Fort Walton Beach — Comprehensive Financial Report September 30, 2016

CITY OF FORT WALTON BEACH, FLORIDA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2016 PREPARED BY: THE FINANCE DEPARTMENT Brandy L. Ferris, Finance Director CITY OF FORT WALTON BEACH 107 MIRACLE STRIP PARKWAY FORT WALTON BEACH, FLORIDA 32548 WWW.FWB.ORG  CITY OF FORT WALTON BEACH, FL City Council Left to right (standing): Scott Smith (Seat 1), Diane Keller (Seat 2), Amy Jamieson (Seat 5), MG Moran (Seat 6), and Dick Rynearson (Seat 7). Left to right (seated): John Mead (Seat 3), Mayor Mike Anderson, and Mike Holmes (Seat 4). Council members are elected in odd years for four year staggered terms. City Council meets on the second and fourth Tuesday of each month at 6:00 p.m. in the City Council Chambers located at 107 Miracle Strip Parkway, Fort Walton Beach, Florida. Appointed Officers Department Directors City Manager – Michael D. Beedie Finance Director – Brandy L. Ferris City Clerk – Kim Barnes Engineering & Utility Services – Tim Bolduc City Attorney – Hayward Dykes, Jr. Fire Services – Ken Perkins, Chief Human Resources – Tarey Franxman Police Services – Ed Ryan, Chief Recreation & Cultural Services – Jeff Peters  Core Values Rather than being just words found on the website or located at the top of letterhead, these core values are the guiding principles by which City Council, Department Directors, and City Staff will conduct themselves, allocate resources, and prioritize goals and objectives. These principles form a non-negotiable code of conduct and will guide our government on who we hire, how we train, and how we reward. These values will define who we are, what we stand for, and influence policies, procedures, and guidelines. Adopted by City Council in May 2011, after a collaborative effort by Department Directors and the City Manager to consolidate employee suggestions, these five core values represent the first milestone in instituting the City’s new Performance Excellence Program. Integrity We will conduct ourselves in an honest, trustworthy, and ethical manner. Accountability We will take full responsibility for our actions, resources, and attitudes. Teamwork We will work together to provide quality services. Customer Service We will be professional, use all available resources, and strive to meet the needs of our customers. Continual Improvement We will promote a culture that seeks to better our organization. Adopted by City Council in September 2011, after a collaborative effort by Department Directors and the City Manager, the updated Vision and Mission for the City are as follows: Vision The City of Fort Walton Beach: a recognized leader in the provision of Community Services. Mission To enhance and protect the Community by providing quality services.  CITY OF FORT WALTON BEACH, FLORIDA TABLE OF CONTENTS FOR THE YEAR ENDED SEPTEMBER 30, 2016 Page CITY OFFICIALS I. INTRODUCTORY SECTION Table of Contents i Letter of Transmittal City Manager and Finance Director iv GFOA Certificate of Achievement xi Organizational Chart xii II. FINANCIAL SECTION Independent Auditors’ Report 1 A. MANAGEMENT’S DISCUSSION AND ANALYSIS 4 B. BASIC FINANCIAL STATEMENTS Government-Wide Financial Statements Statement of Net Position 15 Statement of Activities 16 Fund Financial Statements Governmental Funds Balance Sheet 17 Reconciliation of the Balance Sheet to the Statement of Net Position 18 Statement of Revenues, Expenditures and Changes in Fund Balance 19 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balance to the Statement of Activities 20 Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual - General Fund 21 Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual – Community Redevelopment Agency 22 Proprietary Funds Statement of Net Position 23 Statement of Revenues, Expenses and Changes in Net Position 25 Statement of Cash Flows 26 Fiduciary Funds Statement of Fiduciary Net Position 28 Statement of Changes in Fiduciary Net Position 29 Notes to the Financial Statements 30 i  CITY OF FORT WALTON BEACH, FLORIDA TABLE OF CONTENTS FOR THE YEAR ENDED SEPTEMBER 30, 2016 Page Schedule II. FINANCIAL SECTION (CONTINUED) C. REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) Pension Schedules Schedules of Changes in the City’s Net Pension Liability and Related Ratios 82 Schedule of Contributions 85 Schedule of Investment Returns 86 Notes to the Schedule of Contributions General Employees’ Retirement Fund 87 Notes to the Schedule of Contributions – Police Officers’ Retirement Fund 89 Notes to the Schedule of Contributions – Firefighters’ Retirement Fund 91 Schedule of Funding Progress (OPEB) 92 D. COMBINING AND INDIVIDUAL FUND STATEMENTS AND SCHEDULES Non-Major Governmental Funds Combining Balance Sheet 93 Combining Statement of Revenues, Expenditures and Changes in Fund Balance 94 Schedules of Revenues, Expenditures, and Changes in Fund Balance – Budget and Actual Law Enforcement Trust Special Revenue Fund 95 Law Enforcement Trust Training Special Revenue Fund 96 Florida Building Code Special Revenue Fund 97 Community Development Block Grant Special Revenue Fund 98 Beal Memorial Cemetery Perpetual Care Special Revenue Fund 99 Debt Service Fund 100 III. STATISTICAL SECTION (UNAUDITED) Net Position by Component 101 1 Changes in Net Position 102 2 Fund Balances – Governmental Funds 104 3 Changes in Fund Balances – Governmental Funds 105 4 Revenues and Other Sources 106 5 Assessed Value of Taxable Property 107 6 ii  CITY OF FORT WALTON BEACH, FLORIDA TABLE OF CONTENTS FOR THE YEAR ENDED SEPTEMBER 30, 2016 Page Schedule III. STATISTICAL SECTION (UNAUDITED) Property Tax Rates Per $1,000 of Taxable Value – All Direct and Overlapping Governments 108 7 Principal Taxpayers 109 8 Property Tax Levies and Collections 110 9 Ratios of Outstanding Debt by Type 111 10 Ratio of Net General Bonded Debt Outstanding 112 11 Pledged Revenue Coverage – Schedule of Revenue Bond Coverage 113 12 Direct and Overlapping Governmental Activities Debt – General Obligations 114 13 Major Employers 115 14 Miscellaneous Demographical Statistics 116 15 Full-Time Equivalent Employees by Function/Program 117 16 Permits, Licenses and Recreation Facilities 118 17 Elections - Okaloosa County Voter Registration 119 18 Special Assessment Billings and Collections 120 19 Major Revenue Sources 121 20 Water and Wastewater Service Rates 122 21 Sanitation and Recycling Service Rates 123 22 Operating Indicators by Function/Program 124 23 Capital Asset Statistics by Function/Program 125 24 Insurance Coverage 126 25 IV. COMPLIANCE SECTION Schedule of Receipts and Expenditures of Funds Related to the Deepwater Horizon Oil Spill 129 Independent Auditors’ Report on the Schedule of Receipts and Expenditure of Funds Related to the Deepwater Horizon Oil Spill 130 Schedule of Expenditures of Federal Awards 131 Notes to the Schedule of Expenditures of Federal Awards 132 Independent Auditors’ Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 133 Independent Auditors’ Report on Compliance for Each Major Federal Program and on Internal Control Over Compliance Required by Uniform Guidance 135 Schedule of Findings and Questioned Costs 137 Independent Accountants’ Report on an Examination of Compliance Requirements in Accordance with Chapter 10.550, Rules of the Auditor General 138 Management Letter 139 iii THIS PAGE IS LEFT INTENTIONALLY BLANK  City of Fort Walton Beach Treasure of the Emerald Coast 107 Miracle Strip Parkway, SW, Fort Walton Beach, FL 32548 (850) 833-9512 * Fax (850) 833-9640 * www.fwb.org February 24, 2017 Honorable Mayor, City Council Members, and Citizens of the City of Fort Walton Beach City of Fort Walton Beach 107 Miracle Strip Parkway SW Fort Walton Beach, FL 32548 Ladies and Gentlemen: The Comprehensive Annual Financial Report of the City of Fort Walton Beach, Florida for the fiscal year ended September 30, 2016, is hereby submitted herewith pursuant to Florida Statutes Chapter 218.39(1)(d) requiring each local government entity to complete an audit report within nine months after the end of the fiscal year. This report consists of management’s representations concerning the finances of the City of Fort Walton Beach, Florida. Consequently, management assumes full responsibility for the completeness and reliability of all the information presented in this report. To provide a reasonable basis for making these representations, management of the City of Fort Walton Beach has established a comprehensive internal control framework that is designed both to protect the government’s assets from loss, theft, or misuse and to compile sufficient reliable information for the preparation of the City’s financial statements in conformance with GAAP (Generally Accepted Accounting Principles). Because the cost of internal controls should not outweigh their benefits, the City’s comprehensive framework of internal controls has been designed to provide reasonable, rather than absolute, assurance that the financial statements will be free from material misstatement. As management, we assert that, to the best of our knowledge and belief, this financial report is complete and reliable in all material respects. The financial statements of the City of Fort Walton Beach have been audited by Warren Averett, LLC, a firm of licensed certified public accountants. The goal of the independent audit was to provide reasonable assurance that the financial statements of the City for the fiscal year ending September 30, 2016, are free of material misstatement. The independent audit involved examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements; assessing the accounting principles used and significant estimates made by management; and evaluating the overall financial statement iv  presentation. The independent auditor concluded, based upon the audit, that there was a reasonable basis for rendering an unmodified opinion that the City of Fort Walton Beach’s financial statements for the fiscal year ending September 30, 2016, are fairly presented in conformity with GAAP. The independent auditor’s report is presented in Section II - Financial Section as the first component of this section of the report. The independent audit of the financial statements of the City of Fort Walton Beach was part of a broader, federal mandated “Single Audit” designed to meet the special needs of federal grantor agencies. The standards governing Single Audit engagements require the independent auditor to report not only on the fair presentation of the financial statements, but also on the audited government’s internal controls and compliance with legal requirements, with special emphasis on internal controls and compliance with legal requirements involving the administration of federal awards. These reports are available in the Compliance section of this report. Generally accepted accounting principles require that management provide a narrative introduction, overview, and analysis to accompany the basic financial statements in the form of Management’s Discussion and Analysis (MD&A). This letter of transmittal is designed to complement MD&A and should be read in conjunction with it. The City of Fort Walton Beach’s MD&A can be found immediately following the report of the independent auditor. GOVERNMENT PROFILE DATE OF INCORPORATION: June 16, 1941 FORM OF GOVERNMENT: Council & Manager PAVED STREETS: 93.12 miles GEOGRAPHIC AREA: 7.41 square miles SIDEWALKS: 64.73 miles TAXABLE ASSESSED VALUE: $1,224,824,933 WATER & SEWER LINES: 283.67 miles CITY MILLAGE RATE: 5.7697 STORM DRAIN: 42.05 miles POPULATION: 20,869 POLICE STATIONS: 1 FIRE STATIONS: 2 EMPLOYEES: 349 positions, 295.58 FTE’s LIBRARIES: 1 MUSEUMS: 4 SWORN POLICE OFFICERS: 43 18-HOLE GOLF COURSES: 2 FIREFIGHTING PERSONNEL: 36 ACRES OF PARKS: 206 The City of Fort Walton Beach, Florida prides itself on being a small, family-oriented seaside community boasting a downtown area that was home to a significant prehistoric Native American community on the Gulf Coast of Northwest Florida. Situated at the junction of two major highways - US 98 (Miracle Strip Parkway) and SR 85 (Eglin Parkway) - Fort Walton Beach enjoys the benefits of its crossroads location along the coastal portion of the Northwest Florida regional transportation network. The City offers a full-service government providing police and fire protection; cultural and recreational activities including parks, a library, a museum, and two championship golf courses; planning and zoning; public works such as street, sidewalk, right-of-way, and cemetery maintenance; utilities service including water, sewer, and storm water; and garbage and recycling collection to a coastal community of 20,869 full-time residents. v The City has an exciting and romantic history. As early as 600 B.C., Indian tribes were attracted to Fort Walton Beach from the Mississippi and Tennessee River Valleys and the Southeast Georgia coast. The beginning for the City occurred following the War Between the States when Alabama war veteran John Brooks selected a site of 111 acres where he built a three-room cabin in 1867. Other settlers soon followed. By 1884, the population of the area required establishment of a small schoolhouse. In 1902, the first hotel, Brooks House, was built along the First Schoolhouse sound and shortly thereafter the first post office was built in 1906. The Montgomery, Alabama, Maxwell Field military base developed an airfield in Fort Walton in 1933 on 137 acres of land and used it as a bombing and gunnery range. The most significant factor in the City's growth was the creation and later expansion, of that airfield, which is now Eglin Air Force Base (the largest military installation in the world) in 1937, the year the City Charter was adopted. Originally chartered as a municipality under the laws of the State of Florida, actual formation of the City was in 1941 when the Florida legislature officially named it the Town of Fort Walton. In 1953, the Florida Legislature granted the City a new charter at which time the name was changed to Fort Walton Beach. The name Walton originates from Colonel George Walton, who was Secretary of the East- West Florida Territory in 1822-26 and son of George Walton, signer of the Declaration of Independence and Governor of Georgia. The presence of the military base provided the key economic stimulus for the City's early growth, supplemented by the attractiveness of the location. The City enjoyed a substantial population and economic boom from the 1950's through the end of the 1970's. Subsequently, things started to slow down. The military base became less important to the City's economy than the growing tourism industry. In the late 1960’s and early 1970’s Fort Walton Beach began to experience a decline in economic prosperity, some of which can be attributed to the utility and transportation infrastructure getting older and commercial and residential structures becoming deteriorated. New development began to take place in the surrounding communities. The City, having nearly run out of developable land, started to focus attention on finding ways to induce private enterprise investment in the City and thus capturing a greater share of the local and regional market. The City’s premier gathering place along the Santa Rosa Sound has been the Fort Walton Landing Park since its purchase in 1986. Building upon that with the complete reconstruction of Brooks Street, including the Brooks Bridge Park in 2013, the City’s downtown waterfront was opened up to an extent never before realized and spurred economic growth downtown. Outside of downtown, the City completed construction of a new recreational complex, which has added to the attraction of the City. Downtown Redevelopment: Brooks Bridge Park Recreation Complex – opened summer 2015 vi The financial reporting entity (the government) includes all the funds and account groups of the City of Fort Walton Beach, Florida, as well as component units. Component units are legally separate entities for which the primary government is financially accountable. Accordingly, the Fort Walton Beach Community Redevelopment Agency is reported as a blended component unit of the City of Fort Walton Beach. The budget process begins in January with the Finance Director and Budget & Grants Analyst developing five-year financial forecasts for the General and Enterprise Funds, including best, likely, and worst-case scenarios. Revenue assumptions are developed using financial forecasting software to analyze historical trends and account for any anticipated major economic or legislative changes. Revenue projections are continually updated until the budget is adopted to ensure the amounts are based on the most current information available. Expenditure assumptions are similarly developed in the forecast model considering relevant benchmark indices such as the municipal cost index, consumer price index, and producer price index. New programs and projects are also included to determine the future impact of current financial decisions. FISCAL YEAR FINANCIAL FORECAST BEGINS Oct DEVELOPED In March, the City Council, acting as the Legislative Body of 1 Jan the City holds a Strategic Planning Session. The goals set BUDGET BUDGET during this meeting, are used by staff to formulate the budget ADOPTION MEETING Sep Jun policy items that are presented to City Council in June and then utilized to prepare the Budget. A Budget Meeting is held with PUBLIC City Council in June to determine Council’s priorities and DEPARTMENT BUDGET MEETINGS WORKSHOPS BUDGET May/Jun position issues specific to development of the operational and Aug COMMITTEE capital budgets for the upcoming fiscal year. City Council’s REVIEW Jun/Jul decisions provide the framework under which the budget is prepared to meet City Council’s programmatic objectives within available fiscal resources projected in the five-year forecasts. The meeting is open to the public and the public is encouraged to attend and participate. Department Directors are responsible for identifying their staffing needs, operational funding needs within budget development parameters, five-year capital requests, as well as corresponding revenue sources to fund their needs. In addition, they must conduct a comprehensive review of departmental goals, objectives, and metrics. The City Charter charges the City Manager with the duty of presenting a balanced budget to City Council. In order to accomplish this goal, a Budget Committee is formed comprised of the City Manager, Finance Director, and Financial Analyst. The Committee conducts comprehensive meetings with Department Directors to review their budget requests and a collaborative effort is undertaken to achieve City Council and department goals within fiscal constraints. The Budget Committee enlists assistance for areas of specialized interests, such as the Information Technology Manager for computer issues and the Human Resources Manager for personnel and risk management issues. Department goals, objectives, and metrics are also evaluated during budget development to determine the effectiveness of program activities and appropriate funding levels. After the departmental meetings, the Budget Committee finalizes the proposed budget given revenue projections, economic conditions, funding requirements, and City Council program priorities and issues previously identified in the budget process. Once a balanced budget is achieved, it is presented to City Council for consideration. The City Council is required by Florida State Statute and City Charter to hold public hearings on the proposed budget and adopt a final budget no later than September 30th, vii  the close of the City’s fiscal year. The appropriated budget is prepared by fund, department (e.g. financial services), and division (e.g. purchasing). Department Directors may request transfers of appropriations within a department and between divisions to transfer appropriations between line items, not to increase the total budget or to transfer resources between funds. Transfers of appropriations between funds require the approval of the City Council. The budget may be amended at any time by Resolution of City Council. Budget- to-actual comparisons are provided in the report for each individual governmental fund for which an appropriated annual budget has been adopted. For the General Fund and the Community Redevelopment Agency Fund, this comparison is presented on page 21 & 22 as part of the basic financial statements for the governmental funds. For governmental funds with appropriated annual budgets, other than those previously mentioned, this comparison is presented in the combining and individual fund statements and schedules, Section D of this report, which starts on page 93. FACTORS AFFECTING FINANCIAL CONDITION The information presented in the financial statements is best understood when it is considered from the broader perspective of the specific environment within which the City of Fort Walton Beach operates. Local Economy The FY 2016-17 budget of $38,628,510 is $762,881, or 2.0%, more than the adopted FY 2015-16 budget due to increased operating expenses throughout the City. Additionally, ad valorem revenues are anticipated to increase 3.6% in the General Fund, generating approximately $190K in additional revenue, and 1.64% in the CRA fund, generating an additional $17K. The budget is predicated on maintaining a millage rate of 5.7697 mills. Eglin Air Force Base is the world’s largest Department of Defense installation, spanning 724 square miles. Defense contractor companies are established throughout the Northwest Florida region. It is estimated that local military bases currently represent a $6.0 billion annual economic impact on the area, with approximately 70% of the local economy supported by the military. Being located on the Gulf of Mexico in Northwest Florida, tourism is a large part of the regional economy. Regional accolades continue to enhance the area’s image, promote visibility, and generate additional tourism and sales tax dollars. Local tourism has benefited from the national shift to vacation sites accessible by driving instead of flying. The Fort Walton Beach-Destin area is a popular drive destination in Florida, according to a survey of auto visitors by Visit Florida. Long-Term Financial Planning The City undertakes several processes to assist in future planning, such as:  A 5-year CIP (Capital Improvement Program) Plan is developed and approved by City Council each year during the annual budget process.  5-year replacement plans for capital equipment, including vehicles, machinery, and computer hardware and software, are also developed and approved by Management each year during the annual budget process  Annual Strategic Plan, which focuses on a 1 – 3 year time period. viii  Relevant Financial Policies The City has several financial policies that are utilized during daily operations, as well as during the budget and financial planning processes. The City utilizes fund balance reserves only for one-time non-recurring expenditures. In addition, the City maintains its fund balance level in the General Fund at 30% of fund expenditures – this policy helps to ensure that the City has sufficient funding in place for emergency and disaster relief. Major Initiatives These financial policies, as well as other indicators, were taken into account when adopting the City’s budget for fiscal year 2017. The City’s budget for fiscal year 2017 totals $38.6 million, which is $762,881 higher than the fiscal year 2016 approved budget, due to increased operating expenses throughout the City. The 2017 budget allocates $20.0 million, a 4.3% increase as compared to the fiscal year 2016 budget, to the General fund, $15.2 million to the Enterprise funds, and $3.2 million to other funds. For the fiscal year 2017 budget, the ad valorem rate was maintained at 5.7697 mills. A 4.5% increase in water and sewer rates is included in the budget, and stormwater fees are scheduled to increase $0.25. No other significant changes to the City’s various rate and fees are included in the fiscal year 2017 budget. AWARDS AND ACKNOWLEDGEMENTS Awards The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of Fort Walton Beach for its Comprehensive Annual Financial Report for the fiscal year ended September 30, 2015. This was the thirtieth consecutive year that the City received this prestigious award. In order to be awarded a Certificate of Achievement, the City must publish an easily readable and efficiently organized Comprehensive Annual Financial Report, satisfying both GAAP and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. We believe our current report continues to meet the Certificate of Achievement Program requirements and we are submitting it to the GFOA to determine its eligibility for another certificate. In addition, the government also received the GFOA’s Distinguished Budget Presentation Award for its annual budget dated October 1, 2016. This was the twenty-first consecutive year that the City received this prestigious award. In order to qualify for the Distinguished Budget Presentation Award, the City’s budget document was judged proficient in several categories, including as a policy document, a financial plan, an operations guide, and a communications device. Acknowledgments The preparation of this report would not have been possible without the efficient and dedicated services of the entire staff of the Finance Department. We would like to express our appreciation to all members of the Department who assisted and contributed to the preparation of this report. We would also like to thank the Mayor and City Council for their unfailing support for maintaining the highest standards of professionalism in the management of the City of Fort Walton Beach’s finances and for their attention in conducting the financial operations of the City in a responsible and progressive manner. ix Appreciation is also expressed to the accounting firm of Warren Averett, LLC for their continued assistance and professionalism. Respectfully submitted, Michael D. Beedie, PE Brandy L. Ferris, CPA, CGFM City Manager Finance Director x THIS PAGE IS LEFT INTENTIONALLY BLANK xi  Citizens of Fort Walton Beach City Council City Clerk City Attorney 2.50 FTE City Manager 6.00 FTE CRA IT Engineering & Utility Financial Fire Human Resources Police Recreation Services Services Services 3.60 FTE Services Services 94 FTE 15.50 FTE 37.00 FTE 61.9 FTE 71.53 FTE Building Inspections Accounting Advanced Life Human Resources Uniform Patrol Athletics – & Permitting Support Adult & Youth Auditing Insurance & K-9 Patrol Code Enforcement Fire Suppression Risk Management Recreation Centers Budgeting Criminal and Programming CDBG Fire Prevention Investigations Purchasing Grounds Engineering Fire Inspection Community Maintenance: Debt Service & Policing/CRA Fleet & Facilities Hazardous Materials Parks, Right-Of- Management Response Crime Prevention Way and Cemetery Garbage Collection Treasury Fire Education Communications Library Planning Utility Billing Records Museum Streets & Stormwater Contingencies & Mgmt Support Services Golf Club Transfers Operations Water Production & School Crossing Distribution Guards Sewer Collection Reserve Officers xii  INDEPENDENT AUDITORS’ REPORT To the Honorable Mayor and City Council Members City of Fort Walton 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 Fort Walton Beach, Florida (the City), as of and for the year ended September 30, 2016, and the related notes to the financial statements, which collectively comprise the City's basic financial statements, as listed in the table of contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ 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 entity’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 entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. 1 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 of Fort Walton Beach, Florida, as of September 30, 2016, and the respective changes in financial position, and, where applicable, cash flows thereof, and the respective budgetary comparison for the General Fund and Community Redevelopment Agency (Special Revenue Fund) 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 management's discussion and analysis on pages 4-14, the schedules related to the pension liabilities and future benefits on pages 82-86, and the schedule of funding progress for other post-employment benefits on page 92 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, 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 introductory section, combining and individual non-major fund financial statements and schedules, and statistical 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 accompany schedule of expenditures of federal awards is presented for purposes of additional analysis as required by Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, and is not a required part of the basic financial statements. The combining and individual non-major fund financial statements and schedules, and the schedule of expenditures of federal awards are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining and individual non-major fund financial statements and schedules and the schedule of expenditures of federal awards are fairly stated, in all material respects, in relation to the basic financial statements as a whole. 2 The introductory and statistical sections have 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 also issued our report dated February 24, 2017, 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. Fort Walton Beach, Florida February 24, 2017 3  MANAGEMENT’S DISCUSSION AND ANALYSIS As management of the City of Fort Walton Beach, Florida, we offer readers of the City of Fort Walton Beach’s financial statements this narrative overview and analysis of the financial activities of the City of Fort Walton Beach for the fiscal year ended September 30, 2016. We encourage readers to consider the information presented here in conjunction with additional information that we have furnished in our letter of transmittal, which can be found on pages iv-x of this report. FINANCIAL HIGHLIGHTS  The assets and deferred outflows of the City of Fort Walton Beach exceeded its liabilities and deferred inflows by $56.7 million (total net position). Of this amount, $13.3 million represents unrestricted assets that are available to meet the City’s ongoing obligations to citizens and creditors.  The government’s net position increased by $2.4 million, primarily attributable to the sale of land, an increase in capital grant revenue, and a decline in economic development expenses in the Community Redevelopment Agency.  As of the close of the fiscal year, the City of Fort Walton Beach’s governmental funds reported combined ending fund balances of $16.4 million, an increase of $1.9 million in comparison with the prior year. This increase is related to the sale of excess land for commercial development in the amount of $850,000 and the increase in grant funding for the City’s fire services. Approximately 85.4% of this amount, or $14.0 million, is available for spending at the discretion of City Council.  At the end of the fiscal year, committed, assigned, and unassigned fund balance for the General Fund was $11.6 million, or 63.0% of total General Fund expenditures.  The City of Fort Walton Beach’s total debt decreased by $1.3 million, or 3.6%, during the fiscal year. This decrease is proportional to scheduled principal payments. OVERVIEW OF THE FINANCIAL STATEMENTS This discussion and analysis intends to serve as an introduction to the City of Fort Walton Beach’s basic financial statements, which 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 focus of financial statements prepared in accordance with the Governmental Accounting Standards Board (GASB) Statement 34 is on both the City as a whole (government-wide) and on major individual funds. Both perspectives (government-wide and major funds) allow the user to address relevant questions, broaden a basis for comparison (year-to-year or government-to- government), and enhance the City’s accountability. Government-Wide Financial Statements Designed to be corporate-like, the government-wide financial statements consolidate governmental and business-type activities into two columns, which sum to a total for Primary Government. This provides readers with a broad overview of the City of Fort Walton Beach’s finances in a manner similar to a private-sector business. Two statements, the statement of net position and the statement of activities, are utilized to provide information on a government-wide basis. 4  The statement of net position presents information on all of the City of Fort Walton Beach’s assets and liabilities, with the difference between the two reported as net position. This statement combines and consolidates the governmental funds’ current financial resources (short-term available resources) with capital assets and long-term obligations. Over time, increases or decreases in net position may serve as a useful indicator of the financial position of the City of Fort Walton Beach. The statement of activities presents information showing how the government’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 flow in future fiscal periods. Both of the government-wide financial statements distinguish functions of the City of Fort Walton Beach that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business-type activities). The governmental activities of the City of Fort Walton Beach include general government (city clerk, city council, city manager, human resources, finance, purchasing, fleet maintenance, service maintenance, and non-departmental expenses), public safety (police, fire, building, and code enforcement services), physical environment (cemetery), transportation (engineering, streets, public works, and right-of-way), economic development (Community Development Block Grant Program, and community redevelopment agency), culture and recreation (parks, golf, library, and museum), and debt service interest. The business-type activities of the City of Fort Walton Beach include utilities (water, sewer, and storm water), and sanitation. The government-wide financial statements include not only the City of Fort Walton Beach itself (known as the primary government), but a component unit, the Community Redevelopment Agency (CRA), which is a legally separate entity for which the City of Fort Walton Beach is financially accountable. The CRA is considered a blended component unit of the City of Fort Walton Beach, Florida and is presented as a special revenue fund as part of the primary government. The government-wide financial statements are found on pages 15-16 of this report. Fund Financial Statements A fund is a grouping of related accounts used to maintain control over resources that have been segregated for specific activities or objectives. The City of Fort Walton Beach, 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 of Fort Walton Beach can be divided into three categories: governmental funds, proprietary funds, and fiduciary funds. 