Fort Walton Beach — Comprehensive Annual Financial Report September 30, 2010

Comprehensive Annual Financial Report CITY OF FORT WALTON BEACH, FLORIDA With Compliance Matters and Responses Fiscal Year Ended September 30, 2010 City of Fort Walton Beach, Florida COMPREHENSIVE ANNUAL FINANCIAL REPORT for the Fiscal Year Ended September 30, 2010 Prepared by The Finance Department City of Fort Walton Beach 107 Miracle Strip Parkway Fort Walton Beach, Florida 32548 WWW.FWB.ORG  CITY OF FORT WALTON BEACH, FLORIDA CITY OFFICIALS CITY COUNCIL Mike Anderson Mike Holmes joyce gossom Dennis Reeves Mayor Seat 1 Seat 2 Seat 3 Mike Minich Bobby Nabors C.H. ‘Bull’ Rigdon Dick Rynearson Seat 4 Seat 5 Seat 6 Seat 7 CITY MANAGER FINANCE DIRECTOR Robert T. Mearns Brandy Wunker CITY CLERK CITY ATTORNEY Helen Spencer Hayward Dykes, Jr. I. INTRODUCTORY SECTION ƒ TABLE OF CONTENTS ƒ LETTER OF TRANSMITTAL ƒ GOVERNMENT FINANCE OFFICERS CERTIFICATE OF ACHIEVEMENT FOR EXCELLENCE IN FINANCIAL REPORTING ƒ ORGANIZATIONAL CHART  City of Fort Walton Beach, Florida COMPREHENSIVE ANNUAL FINANCIAL REPORT Year Ended September 30, 2010 Page Exhibit TITLE PAGE CITY OFFICIALS I. INTRODUCTORY SECTION Table of Contents i Letter of Transmittal City Manager and Finance Director iv GFOA Certificate of Achievement ix Organizational Chart x II. FINANCIAL SECTION Independent Auditor’s Report 1 A. MANAGEMENT’S DISCUSSION AND ANALYSIS 3 B. BASIC FINANCIAL STATEMENTS Government-Wide Financial Statements Statement of Net Assets 15 I Statement of Activities 16 II Fund Financial Statements Governmental Funds Balance Sheet 17 IIIA Reconciliation of the Balance Sheet to the Statement of Net Assets 18 IIIB Statement of Revenues, Expenditures and Changes in Fund Balance 19 IVA Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balance to the Statement of Activities 20 IVB Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual - General Fund 21 V Proprietary Funds Statement of Net Assets 22 VI Statement of Revenues, Expenses and Changes in Net Assets 24 VII Statement of Cash Flows 25 VIII Fiduciary Funds Statement of Fiduciary Net Assets 27 IX Statement of Changes in Fiduciary Net Assets 28 X Notes to Financial Statements 29 i  City of Fort Walton Beach, Florida COMPREHENSIVE ANNUAL FINANCIAL REPORT Year Ended September 30, 2010 Statement/ Page Schedule II. FINANCIAL SECTION (CONTINUED) C. REQUIRED SUPPLEMENTARY INFORMATION Pension Schedules Schedule of Funding Progress 77 A-1 Schedule of Contributions from the Employer and Other Contributing Entities 78 A-2 Schedule of Other Post-Employment Obligations 79 A-3 D. COMBINING AND INDIVIDUAL FUND STATEMENTS AND SCHEDULES Non-Major Governmental Funds Combining Balance Sheet 80 B-1 Combining Statement of Revenues, Expenditures and Changes in Fund Balance 81 B-2 Schedules of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual Law Enforcement Trust Special Revenue Fund 82 C-1 Law Enforcement Trust Training Special Revenue Fund 83 C-2 Community Development Block Grant Special Revenue Fund 84 C-3 Beal Memorial Cemetery Perpetual Care Special Revenue Fund 85 C-4 Debt Service Fund 86 C-5 Non-Major Fund – Enterprise Fund Statement of Net Assets 87 D-1 Statement of Revenues, Expenses and Changes in Net Assets 88 D-2 Statement of Cash Flows 89 D-3 Discretely Presented Component Unit Balance Sheet 91 E-1A Reconciliation of the Balance Sheet to the Statement of Net Assets 92 E-1B Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual 93 E-2A Reconciliation of the Schedule of Revenues, Expenditures and Changes in Fund Balance to the Statement of Activities 94 E-2B III. STATISTICAL SECTION (UNAUDITED) Net Assets by Component 95 1 Changes in Net Assets 96 2 Fund Balances - Governmental Funds 98 3 Changes in Fund Balances - Governmental Funds 99 4 Revenues and Other Sources 100 5 Assessed Value of Taxable Property 101 6 Property Tax Rates Per $1,000 of Taxable Value - All Direct and Overlapping Governments 102 7 ii  City of Fort Walton Beach, Florida COMPREHENSIVE ANNUAL FINANCIAL REPORT Year Ended September 30, 2010 Statement/ Page Schedule III. STATISTICAL SECTION (UNAUDITED) Principal Taxpayers 103 8 Property Tax Levies and Collections 104 9 Ratios of Outstanding Debt by Type 105 10 Ratio of Net General Bonded Debt Outstanding 106 11 Pledged Revenue Coverage – Sewer Public Improvement Refunding Revenue Bonds – Series 1998 107 12-A Pledged Revenue Coverage – Golf Public Improvement Refunding Revenue Bonds – Series 1998 108 12-B Pledged Revenue Coverage – Schedule of Revenue Bond Coverage 109 12-C Direct and Overlapping Governmental Activities Debt – General Obligations 110 13 Major Employers 111 14 Miscellaneous Demographical Statistics 112 15 Full-Time Equivalent Employees by Function/Program 113 16 Permits, Licenses and Recreation Facilities 114 17 Elections - Okaloosa County Voter Registration 115 18 Special Assessment Billings and Collections 116 19 Major Revenue Sources 117 20 Water and Wastewater Service Rates 118 21 Sanitation and Recycling Service Rates 119 22 Operating Indicators by Function/Program 120 23 Capital Asset Statistics by Function/Program 121 24 Insurance Coverage 122 25 IV. COMPLIANCE SECTION Schedule of Expenditures of Federal Financial Assistance 126 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 127 Report on Compliance with Requirements that Could Have a Direct and Material Effect on Each Major Program and on Internal Control over Compliance in Accordance with OMB Circular A-133 129 Schedule of Findings and Questioned Costs 131 Management Letter 133 iii (THIS PAGE INTENTIONALLY LEFT BLANK.)  City of Fort Walton Beach America's Most Beautiful Beaches 107 Miracle Strip Parkway, SW * Fort Walton Beach, Fl 32548 (850) 833-9500 * Fax (850) 833-9640 * www.fwb.org March 1, 2011 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, 2010 is hereby submitted herewith pursuant to Florida Statutes Chapter 218.32(1)(d) requiring each local government entity to complete an audit report within twelve 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 O’Sullivan Creel LLP, 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, 2010 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 presentation. The independent auditor concluded, based upon the audit, that there was a reasonable basis for rendering an unqualified opinion that the City of Fort Walton Beach’s financial statements for the fiscal year ending September 30, 2010 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. iv  The independent audit of the financial statements of the City of Fort Walton Beach was part of a broader, state mandated “Single Audit” designed to meet the special needs of state 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 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 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 that utilizes a Council-manager form of government. The City provides police and fire protection; cultural and recreational activities including parks, a library, a museum, and two 18-hole 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 collection to a coastal community of 18,880 full-time residents. The financial reporting entity (the government) includes all the funds and account groups of the City of Fort Walton Beach, Florida, as well as discretely presented 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 discretely presented component unit of the City of Fort Walton Beach. The annual budget serves as a foundation for the City of Fort Walton Beach’s financial planning and control. The City of Fort Walton Beach prepares a budget designed to meet the highest standards of performance in municipal budgeting. v  The budget process begins in February with individual strategic planning meetings held with the Mayor, City Council, City Manager, and Department Directors. A Budget Policy Workshop is held with City Council in May to determine City Council’s priorities and position on issues critical to development of the operational and capital budgets. City Council’s decisions on the issues presented provide the framework under which the upcoming year’s budget is prepared to meet City Council’s programmatic objectives within available fiscal resources. Department Directors, with the assistance of their division managers, 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 objectives, accomplishments, and performance measures. The City Charter charges the City Manager with the duty of presenting a balanced budget to City Council. The budget is considered balanced if the total of all available financial resources (either on hand at the beginning of the year or generated during the year) equals or exceeds the total of all financial requirements. In order to accomplish this goal, a Budget Committee is formed comprised of the City Manager, Finance Director, and the Budget & Grants Manager. The Committee conducts comprehensive meetings with Department Directors and Division Managers to review their budget requests and a collaborative effort is undertaken to achieve City Council and department goals within fiscal constraints. 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 30, the close of the City’s fiscal year. The appropriated budget is prepared by fund, department (e.g. administrative services), and division (e.g. information technology). 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, this comparison is presented on page 21 as part of the basic financial statements for the governmental funds. For governmental funds, other than the General Fund, with appropriated annual budgets, this comparison is presented in the combining and individual fund statements and schedules, section D of this report, which starts on page 80. 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 City of Fort Walton Beach currently faces many of the same economic challenges that are affecting the global economy due to the recessionary environment. Retail sales are lower than the previous year and the unemployment rate has risen. Housing affordability has decreased. vi 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. The Fort Walton Beach area economy is anticipated to see growth in future years due to increases in federal spending for defense and homeland security. Eglin Air Force Base is the world’s largest Department of Defense installation spanning 724 square miles and defense contractor companies are established throughout the Northwest Florida region. It is estimated that local military bases (Eglin and Hurlburt Air Force Bases and Duke Field) currently represent a $6.6 billion annual economic impact on the area, with approximately 70% of the local economy supported by the military. Additionally, the Department of Defense’s 2005 Base Realignment and Closure (BRAC) recommendation to realign personnel and missions to Eglin Air Force Base will impact our area by an estimated $451.3 million dollars in increased economic activity and the addition of 6,241 military and civilian personnel by 2015. 