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Annual Financial Report - 2019-2020 FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR’S REPORT CITY OF ATLANTIC BEACH, FLORIDA SEPTEMBER 30, 2020 CITY OF ATLANTIC BEACH, FLORIDA FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR’S REPORT SEPTEMBER 30, 2020 INDEPENDENT AUDITOR’S REPORT ...................................................................................................................................... 1 MANAGEMENT’S DISCUSSION AND ANALYSIS ..................................................................................................................... 4 BASIC FINANCIAL STATEMENTS GOVERNMENT-WIDE FINANCIAL STATEMENTS STATEMENT OF NET POSITION ........................................................................................................................................... 13 STATEMENT OF ACTIVITIES ................................................................................................................................................. 14 FUND FINANCIAL STATEMENTS BALANCE SHEET – GOVERNMENTAL FUNDS ...................................................................................................................... 15 RECONCILIATION OF BALANCE SHEET OF GOVENRMENTAL FUNDS TO THE STATEMENT OF NET POSITION ............................................................................................................................................................................ 16 STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - GOVERNMENTAL FUNDS ................................................................................................................................................................................. 17 RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES .................................................................... 18 STATEMENT OF NET POSITION – PROPRIETARY FUNDS ..................................................................................................... 19 STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION – PROPRIETARY FUNDS ................................... 21 STATEMENT OF CASH FLOWS ............................................................................................................................................. 23 STATEMENT OF FIDUCIARY NET POSITION ......................................................................................................................... 25 STATEMENT OF CHANGES IN FIDUCIARY NET POSITION .................................................................................................... 26 NOTES TO FINANCIAL STATEMENTS ..................................................................................................................................... 27 REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES – BUDGET AND ACTUAL – GENERAL FUND ................................................................................................................................................................ 61 NOTES TO THE SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES – BUDGET AND ACTUAL – GENERAL FUND ........................................................................................................................... 63 SCHEDULE OF CHANGES IN NET PENSION LIABILITY AND RELATED RATIOS GENERAL EMPLOYEES’ PENSION PLAN .......................................................................................................................... 64 POLICE OFFICERS’ PENSION PLAN .................................................................................................................................. 66 SCHEDULE OF CONTRIBUTIONS – ALL PENSION PLANS...................................................................................................... 68 NOTES TO THE SCHEDULE OF CONTRIBUTIONS – ALL PENSION PLANS ............................................................................. 69 SCHEDULE OF INVESTMENT RETURNS – ALL PENSION PLANS ........................................................................................... 70 SCHEDULE OF CHANGES IN TOTAL OPEB LIABILITY AND RELATED RATIOS ........................................................................ 71 CITY OF ATLANTIC BEACH, FLORIDA FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR’S REPORT SEPTEMBER 30, 2020 SUPPLEMENTARY INFORMATION COMBINING BALANCE SHEET – NON-MAJOR GOVERNMENTAL FUNDS ............................................................................ 72 COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES – NON- MAJOR GOVERNMENTAL FUNDS ....................................................................................................................................... 74 HISTORICAL REVENUES AND EXPENSES .............................................................................................................................. 76 SCHEDULES OF NET REVENUES IN ACCORDANCE WITH BOND RESOLUTIONS – ENTERPRISE FUNDS (WATER AND SEWER) ......................................................................................................................................................... 77 OTHER BOND COVENANT DISCLOSURES ............................................................................................................................ 78 OTHER STATISTICAL INFORMATION MAJOR UTILITY CUSTOMERS .............................................................................................................................................. 79 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 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 ................................................................... 80 INDEPENDENT ACCOUNTANT’S REPORT ON COMPLIANCE WITH SECTION 218.415, FLORIDA STATUTES ........................ 82 MANAGEMENT LETTER ....................................................................................................................................................... 83 MANAGEMENT’S AFFIDAVIT OF COMPLIANCE WITH SECTION 163.31801, FLORIDA STATUTES ....................................... 85 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, 2020, 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, 2020, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis, General Fund – Budgetary to Actual Schedule and notes to the schedule, and Required Pension and OPEB schedules as listed in the table of contents 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 and the other statistical information section as listed in the table of contents are presented for purposes of additional analysis and are not a required part of the basic financial statements. The supplementary information 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 are fairly stated, in all material respects, in relation to the basic financial statements as a whole. 3 Honorable Mayor, City Commissioners, and City Manager City of Atlantic Beach Atlantic Beach, Florida INDEPENDENT AUDITOR’S REPORT 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 June 18, 2021, 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 2019 financial statements, and our report dated November 23, 2020, 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, 2019, is consistent, in all material respects, with the audited financial statements from which it was derived. June 18, 2021 Gainesville, Florida Page Intentionally Left Blank MANAGEMENT’S DISCUSSION AND ANALYSIS 4 CITY OF ATLANTIC BEACH, FLORIDA MANAGEMENT’S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2020 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, 2020. 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 13-14 of this report. 5 CITY OF ATLANTIC BEACH, FLORIDA MANAGEMENT’S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2020 (continued) Fund Financial Statements A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the City can be categorized into either governmental funds, proprietary funds, or fiduciary funds. ■ Governmental Funds Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of available financial 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 72-75 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 61-63 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 19-24 of this report. 6 CITY OF ATLANTIC BEACH, FLORIDA MANAGEMENT’S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2020 (Continued) Fund Financial Statements (concluded) ■ 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 25-26 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 61 of this report. 7 CITY OF ATLANTIC BEACH, FLORIDA MANAGEMENT’S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2020 (Continued) Government-wide Financial Analysis Net position may serve over time as a useful indicator of a City’s financial position. As can be seen in the summarized table below, the City’s assets exceeded liabilities by $85,338,197 at the close of the fiscal year ended September 30, 2020. By far the largest portion of the City’s net position, $67,302,057 (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, $6,117,783 (8%), represents resources that are subject to external restrictions on how they may be used. The remaining balance of unrestricted net position, $11,918,357 (10%), is used to meet the government’s ongoing obligations to citizens and creditors. City of Atlantic Beach’s Net Position September 30, 2020 and 2019 (In Thousands) Governmental Business-type Activities Activities Totals 2020 2019 2020 2019 2020 2019 Current and other assets $11,099 $9,762 $15,549 $14,513 $26,648 24,275 Capital assets 45,237 45,690 36,652 38,128 81,889 83,818 Total Assets 56,336 55,452 52,201 52,641 108,537 108,093 Deferred Outflow 2,154 2,300 1,250 1,526 3,404 3,826 Long-term liabilities outstanding 7,580 7,828 15,839 17,590 23,419 25,418 Other liabilities 1,030 1,011 1,525 1,740 2,555 2,751 Total Liabilities 8,610 8,838 17,364 19,330 25,974 28,169 Deferred Inflow 541 922 88 436 629 1,358 Net Position: Invested in capital assets, net of related debt 43,896 44,270 23,406 23,335 67,302 67,605 Restricted 3,276 2,184 2,842 4,135 6,118 6,319 Unrestricted 2,167 1,538 9,751 6,931 11,918 8,469 Total Net Position $49,339 $47,992 $35,999 $34,401 $85,338 $82,393 8 CITY OF ATLANTIC BEACH, FLORIDA MANAGEMENT’S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2020 (Continued) As illustrated in the schedule on page vi, the City was able to report positive balances in all categories of net position, both for the government as a whole, as well as for its separate governmental and business- type activities. The same situation held true for the prior fiscal year. City of Atlantic Beach’s Change in Net Position For the Years Ended September 30, 2020 and 2019 (In Thousands) Governmental Business-type Activities Activities Total 2020 2019 2020 2019 2020 2019 Revenues: Program Revenues: Charges for Services $1,056 $988 $12,565 $12,265 $13,621 $13,253 Operating Grants and Contributions 278 186 0 732 278 918 Capital Grants and Contributions 73 240 432 808 505 1,048 General Revenues: Property Taxes 5,912 5,519 0 0 5,912 5,519 Public Service Tax and Franchise Fees 1,856 1,819 0 0 1,856 1,819 Fuel Taxes 544 607 0 0 544 607 Discretionary Sales Surtax 915 924 0 0 915 924 State Shared Revenue 1,821 1,863 0 0 1,821 1,863 Other 363 312 240 472 603 784 Total Revenues 12,818 12,458 13,237 14,277 26,055 26,735 Expenses: General Government 2,536 2,805 0 0 2,536 2,805 Public Safety 6,582 6,302 0 0 6,582 6.303 Road Maintenance and Construction 1,866 2,357 0 0 1,866 2,357 Parks and Recreation 1,549 1,652 0 0 1,549 1,652 Conservation and Resource Management 23 25 