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 are reported using an accounting method called modified accrual accounting, the focus of which is on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government’s near-term financial requirements. The basic governmental fund financial statements are on pages 17-22 of this report. 5  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. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balance provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The City of Fort Walton Beach maintains eight individual governmental funds (General Fund, Community Redevelopment Agency Fund, Florida Building Code Fund, Law Enforcement Trust Fund, Law Enforcement Training Fund, Debt Service Fund, Community Development Block Grant Fund, and Beal Memorial Cemetery Perpetual Care Fund). Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures, and changes in fund balance for the General Fund and the Community Redevelopment Agency Fund. Data from the other six governmental funds are combined into a single, aggregated presentation. Individual fund data for each of these non-major governmental funds is provided in the form of combining statements elsewhere in this report. The Community Redevelopment Agency Fund is considered a non-major fund for reporting purposes, however, the City chooses to present this Fund as a major fund in its financial statements. The City of Fort Walton Beach adopts an annual appropriated budget for its General Fund, as well as each of the other governmental funds. A budgetary comparison statement is provided for the General Fund on page 21 of this report. Proprietary Funds All proprietary funds of the City of Fort Walton Beach are maintained as enterprise funds. Enterprise funds are used to report the same functions presented as business-type activities in the statement of net position and the statement of activities. The City of Fort Walton Beach uses enterprise funds to account for its utilities operations (water operations and distribution, sewer collections and treatment, and stormwater management), and sanitation operations (garbage). Proprietary funds provide the same type of information as the government-wide financial statements, only in more detail. The proprietary fund financial statements provide separate information on utilities operations, sanitation operations, and stormwater operations, all of which are considered major funds of the City of Fort Walton Beach except for stormwater, which is considered non-major. The basic proprietary fund financial statements are found on pages 23-27 of this report. Fiduciary Funds Fiduciary funds are used to account for resources held for the benefit of parties outside the government. The City’s fiduciary funds include the Pension Trust Funds (general employees, police officers, and firefighters). Fiduciary funds are not reflected in the government-wide financial statements because the resources of those funds are not available to support the City of Fort Walton Beach’s own programs. The accounting used for fiduciary funds is much like that used for proprietary funds. The basic fiduciary fund financial statements are found on pages 28-29 of this report. NOTES TO THE FINANCIAL STATEMENTS The notes to the financial statements provide additional information that is essential to the full understanding of the data provided in the government-wide and fund financial statements. The notes to the financial statements begin on page 30 of this report. 6 OTHER INFORMATION In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information concerning the City of Fort Walton Beach’s progress in funding its obligation to provide pension benefits to its employees. The required supplementary information is found on pages 82-92 of this report. The combining statements referred to earlier in connection with non-major governmental and proprietary funds immediately follow the required supplementary information on Pension funds and can be found beginning on page 93 of this report. GOVERNMENT-WIDE FINANCIAL ANALYSIS As noted earlier, net position may serve over time as a useful indicator of a government’s financial position. Assets and deferred outflows of resources of the City of Fort Walton Beach exceeded its liabilities and deferred inflows of resources by $56.7 million, as reported in Table 1. The government’s net position increased by $2.4 million for the fiscal year ended September 30, 2016. By far, the largest portion of the City’s assets, $40.7 million or 71.8%, reflects its investment in capital assets (e.g. land, infrastructure, buildings, machinery, and equipment) less any related debt still outstanding that was 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 of Fort Walton Beach reports investment in its capital assets net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since capital assets themselves cannot be used to liquidate these liabilities. An additional portion of the City’s net position, 4.8%, represents resources that are subject to external restrictions on how they may be used. The remaining balance of $13.3 million is unrestricted and may be used to meet the government’s ongoing obligations to citizens and creditors. Table 1 Statement of Net Position As of September 30 (In Thousands of Dollars) Governmental Business-Type Activities Total Activities 2016 2015 2016 2015 2016 2015 Current & Other $18,400 $17,462 $14,155 $14,319 $32,555 $31,781 Capital Assets 39,623 39,950 36,251 35,973 75,874 75,923 Total Assets 58,023 57,412 50,406 50,292 108,429 107.704 Deferred Outflow of Resources 6,005 2,242 1,171 514 7,716 2,756 Long-Term Liabilities Outstanding 29,053 25,814 24,305 24,934 53,358 50,748 Other Liabilities 1,692 3,004 2,478 1,705 4,170 4,709 Total Liabilities 30,745 28,818 26,783 26,639 57,528 55,456 Deferred Inflow of Resources 1,172 638 219 83 1,391 721 Net Position Net Investment in Capital Assets 27,791 27,444 12,894 12,887 40,685 40,330 Restricted 2,161 2,595 562 540 2,723 3,135 Unrestricted 2,159 160 11,119 10,657 13,278 10,817 Total Net Position $32,111 $30,199 $24,575 $24,084 $56,686 $54,282 Reported in Table 2 are the key elements of the increase in net position for the current year. 7  Table 2 Statement of Activities Governmental Activities Business-Type Activities Total Activities 2016 2015 2016 2015 2016 2015 Revenues Program Revenue: Charges for Services $3,721,181 $3,397,559 $14,602,206 $13,510,406 18,323,387 $16,907,965 Operating Grants & Contributions 908,595 909,461 - - 908,595 909,461 Capital Grants & Contributions 802,809 525,320 533,515 87,797 1,336,324 613,117 General Revenue: Property Taxes 5,617,998 5,473,438 - - 5,617,998 5,473,438 Other Taxes (1) 8,841,512 8,755,688 - - 8,841,512 8,755,688 Tax Increments for Redevelopment 1,628,439 1,552,560 - - 1,628,439 1,552,560 Other Revenue 2,256,664 1,893,409 197,178 169,699 2,453,842 2,063,108 Total Revenues 23,777,198 22,507,435 15,332,899 13,767,902 39,110,097 36,275,337 Expenses Primary Government General Government 3,285,039 2,735,875 - - 3,285,039 2,735,875 Public Safety 10,172,215 9,562,140 - - 10,172,215 9,562,140 Physical Environment 430,490 379,334 - - 430,490 379,334 Transportation 1,494,178 1,474,209 - - 1,494,178 1,474,209 Economic Development 1,540,230 1,813,782 - - 1,540,230 1,813,782 Culture & Recreation 5,375,183 4,601,503 - - 5,375,183 4,601,503 Debt Service Interest 323,639 340,497 - - 323,639 340,497 Business-Type Expenses Utilities - - 10,066,769 9,205,259 10,066,769 9,205,259 Sanitation - - 3,407,992 3,319,760 3,407,992 3,319,760 Other - - 611,351 460,314 611,351 460,314 Total Expenses 22,620,974 20,907,340 14,086,112 12,985,333 36,707,086 33,892,673 Increase/(Decrease) in Net Position 1,156,224 1,600,095 1,246,787 782,569 2,403,011 2,382,664 before Transfers Transfers 755,846 657,558 (755,846) (657,558) - - Increase/(Decrease) in Net Position 1,912,070 2,257,653 490,941 125,011 2,403,011 2,382,664 Net Position – Beginning 30,198,659 $27,941,006 24,083,747 $23,958,736 54,282,406 51,899,742 Net Position – Ending $32,110,729 $30,198,659 $24,574,688 $24,083,747 $56,685,417 $54,282,406 (1) Included in other taxes are franchise fees as they are assessed based on gross receipts. The government’s net position increased by $2.4 million during the fiscal year. Both governmental and business activities experienced an increase, primarily attributable to sale of land, an increase in capital grant revenue, and a decline in economic development expenses in the Community Redevelopment Agency. Current Year Impacts – Governmental Activities Governmental activities increased the City’s net position by $1.9 million for the fiscal year ended September 30, 2016. Key elements of this change are as follows:  Capital grants and contributions increased net position by $277,489 due to an Assistance to Firefighters grant for a new station alert system, as well a concerted effort to utilize prior year(s) Community Redevelopment Block Grant funds, a portion of which enabled the City to partner in opening the area’s first homeless shelter.  Other revenue increased due to the sale of excess land for commercial development; this development is planned on one of the main corridors for the City of Fort Walton Beach.  Economic development expenses decreased $273,552, or 15.1%, as a direct result of prior year use of reserves for projects and economic development incentive grants being provided through the Community Redevelopment Agency (CRA). 8  Recreation and cultural service expenses increased by 16.8%, as the City continued to improve the quality of life for its residents, working toward the completion of Phase 2 of the new City of Fort Walton Beach Recreation Complex, which will include volleyball courts and a Skatepark. The resulting depreciation for Phase 1 increased expenses by $357,000 over the prior year.  Overall, expenses for governmental activities increased by $1.7 million, or 8.2%, while related revenue increased $1.3 million, or 5.6%, as a result of the City’s focus on future sustainability of programs and services. Chart 1 Expense and Revenue - Governmental Activities Debt Service Interest Culture and Recreation Economic Environment Transportation Physical Environment Public Safety General Government 0 2,000,000 4,000,000 6,000,000 8,000,000 10,000,000 12,000,000 Revenues Expenses Chart 2 Municipal Revenue Revenues by Source - Governmental Activities Franchise Fees , Sharing , $910,615 $2,202,420 Tax Increments for Other Revenue , Redevelopment , $1,346,049 $1,628,439 Charges for Services , Other Taxes , $3,721,181 $3,931,939 Operating Grants & Contributions , $908,595 Sales Tax , $2,707,153 Property Taxes , Capital Grants & $5,617,998 Contributions , Franchise Fees Other Revenue $802,809 Charges for Services Operating Grants & Contributions Capital Grants & Contributions Property Taxes Sales Tax Other Taxes Tax Increments for Redevelopment Municipal Revenue Sharing 9 Current Year Impacts – Business-Type Activities Business-type activities increased the City’s net position by $490,941 for the fiscal year ended September 30, 2016. Key elements of this change are as follows:  An increase in capital grants and contributions in the amount of $445,718, or 507.7%, as the City took advantage of State authorized funding for stormwater improvements.  Charges for services increased by 8.1%, as a result of the implementation of Year 3 of the Utility and Stormwater Rate Study. Overall, expenses for the business-type activities of the City increased by $1.1 million, or 8.5%, primarily due to increased waste water treatment flows and debt service interest. Chart 3 Expenses and Program Revenue - Business-Type Activities $12,000,000 $10,000,000 $8,000,000 $6,000,000 $4,000,000 $2,000,000 $- Utilities Sanitation Stormwater Expenses Revenues Chart 4 Miscellaneous Operating Grants & Revenues by Source - Business Type Activities Income Contributions $197,178 $533,515 Charges for Services $14,602,206 Charges for Services Operating Grants & Contributions Miscellaneous Income 10 FINANCIAL ANALYSIS OF THE CITY’S FUNDS As noted earlier, the City of Fort Walton Beach uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. Governmental Funds The focus of the City’s governmental funds is to provide information on near-term inflows, outflows, and balances of available resources. Such information is useful in assessing the City’s financing requirements. In particular, unrestricted fund balance may serve as a useful measure of a government’s net resources available for spending at the end of the fiscal year. As of September 30, 2016, the City of Fort Walton Beach’s governmental funds have combined ending fund balances of $16.4 million, an increase of $1.9 million in comparison with the prior year. Approximately 85.4% of this amount, or $14.0 million, is available for spending at the discretion of City Council. The remainder of fund balance is non-spendable or restricted. Details of the fund balance classifications can be found on page 17 of this report, as well as in Note 19. The General Fund is the chief operating fund of the City. At the end of this fiscal year, committed, assigned, and unassigned fund balance of the General Fund was $11.6 million, while total fund balance reached $12.0 million. As a measure of the General Fund’s liquidity, it may be useful to compare both committed, assigned, and unassigned fund balance and total fund balance to total expenditures. This amount represents 63.0% of the total General Fund expenditures, while total fund balance represents 65.2% of that same amount. During the 2016 fiscal year, the fund balance of the City’s General Fund increased by $2.2 million. This increase was primarily related to the sale of land and an increase in capital grant revenue. The Community Redevelopment Agency Fund’s fund balance decreased by $436,902. This decrease is a direct result of City Council’s ongoing mission to improve and stimulate economic development through public-private partnerships and development grants. Proprietary Funds The City of Fort Walton Beach’s proprietary funds provide the same type of information found in the government-wide financial statements, but in more detail. Unrestricted net position of the proprietary funds totaled $11.1 million at September 30, 2016, of which the Utilities Fund amounted to $7.9 million, the Sanitation Fund totaled $2.3 million, and the Stormwater Utility Fund was $0.9 million. The factors concerning the finances of these four funds have already been addressed in the discussion of the City of Fort Walton Beach’s business- type activities. Fiduciary Funds The General Employees’ Retirement Fund’s net position as a percentage of the total pension liability, an indicator of the sustainability of the Plan, was 88.9%, a decrease of 3.0% over the prior year. Employees contribute 5% of pay to the Plan and the City contributed $1.4 million, which was an increase of $58,591 when compared to the previous fiscal year. The Firefighters’ Pension Trust Fund’s net position as a percentage of the total pension liability was 65.6%, which was decrease of 5.6% over the previous fiscal year. Employees contribute 8.0% of pay to the Plan and the City contributed $672,369, a decrease of $43,070. The Police Officers’ Retirement Fund’s net position as a percentage of the total pension liability was 76.7%, a decrease of 5.1% over the previous fiscal year. Employees contribute 5% of pay to the Plan and the City contributed $628,975, a decrease of $207,078. The decrease in the Plan contributions was a direct result of payroll savings due to vacancies within the department. 11  Additional information on the pension plans can be found on pages 50-64 of this report. The General Employees’ Retirement Fund was closed to new entrants in January 2010, and all new hires are required to participate in a defined contribution plan, which is administered by the International City Managers Association Retirement Corporation. Additional information on the defined contribution plan can be found on page 65 of this report. GENERAL FUND BUDGETARY HIGHLIGHTS A schedule comparing the original to the final budget and the variance from the final budget to the actual results is included on page 22 of the financial statements. Differences between the original budget and the final amended budget were $1.3 million. Significant information related to this difference is summarized as follows:  The City received donations and added related expenditures in the amount of $87,731.  In April 2014, the City experienced a natural disaster in the form of intense flooding. The City received Federal Emergency Management funds to offset a portion of the cost of the repairs related to this disaster in the amount of $315,499.  The City received State pension contributions in excess of what was originally budgeted in the amount of $77,518, for the firefighters’ defined benefit pension plan.  The City incurred expenses that were funded by excess unassigned/assigned fund balance in the amount of $510,746 for HVAC repairs, police department vehicles and equipment, firefighter bunker gear, and closing costs and commission fees related to the sale of City property.  The City was the recipient of several grants during the fiscal year totaling $605,582 in the governmental funds. Actual results, when compared to the final budget, show a variance of $2.2 million for expenditures. This variance is primarily due to amending the budget for grant revenue received and capital expenditures planned, but not yet expended. CAPITAL ASSET AND DEBT ADMINISTRATION Capital Assets The City’s investment in capital assets for its governmental and business-type activities, as of September 30, 2016, was $40.7 million (net of accumulated depreciation and related debt). This represents a net increase of $354,239, or 0.9%. Highlights are summarized as follows:  Capital assets outdated, unserviceable, and no longer used are systematically disposed of on an annual basis.  The City received capital grants for a station alerting system for the fire department and received funding for stormwater improvements. Table 3 below highlights the overall changes in this category. 12  Table 3 Total Capital Assets Net of Accumulated Depreciation Governmental Activities Business-Type Activities Total Activities FY 2016 FY 2015 FY 2016 FY 2015 FY 2016 FY 2015 Land $11,048,842 $11,048,842 $709,678 $709,678 $11,758,520 $11,758,520 Buildings 13,459,321 13,563,822 115,202 129,335 13,574,523 13,693,157 Improvements other than Buildings 7,069,522 6,702,488 31,082,318 30,585,879 38,151,840 37,288,367 Infrastructure 3,744,853 3,953,649 - - 3,744,853 3,953,649 Intangible Assets 12,427 68,821 54,486 63,824 66,913 132,645 Machinery & Equipment 4,123,994 3,688,776 3,755,041 4,049,933 7,879,035 7,738,709 Equipment under Capital Lease 77,440 118,755 - - 77,440 118,755 Easements - - 34,642 34,642 34,642 34,642 Construction in Progress 86,639 804,559 499,398 399,860 586,037 1,204,419 $39,623,038 $39,949,712 $36,250,765 $35,973,151 $75,873,803 $75,922,863 Additional information on the capital assets of the City of Fort Walton Beach can be found in Note 6 of this report on pages 47-49. Long-Term Debt As shown in the following table, as of September 30, 2016, the City had total revenue notes and capital leases outstanding of $35.3 million. All of the City’s debt represents notes secured solely by specified revenue sources (i.e. revenue notes) and capital leases. The City has no general obligation or special assessment debt. The State of Florida does not place a legal limit of debt on municipalities. For general obligation debts greater than one year, the City is required to conduct a voter referendum. The debt capacity of the City is contingent upon available resources and existing debt. The current outstanding debt requires a coverage ratio of 1.25 times earnings. The General Fund is at 11.95 and the Utilities Fund is at 2.59. The Sanitation and Stormwater Funds are debt-free. Table 4 Outstanding Debt Governmental Assets Business-Type Activities Total Activities FY 2016 FY 2015 FY 2016 FY 2015 FY 2016 FY 2015 Revenue Notes 11,725,331 12,371,587 8,794,000 8,794,000 20,519,331 21,165,587 State Revolving Fund - - 14,656,929 15,312,458 14,656,929 15,312,458 Capital Leases 106,653 134,249 - - 106,653 134,249 $11,831,984 $12,505,836 $23,450,929 $24,106,458 $35,282,913 $36,612,294 Additional information on the City of Fort Walton Beach’s long-term debt can be found in Notes 14 and 15 of this report on pages 72-76. ECONOMIC FACTORS AND NEXT YEAR’S BUDGET AND RATES Economic indicators and factors that are useful for evaluating the framework within which the City operates are discussed below.  The Consumer Price Index (CPI) is 1.2% higher than a year ago for the southern region. This indicator is a widely used gauge of inflation and translates into a higher cost of providing services to residents. 13   The Municipal Cost Index is 1.0% higher than a year ago. This index is prepared by American City & County to show the effects of inflation on the cost of providing municipal services.  The Consumer Confidence Index, prepared by the Conference Board, is 7.0% higher than last year. This indicator measures economic conditions by gauging the future spending of consumers and is a solid indicator of economic recovery.  The Leading Economic Index, also prepared by the Conference Board, is designed to signal turning point patterns in economic data. This index has remained flat over the past year.  The military has a significant presence in our community. These installations are essential to the continued long-term economic vitality of this area. Combined, the military and defense-related industries have a $6.0 billion annual impact on Okaloosa County’s economy, with approximately 70% of our local economy supported by the military. These indicators, as well as others, were taken into account when adopting the City’s budget for fiscal year 2017. The City’s budget for fiscal year 2017 totals $38.6 million, which is $762,881 higher than the fiscal year 2016 approved budget, due to increased operating expenses throughout the City. The 2017 budget allocates $20.0 million, a 4.3% increase as compared to the fiscal year 2016 budget, to the General fund, $15.2 million to the Enterprise funds, and $3.4 million to other funds. For the fiscal year 2017 budget, the ad valorem rate was maintained at 5.7697 mills. A 4.5% increase in water and sewer rates is included in the budget, and stormwater fees are scheduled to increase $0.25. No other significant changes to the City’s various rate and fees are included in the fiscal year 2017 budget. Personnel expenses account for approximately 48.5% of the City’s budget. The City’s fiscal year 2017 budget remains relatively stable in this category, at 295.58 full time equivalent positions, an increase of only 3.55 over last year. REQUESTS FOR INFORMATION This financial report is designed to provide citizens, taxpayers, customers, and creditors with a general overview of the City of Fort Walton Beach’s finances and to demonstrate the City’s accountability for the money it receives. Questions concerning any of the information provided in this report, or requests for additional information, should be addressed to the Finance Director, 107 Miracle Strip Parkway S.W., City of Fort Walton Beach, Florida, 32548. This document and other financial information are available on the City’s website at www.fwb.org. Inquiries may also be sent via email to the Finance Department at finance@fwb.org. 14  CITY OF FORT WALTON BEACH, FLORIDA STATEMENT OF NET POSITION SEPTEMBER 30, 2016 Primary Government Governmental Business-Type Activities Activities Total ASSETS Cash and cash equivalents $ 1,973,627 $ 1,629,000 $ 3,602,627 Investments 14,876,629 9,916,925 24,793,554 Receivables, net 575,597 878,927 1,454,524 Internal balances (407,761) 407,761 - Due from other governments 381,168 504,288 885,456 Inventory, at cost 242,627 12,421 255,048 Prepaid assets - 10,000 10,000 Restricted assets Cash and cash equivalents 21,156 789,320 810,476 Other assets Other receivables, net 736,571 6,224 742,795 Capital assets Non-depreciable/amortizable 11,135,481 1,243,718 12,379,199 Depreciable/amortizable, net 28,487,557 35,007,047 63,494,604 TOTAL ASSETS 58,022,652 50,405,631 108,428,283 DEFERRED OUTFLOWS OF RESOURCES 6,004,993 1,170,835 7,175,828 LIABILITIES Accounts payable 418,475 930,501 1,348,976 Accrued liabilities 317,554 160,824 478,378 Due to other governments 18,093 7,987 26,080 Unearned revenues 22,489 33,295 55,784 Payable from restricted assets Accrued interest 74,955 - 74,955 Customer deposits - 227,331 227,331 Non-current liabilities Due within one year Compensated absences 158,536 43,162 201,698 Leases payable 30,555 - 30,555 Revenue notes payable 651,675 407,000 1,058,675 State revolving loans payable - 668,043 668,043 Due in more than one year Compensated absences 475,609 129,480 605,089 Leases payable 76,098 - 76,098 Revenue notes payable 11,073,656 8,387,000 19,460,656 State revolving loans payable - 13,988,886 13,988,886 Other post-employment benefits 1,128,845 339,413 1,468,258 Net pension liability 16,298,581 1,460,008 17,758,589 TOTAL LIABILITIES 30,745,121 26,782,930 57,528,051 DEFERRED INFLOWS OF RESOURCES 1,171,795 218,848 1,390,643 NET POSITION Net investment in capital assets 27,791,054 12,893,855 40,684,909 Restricted Debt service 21,156 157,228 178,384 System improvements - 404,761 404,761 Improvement districts 1,437,363 - 1,437,363 Public safety 536,448 - 536,448 Other purposes 165,895 - 165,895 Unrestricted 2,158,813 11,118,844 13,277,657 TOTAL NET POSITION $ 32,110,729 $ 24,574,688 $ 56,685,417 See notes to the financial statements. 15  CITY OF FORT WALTON BEACH, FLORIDA STATEMENT OF ACTIVITIES FOR THE YEAR ENDED SEPTEMBER 30, 2016 Net (Expense) Revenue and Changes in Net Position Program Revenues Primary Government Charges for Operating Grants Capital Grants and Governmental Business-Type Function/program activities Expenses Services and Contributions Contributions Activities Activities Total Governmental activities General government $ 3,285,039 $ 421,503 $ 25,297 $ - $ (2,838,239) $ - $ (2,838,239) Public safety 10,172,215 523,163 407,327 523,918 (8,717,807) - (8,717,807) Physical environment 430,490 371,205 - 250,000 190,715 - 190,715 Transportation 1,494,178 207,860 - - (1,286,318) - (1,286,318) Economic environment 1,540,230 392,118 323,696 - (824,416) - (824,416) Culture and recreation 5,375,183 1,805,332 152,275 28,891 (3,388,685) - (3,388,685) Debt service interest 323,639 - - - (323,639) - (323,639) Total governmental activities 22,620,974 3,721,181 908,595 802,809 (17,188,389) - (17,188,389) Business-type activities Utilities 10,066,769 10,141,724 - 22,972 - 97,927 97,927 Sanitation 3,407,992 3,599,838 - - - 191,846 191,846 Stormwater 611,351 860,644 - 510,543 - 759,836 759,836 Total business-type activities 14,086,112 14,602,206 - 533,515 1,049,609 1,049,609 Total primary government $ 36,707,086 $ 18,323,387 $ 908,595 $ 1,336,324 $ (17,188,389) $ 1,049,609 $ (16,138,780) General revenues Taxes Property taxes $ 5,617,998 $ - $ 5,617,998 Sales taxes 2,707,153 - 2,707,153 Utility service taxes 3,931,939 - 3,931,939 Tax increments for redevelopment districts 1,628,439 - 1,628,439 Franchise fees 2,202,420 - 2,202,420 Intergovernmental, unrestricted 910,615 - 910,615 Gain on sale of assets 873,101 26,093 899,194 Miscellaneous 27,976 5,502 33,478 Investment earnings 444,972 165,583 610,555 Transfers 755,846 (755,846) - Total general revenues and transfers 19,100,459 (558,668) 18,541,791 CHANGE IN NET POSITION 1,912,070 490,941 2,403,011 NET POSITION AT BEGINNING OF YEAR 30,198,659 24,083,747 54,282,406 NET POSITION AT END OF YEAR $ 32,110,729 $ 24,574,688 $ 56,685,417 See notes to the financial statements. 16  CITY OF FORT WALTON BEACH, FLORIDA GOVERNMENTAL FUNDS BALANCE SHEET SEPTEMBER 30, 2016 Community Other Total Redevelopment Governmental Governmental General Agency Funds Funds ASSETS Cash and cash equivalents $ 1,259,254 $ 146,562 $ 567,811 $ 1,973,627 Investments 11,123,176 1,308,133 2,445,320 14,876,629 Receivables 955,014 357,154 - 1,312,168 Due from other funds 9,318 - - 9,318 Due from other governments 362,231 - 18,937 381,168 Inventory, at cost 240,865 1,762 - 242,627 Restricted assets Cash and cash equivalents - - 21,156 21,156 TOTAL ASSETS $ 13,949,858 $ 1,813,611 $ 3,053,224 $ 18,816,693 LIABILITIES Accounts payable $ 398,363 $ 13,951 $ 6,161 $ 418,475 Accrued liabilities 299,980 7,339 10,235 317,554 Due to other funds - - 9,318 9,318 Due to other governments 18,093 - - 18,093 Advance from other funds 407,761 - - 407,761 Unearned revenue 22,489 - - 22,489 Total liabilities 1,146,686 21,290 25,714 1,193,690 DEFERRED INFLOW OF RESOURCES Unavailable revenue 833,908 354,958 - 1,188,866 FUND BALANCE Nonspendable 240,865 1,762 - 242,627 Restricted 163,817 1,435,601 559,682 2,159,100 Committed 6,009,523 - 2,467,828 8,477,351 Assigned 1,198,378 - - 1,198,378 Unassigned 4,356,681 - - 4,356,681 Total fund balance 11,969,264 1,437,363 3,027,510 16,434,137 TOTAL LIABILITIES, DEFERRED INFLOW OF RESOURCES, AND FUND BALANCE $ 13,949,858 $ 1,813,611 $ 3,053,224 $ 18,816,693 See notes to the financial statements. 17  CITY OF FORT WALTON BEACH, FLORIDA GOVERNMENTAL FUNDS RECONCILIATION OF THE BALANCE SHEET TO THE STATEMENT OF NET POSITION SEPTEMBER 30, 2016 Fund balance, total governmental funds (page 17) $ 16,434,137 Amounts reported for governmental activities in the statement of net position are different because: Capital assets used in governmental activities are not financial resources and therefore are not reported in the funds. Governmental non-depreciable/amortizable assets 11,135,481 Governmental depreciable/amortizable assets 67,324,435 Less accumulated depreciation/amortization (38,836,878) 39,623,038 Unavailable revenues in governmental funds is susceptible to full accrual on the entity-wide statements. Special assessments 401,766 Receivable related to sale of capital asset 787,100 1,188,866 Deferred inflows of resources and deferred outflows of resources are not available/receivable or due/payable, respectively, in the current period and therefore are not reported in the governmental funds. Deferred outflows of resources – City pension contributions made subsequent to the measurement date 2,210,491 Deferred outflows of resources – net difference between projected and actual earnings on pension plan investments 3,794,502 Deferred inflows of resources – net difference between expected and actual experience with regard to economic or demographic assumptions on pension plan investments (1,171,795) 4,833,198 Long-term liabilities are not due and payable in the current period and therefore are not reported in the governmental funds. Notes payable (11,725,331) Accrued interest (74,955) Capital leases (106,653) Compensated absences (634,145) Other post-employment benefits (1,128,845) Net pension liability (16,298,581) (29,968,510) Net position of governmental activities (page 15) $ 32,110,729 See notes to the financial statements. 18  CITY OF FORT WALTON BEACH, FLORIDA GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE FOR THE YEAR ENDED SEPTEMBER 30, 2016 Community Other Total Redevelopment Governmental Governmental General Agency Funds Funds REVENUES Taxes $ 10,923,769 $ 1,017,542 $ - $ 11,941,311 Permits and fees 2,226,500 25,160 372,150 2,623,810 Intergovernmental 3,577,318 610,897 134,481 4,322,696 Charges for services 2,402,801 - - 2,402,801 Fines 114,719 - 6,794 121,513 Miscellaneous 659,427 48,578 227,816 935,821 Total revenues 19,904,534 1,702,177 741,241 22,347,952 EXPENDITURES Current General governmental services 3,017,374 - - 3,017,374 Public safety 8,253,632 455,979 343,567 9,053,178 Physical environment 325,227 - 12,604 337,831 Transportation 852,602 - - 852,602 Economic environment - 1,313,716 119,072 1,432,788 Culture and recreation 4,196,979 - - 4,196,979 Capital outlay 1,700,910 369,384 35,392 2,105,686 Debt service Principal - - 673,851 673,851 Interest 9,087 - 327,748 336,835 Total expenditures 18,355,811 2,139,079 1,512,234 22,007,124 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES 1,548,723 (436,902) (770,993) 340,828 OTHER FINANCING SOURCES (USES) Sale of general capital assets 850,000 - - 850,000 Transfers in 776,210 - 1,021,974 1,798,184 Transfers out (1,021,974) - (20,364) (1,042,338) Total other financing sources (uses) 604,236 - 1,001,610 1,605,846 NET CHANGE IN FUND BALANCE 2,152,959 (436,902) 230,617 1,946,674 FUND BALANCE AT BEGINNING OF YEAR 9,816,305 1,874,265 2,796,893 14,487,463 FUND BALANCE AT END OF YEAR $ 11,969,264 $ 1,437,363 $ 3,027,510 $ 16,434,137 See notes to the financial statements. 