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 are also developed and approved by Management each year during the annual budget process 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 The City’s financial policies, as well as other indicators, were taken into account when adopting the City’s budget for fiscal year 2011. The City’s total budget for fiscal year 2011 totals $35.7 million, which is $358,601 less than the fiscal year 2010 approved budget. Projected declines in interest earnings and prior year budgeted use of reserves account for much of the revenue decline. The 2010 budget allocates $17.6 million, a 5.2% decline as compared to the fiscal year 2009 budget, to the General fund, $13.9 million to the Enterprise funds, and $4.2 million to other funds. For the fiscal year 2011 budget, the ad valorem rate increased to 4.5383 mills. A 3% increase in water and sewer rates is included in the budget; no other significant changes to the City’s various rate and fees are included in the fiscal year 2011 budget. vii (THIS PAGE INTENTIONALLY LEFT BLANK.) ix (THIS PAGE INTENTIONALLY LEFT BLANK.)  City of Fort Walton Beach Organizational Chart Citizens of Fort Walton Beach Mayor and Boards and City Council Committees City Attorney City Manager City Clerk Administrative Engineering Financial Fire Police Recreation Utility Services Services Services Services Services Services Services x (THIS PAGE INTENTIONALLY LEFT BLANK.) II. FINANCIAL SECTION ƒ INDEPENDENT AUDITOR’S REPORT ƒ MANAGEMENT’S DISCUSSION AND ANALYSIS ƒ BASIC FINANCIAL STATEMENTS GOVERNMENT-WIDE FINANCIAL STATEMENTS FUND FINANCIAL STATEMENTS NOTES TO FINANCIAL STATEMENTS ƒ REQUIRED SUPPLEMENTARY INFORMATION ƒ COMBINING AND INDIVIDUAL FUND STATEMENTS AND SCHEDULES  45 Eglin Pkwy. NE, Ste. 301, Fort Walton Beach, FL 32548 (850) 244-5121 Honorable Mayor and City Council Members City of Fort Walton Beach, Florida INDEPENDENT AUDITOR'S REPORT We have audited the accompanying financial statements of the governmental activities, the business-type activities, the aggregate discretely presented component unit, each major fund, and the aggregate remaining fund information of the City of Fort Walton Beach, Florida, as of and for the year ended September 30, 2010, which collectively comprise the City's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the City of Fort Walton Beach, Florida's management. 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 basic financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the basic financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the governmental activities, the business-type activities, the aggregate discretely presented component unit, each major fund, and the aggregate remaining fund information of the City of Fort Walton Beach, Florida, as of September 30, 2010, and the respective changes in financial position and, where applicable, cash flows thereof and the respective budgetary comparison for the general for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued a report dated March 1, 2011, on our consideration of the City of Fort Walton Beach, Florida's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, 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 the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. 1 Honorable Mayor and City Council Members City of Fort Walton Beach, Florida Independent Auditor's Report (Continued) The Management's Discussion and Analysis on pages 3-14, the Schedule of Funding Progress on page 77, and Schedule of Contributions From the Employer and Other Contributing Entities on page 78 are not a required part of the basic financial statements, but are supplementary information 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 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. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City of Fort Walton Beach, Florida's basic financial statements as a whole. The introductory section, combining and individual nonmajor fund financial statements, and statistical section, are presented for purposes of additional analysis and are not a required part of the financial statements. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, and is also not a required part of the basic financial statements of the City of Fort Walton Beach, Florida. The combining and individual nonmajor fund financial statements 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 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. The accompanying introductory and statistical sections, 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. This information has not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we express no opinion on them. March 1, 2011 2  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, 2010. 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-viii of this report. FINANCIAL HIGHLIGHTS ƒ The assets of the City of Fort Walton Beach exceeded its liabilities by $58.6 million (net assets). Of this amount, $15.8 million represents unrestricted net assets that are available to meet the City’s ongoing obligations to citizens and creditors. ƒ The government’s net assets decreased by $392,317, primarily due to early retirement incentives offered to employees, the sale of land, and a change in estimate for the depreciation on previously purchased water meters. ƒ As of the close of the fiscal year, the City of Fort Walton Beach’s governmental funds reported combined ending fund balances of $12.1 million, a decrease of $337,745 in comparison with the prior year. Approximately 74.5% of this amount, or $9.0 million, is available for spending at the discretion of City Council. ƒ At the end of the fiscal year, unreserved fund balance for the General Fund was $9.3 million, or 49% percent of total General Fund expenditures. ƒ The City of Fort Walton Beach’s total debt decreased by $965,332, or 4.9%, during the fiscal year. The key factor in this decrease was the payoff of an equipment lease, and several obligations nearing maturity in near-future fiscal years within the City’s enterprise funds. 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 assets and the statement of activities, are utilized to provide information on a government-wide basis. The statement of net assets presents information on all of the City of Fort Walton Beach’s assets and liabilities, with the difference between the two reported as net assets. 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 assets may serve as a useful indicator of the financial position of the City of Fort Walton Beach. 3  The statement of activities presents information showing how the government’s net assets changed during the most recent fiscal year. All changes in net assets 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, and code enforcement services), physical environment (cemetery), transportation (engineering, streets, public works, and right-of-way), economic development (Community Development Block Grant Program), culture and recreation (parks, 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), sanitation, and golf. 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. Reported separately from the financial information presented for the primary government itself, is the financial information for the component unit. 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 17-21 of this report. 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 six individual governmental funds (General 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 4  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. Data from the other five 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 City of Fort Walton Beach adopts an annual appropriated budget for its General Fund. A budgetary comparison statement is provided for the General Fund to demonstrate compliance with this budget. 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 assets 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 storm water management), sanitation operations (garbage), and golf club operations. 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, stormwater operations, and golf club operations, all of which are considered major funds of the City of Fort Walton Beach. The basic proprietary fund financial statements are found on pages 22-26 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 27-28 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 29 of this report. OTHER INFORMATION In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information concerning the City 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 77-79 of this report. The combining statements referred to earlier in connection with non-major governmental funds immediately follow the required supplementary information on Pension funds and can be found beginning on page 79 of this report. GOVERNMENT-WIDE FINANCIAL ANALYSIS As noted earlier, net assets may serve over time as a useful indicator of a government’s financial position. In the case of the City of Fort Walton Beach, assets exceeded liabilities by $58.6 million (net assets), as reported in Table 1. The government’s net assets decreased by $392,317 for the fiscal year ended September 30, 2010. By far, the largest portion of the City’s net assets, $39.5 million or 67.5%, reflects its investment in capital assets (e.g. land, infrastructure, buildings, machinery, and equipment) less any related debt still 5 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 assets, 5.6%, represents resources that are subject to external restrictions on how they may be used. The remaining balance of $15.8 million is unrestricted and may be used to meet the government’s ongoing obligations to citizens and creditors. Table 1 Statement of Net Assets As of September 30 (In Thousands of Dollars) Governmental Activities Business-Type Activities Total 2010 2009 2010 2009 2010 2009 Current and Other $ 13,858 $ 13,918 $ 14,712 $ 15,075 $ 28,570 $ 28,993 Capital Assets 25,361 25,494 26,886 27,175 52,247 52,669 Total Assets 39,219 39,412 41,598 42,250 80,817 81,662 Long-Term Liabilities Outstanding 5,225 5,453 13,349 14,150 18,574 19,603 Other Liabilities 1,675 1,408 1,736 1,677 3,411 3,085 Total Liabilities 6,900 6,861 15,085 15,827 21,985 22,688 Net Assets Invested in Capital Net of Related Debt 20,605 20,564 18,928 17,773 39,533 38,337 Restricted 2,738 2,679 543 570 3,281 3,249 Unrestricted 8,975 9,308 6,792 8,080 15,767 17,388 Total Net Assets $ 32,318 $ 32,551 $ 26,263 $ 26,423 $ 58,581 $ 58,974 The overall decrease in the City’s net assets was $392,317 during the fiscal year. The governmental activities experienced a decrease, primarily related to early retirement incentives offered to employees and reduced inter-fund transfers, both of which were slightly offset by the sale of land. The business activities experienced a slight decrease due primarily to reduced inter-fund transfers to the general fund, early retirement incentives offered to employees, and a change in estimate for the depreciation on previously purchased water meters. The details related to this decrease are analyzed further in the Financial Impacts section of this discussion. 