0 0 23 25 Interest/Fiscal Charges on Long- term Debt 47 44 0 0 47 44 Utility 0 0 6,926 7,213 6,926 7,213 Stormwater 0 0 1,369 1,609 1,369 1,609 Sanitation 0 0 1,667 1,710 1,667 1,710 Building Code Enforcement 0 0 545 550 545 550 Total Expenses 12,603 13,185 10,507 11,082 23,110 24,268 Transfers 1,132 658 (1,132) (658) 0 0 Change in Net Position 1,347 (69) 1,598 2,537 2,945 2,468 Net Position-Beginning 47,992 48,061 34,401 31,864 82,393 79,925 Net Position-Ending $49,33 9 $47,992 $35,999 $34,401 $85,338 $82,393 9 CITY OF ATLANTIC BEACH, FLORIDA MANAGEMENT’S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2020 (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 $10,092,315, an increase of $1,315,899 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 $2,923,600, which equated to 24% of total General Fund expenditures without transfers. The net result of various revenue and expense items resulted in an increase to the City’s General Fund of $472,356 or 7% during the current fiscal year. Property tax revenues increased by $392,607 or 7% from the previous year. This was a result of an increase in the taxable values. General Fund transfers in increased by $248,960, and there was no transfers out. Overall, general fund expenditures decreased by $356,900 or 3%. This can be attributed to the COVID-19 pandemic. Nonmajor governmental funds consisting of special revenue funds, the capital projects fund and the debt service fund have a combined fund balance of $3,084,897. The net increase in fund balance after transfers in nonmajor governmental funds was $843,543. The increase in the fund was related to the decrease in Capital Outlay Expenditures as many projects were put on hold due to the COVID-19 pandemic. ■ Proprietary Funds The City’s proprietary funds provide the same type of information found in the government-wide financial statements, but in more detail. During the fiscal year the proprietary funds recorded revenues of $12,534,122, expenses of $10,025,601, net non-operating revenue of $(209,877) and net capital contributions, grants and transfers of $431,653. The net position in the proprietary funds increased $1,598,444 as a result of the fiscal year’s activities. The unrestricted net position of the enterprise funds amounted to $9,751,310 at the end of fiscal year 2020. Stormwater rates stayed constant in fiscal year 2020 as there were no rate changes. The $8.39 per ERU is approximately 67%, compared to 61% for the prior year, of the total operating expenses of $1,326,171 needed to fully fund the operation with charges for service. During fiscal year 2020, the Sanitation Fund netted an increase in net position of $38,803. General Fund Budgetary Highlights Net Budget The overall net difference from the final budgeted resources (revenues and other financing sources) and adjusted final budgeted uses (expenditures and other financing uses) was a deficit of $ 400,366. The actual increase in fund balance was $472,356. This resulted in a $872,722 positive budgetary variance. 10 CITY OF ATLANTIC BEACH, FLORIDA MANAGEMENT’S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2020 (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, 2020, amounted to $81,889,145. 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 $453,240 or 1.0% for governmental activities and a decrease of $1,475,559 or 3.9% for business-type activities. Capital asset events during the current fiscal year included the following: ▪ Governmental Activities Buildings reflected a net decrease of $170,395 as a result of depreciation. Intangible Assets reflected a net increase of $52,165. This asset category includes land easements and computer software. Improvements Other Than Buildings reflected a net decrease of $422,264. This represents capital asset increase of $286,943 offset by depreciation of $709,207. Equipment reflected a net decrease of $82,160. This represents capital asset increase of $522,602, offset by depreciation of $604,762. Construction in progress increased by $169,414. ■ 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 $2,138,595. This represents capital asset increases of 157,244, offset by depreciation of $2,295,839. Equipment reflected a net decrease of $79,025. This represents capital asset increase of $190,794, offset by depreciation of $269,819. Construction in Progress had a net increase of $748,386. 11 CITY OF ATLANTIC BEACH, FLORIDA MANAGEMENT’S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2020 (Continued) City of Atlantic Beach’s Capital Assets (Net of Depreciation) (In Thousands) Governmental Business-type Activities Activities Totals 2020 2019 2020 2019 2020 2019 Land $11,914 $11,914 $1,656 $1,656 $13,570 $13,570 Intangibles 104 52 213 213 317 265 Buildings 6,805 6,975 27 36 6,832 7,011 Improvements-Other 24,129 24,551 31,291 33,429 55,420 57,980 Equipment 1,218 1,300 1,027 1,103 2,245 2,403 Construction in Progress 1,067 897 2,439 1,690 3,506 2,587 Total $45,237 $45,689 $36,653 $38,127 $81,890 $83,816 Additional information on the City’s capital assets can be found in Note 5 on pages 40-41 of this report. Long-term Debt At the end of the 2020 fiscal year, the City had total bonded debt outstanding of $15,078,028. The amount of $13,748,028 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) 2020 2019 Governmental Activities: Capital Improvement Revenue Bonds, Series 2018 $1,330 $1,400 Business-type Activities: Utilities System Revenue Bond, Series 2014 8,070 9,310 F.D.E.P. State Revolving Funds Loan, 2010 453 490 F.D.E.P. State Revolving Funds Loan, 2009 5,086 5,430 Capital Lease Payable - 2018 139 205 Total $15,078 $16,835 Debt service coverage calculations can be found on page 77. Additional information on the City’s long- term debt can be found in Note 6 on pages 42-45 of this report. 12 CITY OF ATLANTIC BEACH, FLORIDA MANAGEMENT’S DISCUSSION AND ANALYSIS SEPTEMBER 30, 2020 (Concluded) Revenue Highlights: ■ Total General Fund Revenues for 2020 were $409,255 higher than 2019 revenue (page 16). Increase in property tax revenue of $392,607 is the largest contributor to this increase. ■ The 2020 taxable property values were about 7.4% higher than the 2019 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 $19,071,720. Ad valorem taxes of $5,912,053 represent 53% of the General Fund revenues for 2020. ■ The 2020 Intergovernmental revenues of $1,997,831 make up 17.8% of general fund revenues. This is a decrease of $226,900 over 2019. ■ The City’s investment portfolio is valued at approximately $17,432,327 as of September 30, 2020. The investments showed a gain of $553,014 for the year. Expenditure Highlights: ■ Total Governmental Fund Expenditures decreased in current year by $845,729 when compared to prior year. Capital expenditures decreased from $1,206,655 in 2019 to $1,029,051 in 2020. This decrease is due to projects not being able to be completed due to the COVID-19 pandemic. 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. 13 CITY OF ATLANTIC BEACH, FLORIDA STATEMENT OF NET POSITION SEPTEMBER 30, 2020 WITH COMPARATIVE TOTALS FOR SEPTEMBER 30, 2019 Primary Government Governmental Business-type 2019 Activities Activities Total Totals ASSETS Equity in pooled cash and investments $ 6,093,404 $ 12,017,397 $ 18,110,801 $ 14,619,837 Cash with fiscal agent - - - 1,443,312 Receivables, current: Customer accounts, net 54,055 806,968 861,023 919,865 Intergovernmental and other 1,198,857 131,817 1,330,674 1,046,782 Notes receivable, net 760 15,759 16,519 16,519 Inventory 32,256 60,763 93,019 102,905 Prepaid expenses 352,394 - 352,394 4,852 Restricted assets: Equity in pooled cash and investments 3,365,134 2,396,286 5,761,420 6,000,046 Capital assets: Non-depreciable 12,980,937 4,094,817 17,075,754 16,157,954 Depreciable, net 32,255,794 32,557,597 64,813,391 67,659,990 Notes receivable, noncurrent 1,520 119,320 120,840 121,286 TOTAL ASSETS 56,335,111 52,200,724 108,535,835 108,093,348 DEFERRED OUTFLOWS OF RESOURCES Deferred outflows related to pensions 2,097,174 687,502 2,784,676 3,157,133 Deferred outflows - loss on refunding - 539,716 539,716 647,660 Deferred outflows related to OPEB 57,065 23,219 80,284 21,385 TOTAL DEFERRED OUTFLOWS OF RESOURCES 2,154,239 1,250,437 3,404,676 3,826,178 LIABILITIES Accounts payable and accrued expenses 716,839 423,279 1,140,118 1,398,881 Construction costs payable 10,616 38,160 48,776 26,191 Due to other governments 80,064 53,809 133,873 41,063 Unearned revenue 185,438 181,993 367,431 347,581 Accrued interest payable 23,608 158,056 181,664 201,677 Customer deposits 13,108 669,629 682,737 734,906 Long-term obligations: Due within one year 279,663 1,783,557 2,063,220 1,971,799 Due in more than one year 7,300,193 14,055,876 21,356,069 23,446,085 TOTAL LIABILITIES 8,609,529 17,364,359 25,973,888 28,168,183 DEFERRED INFLOWS OF RESOURCES Deferred inflows related to pensions 394,463 28,200 422,663 1,326,445 Deferred inflows related to OPEB 146,256 59,507 205,763 31,903 Total deferred inflows of resources 540,719 87,707 628,426 1,358,348 NET POSITION Net investment in capital assets 43,896,115 23,405,942 67,302,057 67,604,870 Restricted for: General government facilities 257,689 - 257,689 257,689 Public safety 119,127 - 119,127 299,845 Road maintenance and construction 2,687,062 - 2,687,062 1,318,572 Other purposes 212,062 - 212,062 308,383 Debt service - 280,916 280,916 280,916 Renewal and replacement - 250,000 250,000 250,000 Utility rate stabilization - 400,000 400,000 400,000 Utility system improvements - 1,715,370 1,715,370 2,756,853 Building code enforcement - 195,557 195,557 447,232 Unrestricted 2,167,047 9,751,310 11,918,357 8,468,635 TOTAL NET POSITION $ 49,339,102 $ 35,999,095 $ 85,338,197 $ 82,392,995 See accompanying notes. 14 CITY OF ATLANTIC BEACH, FLORIDA STATEMENT OF ACTIVITIES FOR THE YEAR ENDED SEPTEMBER 30, 2020 WITH COMPARATIVE TOTALS FOR THE YEAR ENDED SEPTEMBER 30, 2019 Program Revenues Net (Expense) Revenue and Operating Capital Changes in Net Position Charges for Grant and Grant and Governmental Business-Type 2019 FUNCTIONS/PROGRAMS Expenses Services Contributions Contributions Activities Activities Total Totals PRIMARY GOVERNMENT: Governmental activities: General government $ 2,536,219 $ 225,216 $ 1,175 $ 72,921 $ (2,236,907) $ - $ (2,236,907) $ (2,386,622) Public safety 6,581,867 664,562 150,341 - (5,766,964) - (5,766,964) (5,609,943) Transportation 1,865,563 120,170 103,534 - (1,641,859) - (1,641,859) (2,176,387) Parks and recreation 1,549,470 46,320 - - (1,503,150) - (1,503,150) (1,544,697) Conservation and resource management 22,714 - 22,505 - (209) - (209) (8,698) Interest on long-term debt 47,215 - - - (47,215) - (47,215) (44,700) Total governmental activities 12,603,048 1,056,268 277,555 72,921 (11,196,304) - (11,196,304) (11,771,047) Business-type activities Utility 6,925,617 9,325,440 - 431,653 - 2,831,476 2,831,476 2,501,362 Stormwater 1,368,718 894,776 - - - (473,942) (473,942) (715,576) Sanitation 1,667,152 1,973,819 - - - 306,667 306,667 970,386 Building code enforcement 544,757 370,961 - - - (173,796) (173,796) (34,107) Total business-type activities 10,506,244 12,564,996 - 431,653 - 2,490,405 2,490,405 2,722,065 TOTAL PRIMARY GOVERNMENT $ 23,109,292 $ 13,621,264 $ 277,555 $ 504,574 $ (11,196,304) $ 2,490,405 $ (8,705,899) $ (9,048,982) GENERAL REVENUES Taxes: Property taxes, levied for general purposes 5,912,053 - 5,912,053 5,519,446 Public service taxes and franchise fees 1,856,292 - 1,856,292 1,819,333 Fuel taxes levied for transportation purposes 543,623 - 543,623 607,300 Discretionary Sales Surtax 914,697 - 914,697 924,384 State shared revenue 1,821,375 - 1,821,375 1,862,114 Investment earnings (loss) 341,496 193,740 535,236 647,147 Miscellaneous 21,673 46,152 67,825 137,132 Gain (loss) on disposal of capital assets - - - 623 TRANSFERS 1,131,853 (1,131,853) - - Total general revenues and transfers 12,543,062 (891,961) 11,651,101 11,517,479 CHANGE IN NET POSITION 1,346,758 1,598,444 2,945,202 2,468,497 NET POSITION, beginning of year 47,992,344 34,400,651 82,392,995 79,924,498 NET POSITION, end of year $ 49,339,102 $ 35,999,095 $ 85,338,197 $ 82,392,995 See accompanying notes. 