19  CITY OF FORT WALTON BEACH, FLORIDA GOVERNMENTAL FUNDS RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED SEPTEMBER 30, 2016 Net change in fund balance – governmental funds (page 19) $ 1,946,674 Amounts reported for governmental activities in the statement of activities are different because: Governmental funds do not report capital assets on the balance sheet; however, they are reported in the government-wide financial statements. Governmental funds report capital outlays as expenditures; however, in the statement of activities, the cost of those assets is depreciated/amortized over the estimated useful lives of the assets. Expenditures for capital assets 2,105,686 Less current year depreciation/amortization (2,707,680) (601,994) Governmental funds do not report capital assets on the balance sheet; however, they are reported in the government-wide financial statements. Accordingly, proceeds received for disposals of capital assets are shown as income in the governmental financial statements and a gain or loss is reported in the statement of activities. In addition, capital asset reassignments are reported as transfers on the statement of activities. Disposals of capital assets (543,313) Accumulated depreciation/amortization associated with disposals 543,313 Net book value of donated capital assets 276,300 Transfers anddepreciation/amortization Accumulated adjustments of capital assets associated with transfers and (63,158) adjustments 62,178 275,320 Special assessment revenue in the governmental funds is recognized when due; however, the revenue was recognized in the statement of activities when it was earned (when levied). Payments received on special assessment for street resurfacing (2,644) Special assessment for interest and penalties 453 Special assessment for capital improvements 354,958 Payments received on receivable related to the sale of capital assets (49,822) 302,945 The issuance of long-term debt provides current financial resources to governmental funds, while the repayment of the principal of long-term debt consumes the current financial resources of governmental funds. Neither transaction, however, has any effect on net position. Also, governmental funds report the effect of issuance costs, premiums, discounts and similar items when debt is first issued, whereas these amounts are deferred and amortized in the statement of activities. In addition, long-term debt reassignments are reported as transfers on the statement of activities. Debt principal and capital lease payments 673,851 Change in accrued interest on long-term debt 4,109 677,960 Some expenses reported in the statement of activities do not require the use of current financial resources and therefore are not reported as expenditures in governmental funds: Change in net pension liability and related deferred inflows and deferred outflows of resources (569,508) Change in long-term compensated absences 14,168 Change in other post-employment benefits (133,495) (688,835) Change in net position of governmental activities (page 16) $ 1,912,070 See notes to the financial statements. 20  CITY OF FORT WALTON BEACH, FLORIDA GENERAL FUND STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE – BUDGET AND ACTUAL FOR THE YEAR ENDED SEPTEMBER 30, 2016 Variance with Final Budget - Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Taxes $ 10,518,092 $ 10,595,610 $ 10,923,769 $ 328,159 Permits and fees 2,080,579 2,080,578 2,226,500 145,922 Intergovernmental 2,696,770 2,905,920 3,577,318 671,398 Charges for services 2,456,296 2,475,100 2,402,801 (72,299) Fines 104,400 104,400 114,719 10,319 Miscellaneous 479,826 556,868 659,427 102,559 Total revenues 18,335,963 18,718,476 19,904,534 1,186,058 EXPENDITURES Current General governmental services 3,318,729 3,620,844 3,017,374 603,470 Public safety 8,442,131 8,693,269 8,253,632 439,637 Physical environment 321,258 334,901 325,227 9,674 Transportation 1,048,635 1,039,913 852,602 187,311 Culture and recreation 4,253,895 4,294,863 4,196,979 97,884 Capital outlay 1,911,959 2,567,609 1,700,910 866,699 Debt service - - 9,087 (9,087) Total expenditures 19,296,607 20,551,399 18,355,811 2,195,588 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES (960,644) (1,832,923) 1,548,723 3,381,646 OTHER FINANCING SOURCES (USES) Sale of general capital assets - - 850,000 850,000 Transfers in 818,107 818,107 776,210 (41,897) Transfers out (1,093,912) (1,093,912) (1,021,974) 71,938 Total other financing sources (uses) (275,805) (275,805) 604,236 880,041 NET CHANGE IN FUND BALANCE (1,236,449) (2,108,728) 2,152,959 4,261,687 FUND BALANCE AT BEGINNING OF YEAR 1,236,449 2,108,728 9,816,305 7,707,577 FUND BALANCE AT END OF YEAR $ - $ - $ 11,969,264 $ 11,969,264 See notes to the financial statements. 21  CITY OF FORT WALTON BEACH, FLORIDA COMMUNITY REDEVELOPMENT AGENCY STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE – BUDGET AND ACTUAL FOR THE YEAR ENDED SEPTEMBER 30, 2016 Variance with Final Budget - Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Taxes $ 1,017,542 $ 1,017,542 $ 1,017,542 $ - Permits and fees - - 25,160 25,160 Intergovernmental 605,054 662,747 610,897 (51,850) Miscellaneous 48,000 48,000 48,578 578 Total revenues 1,670,596 1,728,289 1,702,177 (26,112) EXPENDITURES Current Public safety 453,207 453,081 455,979 (2,898) Economic environment 1,384,395 1,764,529 1,313,716 450,813 Capital outlay 30,700 383,164 369,384 13,780 Total expenditures 1,868,302 2,600,774 2,139,079 461,695 CHANGE IN FUND BALANCE (197,706) (872,485) (436,902) 435,583 FUND BALANCE AT BEGINNING OF YEAR 197,706 872,485 1,874,265 1,001,780 FUND BALANCE AT END OF YEAR $ - $ - $ 1,437,363 $ 1,437,363 See notes to the financial statements. 22  CITY OF FORT WALTON BEACH, FLORIDA PROPRIETARY FUNDS STATEMENT OF NET POSITION SEPTEMBER 30, 2016 Other Sanitation Enterprise Utilities Fund Fund Fund Total ASSETS Current assets Cash and cash equivalents $ 892,206 $ 220,176 $ 516,618 $ 1,629,000 Restricted assets – cash and cash equivalents 785,185 4,135 - 789,320 Investments 7,951,750 1,965,175 - 9,916,925 Receivables, net 629,660 200,698 48,569 878,927 Advance to other funds - 47,508 - 47,508 Due from other governments - - 504,288 504,288 Inventory – at cost 12,421 - - 12,421 Prepaid assets - - 10,000 10,000 Total current assets 10,271,222 2,437,692 1,079,475 13,788,389 Other assets Advance to other funds - 360,253 - 360,253 Other receivables, net 6,224 - - 6,224 Total other assets 6,224 360,253 - 366,477 Capital assets, net Non-depreciable/amortizable 1,103,029 - 140,689 1,243,718 Depreciable/amortization, net 32,150,132 1,263,912 1,593,003 35,007,047 Total capital assets 33,253,161 1,263,912 1,733,692 36,250,765 Total non-current assets 33,259,385 1,624,165 1,733,692 36,617,242 TOTAL ASSETS 43,530,607 4,061,857 2,813,167 50,405,631 DEFERRED OUTFLOWS OF RESOURCES 812,560 289,807 68,468 1,170,835 See notes to the financial statements. 23  CITY OF FORT WALTON BEACH, FLORIDA PROPRIETARY FUNDS STATEMENT OF NET POSITION – CONTINUED SEPTEMBER 30, 2016 Other Sanitation Enterprise Utilities Fund Fund Fund Total LIABILITIES Current liabilities Accounts payable 696,343 110,189 123,969 930,501 Accrued liabilities Compensated absences 26,383 13,574 3,205 43,162 Wages 38,016 19,362 3,962 61,340 Interest 99,006 - - 99,006 Other 204 249 25 478 Due to other governments - 7,987 - 7,987 Revenue note payable 407,000 - - 407,000 State revolving loan payable 668,043 - - 668,043 Payable from restricted assets Customer deposits 223,196 4,135 - 227,331 Unearned revenue 33,295 - - 33,295 Total current liabilities 2,191,486 155,496 131,161 2,478,143 Non-current liabilities Accrued liabilities Compensated absences 79,147 40,720 9,613 129,480 Revenue note payable 8,387,000 - - 8,387,000 State revolving loan payable 13,988,886 - - 13,988,886 Other post-employment benefits 209,304 107,481 22,628 339,413 Net pension liability 974,239 392,936 92,833 1,460,008 Total non-current liabilities 23,638,576 541,137 125,074 24,304,787 TOTAL LIABILITIES 25,830,062 696,633 256,235 26,782,930 DEFERRED INFLOWS OF RESOURCES 146,034 58,899 13,915 218,848 NET POSITION Net investment in capital assets 9,896,251 1,263,912 1,733,692 12,893,855 Restricted Debt service 157,228 - - 157,228 System improvements 404,761 - - 404,761 Unrestricted 7,908,831 2,332,220 877,793 11,118,844 TOTAL NET POSITION $ 18,367,071 $ 3,596,132 $ 2,611,485 $ 24,574,688 See notes to the financial statements. 24  CITY OF FORT WALTON BEACH, FLORIDA PROPRIETARY FUNDS STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION FOR THE YEAR ENDED SEPTEMBER 30, 2016 Other Sanitation Enterprise Utilities Fund Fund Fund Total OPERATING REVENUES Charges for services $ 10,123,818 $ 3,599,838 $ 860,644 $ 14,584,300 OPERATING EXPENSES Personal services 1,867,541 982,098 232,246 3,081,885 Operating 5,615,671 2,117,437 304,793 8,037,901 Depreciation/amortization expense 1,941,248 308,457 74,312 2,324,017 Total operating expenses 9,424,460 3,407,992 611,351 13,443,803 OPERATING INCOME 699,358 191,846 249,293 1,140,497 NON-OPERATING REVENUES (EXPENSES) Rental income 17,906 - - 17,906 Interest expense (636,198) - - (636,198) Amortization (5,613) - - (5,613) Gain on disposal of capital assets 8,312 5,737 12,044 26,093 Gain on investment 24,093 5,827 1,404 31,324 Interest 94,707 31,570 7,982 134,259 Grants in aid (498) - - (498) Miscellaneous 3,480 2,017 5 5,502 Total non-operating revenues (expenses) (493,811) 45,151 21,435 (427,225) INCOME BEFORE CAPITAL CONTRIBUTIONS AND TRANSFERS 205,547 236,997 270,728 713,272 CAPITAL CONTRIBUTIONS AND TRANSFERS Capital contributions 945 - 510,543 511,488 Impact fees 22,027 - - 22,027 Transfers out (619,771) (136,075) - (755,846) Total capital contributions and transfers (596,799) (136,075) 510,543 (222,331) CHANGE IN NET POSITION (391,252) 100,922 781,271 490,941 NET POSITION AT BEGINNING OF YEAR 18,758,323 3,495,210 1,830,214 24,083,747 NET POSITION AT END OF YEAR $ 18,367,071 $ 3,596,132 $ 2,611,485 $ 24,574,688 See notes to the financial statements. 25  CITY OF FORT WALTON BEACH, FLORIDA PROPRIETARY FUNDS STATEMENT OF CASH FLOWS FOR THE YEAR ENDED SEPTEMBER 30, 2016 Other Sanitation Enterprise Utilities Fund Fund Funds Total CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers and users $ 10,038,901 $ 3,598,288 $ 854,029 $ 14,491,218 Payments to suppliers (5,356,675) (2,108,481) (184,297) (7,649,453) Payments to employees (1,977,456) (1,033,346) (251,299) (3,262,101) Miscellaneous income 21,386 2,017 5 23,408 Net cash provided by operating activities 2,726,156 458,478 418,438 3,603,072 CASH FLOWS FROM NON-CAPITAL FINANCING ACTIVITIES Change in intergovernmental balances - (271) - (271) Advance to other funds - 46,576 - 46,576 Grants and aids (498) - - (498) Transfers out (619,771) (136,075) - (755,846) Net cash used in non-capital financing activities (620,269) (89,770) - (710,039) CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Impact fess received 22,027 - - 22,027 Acquisitions of capital assets (1,711,783) (207,247) (681,655) (2,600,685) Proceeds from disposal of capital assets 8,311 5,737 2,044 16,092 Proceeds from capital grants and contributions - - 41,797 41,797 Principal paid on state revolving loan (655,529) - - (655,529) Interest paid on bonds, loan, and note payables (537,192) - - (537,192) Net cash used in capital and related financing activities (2,874,166) (201,510) (637,814) (3,713,490) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of investments - (232,111) - (232,111) Proceeds from sales and maturities of investments 333,626 - - 333,626 Interest income 118,800 37,397 9,386 165,583 Net cash prvoided by (used in) capital and related financing activities 452,426 (194,714) 9,386 267,098 NET DECREASE IN CASH AND CASH EQUIVALENTS (315,853) (27,516) (209,990) (553,359) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,993,244 251,827 726,608 2,971,679 CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,677,391 $ 224,311 $ 516,618 $ 2,418,320 See notes to the financial statements. 26  CITY OF FORT WALTON BEACH, FLORIDA PROPRIETARY FUNDS STATEMENT OF CASH FLOWS - CONTINUED FOR THE YEAR ENDED SEPTEMBER 30, 2016 Other Sanitation Enterprise Utilities Fund Fund Funds Total CASH AND CASH EQUIVALENTS AT END OF YEAR CONSIST OF Current assets $ 892,206 $ 220,176 $ 516,618 $ 1,629,000 Restricted assets 785,185 4,135 - 789,320 Total cash and cash equivalents $ 1,677,391 $ 224,311 $ 516,618 $ 2,418,320 RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES Operating income $ 699,358 $ 191,846 $ 249,293 $ 1,140,497 Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation 1,941,248 308,457 74,312 2,324,017 Miscellaneous revenue 21,386 2,017 5 23,408 Decrease (increase) in assets: - Accounts receivable (50,958) (3,715) (6,615) (61,288) Inventory 2,353 - - 2,353 Increase in deferred outflows of resources (442,232) (178,364) (42,138) (662,734) Increase (decrease) in liabilities: Accounts payable 256,643 8,956 120,496 386,095 Compensated absences payable (4,808) 2,415 (341) (2,734) Wages (61,503) (28,874) (8,726) (99,103) Other liabilities 204 249 25 478 Customer deposits (34,275) 2,165 - (32,110) Other post-employment benefits 44,732 10,674 (1,574) 53,832 Unearned revenue 316 - - 316 Net pension liability 263,000 106,074 25,060 394,134 Increase in deferred inflows of resources 90,692 36,578 8,641 135,911 Net cash provided by operating activities $ 2,726,156 $ 458,478 $ 418,438 $ 3,603,072 SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITES Capital grants receivable $ - $ - $ 504,288 $ 504,288 Gain on sale of capital asset $ - $ - $ 10,000 $ 10,000 Contributions of assets from other funds $ 945 $ - $ - $ 945 SUPPLEMENTAL DISCLOSURES OF NONCASH TRANSACTIONS Amortization of bond discount $ 5,613 $ - $ - $ 5,613 See notes to the financial statements. 27  CITY OF FORT WALTON BEACH, FLORIDA FIDUCIARY FUNDS STATEMENT OF FIDUCIARY NET POSITION SEPTEMBER 30, 2016 Employee Retirement Funds ASSETS Cash and cash equivalents $ 2,926,292 Investments, at fair value U.S. Government and Agency obligations 15,490,443 Corporate obligations 4,366,235 Corporate equity 22,962,442 Mutual funds and exchange-traded funds 22,931,946 Commingled real estate investment funds 6,139,090 Total investments 71,890,156 Accounts receivable 16,894 Due from State of Florida 184,154 TOTAL ASSETS 75,017,496 LIABILITIES Accounts payable 106,596 NET POSITION RESTRICTED FOR PENSIONS $ 74,910,900 See notes to the financial statements. 28  CITY OF FORT WALTON BEACH, FLORIDA FIDUCIARY FUNDS STATEMENT OF CHANGES IN FIDUCIARY NET POSITION FOR THE YEAR ENDED SEPTEMBER 30, 2016 Employee Retirement Funds ADDITIONS Contributions Employer $ 2,601,665 Plan members 469,357 State of Florida 383,207 Total contributions 3,454,229 Investment income (loss) 7,085,809 Less investment expense (308,956) Net investment income (loss) 6,776,853 Miscellaneous revenue 34,947 TOTAL ADDITIONS 10,266,029 DEDUCTIONS Benefits and refunds paid Retirement payments 5,604,667 Disability payments 170,568 Refunds 78,504 Total benefits and refunds paid 5,853,739 Administrative expenses Legal 29,890 Contractual services 128,947 Other 68,168 Total administrative expenses 227,005 TOTAL DEDUCTIONS 6,080,744 CHANGE IN FIDUCIARY NET POSITION 4,185,285 NET POSITION RESTRICTED FOR PENSIONS Beginning of year 70,725,615 End of year $ 74,910,900 See notes to the financial statements. 29  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2016 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF THE CITY Description of the City The City of Fort Walton Beach, Florida, (the City) was originally chartered as a municipality under laws of the State of Florida Special Act of the Florida Legislature in 1937. The City Manager – Council form of government was established in 1953. As authorized by its charter, the City provides the following services: public safety (police, fire, and inspection), highways and streets, water and sewer, sanitation, stormwater, culture and recreation, public improvements, planning and zoning, and general administrative services. The financial statements of the City have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP), as applicable to governmental units and the Uniform Accounting System mandated by Chapter 218.33, Florida Statutes. The Governmental Accounting Standards Board (GASB) is the standard–setting body for governmental accounting and financial reporting. The following is a summary of the more significant accounting policies of the City: The Reporting Entity A seven member City Council and a Mayor govern the City, each elected at-large for four-year terms. The Council has no powers other than those expressly vested in it by State Statute and the City Charter, and their governmental powers cannot be delegated. As required by U.S. GAAP, these financial statements present the City of Fort Walton Beach (the primary government) and its blended component unit. In evaluating the City as a reporting entity, management has considered all potential component units for which the City may or may not be financially accountable and, as such, be included within the City's financial statements. Management utilized criteria set forth in GASB Statement No. 61 for determining financial accountability of potential component units in evaluating all potential component units. In accordance with GASB Statement No. 61, the City (primary government) is financially accountable if it appoints a voting majority of the potential component unit's governing board and 1) it is able to impose its will on the organization or 2) there is a potential for the organization to provide specific financial benefit to or impose specific financial burden on the City. In addition, component units can be other organizations for which the nature and significance of their relationship with the primary government are such that exclusion would cause the reporting entity's financial statements to be misleading or incomplete. As of September 30, 2016, the City had one component unit, as defined by GASB No. 61, which has been presented in the financial statements of the primary government using the blended presentation method, and is presented as a governmental fund type with a fiscal year end of September 30. The Fort Walton Beach Community Redevelopment Agency (the Agency) was formed to prepare a community redevelopment plan for a designated geographic area within the City of Fort Walton Beach, Florida. All of the City's council members serve as board members of the Agency. The Agency's governing body is the same as the governing body of the City. The Agency functions as a department of the City. City management have operational and fiscal responsibility for the Agency’s activities. 30  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2016 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF THE CITY – CONTINUED The Reporting Entity – Continued The Fort Walton Beach Housing Authority (the Authority) is considered a related organization to the City rather than a component unit. The City Council appoints the board members of the Authority. However, the Authority's board operates independently of the City Council and does not create a financial burden or benefit to the City. Government-Wide and Fund Financial Statements The basic financial statements include both government-wide (based on the City as a whole) 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 primary government and its component unit. For the most part, the effects of interfund activity has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely, to a significant extent, on fees and charges for support. The statement of activities demonstrates the degree to which the direct expenses of a given function or segment is offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. 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 segment and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues. Separate fund financial statements are provided for the governmental and proprietary funds. Major individual governmental funds and major enterprise funds are reported as separate columns in the fund financial statements. Separate fund financial statements for the fiduciary funds are disclosed within Note 8 of these financial statements. Measurement Focus and Basis of Accounting 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. Pension plans recognize revenue when contributions are due as there is a statutory requirement to make the contribution. Property taxes are recorded 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. 31  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2016 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF THE CITY – CONTINUED Measurement Focus and Basis of Accounting – Continued 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 City considers revenues to be available if they are collected within 6 months of the end of the current fiscal period, except for property taxes, for which the period is 60 days. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due. Franchise fees, licenses, and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. Only the portion of special assessments and other receivables within the current fiscal period are considered to be susceptible to accrual as revenue of the current period. Sales taxes, gasoline taxes, and other intergovernmental revenues collected and held by the state at year-end on behalf of the City, are also recognized as revenue. All other revenue items are considered to be measurable and available only when cash is received by the government. The Okaloosa County Tax Collector bills and collects property taxes for the City in accordance with the laws of the State of Florida. Property taxes attach as an enforceable lien on property as of the date of assessment and remain in effect until discharge by payment. Taxes are payable when levied (on November 1, or as soon thereafter as the assessment roll becomes available to the Tax Collector). The following is the current property tax calendar: Lien Date January 1, 2016 Levy Date November 1, 2016 Due Date November 1, 2016 Delinquent Date April 1, 2017 Discounts of 1% for each month taxes are paid prior to March 2017 are granted. Revenue recognition criteria for property taxes under GASB requires that property taxes expected to be collected within 60 days of the current period be accrued. No accrual has been made for 2016 ad valorem taxes because property taxes are not legally due until subsequent to the end of the fiscal year. Current year taxes, which are uncollected as of the end of the fiscal year, are generally immaterial in amount and highly susceptible to uncollectibility and, therefore, are not recorded as a receivable on the balance sheet date. 32  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2016 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF THE CITY – CONTINUED Basis of Presentation The financial transactions of the City are recorded in individual funds. Each fund is a separate accounting entity with a self-balancing set of accounts recording cash and other financial resources, together with all related liabilities and residual equities or balances, and changes therein, which are segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions or limitations. As a general rule, the effect of interfund activity has been eliminated from the government-wide financial statements. Exceptions to this general rule are other charges between the government's utility function and various other functions of the government. 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. Internally dedicated resources are reported as general revenues rather than as program revenues. Likewise, general revenues include all taxes. Any portion of franchise fees that is not based on gross receipts are reported as a charge for service in the function or activity that generates the fee. During fiscal year 2016, franchise fees were all based on gross receipts and thus recorded as general revenues. 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. The City considers all impact fee revenue as capital contributions for the water and sewer system; therefore, no amount from the impact fees are included in operating revenue. Operating expenses for enterprise funds include the cost of sales and service, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses. The following three broad classifications are used to categorize the fund types used by the City: Governmental Governmental funds focus on the determination of financial position and changes in financial position (sources, uses, and balances of financial resources) and not net income. The City has the following major governmental funds: General Fund – This is the City's primary operating fund and is used to account for all financial resources except those required to be accounted for in another fund. Community Redevelopment Agency Fund – The Community Redevelopment Agency Fund is the operating fund of the Fort Walton Beach Community Redevelopment Agency (the "Agency"). It is used to account for the activities of the Agency. Revenue sources for this fund include tax increment financing proceeds from ad valorem taxes as well as investment income. 33  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2016 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF THE CITY – CONTINUED Basis of Presentation – Continued Proprietary Proprietary funds focus on the determination of net income, changes in net position, financial position, and cash flows. All of the City's proprietary funds are enterprise funds, as fees are charged to external users for services. The following is a description of the major proprietary funds of the City: Utilities Fund – Used to account for the operations of the City, which provides distribution of potable water, sales and service and sanitary wastewater collection, treatment and disposal. Sanitation Fund – Accounts for the operation of the City that provides for solid waste collection and disposal. Fiduciary Fiduciary funds are used to account for the assets held on behalf of outside parties, including other governments, or on behalf of other funds within the City. The City has the following type of fiduciary fund: Pension Trust Funds – Used to report the resources that are required to be held in trust for the members and beneficiaries of the three defined benefit pension plans administered by the City: General Employees' Retirement Fund, Police Officers' Retirement Fund, and Firefighters' Retirement Fund. Assets, Liabilities, Deferred Inflows/Outflows of Resources, and Net Position or Equity Cash and Cash Equivalents The City defines cash and cash equivalents as cash held at a depository and cash on hand for operating purposes and those investments which are short term and highly liquid. Generally, those investments have original maturities of three (3) months or less from the date of acquisition. The City maintains an equity in pooled cash fund. The City’s cash deposits are held by banks that qualify as public depositories under the Florida Security for Public Deposits Act as required by Chapter 280, Florida Statues. The City’s cash deposits are fully insured by the Public Deposits Trust Fund. Investments Investments for the City are reported at fair value (generally based on quoted market prices). Investments are pooled together for investment purposes while each individual funds and/or accounts are maintained on a daily transaction basis. Investment earnings are distributed in accordance with the participating funds’ relative equity. Allowable investments, with the appropriate minimum rating requirements, can consist of certificates of deposit, local government surplus trust fund, intergovernmental investment pool, SEC registered money market funds, United States government securities, repurchase agreements, banker’s acceptances, commercial paper, United States government agencies, federal instruments, securitized issues, corporate notes and state or local government taxable or tax exempt debt. 34  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2016 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF THE CITY – CONTINUED Assets, Liabilities, Deferred Inflows/Outflows of Resources, and Net Position or Equity – Continued Investments In addition the Beal Memorial Cemetery Perpetual Care special revenue fund and the pension trust funds maintain separate investments accounts that are governed by separate investment policies. The Beal Memorial Cemetery investment policy allows for investments in domestic equities, international equities, real estate investment trusts, inflation hedges, fixed income securities, and cash equivalents within allowable ranges, ratings, and consideration of target asset allocations by asset class. The pension trust funds’ investment policies allow for investments in domestic and international equities, fixed income securities, mutual funds, exchange-traded funds, commingled funds, money market funds, and value add real estate within allowable ranges, ratings, and considerations of target asset allocations by range; however allowable asset classes, targets, ranges, and benchmarks vary by each individual policy. These investments are also reported at fair value. Receivables and Payables Interfund transactions are reflected as loans, services provided, reimbursements, or transfers. Loans between funds outstanding at the end of the fiscal year are referred to as either "due to other funds" or "due from other funds" (i.e., the current portion of interfund loans) or "advances" (i.e., the non- current portion of interfund loans). Any residual balances outstanding between governmental activities and business-type activities are reported in the government-wide financial statements as "internal balances." Advances between funds, as reported in the fund financial statements, are offset by a nonspendable fund balance account in applicable governmental funds to indicate that they are not available for appropriation and are not expendable and available financial resources. Services provided, deemed to be at market, or near market rates, are treated as revenues and expenditures/expenses. Reimbursements occur when one fund incurs a cost, charges the appropriate benefiting fund, and reduces its related cost as a reimbursement. All other interfund transactions are treated as transfers. Transfers between governmental or proprietary funds are netted as part of the reconciliation to the government-wide columnar presentation. All proprietary fund receivables are shown net of an allowance for uncollectible accounts. The allowance is computed by considering 100% of receivables in excess of 90 days, past trends on collections of accounts, and current year account write–offs. Inventory Inventory is valued at cost (first-in, first-out). The consumption method is used to account for inventory. Under the consumption method, inventory items are recorded as expenditures during the period the inventory is used. The General Fund inventory balance is considered nonspendable in the fund financial statements to indicate that it is not available for appropriation. 35  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2016 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF THE CITY – CONTINUED Assets, Liabilities, Deferred Inflows/Outflows of Resources, and Net Position or Equity – Continued Restricted Assets Certain resources in the following funds are restricted for specific purposes: in the Debt Service Fund for the repayment of Capital Improvement Note, Series 2011; customer utility deposits, impact fees, and debt repayments received are restricted in the Utilities Fund and Sanitation Fund. Capital Assets Capital assets, which include property, plant, equipment, and infrastructure assets (roads, bridges, curbs and sidewalks, drainage systems, lighting systems and similar items) are reported in the applicable governmental or business-type activities columns in the government–wide financial statements. Capital assets are defined by the City as assets with an initial cost more than the following: Land All Buildings and improvements $ 10,000 Infrastructure $ 10,000 Improvements – other $ 10,000 Equipment, vehicles, computers $ 1,000 Library books All In the case of the initial capitalization of general infrastructure assets (i.e. those reported by governmental activities) the government chose to include all such items regardless of their acquisition date or amount. The government was able to estimate the historical cost for the initial reporting of these assets through various allowable estimating techniques. As the government constructs or acquires additional capital assets each period, including infrastructure assets, they are capitalized and reported at historical cost. The reported value excludes normal maintenance and repairs which are essentially amounts spent in relation to capital assets that do not increase the capacity or efficiency of the item or extend its useful life beyond the original estimate. Donated capital assets are recorded at estimated fair market value at the date of donation. Major outlays for capital assets and improvements are capitalized in proprietary funds as projects are constructed. The amount of interest to be capitalized is calculated by offsetting interest expense incurred from the date of the borrowing until the completion of the project with interest earned on the invested proceeds over the same period. 36  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2016 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF THE CITY – CONTINUED Assets, Liabilities, Deferred Inflows/Outflows of Resources, and Net Position or Equity – Continued Capital Assets – Continued Property, plant, and equipment of the primary government are depreciated using the straight-line method over the following estimated useful lives: Assets Years Buildings 20-50 Years Improvements other than buildings 7-40 Years System infrastructure 20-40 Years Machinery and equipment 3-10 Years Deferred Inflows/Outflows of Resources In addition to assets, the statement of financial position will report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period(s) and so will not be recognized as an outflow of resources (expense/expenditure) until then. See Note 7 for additional information on the City’s deferred outflows of resources. In addition to liabilities, the statement of financial position will report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of fund balance that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until that time. See Note 7 for additional information on the City’s deferred inflows of resources. Compensated Absences It is the City's policy to permit employees to accumulate earned but unused vacation and sick leave based on the length of service to the City. All vacation leave is accrued when incurred in the government-wide and proprietary fund financial statements. Sick leave is accrued in the government-wide and proprietary fund financial statements based on a ratio of the sum of sick leave paid over the last several years to the total balance of sick leave at the end of each fiscal year. A liability for the amounts of vacation and sick leave is reported in the governmental fund financial statements only if they have matured, for example, as a result of employee resignations and retirements. Compensated absences of the governmental activities are primarily paid from the General Fund. 