6 Reported in Table 2 are the key elements of the decrease in net assets for the current year. Table 2 Governmental Activities Business-Type Activities Total Activities 2010 2009 2010 2009 2010 2009 Revenues Program Revenues: Charges for Services $4,008,506 $4,364,638 $12,668,076 $12,623,971 $16,676,582 $16,988,609 Operating Grants and Contributions 639,370 1,119,033 - - 639,370 1,119,033 Capital Grants & Contributions 731,275 88,941 173,370 555,698 904,645 644,639 General Revenue: Property Taxes 4,380,221 4,631,028 - - 4,380,221 4,631,028 Other Taxes 5,857,699 5,432,650 - 4,597 5,857,699 5,437,247 Other Revenue 2,153,573 1,036,619 436,522 580,468 2,590,095 1,617,087 Total Revenues 17,770,644 16,672,909 13,277,968 13,764,734 31,048,612 30,437,643 Expenses Primary Government: General Government 5,306,003 4,625,871 - - 5,306,003 4,625,871 Public Safety 9,231,632 9,908,644 - - 9,231,632 9,908,644 Physical Environment 304,907 350,374 - - 304,907 350,374 Transportation 1,543,310 1,672,741 - - 1,543,310 1,672,741 Economic Development 98,996 266,132 - - 98,996 266,132 Culture & Recreation 2,944,221 3,028,285 - - 2,944,221 3,028,285 Debt Service Interest 240,940 247,703 - - 240,940 247,703 Business-Type Activities: Utilities - - 6,725,349 5,474,550 6,725,349 5,474,550 Sanitation - - 2,466,881 2,493,357 2,466,881 2,493,357 Golf - - 2,203,739 2,479,804 2,203,739 2,479,804 Other - - 374,951 469,421 374,951 469,421 Total Expenses 19,670,009 20,099,750 11,770,920 10,917,132 31,440,929 31,016,882 Increase in Net Assets before Transfers (1,899,365) (3,426,841) 1,507,048 2,847,602 (392,317) (579,239) Transfers 1,667,644 2,310,464 (1,667,644) (2,310,464) - - Special Item - Impairment Loss - - - (3,836,055) - (3,836,055) Increase (Decrease) in Net Assets (231,721) (1,116,377) (160,596) (3,298,917) (392,317) (4,415,294) Net Assets – 10/01/09 32,550,570 33,666,947 26,423,455 29,722,372 58,974,025 63,389,319 Net Assets – 09/30/10 $32,318,849 $32,550,570 $26,262,859 $26,423,455 $58,581,708 $58,974,025 7 Current Year Impacts – Governmental Activities Governmental activities decreased the City’s net assets by $231,722, thereby accounting for 0.71% of the total decline in net assets for the fiscal year ended September 30, 2010. Key elements of this change are as follows: ƒ Operating grants for governmental activities decreased $479,663 or 42.9% primarily due to decreased funding from the library cooperative and the Community Development Block Grant, as well as additional reimbursement from FEMA for Hurricane Ivan closeout received in the prior year. ƒ Capital grants for governmental activities increased $642,334 or 722.2% due to funding received through the American Recovery and Reinvestment Act. ƒ Other revenue for governmental activities increased $1,116,954 or 107.7%. Municipal revenue sharing, interest income, disposal of assets, insurance proceeds, donations and other miscellaneous revenue sources comprise this revenue category. The sale of property to Waste Management and increased donations and municipal revenue sharing account for this increase. ƒ Overall, expenses for governmental activities decreased $429,741 or 2.1% primarily due to increased fiscal control of expenditures due to the recessionary economy, a portion of which was offset by payments to employees’ for early retirement incentives. Economic Environment experienced a decrease of $167,136 or 62.8% due to prior year funding received for projects through the Community Development Block Grant. ƒ Inter-fund transfers from the business-type activities decreased $642,820 or 27.8% as a result of an updated cost allocation plan and a decrease in the amount of surplus funds transferred to support general City operations. Chart 1 Expenses and Program Revenue – Governmental Activities $10,000,000 $9,000,000 $8,000,000 $7,000,000 $6,000,000 $5,000,000 $4,000,000 $3,000,000 $2,000,000 $1,000,000 $0 General Public Safety Physical Transportation Economic Culture & Debt Service Government Environment Development Recreation Interest Expenses Program Revenue 8  Chart 2 Revenues by Source – Governmental Activities Other Revenue 8% Municipal Revenue Sharing Charges for Services 4% 23% Operating Grants & Contributions Other Taxes 4% 22% Capital Grants & Contributions 4% Sales Taxes 11% Property Taxes 24% Current Year Impacts – Business-Type Activities Business-type activities decreased the City’s net assets by $160,596, thereby accounting for 0.61% of the total decline in net assets for the fiscal year ended September 30, 2010. Key elements of this change are as follows: • Capital Grants and Contributions for business-type activities decreased $382,328, or 68.8% due to funding received in the prior fiscal year through State Financial Assistance for CBIR grants in the Utilities and Stormwater Funds, as well as Florida Forever Grant funding in the Stormwater Fund, which was not received in the current year. • Other Revenue for business type activities decreased $143,946, or 24.8% primarily due to decreased interest earnings and capital asset transfers. ƒ Expenses throughout the Enterprise Funds increased $853,788 or 7.8%. The Utilities fund experienced an increase due to the City’s contract with Okaloosa County for wastewater treatment services, as well as increased depreciation expense due to a change in estimate on previously purchased water meters. The Sanitation, Golf, and Stormwater funds experienced decreases due to cost saving measures enacted because of declining revenues. 9  Chart 3 Expenses and Program Revenue - Business-Type Activities 8,000,000 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 - Utilities Sanitation Golf Stormwater Expenses Program Revenue Chart 4 Revenues by Source - Business-Type Activities Capital Grants & Contributions 1% Charges for Services 96% Misc. Income & Investment Earnings 3% 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, unreserved 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, 2010, the City of Fort Walton Beach’s governmental funds have combined ending fund balances of $12.1 million, a decrease of $337,745 in comparison with the prior year. Approximately 74.5% of this total amount, $9.0 million, constitutes unreserved/undesignated fund balance in the General Fund, which is available for spending at the City Council’s discretion. The remainder of fund balance is reserved and/or designated by management. Details of the reserved and designated fund balance can be found on page 17 of this report. The General Fund is the chief operating fund of the City. At the end of this fiscal year, unreserved/undesignated fund balance of the General Fund was $9.0 million, while total fund balance reached $9.8 million. As a measure of the General Fund’s liquidity, it may be useful to compare both unreserved/undesignated fund balance and total fund balance to total expenditures. Unreserved/ undesignated fund balance represents 47.3% of the total General Fund expenditures, while total fund balance represents 51.6% of that same amount. During the 2010 fiscal year, the fund balance of the City’s General Fund decreased by $377,855. This decrease is attributable to budgeted use of reserves. 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 assets of the proprietary funds totaled $6.8 million at September 30, 2010, of which the Utilities Fund amounted to $4.8 million, the Sanitation Fund totaled $1.9 million, and the Stormwater Utility Fund was $376,330. The Golf Fund has deficit unrestricted net assets of $288,540, an improvement from the prior year of $37,902. The Golf Fund experienced a net gain of $492, bringing the Fund’s net asset balance to $241,790. In total, net assets of the proprietary funds decreased $160,595. The factors concerning the finances of these three funds have already been addressed in the discussion of the City of Fort Walton Beach’s business-type activities. 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 21 of the financial statements. Differences between the original budget and the final amended budget were $3.0 million. Significant information related to this difference is summarized as follows: • Unanticipated donations of $148,848 were received and utilized during the year. • Early retirement incentives were paid out to employees, including accrued sick and vacation leave, in the amount of $787,013. • Unanticipated expenses including equipment purchased for the new Department of Corrections contract, a GIS study and medical and other insurance solicitations were incurred totaling $92,521. 11  • Grants received during the year totaled $2.0 million and included funding from the American Recovery and Reinvestment Act of $1.6 million. Actual budget results, when compared to the final budget, show a variance of $2.0 million. This variance is primarily due to amending the budget for grant amounts awarded versus actual amounts 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, 2010, was $52.2 million (net of accumulated depreciation). This represents a net decrease of $421,189, or 0.80%. Highlights are summarized as follows: ƒ Fewer assets were purchased that were over the GASB 34 threshold. ƒ Capital assets outdated, unserviceable, and no longer used are systematically disposed of on an annual basis. ƒ A change in estimate was recorded related to previously purchased water meters, which accelerated the depreciation schedule, and resulted in $312,868 of additional depreciation expense and loss on disposal, when compared to the prior year. Table 3 Total Capital Assets Net of Accumulated Depreciation Governmental Activities Business-Type Activities Total Activities FY 2010 FY 2009 FY 2010 FY 2009 FY 2010 FY 2009 Land $ 9,630,172 $ 9,643,584 $ 765,078 $ 765,078 $10,395,251 $10,408,662 Buildings 7,570,534 8,017,290 2,336,254 2,402,506 9,906,789 10,419,796 Improvements Other Than Buildings 2,293,721 2,472,588 19,147,799 18,992,157 21,441,519 21,464,745 Infrastructure 4,520,970 3,971,020 - - 4,520,970 3,971,020 Machinery and Equipment 1,223,752 1,234,444 2,813,432 3,318,663 4,037,183 4,553,106 Equipment under Capital Lease 122,479 152,474 221,412 299,543 343,891 452,016 Construction in Progress 213 1,999 1,601,945 1,397,605 1,602,159 1,399,604 $25,361,841 $25,493,398 $26,885,920 $27,175,552 $52,247,761 $52,668,950 Additional information on the capital assets of the City of Fort Walton Beach can be found in Note 5 of this report on page 48. Long-Term Debt As shown in the following table, as of September 30, 2010, the City had total bonded debt and capital leases outstanding of $19.7 million. All of the City’s debt represents bonds secured solely by specified revenue sources (i.e. revenue bonds) 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. 