15 CITY OF ATLANTIC BEACH, FLORIDA BALANCE SHEET – GOVERNMENTAL FUNDS AS OF SEPTEMBER 30, 2020 WITH COMPARATIVE TOTALS FOR SEPTEMBER 30, 2019 2020 Non-Major General Governmental 2019 Fund Funds Total Totals ASSETS Equity in pooled cash and investments $ 6,093,404 $ 3,365,134 $ 9,458,538 $ 8,586,993 Cash with fiscal agent - - - 94,850 Receivables, net Customer accounts, net 54,055 - 54,055 116,007 Intergovernmental and other 939,864 258,993 1,198,857 914,965 Notes receivable, current 760 - 760 760 Inventory 32,256 - 32,256 42,142 Prepaid expenditures 350,846 1,548 352,394 4,852 Due from other funds 394,451 - 394,451 283,396 Notes receivable, non-current 1,520 - 1,520 1,520 TOTAL ASSETS $ 7,867,156 $ 3,625,675 $ 11,492,831 $ 10,045,485 LIABILITIES Accounts payable and accrued liabilities 582,319 134,520 716,839 790,606 Construction costs payable 3,270 7,346 10,616 19,936 Due to other governments 80,064 - 80,064 - Due to other funds - 394,451 394,451 283,396 Deposits 8,647 4,461 13,108 9,543 Unearned revenue 185,438 - 185,438 165,588 TOTAL LIABILITIES 859,738 540,778 1,400,516 1,269,069 FUND BALANCE Nonspendable: Inventory 32,256 - 32,256 42,142 Prepaids 350,846 1,548 352,394 4,852 Restricted for: Public safety - 119,127 119,127 299,845 Road maintenance and construction - 2,687,062 2,687,062 1,318,572 Other capital projects - 257,689 257,689 257,689 Other purposes - 212,062 212,062 308,383 Committed to: Conservation and resource management - 77,732 77,732 77,940 Assigned to: Community redevelopment 50,000 - 50,000 50,000 Operating reserves 3,650,716 - 3,650,716 3,427,234 Unassigned 2,923,600 (270,323) 2,653,277 2,989,759 TOTAL FUND BALANCES 7,007,418 3,084,897 10,092,315 8,776,416 TOTAL LIABILITIES, DEFERRED INFLOWS TOTAL LIABILITIES AND FUND BALANCES $ 7,867,156 $ 3,625,675 $ 11,492,831 $ 10,045,485 See accompanying notes. 16 CITY OF ATLANTIC BEACH, FLORIDA RECONCILIATION OF BALANCE SHEET OF GOVENRMENTAL FUNDS TO THE STATEMENT OF NET POSITION SEPTEMBER 30, 2020 WITH COMPARATIVE TOTALS FOR SEPTEMBER 30, 2019 Amounts reported for governmental activities in the statement of net position are different because: 2020 2019 FUND BALANCES - TOTAL GOVERNMENTAL FUNDS $ 10,092,315 $ 8,776,416 Capital assets used in governmental activities are not financial resources and, therefore, are not reported in the governmental funds. 45,236,731 45,689,971 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. 2,154,239 2,300,441 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. (540,719) (922,021) Interest payable on long-term debt does not require current financial resources and therefore, is not reported as a liability in governmental funds. (23,608) (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 (7,579,856) (7,827,613) NET POSITION OF GOVERNMENTAL ACTIVITIES $ 49,339,102 $ 47,992,344 See accompanying notes. 17 CITY OF ATLANTIC BEACH, FLORIDA STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - GOVERNMENTAL FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2020 WITH COMPARATIVE TOTALS FOR THE YEAR ENDED SEPTEMBER 30, 2019 2020 Non-major General Governmental 2019 Fund Funds Total Totals REVENUES: Property taxes $ 5,912,053 $ - $ 5,912,053 $ 5,519,446 Non-property taxes 1,271,015 1,458,320 2,729,335 2,713,883 Licenses and permits 905,755 - 905,755 795,447 Intergovernmental revenue 1,997,831 - 1,997,831 2,224,731 Charges for services 759,599 52,823 812,422 785,278 Fines and forfeitures 52,945 20,766 73,711 63,367 Investment earnings (loss) 292,108 49,390 341,498 247,851 Miscellaneous revenues 22,848 22,506 45,354 79,947 Total revenues 11,214,154 1,603,805 12,817,959 12,429,950 EXPENDITURES: General government 2,407,069 22,714 2,429,783 2,820,090 Public safety 6,420,395 41,986 6,462,381 6,357,114 Transportation 1,384,495 - 1,384,495 1,707,217 Culture/recreation 1,209,480 265 1,209,745 1,368,716 Capital outlay 661,967 367,084 1,029,051 1,206,655 Debt service - 118,458 118,458 19,850 Total expenditures 12,083,406 550,507 12,633,913 13,479,642 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES (869,252) 1,053,298 184,046 (1,049,692) OTHER FINANCING SOURCES (USES) Transfers in 1,341,608 1,288,458 2,630,066 1,092,648 Transfers (out) - (1,498,213) (1,498,213) (435,000) TOTAL OTHER FINANCING SOURCES (USES) 1,341,608 (209,755) 1,131,853 657,648 NET CHANGE IN FUND BALANCE 472,356 843,543 1,315,899 (392,044) FUND BALANCE, beginning of year 6,535,062 2,241,354 8,776,416 9,168,460 FUND BALANCE, end of year $ 7,007,418 $ 3,084,897 $ 10,092,315 $ 8,776,416 See accompanying notes. 18 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, 2020 WITH COMPARATIVE TOTALS FOR THE YEAR ENDED SEPTEMBER 30, 2019 Amounts reported for governmental activities in the statement of net activities are different because: 2020 2019 NET CHANGE IN FUND BALANCES - TOTAL GOVERNMENTAL FUNDS $ 1,315,899 $ (392,044) 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. 1,056,082 1,219,139 This is the amount of depreciation recorded in the current period. (1,509,322) (1,367,154) 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 repayment of bond principal reported as expenditures in governmental funds. 70,000 - This is the change in accrued interest payable on long-term obligations. 1,242 (24,850) This is the change in accrued compensated absences during the year. (184,664) (19,568) 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. (123,417) (10,015) This amount represents the change in deferred outflows related to OPEB. 41,755 (859) This amount represents the change in the total OPEB liability. 66,177 (22,547) 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. 504,719 (464,962) This amount represents the change in deferred outflows related to pensions. (187,957) (34,244) This amount represents the change in the net pension liability. 296,244 1,048,798 CHANGE IN NET POSITION OF GOVERNMENTAL ACTIVITIES $ 1,346,758 $ (68,306) See accompanying notes. 19 CITY OF ATLANTIC BEACH, FLORIDA STATEMENT OF NET POSITION – PROPRIETARY FUNDS SEPTEMBER 30, 2020 WITH COMPARATIVE TOTALS FOR SEPTEMBER 30, 2019 2020 Business Type Activities - Enterprise Funds Building Code 2019 Utility Stormwater Sanitation Enforcement Totals Totals ASSETS Current assets: Equity in pooled cash and investments $ 9,900,286 $ 1,032,739 $ 669,146 $ 415,226 $ 12,017,397 $ 8,345,121 Cash with fiscal agent - - - - -1,348,462 Accounts receivables, net 663,420 56,248 87,300 -806,968 803,858 Due from other governments 35,244 -96,573 -131,817 131,817 Notes receivable - current 15,759 --- 15,759 15,759 Inventory 60,763 --- 60,763 60,763 Total current assets 10,675,472 1,088,987 853,019 415,226 13,032,704 10,705,780 Noncurrent assets: Restricted assets: Equity in pooled cash and investments 2,396,286 - - - 2,396,286 3,687,769 Notes receivable - noncurrent 119,320 - - - 119,320 119,766 Capital assets: Non-depreciable 2,215,589 1,879,228 - - 4,094,817 3,346,431 Depreciable, net 24,469,953 7,995,578 2,474 89,592 32,557,597 34,781,542 Total noncurrent assets 29,201,148 9,874,806 2,474 89,592 39,168,020 41,935,508 Total assets 39,876,620 10,963,793 855,493 504,818 52,200,724 52,641,288 DEFERRED OUTFLOWS OF RESOURCES Deferred outflows related to pensions 529,430 64,655 43,458 49,959 687,502 872,002 Deferred outflows - refunding loss 469,553 70,163 - - 539,716 647,660 Deferred outflows related to OPEB 14,410 3,269 -5,540 23,219 6,075 Total deferred outflows of resources 1,013,393 138,087 43,458 55,499 1,250,437 1,525,737 Continued… See accompanying notes. 20 CITY OF ATLANTIC BEACH, FLORIDA STATEMENT OF NET POSITION – PROPRIETARY FUNDS (concluded) SEPTEMBER 30, 2020 WITH COMPARATIVE TOTALS FOR SEPTEMBER 30, 2019 2020 Business Type Activities - Enterprise Funds Building Code 2019 Utility Stormwater Sanitation Enforcement Totals Totals LIABILITIES Current liabilities: Accounts payable and accrued liabilities $ 102,348 $ 185,650 $ 120,702 $ 14,579 $ 423,279 $ 608,275 Construction costs payable 6,255 31,905 - - 38,160 6,255 Due to other governments - - - 53,809 53,809 41,063 Unearned revenue 90,605 29,898 61,490 - 181,993 181,993 Compensated absences 43,614 3,046 - 10,878 57,538 44,220 Bonds and notes payable, current 1,527,497 198,522 - - 1,726,019 1,686,515 Total current liabilities 1,770,319 449,021 182,192 79,266 2,480,798 2,568,321 Noncurrent liabilities: Liabilities payable from restricted assets: Customer deposits 669,629 - - - 669,629 725,363 Interest payable 145,834 12,222 - - 158,056 176,827 Compensated absences 213,662 11,144 - 32,293 257,099 205,783 Other postemployment obligation payable 68,243 15,481 - 26,239 109,963 133,514 Net pension liability 1,283,571 156,751 105,361 121,122 1,666,805 1,772,211 Bonds and notes payable, noncurrent portion 11,101,931 920,078 - - 12,022,009 13,748,028 Total noncurrent liabilities 13,482,870 1,115,676 105,361 179,654 14,883,561 16,761,726 Total liabilities 15,253,189 1,564,697 287,553 258,920 17,364,359 19,330,047 DEFERRED INFLOWS OF RESOURCES Deferred inflows related to pensions 21,716 2,652 1,783 2,049 28,200 427,263 Deferred inflows related to OPEB 36,930 8,378 - 14,199 59,507 9,064 Total deferred inflows of resources 58,646 11,030 1,783 16,248 87,707 436,327 NET POSITION Net investment in capital assets 14,519,412 8,794,464 2,474 89,592 23,405,942 23,334,835 Restricted for: Debt retirement 280,916 - - - 280,916 280,916 Renewal and replacement 250,000 - - - 250,000 250,000 Utility rate stabilization 400,000 - - - 400,000 400,000 Utility system improvements (expendable) 1,715,370 - - - 1,715,370 2,756,853 Building code enforcement - - - 195,557 195,557 447,232 Unrestricted 8,412,480 731,689 607,141 - 9,751,310 6,930,815 Total net position $ 25,578,178 $ 9,526,153 $ 609,615 $ 285,149 $ 35,999,095 $ 34,400,651 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, 2020 WITH COMPARATIVE TOTALS FOR THE YEAR ENDED SEPTEMBER 30, 2019 2020 Business Type Activities - Enterprise Funds Building Code 2019 Utility Stormwater Sanitation Enforcement Totals Total OPERATING REVENUES: Charges for services Customer charges $ 9,300,483 $ 894,776 $ 1,915,650 $ 370,961 $ 12,481,870 $ 12,133,524 Franchise permits - - 9,000 - 9,000 13,500 Miscellaneous revenues 43,252 - - - 43,252 67,291 Total operating income 9,343,735 894,776 1,924,650 370,961 12,534,122 12,214,315 OPERATING EXPENSES: Personnel services 1,827,004 366,654 47,747 422,228 2,663,633 2,625,868 Contractual services 375,144 92,471 1,458,853 17,835 1,944,303 2,364,023 Supplies 404,897 24,114 - 13,609 442,620 534,903 Repairs and maintenance 89,111 - 5,671 10,940 105,722 224,337 Utilities 351,447 - - - 351,447 352,529 Depreciation 1,899,373 652,585 771 19,254 2,571,983 2,577,417 Intergovernmental charges 1,321,314 162,745 152,276 50,336 1,686,671 1,494,710 Other expenses 219,231 27,602 1,834 10,555 259,222 386,370 Total operating expenses 6,487,521 1,326,171 1,667,152 544,757 10,025,601 10,560,157 OPERATING INCOME (LOSS) 2,856,214 (431,395) 257,498 (173,796) 2,508,521 1,654,158 NONOPERATING REVENUE (EXPENSE) Connection charges 24,957 - - - 24,957 44,018 Intergovernmental - - - - - 731,746 Franchise fees - - 49,169 - 49,169 73,964 Investment earnings (loss) 234,288 (31,263) 8,923 (18,208) 193,740 399,295 Interest expense (438,096) (42,547) - - (480,643) (522,969) Other, net 2,900 - - - 2,900 5,800 Total nonoperating revenues (expense) (175,951) (73,810) 58,092 (18,208) (209,877) 731,854 Continued… See accompanying notes. 