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 and discounts are deferred and amortized over the life of the bonds using the effective and straight-line interest methods. Bond issuance costs are expensed as they are incurred. Bonds payable are reported net of the applicable bond premium or discount. 37  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2016 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF THE CITY – CONTINUED Assets, Liabilities, Deferred Inflows/Outflows of Resources, and Net Position or Equity – Continued Long-Term Obligations – Continued In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. Net Pension Liability For purposes of measuring the net pension liability, deferred outflows and inflows of resources related to pensions, and pension expense, information about the fiduciary net position of each plan, and additions to/deductions from the fiduciary net position of each plan have been determined on the same basis as they are reported by the Plans. For this purpose, benefit payments (including refunds of employee contributions, if any) are recognized when currently due and payable in accordance with the benefit terms. Investments are reported at fair value. Administrative costs are financed from each respective fund’s investment earnings. GASB Statement No. 68 requires that the reported results must pertain to liability and asset information within certain defined timeframes. For this report, the following timeframes are used: Valuation Date (VD) October 1, 2014 Measurement Date (MD) September 30, 2015 Measurement Period (MP) October 1, 2014 to September 30, 2015 Classification of Fund Balance GASB Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions, establishes fund balance classifications that comprise a hierarchy based primarily on the extent to which a government is bound to observe constraints imposed upon the use of the resources reported in governmental funds. Fund balance classifications, under GASB Statement No. 54, are comprised of the following: Nonspendable – Includes amounts that are (a) not in spendable form, or (b) legally or contractually required to be maintained intact. The "not in spendable form" criterion includes items that are not expected to be converted to cash, for example: inventories, deposits, prepaid items, and advances from other funds. Restricted – Includes amounts that can be spent only for the specific purposes stipulated by external resource providers, constitutionally or through enabling legislation. Restrictions may effectively be changed or lifted only with the consent of resource providers. Committed – Includes fund balance amounts that can be used only for the specific purposes that are internally imposed by a formal action (a Resolution) of the government’s highest level of decision making authority, the City Council. Commitments may be changed or lifted only by the City taking the same formal action (a Resolution) that imposed the constraint initially. Contractual obligations are included to the extent that existing resources in the fund have been specifically committed for use in satisfying those contractual obligations. 38  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2016 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF THE CITY – CONTINUED Assets, Liabilities, Deferred Inflows/Outflows of Resources, and Net Position or Equity – Continued Classification of Fund Balance – Continued Assigned – Includes spendable fund balance amounts that are intended to be used for specific purposes that are neither considered restricted or committed. Intent is expressed by (a) the City Council or (b) a body (for example: a budget or finance committee) or official to which the City Council has delegated the authority to assign amounts to be used for specific purposes. This indicates that resources in these funds are, at a minimum, intended to be used for the purposes of that fund. The City Council has delegated authority to the City Manager and Finance Director in accordance with the City's fund balance policy. Unassigned – Includes residual positive fund balance within the General Fund which has not been classified within the other above mentioned categories. Unassigned fund balance may also include negative balances for any governmental fund if expenditures exceed amounts restricted, committed, or assigned for those specific purposes. These classifications reflect not only the nature of funds, but also provide clarity to the level of restriction placed upon fund balance. Fund balance can have different levels of restraint, such as external versus internal compliance requirements. Unassigned fund balance is a residual classification within the General Fund. The General Fund should be the only fund that reports a positive unassigned balance. In all other funds, unassigned is limited to negative residual fund balance. The City's formal fund balance policy establishes a targeted minimum reserve balance in the General Fund for committed fund balance equal to 30% of annual budgeted expenditures, which constitutes the City’s minimum fund balance policy. In circumstances when an expenditure is made for a purpose for which amounts are available in multiple fund balance classifications, fund balance is generally depleted in the order of restricted, committed, assigned, and unassigned. Net Position When both restricted and unrestricted resources are available for use, it is the government's policy to use restricted resources first and then unrestricted resources, as they are needed. Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassifications Certain amounts presented in the prior year have been reclassified in order to be consistent with the current year presentation. Such reclassifications have no effect on fund balance and net position previously reported. 39  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2016 2. STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY Budgets Budgets are adopted on a basis consistent with U.S. generally accepted accounting principles. Annual appropriated budgets are adopted by resolution for all governmental and proprietary funds. However, budgets for proprietary funds are not legally required to be reported on and are not included in these financial statements. All appropriations lapse at fiscal year-end except for appropriations related to multi-year capital projects. Budgetary data reflected in the financial statements are established by the following procedures: Prior to September 1 of each year, proposed budgets are received by the City Council from the City Manager. These proposed expenditures, along with all estimated receipts, taxes to be levied, and balances expected to be brought forward are considered by the City Council. The City Council requires such changes as deemed necessary, sets proposed mileages, and establishes dates for tentative and final public budget hearings as prescribed by Florida Statutes. Proposed budgets are advertised in a newspaper of general circulation in the City. Public hearings are conducted for the purposes of receiving input, responding to complaints, and providing reasons and explanations for intended actions to all citizens participating. Prior to October 1, the budget for all governmental and proprietary funds of the City is legally enacted through passage of a resolution. Budget amendments are periodically passed via resolutions throughout the fiscal year. Budgeted beginning fund balance in the accompanying financial statements reflects planned utilization of prior years' unassigned fund balance to the level required to accomplish current year objectives. The level of budgetary control (that is the level at which expenditures cannot legally exceed appropriations) has been established at the fund level. The City Manager and Finance Director are authorized to transfer budgeted amounts within departments of a fund and between departments of a fund; however, any revisions that alter the total expenditures of any fund must be approved by the City Council. Budget amounts reflected in the financial statements are originally adopted amounts as amended by action of the City Council by revision of fund totals. All amendments to originally adopted amounts were made in a legally permissible manner. Encumbrances Encumbrances represent commitments related to unperformed contracts for goods or services. Encumbrance accounting, under which purchase orders, contracts, and other commitments for the expenditure of resources are recorded in order to reserve that portion of the applicable appropriation, is employed in the governmental funds. Encumbrances outstanding at year-end are reported as designations of fund balances and do not constitute expenditures or liabilities because the commitments will be re-appropriated and honored during the subsequent year. 40  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2016 3. DEPOSITS AND INVESTMENTS The City maintains a cash and investment management pool in which each fund (with the exception of the Community Development Block Grant Special Revenue Fund and the pension trust funds) participates on a dollar equivalent and daily transaction basis. The City's cash and investment management pool includes pooled cash maintained in interest-bearing demand deposit accounts, and pooled investments managed by a financial institution. Interest income (which includes unrealized gains and losses) is distributed monthly based on the average balances. Deposits Custodial Credit Risk – It is the City's policy to maintain its deposits only with "Qualified Public Depositories" as defined in Chapter 280, Florida Statutes. The provisions of this statute allow qualified public depositories to participate in a multiple financial institution collateral pool to ensure the security for public deposits. All qualified public depositories must place with (or in the name of) the Chief Financial Officer of the State of Florida, collateral in the amount of the average daily balance of public deposits multiplied by the average monthly balance of public deposits or 125 percent of the average daily balance of public deposits greater than capital. In the event of default by a qualified public depository, excess losses over insurance and collateral will be recovered through assessments to all qualified public depositories of the same type as the depository in default. Under this method, all City deposits, including certificates of deposit, are considered fully insured. As of September 30, 2016, the value of the City's deposits was $7,439,781, all of which was held by qualified public depositories or permitted investments under Chapter 280, Florida State. Investments As of September 30, 2016, the City's investments consist of the pooled investments held by each fund to maximize earnings on surplus cash, those held in the various pension trust funds and the Beal Memorial Cemetery Perpetual Care special revenue fund. The types of investments, which can be made by the City, are restricted by State Statutes, retirement fund plan documents, and other contractual agreements. A description of the requirements and the types of investments allowed can be found in Note 1. 41  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2016 3. DEPOSITS AND INVESTMENTS – CONTINUED Investments – Continued As of September 30, 2016, the City held the following investments and related maturities: INVESTMENT MATURITIES (YEARS) Fair Value <1 1-5 5-10 10-15 15-20 20-25 25-30 >30 Investments subject to interest rate risk Corporate debt $ 15,667,248 $ 4,456,741 $ 9,260,949 $ 1,787,355 $ 162,203 $ - $ - $ - $ - Municipal debt 487,103 - 487,103 - - - - - - U.S. Treasury 8,234,065 - 4,545,464 - - - - 3,688,601 - U.S. Government Agencies 11,953,918 2,261,456 9,692,462 - - - - - - U.S. Government Agency Pools 5,782,405 - 756,431 3,434,270 586,193 871,818 133,693 - - 42,124,739 $ 6,718,197 $ 24,742,409 $ 5,221,625 $ 748,396 $ 871,818 $ 133,693 $ 3,688,601 $ - Investments not subject to interest rate risk Money market funds 86,391 Corporate equities 29,101,531 Mutual and exchange- traded funds 25,371,049 Total $ 96,683,710 Interest Rate Risk – The City's investment policy encourages matching investment maturities with known cash needs and anticipated cash flow requirements in order manage interest rate risk. Investments of current operating funds shall have maturities of no longer than 24 months. Investments of bond reserves, construction funds, and other non-operating funds shall have a term appropriate to the need for funds and in accordance with debt covenants, but in no event shall the investment duration of these funds exceed five years. The investment policies for the pension trust funds do not specifically address interest rate risk. Credit Rate Risk – State law limits investments of surplus public funds to those investments described on the previous page. The table below outlines the authorized investments of the pension trust funds. General Police Employees' Officers' Firefighters' Retirement Retirement Retirement Investment Type Fund Fund Fund Minimum rating of Limited to obligations Minimum rating of Money Market or short-term A1 by S&P or backed by full faith & A1 by S&P or investment fund (STIF) options P1 by Moody's credit of US government P1 by Moody's Minimum rating in one Mininum rating of Minimum rating in one of Fixed-income securities of the four highest "investment grade" or the four highest classifications by a higher by a major rating classifications by a major major rating service service rating service 1 (1) No more than 5% of the total portfolio may be invested in securities that fall below these rating guidelines. 42  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2016 3. DEPOSITS AND INVESTMENTS – CONTINUED Investments – Continued Credit Rate Risk – Continued – All pension trust funds were in compliance with respective investment policies regarding credit rate risk as of September 30, 2016. The Moody's rating ranges of the different investment classes held by each respective plan at September 30, 2016, are as follows: General Pension Police Pension Plan Plan Fire Pension Plan Money market funds N/A N/A N/A Corporate debt A1-Baa3 Aa1-Baa3 A1-Baa3 U.S. Treasury Aaa Aaa Aaa U.S. government agencies Aaa Aaa Aaa U.S. government 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). 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 market value.  Other Limitations – Investments in corporate common stock and convertible bonds shall not exceed 75% of the Plan’s assets at market value, and foreign securities shall not exceed 25% of the Plan’s market value. 43  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2016 3. DEPOSITS AND INVESTMENTS – CONTINUED Investments – Continued Concentration of Credit Risk – Continued 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 market value.  Other Limitations – Investments in corporate common stock and convertible bonds shall not exceed 70% of the Plan’s assets at market value, and foreign securities shall not exceed 25% of the Plan’s market value. All pension trust fund plans were in compliance with respective investment policies regarding concentration of credit risk as of September 30, 2016. The Beal Memorial Cemetery investment policy limits investment concentrations as follows:  Domestic Equities – No more than 5% of the total equity portfolio valued at market 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 valued at market may be held in any one sector.  International Equities – No more than 5% of the total equity portfolio valued at market 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 valued at market 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. 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. 44  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2016 4. FAIR VALUE MEASUREMENTS – CONTINUED The following table presents the investments carried at fair value on September 30, 2016: Fair Value Level 1 Level 2 Level 3 Money market funds $ 86,391 $ 86,391 $ - $ - Debt securities U.S. Treasury bonds 8,234,065 8,234,065 - - U.S. Government Agency obligations 11,953,918 6,019,438 5,934,480 - U.S. Government Agency collateralized mortgage obligations (CMO's) 5,782,405 5,782,405 - - Corporate bonds 15,667,248 4,366,235 11,301,013 Municipal bonds 487,103 - 487,103 - Total debt securities 42,124,739 24,402,143 17,722,596 - Equity securities and commingled funds Domestic common stock 22,893,076 22,893,076 Foreign common stock 69,365 69,365 Exchange-traded funds 27,344 27,344 Mutual funds 25,343,705 22,881,204 2,462,501 * Commingled real estate investment funds 6,139,090 - - Total equity securities and commingled funds 54,472,580 45,870,989 2,462,501 - Total investments measured at fair value $ 96,683,710 $ 70,359,523 $ 20,185,097 $ - * 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. 5. RECEIVABLES Receivables at September 30, 2016, were as follows: Governmental Activities Business-Type Activities Community Other Other Redevelop- Gov't Proprietary General ment Fund Funds Utilities Sanitation Funds Total Taxes $ 18,617 $ - $ - $ - $ - $ - $ 18,617 Accounts 102,489 2,196 - 670,245 210,012 51,575 1,036,517 Less allowance for doubtful accounts - - - (41,539) (9,314) (3,006) (53,859) Assessments 46,808 354,958 - 7,178 - - 408,944 Other 787,100 - - - - - 787,100 Total receivables, net $ 955,014 $ 357,154 $ - $ 635,884 $ 200,698 $ 48,569 $ 2,197,319 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 $232,362 due to the City in October 2026. The balance of this note receivable is $416,100 as of September 30, 2016. 45  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2016 5. RECEIVABLES – CONTINUED 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 $371,000 as of September 30, 2016. Due from Other Governments The City's receivables from other governments for governmental activities as of September 30, 2016, are $381,168. Due from other governments in the governmental activities consists primarily of federal proceeds related to the Federal Emergency Management Agency (FEMA) grant as well as state proceeds related to Department of Transportation road maintenance contracts. The City's receivables from other governments for business-type as of September 30, 2016, are $504,288 which consists of primarily of state proceeds related to stormwater system improvement grants. 46  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2016 6. CHANGES IN CAPITAL ASSETS Capital asset activity for the year ended September 30, 2016, was as follows: Beginning Adjustments/ Ending Balance Increases Decreases Transfers Balance Governmental activities Capital assets not being depreciated/amortized Land $ 11,048,842 $ - $ - $ - $ 11,048,842 Construction in progress 804,559 66,888 - (784,808) 86,639 Total capital assets not being depreciated/amortized 11,853,401 66,888 - (784,808) 11,135,481 Capital assets being depreciated/amortized Buildings 23,101,138 57,035 - 540,235 23,698,408 Improvements other than buildings 16,948,453 644,514 (187,228) 492,707 17,898,446 Infrastructure 12,864,676 130,837 - (59,648) 12,935,865 Software 516,184 5,007 - - 521,191 Machinery and equipment 11,118,386 1,201,405 (356,085) 179,655 12,143,361 Equipment under capital lease 127,164 - - - 127,164 Total capital assets being depreciated/amortized 64,676,001 2,038,798 (543,313) 1,152,949 67,324,435 Less accumulated depreciation/amortization Buildings (9,537,317) (701,770) - - (10,239,087) Improvements other than buildings (10,245,965) (770,187) 187,228 - (10,828,924) Infrastructure (8,911,027) (339,633) - 59,648 (9,191,012) Software (447,362) (79,264) - 17,862 (508,764) Machinery and equipment (7,429,610) (793,373) 356,085 (152,469) (8,019,367) Equipment under capital lease (8,409) (23,453) - (17,862) (49,724) Total accumulated depreciation/amortization (36,579,690) (2,707,680) 543,313 (92,821) (38,836,878) Total capital assets being depreciated/amortized, net 28,096,311 (668,882) - 1,060,128 28,487,557 Governmental activities, net $ 39,949,712 $ (601,994) $ - $ 275,320 $ 39,623,038 47  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2016 6. CHANGES IN CAPITAL ASSETS – CONTINUED Beginning Adjustments/ Ending Balance Increases Decreases Transfers Balance Business-type activities Capital assets not being depreciated/amortized Land $ 709,678 $ - $ - $ - $ 709,678 Construction in progress 399,860 533,245 - (433,707) 499,398 Easements 34,642 - - - 34,642 Total capital assets not being depreciated/amortized 1,144,180 533,245 - (433,707) 1,243,718 Capital assets being depreciated/amortized Buildings 493,876 - (81,977) 411,899 Improvements other than buildings 44,605,969 1,668,979 (1,642) 337,210 46,610,516 Software 111,216 - - - 111,216 Machinery and equipment 9,999,302 543,698 (436,250) 117,625 10,224,375 Total capital assets being depreciated/amortized 55,210,363 2,212,677 (519,869) 454,835 57,358,006 Less accumulated depreciation/amortization Buildings (364,541) (14,133) 81,977 - (296,697) Improvements other than buildings (14,020,093) (1,509,747) 1,642 - (15,528,198) Software (47,392) (9,338) - - (56,730) Machinery and equipment (5,949,366) (790,799) 255,639 15,192 (6,469,334) Total accumulated depreciation/amortization (20,381,392) (2,324,017) 339,258 15,192 (22,350,959) Total capital assets being depreciated/amortized, net 34,828,971 (111,340) (180,611) 470,027 35,007,047 Business-type activities, net $ 35,973,151 $ 421,905 $ (180,611) $ 36,320 $ 36,250,765 Amortization of equipment under capital lease is included with depreciation expense in the financial statements. Depreciation and amortization expense was charged to functions/programs of the primary government as follows: Governmental activities General government $ 160,848 Public safety 650,532 Physical environment 83,859 Transportation 631,926 Economic environment 106,646 Culture and recreation 1,073,869 Total depreciation/amortization expense – governmental activities $ 2,707,680 48  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2016 6. CHANGES IN CAPITAL ASSETS – CONTINUED Business-type activities Utilities fund $1,941,248 Sanitation fund 308,457 Other proprietary funds 74,312 Total depreciation/amortization expense – business-type activities $2,324,017 Construction Commitments During fiscal year 2016 multiple projects to improve the City’s recreational facilities were begun. These projects included construction of sand volleyball courts and installation of field netting at the recreation complex, and upgrading the lighting at Jet Stadium. The table below summarizes the City’s cost incurred for each project as of September 30, 2016, and the total estimated cost to complete each project: Costs Estimated Incurred as Total of 9/30/16 Project Cost Sand volleyball courts at recreation complex $ 17,109 $ 110,000 Field netting at recreation complex 26,239 40,000 Jet Stadium lighting 33,280 44,000 $ 76,628 $ 194,000 These projects were funded with contingency funds and General Fund reserves. The barrier net installation and Jet Stadium lighting upgrades are scheduled to be completed in early 2017. Additional work on the volleyball courts will begin in late 2017 with completion expected in fiscal year 2018. The City utilizes reclaimed water to irrigate the municipal golf course. During fiscal year 2016, the reuse pump station was deemed to be outdated, unsafe, and inefficient. Replacement of the pump station began in August 2016. To date $276,536 has been spent on the replacement with an estimated total cost of $330,000. Funding for this project was provided by Utility Fund revenues. Completion is expected in the first quarter of fiscal year 2017. During fiscal year 2016, the City began a project to improve the stormwater system along U.S. Highway 98. To date, $43,290 has been spent with an estimated total cost of $964,000. This project is funded by a Florida Department of Environmental Protection grant and is projected to be completed in the spring of 2017. 49  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2016 7. DEFERRED OUTFLOWS OF RESOURCES AND DEFERRED INFLOWS OF RESOURCES As of September 30, 2016, the City had various components of deferred outflows of resources and deferred inflows of resources as follows: Governmental activities: Community Redevelopment Governmental General Fund Fund Activities Deferred outflows City pension contributions made subsequent to the measurement date $ - $ - $ 2,210,491 Net difference between projected and actual earnings on pension plan investments - - 3,794,502 Total deferred outflows $ - $ - $ 6,004,993 Deferred inflows Net difference between expected and actual experience with regard to economic or demographic assumptions $ - $ - $ 1,171,795 Unavailable revenue – special assessments 46,808 354,958 - Unavailable revenue – long-term receivable from sale of buildings 787,100 - - Total deferred inflows $ 833,908 $ 354,958 $ 1,171,795 Business-type activities: Sanitation Other Enterprise Business-Type Utilities Fund Fund Fund – Non-Major Activities Deferred outflows City pension contributions made subsequent to the measurement date $ 261,024 $ 105,278 $ 24,872 $ 391,174 Deferred loss on refunding 94,019 - - 94,019 Net difference between projected and actual earnings on pension plan investments 457,517 184,529 43,596 685,642 Total deferred outflows $ 812,560 $ 289,807 $ 68,468 $ 1,170,835 Deferred inflows Net difference between expected and actual experience with regard to economic or demographic assumptions $ 146,034 $ 58,899 $ 13,915 $ 218,848 8. DEFINED BENEFIT PENSION PLANS The City of Fort Walton Beach, Florida sponsors three single–employer defined benefit pension plans: the General Employees' Retirement Fund (GERF), Police Officers' Retirement Fund (PORF) and the Firefighters' Retirement Fund (FRF). These plans provide benefits for all qualifying employees of the City. The financial activity of each plan is reported as a Pension Trust Fund in the City of Fort Walton Beach, Florida's internal combined financial statements and can be found under subheading “Fund Financial Statements” of this note. There is no separate report available for the individual pension plans. 50  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2016 8. DEFINED BENEFIT PENSION PLANS – CONTINUED Plan Description – General Employees’ Retirement Fund (GERF) Plan Administration The authority and responsibility for the establishment, amendment and administration of this Plan is vested in the City Council, and the Members thereof shall be designated as trustees of the fund. The trustees are authorized to adopt reasonable rules and regulations for the administration of the fund created by this Plan. The Plan is a single-employer defined benefit pension plan administered by the City’s Finance Director. The Finance Director shall administer this Plan for the trustees and participants, subject at all times to the limitations and conditions specified in or imposed by provisions of this Plan and the rules and regulations adopted by the City Council. The trustees and the plan administrator shall serve without additional compensation beyond that already provided by the City for their respective duties. All full-time City employees including the City Manager, Finance Director, and the Chief of Police, if they elect to participate, but not including City Council Members, police officers other than the Chief of Police, and firefighters. Effective January 1, 2010, the plan is closed to new entrants. Plan Membership as of October 1, 2015: Inactive Plan Members or Beneficiaries Current Receiving Benefits 144 Inactive Plan Members Entitled to But Not Yet Receiving Benefits 43 Active Plan Members 102 289 Benefits Provided The plan provides retirement, termination, disability and death benefits. A member may retire at age 52 with 10 years of credited service (early retirement) or at age 62 and 10 years of credited service (normal retirement). Benefits become 100% vested upon completion of 10 years of credited service. For the City Manager, Finance Director, or Department Heads, including the Chief of Police, the Member becomes vested at 20% per year, except that credited service other than that as a Charter Officer or Department Head will accrue at a rate of 10% per year. Retirement benefits are a percentage (2.75% or 2.50%) of final average earnings times the years of credited service with maximum of 75% or 100% of current compensation depending on vested status at April 5, 1999. Benefits are reduced by 3% for each year by which the early retirement date precedes the age of 62. Varied benefits exist for service and non-service connected disabilities as well as death in the line of duty or other pre-retirement death. In accordance with the annual increase in CPI-U as measured in December, all retirees are entitled to an adjustment payable each April 1, subject to a minimum of 0% and a maximum of 3%. The adjustment does not apply to members who retire following a vested terminated status or disability retirees. 51  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2016 8. DEFINED BENEFIT PENSION PLANS – CONTINUED Plan Description – GERF – Continued Funding Policy and Contributions Both the City and the employees (at a rate of 5.0% of payroll) make contributions to the Plan. For fiscal year 2016, employees contributed $202,268 to the Plan. The City is required to contribute at an actuarially determined rate: the contribution rate for 2016 was 29.6% of payroll. The annual required contributions for the current fiscal year was determined as part of the October 1, 2014 actuarial valuation updated to September 30, 2015 using the entry age normal actuarial cost method. Net Pension Liability – GERF Actuarial Assumptions The total pension liability was determined by an actuarial valuation as of October 1, 2015 updated to September 30, 2016 using the following actuarial assumptions: Inflation 3.00% Salary Increases 3.50% - 6.50%* Discount Rate 7.90% Investment Rate of Return 7.90% *Increase is inclusive of a 3% wage inflationary assumption. Mortality rates for healthy lives were obtained from the RP-2000 Sex-Distinct Healthy Mortality Table, without projection. For disabled lives, the Social Security Study #74 Mortality Table, without projection, was utilized. 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 expenses and inflation) 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. For 2016, the inflation rate assumption of the investment advisor was 2.50% Best estimates of arithmetic real rates of return for each major asset class included in the pension plan's target asset allocation as of September 30, 2015 are summarized in the following table: Long Term Expected Asset Class Target Allocation Real Rate of Return Domestic Equity 55.00% 7.5% International Equity 10.00% 8.5% Broad Market Fixed Income 25.00% 2.5% Real Estate 10.00% 4.5% Total 100% 52  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2016 8. DEFINED BENEFIT PENSION PLANS – CONTINUED Net Pension Liability – GERF – Continued Discount Rate The discount rate used to measure the total pension liability was 7.90%. The projection of cash flows used to determine the discount rate assumed that Plan Member contributions will be made at the current contribution rate and that Sponsor contributions will be made at rates equal to the difference between actuarially determined contribution rates and the Member rate. Based on those assumptions, the pension 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 pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. Increase (Decrease) Total Pension Plan Fiduciary Net Pension Liability Net Position Liability (Asset) (a) (b) (a) – (b) Balances at September 30, 2015 (Valuation Date of 10/01/2014) $ 42,730,211 $ 39,242,244 $ 3,487,967 Changes: Service cost 569,712 - 569,712 Interest 3,314,990 - 3,314,990 Differences between Expected and Actual experience (1,074,244) (1,074,244) Contributions – employer - 1,355,041 (1,355,041) Contributions – employee - 209,567 (209,567) Net investment income - (4,390) 4,390 Benefit payments, including refunds of employee contributions (2,676,038) (2,676,038) - Administrative expenses - (39,535) 39,535 Net changes during 2014-15 134,420 (1,155,355) 1,289,775 Balances at September 30, 2016 (Measurement Date of 9/30/2015) $ 42,864,631 $ 38,086,889 $ 4,777,742 Sensitivity of the Net Pension Liability to changes in the Discount Rate: Current Discount 1% Decrease Rate 1% Increase 6.90% 7.90% 8.90% Sponsor's Net Pension Liability $ 9,143,181 $ 4,777,742 $ 1,050,144 Pension Plan Fiduciary Net Position Detailed information about the pension Plan's fiduciary net position is available in a separately issued Plan financial report. A separate audited financial report of the Plan is not available. 