12  Table 4 City of Fort Walton Beach's Outstanding Debt Revenue Bonds and Capital Leases Governmental Activities Business-Type Activities Total Activities 2010 2009 2010 2009 2010 2009 Revenue Bonds $4,708,784 $4,836,605 $13,836,725 $14,543,458 $18,545,509 $19,380,063 Capital Leases 47,374 93,003 141,737 226,886 189,111 319,889 Total $4,756,158 $4,929,608 $13,978,462 $14,770,344 $18,734,620 $19,699,952 Additional information on the City of Fort Walton Beach’s long-term debt can be found in Note 13 and 14 of this report on pages 63-68. ECONOMIC FACTORS AND NEXT YEAR’S BUDGETS AND RATES Economic indicators and factors that are useful for evaluating the framework within which the City operates are discussed below. ƒ The Consumer Price Index (CPI) is 1.1% higher than a year ago. This indicator translates into a higher cost of providing services to residents. ƒ Northwest Florida retail sales are 2.0% lower than the previous year due to the recessionary economy. This indicator adversely affects sales tax revenues, a portion of which is passed on to the City by the State. ƒ Housing Affordability decreased by 2.2%. This indicator affects the City’s ability to recruit and retain employees. ƒ Unemployment is 9.0% and has increased approximately 2.0% from a year ago. Although low unemployment is beneficial for the community, this indicator impacts the City’s ability to recruit and retain staff. ƒ 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 $6.6 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 2011. The City’s total budget for fiscal year 2011 totals $35.7 million, which is $358,601 less than the fiscal year 2010 approved budget. Projected declines in interest earnings and prior year budgeted use of reserves account for much of the revenue decline. The 2010 budget allocates $17.6 million, a 5.2% decline as compared to the fiscal year 2009 budget, to the General fund, $13.9 million to the Enterprise funds, and $4.2 million to other funds. For the fiscal year 2011 budget, the ad valorem rate increased to 4.5383 mills. A 3% increase in water and sewer rates is included in the budget; no other significant changes to the City’s various rate and fees are included in the fiscal year 2011 budget. Personnel expenses account for approximately 48.6% of the City’s budget. The City’s fiscal year 2011 budget includes a net decrease of 17 positions and reduced hours for another 11 positions, bringing the budgeted full time equivalent staff count to 297.74. 13 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  EXHIBIT I City of Fort Walton Beach, Florida STATEMENT OF NET ASSETS September 30, 2010 Primary Government Component Unit Community Governmental Business-Type Redevelopment Activities Activities Total Agency ASSETS Cash and cash equivalents $ 11,855,582 $ 7,128,543 $ 18,984,125 $ 3,579,531 Receivables, net 216,588 713,336 929,924 73,841 Internal balances 271,527 (271,527) - - Due from other governments 823,827 68,418 892,245 - Inventory, at cost 207,023 31,823 238,846 - Prepaids 6,719 8,106 14,825 86 Restricted assets Cash and cash equivalents 92,880 6,721,352 6,814,232 - Capital assets Non-depreciable 9,630,386 2,367,024 11,997,410 578,078 Depreciable, net 15,731,455 24,518,896 40,250,351 4,330,607 Other assets Bond issue costs, net 144,578 312,092 456,670 - Net pension asset 239,173 - 239,173 - TOTAL ASSETS 39,219,738 41,598,063 80,817,801 8,562,143 LIABILITIES Accounts payable 165,873 330,249 496,122 42,862 Accrued liabilities 1,097,393 395,349 1,492,742 6,145 Due to other governments 2,794 15,406 18,200 - Due to depositors 5,000 - 5,000 - Unearned revenue - 36,477 36,477 - Payable from restricted assets Accrued interest 57,880 151,149 209,029 - Customer deposits - 158,790 158,790 - Non-current liabilities Due within one year Compensated absences 158,790 52,705 211,495 904 Leases payable 47,374 75,619 122,993 - Revenues bonds payable 140,000 769,963 909,963 - Due in more than one year Compensated absences 476,370 158,119 634,489 2,710 Leases payable - 66,118 66,118 - Revenue bonds payable 4,568,784 13,066,762 17,635,546 - Other post-employment benefits 180,632 58,497 239,129 - TOTAL LIABILITIES 6,900,890 15,335,203 22,236,093 52,621 NET ASSETS Invested in capital assets, net of related debt 20,605,683 18,928,438 39,534,121 4,908,685 Restricted Debt service 92,880 481,023 573,903 - System improvements - 61,559 61,559 - Public safety 269,600 - 269,600 - Perpetual care - expendable 1,898,445 - 1,898,445 - Other purposes 477,194 - 477,194 - Unrestricted 8,975,046 6,791,840 15,766,886 3,600,837 TOTAL NET ASSETS $ 32,318,848 $ 26,262,860 $ 58,581,708 $ 8,509,522 The accompanying notes are an integral part of these financial statements. 15  EXHIBIT II City of Fort Walton Beach, Florida STATEMENT OF ACTIVITIES Year Ended September 30, 2010 Program Revenues Net (Expense) Revenue and Changes in Net Assets Primary Government Component Unit Community Charges for Operating Grants Capital Grants and Governmental Business-Type Redevelopment Expenses Services and Contributions Contributions Activities Activities Total Agency Function/Program Activities Government activities General government $ 5,306,003 $ 2,759,080 $ 335 $ - $ (2,546,588) $ - $ (2,546,588) $ - Public safety 9,231,632 467,835 295,780 - (8,468,017) - (8,468,017) - Physical environment 304,907 289,654 100 - (15,153) - (15,153) - Transportation 1,543,310 83,586 10,966 731,275 (717,483) - (717,483) - Economic environment 98,996 - 161,174 - 62,178 - 62,178 - Culture and recreation 2,944,221 408,351 171,015 - (2,364,855) - (2,364,855) - Debt service interest 240,940 - - - (240,940) - (240,940) - Total government activities 19,670,009 4,008,506 639,370 731,275 (14,290,858) - (14,290,858) - Business-type activities Utilities 6,725,349 6,761,654 - 52,312 - 88,617 88,617 - Sanitation 2,466,881 3,345,127 - - - 878,246 878,246 - Golf 2,203,739 1,934,392 - - - (269,347) (269,347) - Other programs 374,951 626,903 - 121,058 - 373,010 373,010 - Total business-type activities 11,770,920 12,668,076 - 173,370 - 1,070,526 1,070,526 - Total primary government $ 31,440,929 $ 16,676,582 $ 639,370 $ 904,645 $ (14,290,858) $ 1,070,526 $ (13,220,332) $ - Community Redevelopment Agency $ 955,144 $ - $ 103,449 $ 73,440 $ - $ - $ - $ (778,255) General Revenues Taxes Property taxes $ 4,380,221 $ - $ 4,380,221 $ 952,259 Sales taxes 1,943,337 - 1,943,337 - Utility service taxes 3,914,362 - 3,914,362 - Intergovernmental, unrestricted 712,776 - 712,776 746,162 Gain (loss) on sale of assets 795,860 56,795 852,655 - Miscellaneous 492,052 177,657 669,709 285 Investment earnings 152,884 202,071 354,955 44,303 Transfers 1,667,644 (1,667,644) - - Total general revenues, transfers and special item 14,059,136 (1,231,121) 12,828,015 1,743,009 Change in net assets (231,722) (160,595) (392,317) 964,754 Net assets - beginning of year 32,550,570 26,423,455 58,974,025 7,544,768 Net assets - end of year $ 32,318,848 $ 26,262,860 $ 58,581,708 $ 8,509,522 The accompanying notes are an integral part of these financial statements. 16  EXHIBIT IIIA City of Fort Walton Beach, Florida GOVERNMENTAL FUNDS BALANCE SHEET September 30, 2010 Other Total Governmental Governmental General Fund Funds Funds ASSETS Cash and cash equivalents $ 9,673,343 $ 2,182,239 $ 11,855,582 Receivables 216,377 211 216,588 Due from other funds 272,271 - 272,271 Due from other governments 815,306 8,521 823,827 Inventory, at cost 207,023 - 207,023 Prepaids 6,369 350 6,719 Restricted assets Cash and cash equivalents - 92,880 92,880 TOTAL ASSETS $ 11,190,689 $ 2,284,201 $ 13,474,890 LIABILITIES AND FUND BALANCE Liabilities Accounts payable $ 158,090 $ 7,783 $ 165,873 Accrued liabilities 1,086,260 11,133 1,097,393 Due to other funds - 744 744 Due to other governments 2,794 - 2,794 Due to depositors 5,000 - 5,000 Deferred revenue 125,019 - 125,019 Total liabilities 1,377,163 19,660 1,396,823 Fund balance Reserved Encumbrances 22,190 12,433 34,623 Prepaids 6,369 350 6,719 Library 263,802 - 263,802 Inventory 207,023 - 207,023 Unreserved Designated Special projects 312,040 - 312,040 Debt service - 92,880 92,880 Other designated items 7,423 5,117 12,540 Undesignated general fund 8,994,679 - 8,994,679 Undesignated special revenue funds - 2,153,761 2,153,761 Total fund balance 9,813,526 2,264,541 12,078,067 TOTAL LIABILITIES AND FUND BALANCE $ 11,190,689 $ 2,284,201 $ 13,474,890 The accompanying notes are an integral part of these financial statements. 17  EXHIBIT IIIB City of Fort Walton Beach, Florida GOVERNMENTAL FUNDS RECONCILIATION OF THE BALANCE SHEET TO THE STATEMENT OF NET ASSETS September 30, 2010 Fund balance - total governmental funds (page 17) $ 12,078,067 Amounts reported for governmental activities in the statement of net assets are different because: Capital assets used in governmental activities are not financial resources and therefore are not reported in the funds. Governmental non-depreciable assets 9,630,386 Governmental depreciable assets 38,313,992 Less accumulated depreciation (22,582,537) 25,361,841 Other assets used in governmental activities are not current financial resources and therefore are not reported in the governmental funds. Net pension asset 239,173 Bond issuance costs 204,512 Less related accumulated amortization (59,934) 383,751 Deferred revenue in governmental funds is susceptible to full accrual on the entity-wide statements. Special assessment for street resurfacing 125,019 Long-term liabilities are not due and payable in the current period and therefore are not reported in the governmental funds. Revenue bonds payable (4,755,000) Discount on bonds payable 46,216 Accrued interest (57,880) Capital leases (47,374) Compensated absences (635,160) Other post employment benefits (180,632) (5,629,830) Net assets of governmental activities (page 15) $ 32,318,848 The accompanying notes are an integral part of these financial statements. 18  EXHIBIT IVA City of Fort Walton Beach, Florida GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE Year Ended September 30, 2010 Other Total Governmental Governmental General Funds Funds REVENUES Taxes $ 9,414,513 $ - $ 9,414,513 Permits and fees 2,406,916 - 2,406,916 Intergovernmental 3,137,530 365,374 3,502,904 Charges for services 907,476 - 907,476 Fines and forfeits 190,143 14,706 204,849 Miscellaneous 1,293,764 76,313 1,370,077 TOTAL REVENUES 17,350,342 456,393 17,806,735 EXPENDITURES Current General governmental services 5,095,790 - 5,095,790 Public safety 8,828,810 43,614 8,872,424 Physical environment 250,691 - 250,691 Transportation 1,207,449 - 1,207,449 Economic environment - 98,996 98,996 Culture and recreation 2,535,682 - 2,535,682 Capital outlay 1,094,771 240,598 1,335,369 Debt service Principal - 175,629 175,629 Interest - 239,716 239,716 Other debt service costs - 377 377 TOTAL EXPENDITURES 19,013,193 798,930 19,812,123 EXCESS OF REVENUES OVER (UNDER) EXPENDITURES (1,662,851) (342,537) (2,005,388) OTHER FINANCING SOURCES (USES) Transfers in 1,902,611 439,615 2,342,226 Transfers out (617,615) (56,968) (674,583) TOTAL OTHER FINANCING SOURCES (USES) 1,284,996 382,647 1,667,643 NET CHANGE IN FUND BALANCE (377,855) 40,110 (337,745) FUND BALANCE - BEGINNING OF YEAR 10,191,381 2,224,431 12,415,812 FUND BALANCE - END OF YEAR $ 9,813,526 $ 2,264,541 $ 12,078,067 The accompanying notes are an integral part of these financial statements. 