of Prior Audit Findings There were no prior year findings required to be reported in accordance with the Uniform Guidance. 84 INDEPENDENT AUDITOR’S 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, 2019, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements, and have issued our report thereon dated November 23, 2020. 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: 85 Honorable Mayor, City Commissioners, and City Manager City of Atlantic Beach Atlantic Beach, Florida INDEPENDENT AUDITOR’S 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 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. 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. FY19 Update―The City has made significant improvements related to the financial reporting and close process. We noted a significant reduction in the volume and amount of identified audit adjustments. However, we did note several significant adjustments including a reversal of a prior year due from other governments in the amount of $289,000 and the correction of construction in progress in the amount of $190,000. We recommend that the City continues to improve their financial reporting and close process in order to meet the June 30 reporting deadline. 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, non-compliance 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 non-compliance 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. November 23, 2020 Gainesville, Florida 86 INDEPENDENT ACCOUNTANT’S 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, 2019, 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, 2019. 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. November 23, 2020 Gainesville, Florida 87 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, 2019, and have issued our report thereon dated November 23, 2020. Auditor’s 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 Auditor’s 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 Accountant’s 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 November 23, 2020, 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 been taken to address prior audit findings 17-1, 18-1, 18-2, and 18-3. Prior Year uncorrected Findings and Recommendations are reported below: Tabulation of Uncorrected Audit Findings 2016-2017 FY Finding # 2015-2016 FY Finding # 17-3 15-1 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. 88 Honorable Mayor, City Commissioners, and City Manager City of Atlantic Beach Atlantic Beach, Florida MANAGEMENT LETTER 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. 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: 17-3 – 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. FY 19 Update―The City did not timely submit all of the required reporting requirements in order for the plan to receive the fiscal year 2019 insurance premium tax revenue. Upon submission of the audit, the City expects to have met the remaining reporting requirements and to receive the payment in fiscal year 2020. 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, 2018, 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, 2019. In connection with our audit, we determined that these two reports were in agreement. 89 Honorable Mayor, City Commissioners, and City Manager City of Atlantic Beach Atlantic Beach, Florida MANAGEMENT LETTER 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 non-compliance 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. 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I am the Chief Financial Officer of the City of Atlantic Beach is a local governmental entity of the State of Florida 2. City of Atlantic Beach adopted Ordinance No. 80-92-51 implementing water and sewer impact fees; and 3. City of Atlantic Beach has complied with and, as of the date of this Affidavit, remains in compliance with Section 163.3 180 1, Florida Statutes. FUTHER AFFIANT SA YETH NAUGHT. STATE OF FLORIDA COUNTY OF DUVAL ~4-U.e.:,Vl/J (ChiefFinance Offic r of the Entity) SWORN TO AND SUBSCRIBED before me this /t,·fA day of t.Jovtmbt!l', 2020. ~~~v~ NOTARY PUBLIC Print Name /)onna L ,i3arf/e Personally Known /or produced identification __ Type of identification produced: __ rl__,_!}_ft _________ _ My Commission Expires: .··<':A~.~·i''••.. DONNA L. BARTLE f"f''/J;. ~) MY COMMISSION# GG 078627 ~!J.~(o:J EXPIRES: May 14, 2021 . ··~t' 0•; "'o~.·· Bonded ThN Notary PubiC Undefw!i1e!S ..... ,,,,, 92