53  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2016 8. DEFINED BENEFIT PENSION PLANS – CONTINUED Pension Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions – GERF For the year ended September 30, 2016, the City recognized pension income of $434,206. On September 30, 2016, the City reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Deferred Outflows of Inflows of Resources Resources City contributions subsequent to measurement date $ 1,280,082 $ - Net difference between Projected and Actual earnings on pension Plan investments 2,243,702 - Net difference between Expected and Actual experience with regard to economic or demographic assumptions - 716,163 Total $ 3,523,784 $ 716,163 Deferred outflows of resources related to pensions of $1,280,082 resulting from the City’s contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability for the year ending September 30, 2016. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense as follows: Year ended September 30: 2017 $ 185,882 2018 185,882 2019 543,963 2020 611,812 $ 1,527,539 Plan Description – Police Officers’ Retirement Fund (PORF) Plan Administration The Police Officers’ Retirement Board of Trustees (Police Board) is designated as the plan administrator. The Police Board shall consist of five Trustees, two of whom, unless otherwise prohibited by law, shall be legal residents of the City, who shall be appointed by the City Council, and two of whom shall be Members of the System, who shall be elected by a majority of the Police Officers who are Members of the System. The fifth Trustee shall be chosen by a majority of the previous four Trustees as provided for herein, and such person's name shall be submitted to the City Council who shall, as a ministerial duty, appoint such person to the Police Board as its fifth Trustee. 54  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2016 8. DEFINED BENEFIT PENSION PLANS – CONTINUED Plan Description – PORF – Continued Each person employed by the City’s police department as a full-time police officer becomes a member of the Plan as a condition of his employment. All police officers are therefore eligible for plan benefits as provided for in the plan document and by applicable law. Plan Membership as of October 1, 2015: Inactive Plan Members or Beneficiaries Currently Receiving Benefits 45 Inactive Plan Members Entitled to But Not Yet Receiving Benefits 13 Active Plan Members 42 100 Benefits Provided The plan provides retirement, termination, disability and death benefits. A member may retire at age 50 with 10 years of credited service or completion of 25 years of credited service (early retirement) or at age 55 or the completion of 30 years of credited service (normal retirement). Members hired between ages 45 and 50 must work 10 years. Benefits become 100% vested upon completion of 10 years of credited service. The plan provides retirement benefits in the amount of 2.75% of average final compensation times credited service. Benefits are reduced 6% for each year prior to the age of 55. Varied benefits exist for disability and pre-retirement death. Each April 1 the benefit paid to service retires is adjusted in accordance with the CPI increase during the previous year not to exceed 3%. Contributions The City, the State of Florida, and employees (at 5.0% of payroll until a 75% maximum accrual is attained and then 0.5% thereafter) make contributions to the Plan. For fiscal year 2016, employees contributed $102,214 to the Plan. The State of Florida makes contributions based on tax premiums assessed on property insurance of 0.85%. For fiscal year 2016, the State contributed $181,303 to the Plan. The City is required to contribute at an actuarially determined rate: the contribution rate for 2016 was 26.2% of payroll. The annual required contribution for the current fiscal year was determined as part of the October 1, 2014 actuarial valuation updated to September 30, 2015 using the entry age normal actuarial cost method. Net Pension Liability – PORF The City’s net pension liability was measured as of September 30, 2015, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation. Actuarial Assumptions The total pension liability was determined by an actuarial valuation as of October 1, 2014 updated to September 30, 2015 using the following actuarial assumptions: Inflation 3.00% Salary increases 3.00% – 10.00% Discount rate 8.00% Investment rate of return 8.00% 55  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2016 8. DEFINED BENEFIT PENSION PLANS – CONTINUED Net Pension Liability – PORF – Continued Mortality rates are obtained from the RP-2000 Sex-Distinct Combined Healthy Mortality Table. For disabled lives, these mortality rates are set forward five years. Based upon other studies of municipal police officers, management feels this assumption sufficiently accommodates future mortality improvements. The actuarial assumptions used in the October 1, 2015 valuation were based on the results of an actuarial experience study for the period 1991-2012. 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 expenses and inflation) 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 as of September 30, 2015 are summarized in the following table: Long Term Expected Asset Class Target Allocation Real Rate of Return Domestic equity 45% 7.5% International equity 15% 8.5% Broad market fixed income 40% 2.5% Total 100% Discount Rate The discount rate used to measure the total pension liability was 8.00 percent. The projection of cash flows used to determine the discount rate assumed that plan member contributions will be made at the current contribution rate and that sponsor contributions will be made at rates equal to the difference between actuarially determined contribution rates and the member rate. Based on those assumptions, the pension 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 pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. 56  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2016 8. DEFINED BENEFIT PENSION PLANS – CONTINUED Changes in Net Pension Liability – PORF Increase (Decrease) Total Pension Plan Fiduciary Net Pension Liability Net Position Liability (Asset) (a) (b) (a) – (b) Balances at September 30, 2015 (Valuation Date of 10/01/2014) $ 25,008,402 $ 20,463,452 $ 4,544,950 Changes: Service cost 336,234 - 336,234 Interest 1,953,123 - 1,953,123 (1) Contributions – employer - 628,975 (628,975) Contributions – state - 175,025 (175,025) Contributions – employee - 101,886 (101,886) Net investment income - (538,198) 538,198 Differences between Expected and Actual experience (659,966) (659,966) Benefit payments, including Refunds of employee contributions (1,655,069) (1,655,069) - Administrative expenses - (25,084) 25,084 Net changes during 2014-15 (25,678) (1,312,465) 1,286,787 Balances at September 30, 2016 (Measurement Date of 9/30/2015) $ 24,982,724 $ 19,150,987 $ 5,831,737 Sensitivity of the Net Pension Liability to changes in the Discount Rate: Current Discount 1% Decrease Rate 1% Increase 7.00% 8.00% 9.00% Sponsor's Net Pension Liability (Asset) $ 8,584,722 $ 5,831,737 $ 3,566,528 Pension Plan Fiduciary Net Position Detailed information about the pension Plan's fiduciary net position is available in a separately issued Plan actuarial report. A separate audited financial report of the Plan is not available. (1) Adjusted for actual contributions made. 57  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2016 8. DEFINED BENEFIT PENSION PLANS – CONTINUED Pension Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions – PORF For the year ended September 30, 2016, the City recognized pension expense of $46,900. On September 30, 2016, the City reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Deferred Outflows of Inflows of Resources Resources City contributions subsequent to measurement date $ 577,564 $ - Net difference between Projected and Actual earnings on pension Plan investments 1,498,890 - Net difference between Expected and Actual experience with regard to economic or demographic assumptions 494,975 Total $ 2,076,454 $ 494,975 Deferred outflows of resources related to pensions of $577,564 resulting from the City’s contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ending September 30, 2016. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense as follows: Year ended September 30: 2017 $ 191,770 2018 191,769 2019 191,769 2020 428,607 $ 1,003,915 Plan Description – Firefighters’ Retirement Fund (FRF) Plan Administration The Plan is administered by the Firefighters’ Retirement Board of Trustees (Fire Board) comprised of: a. Two members of the fund elected by a majority of the membership, b. Two City residents appointed by the City Council, c. Fifth member elected by other four and appointed by City Council as a ministerial duty. Each person employed by the City’s fire department as a full-time firefighter becomes a member of the plan as a condition of this employment. All firefighters are therefore eligible for plan benefits as provided for in the plan document and by applicable law. 58  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2016 8. DEFINED BENEFIT PENSION PLANS – CONTINUED Plan Description – FRF – Continued Plan Membership as of October 1, 2015: Inactive Plan Members or Beneficiaries Currently Receiving Benefits 26 Inactive Plan Members Entitled to But Not Yet Receiving Benefits 2 Active Plan Members 35 63 Benefits Provided The plan provides retirement, disability and death benefits. A member may retire at age 45 with 10 years of credited service (early retirement) or at age 55 and 10 years of credited service or 25 years of credited service regardless of age (normal retirement). Benefits become 100% vested upon completion of 10 years of credit service. The plan provides a retirement benefit which is 3.25% of average final compensation times credited service with maximum of 100% of current compensation. Benefits are reduced 0.25% for each month prior to the normal retirement date. Varied benefits exist for disability and pre-retirement death. Benefits for service retirees are adjusted for a 3% cost of living increase on the January 1 following the later of age 58 or the date of retirement. Contributions The City, the State of Florida, and employees (at 8.0% of salary) make contributions to the Plan. For fiscal year 2016, employees contributed $164,876 to the Plan. The State of Florida makes contributions based on tax premiums assessed on property insurance of 1.85%. For fiscal year 2016, the State contributed $201,904 to the Plan. The City is required to contribute at an actuarially determined rate: the contribution rate for 2016 was 29.6% of payroll. The annual required contribution for the current fiscal year was determined as part of the October 1, 2014 actuarial valuation updated to September 30, 2015 using the entry age normal actuarial cost method. Net Pension Liability – FRF The City’s net pension liability was measured as of September 30, 2015, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation. Actuarial Assumptions The total pension liability was determined by an actuarial valuation as of October 1, 2014 updated to September 30, 2015 using the following actuarial assumptions: Inflation 3.00% Salary increases 6.50% Discount rate 8.00% Investment rate of return 8.00% Mortality rates are obtained from the RP-2000 Combined Healthy Mortality Table. For disabled lives, these mortality rates are set forward 5 years. Based upon other studies of municipal firefighters, management feels this assumption sufficiently accommodates future mortality improvements. 59  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2016 8. DEFINED BENEFIT PENSION PLANS – CONTINUED Net Pension Liability – FRF – Continued The long-term expected rate of return on pension plan investments was determined using a building- block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expenses and inflation) 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 as of September 30, 2015 are summarized in the following table: Long Term Expected Asset Class Target Allocation Real Rate of Return Domestic equity 45% 7.50% International equity 15% 8.50% Broad market fixed income 30% 2.50% Real estate 10% 4.50% Total 100% Discount Rate The discount rate used to measure the total pension liability was 8.00 percent. The projection of cash flows used to determine the discount rate assumed that plan member contributions will be made at the current contribution rate and that sponsor contributions will be made at rates equal to the difference between actuarially determined contribution rates and the member rate. Based on those assumptions, the pension 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 pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. 60  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2016 8. DEFINED BENEFIT PENSION PLANS – CONTINUED Changes in Net Pension Liability – FRF Increase (Decrease) Total Pension Plan Fiduciary Net Pension Liability Net Position Liability (Asset) (a) (b) (a) – (b) Balances at September 30, 2015 (Valuation Date of 10/01/2014) $ 19,195,485 $ 13,662,320 $ 5,533,165 Changes: Service cost 478,365 - 478,365 Interest 1,554,072 - 1,554,072 Contributions – employer - 672,369 (672,369) Contributions – state - 205,007 (205,007) Contributions – employee - 150,357 (150,357) Contributions – buy back 72,413 72,413 - Net investment income - 15,562 (15,562) Changes of benefit terms 804,097 - 804,097 Differences between Expected and Actual experience (224,382) - (224,382) Benefit payments, including refunds of employee contributions (1,140,432) (1,140,432) - Administrative expenses - (47,088) 47,088 Net changes during 2014-15 1,544,133 (71,812) 1,615,945 Balances at September 30, 2016 (Measurement Date of 9/30/2015) $ 20,739,618 $ 13,590,508 $ 7,149,110 Sensitivity of the Net Pension Liability to changes in the Discount Rate: Current Discount 1% Decrease Rate 1% Increase 7.00% 8.00% 9.00% Sponsor's Net Pension Liability (Asset) $ 10,147,024 $ 7,149,110 $ 5,599,143 Pension Plan Fiduciary Net Position Detailed information about the pension Plan's fiduciary net position is available in a separately issued Plan actuarial report. A separate audited financial report of the Plan is not available. 61  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2016 8. DEFINED BENEFIT PENSION PLANS – CONTINUED Pension Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions – FRF For the year ended September 30, 2016, the City recognized a pension expense of $824,128. On September 30, 2016, the City reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Deferred Outflows of Inflows of Resources Resources City Contributions Subsequent to Measurement Date $ 744,019 $ - Net difference between Projected and Actual earnings on pension Plan investments 737,553 - Net difference between Expected and Actual experience with regard to economic or demographic assumptions - 179,505 Total $ 1,481,572 $ 179,505 Deferred outflows of resources related to pensions of $744,019 resulting from the City’s contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ending September 30, 2016. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense as follows: Year ended September 30: 2017 $ 129,378 2018 129,380 2019 129,380 2020 169,910 $ 558,048 62  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2016 8. DEFINED BENEFIT PENSION PLANS – CONTINUED Fund Financial Statements The following are the financial statements for the individual pension trust funds (GERF, PORF and FRF) for the year ended September 30, 2016: COMBINING STATEMENT OF PLAN NET POSITION Employee Retirement Funds Total General Police Employee Employees' Officers' Firefighters' Retirement Retirement Retirement Retirement Funds ASSETS Cash and cash equivalents $ 1,831,141 $ 655,636 $ 439,515 $ 2,926,292 Accounts receivable 6,977 3,287 6,630 16,894 Due from State of Florida - 181,303 2,851 184,154 Investments, at market U.S. Government and Agency obligations 6,274,949 5,757,744 3,457,750 15,490,443 Corporate obligations 1,904,238 1,553,773 908,224 4,366,235 Corporate equity 19,967,895 - 2,994,547 22,962,442 Mutual and exchange-traded funds 6,069,190 11,768,826 5,093,930 22,931,946 Commingled real estate investment funds 4,652,237 - 1,486,853 6,139,090 Total investments, at market 38,868,509 19,080,343 13,941,304 71,890,156 TOTAL ASSETS $ 40,706,627 $ 19,920,569 $ 14,390,300 $ 75,017,496 LIABILITIES Accounts payable $ 42,360 $ 33,924 $ 30,312 $ 106,596 NET POSITION RESTRICTED FOR PENSIONS $ 40,664,267 $ 19,886,645 $ 14,359,988 $ 74,910,900 63  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2016 8. DEFINED BENEFIT PENSION PLANS – CONTINUED Fund Financial Statements – Continued COMBINING STATEMENT OF CHANGES IN PLAN NET POSITION Employee Retirement Funds Total General Police Employee Employees' Officers' Firefighters' Retirement Retirement Retirement Retirement Funds ADDITIONS Contributions Employer $ 1,280,082 $ 577,564 $ 744,019 $ 2,601,665 Plan members 202,267 102,214 164,876 469,357 State of Florida - 181,303 201,904 383,207 Total contributions 1,482,349 861,081 1,110,799 3,454,229 Investment income (loss) 4,294,552 1,751,991 1,039,266 7,085,809 Less investment expense (234,843) (24,946) (49,167) (308,956) Net investment income (loss) 4,059,709 1,727,045 990,099 6,776,853 Miscellaneous revenue 24,863 6,790 3,294 34,947 TOTAL ADDITIONS 5,566,921 2,594,916 2,104,192 10,266,029 DEDUCTIONS Benefits and refunds paid Retirement payments 2,775,507 1,614,344 1,214,816 5,604,667 Disability payments 46,851 117,823 5,894 170,568 Other 36,513 14,477 27,514 78,504 Total benefits and refunds paid 2,858,871 1,746,644 1,248,224 5,853,739 Administrative expenses Legal 3,080 18,203 8,607 29,890 Contractual 52,570 39,269 37,108 128,947 Other 28,443 14,974 24,751 68,168 Total administrative expenses 84,093 72,446 70,466 227,005 TOTAL DEDUCTIONS 2,942,964 1,819,090 1,318,690 6,080,744 INCREASE IN PLAN NET POSITION 2,623,957 775,826 785,502 4,185,285 NET POSITION RESTRICED FOR PENSIONS Beginning of year 38,040,310 19,110,819 13,574,486 70,725,615 End of year $ 40,664,267 $ 19,886,645 $ 14,359,988 $ 74,910,900 64  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2016 9. DEFINED CONTRIBUTION PENSION PLAN City of Fort Walton Beach Defined Contribution Plan In December 2009, City Council closed the General Employees’ Defined Benefit Pension Plan. All general, full-time employees hired on or after January 1, 2010, are members of the Defined Contribution Retirement Plan (Plan). The Plan is a money purchase defined contribution retirement plan administered by ICMA Retirement Corporation, with the City serving as trustee. All funds are held in the ICMA Retirement Corporation Governmental Money Purchase Plan & Trust in the name of each participant. The City finance director serves as the coordinator for the Plan. The Plan requires a 5% payroll contribution by the employee with a 5% employer (City) match. Employees can increase their contribution; however, only an additional 2½% is eligible for City match. Members of the General Employees’ Defined Benefit Pension Plan, who were not fully or partially vested at the time the Plan was opened, were permitted to transfer their contributions to the Plan as a one–time, irrevocable election. The Plan participants individually select and make changes in funding options, which are made available by the independent plan administrator. Since participants select the investment fund or funds in which their deferred compensation accounts are invested, the City has no liability for investment losses. The authority for establishing and amending the Plan's provisions lies with the City Council. The City Council also has the authority for amending contribution requirements. Contributions made to the Plan by the employees and by the City were $168,815 and $168,815, respectively, for the year ending September 30, 2016. The City’s contributions vest 20% each year beginning after one year of employment. Participants are fully vested after 5 years of service. 10. DEFERRED COMPENSATION PLAN The City offers employees a deferred compensation plan created in accordance with Internal Revenue Code Section 457 (Plan). The Plan is a tax–deferred supplemental retirement program that allows City employees to contribute a portion of their salary, before federal income taxes, to a retirement account. The assets are held in trust for the employees’ benefit. The Plan participants individually select and make changes in funding options, which are made available by the independent plan administrator. Since participants select the investment fund or funds in which their deferred compensation accounts are invested, the City has no liability for investment losses. The City’s fiduciary responsibility is to administer the Plan properly and to assure the investment alternatives made available are reasonable. Assets of the plan have a fair value of $2,682,652 at September 30, 2016. Contributions made by plan members during the year ended September 30, 2016, were $153,164. 65  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2016 11. OTHER POST EMPLOYMENT BENEFITS (OPEB) The latest actuarial valuation was performed as of October 1, 2014. GASB Statement No. 45 allows for actuarial valuations to be performed biennially with results applicable for two reporting years. Unless otherwise noted, the following disclosures are represented as of September 30, 2016: Plan Description Pursuant to Section 112.0801, Florida Statutes, the City is mandated to permit eligible retirees (as defined in the City's pension plans) and their eligible dependents to participate in the health insurance program at a cost to the retiree that is no greater than the cost at which coverage is available for active employees. Retirees pay 100% of the blended (active and retiree combined) equivalent premium rates. The blended rates provide an implicit subsidy for retirees because, on an actuarial basis, their current and future claims are expected to result in higher costs to the plan on average than those of active employees. The City provides this benefit to its employees through a single- employer defined benefit plan. The plan does not issue a separate report. Funding Policy The City is financing the post employee benefits on a "pay-as-you-go" basis. Annual required contributions were $368,225 for the current fiscal year, towards which the City made a contribution of $174,411. Retiree contributions totaled $453,356 for the fiscal year ended September 30, 2016. At September 30, 2016, the City recorded a net OPEB obligation of $1,128,845 for governmental activities and $339,413 for business-type activities in its government–wide statement of net position. The OPEB obligation is a function of the annual required contribution, interest, adjustments to the annual required contribution, annual pension costs, and actual employers' contributions made to the plan. Membership At September 30, 2016, membership consisted of: Retirees and beneficiaries currently receiving benefits 99 Terminated employees entitled to benefits but not receiving them 0 Active employees 228 Total 327 Participating employers 1 Annual OPEB Cost and Net OPEB Obligation The City's annual OPEB cost (expense) is calculated based on the annual required contribution (ARC) of the employer, an amount actuarially determined in accordance with the parameters of GASB Statement No. 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal costs each year and amortize any unfunded actuarial liabilities (or funding excess) over a closed period not to exceed thirty years. 66  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2016 11. OTHER POST EMPLOYMENT BENEFITS (OPEB) – CONTINUED Annual OPEB Cost and Net OPEB Obligation – Continued The following table shows the components of the City's annual OPEB cost for the fiscal years ended September 30, 2016 and 2015, the amount actually contributed to the plan, and changes in the City's net OPEB obligation to the retiree health plan: Fiscal year ended 9/30/2016 9/30/2015 Annual required contributions $ 368,225 $ 357,654 Interest on net OPEB obligation 51,237 43,788 Adjustment to annual required contribution (57,724) (47,501) Annual OPEB cost (expense) total 361,738 353,941 Employer contributions (174,411) (167,728) Increase in net OPEB obligation 187,327 186,213 Net OPEB obligation – beginning of year 1,280,931 1,094,718 Net OPEB obligation – end of year $ 1,468,258 $ 1,280,931 For the governmental activities, the net other postemployment benefit obligation is generally liquidated by the General Fund. The amounts broken out by plan for the fiscal year ended September 30, 2016, are as follows: General Police Fire Total Annual required contribution $ 243,838 $ 75,388 $ 48,999 $ 368,225 Interest on net OPEB obligation 34,851 10,755 5,631 51,237 Adjustment to annual required contribution (39,513) (12,189) (6,022) (57,724) Annual OPEB cost 239,176 73,954 48,608 361,738 Estimated net contributions made (120,487) (36,374) (17,550) (174,411) Anticipated increase (decrease) in net OPEB obligation 118,689 37,580 31,058 187,327 Net OPEB obligation – beginning of year 871,265 268,880 140,786 1,280,931 Final net OPEB obligation – end of year $ 989,954 $ 306,460 $ 171,844 $ 1,468,258 67  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2016 11. OTHER POST EMPLOYMENT BENEFITS (OPEB) – CONTINUED Annual OPEB Cost and Net OPEB Obligation – Continued The City’s funded status as of the October 1, 2014 valuation date was as follows: 10/1/2014 Actuarial accrued liability (AAL) $ 4,437,530 Actuarial value of assets (AVA) - Unfunded actuarial accrued liability (UAAL) $ 4,437,530 Funded ratio 0.0% Covered payroll $ 7,981,236 Ratio of UAAL to covered payroll 55.6% For the October 1, 2014 valuation date, the funded status is broken out by plan as follows: General Police Fire Total Actuarial accrued liability (AAL) $ 3,045,188 $ 939,212 $ 453,130 $ 4,437,530 Actuarial value of assets (AVA) - - - - Unfunded actuarial accrued liability (UAAL) $ 3,045,188 $ 939,212 $ 453,130 $ 4,437,530 Funded ratio 0.0% 0.0% 0.0% 0.0% The City's annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for the past three years, were as follows: Three-Year Trend Information Net OPEB Annual OPEB City Percentage Obligation Year Ending Cost Contributions Contributed (Asset) 9/30/2016 $ 361,738 $ 174,411 48.21% $ 1,468,258 9/30/2015 353,941 167,728 47.39% 1,280,931 9/30/2014 503,210 275,495 54.75% 1,094,718 Funded Status and Funding Progress As of October 1, 2014, the most recent actuarial valuation date, the plan funded status was as follows: Actuarial Accrued UAAL as a Actuarial Liability Unfunded Annual % of Valuation Actuarial Value (AAL) Entry AAL (UAAL) Funded Covered Payroll Date of Assets (a) Age (b) (b-a) Ratio (a/b) Payroll (c) [c/(b-a)] October 1, 2014 N/A $ 4,437,530 $ 4,437,530 0.00% $ 7,902,214 56.16% October 1, 2013 N/A N/A N/A N/A N/A N/A October 1, 2012 N/A $5,651,699 5,651,699 0.00% 7,300,258 77.42% 68  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2016 11. OTHER POST EMPLOYMENT BENEFITS (OPEB) – CONTINUED Required Supplementary Information The Schedule of Funding Progress immediately following the notes to the financial statements presents multi-year trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits. The projection of future benefit payments for an ongoing plan involves estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multi- year trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. Actuarial Methods and Assumptions Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. Actuarial valuations involve estimates of the value of reported amounts and assumptions about the probability of events far into the future. Actuarially determined amounts are subject to continual revision as results are compared to past expectations and new estimates are made about the future. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. In the latest actuarial valuation as of October 1, 2014, the Individual Entry Age Normal Cost Method (level percentage of pay) was used. The actuarial assumptions included a 4% investment rate of return and an annual healthcare costs trend rate of 8.0% in FY15, which will be decreased to an ultimate rate of 4.50% beginning in fiscal year ending September 30, 2020. The investment rate of return included a 3% inflation assumption. The unfunded actuarial accrued liability is being amortized in a closed amortization, calculated as a level percent of payroll over a thirty year period. 12. 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; injuries to employees; employee medical benefits and natural disasters. The City purchases insurance through commercial carriers. Insurance coverage for workers’ compensation, liability, casualty, inland marine, flood, police accidental death, public officials’ bonds, fiduciary and fuel tanks were purchased from several commercial carriers during the year ended September 30, 2016. There has been no significant reduction in insurance coverage from the prior year. Commercial insurance coverage has been sufficient to cover all claims made in the prior three fiscal years. 69  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2016 13. OPERATING LEASES Lessor The City receives rental income from leasing various parcels of land under cancelable operating agreements. The lease periods vary from one to forty years. Income for the year ended September 30, 2016, was $317,981 in the General Fund, $12,000 in the Community Redevelopment Agency Fund, and $17,906 in the Utilities Fund. In addition, the City also leases a portion of its Golf Clubhouse for retail and food service operations. The rent received for this lease for the fiscal year ended September 30, 2016, totaled $73,438. Future minimum lease payments are as follows: Governmental Business-Type Year Ending September 30 Activities Activities 2017 $ 318,898 $ 18,448 2018 280,585 19,001 2019 323,103 19,571 2020 328,470 20,157 2021 334,221 20,750 Total minimum lease payments $ 1,585,277 $ 97,927 Lessee The City leases golf carts in the General Fund through an operating lease with Yamaha. The original lease term began on January 1, 2013 and was terminated on June 30, 2016. A new four-year lease was signed in August 2016 that expires on July 31, 2020. Under the new lease, monthly lease payments are $6,323 plus property tax paid by the lessor. Rent expense for the fiscal year ending September 30, 2016 was $96,180. Future minimum lease payments are as follows: Governmental Year Ending September 30 Activities 2017 $ 75,870 2018 75,870 2019 75,870 2020 63,225 Total minimum lease payments $ 290,835 The City leases golf course and parks grounds maintenance equipment and utility carts in the General Fund through operating leases with DLL Finance. The grounds maintenance equipment lease is a five-year lease that began on January 1, 2016 and expires on December 31, 2020. The utility cart lease is a four-year lease that began on September 1, 2016 and expires on August 31, 2020. Monthly rent payments under the lease agreements are $2,104 plus property taxes paid by the lessor. Rent expense for the fiscal year ending September 30, 2016 was $18,060. 70  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2016 13. OPERATING LEASES – CONTINUED Lessee – Continued Future minimum lease payments are as follows: Governmental Year Ending September 30 Activities 2017 $ 25,256 2018 25,256 2019 25,256 2020 24,421 2021 3,808 Total minimum lease payments $ 103,997 The City leases copiers in the General, Utilities, and Sanitation Funds through Great American Financial Services. The lease term began October 1, 2015 and expires on September 30, 2019. Monthly lease payments in each fund are as follows: General Fund: $1,383; Utilities Fund: $74; and Sanitation Fund: $38. Rent expense for each fund for the year ending September 30, 2016 was as follows: General Fund: $16,596; Utilities Fund: $888; and Sanitation Fund: $456. Future minimum lease payments are as follows: Business-Type Activities Governmental Year Ending September 30 Activities Utilities Sanitation 2017 $ 16,596 $ 888 $ 456 2018 16,596 888 456 2019 16,596 888 456 Total minimum lease payments $ 49,788 $ 2,664 $ 1,368 The City leases a postage machine in the General Fund through an operating lease with MailFinance. The lease term began on March 12, 2015 and expires on June 11, 2020. Quarterly rent payments are $687, and rent expense for the fiscal year ending September 30, 2016 was $2,748. Future minimum lease payments are as follows: Governmental Year Ending September 30 Activities 2017 $ 2,748 2018 2,748 2019 2,748 2020 1,374 Total minimum lease payments $ 9,618 71  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2016 14. CAPITAL LEASES The City has entered into a lease agreement for financing the acquisition of a telephone system and fitness equipment for its recreation complex. The lease agreements qualify as capital leases for accounting purposes as a result of the transfer of title or bargain purchase option and therefore have been recorded at the present value of the future minimum lease payments as of the inception date in the General Fund. The assets acquired through capital leases are as follows: Governmental Assets Activities Telephone system $ 103,784 Fitness equipment 67,774 Accumulated depreciation (49,723) Assets acquired by lease, net $ 121,835 The future minimum lease obligations and the net present value of these minimum lease payments as of September 30, 2016, are as follows: Governmental Year Ending September 30 Activities 2017 $ 39,993 2018 39,993 2019 37,905 2020 6,777 Total minimum lease payments 124,668 Less amount representing interest (18,015) Present value of minimum lease payments $ 106,653 72  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2016 15. LONG-TERM DEBT Changes in Long-Term Debt Liabilities The following is a summary of changes in long-term debt liabilities of the City for the year ended September 30, 2016: Beginning Ending Due Within Balance Additions Reductions Balance One Year Governmental activities Revenue notes payable $ 12,371,587 $ - $ (646,256) $ 11,725,331 $ 651,675 Capital leases 134,249 - (27,596) 106,653 30,555 Compensated absences 648,313 862,195 (876,363) 634,145 158,536 Total governmental activities $ 13,154,149 $ 862,195 $ (1,550,215) $ 12,466,129 $ 840,766 Beginning Ending Due Within Balance Additions Reductions Balance One Year Business-type activities Revenue notes payable $ 8,794,000 $ - $ - $ 8,794,000 $ 407,000 State revolving loans 15,312,458 - (655,529) 14,656,929 668,043 Compensated absences 175,376 212,794 (215,528) 172,642 43,162 Total business-type activities $ 24,281,834 $ 212,794 $ (871,057) $ 23,623,571 $ 1,118,205 73  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2016 15. LONG-TERM DEBT – CONTINUED Description of Long-Term Debt Outstanding Current Long-Term Total GOVERNMENTAL ACTIVITIES Revenue Notes $8,500,000 City of Fort Walton Beach, Florida, Capital Improvement Revenue Note, Series 2013A, 2.69% interest due semi annually and principal due annually ranging from $326,969 to $464,334 through 2027 with a balloon payment of $3,000,000 due in 2028. Budgeted and appropriated half cent sales tax is pledged for payment of the note. Proceeds used to finance the construction of the City's new recreational complex along with the purchase of a bucket truck and a grounds sweeper for City's municipal golf course. $ 356,081 $ 7,132,526 $ 7,488,607 $4,470,610 City of Fort Walton Beach, Florida, Capital Improvement Refunding Revenue Note, Series 2013, 2.30% interest due semi annually and principal due annually ranging from $187,659 to $299,010 through 2031. Available non ad valorem revenues are pledged for payment of the note. Proceeds used for refunding Series 2001 revenue bonds for construction of certain capital improvements. 