19  EXHIBIT IVB 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 Year Ended September 30, 2010 Net change in fund balances - total governmental funds (page 19) $ (337,745) 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 over the estimated useful lives of the assets. Expenditures for capital assets 1,233,282 Less current year depreciation (1,353,786) (120,504) 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. Disposals of capital assets and adjustments (1,932,012) Accumulated depreciation associated with disposals and adjustments 1,918,601 (13,411) Net transfer of capital assets and related lease liabilities from governmental funds to proprietary funds Transfer of capital assets to business activity 8,832 Accumulated depreciation associated with asset transfer (6,472) 2,360 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). Special assessment for street resurfacing (16,910) 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 assets. 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. Debt principal payments 175,629 Amortization of current year bond discount (2,179) Amortization of bond costs (6,820) Change in accrued interest on long-term debt 1,332 167,962 Some expenses report in the Statement of Activities do not require the use of current financial resources and therefore are not reported as expenditures in governmental funds. Net pension asset 5,538 Change in long-term compensated absences 155,145 Change in other post-employment benefits (74,157) 86,526 Change in net assets of governmental activities (page 16) $ (231,722) The accompanying notes are an integral part of these financial statements. 20  EXHIBIT V City of Fort Walton Beach, Florida GENERAL FUND STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL Year Ended September 30, 2010 Budgeted Amounts Variance with Final Budget - Positive Original Final Actual (Negative) REVENUES Taxes $ 8,573,913 $ 8,573,913 $ 9,414,513 $ 840,600 Permits and fees 2,354,810 2,354,810 2,406,916 52,106 Intergovernmental 2,242,260 4,179,596 3,137,530 (1,042,066) Charges for services 1,206,982 1,254,926 907,476 (347,450) Fines and forfeits 152,200 152,200 190,143 37,943 Miscellaneous 909,085 1,002,155 1,293,764 291,609 TOTAL REVENUES 15,439,250 17,517,600 17,350,342 (167,258) EXPENDITURES Current General government services 4,294,645 5,330,199 5,095,790 234,409 Public safety 9,208,491 9,081,235 8,828,810 252,425 Physical environment 255,122 255,121 250,691 4,430 Transportation 1,398,100 1,343,573 1,207,449 136,124 Culture and recreation 2,613,054 2,685,145 2,535,682 149,463 Capital outlay 213,284 2,322,039 1,094,771 1,227,268 TOTAL EXPENDITURES 17,982,696 21,017,312 19,013,193 2,004,119 EXCESS OF REVENUES OVER (UNDER) EXPENDITURES (2,543,446) (3,499,712) (1,662,851) 1,836,861 OTHER FINANCING SOURCES (USES) Transfers in 1,891,174 1,906,729 1,902,611 (4,118) Transfers out (626,625) (626,625) (617,615) 9,010 TOTAL OTHER FINANCING SOURCES (USES) 1,264,549 1,280,104 1,284,996 4,892 NET CHANGE IN FUND BALANCE (1,278,897) (2,219,608) (377,855) 1,841,753 FUND BALANCE - BEGINNING OF YEAR 1,278,897 2,219,608 10,191,381 7,971,773 FUND BALANCE - END OF YEAR $ - $ - $ 9,813,526 $ 9,813,526 The accompanying notes are an integral part of these financial statements. 21  EXHIBIT VI City of Fort Walton Beach, Florida PROPRIETARY FUNDS STATEMENT OF NET ASSETS September 30, 2010 Other Sanitation Enterprise Utilities Fund Fund Golf Fund Funds Total ASSETS Current assets Cash and cash equivalents $ 4,832,140 $ 1,936,967 $ - $ 359,436 $ 7,128,543 Restricted assets - cash and cash equivalents 448,032 3,970 248,370 - 700,372 Receivables, net 486,195 185,010 1,743 40,388 713,336 Due from other governments 68,418 - - - 68,418 Prepaid expenses 8,106 - - - 8,106 Inventory - at cost - - 31,823 - 31,823 Total current assets 5,842,891 2,125,947 281,936 399,824 8,650,598 Non-current assets Restricted assets Cash and cash equivalents 6,020,980 - - - 6,020,980 Total restricted assets 6,020,980 - - - 6,020,980 Capital assets, net Non-depreciable 2,311,624 - 55,400 - 2,367,024 Depreciable, net 19,464,332 1,081,286 3,141,695 831,583 24,518,896 Total capital assets 21,775,956 1,081,286 3,197,095 831,583 26,885,920 Other assets Bond issue costs, net 211,748 - 100,344 - 312,092 Total other assets 211,748 - 100,344 - 312,092 Total non-current assets 28,008,684 1,081,286 3,297,439 831,583 33,218,992 TOTAL ASSETS $ 33,851,575 $ 3,207,233 $ 3,579,375 $ 1,231,407 $ 41,869,590 Continued... The accompanying notes are an integral part of these financial statements. 22  EXHIBIT VI City of Fort Walton Beach, Florida PROPRIETARY FUNDS STATEMENT OF NET ASSETS September 30, 2010 Other Sanitation Enterprise Utilities Fund Fund Golf Fund Funds Total LIABILITIES Current liabilities Accounts payable 209,340 92,204 24,132 4,573 330,249 Accrued liabilities Compensated absences 32,828 9,344 8,503 2,030 52,705 Wages 71,823 30,147 33,471 9,908 145,349 Other 250,000 - - - 250,000 Due to other governments - 7,471 7,935 - 15,406 Due to other funds - - 271,527 - 271,527 Leases payable 7,621 - 50,837 17,161 75,619 Revenue bonds payable 592,500 - 177,500 - 770,000 Payable from restricted assets Accrued interest 120,175 - 30,974 - 151,149 Customer deposits 154,820 3,970 - - 158,790 Unearned revenue 18,070 - 18,407 - 36,477 Total current liabilities 1,457,177 143,136 623,286 33,672 2,257,271 Non-current liabilities Accrued liabilities Compensated absences 98,484 28,034 25,511 6,090 158,119 Leases payable - - 66,118 - 66,118 Revenue bonds payable 10,446,045 - 2,620,680 - 13,066,725 Other post-employment benefits 38,369 17,245 1,990 893 58,497 Total non-current liabilities 10,582,898 45,279 2,714,299 6,983 13,349,459 TOTAL LIABILITIES 12,040,075 188,415 3,337,585 40,655 15,606,730 NET ASSETS Invested in capital assets, net of related debt 16,750,770 1,081,286 281,960 814,422 18,928,438 Restricted Debt service 232,653 - 248,370 - 481,023 System improvements 61,559 - - - 61,559 Unrestricted 4,766,518 1,937,532 (288,540) 376,330 6,791,840 TOTAL NET ASSETS $ 21,811,500 $ 3,018,818 $ 241,790 $ 1,190,752 $ 26,262,860 The accompanying notes are an integral part of these financial statements. 23  EXHIBIT VII City of Fort Walton Beach, Florida PROPRIETARY FUNDS STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS Year Ended September 30, 2010 Other Sanitation Enterprise Utilities Fund Fund Golf Fund Funds Total OPERATING REVENUES Charges for services $ 6,761,654 $ 3,345,127 $ 1,934,392 $ 626,903 $ 12,668,076 OPERATING EXPENSES Personal services 1,940,425 898,717 1,014,318 249,661 4,103,121 Operating 2,823,907 1,379,556 708,358 63,807 4,975,628 Depreciation 1,428,340 188,608 302,720 60,272 1,979,940 TOTAL OPERATING EXPENSES 6,192,672 2,466,881 2,025,396 373,740 11,058,689 OPERATING INCOME 568,982 878,246 (91,004) 253,163 1,609,387 NON-OPERATING REVENUES (EXPENSES) Rental income 14,990 - 99,919 - 114,909 Intergovernmental 52,312 - - 121,058 173,370 Interest expense (503,287) - (169,065) (1,211) (673,563) Amortization (27,733) - (9,278) - (37,011) Other debt services costs (1,657) - - - (1,657) Gain (loss) on disposal of capital assets 21,726 624 15,131 19,314 56,795 Interest 178,615 22,049 - 1,407 202,071 Grants in aid 41,000 - - - 41,000 Miscellaneous 16,400 3,221 1,789 338 21,748 TOTAL NON-OPERATING REVENUES (EXPENSES) (207,634) 25,894 (61,504) 140,906 (102,338) INCOME (LOSS) BEFORE OPERATING TRANSFERS 361,348 904,140 (152,508) 394,069 1,507,049 Transfers in 40,000 - 178,000 - 218,000 Transfers out (1,097,641) (748,003) (25,000) (15,000) (1,885,644) TOTAL CONTRIBUTIONS AND TRANSFERS (1,057,641) (748,003) 153,000 (15,000) (1,667,644) CHANGE IN NET ASSETS (696,293) 156,137 492 379,069 (160,595) NET ASSETS - BEGINNING OF YEAR 22,507,793 2,862,681 241,298 811,683 26,423,455 NET ASSETS - END OF YEAR $ 21,811,500 $ 3,018,818 $ 241,790 $ 1,190,752 $ 26,262,860 The accompanying notes are an integral part of these financial statements. 24  EXHIBIT VIII City of Fort Walton Beach, Florida PROPRIETARY FUNDS STATEMENT OF CASH FLOWS Year Ended September 30, 2010 Other Sanitation Enterprise Utilities Fund Fund Golf Fund Funds Total CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers and users $ 6,800,989 $ 3,337,434 $ 2,039,728 $ 620,178 $ 12,798,329 Payments to suppliers (2,439,262) (1,390,191) (709,482) (189,007) (4,727,942) Payments to employees (1,957,559) (895,905) (1,015,734) (252,604) (4,121,802) Miscellaneous income 16,399 3,221 1,789 338 21,747 Net cash provided by operating activities 2,420,567 1,054,559 316,301 178,905 3,970,332 CASH FLOWS FROM NON-CAPITAL FINANCING ACTIVITIES Borrowings (repayments) Interfund balances - - (73,601) (16,901) (90,502) Change in intergovernmental balances (41,553) 7,471 (2,668) 320,194 283,444 Grants and aids 41,000 - - - 41,000 Intergovernmental revenues received 52,312 - - 121,058 173,370 Transfers in 40,000 - 178,000 - 218,000 Transfers out (1,097,641) (748,003) (25,000) (15,000) (1,885,644) Net cash provided (used) by non-capital financing activities (1,005,882) (740,532) 76,731 409,351 (1,260,332) CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Acquisitions of capital assets (1,235,434) (219,054) - (231,645) (1,686,133) Proceeds from disposal of capital assets - 624 19,834 24,748 45,206 Principal paid on leases payable (13,954) - (49,076) (22,119) (85,149) Principal paid on notes payable (571,250) - (173,845) - (745,095) Interest paid on bonds, loans, and leases payable (486,459) - (180,391) (1,211) (668,061) Other debt service costs (1,657) - - - (1,657) Net cash provided (used) by capital and related financing activities (2,308,754) (218,430) (383,478) (230,227) (3,140,889) NET CASH FLOWS FROM INVESTING ACTIVITIES Interest income 178,615 22,049 - 1,407 202,071 Net cash provided by investing activities 178,615 22,049 - 1,407 202,071 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (715,454) 117,646 9,554 359,436 (228,818) CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 12,016,606 1,823,291 238,816 - 14,078,713 CASH AND CASH EQUIVALENTS - END OF YEAR $ 11,301,152 $ 1,940,937 $ 248,370 $ 359,436 $ 13,849,895 Continued... The accompanying notes are an integral part of these financial statements. 