22 CITY OF ATLANTIC BEACH, FLORIDA STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION – PROPRIETARY FUNDS (concluded) FOR THE YEAR ENDED SEPTEMBER 30, 2020 WITH COMPARATIVE TOTALS FOR THE YEAR ENDED SEPTEMBER 30, 2019 2020 Business Type Activities - Enterprise Funds Building Code 2019 Utility Stormwater Sanitation Enforcement Totals Total INCOME (LOSS) BEFORE CONTRIBUTIONS AND TRANSFERS $ 2,680,263 $ (505,205) $ 315,590 $ (192,004) $ 2,298,644 $ 2,386,012 CAPITAL CONTRIBUTIONS System development charges 427,040 - - - 427,040 808,439 Capital grants and contributions 4,613 - - - 4,613 - Total capital contributions 431,653 - - - 431,653 808,439 TRANSFERS Transfers in - 285,000 - - 285,000 200,000 Transfers out (740,066) (400,000) (276,787) (1,416,853) (857,648) Total transfers (740,066) (115,000) (276,787) - (1,131,853) (657,648) CHANGE IN NET POSITION 2,371,850 (620,205) 38,803 (192,004) 1,598,444 2,536,803 NET POSITION, beginning of year 23,206,328 10,146,358 570,812 477,153 34,400,651 31,863,848 NET POSITION, end of year $ 25,578,178 $ 9,526,153 $ 609,615 $ 285,149 $ 35,999,095 $ 34,400,651 See accompanying notes. 23 CITY OF ATLANTIC BEACH, FLORIDA STATEMENT OF CASH FLOWS FOR THE YEAR ENDED SEPTEMBER 30, 2020 WITH COMPARATIVE TOTALS FOR THE YEAR ENDED SEPTEMBER 30, 2019 2020 Business Type Activities - Enterprise Funds Building Code 2019 Utility Stormwater Sanitation Enforcement Total Totals CASH FLOWS FROM OPERATING ACTIVITIES: Receipts from customers $ 9,286,144 $ 891,860 $ 1,926,759 $ 383,707 $ 12,488,470 $ 12,129,837 Payments to suppliers (2,920,335) (313,713) (1,623,743) (117,190) (4,974,981) (5,201,235) Payments for salaries and benefits (2,029,661) (378,666) (67,404) (433,489) (2,909,220) (2,812,030) Net cash flows from operating activities 4,336,148 199,481 235,612 (166,972) 4,604,269 4,116,572 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES: Transfers from (to) other funds (740,066) (115,000) (276,787) - (1,131,853) (657,648) Change in amounts due from/to other funds - - - - - (367,030) Connection charges received 24,957 - - - 24,957 44,018 Operating grants - - - - - 731,746 Franchise fees received - - 49,169 - 49,169 73,964 Net cash flows from noncapital financing activities (715,109) (115,000) (227,618) - (1,057,727) (174,950) CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES: Acquisition and construction of capital assets, net of related payables (530,595) (455,000) - (78,925) (1,064,520) (912,551) Principal paid on notes, bonds and lease obligations (1,492,547) (193,968) - - (1,686,515) (1,647,556) Interest paid on borrowings and other debt costs (361,078) (30,392) - - (391,470) (434,026) Capital contributions and impact fees received, net of change in related receivables 431,653 - - - 431,653 830,737 Net cash flows from capital and related financing activities (1,952,567) (679,360) - (78,925) (2,710,852) (2,163,396) CASH FLOWS FROM INVESTING ACTIVITIES Interest on invested funds 234,288 (31,263) 8,924 (18,208) 193,741 399,295 Other income 2,900 - - - 2,900 5,800 Net cash flows from investing activities 237,188 (31,263) 8,924 (18,208) 196,641 405,095 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,905,660 (626,142) 16,918 (264,105) 1,032,331 2,183,321 CASH AND CASH EQUIVALENTS, beginning of year 10,390,912 1,658,881 652,228 679,331 13,381,352 11,198,031 CASH AND CASH EQUIVALENTS, end of year $ 12,296,572 $ 1,032,739 $ 669,146 $ 415,226 $ 14,413,683 $ 13,381,352 As shown in the Accompanying Financial Statements Equity in cash and investments $ 9,900,286 $ 1,032,739 $ 669,146 $ 415,226 $ 12,017,397 $ 8,345,121 Cash with fiscal agent - - - - - 1,348,462 Restricted equity in cash and investments 2,396,286 - - - 2,396,286 3,687,769 Total cash and cash equivalents $ 12,296,572 $ 1,032,739 $ 669,146 $ 415,226 $ 14,413,683 $ 13,381,352 Noncash financing and investing activities: Amortization of refunding loss $ 93,911 $ 14,033 $ - $ - $ 107,944 $ 107,943 Continued… See accompanying notes. 24 CITY OF ATLANTIC BEACH, FLORIDA STATEMENT OF CASH FLOWS (concluded) FOR THE YEAR ENDED SEPTEMBER 30, 2020 WITH COMPARATIVE TOTALS FOR THE YEAR ENDED SEPTEMBER 30, 2019 2020 Business Type Activities - Enterprise Funds Building Code 2019 Utility Stormwater Sanitation Enforcement Total Totals Reconciliation of operating income (loss) to net cash provided (used) by operating activities: Operating income (loss) $ 2,856,214 $ (431,395) $ 257,498 $ (173,796) $ 2,508,521 $ 1,654,158 Adjustments to reconcile operating income to net cash provided (used) by operating activities: Depreciation expense 1,899,373 652,585 771 19,254 2,571,983 2,577,417 (Increase) decrease in accounts receivable (2,303) (2,916) 2,109 - (3,110) (134,944) (Increase) decrease in notes receivable 446 - - - 446 1,257 (Increase) decrease in amounts due from other governments - - - 12,746 12,746 15,090 Increase (decrease) in accounts payable (159,191) (6,781) (5,109) (13,915) (184,996) 155,637 Increase (decrease) in compensated absences 52,267 426 - 11,941 64,634 15,029 Increase (decrease) in customer deposits (55,734) - - - (55,734) 34,119 (Increase) decrease in OPEB related deferred outflows (10,561) (2,546) - (4,037) (17,144) 1,211 Increase (decrease) in the total OPEB liability (16,355) (398) - (6,798) (23,551) (7,931) Increase (decrease) in OPEB related deferred inflows 31,187 7,300 - 11,956 50,443 3,286 (Increase) decrease in pension related deferred outflows 150,484 8,615 11,290 14,111 184,500 (87,871) Increase (decrease) in the net pension liability (98,251) 7,840 (5,905) (9,090) (105,406) (362,550) Increase (decrease) in pension related deferred inflows (311,428) (33,249) (25,042) (29,344) (399,063) 252,664 Net cash flows from operating activities $ 4,336,148 $ 199,481 $ 235,612 $ (166,972) $ 4,604,269 $ 4,116,572 See accompanying notes. 25 CITY OF ATLANTIC BEACH, FLORIDA STATEMENT OF FIDUCIARY NET POSITION SEPTEMBER 30, 2020 WITH COMPARATIVE TOTALS FOR SEPTEMBER 30, 2019 Pension Trust Funds ASSETS 2020 2019 Cash and cash equivalents $ 495,614 $ 318,445 Accrued income 32,888 35,719 Investments at fair value 34,362,981 32,403,671 Total assets 34,891,483 32,757,835 LIABILITIES Accounts payable and accrued liabilities 7,810 - Due to City - 11,652 Total Liabilities 7,810 11,652 NET POSITION Restricted for pension benefits $ 34,883,673 $ 32,746,183 See accompanying notes. 26 CITY OF ATLANTIC BEACH, FLORIDA STATEMENT OF CHANGES IN FIDUCIARY NET POSITION FOR THE YEAR ENDED SEPTEMBER 30, 2020 WITH COMPARATIVE TOTALS FOR THE YEAR ENDED SEPTEMBER 30, 2019 Pension Trust Funds 2020 2019 ADDITIONS Contributions: City $ 2,107,974 $ 2,251,184 Plan members 258,087 249,769 State of Florida 132,844 - Total contributions 2,498,905 2,500,953 Investment income 1,876,162 1,039,693 Less investment expenses: (118,261) (111,228) Net investment income 1,757,901 928,465 Total additions 4,256,806 3,429,418 DEDUCTIONS Administrative expenses 73,887 86,926 Payments to retirees and participants 2,045,429 2,470,938 Total deductions 2,119,316 2,557,864 CHANGE IN NET POSITION 2,137,490 871,554 NET POSITION, beginning of year 32,746,183 31,874,629 NET POSITION, end of year $ 34,883,673 $ 32,746,183 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2020 27 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, 2020 28 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, 2020 29 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, 2020 30 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, 2020 31 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, 2020 32 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, 2020 33 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, 2019, 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. 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 effective date for this Statement was originally for those years beginning after June 15, 2020 but this date was extended with the passage of Statement No. 95, “Postponement of the Effective Dates of Certain Authoritative Guidance.” The provisions of this statement are now effective for fiscal years beginning after June 15, 2021. CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2020 34 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont…) • Statement 89, “Accounting for Interest Cost Incurred before the End of a Construction Period” This statement will improve financial reporting by providing users of financial statements with more relevant information about capital assets and the cost of borrowing for a reporting period by requiring that financial statements prepared using the economic resources measurement focus report interest cost incurred before the end of a construction period as an expense in the period in which the cost is incurred. The provisions of this statement are effective for fiscal years beginning after December 15, 2020. • Statement 91, “Conduit Debt Obligations” This statement will improve financial reporting by enhancing the comparability and consistency of conduit debt obligation reporting and reporting of related transactions and other events. The effective date for this Statement was originally for those years beginning after December 15, 2020 but this date was extended with the passage of Statement No. 95, “Postponement of the Effective Dates of Certain Authoritative Guidance.” The provisions of this statement are now effective for fiscal years beginning after December 15, 2021. • 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, 2020 35 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. On September 30, 2020, the carrying amount of cash on hand and on deposit with banks, including interest-bearing deposits was $6,442,730, and the related bank balance was $7,421,929. 