219,874 3,639,402 3,859,276 $819,000 City of Fort Walton Beach, Florida, Capital Improvement Revenue Note, Series 2011, due in quarterly installments of $24,449 through April 2016 then $21,156 from June 2016 through April 2021; interest at 2.55%. Available non ad valorem revenues are pledged for payment of the note. Proceeds used for purchase of a fire truck and golf equipment. 75,720 301,728 377,448 Total revenue notes 651,675 11,073,656 11,725,331 Leases $103,784 capital lease payable, 2013, due in monthly installments of $2,088 through August 2019, collateralized by a the City's phone system. 18,021 42,104 60,125 $67,774 capital lease payable, 2015, due in quarterly installments of $3,734 through December 2019, collateralized by fitness equipment at the City's Recreation Complex. 12,534 33,994 46,528 Total leases 30,555 76,098 106,653 Accrued Compensated Absences Total long-term portion of accumulated, vested annual and sick leave for governmental fund types 158,536 475,609 634,145 TOTAL GOVERNMENTAL ACTIVITIES $ 840,766 $ 11,625,363 $ 12,466,129 74  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2016 15. LONG-TERM DEBT – CONTINUED Description of Long-Term Debt Outstanding – Continued Current Long-Term Total BUSINESS-TYPE ACTIVITIES Revenue Notes $8,794,000 Utility System Revenue Refunding Note, Series 2015, due in annual installments of $407,000 to $645,000 beginning July 2017 through July 2033, with interest only semi-annual payments from January 2016 through January 2017; stated interest at 2.92%. Net revenues derived by the City from the utility operations are pledged for the payment of the note. Proceeds used to refinance and refund the Utility System Revenue Bonds, Series 2005, which was for water system and wastewater system improvements. $ 407,000 $ 8,387,000 $ 8,794,000 State Revolving Loans $15,637,939 State of Florida Department of Environmental Protection Revolving Loan Fund; semi annual payments of $471,683 including interest at 1.90% beginning August 2015, through February 2035. Proceeds used for force main replacement, storage tank construction and pump station upgrades. 668,043 13,988,886 14,656,929 Accrued Compensated Absences Accumulated, vested annual compensation for Enterprise Funds 43,162 129,480 172,642 TOTAL BUSINESS-TYPE ACTIVITIES $ 1,118,205 $ 22,505,366 $ 23,623,571 GRAND TOTAL LONG-TERM DEBT $ 36,089,700 For the governmental activities, compensated absences are generally liquidated by the General Fund. 75  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2016 15. LONG-TERM DEBT – CONTINUED Annual Requirements to Amortize Debt Outstanding The annual requirements to amortize all debt outstanding except accrued and annual leave and advances from other funds as of September 30, 2016, are as follows: Governmental Activities Leases Revenue Notes Year Ending September 30 Principal Interest Principal Interest 2017 $ 30,555 $ 9,438 $ 651,675 $ 299,112 2018 33,881 6,112 664,711 282,526 2019 35,536 2,369 682,573 265,599 2020 6,681 96 700,401 248,217 2021 - - 697,037 230,379 2022-2026 - - 3,425,805 897,254 2027-2031 - - 4,903,129 274,531 Total $ 106,653 $ 18,015 $ 11,725,331 $ 2,497,618 Business-Type Activities Revenue Note State Revolving Loan Year Ending September 30 Principal Interest Principal Interest 2017 $ 407,000 $ 256,785 $ 668,043 $ 275,323 2018 419,000 244,900 680,796 262,570 2019 431,000 232,666 693,793 249,574 2020 444,000 220,080 707,038 236,329 2021 456,000 207,116 720,535 222,832 2022-2026 2,491,000 827,674 3,814,332 902,502 2027-2031 2,875,000 442,292 4,192,583 524,251 2032-2036 1,271,000 55,947 3,179,809 121,975 Total $ 8,794,000 $ 2,487,460 $ 14,656,929 $ 2,795,356 76  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2016 16. COMMENTS REQUIRED BY THE BOND AND ORDINANCES Capital Improvement Revenue Note, Series 2011 1. The balance sheet and statement of revenues, expenditures, and changes in fund balance of the Debt Service Fund are shown in the financial section of the report. 2. The City is required to establish sinking fund amounts sufficient to pay all principal and interest becoming due on the bonds on the next quarter payment date. Sinking Fund Requirement at Principal/Interest September 30, Payments Due 2016 Principal due at October 1, 2016 $ 18,750 $ 18,750 Interest due at October 1, 2016 2,406 2,406 1 Total $ 21,156 $ 21,156 (1) Amounts are included in restricted cash amounts on the balance sheet of the Debt Service Fund 3. The City is not aware of any noncompliance with the bond ordinances. Capital Improvement Refunding Revenue Note, Series 2013 1. The balance sheet and statement of revenues, expenditures, and changes in fund balance of the Debt Service Fund are shown in the financial section of the report. 2. The City is required to establish sinking fund amounts sufficient to pay all principal and interest becoming due on the notes on the next semi-annual payment date. The sinking fund was not required to be funded at September 30, 2016. 3. The City is not aware of any noncompliance with the covenants. Capital Improvement Revenue Note, Series 2013A 1. The balance sheet and statement of revenues, expenditures, and changes in fund balance of the Debt Service Fund are shown in the financial section of the report. 2. The City is required to establish sinking fund amounts sufficient to pay all principal and interest becoming due on the notes on the next semi-annual payment date. The sinking fund was not required to be funded at September 30, 2016. 3. The City is not aware of any noncompliance with the covenants. 77  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2016 16. COMMENTS REQUIRED BY THE BOND AND ORDINANCES – CONTINUED Utility System Revenue Refunding Note, Series 2015 1. The balance sheet and statement of revenues, expenses, and changes in fund balance of the Utility Fund are shown in the financial section of the report. 2. Net revenues pledged consist of gross revenues less costs of operation and maintenance. The net revenues pledged in fiscal year 2016 was approximately $2,640,000. 3. The debt issued refunded Series 2005 bond used for system improvements. 4. The term of the pledge commitment ends January, 2033. 5. The pledged revenues needed to meet the rate covenants in fiscal year 2016 was $320,981. The covenant is based upon 125% of the annual debt service requirement. 6. The pledged revenues exceeded the debt service requirements by $2,319,011 in fiscal year 2016. 7. The City is not aware of any noncompliance with the covenants. 17. INTERFUND RECEIVABLES, PAYABLES AND TRANSFERS The composition of interfund balances as of September 30, 2016, is as follows: Due to/from Other Funds Receivable Fund Payable Fund Amount General Community Development Block Grant $ 9,318 Advance to/from Other Funds Receivable Fund Payable Fund Amount Sanitation General $ 407,761 General Fund receivables from the Community Development Block Grant Fund in the amount of $9,318 are the result of eliminating a temporary deficit cash balance. On September 30, 2014, the City’s Sanitation Fund loaned the General Fund $500,000 to purchase a Fire Engine. The loan from the Sanitation Fund will be paid back over a 10-year period at an interest rate of 2.00%. The balance of the advance as of September 30, 2016 is $407,761. 78  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2016 17. INTERFUND RECEIVABLES, PAYABLES AND TRANSFERS – CONTINUED Transfers In Other Governmental Transfers Out General Fund Funds Total General Fund $ - $ 1,021,974 $ 1,021,974 Other Governmental Funds 20,364 - 20,364 Utilities Fund 619,771 - 619,771 Sanitation Fund 136,075 - 136,075 $ 776,210 $ 1,021,974 $ 1,798,184 The transfers out of the General Fund are $1,021,974. These transfers consist of a $997,306 transfer to the Debt Service Fund (Other Governmental Funds) for principal and interest payments on debt, and a $24,668 transfer to the Cemetery Perpetual Care Fund (Other Governmental Funds) for maintenance. Transfers in to the General Fund of $776,210 consist of a $20,364 transfer from the Cemetery Perpetual Care Fund (Other Governmental Funds) for the purchase of a niche wall and mower, franchise fees from the Utilities Fund of $619,771, and compensation from the Sanitation Fund for additional roadway wear & tear caused by the heavy trucks in the amount of $136,075. 18. ENCUMBRANCES The amount of encumbrances outstanding as of September 30, 2016, is as follows: Governmental Funds – General Fund $ 458,192 Other Governmental Funds 201,550 $ 659,742 Encumbrances at year end do not constitute expenditures or liabilities; therefore, they are not reflected in the financial statements. 79  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2016 19. GOVERNMENTAL FUND BALANCES At September 30, 2016, the City's governmental fund balances were classified as follows: Community Other Total Redevelopment Governmental Governmental General Fund Agency Funds Funds Nonspendable Inventory $ 240,865 $ 1,762 $ - $ 242,627 Restricted for Improvement districts - 1,435,601 - 1,435,601 Library 154,588 - - 154,588 Public safety - - 536,448 536,448 Debt service - - 21,156 21,156 Other purposes 9,229 - 2,078 11,307 Total restricted 163,817 1,435,601 559,682 2,159,100 Committed Cemetery maintenance - - 2,467,828 2,467,828 Natural disaster recovery 6,009,523 - - 6,009,523 Total committed 6,009,523 - 2,467,828 8,477,351 Assigned to Capital projects 1,183,563 - - 1,183,563 Citizen police academy 1,985 - - 1,985 Other purposes 12,830 - - 12,830 Total assigned 1,198,378 - - 1,198,378 Unassigned 4,356,681 - - 4,356,681 $ 11,969,264 $ 1,437,363 $ 3,027,510 $ 16,434,137 20. COMMITMENTS AND CONTINGENCIES Grants Amounts received or receivable from grant agencies are subject to audit and adjustment by grantor agencies, principally the federal government. Any disallowed claims, including amounts already collected, may constitute a liability of the applicable funds. The amount, if any, of expenditures which may be disallowed by the grantor cannot be determined at this time, although the City expects such amount, if any, to be immaterial. 80  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2016 20. COMMITMENTS AND CONTINGENCIES – CONTINUED Wastewater Service Interlocal Agreement with Okaloosa County On August 11, 2009, the City adopted the Wastewater Service Interlocal Agreement with Okaloosa County (Agreement). The Agreement outlines a long–term association with Okaloosa County Water & Sewer for the treatment of the City’s influent wastewater flow at a set percentage of the County’s base sewer rate plus a locked-in annual rate escalator. The agreement provides other ancillary benefits to the City such as the provision of “no cost” tertiary treated effluent for use as irrigation water at the City’s’ 36–hole municipal Golf Club. The Agreement is effective for 30 years and can be automatically extended for up to two additional terms for a period of ten years for each extension term. On a monthly basis, the County will bill the City at a rate equal to $2.77 per each 1,000 gallons of wastewater flow. Additionally, the City will pay to the County the Sewer Readiness to Serve Fee, which is equal to $4,347 per month. Each year in March, the Readiness to Serve Fee will increase by 3%. The minimum commitment by the City under the Agreement is as follows: Fiscal Year Ending September 30 2017 $ 54,673 2018 56,313 2019 58,002 2020 59,742 2021 61,534 2022 through 2026 336,490 2027 through 2031 390,081 2032 through 2036 452,210 2037 through 2039 305,201 Total $ 1,774,246 Fees paid for wastewater treatment to Okaloosa County, Florida during the year ended September 30, 2016, were $2,915,545. 21. NON-RECURRING TRANSACTIONS The City sold a tract of land during the year ended September 30, 2016. The land was not assigned a value in the capital asset records. The City recognized $850,000 of proceeds from the sale as an other financing source in the General Fund. During the year ended September 30, 2016, the City received donated capital assets consisting primarily of a clock tower for the Veterans’ tribute at the cemetery and emergency services equipment which it valued at $276,300 in its government-wide financial presentation. 81 THIS PAGE IS LEFT INTENTIONALLY BLANK  CITY OF FORT WALTON BEACH, FLORIDA REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF CHANGES IN NET PENSION LIABILITY AND RELATED RATIOS (UNAUDITED) GENERAL EMPLOYEES RETIREMENT FUND Measurement Date 2015 2014 Total Pension Liability Service cost $ 569,712 $ 622,382 Interest 3,314,990 3,222,809 Differences between expected and actual experience (1,074,244) - Benefit payments, including refunds of employee contributions (2,676,038) (2,575,304) Net change in total pension liability 134,420 1,269,887 Total pension liability – beginning 42,730,211 41,460,324 Total pension liability – ending (a) $ 42,864,631 $ 42,730,211 Plan Fiduciary Net Position Contributions – employer $ 1,355,041 $ 1,296,450 Contributions – member 209,567 212,790 Net investment income (4,390) 3,228,153 Benefit payments, including refunds of employee contributions (2,676,038) (2,575,304) Administrative expenses (39,535) (42,483) Net change in plan fiduciary net position (1,155,355) 2,119,606 Plan fiduciary net position – beginning 39,242,244 37,122,638 Plan fiduciary net position – ending (b) $ 38,086,889 $ 39,242,244 Net pension liability – ending (a) – (b) $ 4,777,742 $ 3,487,967 Plan fiduciary net position as a percentage of the total pension liability 88.85% 91.84% 1 Covered employee payroll $ 4,191,304 $ 4,255,801 Net pension liability as a percentage of covered employee payroll 113.99% 81.96% Notes to schedule: 1 The covered employee payroll figure was not available. Pensionable salary has been reported instead. 82  CITY OF FORT WALTON BEACH, FLORIDA REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF CHANGES IN NET PENSION LIABILITY AND RELATED RATIOS (UNAUDITED) POLICE OFFICERS’ RETIREMENT FUND Measurement Date 2015 2014 Total Pension Liability Service cost $ 336,234 $ 322,118 Interest 1,953,123 1,905,286 Differences between expected and actual experiences (659,966) - Benefit payments, including refunds of employee contributions (1,655,069) (1,632,053) Net change in total pension liability (25,678) 595,351 Total pension liability – beginning 25,008,402 24,413,051 Total pension liability – ending (a) $ 24,982,724 $ 25,008,402 Plan Fiduciary Net Position Contributions – employer 1 $ 628,975 $ 836,053 Contributions – state 175,025 175,703 Contributions – member 101,886 96,591 Net investment income (538,198) 1,869,244 Benefit payments, including refunds of employee contributions (1,655,069) (1,632,053) Administrative expenses (25,084) (38,242) Net change in plan fiduciary net position (1,312,465) 1,307,296 Plan fiduciary net position – beginning 20,463,452 19,156,156 Plan fiduciary net position – ending (b) $ 19,150,987 $ 20,463,452 Net pension liability – ending (a) – (b) $ 5,831,737 $ 4,544,950 Plan fiduciary net position as a percentage of the total pension liability 76.66% 81.83% Covered employee payroll 2 $ 2,037,716 $ 1,975,478 Net pension liability as a percentage of covered employee payroll 286.19% 230.07% Notes to schedule: 1 Adjusted for actual contributions made. 2 The covered employee payable figure was not available. Pensionable salary has been reported instead. 83  CITY OF FORT WALTON BEACH, FLORIDA REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF CHANGES IN NET PENSION LIABILITY AND RELATED RATIOS (UNAUDITED) FIREFIGHTERS’ RETIREMENT FUND Measurement Date 2015 2014 2013 Total Pension Liability Service cost $ 478,365 $ 414,836 $ 384,107 Interest 1,554,072 1,425,875 1,367,809 Change in excess state money - 89,886 Changes of benefit terms 804,097 - - Differences between expected and actual experiences (224,382) - - Contributions – buy back 72,413 - - Benefit payments, including refunds of employee contributions (1,140,432) (1,071,302) (1,042,333) Net change in total pension liability 1,544,133 859,295 709,583 Total pension liability – beginning 19,195,485 18,336,190 17,626,607 Total pension liability – ending (a) $ 20,739,618 $ 19,195,485 $ 18,336,190 Plan Fiduciary Net Position Contributions – employer $ 672,369 $ 715,439 $ 703,618 Contributions – state 205,007 214,272 204,226 Contributions – member 150,357 135,622 133,633 Contributions – buy back 72,413 - - Net investment income 15,563 1,201,162 1,099,298 Benefit payments, including refunds of employee contributions (1,140,432) (1,071,302) (1,042,333) Administrative expenses (47,088) (34,537) (33,706) Net change in plan fiduciary net position (71,811) 1,160,656 1,064,736 Plan fiduciary net position – beginning 13,662,319 12,501,663 11,436,927 Plan fiduciary net position – ending (b) $ 13,590,508 $ 13,662,319 $ 12,501,663 Net pension liability – ending (a) – (b) $ 7,149,110 $ 5,533,166 $ 5,834,527 Plan fiduciary net position as a percentage of the total pension liability 65.53% 71.17% 68.18% Covered employee payroll 1 $ 2,072,260 $ 2,054,879 $ 2,054,879 Net pension liability as a percentage of covered employee payroll 344.99% 269.27% 283.94% Notes to schedule: 1 The covered employee payable figure was not available. Pensionable salary has been reported instead. 84  CITY OF FORT WALTON BEACH, FLORIDA REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF CONTRIBUTIONS (UNAUDITED) LAST TEN FISCAL YEARS 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 General Employees' Retirement Fund Actuarially determined contribution $ 1,197,424 $ 1,286,744 $ 1,187,794 $ 1,268,253 $ 1,258,659 $ 1,091,338 $ 1,477,933 $ 1,268,428 $ 1,268,019 $ 1,231,003 Contributions in relation to the actuarially determined contributions 1,280,082 1,355,041 1,296,450 1,318,790 1,306,268 1,159,438 1,477,777 1,268,260 1,267,864 1,231,003 Contribution deficiency (excess) $ (82,658) $ (68,297) $ (108,656) $ (50,537) $ (47,609) $ (68,100) $ 156 $ 168 $ 155 $ - Covered employee payroll1 $ 4,045,350 $ 4,191,304 $ 4,255,801 $ 4,259,070 $ 4,542,537 $ 5,004,486 $ 5,595,076 $ 7,252,396 $ 7,521,520 $ 8,199,930 Contributions as a percentage of covered employee payroll 31.64% 32.33% 30.46% 30.96% 28.76% 23.17% 26.41% 17.49% 16.86% 15.01% Police Officers' Retirement Fund Actuarially determined contribution $ 709,037 $ 772,294 $ 932,426 $ 881,697 $ 875,055 $ 682,860 $ 665,220 $ 578,670 $ 488,381 $ 516,528 Contributions in relation to the actuarially determined contributions 790,573 772,294 1,011,756 925,589 968,003 682,860 665,220 578,670 488,381 516,528 Contribution deficiency (excess) $ (81,536) $ - $ (79,330) $ (43,892) $ (92,948) $ - $ - $ - $ - $ - Covered employee payroll1 $ 2,073,208 $ 2,037,716 $ 1,975,478 $ 2,038,886 $ 2,178,847 $ 2,239,545 $ 2,195,529 $ 2,557,811 $ 5,230,182 $ 2,602,616 Contributions as a percentage of covered employee payroll 38.13% 37.90% 51.22% 45.40% 44.43% 30.49% 30.30% 22.62% 9.34% 19.85% Firefighters' Retirement Fund Actuarially determined contribution $ 816,138 $ 748,086 $ 824,007 $ 817,997 $ 700,045 $ 675,386 $ 708,063 $ 555,720 $ 326,864 $ 299,027 Contributions in relation to the actuarially determined contributions 945,923 877,376 839,825 829,245 784,705 675,386 708,063 555,720 358,840 299,027 Contribution deficiency (excess) $ (129,785) $ (129,290) $ (15,818) $ (11,248) $ (84,660) $ - $ - $ - $ (31,976) $ - Covered employee payroll1 $ 2,060,954 $ 2,072,260 $ 2,121,613 $ 2,153,568 $ 1,946,811 $ 1,961,080 $ 2,116,516 $ 1,988,762 $ 1,632,275 $ 1,409,038 Contributions as a percentage of covered employee payroll 45.90% 42.34% 39.58% 38.51% 40.31% 34.44% 33.45% 27.94% 21.98% 21.22% ¹ As of 2014, the Covered employee payroll numbers shown are in compliance with GASB Statement No. 82. See notes to the schedule of contributions. 85  CITY OF FORT WALTON BEACH, FLORIDA REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF INVESTMENT RETURNS SEPTEMBER 30, 2016 9/30/2015 9/30/2014 9/30/2013 General Employees' Retirement Fund Annual Money-Weighted Rate of Return Not Net of Investment Expense -0.01% 8.82% Available Police Officers' Retirement Fund Annual Money-Weighted Rate of Return Not Net of Investment Expense -2.69% 9.96% Available Firefighters' Retirement Fund Annual Money-Weighted Rate of Return Net of Investment Expense 0.12% 9.72% 9.63% Note: This information is not available for previous years. See notes to the schedule of contributions. 86  CITY OF FORT WALTON BEACH, FLORIDA REQUIRED SUPPLEMENTARY INFORMATION NOTES TO THE SCHEDULE OF CONTRIBUTIONS (UNAUDITED) GENERAL EMPLOYEES’ RETIREMENT FUND Valuation Date: October 1, 2014 Notes: Actuarially determined contribution rates are calculated as of October 1, which is two years prior to the end of the fiscal year in which contributions are reported. Methods and Assumptions Used to Determine Contribution Rates: Funding method: Entry-Age Actuarial Cost Method Mortality rates: Non-disabled lives: RP-2000 Sex-Distinct Healthy Mortality Table, without projection Disabled lives: Social Security Study #74 Mortality Table, without projection Interest rate: 7.9% per year, compounded annually, net of investment related expenses Termination rates: Age-based rates. Sample rates as follows: Sample Ages Probability 25 7.724% 30 7.397% 35 6.858% 40 6.113% 45 5.163% 50 4.316% 55 4.371% 60 5.631% Disability rates: Age-based rates. Sample rates as follows: Sample Ages Probability 20 0.07% 30 0.11% 40 0.19% 50 0.51% 60 1.66% Salary increases: Age-based increase table, as follows: Age Increase* Under 25 6.5% 25-34 5.5% 35-44 4.5% 45+ 3.5% *Increase shown is inclusive of a 3% wage inflationary assumption. 87  CITY OF FORT WALTON BEACH, FLORIDA REQUIRED SUPPLEMENTARY INFORMATION NOTES TO THE SCHEDULE OF CONTRIBUTIONS (UNAUDITED) – CONTINUED GENERAL EMPLOYEES’ RETIREMENT FUND Retirement age: 100% probability of retirement upon attaining age 62 and ten years of service, along with probabilities of retiring with a subsidized benefit prior to age 62 at the following rates: Age Probability 52 4.218% 53 4.249% 54 4.293% 55 4.371% 56 4.500% 57 4.688% 58 4.941% 59 5.258% 60 5.631% 61 6.053% Payroll growth: None (closed plan) for purposes of amortizing the Unfunded Actuarial Accrued Liability. Actuarial asset All assets are valued at market value with an adjustment made to uniformly spread method: actuarial investment gains and losses (as measured by actual market value investment return against expected market value investment return) over a five-year period. 88  CITY OF FORT WALTON BEACH, FLORIDA REQUIRED SUPPLEMENTARY INFORMATION NOTES TO THE SCHEDULE OF CONTRIBUTIONS (UNAUDITED) POLICE OFFICERS’ RETIREMENT FUND Valuation Date: October 1, 2014 Notes: Actuarially determined contribution rates are calculated as of October 1, which is two years prior to the end of the fiscal year in which contributions are reported. Methods and Assumptions Used to Determine Contribution Rates: Funding method: Entry-Age Normal Actuarial Cost Method Amortization method: Level percentage of pay, closed Remaining amortization period: 30 years Mortality: RP-2000 Sex-Distinct Combined Healthy Table with a five year set forward for disabled lives. Based on a study of over 650 public safety funds, this table reflects a 10% margin for future mortality improvements. Interest rate: 8.00% per year, compounded annually, net of investment related expenses Retirement age: Member Age Retirement Probability 55 10.0% 56 10.0% 57 25.0% 58 20.0% 59 33.3% 60+ 100.0% In addition to the above table, 100% retirement is assumed upon completion of 30 years of service. Early retirement: Earlier of 1) Age 50 and ten years of service, or 2) 25 years of service, regardless of age, Members are assumed to retire with an immediate subsidized benefit at the rate of 4% per year. Salary increases: Member Age Assumption 30 or less 10.0% 31-35 8.5% 36-40 7.0% 41-45 6.0% 45-50 4.5% 51-55 4.0% 56+ 3.0% In addition to the above table, projected salary at retirement is increased 20% to account for non-regular compensation. Valuations prior to October 1, 2013: 7.5% per year until the assumed retirement age. 89  CITY OF FORT WALTON BEACH, FLORIDA REQUIRED SUPPLEMENTARY INFORMATION NOTES TO THE SCHEDULE OF CONTRIBUTIONS (UNAUDITED) – CONTINUED POLICE OFFICERS’ RETIREMENT FUND Cost-of-living increase: 3.00% per year beginning at retirement Payroll growth: None Actuarial asset Each year, the prior Actuarial Value of Assets is brought forward utilizing the method: historical geometric four-year average market value return. It is possible that over time this technique will produce an insignificant bias above or below market value. Termination and disability rate table: % Becoming Disabled During the % Terminating Age Year During the Year 20 0.14% 10.6% 30 0.18% 9.6% 40 0.30% 6.9% 50 1.00% 3.4% 90  CITY OF FORT WALTON BEACH, FLORIDA REQUIRED SUPPLEMENTARY INFORMATION NOTES TO THE SCHEDULE OF CONTRIBUTIONS (UNAUDITED) FIREFIGHTERS’ RETIREMENT FUND Valuation Date: October 1, 2014 Notes: Actuarially determined contribution rates are calculated as of October 1, which is two years prior to the end of the fiscal year in which contributions are reported. Methods and Assumptions Used to Determine Contribution Rates: Actuarial cost method: Entry Age Normal Actuarial Cost Method Amortization method: Level percentage of pay, closed Remaining amortization period: 30 years Mortality: RP-2000 Combined Healthy Table with a five year set forward for disabled lives. Based on a study of over 650 public safety funds, this table reflects a 10% margin for future mortality improvements. Interest rate: 8.00% per year compounded annually, net of investment related expenses Retirement age: Earlier of Age 55 and ten years of service or 25 years of service, regardless of age. Also, any Member who has reached Normal Retirement is assumed to continue employment for one additional year Early retirement: Commencing with the earliest early retirement age (45), Members are assumed to retire with an immediate subsidized benefit at the rate of 3.00% per year. Disability rate: See table below; it is assumed that 75% of disablements and active Member deaths are service related. Salary increases: 6.50% per year until the assumed retirement age Cost-of-living increase: 3.00% per year beginning at age 58 Payroll increase: 3.00% per year Actuarial asset Each year, the prior Actuarial Value of Assets is brought forward utilizing the method: historical geometric four-year average market value return. It is possible that over time Termination and disability rate table: % Becoming Disabled During % Terminating Age the Year During the Year 20 0.14% 7.9% 30 0.18% 7.2% 40 0.30% 5.2% 50 1.00% 2.6% 91  CITY OF FORT WALTON BEACH, FLORIDA REQUIRED SUPPLEMENTARY INFORMATION OTHER POST-EMPLOYMENT BENEFITS SCHEDULE OF FUNDING PROGRESS (UNAUDITED) Accrued Actuarial Liability UAAL as Value of (AAL) - Unfunded Annual % of Actuarial Valuation Assets Entry Age AAL (UAAL) Percentage Covered Payroll Date (a) (b) (b-a) Funded Payroll (c) [c/(b-a)] October 1, 2014 N/A $ 4,437,530 $ 4,437,530 0.00% $ 7,902,214 56.16% October 1, 2013 N/A N/A N/A N/A N/A N/A October 1, 2012 N/A 5,651,699 $ 5,651,699 0.00% 7,300,258 77.42% 92 THIS PAGE IS LEFT INTENTIONALLY BLANK  CITY OF FORT WALTON BEACH, FLORIDA NON-MAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEET SEPTEMBER 30, 2016 Special Revenue Funds Beal Law Memorial Total Law Enforcement Florida Community Cemetery Nonmajor Enforcement Trust Building Development Perpetual Governmental Trust Training Code Block Grant Care Debt Service Funds ASSETS Cash and cash equivalents $ 221,465 $ 877 $ 320,784 $ - $ 24,685 $ - $ 567,811 Investments - - - - 2,445,320 - 2,445,320 Due from other governments 7,541 - - 11,396 - - 18,937 Cash and cash equivalents - restricted - - - - - 21,156 21,156 TOTAL ASSETS $ 229,006 $ 877 $ 320,784 $ 11,396 $ 2,470,005 $ 21,156 $ 3,053,224 LIABILITIES Accounts payable $ - $ 789 $ 3,195 $ - $ 2,177 $ - $ 6,161 Accrued liabilities 3,562 - 6,673 - - - 10,235 Due to other funds - - - 9,318 - - 9,318 Total liabilities 3,562 789 9,868 9,318 2,177 - 25,714 FUND BALANCE Restricted 225,444 88 310,916 2,078 - 21,156 559,682 Committed - - - - 2,467,828 - 2,467,828 Total fund balance 225,444 88 310,916 2,078 2,467,828 21,156 3,027,510 TOTAL LIABILITIES AND FUND BALANCE $ 229,006 $ 877 $ 320,784 $ 11,396 $ 2,470,005 $ 21,156 $ 3,053,224 93  u u ' ` X _ b S _ T T _ R _ _ X S R X V V V 2 W ` ^ ^ W ^ ^ _ b X S _ R S b V V V V & A + ! ` W ` ^ ^ ` W _ S T b X R S T R b b V ! * ) ^ W $ T U _ U b U S U U R U T U U U R U S U T U X U U X U U X U b U S U . 