25  EXHIBIT VIII City of Fort Walton Beach, Florida PROPRIETARY FUNDS STATEMENT OF CASH FLOWS Year Ended September 30, 2010 Other Sanitation Golf Enterprise Utilities Fund Fund Fund Funds Total CASH AND CASH EQUIVALENTS AT END OF YEAR CONSIST OF Current assets $ 4,832,140 $ 1,936,967 $ - $ 359,436 $ 7,128,543 Restricted assets, current 448,032 3,970 248,370 700,372 Restricted assets, non-current 6,020,980 - - - 6,020,980 Total cash and cash equivalents $ 11,301,152 $ 1,940,937 $ 248,370 $ 359,436 $ 13,849,895 RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES Operating income $ 568,982 $ 878,246 $ (91,004) $ 253,163 $ 1,609,387 Adjustments to reconcile operating income to net cash provided by operating activities Depreciation 1,428,340 188,608 302,720 60,272 1,979,940 Rental income - - 99,919 - 99,919 Amortization 27,733 - 9,278 - 37,011 Miscellaneous revenue 16,400 3,221 1,789 338 21,748 (Gain) loss on disposal of capital assets 31,310 (624) (15,131) (19,314) (3,759) Decrease (increase) in assets Accounts receivable (63,160) (3,923) 4,504 (6,725) (69,304) Prepaid expenses (8,106) - - - (8,106) Inventory - - (2,900) - (2,900) Increase (decrease) in liabilities Accounts payable 136,744 (13,266) 7,629 (105,886) 25,221 Compensated absences payable (5,451) (1,597) 5,650 (692) (2,090) Wages 8,295 (3,479) 623 (563) 4,876 Other liabilities 250,000 - - - 250,000 Other post-employment benefits - 7,888 (7,689) (1,688) (1,489) Accrued interest (6,875) - - - (6,875) Customer deposits 15,013 (515) - - 14,498 Other post-employment benefits 19,978 - - - 19,978 Deferred revenue 1,364 - 913 - 2,277 Net cash provided by operating activities $ 2,420,567 $ 1,054,559 $ 316,301 $ 178,905 $ 3,970,332 SUPPLEMENTAL DISCLOSURES OF NONCASH TRANSACTIONS Amortization of bond issue costs $ 19,217 $ - $ 6,955 $ - $ 26,172 Amortization of discounts and deferred loss on refunding $ 22,702 $ - $ 5,564 $ - $ 28,266 The accompanying notes are an integral part of these financial statements. 26  EXHIBIT IX City of Fort Walton Beach, Florida FIDUCIARY FUNDS STATEMENT OF FIDUCIARY NET ASSETS September 30, 2010 Employee Retirement Funds ASSETS Cash and cash equivalents $ 3,187,347 Investments, at market U.S. government and agency obligations 10,485,664 Corporate obligations 9,036,521 Corporate equity 18,145,780 Mutual funds 16,133,190 Total investments 53,801,155 Due from other funds 34,072 TOTAL ASSETS $ 57,022,574 LIABILITIES Due to other funds $ 14,028 Total liabilities 14,028 NET ASSETS Held in trust for pension and employee retirement benefits $ 57,008,546 The accompanying notes are an integral part of these financial statements. 27  EXHIBIT X City of Fort Walton Beach, Florida FIDUCIARY FUNDS STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS Year Ended September 30, 2010 Employee Retirement Funds ADDITIONS Contributions Employer $ 2,568,883 Plan members 570,794 State of Florida 330,397 Total contributions 3,470,074 Investment income 5,009,472 Less investment expense (230,454) Net investment income 4,779,018 Miscellaneous revenue 52,908 TOTAL ADDITIONS 8,302,000 DEDUCTIONS Benefits and refunds paid Retirement payments 3,924,091 Disability payments 179,796 Refunds 186,591 Total benefits and refunds paid 4,290,478 Administrative expenses Legal 30,331 Contractual services 141,151 Other 26,369 Total administrative expenses 197,851 TOTAL DEDUCTIONS 4,488,329 NET INCREASE (DECREASE) 3,813,671 NET ASSETS HELD IN TRUST FOR PENSION BENEFITS BEGINNING OF YEAR 53,194,875 END OF YEAR $ 57,008,546 The accompanying notes are an integral part of these financial statements. 28  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2010 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The City of Fort Walton Beach, Florida, (the City) was created as a municipality by a 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 (GAAP) in the United States of America 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: A. 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 accounting principles generally accepted in the United States of America, these financial statements present the City of Fort Walton Beach (the primary government) and its 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 No. 14 for determining financial accountability of potential component units in evaluating all potential component units. In accordance with GASB No. 14, 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. 29  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2010 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) A. The Reporting Entity (Continued) As of September 30, 2010, the City of Fort Walton Beach had one component unit, as defined by GASB 14, which has been presented in the financial statements of the primary government as a "discretely presented component unit." 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. The members of the Agency's governing board are appointed by the City Council of Fort Walton Beach, Florida. However, the Agency is fiscally dependent upon the City because City Council approves the Agency's budget, grants final approval to community redevelopment plans, and must approve any debt issuances and acquisition and disposal of property. The Agency is classified and presented as a governmental fund type. Complete financial statements for the Agency are presented in the Combining and Individual Fund Statements and Schedules section of this report. The Fort Walton Beach Housing Authority (the Authority) is considered a related organization to the City rather than a component unit. The City Council of Fort Walton Beach, Florida 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. B. 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 assets and the statement of changes in net assets) report information on all of the nonfiduciary activities of the primary government and its component unit. For the most part, the effect of interfund activity has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely, to a significant extent, on fees and charges for support. Likewise, the primary government is reported separately from the legally separate component unit for which the primary government is financially accountable. The Statement of Activities demonstrates the degree to which the direct expenses of a given function or segment are 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. 30  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2010 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) B. Government-Wide and Fund Financial Statements (Continued) Separate fund financial statements are provided for governmental funds, proprietary funds, and fiduciary funds, even though fiduciary funds are excluded from the government-wide financial statements. Major individual governmental funds and major enterprise funds are reported as separate columns in the fund financial statements. C. 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. 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 taxes, 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 receivable within the current fiscal period is 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. 31  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2010 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) C. Measurement Focus and Basis of Accounting (Continued) 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, 2010 Levy Date November 1, 2010 Due Date November 1, 2010 Delinquent Date April 1, 2011 Discounts of 1% for each month taxes are paid prior to March 2011, are granted. Revenue recognition criteria for property taxes under the GASB requires that property taxes expected to be collected within 60 days of the current period be accrued. No accrual has been made for 2010 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. Private sector standards of accounting and financial reporting issued prior to December 1, 1989, generally are followed in both the government-wide and proprietary fund financial statements to the extent that those standards do not conflict with, or contradict guidance of the Governmental Accounting Standards Board (GASB). Governments also have the option of following subsequent private sector guidance for their business-type activities and enterprise funds, subject to this same limitation. The government has elected to follow subsequent private sector guidance. 32  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2010 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) D. 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. 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 fee is 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. 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. 33  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2010 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) D. Basis of Presentation (Continued) 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 fund: 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. Proprietary Proprietary funds focus on the determination of net income, changes in net assets, 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. Golf Fund - Accounts for the operations and maintenance of the City-owned golf courses. 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 funds: 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. 34  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2010 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) E. Assets, Liabilities, and Net Assets or Equity Cash and Cash Equivalents The City considers all highly liquid investments (including restricted assets) with a maturity of 90 days or less when purchased, and investments with the State Board of Administration (SBA), to be cash equivalents. Additionally, each fund's equity in the City's investment pool (see Note 3) is considered to be cash equivalent since the funds can deposit or effectively withdraw cash at any time without prior notice or penalty. Deposits and Investments Section 218.415, Florida Statutes, requires the investment of surplus public funds and prescribes the instruments in which those investments are authorized, specifically the State of Florida Local Government Surplus Funds Trust Fund, direct obligations of the United States Government or other obligations unconditionally guaranteed by the United States Government, collateralized interest-bearing time deposits or savings accounts in state or federal banks or savings and loan associations, debt securities of the Federal Farm Credit Banks, the Federal Home Loan Mortgage Corporation, the Federal Home Loan Bank, the Government National Mortgage Association, the Federal National Mortgage Association, and securities of or other interest in certain investment companies or investment trusts, the portfolio of which is limited to United States Government obligations or repurchase agreements fully collateralized by such obligations. The City adheres strictly to the provisions of those cited Statutes, as well as with Chapter 280, Florida Statutes, which requires the City to maintain deposits only with "Qualified Public Depositories." The City maintains a cash and investment pool available for use by all funds and the Community Redevelopment Agency. Earnings from such investments are allocated to the respective funds based on applicable cash participation by each fund. In addition, restricted cash accounts, certificates of deposit, and other investments are separately maintained by a few City funds in accordance with bond ordinances, retirement fund plan documents and other contractual agreements. Investments are stated at fair value, based on quoted market prices. 