Fort Walton Beach — Comprehensive Financial Report September 30, 2021 — reading text

investment policies regarding credit rate risk as of September 30, 2021. The Moody's rating ranges of the different investment classes held by each respective plan at September 30, 2021, are as follows: General Pension Police Pension Plan Plan Fire Pension Plan Corporate debt A1-A3 A1-A3 A1-A3 U.S. Treasury Aaa Aaa Aaa U.S. government agency pools N/A N/A N/A The Beal Memorial Cemetery investment policy does not limit investments to those with specific credit ratings for domestic or international equities. The overall rating of fixed income investments shall be at least investment grade based on the rating of two of the three Nationally Recognized Statistical Rating Organizations (NRSRO). 43  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2021 3. DEPOSITS AND INVESTMENTS – CONTINUED Investments – Continued Concentration of Credit Risk – The City limits the amount that may be invested in any one issuer based on the type of investment. Investments issued by or explicitly guaranteed by the U.S. Government and investments in mutual funds, external investment pools, and other pooled investments are exempt from concentration of credit risk disclosures. The General Employees’ Retirement Fund and the Firefighters’ Retirement Fund investment policies limit investment concentration as follows:  Equities – No more than 5% of the Plan’s assets, at the time of purchase, shall be invested in the common stock, capital stock, or convertible stock of any one issuing company, nor shall the aggregate investment in any one issuing company exceed 5% of the outstanding capital stock of the company.  Fixed Income – The value of bonds issued by any single corporation shall not exceed 10% of the Plan’s total fair value.  Other Limitations – Investments in corporate common stock and convertible bonds shall not exceed 75% of the Plan’s assets at fair value, and foreign securities shall not exceed 25% of the Plan’s fair value. The Police Officers’ Retirement Fund investment policy limits investment concentration as follows:  Equities – No more than 5% of the Plan’s assets, at the time of purchase, shall be invested in the common stock, capital stock, or convertible stock of any one issuing company, nor shall the aggregate investment in any one issuing company exceed 5% of the outstanding capital stock of the company.  Fixed Income – The value of bonds issued by any single corporation shall not exceed 3% of the Plan’s total fair value.  Other Limitations – Investments in corporate common stock and convertible bonds shall not exceed 70% of the Plan’s assets at fair value, and foreign securities shall not exceed 25% of the Plan’s fair value. All pension trust fund plans were in compliance with respective investment policies regarding concentration of credit risk as of September 30, 2021. 44  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2021 3. DEPOSITS AND INVESTMENTS – CONTINUED Investments – Continued Concentration of Credit Risk – Continued The Beal Memorial Cemetery investment policy limits investment concentrations as follows:  Domestic Equities – No more than 5% of the fair value of the total equity portfolio may be invested in the equity of any one corporation; ownership of the shares of one company shall not exceed 2% of those outstanding and not more than 25% of equity at fair value may be held in any one sector.  International Equities – No more than 5% of the fair value of the total equity portfolio may be invested in the common equity of any one corporation; ownership of the shares of one company shall not exceed 2% of those outstanding and not more than 25% of equity at fair value may be held in any one sector.  Fixed Income Investments – Securities of any one issuer shall not exceed 5% of a total bond portfolio at time of purchase. Investments in Entities That Calculate Net Asset Value (NAV) per Share The fair values of investments in real estate funds held by the pension trust funds are based on the investments’ NAV per share, as provided by the investee. Unfunded Redemption Redemption Fair Value Commitments Frequency Notice Period Real Estate Funds $ 10,413,821 None Quarterly 0 - 90 days The real estate funds consist of three open-ended commingled funds that invest in office, industrial, retail, and multi-family real estate assets throughout the United States. Although the funds are private investments, they can be redeemed on a quarterly basis, subject to available liquidity. 4. FAIR VALUE OF INVESTMENTS The City measures and records its investments using fair value measurements guidelines established by generally accepted accounting principles. These guidelines recognize a three-tiered fair value hierarchy, as follow:  Level 1 – Quoted prices (unadjusted) for identical assets in active markets that a government can access at the measurement date.  Level 2 – Inputs other than quoted prices included within Level 1 that are observable for an asset, either directly or indirectly.  Level 3 – Unobservable inputs for an asset. 45  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2021 4. FAIR VALUE MEASUREMENTS – CONTINUED The following table presents the investments carried at fair value on September 30, 2021: Fair Value Level 1 Level 2 Level 3 Money market funds $ 273,090 $ - $ 273,090 $ - Debt securities U.S. Treasury bills 694,980 694,980 - - U.S. Treasury bonds 18,801,285 18,801,285 - - U.S. Government Agency obligations 4,485,217 - 4,485,217 - U.S. Government Agency collateralized mortgage obligations (CMO's) 5,717,591 - 5,717,591 - Corporate bonds 14,991,450 - 14,991,450 - Municipal bonds 2,917,831 - 2,917,831 - Total debt securities 47,608,354 19,496,265 28,112,089 - Equity securities Domestic common stock 14,788,724 14,788,724 - - Foreign common stock 1,426,431 1,426,431 - - Mutual funds and exchange-traded funds 64,560,802 243,868 64,316,934 - Total equity securities 80,775,957 16,459,023 64,316,934 - * Commingled real estate investment funds 10,413,821 - - - Total investments measured at fair value 139,071,222 $ 35,955,288 $ 92,702,113 $ - Total investments measured at amortized cost 8,125,204 Total investments at September 30, 2021 $ 147,196,426 * In accordance with GASB 72, certain investments that were measured at NAV per share (or its equivalent) have not been classified in the fair value hierarchy. Money market funds, debt securities, and equity securities classified in Level 2 are determined by broker quotes that utilize matrix pricing models and other observable market inputs. 46  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2021 5. RECEIVABLES Receivables at September 30, 2021, were as follows: Governmental Activities Business-Type Activities Community Redevelopment General Fund Utilities Sanitation Stormwater Total Taxes $ 24,090 $ - $ - $ - $ - $ 24,090 Accounts 187,302 6,996 810,210 247,081 61,716 1,313,305 Less allowance for doubtful accounts - - (51,952) (11,624) (3,994) (67,570) Assessments 29,981 235,626 1,542 - - 267,149 Notes 548,617 - - - - 548,617 Other - - 4,065 - - 4,065 Total receivables, net $ 789,990 $ 242,622 $ 763,865 $ 235,457 $ 57,722 $ 2,089,656 During fiscal year 2015, the City sold a building for $462,000 and will receive $442,000 of the proceeds over twelve years ($2,917 monthly payments started November 2014). This note receivable bears interest at 5% per year and includes a balloon payment of $250,065 due to the City in October 2026. The balance of this note receivable is $348,617 as of September 30, 2021. During fiscal year 2014, the City sold a recreational center for $425,000 and will receive the proceeds over twelve years ($3,000 monthly principal only payments started October 2015). The City has calculated imputed interest on the receivable, but it has not been recorded as the imputed amount was deemed to be immaterial to the financial statements. The balance of this note receivable is $200,000 as of September 30, 2021. Since these receivables will be collected outside the periods of availability, they are reflected in the general fund’s balance sheet as unavailable revenues as of September 30, 2021. Due from Other Governments The City's receivables from other governments for governmental activities as of September 30, 2021, are $715,943. Due from other governments in the governmental activities consists primarily of federal proceeds related to grants from the U.S. Department of Housing and Urban