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Z @ 7 K x H J J J f 5 J K K d k G F M M l d I [ e I [ G J K F F # 7 7 G # # n j # @ G M G E E E L L m f f F 1 M C L v e 5 , @ @ = J F K Y I G G D M I c q i i o F E F f f a , # g g # D D r Y q B @ # # 1 1  CITY OF FORT WALTON BEACH, FLORIDA LAW ENFORCEMENT TRUST SPECIAL REVENUE FUND SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE – BUDGET AND ACTUAL FOR THE YEAR ENDED SEPTEMBER 30, 2016 Variance with Final Budget - Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Intergovernmental $ - $ 18,067 $ 17,394 $ (673) Fines - - 977 977 Miscellaneous 2,400 2,400 5,856 3,456 Total revenues 2,400 20,467 24,227 3,760 EXPENDITURES Current Public safety 49,090 59,930 6,466 53,464 Capital outlay 167,740 174,967 15,101 159,866 Total expenditures 216,830 234,897 21,567 213,330 NET CHANGE IN FUND BALANCE (214,430) (214,430) 2,660 217,090 FUND BALANCE AT BEGINNING OF YEAR 214,430 214,430 222,784 8,354 FUND BALANCE AT END OF YEAR $ - $ - $ 225,444 $ 225,444 95  CITY OF FORT WALTON BEACH, FLORIDA LAW ENFORCEMENT TRUST TRAINING SPECIAL REVENUE FUND SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE – BUDGET AND ACTUAL FOR THE YEAR ENDED SEPTEMBER 30, 2016 Variance with Final Budget - Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Fines $ 7,100 $ 7,100 $ 5,817 $ (1,283) Miscellaneous 97 97 89 (8) Total revenues 7,197 7,197 5,906 (1,291) EXPENDITURES Current Public safety 17,673 20,331 16,780 3,551 NET CHANGE IN FUND BALANCE (10,476) (13,134) (10,874) 2,260 FUND BALANCE AT BEGINNING OF YEAR 10,476 13,134 10,962 (2,172) FUND BALANCE AT END OF YEAR $ - $ - $ 88 $ 88 96  CITY OF FORT WALTON BEACH, FLORIDA FLORIDA BUILDING CODE SPECIAL REVENUE FUND SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE – BUDGET AND ACTUAL FOR THE YEAR ENDED SEPTEMBER 30, 2016 Variance with Final Budget - Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Permits and fees $ 346,600 $ 346,600 $ 372,150 $ 25,550 Miscellaneous 3,776 3,776 5,499 1,723 Total revenues 350,376 350,376 377,649 27,273 EXPENDITURES Current Public safety 326,811 360,969 320,321 40,648 Capital outlay 20,650 20,992 20,291 701 Total expenditures 347,461 381,961 340,612 41,349 NET CHANGE IN FUND BALANCE 2,915 (31,585) 37,037 68,622 FUND BALANCE AT BEGINNING OF YEAR - 31,585 273,879 242,294 FUND BALANCE AT END OF YEAR $ 2,915 $ - $ 310,916 $ 310,916 97  CITY OF FORT WALTON BEACH, FLORIDA COMMUNITY DEVELOPMENT BLOCK GRANT SPECIAL REVENUE FUND SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE – BUDGET AND ACTUAL FOR THE YEAR ENDED SEPTEMBER 30, 2016 Variance with Final Budget - Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Intergovernmental $ 119,530 $ 119,530 $ 117,087 $ (2,443) EXPENDITURES Current Economic environment 199,474 206,033 119,072 86,961 Capital outlay 165,035 158,476 - 158,476 Total expenditures 364,509 364,509 119,072 245,437 NET CHANGE IN FUND BALANCE (244,979) (244,979) (1,985) 242,994 FUND BALANCE AT BEGINNING OF YEAR 244,979 244,979 4,063 (240,916) FUND BALANCE AT END OF YEAR $ - $ - $ 2,078 $ 2,078 98  CITY OF FORT WALTON BEACH, FLORIDA BEAL MEMORIAL CEMETERY PERPETUAL CARE SPECIAL REVENUE FUND SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE – BUDGET AND ACTUAL FOR THE YEAR ENDED SEPTEMBER 30, 2016 Variance with Final Budget - Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Miscellaneous $ 26,500 $ 26,500 $ 216,372 $ 189,872 EXPENDITURES Current Physical environment 63,100 63,100 12,604 50,496 DEFICIENCY OF REVENUES OVER (UNDER) EXPENDITURES (36,600) (36,600) 203,768 240,368 OTHER FINANCING SOURCES (USES) Transfers in 36,600 36,600 24,668 (11,932) Transfers out (68,336) (68,336) (20,364) 47,972 Total other financing sources (uses) (31,736) (31,736) 4,304 36,040 NET CHANGE IN FUND BALANCE (68,336) (68,336) 208,072 276,408 FUND BALANCE AT BEGINNING OF YEAR 68,336 68,336 2,259,756 2,191,420 FUND BALANCE AT END OF YEAR $ - $ - $ 2,467,828 $ 2,467,828 99  CITY OF FORT WALTON BEACH, FLORIDA DEBT SERVICE FUND SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE – BUDGET AND ACTUAL FOR THE YEAR ENDED SEPTEMBER 30, 2016 Variance with Final Budget - Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Miscellaneous $ - $ - $ - $ - Total revenues - - - - EXPENDITURES Debt service Principal 720,427 720,427 673,851 46,576 Interest 336,886 336,886 327,748 9,138 Total expenditures 1,057,313 1,057,313 1,001,599 55,714 DEFICIENCY OF REVENUES OVER (UNDER) EXPENDITURES (1,057,313) (1,057,313) (1,001,599) 55,714 OTHER FINANCING SOURCES (USES) Transfers in 1,057,313 1,057,313 997,306 (60,007) NET CHANGE IN FUND BALANCE - - (4,293) (4,293) FUND BALANCE AT BEGINNING OF YEAR - - 25,449 25,449 FUND BALANCE AT END OF YEAR $ - $ - $ 21,156 $ 21,156 100  City of Fort Walton Beach, Florida SCHEDULE 1 NET POSITION BY COMPONENT Last Ten Fiscal Years (full accrual basis of accounting) 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Governmental Activities Net investment in capital assets $ 22,013,431 $ 21,095,355 $ 20,563,790 $ 20,605,683 $ 24,756,705 $ 25,379,050 $ 23,531,576 $ 24,866,399 $ 27,443,877 $ 27,791,054 Restricted Debt service 92,730 91,713 91,713 92,880 113,816 113,507 21,156 25,449 25,449 21,156 Capital projects 56,550 - - - - - - - - - Improvement Districts - - - - 4,212,984 3,736,100 3,833,430 4,073,364 1,874,265 1,437,363 Public safety 307,983 307,983 254,409 269,600 268,820 262,648 462,375 565,946 507,625 536,448 Perpetual care - expendable 1,787,789 1,877,086 1,869,558 1,898,445 - - - - - - Other purposes 657,116 473,655 463,168 477,194 234,568 194,193 177,129 172,630 187,575 165,895 Unrestricted 8,564,657 9,821,155 9,347,576 8,975,046 12,666,165 11,487,979 9,329,608 10,700,661 159,868 2,158,813 Total governmental activities net position $ 33,480,256 $ 33,666,947 $ 32,590,214 $ 32,318,848 $ 42,253,058 $ 41,173,477 $ 37,355,274 $ 40,404,449 $ 30,198,659 $ 32,110,729 Business-Type Activities Net investment in capital assets $ 21,051,160 $ 21,043,965 $ 17,577,019 $ 18,928,438 $ 17,037,456 $ 14,929,648 $ 17,305,881 $ 13,779,184 $ 12,886,793 $ 12,893,855 Restricted Debt service 323,430 316,153 471,441 481,023 184,711 184,933 1,087,405 1,082,935 157,228 157,228 System improvements 39,414 60,709 98,292 61,559 82,573 112,863 305,508 367,263 382,734 404,761 Unrestricted 9,011,906 8,301,545 8,276,703 6,791,840 6,859,952 8,552,169 9,379,587 9,658,709 10,656,992 11,118,844 Total business-type activities net position $ 30,425,910 $ 29,722,372 $ 26,423,455 $ 26,262,860 $ 24,164,692 $ 23,779,613 $ 28,078,381 $ 24,888,091 $ 24,083,747 $ 24,574,688 Primary Government Net investment in capital assets $ 43,064,591 $ 42,139,320 $ 38,140,809 $ 38,728,907 $ 41,794,161 $ 40,308,698 $ 40,837,576 $ 38,645,583 $ 40,330,670 $ 40,684,909 Restricted 3,265,012 3,127,299 3,257,332 3,297,029 5,097,472 4,604,244 5,887,003 6,287,587 3,134,876 2,722,851 Unrestricted 17,576,563 18,122,700 17,624,279 16,805,772 19,526,117 20,040,148 18,709,195 20,359,370 10,816,860 13,277,657 Total primary government net position $ 63,906,166 $ 63,389,319 $ 59,022,420 $ 58,831,708 $ 66,417,750 $ 64,953,090 $ 65,433,774 $ 65,292,540 $ 54,282,406 $ 56,685,417 Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. The City implemented GASB Statement 34 in 2002; schedules presenting government-wide information include information beginning in that year. Note: Beginning in FY11, the Community Redevelopment Area was included with the Governmental Activities and the Perpetual care - expendable was reclassified from Restricted to Unrestricted 101  City of Fort Walton Beach, Florida SCHEDULE 2 CHANGES IN NET POSITION Last Ten Fiscal Years (full accrual basis of accounting) 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Expenses Governmental activities General government $ 4,563,855 $ 5,494,094 $ 4,625,871 $ 5,306,003 $ 3,765,536 $ 4,314,050 $ 2,662,406 $ 3,179,768 $ 2,735,875 $ 3,285,039 Public safety 9,641,338 10,048,884 9,908,644 9,231,632 9,206,784 9,805,368 9,729,228 9,685,621 9,562,140 10,172,215 Physical environment 354,439 343,411 350,374 304,907 393,752 383,970 379,681 392,255 379,334 430,490 Transportation 1,943,966 2,135,639 1,672,741 1,543,310 1,570,038 1,592,150 1,631,665 1,495,374 1,474,209 1,494,178 Economic environment 335,185 127,355 266,132 98,996 545,242 707,603 1,090,025 803,175 1,813,782 1,540,230 Culture and recreation 3,115,151 3,097,289 3,028,285 2,944,221 2,677,051 2,880,815 2,715,977 4,829,004 4,601,503 5,375,183 Debt service interest 331,771 302,948 247,703 240,940 214,470 254,516 324,405 483,301 340,497 323,639 Total government activities 20,285,705 21,549,620 20,099,750 19,670,009 18,372,873 19,938,472 18,533,387 20,868,498 20,907,340 22,620,974 Business-type activities Utilities 5,859,301 5,809,192 5,474,550 6,725,349 9,162,926 7,017,160 7,644,240 9,185,338 9,205,259 10,066,769 Sanitation 3,008,205 2,609,129 2,493,357 2,466,881 2,524,994 2,741,266 3,163,638 3,393,269 3,319,760 3,407,992 Golf 2,780,632 2,547,992 2,479,804 2,203,739 2,199,453 2,012,165 2,023,186 2,215 - - Stormwater - - 469,421 374,951 339,543 497,211 611,962 439,191 460,314 611,351 Total business-type activities 11,648,138 10,966,313 10,917,132 11,770,920 14,226,916 12,267,802 13,443,026 13,020,013 12,985,333 14,086,112 Total primary government expenses $ 31,933,843 $ 32,515,933 $ 31,016,882 $ 31,440,929 $ 32,599,789 $ 32,206,274 $ 31,976,413 $ 33,888,511 $ 33,892,673 $ 36,707,086 Program Revenues Governmental activities Charges for services General government $ 2,456,663 $ 2,752,330 $ 2,921,887 $ 2,759,080 $ 2,556,270 $ 430,718 $ 409,983 $ 476,824 $ 421,987 $ 421,503 Public safety 579,365 641,941 642,364 467,835 430,017 373,855 640,271 495,111 490,379 523,163 Physical environment 316,520 348,838 286,623 289,654 394,513 439,555 404,429 376,998 409,253 371,205 Transportation 241,622 93,987 87,654 83,586 104,776 118,067 122,275 140,038 140,809 207,860 Economic environment - - - - 16,400 58,000 34,652 10 5,000 392,118 Culture and recreation 421,733 417,253 426,110 408,351 404,047 400,215 374,362 1,853,087 1,930,131 1,805,332 Operating grants and contributions 1,266,681 903,079 1,119,033 639,370 761,643 589,253 786,652 682,200 909,461 908,595 Capital grants and contributions 233,878 50,687 88,941 731,275 351,006 156,794 80,936 109,629 525,320 802,809 Total governmental activities program revenues 5,516,462 5,208,115 5,572,612 5,379,151 5,018,672 2,566,457 2,853,560 4,133,897 4,832,340 5,432,585 Business-type activities Charges for services Utilities 7,006,005 6,505,297 6,403,262 6,761,654 7,608,355 7,974,601 8,623,082 8,586,045 9,233,820 10,141,724 Sanitation 3,433,172 3,446,397 3,384,375 3,345,127 3,311,744 3,313,559 3,499,559 3,571,037 3,582,005 3,599,838 Golf 2,558,253 2,380,448 2,181,988 1,934,392 2,052,501 1,776,649 1,758,709 - - - Stormwater - - 654,346 626,903 481,854 577,706 591,196 596,133 694,581 860,644 Operating grants and contributions - 39,403 - - 118,226 - 1,071 - - - Capital grants and contributions 1,079,034 92,872 555,698 173,370 65,496 331,609 1,871,295 (157,294) 87,797 533,515 Total business-type activities program revenues 14,076,464 12,464,417 13,179,669 12,841,446 13,638,176 13,974,124 16,344,912 12,595,921 13,598,203 15,135,721 Total primary government program revenues $ 19,592,926 $ 17,672,532 $ 18,752,281 $ 18,220,597 $ 18,656,848 $ 16,540,581 $ 19,198,472 $ 16,729,818 $ 18,430,543 $ 20,568,306 Continued… 102  City of Fort Walton Beach, Florida SCHEDULE 2 CHANGES IN NET POSITION Last Ten Fiscal Years (full accrual basis of accounting) 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Net (Expense)/Revenue Governmental activities $ (14,769,243) $ (16,341,505) $ (14,527,138) $ (14,290,859) $ (13,354,201) $ (17,372,015) $ (15,679,827) $ (16,734,601) $ (16,075,000) $ (17,188,389) Business-type activities 2,428,326 1,498,104 2,262,537 1,070,526 (588,740) 1,706,322 2,901,886 (424,092) 612,870 1,049,609 Total primary government $ (12,340,917) $ (14,843,401) $ (12,264,601) $ (13,220,333) $ (13,942,941) $ (15,665,693) $ (12,777,941) $ (17,158,693) $ (15,462,130) $ (16,138,780) General Revenues and Other Changes in Net Position Governmental activities Taxes Property taxes $ 5,180,212 $ 5,052,903 $ 4,631,028 $ 4,380,221 $ 4,482,819 $ 4,295,068 $ 4,175,136 $ 5,385,235 $ 5,473,438 $ 5,617,998 Sales taxes 2,363,078 2,214,232 1,977,959 1,943,337 2,066,834 2,198,270 2,241,242 2,362,190 2,557,062 2,707,153 Utility service taxes 1,420,142 5,094,918 3,454,691 3,914,362 3,926,930 3,739,311 3,761,437 3,889,976 4,036,009 3,931,939 Tax Increments for Redevelopment district - - - - 1,547,609 1,386,521 1,311,101 1,501,208 1,552,560 1,628,439 Franchise Fees - - - - - 1,876,575 1,764,733 2,004,101 2,162,617 2,202,420 Intergovernmental, unrestricted 845,090 740,554 709,550 712,776 825,591 809,756 818,039 819,556 896,837 910,615 Gain on sale of assets 477,494 2,592 2,950 795,860 16,865 16,440 37,833 520,152 524,720 873,101 Miscellaneous 56,788 61,199 54,223 492,052 96,105 154,996 106,546 103,986 199,776 27,976 Investment earnings 755,389 444,488 269,896 152,884 133,419 159,465 62,285 345,734 272,076 444,972 Insurance Recoveries - - - - - - - - - - Special item: Impairment loss - - - - - - (271,287) - - - Transfers 1,928,924 2,917,310 2,310,464 1,667,644 1,682,717 1,656,032 (2,145,441) 2,851,638 657,558 755,846 Total governmental activities 13,027,117 16,528,196 13,410,761 14,059,136 14,778,889 16,292,434 11,861,624 19,783,776 18,332,653 19,100,459 Business-type activities Taxes Utility service taxes 7,844 5,930 4,597 - - - - - - - Gain on sale of assets 34,978 482 98,907 56,795 75,904 35,111 20,662 22,813 716 26,093 Miscellaneous 15,118 129,678 141,406 177,657 31,424 48,550 6,504 6,839 9,222 5,502 Investment earnings 713,872 579,578 340,155 202,071 65,961 69,622 11,107 55,669 159,761 165,583 Special item: Impairment loss - - (3,836,055) - - (588,652) (786,713) - - - Transfers (1,925,000) (2,917,310) (2,310,464) (1,667,644) (1,682,717) (1,656,032) 2,145,441 (2,851,638) (657,558) (755,846) Total business-type activities 771,812 715,668 (3,250,990) 436,523 173,289 (435,369) 1,397,001 (2,766,317) (487,859) (558,668) Total primary government $ 13,798,929 $ 17,243,864 $ 10,159,771 $ 14,495,659 $ 14,952,178 $ 15,857,065 $ 13,258,625 $ 17,017,459 $ 17,844,794 $ 18,541,791 Change in Net Position Governmental activities $ (1,742,126) $ 186,691 $ (1,116,377) $ (231,722) $ 1,424,688 $ (1,079,581) $ (3,818,203) $ 3,049,175 $ 2,257,653 $ 1,912,070 Business-type activities 1,275,138 (703,538) (3,298,917) (160,595) (2,098,168) (385,079) 4,298,887 (3,190,409) 125,011 490,941 Total primary government $ (466,988) $ (516,847) $ (4,415,294) $ (392,317) $ (673,480) $ (1,464,660) $ 480,684 $ (141,234) $ 2,382,664 $ 2,403,011 Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. The City implemented GASB Statement 34 in 2002; schedules presenting government-wide information include information beginning in that year. Note: Beginning in FY11, the Community Redevelopment Area was included with the Governmental Activities Note: Beginning in FY12, Franchise Fees were reported as General Revenues - in prior years they were included in General Government - charges for services Note: Beginning in FY13, Cost Allocations were reported as expense reductions in General Government - in prior years they were reported as transfers. Note: Beginning in FY14, the Golf Enterprise Fund was transferred into the General Fund. 103  City of Fort Walton Beach, Florida SCHEDULE 3 FUND BALANCES - GOVERNMENTAL FUNDS Last Ten Fiscal Years (modified accrual basis of accounting) 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 General Fund Reserved $ 701,829 $ 509,080 $ 482,179 $ 499,384 $ - $ - $ - $ - $ - $ - Unreserved 12,161,545 9,367,864 9,709,202 9,314,142 - - - - - - Nonspendable - - - - 3,032,726 2,857,963 254,229 262,964 249,732 240,865 Restricted - - - - 234,768 194,193 7,868,522 4,083,267 183,512 163,817 Committed - - - - 5,219,706 5,040,585 5,501,353 5,589,056 5,761,221 6,009,523 Assigned - - - - 1,537,572 354,999 1,301,385 1,584,887 1,396,207 1,198,378 Unassigned - - - - 1,189,562 1,611,120 788,076 1,300,881 2,225,633 4,356,681 Total general fund $ 12,863,374 $ 9,876,944 $ 10,191,381 $ 9,813,526 $ 11,214,334 $ 10,058,860 $ 15,713,565 $ 12,821,055 $ 9,816,305 $ 11,969,264 All Other Governmental Funds Reserved $ - $ - $ 50,117 $ 12,783 $ - $ - $ - $ - $ - $ - Unreserved, reported in Capital projects 56,550 8,751 - - - - - - - Debt service 92,730 91,713 91,713 92,880 - - - - - - Special revenue funds 2,095,772 2,153,440 2,073,850 2,158,878 - - - - - - Nonspendable - - - - - - - 798 848 1,762 Restricted - - - - 4,595,420 4,112,255 4,316,961 4,663,961 2,410,554 1,995,283 Committed - - - - 1,929,448 1,959,836 2,035,225 2,249,720 2,259,756 2,467,828 Assigned - - - - - - - - - - Unassigned - - - - (306) (302) (2,745) (6,231) - - Total all other governmental funds $ 2,245,052 $ 2,245,153 $ 2,224,431 $ 2,264,541 $ 6,524,562 $ 6,071,789 $ 6,349,441 $ 6,908,248 $ 4,671,158 $ 4,464,873 Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. The City implemented GASB Statement 34 in 2002; schedules presenting government-wide information include information beginning in that Note: The City implemented GASB 54 in FY11 and the Community Redevelopment Area was included with All Other Governmental Funds 104  City of Fort Walton Beach, Florida SCHEDULE 4 CHANGES IN FUND BALANCES - GOVERNMENTAL FUNDS Last Ten Fiscal Years (modified accrual basis of accounting) 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Revenues Taxes $ 10,804,833 $ 9,039,398 $ 9,160,133 $ 9,414,513 $ 10,438,481 $ 10,065,983 $ 9,901,157 $ 11,537,812 $ 11,837,177 $ 11,941,311 Licenses, permits, and fees 496,614 2,225,224 2,320,683 2,406,916 2,428,621 2,142,995 2,221,406 2,392,487 2,564,079 2,623,810 Intergovernmental 3,661,644 2,914,162 2,950,179 3,502,904 3,358,615 3,291,693 3,400,876 3,376,079 3,951,367 4,322,696 Charges for services 911,026 1,216,687 1,132,681 907,476 911,405 969,560 1,065,316 2,373,486 2,499,107 2,402,801 Fines and forfeits 247,493 268,415 387,449 204,849 151,616 142,936 241,923 133,645 131,020 121,513 Miscellaneous 3,588,708 1,211,662 1,020,342 1,370,077 817,975 537,975 431,625 827,526 1,142,936 935,821 Total Revenues 19,710,318 16,875,548 16,971,467 17,806,735 18,106,713 17,151,142 17,262,303 20,641,035 22,125,686 22,347,952 Expenditures General governmental services 4,355,885 5,306,276 4,419,077 5,095,790 3,699,506 3,899,740 2,514,734 2,891,275 2,813,835 3,017,374 Public safety 9,170,719 9,614,744 9,379,319 8,872,424 8,676,620 9,154,002 9,066,246 9,082,876 9,080,984 9,053,178 Physical environment 276,086 278,273 283,460 250,691 306,365 295,459 311,684 325,864 339,596 337,831 Transportation 1,550,204 1,750,680 1,316,954 1,207,449 994,272 966,050 1,012,387 867,730 862,712 852,602 Economic environment 335,185 127,355 266,132 98,996 493,526 652,086 1,032,659 745,586 1,730,631 1,432,788 Culture and recreation 2,636,387 2,698,993 2,582,642 2,535,682 2,233,104 2,383,239 2,267,141 3,744,452 4,122,310 4,196,979 Capital outlay 1,457,758 652,734 520,722 1,335,369 1,561,057 2,609,203 1,282,142 4,721,096 8,128,139 2,105,686 Debt service Principal 355,459 2,052,797 168,949 175,629 198,699 211,683 4,540,488 612,996 660,107 673,851 Interest and other costs 330,136 297,335 246,774 240,093 236,268 243,959 203,347 377,574 354,544 336,835 Total expenditures 20,467,819 22,779,187 19,184,029 19,812,123 18,399,417 20,415,421 22,230,828 23,369,449 28,092,858 22,007,124 Excess of revenue over (under) expenditures (757,501) (5,903,639) (2,212,562) (2,005,388) (292,704) (3,264,279) (4,968,525) (2,728,414) (5,967,172) 340,828 Other Financing Sources (Uses) Capital lease proceeds - - - - - - 103,784 - 67,774 - Transfers in 2,644,727 5,367,633 3,191,822 2,342,226 2,296,944 2,284,416 673,836 1,636,165 1,721,632 1,798,184 Transfers out (715,802) (2,450,323) (685,545) (674,583) (614,227) (628,384) (2,819,277) (1,241,454) (1,064,074) (1,042,338) Sale of general capital assets - - - - - - - - - 850,000 Debt issuance - - - - 739,805 - 12,942,539 - - - Total other financing sources (uses) 1,928,925 2,917,310 2,506,277 1,667,643 2,422,522 1,656,032 10,900,882 394,711 725,332 1,605,846 Net change in fund balance $ 1,171,424 $ (2,986,329) $ 293,715 $ (337,745) $ 2,129,818 $ (1,608,247) $ 5,932,357 $ (2,333,703) $ (5,241,840) $ 1,946,674 Debt service as a percentage of noncapital expenditures 3.61% 10.62% 2.23% 2.25% 2.58% 2.56% 22.65% 5.31% 5.08% 5.08% Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. The City implemented GASB Statement 34 in 2002; schedules presenting government-wide information include information beginning in that year. Note: Beginning in FY11, the Community Redevelopment Area was included with the Governmental Funds Note: Beginning in FY14, the Golf Enterprise Fund was transferred into the General Fund. 105  City of Fort Walton Beach, Florida SCHEDULE 5 REVENUES AND OTHER SOURCES (1) Last Ten Fiscal Years Unaudited Other Fiscal Licenses, Fees, Intergovernmental Charges for Fines and Interest and Financing Year Taxes and Permits Revenues Services Forfeitures Other Revenues Sources TOTAL 2016 $11,941,311 $2,623,810 $4,322,696 $2,402,801 $121,513 $935,821 $2,648,184 $24,996,136 2015 11,837,177 2,564,079 3,951,367 2,499,107 131,020 1,142,936 1,789,406 23,915,092 2014 11,537,812 2,392,487 3,376,079 2,373,486 133,645 827,526 1,636,165 22,277,200 2013 9,901,157 2,221,406 3,400,876 1,065,316 241,923 431,625 13,720,159 30,982,462 2012 10,065,983 2,142,995 3,291,693 969,560 142,936 537,975 2,284,416 19,435,558 2011 10,438,481 2,428,621 3,358,615 911,405 151,616 817,975 2,296,944 20,403,657 2010 9,414,513 2,406,916 3,502,904 907,476 204,849 1,370,077 2,342,226 20,148,961 2009 9,160,133 2,320,683 2,950,179 1,132,681 387,449 1,020,342 3,191,822 20,163,289 2008 9,039,398 2,225,224 2,914,162 1,216,687 268,415 1,211,662 5,367,633 22,243,181 2007 10,804,833 496,614 3,661,644 911,026 247,493 3,588,708 2,644,727 22,355,044 (1) Includes General Fund, LETFs, CDBG Fund, FBC Fund, CRA Fund, Debt Service Fund, Capital Projects Fund, and Beal Memorial Fund Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. The City implemented GASB Statement 34 in 2002; schedules presenting government-wide information include information beginning in that year. Note: Beginning in FY14, the Golf Enterprise Fund was transferred into the General Fund. 106  City of Fort Walton Beach, Florida SCHEDULE 6 ASSESSED VALUE OF TAXABLE PROPERTY (1) Last Ten Fiscal Years Unaudited Total Assessed Total Tax Real Personal Assessed Value for Direct Tax Year Property Property Value Exemptions Operations Rate 2016 $ 1,569,650,612 $ 113,113,590 $ 1,682,764,202 $ 458,344,109 $ 1,224,420,093 5.7697 2015 1,521,529,660 112,451,954 1,633,981,614 448,170,536 1,185,811,078 5.7697 2014 1,475,665,054 108,533,120 1,584,198,174 434,639,300 1,149,558,874 5.7697 2013 1,451,775,552 118,155,863 1,569,931,415 442,204,485 1,127,726,930 5.7697 2012 1,445,327,759 120,653,616 1,565,981,375 446,565,401 1,119,415,974 4.5383 2011 1,478,072,570 126,412,302 1,604,484,872 452,378,818 1,152,106,054 4.5383 2010 1,550,325,157 129,348,680 1,679,673,837 469,933,333 1,209,740,504 4.5383 2009 1,864,657,624 148,104,763 2,012,762,387 476,888,476 1,309,056,015 4.1986 2008 2,046,319,844 147,625,998 2,193,945,842 816,366,365 1,377,579,477 4.1986 2007 2,100,890,582 148,394,292 2,249,284,874 777,377,988 1,471,906,886 4.1986 (1) Florida State Law requires all property to be assessed at current fair market. The January 2016 assessment is the basis for Fiscal Year 2016-17 tax revenues. Source: Okaloosa County Property Appraiser 107  City of Fort Walton Beach, Florida SCHEDULE 7 PROPERTY TAX RATES PER $1,000 OF TAXABLE VALUE - ALL DIRECT AND OVERLAPPING GOVERNMENTS (1) Last Ten Fiscal Years Unaudited City of Fort Walton Beach Direct Rate Overlapping Rates* Okaloosa Northwest Total Total Direct Okaloosa County School Florida Water Overlapping Fiscal Year Basic Rate Rate County Board Management Rates 2016 5.7697 5.7697 3.4308 6.9070 0.0366 10.3744 2015 5.7697 5.7697 3.4308 7.2790 0.0378 10.7476 2014 5.7697 5.7697 3.4308 7.4410 0.0390 10.9108 2013 5.7697 5.7697 3.4308 7.5510 0.0400 11.0218 2012 4.5383 4.5383 3.2899 7.4760 0.0400 10.8059 2011 4.5383 4.5383 3.2899 7.7690 0.0400 11.0989 2010 4.5383 4.5383 3.2899 7.5340 0.0450 10.8689 2009 4.1986 4.1986 3.2899 7.6390 0.0450 10.9739 2008 4.1986 4.1986 3.2995 7.6240 0.0450 10.9685 2007 4.1986 4.1986 3.3443 7.6390 0.0450 11.0283 (1) As of levy date, November 1 of each year listed. The 2015 millage rate is the basis for Fiscal Year 2015-16 tax revenues. * Overlapping rates are those of local and county governments that apply to property owners within the City of Fort Walton Beach. Source: Okaloosa County Tax Collector 108  City of Fort Walton Beach, Florida SCHEDULE 8 PRINCIPAL TAXPAYERS Unaudited 2016 2007 Total Total Assessed Assessed Taxpayer Value Percentage Rank Value Percentage Rank Gulf Power Co. $ 20,358,644 1.66% 1 $ 16,171,941 1.47% 2 Suso 2 Uptown, LP 14,339,454 1.17% 2 Cox Communications Gulf Coast, LLC 7,005,455 0.57% 3 99 Eglin LTD 6,077,028 0.50% 4 11,921,792 1.08% 3 DRS Training & Control 5,651,258 0.46% 5 Pacifica Walton Beach LLC 5,553,541 0.45% 6 Embarq Corp. 5,183,838 0.42% 7 PSH Of Okaloosa LLC 5,154,076 0.42% 8 FNBT.COM Bank 4,897,391 0.40% 9 Fort Walton Machining, Inc. 4,330,150 0.35% 10 HSU Paul S & Majes Sprint Florida, Inc. 21,250,752 1.93% 1 Aero Technical Service 9,992,057 0.91% 4 American Senior Living of FWB 9,603,077 0.87% 5 Metric Systems 6,164,931 0.56% 6 Emerald Coast Housing Corp. 5,832,431 0.53% 7 Dakota Group of NWF 5,777,969 0.53% 8 Inland Southeast Paradise Point 5,735,111 0.52% 9 Dea J. Jr & Thomas & Kilgore 5,716,175 0.52% 10 Total Taxable Assessed Value of Principal Taxpayers 78,550,835 6.42% 98,166,236 8.93% Total Taxable Assessed Value of Other Taxpayers 1,145,869,258 93.58% 1,001,497,505 91.07% Total Taxable Assessed Value $ 1,224,420,093 100.00% $ 1,099,663,741 100.00% (1) The 2016 tax roll is the basis for Fiscal Year 2016-17 tax revenues. Source: Okaloosa County Property Appraiser 109  City of Fort Walton Beach, Florida SCHEDULE 9 PROPERTY TAX LEVIES AND COLLECTIONS Last Ten Fiscal Years Unaudited Ratio of Ratio of Amount of Percent of Amount of Total Total Taxes Delinquent Current Current Delinquent Collected Collected to Amount of Taxes to Tax Total Tax Taxes Taxes Taxes for the Current Delinquent Current Year Levy (1) Collected Collected Collected Year Levy Taxes Levy 2016 The 2016 tax levy is the basis for Fiscal Year 2016-17 tax revenues. 2015 $ 6,858,983 $ 6,606,940 96.3% $ 30,392 $ 6,637,332 96.8% $ 8,058 0.1% 2014 6,656,342 6,414,562 96.4% 31,452 6,446,014 96.8% 3,604 0.1% 2013 6,528,146 6,269,683 96.0% 76,388 6,346,071 97.2% 11,388 0.2% 2012 5,096,206 4,880,002 95.8% 50,880 4,930,882 96.8% 10,265 0.2% 2011 5,251,483 5,050,661 96.2% 38,067 5,088,728 96.9% 19,826 0.4% 2010 5,519,832 5,309,040 96.2% 78,863 5,387,903 97.6% 11,576 0.2% 2009 5,523,136 5,280,090 95.6% 45,233 5,325,323 96.4% 59,371 1.1% 2008 5,814,307 5,606,480 96.4% 25,515 5,631,996 96.9% 22,112 0.4% 2007 6,215,424 5,976,218 96.2% 23,448 5,999,666 96.5% 16,699 0.3% (1) Includes discount taken for early payment of taxes (maximum of 4%). Source: Okaloosa County Tax Collector 110  City of Fort Walton Beach, Florida SCHEDULE 10 RATIOS OF OUTSTANDING DEBT BY TYPE Last Ten Fiscal Years Unaudited Governmental Activities Business Activities General General State Total Percentage Fiscal Obligation Lease Revenue Revenue Obligation Lease Revenue Revolving Revenue Primary of Personal Per (1) (2) Year Bonds Payable Notes Bonds Bonds Payable Notes Loans Bonds Government Income Capita 2016 $ - $ 106,653 $ 11,725,331 $ - $ - $ - $ 8,794,000 $ 14,656,929 $ - $ 35,282,913 0.40% 1,617.22 2015 - 134,249 12,371,587 - - - 8,794,000 15,312,458 - 36,612,294 0.42% 1,754.39 2014 - 89,654 13,008,515 - - - - 14,004,706 9,640,146 36,743,021 0.42% 1,813.93 2013 - 101,696 13,535,936 - - - 73,533 7,068,522 9,925,055 30,704,742 0.36% 1,515.83 2012 - - 661,796 4,470,000 - 13,458 61,221 - 10,199,963 15,406,438 0.19% 762.92 2011 - - 728,480 4,615,000 - 66,118 76,586 - 10,464,872 15,951,056 0.21% 816.58 2010 - 47,374 - 4,755,000 - 141,737 - - 13,856,796 18,800,907 0.26% 923.65 2009 - 93,003 - 4,885,000 - 226,886 - - 14,575,130 19,780,019 0.28% 956.71 2008 - 197,509 - 5,010,000 - 584,170 - - 15,125,535 20,917,214 0.30% 999.96 2007 - 260,306 - 7,000,000 - 479,246 - - 15,651,029 23,390,581 0.34% 1,113.41 Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. The City implemented GASB Statement 34 in 2002; schedules presenting government-wide information include information beginning in that year. (1) See Schedule 15 for personal income data. (2) See Schedule 15 for population data. Note: Details regarding the City's outstanding debt can be found in the notes to the financial statements. 111  City of Fort Walton Beach, Florida SCHEDULE 11 RATIO OF NET GENERAL BONDED DEBT OUTSTANDING Last Ten Fiscal Years Unaudited Governmental Activities Percentage of General Actual Taxable Fiscal Year Obligation Bonds Value of Property (1) Per Capita (2) 2016 $ - 0.00% $ - 2015 - 0.00% - 2014 - 0.00% - 2013 - 0.00% - 2012 - 0.00% - 2011 - 0.00% - 2010 - 0.00% - 2009 - 0.00% - 2008 - 0.00% - 2007 - 0.00% - 2006 - 0.00% - Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. The City implemented GASB Statement 34 in 2002; schedules presenting government-wide information include information beginning in that year. (1) See Schedule 6 for property value data. (2) See Schedule 15 for population data. Note: Details regarding the City's outstanding debt can be found in the notes to the financial statements. 112  City of Fort Walton Beach, Florida SCHEDULE 12 PLEDGED REVENUE COVERAGE SCHEDULE OF REVENUE BOND COVERAGE Last Ten Fiscal Years Unaudited Average Non-Ad Valorem Revenues Fiscal Non-Ad Valorem Avail. for Debt Service Requirements (2) Year Revenues (1) Debt Service Principal Interest Total Coverage 2016 $ 28,307,481 $ 28,537,163 $ 1,301,785 $ 860,023 $2,161,808 13.20 2015 28,766,844 27,552,810 962,155 940,698 1,902,853 14.48 2014 26,593,384 26,466,080 890,954 797,317 1,688,271 15.68 2013 26,338,776 25,803,342 364,156 460,197 824,353 31.30 2012 25,267,908 25,556,504 497,049 697,060 1,194,109 21.40 2011 25,845,100 26,274,792 468,935 695,713 1,164,648 22.56 2010 26,704,483 26,355,374 510,000 874,423 1,384,423 19.04 2009 26,006,265 28,208,317 340,000 889,985 1,229,985 22.93 2008 30,410,368 31,235,238 325,000 904,730 1,229,730 25.40 2007 32,060,108 30,760,329 315,000 918,699 1,233,699 24.93 (1) Non-Ad Valorem Revenues of General Fund, Capital Projects Fund, other governmental funds, and proprietary funds. (2) Combined Debt Service requirements for Capital Improvement Revenue Note Series 2013 & 2013A, Utility System Revenue Note 2015, SRF Loan and 2011 Revenue Notes. See Financial Statement Notes for detail. Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. The City implemented GASB Statement 34 in 2002; schedules presenting government-wide information include information beginning in that year. 113  City of Fort Walton Beach, Florida SCHEDULE 13 DIRECT AND OVERLAPPING GOVERNMENTAL ACTIVITIES DEBT Unaudited Percentage Amount Net Debt Applicable to Applicable to Governmental Unit Outstanding Fort Walton Beach Fort Walton Beach Overlapping Debt Okaloosa County Revenue Bonds $ 52,719,870 10.95% (2) $ 5,773,870 Okaloosa County School District Certificates of Participation 39,871,232 31.11% (1) 12,404,383 Subtotal: Overlapping Debt 92,591,102 18,178,254 Direct Debt City of Fort Walton Beach Revenue Notes 11,725,331 100.00% 11,725,331 City of Fort Walton Beach Lease Payable 106,653 100.00% 106,653 Subtotal: Direct Debt 11,831,984 11,831,984 Total Direct and Overlapping Debt $ 104,423,087 $ 30,010,238 Source: Okaloosa County, Okaloosa County School Board (1) Calculation based on total schools in Okaloosa County School District versus schools in Fort Walton Beach. (2) Calculation based on total population in Okaloosa County versus population in Fort Walton Beach. 114  City of Fort Walton Beach, Florida SCHEDULE 14 MAJOR EMPLOYERS Unaudited 2016 2007 Percentage Percentage of Total of Total Employer Product Employees Employment Ranking Employees Employment Ranking USAF - Eglin(1) Air Force Development Test Center 21,500 21.91% 1 21,841 23.11% 1 (2) USAF - Hurlburt Air Force Special Ops Command 10,651 10.85% 2 8,488 8.98% 2 Okaloosa County School District Education Services 3,521 3.59% 3 3,448 3.65% 3 Okaloosa County (3) Local Government Services 1,501 1.53% 4 1,503 1.59% 4 (4) Jacobs Technology - TEAS Group Military Technical Support 1,000 1.02% 5 (4) Fort Walton Beach Medical Center Medical Services 1,000 1.02% 6 1,300 1.38% 5 Lockheed Martin Corporation(4) Military Technical Support 800 0.82% 7 (4) InDyne Inc Military Technical Support 800 0.82% 8 Northwest Florida State College Education Services 752 0.77% 9 759 7 L-3 Crestview Aerospace(4) Military Technical Support 600 0.61% 10 Chromallloy Florida Military Technical Support 0.00% 260 0.28% 10 City of Fort Walton Beach Local Government Services 0.00% 432 0.46% 9 DRS Training and Control Systems Defense Electronics 0.00% 800 0.85% 6 Tybrin Corporation Military Technical Support 0.00% 575 0.61% 8 42,125 36.86% 39,406 30.57% (1) Includes military, civilian, and contractor personnel; a portion of contractor personnel may be duplicated with private sector employees also listed here. (2) Includes military and civilian personnel. (3) Includes County Commission, Clerk of Court, Property Appraiser, Sheriff (estimated), Supervisor of Elections, and Tax Collector. (4) Economic Development Council estimated the employee count for largest employers in Okaloosa County for FY14. Source: Personnel Department of each employer 115  City of Fort Walton Beach, Florida SCHEDULE 15 MISCELLANEOUS DEMOGRAPHICAL STATISTICS Last Ten Fiscal Years Unaudited Fiscal Fort Walton Beach Okaloosa County FWB as a % Personal Income Per Capita Unemployment Year Population Population of the County (thousands of dollars) Personal Income Rate 2016 21,817 198,664 10.98% $ 8,803,001 $ 44,923 4.9% 2015 20,869 190,550 10.95% 8,783,041 44,695 4.4% 2014 20,719 189,307 10.94% 8,775,211 45,277 4.6% 2013 20,256 186,887 10.84% 8,546,210 44,960 4.7% 2012 20,194 185,803 10.87% 7,913,960 43,132 6.0% 2011 19,534 180,280 10.84% 7,497,082 42,007 7.3% 2010 20,355 195,346 10.42% 7,369,683 41,050 8.0% 2009 20,675 196,237 10.54% 7,090,979 39,158 7.2% 2008 20,918 197,597 10.59% 6,861,716 37,497 4.8% 2007 21,008 196,540 10.69% 6,781,908 37,423 2.9% OKALOOSA COUNTY EDUCATION FY 2016 FY 2015 FY 2014 Schools: Grades K-5 18 18 18 Grades 6-8 7 7 7 Grades 9-12 4 4 4 PK-12 / Charter / Alternate 2 / 5 / 10 2 / 5 / 10 2 / 4 / 10 Grades K-8 1 1 1 Vocational / Technical 1 1 1 Exceptional Children 2 2 2 Students: Grades K-5 15,200 15,046 12,315 Grades 6-8 7,046 7,034 6,882 Grades 9-12 8,801 8,701 8,834 Adult Students 225 237 285 Exceptional Children 5,105 5,316 4,282 Personnel: Instructional (Classroom) 1,900 1,889 1,912 Non-Instructional 1,098 1,181 1,087 Source: Office of Economic & Demographic Research, FL Research & Economic Information Database, Okaloosa County School Board 116  City of Fort Walton Beach, Florida SCHEDULE 16 FULL-TIME EQUIVALENT EMPLOYEES BY FUNCTION/PROGRAM Last Ten Fiscal Years Unaudited Full-Time Equivalent Employees as of September 30 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 General Government City Manager 3.00 3.00 2.00 2.00 2.00 2.00 2.00 2.00 3.00 4.00 Administrative Services 3.60 3.00 3.00 3.00 3.00 3.00 4.00 4.00 4.00 4.00 Risk Management - - - - - - 1.00 1.00 - - Information Technology 2.00 2.00 2.00 2.00 2.00 2.00 2.75 2.75 3.00 4.00 City Clerk 2.50 2.50 2.50 2.50 2.50 2.50 3.00 3.00 3.00 3.00 Finance 6.00 6.00 7.00 7.00 7.00 7.00 7.00 7.00 7.00 7.00 Purchasing 3.00 2.75 2.75 2.50 2.50 2.50 2.50 2.00 5.00 5.00 Public Safety Police 61.90 61.38 60.99 59.99 70.99 67.99 67.59 68.05 74.05 73.17 Fire 37.00 38.00 37.00 37.00 37.00 37.00 38.00 38.00 39.00 39.00 Recreation & Cultural Services Administration 12.90 12.64 12.32 13.45 13.67 13.81 15.93 17.19 32.09 32.64 Parks Maintenance 10.00 10.00 10.00 10.00 11.00 11.00 11.00 11.90 - - Right-of-Way Maintenance 1.00 1.00 1.00 1.00 1.00 1.00 7.00 8.00 9.00 9.00 Senior Citizens Center - - 1.85 1.85 1.85 1.85 1.85 1.85 2.38 2.58 Golf Club 14.26 13.93 14.26 - - - - - - - Golf Grounds Maintenance 15.75 15.75 15.75 - - - - - - - Library 8.02 8.02 8.02 8.02 8.02 8.10 9.90 9.90 10.60 11.10 Museum 4.60 4.10 3.60 3.60 3.60 2.60 3.85 4.98 5.18 6.01 Cemetery 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.50 3.50 3.50 Engineering Services Administration 3.00 4.00 4.00 5.00 5.00 5.00 6.00 6.00 7.00 7.00 Planning & Zoning 3.00 2.00 2.00 1.00 1.00 1.00 1.00 - 4.00 4.00 Building & Permitting 4.00 4.00 4.00 4.00 3.70 3.00 3.00 3.00 6.00 6.00 Code Enforcement 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 - - Fleet Maintenance 9.00 9.00 9.00 9.00 8.75 8.75 10.00 11.00 12.00 12.00 Facilities Maintenance 7.00 7.00 7.00 8.00 8.00 8.00 11.00 11.00 10.00 11.00 Streets Maintenance 6.00 6.00 6.00 5.50 5.50 5.50 6.50 6.50 14.50 13.50 Community Development Block Grant - 0.48 0.48 0.48 0.48 0.48 0.48 0.48 0.48 1.48 Community Redevelopment Agency 3.00 3.00 3.00 3.00 3.00 3.00 1.00 1.00 1.00 1.75 Utility (Water/Sewer) Enterprise Administration 8.00 8.00 8.00 7.00 7.00 6.75 1.00 2.00 6.00 5.00 Customer Service 5.50 5.50 5.50 5.50 5.50 5.50 7.50 7.50 8.00 9.00 Water Operations 9.00 10.00 9.00 9.00 9.00 10.00 7.00 7.00 7.00 7.00 Sewer Operations - - - - - - 2.00 11.00 11.00 13.00 Water Distribution 5.00 5.00 5.00 5.00 5.00 5.00 6.00 6.00 6.00 7.00 Sewer Collections 13.00 13.00 13.00 13.00 12.00 12.00 11.00 11.00 11.00 12.00 Sanitation Enterprise Solid Waste 19.00 19.00 19.00 19.00 19.00 18.75 19.62 19.87 21.00 21.00 Recycling 1.00 1.00 1.00 - - - - - - 4.00 Golf Enterprise Golf Club - - - 14.26 14.26 14.26 14.26 31.01 36.51 36.56 Golf Grounds Maintenance - - - 15.75 15.75 15.75 15.75 - - - Stormwater Enterprise Stormwater 6.00 6.00 6.00 6.00 6.00 6.00 7.00 8.00 - - Total 292.03 292.05 291.02 289.40 300.07 296.09 312.48 329.48 362.29 375.29 Source: City of Fort Walton Beach Adopted Budget for the relevant year. Note: Golf Enterprise Fund moved to the General Fund in FY14. 