35  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2010 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) E. Assets, Liabilities, and Net Assets or Equity (Continued) Deposits and Investments (Continued) The City's cash and investment pool and certain individual funds participate in the Local Government Surplus Trust Fund, operated by Florida's State Board of Administration (SBA). The SBA is governed by Chapter 19-1 of the Florida Administrative Code (FAC). The FAC provides guidance and establishes the general operating procedures for the administration of the Local Government Surplus Trust Funds. Additionally, the Florida Auditor General performs an operational audit of activities and investments of the SBA. In accordance with GASB Statement Number 31, Local Government Surplus Trust Fund is a "2A-7 like" pool and thus, SBA investments are valued using the pooled share price. City investments with the SBA may be made or liquidated by wire on a same day basis, subject to limitations described in Note 3. Pension Trust Funds may invest in direct obligations of the United States Government or other obligations unconditionally guaranteed by the United States Government, collateralized interest-bearing time deposits or savings accounts in state or federal banks or savings and loan associations, bonds or indebtedness of United States corporations rated BAA or better, stocks of U.S. corporations which are listed on the national stock exchanges (limited to 50% of the assets of the fund) and investment accounts maintained by major national banks and insurance companies given the top rating by Best. In addition to the above investment options, the Firefighters' Retirement Pension Trust Fund may invest up to 20% of its assets at cost in real estate. Bond Sinking Fund Investments are limited by bond ordinances to investments in direct obligations of the United States government or other marketable securities eligible as security of trust funds under regulations of the Board of Governors of the Federal Reserve System. The maturity date on Sinking Fund Investments is limited by the individual bond ordinances to correspond to the related debt service payments. 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." 36  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2010 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) E. Assets, Liabilities, and Net Assets or Equity (Continued) Receivables and Payables (Continued) Advances between funds, as reported in the fund financial statements, are offset by a fund balance reserve account in applicable governmental funds to indicate that they are not available for appropriation and are not expendable 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 uncollectibles. 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 inventory is used. A portion of the General Fund balance equal to the inventory amount has been reserved in the fund financial statements to indicate that it is not available for appropriation. Restricted Assets Certain resources in the following funds are restricted for specific purposes: in the Debt Service Fund, for the repayment of the Capital Improvement Bonds, Series 2001; in the Utility Fund, for the repayment of the Utility System Revenue Bonds, Series 2005; in the Utility and Golf Enterprise Funds, for repayment of the Public Improvement Revenue Refunding Bonds, Series 1998; customer utility deposits and impact fees received are restricted in the Utilities Fund; and, various funds are set aside in the Golf Fund for repayment of Capital Improvement Revenue Bonds, 1999A. 37  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2010 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) E. Assets, Liabilities, and Net Assets or Equity (Continued) 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. 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 38  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2010 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) E. Assets, Liabilities, and Net Assets or Equity (Continued) 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 assets. Bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds using the effective and straight-line interest methods. Bonds payable are reported net of the applicable bond premium or discount. Bond issuance costs are reported as deferred charges and amortized over the term of the related debt. In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. Fund Equity In the fund financial statements, governmental funds report reservations of fund balances for amounts that are not available for appropriation or are restricted by outside parties for use as a specific purpose. Designations of fund balances represent tentative management plans that are subject to change. 39  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2010 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) F. Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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. NOTE 2 - STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY A. Budgets Budgets are adopted on a basis consistent with generally accepted accounting principles. Annual appropriated budgets are adopted by ordinance 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 millages, 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 an ordinance. Budget amendments are periodically passed through resolutions during the fiscal year. Appropriations lapse at year-end except for appropriations related to multi-year capital projects. Budgeted beginning fund balance in the accompanying financial statements reflects planned utilization of prior years unreserved/undesignated fund balance to the level required to accomplish current year objectives. 40  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2010 NOTE 2 - STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY (CONTINUED) A. Budgets (Continued) 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. B. 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 reservations of fund balances and do not constitute expenditures or liabilities because the commitments will be reappropriated and honored during the subsequent year. NOTE 3 - DEPOSITS AND INVESTMENTS The City maintains a cash and investment management pool in which each fund (except 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, certificates of deposit, pooled investments of the Local Government Surplus Trust Fund, and funds held in the Reserve U.S. Government money market fund. Interest income (which includes unrealized gains and losses) is distributed monthly based on average daily balances. The City's cash and investment management pool is considered to be cash equivalent for reporting purposes because it is an internally managed fund, which allows individual funds to, at any time, deposit additional cash or make withdrawals without prior notice or penalty. 41  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2010 NOTE 3 - DEPOSITS AND INVESTMENTS (CONTINUED) 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. At year-end, the value of the City's deposits was $28,955,081, all of which was held by qualified public depositories under Chapter 280, Florida Statutes. Investments As of September 30, 2010, the City's investments consists of those held in the various pension trust funds. 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-E. 42  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2010 NOTE 3 - DEPOSITS AND INVESTMENTS (CONTINUED) Investments (Continued) As of September 30, 2010, the City held the following investments and related maturities (non-current restricted non-cash cash equivalents held by the City are also listed in the "Money market funds and investment pools" classification, and are maintained in the City's proprietary funds): 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 $ 8,764,737 $ 86,702 $ 2,553,571 $ 5,720,272 $ 53,042 $ 31,468 $ 22,212 $ 238,160 $ 59,310 Corporate CMOs 271,784 - - - - 42,736 - 91,279 137,769 U.S. Treasury 6,359,854 477,007 3,446,083 1,668,342 - - - 768,422 - U.S. Government Agencies 2,165,303 369,419 998,799 630,949 - 111,111 55,025 - - U.S. Government Agency Pools 1,960,507 - 70,305 228,265 1,196,272 - 204,364 261,301 - $ 19,522,185 $ 933,128 $ 7,068,758 $ 8,247,828 $ 1,249,314 $ 185,315 $ 281,601 $ 1,359,162 $ 197,079 Investments not subject to interest rate risk Money market funds and investment pools $ 8,404,904 Corporate equities 18,145,780 Mutual funds 16,133,190 42,683,874 Total $ 62,206,059 Interest Rate Risk - The City's investment policy does not limit its investment maturities as a means of managing its exposure to fair value losses arising from changes in interest rates. The City's policy encourages shorter-term investments for operating funds in order to meet the anticipated cash flows requirements. The General Employee's Pension Plan strives to maintain an average duration of its total fixed income portfolio to not less than 75% nor more than 125% of the duration of the Merrill Lynch Bond Index. The investment policies of the Police and Firefighters' Pension Plans do not specifically address interest rate risk. 43  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2010 NOTE 3 - DEPOSITS AND INVESTMENTS (CONTINUED) Investments (Continued) Credit Rate Risk - State law limits investments of surplus public funds to those investments described above. According to the City's General Employees' Pension Plan investment policy, investment in all domestic corporate fixed income securities is limited to those securities rated Baa or higher by Moody's rating service. As of September 30, 2010, the General Employees' Pension Plan held one insignificant investment, valued at $11,189, whose rating was below Baa; the Plan's intent, in compliance with Florida Statutes 112.661(5)(b), is to sell any investment, whose rating falls below the policy threshold, as soon as it is economically feasible. Investments with less than an "A" rating will be limited to no more than 10% of the total cost of the fixed income securities. Investments in the General Employees' Pension Plan whose rating was less than "A" at September 30, 2010, comprised 5% of the total cost of fixed income securities in the Plan. The Police Officers' Pension Fund limits investment in fixed income securities to those rated "A" or higher by Moody's or Standard and Poor's rating services. The Firefighters' Pension Fund limits investment in fixed income securities to those securities rated "A" or higher by Moody's or Standard & Poor's rating services. Each Pension Plan was in compliance with its respective investment policy regarding credit rate risk as of September 30, 2010. The range of ratings of the different classes of investments, held by each respective plan at September 30, 2010, are as follows: General Pension Police Pension Plan Plan Fire Pension Plan Money market funds Aaa-A Aaa-A Aaa-A Corporate CMOs Aaa-Caa3 N/A N/A Corporate debt Aa2-Baa3 Aa2-A3 Aa3-A3 Concentration Credit Risk - The City places no limit on the amount that may be invested in any one issuer, in regards to its general operations investments. The City encourages portfolio diversification to minimize each of the types of risk related to investments. The General Employees' Pension Fund limits investment of fixed income securities of any single issuer to no more than 10% of the cost of all fixed income securities. Investments in collateralized mortgage obligations are limited to 25% of the market value of the total fixed income portfolio and are restricted to securities issued by the Government National Mortgage Association (GNMA), the Federal Home Loan Mortgage Corporation (FHLMC), or the Federal National Mortgage Association (FNMA), or that are rated "Aaa" or "AAA" by Moody's or Standard and Poor's bond rating services, respectively. It is expected that the average duration of the total fixed income portfolio will not be less than 75% nor more than 125% of the duration of the Merrill Lynch Bond Index. As of September 30, 2010, the largest investment in a single corporate issuer of debt was below 3% of the cost of all fixed income securities. Total investments in collateralized mortgage obligations (CMOs) were 17% of the total market value of the total fixed income portfolio. 