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 on September 30, 2020: Investment Maturities Fair Less than 1-5 6-10 More than Investment Type Value 1 Year Years Years 10 Years Total Accrued interest $ 79,145 $ 79,145 $ - $ - $ - 79,145 Money market funds / cash 207,870 207,870 - - - 207,870 Corporate bonds 5,422,361 751,980 4,324,434 345,947 - 5,422,361 U.S. Treasury Obligations and Federal Agency Securities 11,698,425 1,528,523 9,935,473 234,429 - 11,698,425 Florida PRIME 24,526 24,526 - - - 24,526 Total $ 17,432,327 $ 2,592,044 $ 14,259,907 $ 580,376 $ - $ 17,432,327 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, 2020, 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, 2020 36 NOTE 2 – CASH AND INVESTMENTS (cont…) The City’s fixed income investment balances as of on September 30, 2020, are comprised of the following items: Percentage of S & P Credit Total Fixed Income Investment Type Rating Investments Corporate Bonds AAA 0.40% Corporate Bonds AA+ 0.31% Corporate Bonds AA 0.18% Corporate Bonds AA- 1.05% Corporate Bonds A+ 2.01% Corporate Bonds A 5.83% Corporate Bonds A- 6.42% Corporate Bonds BBB+ 6.79% Corporate Bonds BBB 3.10% Corporate Bonds BBB- 0.25% Corporate Bonds Not Rated 5.33% U.S. Treasury Obligations and Federal Agency Securities AAA 5.65% U.S. Treasury Obligations and Federal Agency Securities AA+ 55.96% U.S. Treasury Obligations and Federal Agency Securities Not Rated 6.72% 100.00% Listed below are the investments, credit ratings and maturities in the City’s pension trust funds on September 30, 2020: General Employees’ Pension Plan: 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 $ 458,973 $ 458,973 $ - $ - $ - $ 458,973 Corporate bonds 2,171,497 79,031 1,164,884 927,582 - 2,171,497 U.S. Treasury Obligations and Federal Agency Securities 1,960,889 - 1,223,927 227,875 509,087 1,960,889 Fixed Income Mutual Funds 1,891,688 1,891,688 - - - 1,891,688 Total $ 6,483,047 $ 2,429,692 $ 2,388,811 $ 1,155,457 $ 509,087 $ 6,483,047 Police Officers Pension Plan: 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 $ 280,487 $ 280,487 $ - $ - $ - $ 280,487 Corporate bonds 1,256,454 45,595 676,057 534,802 - 1,256,454 U.S. Treasury Obligations and Federal Agency Securities 1,126,008 - 711,844 120,736 293,428 1,126,008 Fixed Income Mutual Funds 1,076,142 1,076,142 - - - 1,076,142 Total $ 3,739,091 $ 1,402,224 $ 1,387,901 $ 655,538 $ 293,428 $ 3,739,091 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2020 37 NOTE 2 – CASH AND INVESTMENTS (cont…) The City’s pension trust fund fixed income investment balances as of September 30, 2020, are comprised of the following items: General Employees’ Pension Plan: Percentage of S & P Credit Total Fixed Income Investment Type Rating Investments Corporate Bonds AAA 7.20% Corporate Bonds A- 10.94% Corporate Bonds BBB+ 9.06% Corporate Bonds BBB 13.25% Corporate Bonds BBB- 12.09% U.S. Treasury Obligations and Federal Agency Securities AA+ 35.13% U.S. Treasury Obligations and Federal Agency Securities Not Rated 12.33% 100.00% Police Officers Pension Plan: Percentage of S & P Credit Total Fixed Income Investment Type Rating Investments Corporate Bonds AAA 7.23% Corporate Bonds A- 10.95% Corporate Bonds BBB+ 11.21% Corporate Bonds BBB 13.27% Corporate Bonds BBB- 10.08% U.S. Treasury Obligations and Federal Agency Securities AA+ 34.95% U.S. Treasury Obligations and Federal Agency Securities Not Rated 12.31% 100.00% 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. CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2020 38 NOTE 2 – CASH AND INVESTMENTS (concluded) Fair Value Measurements The fair value hierarchy categorizes the inputs to valuation techniques used to measure fair value into three levels: • Level 1 Inputs―are quoted prices (unadjusted) for identical assets or liabilities in active markets that a government can access at the measurement date. • Level 2 Inputs―are inputs other than quoted prices included within Level 1 that are observable for an asset or liability, either directly or indirectly. • Level 3 Inputs―are unobservable inputs for an asset or liability. The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. If a price for an identical asset or liability is not observable, a government should measure fair value using another valuation technique that maximizes the use of relevant observable inputs and minimizes the use of unobservable inputs. The City’s investments are measured at fair value on a recurring basis. Fair value measurements are categorized based on the valuation inputs used to measure an asset’s fair value in the hierarchy described above. The fair value measurements for the City’s investments are as follows on September 30, 2020: 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 $ 79,145 $ 79,145 $ - $ - Money Markets 232,396 232,396 - - Corporate Bonds 5,422,361 - 5,422,361 - U.S. Treasury Obligations and Federal Agency Securities 11,698,425 - 11,698,425 - Subtotal - City Investments 17,432,327 311,541 17,120,786 - General Employees' Pension Plan: Money Markets 458,973 458,973 - - Corporate Bonds 2,171,497 - 2,171,497 - U.S. Treasury Obligations and Federal Agency Securities 1,960,889 - 1,960,889 - Mutual Funds - Fixed Income 1,891,688 1,891,688 - - Mutual Funds - Equities 2,646,865 2,646,865 - - ETFs 3,679,755 3,679,755 - - Equities 8,832,404 8,832,404 - - ICMA Self Directed - - - - Subtotal - General Employees' Pension Plan 21,642,071 17,509,685 4,132,386 - Police Officers' Pension Plan: Money Markets 280,487 280,487 - - Corporate Bonds 1,256,454 - 1,256,454 - U.S. Treasury Obligations and Federal Agency Securities 1,126,008 - 1,126,008 - Mutual Funds - Fixed Income 1,076,142 1,076,142 - - Mutual Funds - Equities 1,631,395 1,631,395 - - ETFs 1,897,151 1,897,151 - - Equities 5,277,957 5,277,957 - - ICMA Self Directed 175,316 175,316 - - Subtotal - Police Officers' Pension Plan 12,720,910 10,338,448 2,382,462 - Total Investments Measured at Fair Value $ 51,795,308 $ 28,159,674 $ 23,635,634 $ - CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2020 39 NOTE 3 – RECEIVABLES Receivables, net of the allowance for doubtful accounts on September 30, 2020, consist of the following: Less Total Allowance Accounts Accounts for Doubtful Receivable Fund Receivable Accounts Net General Fund $ 54,055 $ - $ 54,055 Utility Fund 1,113,441 (450,021) 663,420 Stormwater Fund 71,845 (15,597) 56,248 Sanitation Fund 140,902 (53,602) 87,300 Total $ 1,380,243 $ (519,220) $ 861,023 Included in accounts receivable are $244,053 of water and sewer revenues earned, but not billed as of September 30, 2020. 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 on September 30, 2020: Notes Receivable $ 135,079 (Current Portion) (15,759) Total Notes Receivable - Noncurrent $ 119,320 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2020 40 NOTE 5 – CAPITAL ASSETS Capital asset activity for the fiscal year ended September 30, 2020, is as follows: Balance Balance October 1, September 30, 2019 Transfers Increases Decreases 2020 Governmental Activities: Capital assets, not being depreciated: Land $ 11,913,572 $ - $ - - $ 11,913,572 Construction in process 897,951 - 169,414 - 1,067,365 Total capital assets, not being depreciated 12,811,523 - 169,414 - 12,980,937 Capital assets, being depreciated: Buildings 9,547,484 - - - 9,547,484 Intangible assets 448,322 (12,846) 89,969 - 525,445 Improvements other than buildings 42,222,685 12,846 274,097 - 42,509,628 Machinery and equipment 5,657,522 - 522,602 - 6,180,124 Total capital assets, being depreciated 57,876,013 - 886,668 - 58,762,681 Less accumulated depreciation for: Buildings (2,572,148) - (170,395) - (2,742,543) Intangible assets (396,144) - (24,958) - (421,102) Improvements other than buildings (17,671,486) - (709,207) - (18,380,693) Machinery and equipment (4,357,787) - (604,762) - (4,962,549) Total accumulated depreciation (24,997,565) - (1,509,322) - (26,506,887) Total capital assets being depreciated, net 32,878,448 - (622,654) - 32,255,794 Governmental activities capital assets, net $ 45,689,971 $ - $ (453,240) $ - $ 45,236,731 Business-type activities: Capital assets, not being depreciated: Land $ 1,656,018 $ - $ - $ - $ 1,656,018 Construction-in-progress 1,690,413 - 748,386 - 2,438,799 Total capital assets, not being depreciated 3,346,431 - 748,386 - 4,094,817 Capital assets, being depreciated: Buildings 4,356,384 - - - 4,356,384 Intangible assets 244,709 - - - 244,709 Improvements other than buildings 85,657,044 - 157,244 - 85,814,288 Machinery and equipment 3,503,245 - 190,794 - 3,694,039 Total capital assets, being depreciated 93,761,382 - 348,038 - 94,109,420 Less accumulated depreciation for: Buildings (4,320,769) - (8,442) - (4,329,211) Intangible assets (31,234) - (190) - (31,424) Improvements other than buildings (52,227,900) (2,307) (2,293,532) - (54,523,739) Machinery and equipment (2,399,937) 2,307 (269,819) - (2,667,449) Total accumulated depreciation (58,979,840) - (2,571,983) - (61,551,823) Total capital assets being depreciated, net 34,781,542 - (2,223,945) - 32,557,597 Business-type activities capital assets, net $ 38,127,973 $ - $ (1,475,559) $ - $ 36,652,414 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2020 41 NOTE 5 – CAPITAL ASSETS (concluded) Depreciation expense was charged to functions/programs as follows: Governmental Activities: General government $ 204,559 Public safety 375,860 Transportation 577,907 Parks and recreation 350,996 Total depreciation expense - governmental activities $ 1,509,322 Business-type Activities: Utility $ 1,899,373 Stormwater 652,585 Sanitation 771 Building Code Enforcement 19,254 Total depreciation expense - business-type activities $ 2,571,983 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2020 42 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, 2020: Balance Balance Amounts October 1, September 30, Due within 2019 Increases Decreases 2020 One Year Governmental Activities: Long-term debt: Capital Improvement Revenue Bond, Series 2018 $ 1,400,000 $ - $ (70,000) $ 1,330,000 $ 75,000 Total long-term debt 1,400,000 - (70,000) 1,330,000 75,000 Other liabilities: OPEB obligation 336,441 - (66,177) 270,264 - Net pension liability 5,328,821 - (296,244) 5,032,577 - Compensated absences 762,351 184,664 - 947,015 204,663 Total other liabilities 6,427,613 184,664 (362,421) 6,249,856 204,663 Total long-term obligations $ 7,827,613 $ 184,664 $ (432,421) 7,579,856 $ 279,663 Less amounts due in one year (279,663) Total noncurrent obligations due in more than one year $ 7,300,193 Business-type Activities: Long-term debt: Utility System Revenue Refunding Bond, Series 2014 $ 9,310,000 $ - $ (1,240,000) $ 8,070,000 $ 1,265,000 FDEP Loan DW160710 490,006 - (36,848) 453,158 37,853 FDEP Loan WW160700 5,430,002 - (344,131) 5,085,871 355,022 Capital Lease Payable - 2018 204,535 - (65,536) 138,999 68,144 Total bonds and notes payable 15,434,543 - (1,686,515) 13,748,028 1,726,019 Other liabilities: OPEB obligation 133,514 - (23,551) 109,963 - Net pension liability 1,772,211 - (105,406) 1,666,805 - Compensated absences 250,003 64,634 - 314,637 57,538 Total other liabilities 2,155,728 64,634 (128,957) 2,091,405 57,538 Total long-term liabilities $ 17,590,271 $ 64,634 $ (1,815,472) 15,839,433 $ 1,783,557 Less amounts due in one year (1,783,557) Net long-term liabilities in excess of one year $ 14,055,876 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, 2020 43 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 (148,686) Net book value $ 185,858 The future minimum lease obligations and the net present value of these minimum lease payments as of September 30, 2020, were as follows: Year Ending September 30 Principal Interest Total 2021 $ 68,144 $ 5,532 $ 73,676 2022 70,855 2,820 73,675 $ 138,999 $ 8,352 $ 147,351 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2020 44 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, 2020, are as follows: Governmental Activities Business-type Activities Fiscal Year Ending Principal Interest Principal Interest 2021 $ 75,000 $ 45,884 $ 1,657,875 $ 409,836 2022 80,000 43,133 1,705,143 356,031 2023 80,000 40,293 1,747,795 300,790 2024 85,000 37,364 1,790,842 244,183 2025 85,000 34,346 1,834,297 186,195 2026-2030 475,000 123,096 3,863,525 393,708 2031-2035 450,000 32,838 1,009,552 39,294 Total $ 1,330,000 $ 356,954 $ 13,609,029 $ 1,930,037 Interest and amortization incurred during the year ended September 30, 2020, amounted to $570,184. 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, 2020, 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, 2020. 