117  City of Fort Walton Beach, Florida SCHEDULE 17 PERMITS, LICENSES AND RECREATION FACILITIES Last Ten Fiscal Years Unaudited MISCELLANEOUS PERMITS Year Mechanical Electrical Gas Plumbing Water & Sewer 2016 200 216 144 92 34 2015 153 216 116 75 34 2014 247 379 136 194 27 2013 148 188 121 82 26 2012 148 168 102 100 39 2011 249 255 74 159 18 2010 212 290 87 154 27 2009 142 285 52 158 16 2008 168 298 97 178 20 2007 177 340 109 157 30 BUSINESS TAX RECEIPTS ISSUED (formerly referred to as occupational licenses) Year Number Sold 2016 2,115 2015 2,259 2014 2,402 2013 2,087 2012 1,947 2011 2,269 2010 2,311 2009 2,364 2008 2,426 2007 2,499 MUNICIPAL RECREATIONAL FACILITIES 2 18-hole Golf Courses 1 Library 1 18-hole Disc Golf Course 4 Museums 1 Auditorium 23 Playgrounds 12 Baseball-Softball Facilities 2 Racquetball Court Facility 1 BMX/Skateboard Facility 1 Recreation Center 5 Boat Ramps 2 Soccer Field Facility 6 Exercise/Walking Tracks 4 Tennis Court Facilities 1 Fairgrounds 7 Undeveloped Parks 1 Football Stadium 4 Waterfront Parks Sources: City of Fort Walton Beach Customer Service, Building & Permitting, and Recreation departments. Note: Change in facility and athletic field totals due to the construction of the new Recreation Center, which was be complete in FY 2015. 118  City of Fort Walton Beach, Florida SCHEDULE 18 ELECTIONS - OKALOOSA COUNTY VOTER REGISTRATION Unaudited Registered Voters Pct Place Name Total Dems Reps NPA Other 01 BAKER 2,290 350 1,625 291 24 02 BLACKMON 660 131 455 67 7 03 MILLIGAN 1,263 226 810 207 20 04 HOLT 1,223 232 773 192 26 05 LAUREL HILL 1,044 244 609 172 19 06 GARDEN CITY 3,227 583 2,058 538 48 07 DORCAS 1,554 284 932 308 30 08 HONEY CREEK 4,085 896 2,362 744 83 09 YELLOW RIVER 3,713 729 2,196 716 72 10 WEST WRIGHT 6,065 1,417 3,076 1,435 137 11 EAST CRESTVIEW 7,916 1,706 4,148 1,845 217 12 WEST CRESTVIEW 934 516 219 188 11 13 NORTH CRESTVIEW 3,734 779 2,210 677 68 14 WEST NICEVILLE 2,897 523 1,663 639 72 15 VALPARAISO 2,925 531 1,695 639 60 16 SHALIMAR 2,688 564 1,510 547 67 17 CENTRAL WRIGHT 3,382 887 1,572 838 85 18 OCEAN CITY 2,216 531 1,146 501 38 19* EAST FWB 1,717 522 705 448 42 20 WEST DESTIN 2,471 438 1,466 505 62 21 MARY ESTHER 2,639 553 1,517 507 62 22* S CENTRAL FWB 2,125 609 1,010 472 34 23 EGLIN AFB 635 117 285 212 21 24* WEST FWB 2,849 776 1,363 648 62 25 N CENTRAL NICEVILLE 1,781 322 1,084 332 43 26 SEMINOLE 2,574 331 1,751 436 56 27 CINCO BAYOU 302 69 151 77 5 28* GARNIERS 356 67 223 58 8 29* GOLF COURSE 2,119 332 1,385 360 42 30 OKALOOSA ISLAND 1,535 243 882 371 39 31 LONGWOOD 2,040 332 1,380 297 31 32* FERRY PARK 2,439 469 1,477 435 58 33 ROCKY BAYOU 4,586 523 3,319 691 53 34 FLOROSA 3,608 796 1,767 937 108 35 NORTH DESTIN 3,150 403 2,030 672 45 36 SOUTH NICEVILLE 2,581 342 1,753 431 55 37 LAKE LORRAINE 2,666 341 1,840 440 45 38 NORTHGATE 2,279 515 1,254 467 43 39 EAST WRIGHT 2,338 566 1,184 547 41 40 SOUTH BLUEWATER 2,904 339 2,026 489 50 41* N CENTRAL FWB 1,382 254 888 212 28 42* NEW HEIGHTS 2,418 740 1,077 548 53 43 S CENTRAL NICEVILLE 2,262 419 1,332 465 46 44 CENTRAL DESTIN 1,886 334 1,013 495 44 45 SOUTH CRESTVIEW 4,545 1,017 2,366 1,078 84 46 NORTH BLUEWATER 4,521 576 3,012 847 86 47 WYNNEHAVEN BEACH 2,119 429 1,024 604 62 48* WESTWOOD RETIREMENT 127 33 82 12 0 49 EAST DESTIN 3,157 404 2,144 556 53 50 SOUTH DESTIN 3,111 377 2,098 579 57 51 AIRPORT ROAD 1,859 284 1,184 355 36 52 LIVE OAK 3,596 707 2,084 740 65 Countywide Total 116,961 21,906 69,005 23,674 2,376 City Total 15,532 3,802 8,210 3,193 327 *City Precinct Source: Okaloosa County Supervisor of Elections 119  City of Fort Walton Beach, Florida SCHEDULE 19 SPECIAL ASSESSMENT BILLINGS AND COLLECTIONS Last Ten Fiscal Years Unaudited Total Ratio of Outstanding Assessments Collections Current and Fiscal Collected or to Amount Delinquent Year Assessments (1) Released Assessed Assessment 2016 $ 380,118 $ 28,081 7.39% $ 406,239 2015 - 61,898 - 54,202 2014 - 3,604 - 116,100 2013 - 5,302 - 119,704 2012 - 12,779 - 125,006 2011 - 5,986 - 137,785 2010 - 19,801 - - 2009 - 6,528 - - 2008 - 7,511 - - 2007 218,730 72,576 33.18% 146,154 (1) Assessments are payable over a 15-20 year period. Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. 120  City of Fort Walton Beach, Florida SCHEDULE 20 MAJOR REVENUE SOURCES Last Ten Fiscal Years Unaudited Other Fiscal Property % of Total Taxes/ % of Total Sewer % of Total Sanitation % of Total Water % of Total Golf % of Total Year Taxes Revenues Franchise Fees Revenues Fees Revenues Fees Revenues Fees Revenues Fees Revenues 2016 $ 7,271,903 20.4% $ 7,124,985 20.0% $ 6,310,574 17.7% $ 3,589,419 10.1% $ 3,769,366 10.6% $ 1,378,730 3.9% 2015 7,025,998 19.7% 7,171,032 20.1% 5,748,749 16.1% 3,581,264 10.1% 3,425,909 9.6% 1,399,101 3.9% 2014 6,886,443 20.6% 6,807,274 20.4% 5,177,966 15.5% 3,562,694 10.7% 3,238,894 9.7% 1,365,764 4.1% 2013 5,486,237 17.3% 6,355,549 20.1% 4,949,525 15.7% 3,499,459 11.1% 3,078,174 9.7% 1,591,423 5.0% 2012 5,681,589 18.5% 6,482,596 21.1% 4,839,764 15.8% 3,313,559 10.8% 3,052,071 9.9% 1,656,721 5.4% 2011 6,030,428 19.2% 6,673,824 21.2% 4,631,992 14.7% 3,307,993 10.5% 2,753,590 8.8% 1,954,589 6.2% 2010 5,332,480 17.5% 6,645,189 21.8% 4,154,795 13.6% 3,335,342 10.9% 2,379,913 7.8% 1,914,053 6.3% 2009 5,629,812 19.0% 6,425,482 21.7% 3,943,722 13.3% 3,363,185 11.4% 2,245,512 7.6% 2,164,174 7.4% 2008 6,021,743 20.6% 5,706,534 19.5% 3,984,282 13.6% 3,441,588 11.8% 2,271,327 7.8% 2,365,739 8.1% 2007 6,123,749 15.7% 5,645,463 14.5% 4,162,172 10.7% 3,427,925 8.8% 2,492,378 6.4% 2,441,793 6.3% Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. The City implemented GASB Statement No. 34 in 2002; schedules presenting government-wide information include information beginning in that year. Note: Beginning in FY14, the Golf Enterprise Fund was transferred into the General Fund. 121  City of Fort Walton Beach, Florida SCHEDULE 21 WATER AND WASTEWATER SERVICE RATES Unaudited Monthly Water Rates(1,2) Residential Commercial Number of Inside Outside(3) Inside Outside(3) Meters Lifeline Rate(4) $10.67 $13.34 $10.67 $13.34 Monthly Base Charge(5), Meter Size: 3/4" $10.67 $13.34 $10.67 $13.34 9,017 1.0" $10.67 $13.34 $10.67 $13.34 334 1.5" $14.50 $18.13 $14.50 $18.13 110 2.0" $24.64 $30.80 $24.64 $30.80 220 3.0" $37.55 $46.94 $37.55 $46.94 14 4.0" $46.93 $58.66 $46.93 $58.66 18 6.0" $74.65 $93.31 $74.65 $93.31 0 8.0" or 10.0" $111.87 $139.84 $111.87 $139.84 1 Multi-Residential, Addt'l per Unit $7.90 $9.88 $7.90 $9.88 9,714 Residential Customers (6) 8,510 Commercial Customers (6) 1,108 Total Customers 9,618 Gallonage Rate (per 1,000 gallons per unit) Inside Outside Block 1 (0 - 2,000) Included in monthly base charge Block 2 (2,001 - 4,000) $3.18 $3.98 Block 3 (4,001 - 8,000) $3.89 $4.86 Block 4 (8,001 +) $5.83 $7.29 Monthly Wastewater Rates (2) Residential Commercial Lifeline Rate(4) $23.77 $28.45 Monthly Base Charge $23.77 $28.45 Gallonage Rate (per 1,000 gallons per unit)(5 Block 1 (0 - 2,000) Included in monthly base charge Block 2 (2,001 +) $7.73 $9.20 (1) Irrigation customers subject to water rates as outlined herein (2) Monthly Base Charge is per Unit. Residential Single Family and Commercial count as 1 unit Multi-Family and Multi-Commercial are billed according to meter size and unit count (3) Outside City surcharge of 25% for water (4) Single family residence with less than 2,000 gallons per month (5) Residential service capped at 16,000 gallons per unit (6) Billed in September Source: City of Fort Walton Beach Comprehensive Fee Schedule 122  City of Fort Walton Beach, Florida SCHEDULE 22 SANITATION AND RECYCLING SERVICE RATES Unaudited Basic Garbage Rates Garbage Tipping Total Residential One Container $ 10.60 $ 6.45 $ 17.05 Two Containers 21.20 12.80 34.00 Residential Dumpsters, Individual Meters 10.60 6.45 17.05 Commercial One Container 28.60 7.25 35.85 Two Containers 57.20 14.55 71.75 Shared Dumpster (minimum charge) 28.60 7.25 35.85 Garbage and Trash Collection Garbage Tipping Total 2 Cubic Yards 2 times per week $ 60.70 $ 52.40 $ 113.10 3 times per week 91.05 78.50 169.55 4 times per week 121.45 104.55 226.00 5 times per week 151.75 130.70 282.45 6 times per week 182.10 156.80 338.90 4 Cubic Yards 2 times per week 85.70 104.55 190.25 3 times per week 128.55 156.80 285.35 4 times per week 171.40 209.05 380.45 5 times per week 214.25 261.30 475.55 6 times per week 257.10 313.55 570.65 6 Cubic Yards 2 times per week 112.50 156.80 269.30 3 times per week 168.75 235.20 403.95 4 times per week 224.95 313.55 538.50 5 times per week 281.20 391.90 673.10 6 times per week 337.45 470.35 807.80 8 Cubic Yards 2 times per week 135.70 209.05 344.75 3 times per week 203.55 313.55 517.10 4 times per week 271.40 418.05 689.45 5 times per week 339.25 522.60 861.85 6 times per week 407.10 627.05 1,034.15 Compactor Commercial Rate x 3 x Bulk Container(s) Commercial Recycling Garbage Tipping Total 4 Cubic Yards 2 times per week $ 112.70 $ - $ 112.70 3 times per week 169.00 - 169.00 4 times per week 225.35 - 225.35 5 times per week 281.70 - 281.70 6 Cubic Yards 2 times per week 169.00 - 169.00 3 times per week 253.50 - 253.50 4 times per week 338.00 - 338.00 5 times per week 422.50 - 422.50 8 Cubic Yards 2 times per week 225.35 - 225.35 3 times per week 338.00 - 338.00 4 times per week 450.70 - 450.70 5 times per week 563.35 - 563.35 Contaminated Load Fee (per dump) 4 CY 20.00 31.20 51.20 6 CY 20.00 56.10 76.10 8 CY 20.00 87.20 107.20 Source: City of Fort Walton Beach Comprehensive Fee Schedule 123  City of Fort Walton Beach, Florida SCHEDULE 23 OPERATING INDICATORS BY FUNCTION/PROGRAM Last Ten Fiscal Years Unaudited Function Fiscal Year 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 Public Safety Police Arrests 921 1,041 873 867 1,042 1,265 1,773 2,298 2,526 2,201 Traffic citations 2,693 2,864 3,119 3,413 3,773 3,246 6,207 6,430 7,211 5,171 Fire Emergency medical responses 3,067 3,322 3,278 3,231 3,197 3,041 2,791 2,645 2,484 2,567 Fire responses 1,210 1,270 1,389 1,277 1,288 1,224 1,158 477 479 517 Inspections 2,409 1,000 700 800 758 1,431 2,040 2,863 3,277 3,319 Code Enforcement Code violations 1,807 1,702 1,766 2,118 2,158 2,456 2,426 2,513 2,108 1,793 Engineering Services Building permits issued n/a n/a n/a n/a n/a n/a n/a 1,429 1,582 1,710 Residential building permits issued 23 1,214 1,220 1,095 697 588 630 n/a n/a n/a Commercial building permits issued 5 402 310 457 164 284 380 n/a n/a n/a Value of permits (in millions) n/a n/a n/a n/a n/a n/a n/a $46.20 $37.40 $28.70 Value of residential permits (in millions) $ 4 $ 16 $ 16 $ 15 $ 9 $ 10 $ 7 n/a n/a n/a Value of commercial permits (in millions) $ 1 $ 832 $ 27 $ 23 $ 9 $ 7 $ 7 n/a n/a n/a Business Tax Receipts Sold 2,115 2,259 2,402 2,087 1,947 2,269 2,311 2,364 2,426 2,499 Street resurfacing (lane miles) 1.01 0.64 0.16 - 1.70 2.25 5.71 1.53 0.78 0.46 Pot holes (hours spent repairing) 163 770 528 813 989 1,014 617 1,257 1,476 1,022 Sanitation Refuse collected (tons) 25,203 24,467 26,102 24,059 25,374 25,332 25,676 25,485 27,873 28,374 Recyclables collected (tons) 1,507 1,191 754 615 375 251 161 150 112 367 Culture and Recreation Parks and Recreation (3) Recreation program participants 154 n/a n/a n/a 92,267 106,486 103,121 116,565 118,890 125,697 (5) Recreation program registrations n/a 650 651 571 n/a n/a n/a n/a n/a n/a (3) Adult athletic participants n/a n/a n/a n/a 6,728 9,003 10,009 11,406 14,591 14,669 Adult athletic registrations 621 424 426 467 n/a n/a n/a n/a n/a n/a (3) Youth athletic participants n/a n/a n/a n/a 14,548 13,038 12,525 14,211 15,570 14,418 Youth athletic registrations 2,086 1,978 1,347 1,253 n/a n/a n/a n/a n/a n/a (4) Skate/tennis park participants n/a n/a n/a n/a 13,114 18,291 15,297 18,480 24,100 29,088 Library Circulation volume 144,474 137,363 145,684 142,888 139,196 126,146 135,314 142,148 137,002 126,271 Museum (1) Number of visitors/participants 22,437 22,683 19,461 22,901 21,480 28,200 39,935 47,700 45,168 28,916 Water System New connections 81 34 27 26 39 18 27 16 20 30 Water customers 9,618 9,537 9,480 9,279 8,846 8,804 8,795 8,741 8,927 8,996 Water produced (million gallons) 883 891 884 855 868 899 897 943 963 1,071 Wastewater System (2) Wastewater treated (million gallons) - - - - - - 381 769 916 796 (1) Decline in 2011 primarily in outreach numbers; reducing outreach to be more in line with in-house service numbers at the suggestion of City Council (2) Wastewater treatment transferred to County in March 2010 (3) FY 2013 total participants was changed to total registrations; changed back to participants in FY 2016 (4) FY 2012-2013 numbers were not required to be collected for the BMX Park or the Tennis Center (5) FY 2016 registrations were changed to participants so that each person was counted once Source: City of Fort Walton Beach Performance Measures. 124  City of Fort Walton Beach, Florida SCHEDULE 24 CAPITAL ASSET STATISTICS BY FUNCTION/PROGRAM Last Ten Fiscal Years Unaudited Function/Program Fiscal Year 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 Public Safety Police Stations 1 1 1 1 1 1 1 1 1 1 Sworn Officers 39 43 43 43 51 48 49 49 55 53 Engineering Services Miles of roads 93.12 93.12 93.12 93.12 93.06 92.65 (2) 112.76 112.76 (1) 99.35 98.50 Miles of sidewalks 64.73 63.67 64.73 64.05 63.93 62.80 62.11 61.35 61.32 60.92 Signs fabricated and installed 854 1,133 918 785 935 976 910 1,110 1,223 1,481 Culture and Recreation Parks and Recreation Recreational Amenities 129 129 116 (7) 117 (4) 122 122 122 (3) 91 90 90 Parks (acres) 206.00 196.56 180.26 180.26 180.26 180.26 180.26 180.26 180.26 180.26 Library Inventoried collection 70,353 72,313 72,729 74,649 74,448 72,873 74,317 73,641 71,006 69,061 Water and Sewer System Potable water lines (miles) 144.91 144.77 146.25 145.9 (5) 118.63 118.57 118.52 118.10 118.09 118.09 Sanitary sewer lines (miles) 129.51 110.45 130.32(5) 118.76 118.76 118.76 118.77 118.77 118.77 118.77 Reuse water lines (miles) 7.10 7.10 7.10 7.14 3.82 3.82 3.82 4.14 4.14 4.14 Potable Water Elevated Storage Tank Capacity: 1 (6) tank 200,000 gal; 1 tank 750,000 gal; 2 tanks 500,000 gal Potable Water Ground Storage Tank Capacity: 1 tank 135,000 gal; 1 tank 250,000 gal; 1 tank 1,000,000 gal; 1 tank 25,000 gal Pumping Capacity of Potable Water Wells: 9.231 million gallons per day Sanitary Sewer Ground Storage Tank Capacity: 4,000,000 gal Reuse Water Elevated Storage Tank Capacity: 1 tank 200,000 gal Reuse Water Ground Storage Tank Capacity: 1 tank 1,000,000 gal Stormwater System Storm drains (miles) 42.10 42.03 42.05 42.01 41.64 41.64 (2) 45.70 45.66 (1) 34.73 34.73 (1) FY 2009 Increase due to better data with GIS system and methodology change for calculation. (2) FY 2011 Adjustment to only include City-maintained roads and stormwater pipe (collector, culvert, french drain). (3) FY 2010 Adjustment due to re-evaluation of how amenities are counted. (4) Decrease due to demolition of the Rec Center and fields. (5) Increase due to better data output from GIS system. (6) One elevated tank with 200,000 gallon capacity was converted to reuse water. (7) Decrease due to sale of Senior Center. New Recreation Center will be open mid FY 2015. N/A: Not available. Source: City of Fort Walton Beach Performance Measures. 125  City of Fort Walton Beach, Florida SCHEDULE 25 INSURANCE COVERAGE Unaudited Agent, Broker, or Effective Dates Company Policy Number Company Rep. Type Amount Location 10/12/16 to 10/12/17 Wright National 1151291251 Fisher-Brown Agency Flood $ 450,000 B 14 Robinwood Drive SW $ 100,000 C Sanitation Building 10/12/16 to 10/12/17 Wright National 1151306332 Fisher-Brown Agency Flood $ 500,000 B #7 Hollywood Boulevard $ 500,000 C Police Department 10/12/16 to 10/12/17 Wright National 1151291263 Fisher-Brown Agency Flood $ 500,000 B #5 Hollywood Boulevard $ 300,000 C Fire Department 10/12/16 to 10/12/17 Wright National 1151292103 Fisher-Brown Agency Flood $ 402,700 B 107 Miracle Strip Parkway $ 128,200 C Auditorium 10/12/16 to 10/12/17 Wright National 1151291796 Fisher-Brown Agency Flood $ 402,700 B 107 Miracle Strip Parkway $ 382,900 C City Hall 10/12/16 to 10/12/17 Wright National 1151292114 Fisher-Brown Agency Flood $ 177,300 B 107 Miracle Strip Parkway $ 16,300 C Council Chamber 10/12/16 to 10/12/17 Wright National 1151292125 Fisher-Brown Agency Flood $ 402,700 B 107 Miracle Strip Parkway $ 382,900 C Annex Building 10/12/16 to 10/12/17 Wright National 1151292120 Fisher-Brown Agency Flood $ 389,700 B 107 Miracle Strip Parkway $ 16,300 C Utility Building 10/12/16 to 10/12/17 Wright National 1151291389 Fisher-Brown Agency Flood $ 450,000 B 141 Miracle Strip Parkway $ 100,000 C City Museum 10/12/16 to 10/12/17 Wright National 1151291280 Fisher-Brown Agency Flood $ 350,000 B 22 McGriff Street 50,000 C Child Care Facility 10/12/16 to 10/12/17 Wright National 1150164378 Fisher-Brown Agency Flood $ 38,500 B 338 Miracle Strip Parkway Restroom, East of Pavillion Liza Jackson Park 126  City of Fort Walton Beach, Florida SCHEDULE 25 INSURANCE COVERAGE Unaudited Agent, Broker, or Effective Dates Company Policy Number Company Rep. Type Amount Location 10/12/16 to 10/12/17 Wright National 1150164379 Fisher-Brown Agency Flood $ 38,500 B 338 Miracle Strip Parkway Restroom Near Ditch Liza Jackson Park 05/17/16 to 05/17/17 Wright National 1150342974 Fisher-Brown Agency Flood $ 98,300 B 55 Ferry Road Boy Scout Hut 07/23/16 to 07/23/17 Wright National 1151270502 Fisher-Brown Agency Flood $ 300,000 B 18 Robinwood Drive $ 50,000 C Pump Station #1 06/23/16 to 06/23/17 Wright National 1150458831 Fisher-Brown Agency Flood $ 55,000 B 168 Coral Drive SW City Hall Ball Field Restrooms 10/01/16 to 10/10/17 AIG Environmental Tank Guard 12896318 Public Risk Insurance Agency Petroleum $ 1,000,000/inc Golf Course, Police, City Yard, Fuel Station Liability $ 1,000,000/agg Pump Station - Fire 10/01/16 to 10/10/17 PGIT PKFL1046200315-11 Public Risk Insurance Agency Inland $ 555,260 Fine Arts Marine $ 250,000 Rented, Borrowed, Leased Equipment $ 664,648 Contractor's Mobile Equipment $ 588,532 EDP/Minicomputer/Word Processor $ 250,000 Valuable Papers $ 231,933 Other Inland Marine $ 318,276 Emergency Svcs Portable Equipment $ 255,211 Communication Equipment 9/16/16 to 9/16/17 Hartford 21BSBDB7459 Fisher-Brown Agency Public Official $ 50,000 Finance Director Bond 02/09/17 to 02/09/18 Hartford 21BSBDB7454 Fisher-Brown Agency Public Official $ 50,000 Customer Service Administrator, Finance Bond Department 10/01/16 to 10/10/17 PGIT PKFL1046200315-11 Public Risk Insurance Agency Auto $ 100,000 Uninsured Motorist $ 1,000,000 CSL Liability 10/01/16 to 10/10/17 PGIT PKFL1046200315-11 Public Risk Insurance Agency Forgery $ 250,000 Alteration 127  City of Fort Walton Beach, Florida SCHEDULE 25 INSURANCE COVERAGE Unaudited Agent, Broker, or Effective Dates Company Policy Number Company Rep. Type Amount Location 10/01/16 to 10/10/17 PGIT PKFL1046200315-11 Public Risk Insurance Agency Money & $ 10,000 Securities 10/01/16 to 10/10/17 PGIT PKFL1046200315-11 Public Risk Insurance Agency Crime $ 250,000 Public Employees Blanket Fidelity Bond 10/01/16 to 10/10/17 PGIT PKFL1046200315-11 Public Risk Insurance Agency General $ 1,000,000 Occurance Liability 10/01/16 to 10/10/17 PGIT PKFL1046200315-11 Public Risk Insurance Agency Property $ 45,883,959 Blank Real & Personal Property 9/16/16 to 9/16/17 PGIT PKFL1046200315-11 Public Risk Insurance Agency Property $ 100,000 Business Income 500,000 Additional Expense 02/09/17 to 02/09/18 PGIT WC-FL1046200313-04 Public Risk Insurance Agency Worker's $ 1,000,000 Accident Comp $ 1,000,000 Disease 10/01/16 to 10/10/17 PGIT PKFL1046200315-11 Public Risk Insurance Agency Public Officials $ 5,000,000 Empl. Practice 5,000,000 10/01/16 to 10/10/17 Federal Insurance 9906-62-32 LB Bryan & Co. AD&D $ 65,000 Occupational Death Mutual of Omaha $ 65,000 Response to Emergency $ 190,000 Unlawful/Unintentional 10/01/16 to 10/10/17 PGIT PKFL1046200315-11 Public Risk Insurance Agency Boiler & $ 45,883,959 Machinery 5/01/17 to 5/01/18 Travelers 105927344 Fisher-Brown Agency Fiduciary $ 2,000,000 Retirement Fund for General Liability Employees and Fire Source: City of Fort Walton Beach Risk Management Department 128  CITY OF FORT WALTON BEACH, FLORIDA OTHER SUPPLEMENTARY INFORMATION SCHEDULE OF RECEIPTS AND EXPENDITURES OF FUNDS RELATED TO THE DEEPWATER HORIZON OIL SPILL FOR THE YEAR ENDED SEPTEMBER 30, 2016 Amounts Amounts Received in Expended in the 2015-2016 the 2015-2016 Source Fiscal Year Fiscal Year Florida Coastal Protection Trust Fund Stormwater projects (MOEX) Deepwater Horizon oil spill 1 $ 41,797 $ 6,255 (1) Grant revenue of $35,542 was recognized as revenue in the prior year financial statements, but was not but was not received until the current fiscal year. 129  INDEPENDENT AUDITORS’ REPORT ON THE SCHEDULE OF RECEIPTS AND EXPENDITURES OF FUNDS RELATED TO THE DEEPWATER HORIZON OIL SPILL To the Honorable Mayor and City Council Members City of Fort Walton Beach, Florida We have audited the financial statements of the City of Fort Walton Beach, Florida as of and for the year ended September 30, 2016, and have issued our report thereon dated February 24, 2017, which contained an unmodified opinion on those financial statements. Our audit was performed for the purpose of forming an opinion on the financial statements as a whole. The Schedule of Receipts and Expenditures of Funds related to the Deepwater Horizon Oil Spill on page 129 is presented for the purpose of additional analysis as required by Florida Statue 288.8018 and the Rules of the Auditor General Chapter 10.557(3)(f), and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole. Fort Walton Beach, Florida February 24, 2017 130  CITY OF FORT WALTON BEACH, FLORIDA SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE YEAR ENDED SEPTEMBER 30, 2016 Federal Agency Pass-Through Entity CFDA Federal Project Number Contract/Grant Number Expenditures U.S. Department of Homeland Security Indirect programs Pass-through from Federal Emergency Management Agency (FEMA) Assistance to Firefighters Grant 97.044 EMW-2012-FO-02509 $ 470,638 Disaster Relief Assistance Grant 97.036 PA-04-FL-4177-PW 314,499 785,137 U.S. Department of Housing & Urban Development Direct programs Community Development Block Grant 2013 14.218 B-13-MC-12-0030 17,825 Community Development Block Grant 2014 14.218 B-14-MC-12-0030 20,451 Community Development Block Grant 2015 14.218 B-15-MC-12-0030 78,811 117,087 U.S. Department of Justice Direct programs Bulletproof Vest Partnership Program 16.607 2,756 Indirect programs Pass-through from Florida Department of Law Enforcement (FDLE) Byrne Memorial Justice Assistance Grant 2015 16.738 2015-JAGD-OKAL-1-R1-015 4,785 Byrne Memorial Justice Assistance Grant 2016 16.738 2016-JAGC-OKAL-1-H3-156 9,853 14,638 TOTAL EXPENDITURES OF FEDERAL AWARDS $ 919,618 131  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE YEAR ENDED SEPTEMBER 30, 2016 1. BASIS OF PRESENTATION The accompanying schedule of expenditures of federal awards (the Schedule) includes the federal award activity of the City of Fort Walton Beach, Florida (the City), under programs of the federal government for the year ended September 30, 2016. The information in this Schedule is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Expenditures reported on the Schedule are reported on the accrual basis of accounting. Such expenditures are recognized following the cost principles contained in the Uniform Guidance, wherein certain types of expenditures are not allowable or are limited as to reimbursement. Therefore, some amounts presented in the Schedule may differ from amounts presented in, or used in the preparation of, the basic financial statements. 132  INDEPENDENT AUDITORS’ REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS To the Honorable Mayor and City Council Members City of Fort Walton Beach, Florida We have audited, 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, the financial statements of governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Fort Walton Beach, Florida (the City), as of and for the year ended September 30, 2016, and the related notes to the financial statements, which collectively comprise the City's basic financial statements and have issued our report thereon dated February 24, 2017. Internal Control over Financial Reporting In planning and performing our audit, 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 the 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 combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. 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 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. 133 Compliance and Other Matters As part of obtaining reasonable assurance about whether the City's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under 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 entity’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 entity’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Fort Walton Beach, Florida February 24, 2017 134  INDEPENDENT AUDITORS’ REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE To the Honorable Mayor and City Council Members City of Fort Walton Beach, Florida Report on Compliance for Each Major Federal Program We have audited the City of Fort Walton Beach, Florida’s (the City) compliance with the types of compliance requirements describe in the OMB Compliance Supplement that could have a direct and material effect on each of the City’s major federal programs for the year ended September 30, 2016. The City’s major federal programs are identified in the summary of auditor’s results section of the accompanying schedule of findings and questioned costs. Management’s Responsibility Management is responsible for compliance with federal statutes, regulations, and the terms and conditions of its federal awards applicable to its federal programs. Auditors’ Responsibility Our responsibility is to express an opinion on compliance for each of the City’s major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the City’s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of the City’s compliance. Opinion on Each Major Federal Program In our opinion, the City has complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended September 30, 2016. 135 Report on Internal Control over Compliance Management of the City is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the City’s internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose. Fort Walton Beach, Florida February 24, 2017 136  CITY OF FORT WALTON BEACH, FLORIDA SCHEDULE OF FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED SEPTEMBER 30, 2016 I. SUMMARY OF AUDITORS' RESULTS Financial Statements Type of auditors' report issued: Unmodified Internal control over financial reporting: • Material weakness(es) identified? Yes X No None • Significant deficiency(ies) identified? Yes X Reported Noncompliance material to financial statements noted? Yes X No Federal Awards Internal control over major programs: • Material weakness(es) identified? Yes X No None • Significant deficiency(ies) identified? Yes X Reported Type of auditors' report issued on compliance for major programs: Unmodified Identification of major programs: CFDA Number Name of Federal Project 97.044 Assistance to Firefighters Grant Dollar threshold used to distinguish between type A and type B programs: $ 750,000 Auditee qualified as federal low-risk auditee? X Yes No II. FINANCIAL SUMMARY OFSTATEMENT AUDITORS' FINDINGS RESULTS The results of our audit of the City did not disclose any findings required to be reported under GAGAS. 137  INDEPENDENT ACCOUNTANTS’ REPORT ON AN EXAMINATION OF COMPLIANCE REQUIREMENTS IN ACCORDANCE WITH CHAPTER 10.550, RULES OF THE AUDITOR GENERAL To the Honorable Mayor and City Council Members City of Fort Walton Beach, Florida We have examined the City of Fort Walton Beach, Florida’s (the City’s) compliance with the following requirements for the year ended September 30, 2016: 1) Chapter 218.415, Florida Statutes, in regards to the investments. 2) Chapter 218. 8018, Florida Statutes, in regards to the Deepwater Horizon Oil Spill receipts and expenditures. 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 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 on 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, 2016. Fort Walton Beach, Florida February 24, 2017 138  MANAGEMENT LETTER To the Honorable Mayor and City Council Members City of Fort Walton Beach, Florida Report on the Financial Statements We have audited the financial statements of the City of Fort Walton Beach, Florida (the City), as of and for the fiscal year ended September 30, 2016, and have issued our report thereon dated February 24, 2017. Auditors’ Responsibility We conducted our audit in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, and Chapter 10.550, Rules of the Florida Auditor General. Other Reports and Schedule We have issued our Independent Auditors’ Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards; and Independent Accountant’s Report on an examination conducted in accordance with AICPA Professional Standards, Section 601, regarding compliance requirements in accordance with Chapter 10.550, Rules of the Auditor General. Disclosures in those reports, which are dated February 24, 2017, 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. There were no findings identified in the preceding annual final report. Official Title and Legal Authority Section 10.554(1)(i)4., Rules of 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. The City of Fort Walton Beach, Florida, was established as a municipality by a Special Act of the Florida Legislature in 1937. The City's original charter was enacted as Chapter 18539, Laws of Florida. 139 Official Title and Legal Authority – Continued The present charter was enacted in 1953 as Chapter 29093, Laws of Florida. The City had one component unit within its reporting entity. The Fort Walton Beach Community Redevelopment Agency was created pursuant to provisions of Chapter 163, Part III, Florida Statutes. This action, adopted by Resolution Number 77–38, also outlines the rights, powers, duties, privileges, and immunities invested in the governing body. City ordinance 1262, adopted on September 27, 1994, gave the City Council the authority to appoint an independent Board of Commissioners in place of the City Council effective January 1, 1995. During 1992, the Florida Department of Community Affairs determined that the Fort Walton Beach Housing Authority was a dependent special district of the City. Utilizing the standards set forth in GASB Statement No. 61, the Fort Walton Beach Housing Authority was not considered as having met sufficient criteria for inclusion within the City's audited financial statements for the year ended September 30, 2016. As a result, the Fort Walton Beach Housing Authority is not included in the City's annual financial report. During 2011, the Fort Walton Beach Community Redevelopment Agency (the Agency) became a blended component unit of the City. The City's council members serve as board members of the Agency. The Agency's governing body is the same as the governing body of the City and the Agency provides services specifically to the Community Redevelopment Area of the City. Due to the nature and significance of the Agency's relationship with the City, exclusion of the Agency's financial operations would render the City's financial statements incomplete or misleading. Financial Condition Section 10.554(1)(i)5,.a. and 10.556(7), Rules of the Auditor General, requires that we apply appropriate procedures and report the results of our determination as to whether or not the City has met one or more of the conditions described in Section 218.503(1), Florida Statutes, and identification of the specific condition(s) met. In connection with our audit, we determined that the City did not meet any of the conditions described in Section 218.503(1), Florida Statutes. Pursuant to Sections 10.554(1)(i)5.c., and 10.556(8), Rules of the Auditor General, we applied financial condition assessment procedures. It is management's responsibility to monitor the City's financial condition, and our financial condition assessment was based in part on representations made by management and the review of financial information provided by same. Annual Financial Report Section 10.554(1)(i)5.b. and 10.556(7), Rules of the Auditor General, requires that we apply appropriate procedures and report the results of our determination as to whether the annual financial report for the City, for the fiscal year ended September 30, 2016, filed with the Florida Department of Financial Services pursuant to Section 218.32(1)(a), Florida Statutes, is in agreement with the annual financial audit report for the fiscal year ended September 30, 2016. In connection with our audit, we determined that these two reports were in agreement. 140 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 all special district component units provided the necessary information for proper reporting in accordance with Section 218.39(3)(b), Florida Statutes. Other Matters Section 10.554(1)(i)2., Rules of the Auditor General, requires that we address in the management letter any recommendations to improve financial management. In connection with our audit, we did not have any such recommendations. Section 10.554(1)(i)3., Rules of the Auditor General, requires that we address noncompliance with provisions of contracts or grant agreements, or abuse, that have occurred, or are likely to have occurred, that have an effect on the financial statements that is less than material but which warrants the attention of those charged with governance. In connection with our audit, we did not have any such findings. Purpose of this Letter Our management letter is intended solely for the information and use of the Legislative Auditing Committee, members of the Florida Senate and the Florida House of Representatives, the Florida Auditor General, Federal and other granting agencies, the City Council Members, and applicable management, and is not intended to be and should not be used by anyone other than these specified parties. We greatly appreciate the assistance and cooperation extended us during our audit. Fort Walton Beach, Florida February 24, 2017 141 THIS PAGE IS LEFT INTENTIONALLY BLANK