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, 2020: 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 $ 8,871,903 $ 1,442,478 $ 4,755,587 FDEP Loan DW160710 Utility Net Revenues 2031 $ 523,727 $ 49,879 $ 4,755,587 FDEP Loan WW160700 Utility Net Revenues 2032 $ 6,143,436 $ 511,953 $ 4,755,587 Total $ 15,539,066 $ 2,004,310 $ 4,755,587 237.27% CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2020 45 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, 2020, there are two series of Health Facility Revenue and Refunding Bonds outstanding, with an aggregate principal amount payable of $165,495,000. CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2020 46 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, 2020 and 2019, is as follows: September 30 September 30 2019 2018 Inactive plan members or beneficiaries currently receiving benefits 75 74 Inactive plan members entitled to but not yet receiving benefits 7 7 Active plan members 28 34 Total 110 115 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, 2020, Plan net position included $0 of DROP account balances. Contributions The City is required to contribute at an actuarially determined rate (83.9%) of covered payroll for the year ended September 30, 2020. City contributions to the Plan were $1,362,952 for the year ended September 30, 2020. 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, 2020 47 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, 2019, 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, 2020, 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, 2020 is shown below. Increase (Decrease) Total Pension Plan Fiduciary Net Pension Liability Net Position (Asset) Liability (a) (b) (a)-(b) Reporting period ending 9/30/2019 $ 23,534,251 $ 19,714,297 $ 3,819,954 Changes for the year: Service cost 332,673 - 332,673 Interest 1,566,226 - 1,566,226 Difference between actual and expected experience 40,197 - 40,197 Contributions - City - 1,424,479 (1,424,479) Contributions - employee - 107,745 (107,745) Net investment income - 619,176 (619,176) Benefit payments, including refunds of employee contributions (1,327,161) (1,327,161) - Administrative expense - (40,584) 40,584 Net changes 611,935 783,655 (171,720) Reporting period ending 9/30/2020 $ 24,146,186 $ 20,497,952 $ 3,648,234 *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, 2020 48 NOTE 7 – DEFINED BENEFIT PENSION PLANS (cont…) The components of the net pension liability for the Plan as of the September 30, 2020 measurement date were as follows: Total pension liability $ 24,665,518 Plan fiduciary net position (21,719,136) Net pension liability (asset) $ 2,946,382 Plan fiduciary net position as a percentage of the total pension liability 88% For the year ended September 30, 2020, the City recognized total pension expense of $706,803. 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 $ 21,056 $ 61,721 Change in assumptions 90,719 - Difference between projected and actual earnings on Plan investments 30,047 - City contributions subsequent to the measurement date 1,362,952 - Total $ 1,504,774 $ 61,721 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, 2021. Other amounts reported as deferred outflows of resources related to pensions will be recognized in pension expense as follows: Year ending September 30, Amount 2021 $ (94,207) 2022 (47,403) 2023 78,293 2024 143,418 $ 80,101 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 6.41% and 4.04% for the years ended September 30, 2020 and 2019, respectively. CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2020 49 NOTE 7 – DEFINED BENEFIT PENSION PLANS (cont…) Actuarial Assumptions The total pension liability was determined by actuarial valuations for the Plan as of October 1, 2018, rolled forward to the measurement date of 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, 2020 50 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, 2019 and the financial reporting date of September 30, 2020. Current As of Discount September, Rate 1% Decrease Current Rate 1% Increase 9/30/2019 6.75% $ 6,263,183 $ 3,648,234 $ 1,407,059 9/30/2020 6.75% $ 5,568,387 $ 2,946,382 $ 699,271 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 the September 30, 2019 and 2018 measurement dates, is as follows: September 30 September 30 2019 2018 Inactive plan members or beneficiaries currently receiving benefits 23 22 Inactive plan members entitled to but not yet receiving benefits 3 4 Active plan members 26 24 Total 52 50 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, 2020 51 NOTE 7 – DEFINED BENEFIT PENSION PLANS (cont…) Contributions The City is required to contribute, at actuarially determined rate (33.2%) of covered payroll for the year ended September 30, 2020. The City may use State contributions to offset this required contribution. City and State contributions to the Police Plan were $877,866 for the year ended September 30, 2020. 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, 2019, 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, 2020, 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, 2020 (September 30, 2019 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 9/30/2019 $ 15,445,722 $ 12,164,644 $ 3,281,078 Changes for the year: Service cost 332,419 - 332,419 Interest 1,026,422 - 1,026,422 Difference between actual and expected experience (351,262) - (351,262) Contributions - City - 826,705 (826,705) Contributions - employee - 142,024 (142,024) Net investment income - 307,543 (307,543) Benefit payments, including refunds of employee contributions (1,143,777) (1,143,777) - Administrative expense - (38,763) 38,763 Net changes (136,198) 93,732 (229,930) Reporting period ending 9/30/2020 $ 15,309,524 $ 12,258,376 $ 3,051,148 *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, 2020 52 NOTE 7 – DEFINED BENEFIT PENSION PLANS (cont…) The components of the net pension liability for the Police Plan as of the September 30, 2020 measurement date were as follows: Total pension liability $ 16,100,283 Plan fiduciary net position (13,153,186) Net pension liability (asset) $ 2,947,097 Plan fiduciary net position as a percentage of the total pension liability 82% For the year ended September 30, 2020, the City recognized total pension expense of $601,041. 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 $ 57,416 $ 360,942 Change in assumptions 227,491 - Net difference between projected and actual earnings on Plan investments 117,128 - City contributions subsequent to the measurement date 877,867 - Total $ 1,279,902 $ 360,942 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, 2020. 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 2021 $ (15,432) 2022 (21,564) 2023 (4,937) 2024 83,026 $ 41,093 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 6.15% and 4.38% for the years ended September 30, 2020 and 2019, respectively. CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2020 53 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 18.50% (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, 2020 54 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, 2019 and the financial reporting date of September 30, 2020. Current As of Discount September, Rate 1% Decrease Current Rate 1% Increase 9/30/2019 6.75% $ 4,821,956 $ 3,051,148 $ 1,406,207 9/30/2020 6.75% $ 4,884,449 $ 2,947,097 $ 1,329,735 The Statements of Fiduciary Net Position for the City’s pension trust funds for the year ended September 30, 2020 were as follows: Pension Trust Funds General Police Employees' Officers' Retirement Retirement 2020 2019 Plan Plan Totals Totals ASSETS Cash and cash equivalents $ 72,186 $ 423,428 $ 495,614 $ 318,445 Accrued income 20,841 12,047 32,888 35,719 Investments at fair value 21,642,071 12,720,910 34,362,981 32,403,671 Total assets 21,735,098 13,156,385 34,891,483 32,757,835 LIABILITIES Accounts payable and accrued liabilities 4,310 3,500 7,810 - Due to City - - - 11,652 Total Liabilities 4,310 3,500 7,810 11,652 NET POSITION Restricted for pension benefits $ 21,730,788 $ 13,152,885 $ 34,883,673 $ 32,746,183 REMAINDER OF PAGE INTENTIONALLY LEFT BLANK CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2020 55 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, 2020 were as follows: Pension Trust Funds General Police Employees' Officers' Retirement Retirement 2020 2019 Plan Plan Totals Totals ADDITIONS Contributions: City $ 1,362,952 $ 745,022 $ 2,107,974 $ 2,251,184 Plan members 96,921 161,166 258,087 249,769 State of Florida - 132,844 132,844 - Total contributions 1,459,873 1,039,032 2,498,905 2,500,953 Investment income 1,226,055 650,107 1,876,162 1,039,693 Less investment expenses: (75,430) (42,831) (118,261) (111,228) Net investment income 1,150,625 607,276 1,757,901 928,465 Total additions 2,610,498 1,646,308 4,256,806 3,429,418 DEDUCTIONS Administrative expenses 42,469 31,418 73,887 86,926 Payments to retirees and participants 1,329,553 715,876 2,045,429 2,470,938 Total deductions 1,372,022 747,294 2,119,316 2,557,864 CHANGE IN NET POSITION 1,238,476 899,014 2,137,490 871,554 NET POSITION, beginning of year 20,492,312 12,253,871 32,746,183 31,874,629 NET POSITION, end of year $ 21,730,788 $ 13,152,885 $ 34,883,673 $ 32,746,183 REMAINDER OF PAGE INTENTIONALLY LEFT BLANK CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2020 56 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 $107,404 and $88,051 for the years ended September 30, 2020 and 2019, 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, 2019, the date of the latest actuarial valuation: September 30, 2019 Inactive plan members or beneficiaries currently receiving benefits 1 Inactive plan members entitled to but not yet receiving benefits - Active plan members 101 Total 102 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, 2020 57 NOTE 9 – POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS (cont…) Actuarial Methods and Assumptions For the September 30, 2019 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: 2.75% Investment Rate of Return: 0.0% Salary Increases: Rates used in the October 1, 2018 actuarial valuation of the City’s pension plans. Healthcare Cost Trend: Based on Getzen Model, with trend of 1.95% for 2020 and 6.25% for 2021 and gradually decreasing to an ultimate trend rate of 3.99% plus 0.36% increase for excise tax. Mortality: Mortality tables used for Regular and Special Risk Class members in the July 1, 2018 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 2.75% as of September 30, 2019, 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, 2019 and was determined by an actuarial valuation as of September 30, 2019. Changes in the Total OPEB liability were as follows: Total OPEB Liability Reporting period ending September 30, 2019 $ 469,955 Changes for the year: Service cost 38,095 Interest 19,049 Differences between expected and actual experience (203,632) Changes of assumptions 78,146 Benefit payments (21,386) Net changes (89,728) Reporting period ending September 30, 2020 $ 380,227 CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2020 58 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 $ 426,391 $ 380,227 $ 340,115 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 $ 317,455 $ 380,227 $ 461,324 OPEB Expense and Deferred Inflows of Resources Related to OPEB For the year ended September 30, 2020, the City recognized OPEB expense of $36,903. On 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 $ 68,616 $ 26,964 Differences between expected and actual experience - 178,799 City contributions subsequent to the measurement date 11,668 - Total $ 80,284 $ 205,763 Of the total amount reported as deferred outflows of resources related to OPEB, $11,668 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, 2021. Other amounts reported as deferred inflows of resources related to OPEB will be recognized in OPEB expense as follows: Year ended September 30, Amount 2021 $ (20,241) 2022 (20,241) 2023 (20,241) 2024 (20,241) 2025 (20,238) Thereafter (35,945) Total $ (137,147) CITY OF ATLANTIC BEACH, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2020 59 NOTE 10 – INTERFUND ACCOUNTS Individual fund inter-fund receivables and payables on September 30, 2020, consist of the following: Due Due from Other to Other Funds Funds General Fund $ 394,451 $ - Community Development Block Grants Fund - 197,786 Local Option Gas Tax Fund 124,665 Police Grants Fund - 8,083 Capital Projects Fund - 44,067 Debt Service Fund - 19,850 $ 394,451 $ 394,451 Inter-fund receivable/payables are due to timing differences or due to deficit positions in the City’s pooled cash and investments. 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, 2020: Transfer In: General Capital Projects Debt Service Stormwater Fund Fund Fund Fund Total Transfers Out: Utility Fund $ 740,066 $ - $ - $ - $ 740,066 Local Option Gas Tax Fund 234,623 470,000 - - 704,623 Capital Projects Fund 90,132 - - - 90,132 Sanitation Fund 276,787 - - - 276,787 Community Development Block Grant Fund - 200,000 - - 200,000 Stormwater Fund - 400,000 - - 400,000 Convention Development Tax Fund - - 118,458 - 118,458 Half-cent Sales Tax Fund - 100,000 - 285,000 385,000 Total $ 1,341,608 $ 1,170,000 $ 118,458 $ 285,000 $ 2,915,066 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, 2020 60 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, 2020, the City incurred $1,236,431 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 is 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. Page Intentionally Left Blank REQUIRED SUPPLEMENTARY INFORMATION 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, 2020 Actual Amounts Variance with Budgeted Amounts (Budgetary Final Budget Basis) see Positive Original Final Note A (Negative) REVENUES Property taxes $ 5,950,351 $ 5,950,351 $ 5,912,053 $ (38,298) Non-property taxes 1,099,364 1,120,661 1,271,015 150,354 Licenses and permits 903,106 903,106 905,755 2,649 Intergovernmental revenue 2,209,867 2,209,867 1,997,831 (212,036) Charges for services 842,971 842,971 759,599 (83,372) Fines and forfeitures 113,090 113,090 52,945 (60,145) Investment earnings (loss) 180,000 292,108 292,108 - Miscellaneous revenues 30,857 30,857 22,848 (8,009) Interfund charges 1,701,852 1,789,976 1,778,652 (11,324) Total revenues 13,031,458 13,252,987 12,992,806 (260,181) EXPENDITURES City Administration: City Commission 55,876 55,876 45,834 10,042 City Clerk 358,543 358,543 309,706 48,837 City Attorney 150,000 150,000 150,000 - City Manager 442,233 442,223 419,797 22,426 Human resources 250,149 255,019 250,394 4,625 Information technology 782,592 782,592 708,411 74,181 Finance 1,063,701 1,103,301 1,113,333 (10,032) Total City administration 3,103,094 3,147,554 2,997,475 150,079 Planning and zoning 424,764 374,764 284,350 90,414 General government 748,880 770,410 580,184 190,226 Public safety: Police 4,810,484 5,380,879 5,205,722 175,157 Animal control 96,155 96,155 94,311 1,844 Fire control 1,660,567 1,590,567 1,550,874 39,693 Code enforcement 106,432 106,432 94,693 11,739 Total public safety 6,673,638 7,174,033 6,945,600 228,433 Continued… 62 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, 2020 Amounts Variance with Budgeted Amounts (Budgetary Final Budget Basis) see Positive Original Final Note A (Negative) Public works: Administration and streets 1,745,890 1,745,890 1,403,463 342,427 Fleet maintenance 299,090 299,090 257,682 41,408 Total public works 2,044,980 2,044,980 1,661,145 383,835 Parks and recreation Recreation and special events 484,333 484,333 442,921 41,412 Parks maintenance 979,030 1,028,187 950,383 77,804 Total parks and recreation 1,463,363 1,512,520 1,393,304 119,216 Total expenditures 14,458,719 15,024,261 13,862,058 1,162,203 EXCESS (DEFICIENCY) OF REVENUE OVER (UNDER) EXPENDITURES (1,427,261) (1,771,274) (869,252) 902,022 OTHER FINANCING SOURCES (USES): Transfers in 1,345,908 1,345,908 1,341,608 4,300 Sale of general capital assets 25,000 25,000 - (25,000) Total other financing sources (uses) 1,370,908 1,370,908 1,341,608 (20,700) NET CHANGE IN FUND BALANCE $ (56,353) $ (400,366) $ 472,356 $ 872,722 63 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, 2020 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 $ 12,992,806 Differences - budget to GAAP: For GAAP, General Fund inter-fund charges are reported as a reduction in the applicable expenditure function rather than revenues. (1,778,652) (*) Total revenues as reported on the statement of revenues, expenditures and changes in fund balances (page 16) $ 11,214,154 Uses/outflows of resources Actual amounts (budgetary basis) "total charges to appropriations" from the Total expenditures from the budgetary comparison schedule $ 13,862,058 Differences - budget to GAAP: For GAAP, General Fund inter-fund charges are reported as a reduction in the applicable expenditure function rather than revenues. (1,778,652) (*) Total expenditures as reported on the statement of revenues, expenditures and changes in fund balances (page 16) $ 12,083,406 (*) - Interfund charges by Division City Manager $ 160,747 Finance 836,132 Public Works Admin 274,137 Fleet and Equipment Maintenance 76,800 Human Resources 58,049 Information Technology 237,831 Facility Maintenance 134,956 $ 1,778,652 64 CITY OF ATLANTIC BEACH, FLORIDA SCHEDULE OF CHANGES IN NET PENSION LIABILITY AND RELATED RATIOS - GENERAL EMPLOYEES’ PENSION PLAN City reporting period date 9/30/2021 9/30/2020 9/30/2019 9/30/2018 Measurement date 9/30/2020 9/30/2019 9/30/2018 9/30/2017 Total pension liability Service cost $ 288,450 $ 332,673 $ 345,019 $ 346,460 Interest 1,604,466 1,566,226 1,574,193 1,485,239 Change in assumptions - - 695,507 559,117 Difference between expected and actual experience (44,031) 40,197 (473,189) 291,669 Benefit payments, including refunds of of employee contributions (1,329,553) (1,327,161) (1,501,456) (1,319,107) Employee buy-back - - - - Net change in total pension liability 519,332 611,935 640,074 1,363,378 Total pension liability, beginning 24,146,186 23,534,251 22,894,177 21,530,799 Total pension liability, ending (a) $ 24,665,518 $ 24,146,186 $ 23,534,251 $ 22,894,177 Plan fiduciary net position Contributions - City $ 1,362,952 $ 1,424,479 $ 1,332,119 $ 1,175,572 Contributions - Employee 96,921 107,745 117,536 124,024 Net investment income (loss) 1,138,973 619,176 1,554,225 1,792,192 Benefit payments, including refunds Of employee contributions (1,329,553) (1,327,161) (1,501,456) (1,319,107) Administrative expenses (48,109) (40,584) (31,261) (53,880) Net change in plan fiduciary net position 1,221,184 783,655 1,471,163 1,718,801 Plan fiduciary net position, beginning 20,497,952 19,714,297 18,243,134 16,524,333 Plan fiduciary net position, ending (b) $ 21,719,136 $ 20,497,952 $ 19,714,297 $ 18,243,134 Net pension liability (asset) (a)-(b) $ 2,946,382 $ 3,648,234 $ 3,819,954 $ 4,651,043 Plan fiduciary net position as a percentage of total pension liability 88.05% 84.89% 83.77% 79.68% Covered payroll $ 1,615,350 $ 1,795,750 $ 1,958,933 $ 2,067,067 Net pension liability as a percentage of covered payroll 182.40% 203.16% 195.00% 225.01% Continued… 65 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. 66 CITY OF ATLANTIC BEACH, FLORIDA SCHEDULE OF CHANGES IN NET PENSION LIABILITY AND RELATED RATIOS - POLICE OFFICERS’ PENSION PLAN City reporting period date 9/30/2021 9/30/2020 9/30/2019 9/30/2018 Measurement date 9/30/2020 9/30/2019 9/30/2018 9/30/2017 Total pension liability Service cost $ 369,089 $ 332,419 $ 329,254 $ 335,185 Interest 1,034,146 1,026,422 1,016,983 970,877 Change in excess State money - - (120,454) - Difference between expected and actual experience 103,400 (351,261) (209,232) 187,216 Change of assumptions - - 454,983 (40,955) Benefit payments, including refunds of of employee contributions (715,876) (1,143,778) (690,688) (643,872) Net change in total pension liability 790,759 (136,198) 780,846 808,451 Total pension liability, beginning 15,309,524 15,445,722 14,664,876 13,856,425 Total pension liability, ending (a) $ 16,100,283 $ 15,309,524 $ 15,445,722 $ 14,664,876 Plan fiduciary net position Contributions - City $ 745,022 $ 826,705 $ 854,780 $ 945,540 Contributions - State of Florida 132,844 - 236,772 - Contributions - Employee 161,166 142,024 131,498 129,552 Net investment income (loss) 607,277 307,543 853,894 950,447 Benefit payments, including refunds of employee contributions (715,876) (1,143,777) (690,688) (643,872) Administrative expenses (35,623) (38,763) (25,152) (51,481) Other - - - - Net change in plan fiduciary net position 894,810 93,732 1,361,104 1,330,186 Plan fiduciary net position, beginning 12,258,376 12,164,644 10,803,540 9,473,354 Plan fiduciary net position, ending (b) $ 13,153,186 $ 12,258,376 $ 12,164,644 $ 10,803,540 Net pension liability (asset) (a)-(b) $ 2,947,097 $ 3,051,148 $ 3,281,078 $ 3,861,336 Plan fiduciary net position as a percentage of total pension liability 81.70% 80.07% 78.76% 73.67% Covered payroll $ 2,014,575 $ 1,775,300 $ 1,643,725 $ 1,619,400 Net pension liability as a percentage of covered payroll 146.29% 171.87% 199.61% 238.44% Continued... 67 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. 68 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 2020 $ 1,355,973 $ 1,362,952 $ 6,979 $ 1,615,350 84.38% 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 2020 $ 668,090 $ 877,866 $ 209,776 $ 2,014,575 43.58% 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. 69 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: October 1, 2018. 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 - 29 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). • Payroll Growth: o General Employees Plan – None o Police Officers’ Plan – 3.50% • 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. 70 CITY OF ATLANTIC BEACH, FLORIDA SCHEDULE OF INVESTMENT RETURNS – ALL PENSION PLANS Year Ended September 30, 2020 2019 2018 2017 2016 2015 General Employees' Plan Annual money-weighted rate of return net of investment expenses 6.41% 4.04% 8.67% 10.92% 10.18% 1.10% Police Officers' Plan Annual money-weighted rate of return net of investment expenses 6.15% 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. 71 CITY OF ATLANTIC BEACH, FLORIDA SCHEDULE OF CHANGES IN TOTAL OPEB LIABILITY AND RELATED RATIOS Reporting date 9/30/2020 9/30/2019 9/30/2018 Measurement date 9/30/2019 9/30/2018 9/30/2017 Total OPEB Liability Service cost $ 38,095 $ 39,404 $ 41,222 Interest 19,049 16,906 14,667 Difference between expected and actual experience (203,632) - - Changes in assumptions 78,146 (18,238) (21,261) Benefit payments (21,386) (23,456) (22,404) Net change in total OPEB Liability (89,728) 14,616 12,224 Total OPEB Liability - beginning 469,955 455,339 443,115 Total OPEB Liability - ending $ 380,227 $ 469,955 $ 455,339 Covered-employee payroll $ 5,196,501 $ 6,647,363 $ 6,272,956 Total OPEB liability as a percentage of covered-employee payroll 7.32% 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, 2019 2.75% September 30, 2018 3.83% September 30, 2017 3.50% September 30, 2016 3.10% Additional changes in assumptions for the following measurement dates: • September 30, 2019 o Per capita costs and premiums were updated based on information provided. o Assumed ultimate rate of inflation was revised from 2.5% to 2.25% and the healthcare cost trend assumption was revised to reflect this change. Additional years will be added to this schedule annually until 10 years; data is presented. SUPPLEMENTARY INFORMATION 72 CITY OF ATLANTIC BEACH, FLORIDA COMBINING BALANCE SHEET – NON-MAJOR GOVERNMENTAL FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2020 WITH COMPARATIVE TOTALS FOR THE YEAR ENDED SEPTEMBER 30, 2019 2020 Special Revenue Funds Local Convention Tree Option Development Half-Cent Court Cost Parking Radio Replacement Gas Tax Tax Sales Tax Training Facilities Communication ASSETS Equity in pooled cash and investments $ 77,732 $ - $ 148,406 $ 1,447,310 $ 24,267 $ 48,343 $ 91,465 Cash with fiscal agent - - - - - - - Receivables, net Customer accounts, net - - - - - - - Intergovernmental and other - 77,537 10,833 164,341 247 4,480 1,455 Prepaid expenditures - - - - - - - TOTAL ASSETS $ 77,732 $ 77,537 $ 159,239 $ 1,611,651 $ 24,514 $ 52,823 $ 92,920 LIABILITIES Accounts payable and accrued liabilities - - - - 500 - - Construction costs payable - - - 4,212 - - - Due to other funds - 124,665 - - - - - Deposits - - - - - - - TOTAL LIABILITIES - 124,665 - 4,212 500 - - FUND BALANCE Nonspendable: Prepaids - - - - - - - Restricted for: Public safety - - - - 24,014 - 92,920 Road maintenance and construction - - - 1,607,439 - - - Other capital projects - - - - - - - Other purposes - - 159,239 - - 52,823 - Committed to: Conservation and resource management 77,732 - - - - - - Unassigned - (47,128) - - - - - TOTAL FUND BALANCES 77,732 (47,128) 159,239 1,607,439 24,014 52,823 92,920 TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND FUND BALANCE $ 77,732 $ 77,537 $ 159,239 $ 1,611,651 $ 24,514 $ 52,823 $ 92,920 Continued… 73 CITY OF ATLANTIC BEACH, FLORIDA COMBINING BALANCE SHEET – NON-MAJOR GOVERNMENTAL FUNDS (CONCLUDED) FOR THE YEAR ENDED SEPTEMBER 30, 2020 WITH COMPARATIVE TOTALS FOR THE YEAR ENDED SEPTEMBER 30, 2019 2020 Special Revenue Funds Total Totals Community Special Non-Major Contraband Development Police Revenue Debt Capital Governmental 2019 Revenue Block Grants Grants Funds Service Projects Funds Totals ASSETS Equity in pooled cash and investments $ 3,484 $ - $ 8,728 $ 1,849,735 $ - $ 1,515,399 $ 3,365,134 $ 2,312,277 Cash with fiscal agent - - - - - - - 94,850 Receivables, net Customer accounts, net - - - - - - - 115,512 Intergovernmental and other - 100 - 258,993 - - 258,993 239,328 Prepaid expenditures - - 1,548 1,548 - - 1,548 - TOTAL ASSETS $ 3,484 $ 100 $ 10,276 $ 2,110,276 $ - $ 1,515,399 $ 3,625,675 $ 2,761,967 LIABILITIES Accounts payable and accrued liabilities - - - 500 - 134,020 134,520 217,785 Construction costs payable - 3,134 - 7,346 - - 7,346 16,666 Due to other funds - 197,786 8,083 330,534 19,850 44,067 394,451 283,396 Deposits 4,461 - - 4,461 - - 4,461 2,766 TOTAL LIABILITIES 4,461 200,920 8,083 342,841 19,850 178,087 540,778 520,613 FUND BALANCE Nonspendable: Prepaids - - 1,548 1,548 - - 1,548 - Restricted for: Public safety - - 2,193 119,127 - - 119,127 299,845 Road maintenance and construction - - - 1,607,439 - 1,079,623 2,687,062 1,318,572 Other capital projects - - - - - 257,689 257,689 257,689 Other purposes - - - 212,062 - - 212,062 308,383 Committed to: Conservation and resource management - - - 77,732 - - 77,732 77,940 Unassigned (977) (200,820) (1,548) (250,473) (19,850) - (270,323) (21,075) TOTAL FUND BALANCES (977) (200,820) 2,193 1,767,435 (19,850) 1,337,312 3,084,897 2,241,354 TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND FUND BALANCE $ 3,484 $ 100 $ 10,276 $ 2,110,276 $ - $ 1,515,399 $ 3,625,675 $ 2,761,967 74 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, 2020 WITH COMPARATIVE TOTALS FOR THE YEAR ENDED SEPTEMBER 30, 2019 2020 Special Revenue Funds Local Convention Tree Option Development Half-Cent Court Cost Parking Radio Replacement Gas Tax Tax Sales Tax Training Facilities Communication REVENUES: Non-property taxes $ - $ 446,752 $ 96,871 $ 914,697 $ - $ - $ - Charges for services - - - - - 52,823 - Fines and forfeitures - - - - 3,269 - 17,497 Investment earnings (loss) - (23,598) (13,863) 6,063 (1,574) - 1,330 Miscellaneous revenues 22,506 - - - - - - Interfund charges - - - - - - - Total revenues 22,506 423,154 83,008 920,760 1,695 52,823 18,827 EXPENDITURES: General government 22,714 - - - - - - Public safety - - - - 17,751 - - Transportation - - - - - - - Culture/recreation - - 265 - - - - Capital outlay - - 113,429 12,552 - - - Debt service - - - - - - - Total expenditures 22,714 - 113,694 12,552 17,751 - - EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES (208) 423,154 (30,686) 908,208 (16,056) 52,823 18,827 OTHER FINANCING SOURCES (USES) Transfers in - - - - - - - Transfers (out) - (704,623) (118,458) (385,000) - - - TOTAL OTHER FINANCING SOURCES (USES) - (704,623) (118,458) (385,000) - - - NET CHANGE IN FUND BALANCE (208) (281,469) (149,144) 523,208 (16,056) 52,823 18,827 FUND BALANCE, beginning of year 77,940 234,341 308,383 1,084,231 40,070 - 74,093 FUND BALANCE, end of year $ 77,732 $ (47,128) $ 159,239 $ 1,607,439 $ 24,014 $ 52,823 $ 92,920 Continued… 75 CITY OF ATLANTIC BEACH, FLORIDA COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES – NON-MAJOR GOVERNMENTAL FUNDS (CONCLUDED) FOR THE YEAR ENDED SEPTEMBER 30, 2020 WITH COMPARATIVE TOTALS FOR THE YEAR ENDED SEPTEMBER 30, 2019 2020 Special Revenue Funds Total Totals Community Special Non-Major Contraband Development Police Revenue Debt Capital Governmental 2019 Revenue Block Grants Grants Funds Service Projects Funds Totals REVENUES: Non-property taxes $ - $ - $ - $ 1,458,320 $ - $ - $ 1,458,320 $ 1,531,684 Charges for services - - - 52,823 - - 52,823 - Fines and forfeitures - - - 20,766 - - 20,766 22,252 Investment earnings (loss) (572) - - (32,214) - 81,604 49,390 56,294 Miscellaneous revenues - - - 22,506 - - 22,506 14,821 Total revenues (572) - - 1,522,201 - 81,604 1,603,805 1,625,051 EXPENDITURES: General government - - - 22,714 - - 22,714 23,519 Public safety - - - 17,751 - 24,235 41,986 26,478 Transportation - - - - - - - 270,834 Culture/recreation - - - 265 - - 265 368 Capital outlay - - - 125,981 - 241,103 367,084 698,287 Debt service - - - - 118,458 - 118,458 19,850 Total expenditures - - - 166,711 118,458 265,338 550,507 1,039,336 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES (572) - - 1,355,490 (118,458) (183,734) 1,053,298 585,715 OTHER FINANCING SOURCES (USES) Transfers in - - - - 118,458 1,170,000 1,288,458 - Transfers (out) - (200,000) - (1,408,081) - (90,132) (1,498,213) (435,000) TOTAL OTHER FINANCING SOURCES (USES) - (200,000) - (1,408,081) 118,458 1,079,868 (209,755) (435,000) NET CHANGE IN FUND BALANCE (572) (200,000) - (52,591) - 896,134 843,543 150,715 FUND BALANCE, beginning of year (405) (820) 2,193 1,820,026 (19,850) 441,178 2,241,354 2,090,639 FUND BALANCE, end of year $ (977) $ (200,820) $ 2,193 $ 1,767,435 $ (19,850) $ 1,337,312 $ 3,084,897 $ 2,241,354 76 CITY OF ATLANTIC BEACH, FLORIDA HISTORICAL REVENUES AND EXPENSES FOR THE YEARS ENDED SEPTEMBER 30, 2016, THROUGH SEPTEMBER 30, 2020 2020 2019 2018 2017 2016 Revenues Operating Revenues: Water: Customer charges $ 3,550,004 $ 3,462,039 $ 3,206,520 $ 3,262,314 $ 3,177,331 Miscellaneous charges 43,252 67,291 64,563 65,198 62,477 Total water 3,593,256 3,529,330 3,271,083 3,327,512 3,239,808 Sewer: Customer charges 5,750,479 5,399,935 5,092,613 5,111,353 5,045,673 Miscellaneous charges - - - 590 - Total sewer 5,750,479 5,399,935 5,092,613 5,111,943 5,045,673 Total operating revenues 9,343,735 8,929,265 8,363,696 8,439,455 8,285,481 Non-operating revenues Investment income (loss): Water 143,198 163,209 (7,606) 21,455 58,092 Sewer 158,264 115,389 (8,249) 17,281 38,929 Total non-operating revenues 301,462 278,598 (15,855) 38,736 97,021 Total revenues 9,645,197 9,207,863 8,347,841 8,478,191 8,382,502 Expenses Operating expenses: Water 1,044,002 1,299,974 1,348,985 1,488,854 1,379,495 Sewer 2,222,833 2,387,924 2,393,828 2,309,637 2,064,614 Total operating expenses 3,266,835 3,687,898 3,742,813 3,798,491 3,444,109 Administrative, non divisional and other Water 642,424 508,655 508,655 502,058 561,069 Sewer 678,890 624,796 624,796 591,161 725,248 Total administrative non- divisional and other 1,321,314 1,133,451 1,133,451 1,093,219 1,286,317 Total expenses 4,588,149 4,821,349 4,876,264 4,891,710 4,730,426 Net revenues available for debt service 5,057,048 4,386,514 3,471,577 3,586,481 3,652,076 Non-operating income(expense) Interest expense (344,186) (381,546) (404,297) (455,259) (481,693) Loan amortization (93,910) (93,910) (93,910) (93,910) (93,910) Total non-operating income (expense) (438,096) (475,456) (498,207) (549,169) (575,603) Change in net position before depreciation expense and interfund transfers $ 4,618,952 $ 3,911,058 $ 2,973,370 $ 3,037,312 $ 3,076,473 77 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, 2020 AND SEPTEMBER 30, 2019 2020 2019 Gross revenues: Utility $ 9,343,735 $ 8,929,265 Connection charges 24,957 44,018 Interest 234,288 328,612 Total Gross Revenues 9,602,980 9,301,895 Operating Expenses Personnel services 1,827,004 1,794,213 Contractual services 375,144 643,360 Supplies 507,960 474,547 Repairs and maintenance (13,952) 188,756 Utilities 351,447 352,529 Intergovernmental charges 1,321,314 1,133,451 Other expenses 219,231 234,493 Total operating expenses 4,588,148 4,821,349 Total net revenues in accordance with Bond resolutions $ 5,014,832 $ 4,480,546 Total debt service $ 1,853,625 $ 1,856,755 Debt service coverage ratio 270.54% 241.31% Required debt service coverage ratio 110.00% 110.00% 78 CITY OF ATLANTIC BEACH, FLORIDA OTHER BOND COVENANT DISCLOSURES FOR THE YEAR ENDED SEPTEMBER 30, 2016, THROUGH SEPTEMBER 30, 2020 Utility Service Tax Collections (last five years) Year Electricity Communications Gas Fuel Oil Total 2020 $ 499,712 $ 489,444 14,122 $ - $ 1,003,278 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 Ad Valorem Tax Collections (last five years) Year Total 2020 $ 5,912,053 2019 5,519,446 2018 5,063,409 2017 4,730,476 2016 4,482,739 OTHER STATISTICAL INFORMATION 79 CITY OF ATLANTIC BEACH, FLORIDA MAJOR UTILITY CUSTOMERS FOR THE YEAR ENDED SEPTEMBER 30, 2020 (UNAUDITED) Annual Billings Fleet Landing (retirement community) $ 417,910 Navy (Federal Government) 313,290 PAC-2160 Mayport GP, LLC 159,642 City of Atlantic Beach, Florida 138,390 John's Creek Estates (mobile home park) 132,254 Hanna Park (regional park) 123,710 PBG MAYPORT LLC 118,382 Sea Turtle Inn 115,432 Yes Companies 96,618 Seaside Apartments (apartment complex) 69,322 $ 1,684,950 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 80 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, 2020, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements, and have issued our report thereon dated June 18, 2021. 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. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. 81 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 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. June 18, 2021 Gainesville, Florida 82 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, 2020, 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, 2020. This report is intended solely for the information and use of the Legislative Auditing Committee, members of the Florida Senate and the Florida House of Representatives, the Florida Auditor General, the City, its management, and is not intended to be, and should not be, used by anyone other than these specified parties. June 18, 2021 Gainesville, Florida 83 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, 2020, and have issued our report thereon dated June 18, 2021. 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 June 18, 2021, 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 17-3 and 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. 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. 84 Honorable Mayor, City Commissioners, and City Manager City of Atlantic Beach Atlantic Beach, Florida MANAGEMENT LETTER 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 did not have any such recommendations. 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. Additional 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. June 18, 2021 Gainesville, Florida 85