44  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2010 NOTE 3 - DEPOSITS AND INVESTMENTS (CONTINUED) Investments (Continued) Concentration Credit Risk (Continued) No more than 10% of the market value of the total fixed income portfolio in the Police Officers' Pension Fund may be invested in the securities of any single corporate issuer. Investments in collateralized mortgage obligations are limited to 25% of the market value of the total fixed income portfolio and are further restricted by the same requirements as outlined above for the General Employees' Pension Fund. As of September 30, 2010, the largest investment in a single corporate issuer of debt was 7% of the value of all corporate fixed income securities. The Police Officers' Pension Fund did not hold any investments in collateralized mortgage obligations as of September 30, 2010. The Firefighters' Pension Fund Investment Policy establishes a target assets allocation of the entire Pension Fund based on the market value of the invested assets as 50% invested in large cap domestic securities, 10% in small/midcap domestic equities and 40% in fixed income securities. In regards to fixed income securities, no more than 10% of the market value of the total fixed income investments may be held in any single corporate issuer. Investments in collateralized mortgage obligations are limited to 25% of the market value of the total fixed income portfolio and are restricted to issues backed by securities issued by the Government National Mortgage Association (GNMA), the Federal Home Loan Mortgage Corporation (FHLMC), or the Federal National Mortgage Association (FNMA), and those issues which pass the FFIEC High Risk Security Test on an annual basis. As of September 30, 2010, the largest investment in a single corporate issuer of debt was 17% of the market value of all fixed income securities; the Plan's intent, in compliance with Florida Statutes 112.661(5)(b), is to sell any investments that exceed the policy threshold when it is economically feasible. Total investments in collateralized mortgage obligations were 13% of the total market value of the total fixed income portfolio. 45  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2010 NOTE 3 - DEPOSITS AND INVESTMENTS (CONTINUED) Deposits Held in Florida State Board of Administration's Local Government Investment Pool In addition to the investments subject to credit risk, listed above, the City maintains investments in the Florida State Board of Administration's (SBA) Local Government Surplus Funds Trust Pools, and these deposits are included in the City's pooled cash accounts. At September 30, 2010, the City maintained $351,397 invested in the State Board of Administration’s Local Government Surplus Funds Trust Fund Investment Pool B (Fund B). Fund B consists of assets that have defaulted on payment, paid more slowly than expected, and/or were assessed as having significant credit and liquidity risk. Fund B has been "frozen" by the SBA since December 2007, but has distributed portions of the pool to participants since that date. Since December 2007, the City has received $1,328,122 in distributions from Fund B, including $102,878 received during the year ended September 30, 2010. Fund B will continue to distribute funds to all participants as the assets within the Fund are able to be liquidated. The primary goal of the Fund is to make members "whole" and not realize a loss on the investment. Fund B has not received a credit rating by any of the nationally-recognized rating agencies as of September 30, 2010. The City believes that it will not incur a loss on the realizable value of the remaining investments held in the Fund. Due to the nature of securities in Fund B, the interest rate risk information required by GASB 40 is not available. However, an estimate of weighted average life (WAL) is available. In the calculation of WAL, the time at which an expected principal amount is to be received (measured in years) is weighted by the principal amount received at that time divided by the sum of all expected principal payments. The principal amounts used in the WAL calculation are not discounted to present value as they would be in a weighted average duration calculation. The WAL (based on expected future cash flows) of Fund B at September 30, 2010, is estimated at 7.49 years. However, because Fund B consists of restructured or defaulted securities there is considerable uncertainty regarding the weighted average life. The City also maintains $180,907 invested in the SBA's Florida PRIME. The Florida PRIME current credit rating is AAAm by Standard and Poor's. The weighted average to maturity (WAM) of the Florida PRIME at September 30, 2010, is 52 days. Next interest rate reset dates for floating rate securities are used in the calculation of the WAM. 46  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2010 NOTE 4 - RECEIVABLES Receivables at September 30, 2010, were as follows: Discretely Presented Governmental Component Activities Unit Other Community Govern- Redevelop- General mental Funds Total ment Fund Taxes $ 15,426 $ - $ 15,426 $ - Accounts 74,527 211 74,738 401 Assessments 125,019 - 125,019 73,440 Other 1,405 - 1,405 - Total receivables $ 216,377 $ 211 $ 216,588 $ 73,841 Business-Type Activities Other Proprietary Utilities Sanitation Golf Funds Total Accounts $ 526,665 $ 202,192 $ - $ 44,402 $ 773,259 Less allowance for doubtful accounts (59,223) (17,182) - (4,014) (80,419) Assessments 18,753 - - - 18,753 Other - - 1,743 - 1,743 Total receivables $ 486,195 $ 185,010 $ 1,743 $ 40,388 $ 713,336 Due from Other Governments The City's receivables from other governments for governmental activities and business- type activities as of September 30, 2010, are $823,827 and $68,418, respectively. Due from other governments consist of $800,073 due from the federal government and $78,144 due from the State of Florida. All receivables from the federal government are related to grant revenues, primarily American Recovery and Reinvestment Act (ARRA) funds related to street paving. The receivables due from the State of Florida also represent grant revenues, primarily related the golf course water re-use system expansion. The remainder of the balance, $14,028, is receivable from the City's Pension Plans for reimbursement for payment of the Pension Plan's fiduciary insurance premiums. 47  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2010 NOTE 5 - CHANGES IN CAPITAL ASSETS Capital asset activity for the year ended September 30, 2010, was as follows: Primary Government Beginning Decreases/ Ending Balance Increases Transfers Balance Governmental Activities Capital assets not being depreciated Land $ 9,643,584 $ - $ (13,411) $ 9,630,173 Construction in progress 1,999 213 (1,999) 213 Total capital assets not being depreciated 9,645,583 213 (15,410) 9,630,386 Capital assets being depreciated Buildings 14,009,710 - - 14,009,710 Improvements other than buildings 4,893,199 22,300 4,848 4,920,347 Infrastructure 12,167,366 820,796 (860,838) 12,127,324 Machinery and equipment 7,618,471 389,973 (1,051,780) 6,956,664 Equipment under capital lease 299,948 - - 299,948 Total capital assets being depreciated 38,988,694 1,233,069 (1,907,770) 38,313,993 Less accumulated depreciation Buildings (5,992,421) (446,756) - (6,439,177) Improvements other than buildings (2,420,612) (205,491) (524) (2,626,627) Infrastructure (8,196,346) (270,846) 860,838 (7,606,354) Machinery and equipment (6,384,025) (400,698) 1,051,813 (5,732,910) Equipment under capital lease (147,475) (29,995) - (177,470) Total accumulated depreciation (23,140,879) (1,353,786) 1,912,127 (22,582,538) Total capital assets being depreciated, net 15,847,815 (120,717) 4,357 15,731,455 Governmental activities, net $ 25,493,398 $ (120,504) $ (11,053) $ 25,361,841 Business-Type Activities Capital assets not being depreciated Land $ 765,078 $ - $ - $ 765,078 Construction in progress 1,397,605 369,943 (165,602) 1,601,946 Total capital assets not being depreciated 2,162,683 369,943 (165,602) 2,367,024 Capital assets being depreciated Buildings 3,567,232 51,483 - 3,618,715 Improvements other than buildings 41,014,838 921,281 157,546 42,093,665 Machinery and equipment 11,074,858 354,988 (398,251) 11,031,595 Equipment under capital lease 532,696 - - 532,696 Total capital assets being depreciated 56,189,624 1,327,752 (240,705) 57,276,671 48  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2010 NOTE 5 - CHANGES IN CAPITAL ASSETS (CONTINUED) Primary Government (Continued) Beginning Decreases/ Ending Balance Increases Transfers Balance Business-Type Activities (Continued) Less accumulated depreciation Buildings (1,164,726) (117,735) - (1,282,461) Improvements other than buildings (22,022,681) (905,185) (18,001) (22,945,867) Machinery and equipment (7,756,195) (878,889) 416,921 (8,218,163) Equipment under capital lease (233,153) (78,131) - (311,284) Total accumulated depreciation (31,176,755) (1,979,940) 398,920 (32,757,775) Total capital assets being depreciated, net 25,012,869 (652,188) 158,215 24,518,896 Business-type activities, net $ 27,175,552 $ (282,245) $ (7,387) $ 26,885,920 Discretely Presented Component Unit Activity for the Community Redevelopment Agency for the year ended September 30, 2010, is as follows: Beginning Decreases/ Ending Balance Increases Transfers Balance Capital assets not being depreciated Land $ 193,928 $ 137,160 $ - $ 331,088 Construction in progress 183,561 246,990 (183,561) 246,990 Total capital assets not being depreciated 377,489 384,150 (183,561) 578,078 Capital assets being depreciated Buildings - 48,083 70,280 118,363 Improvements other than buildings 5,069,817 430,794 113,282 5,613,893 Infrastructure 44,200 - - 44,200 Machinery and equipment 105,427 19,465 (1,682) 123,210 Total capital assets being depreciated 5,219,444 498,342 181,880 5,899,666 Less accumulated depreciation Buildings - (3,945) - (3,945) Improvements other than buildings (1,179,596) (296,960) - (1,476,556) Infrastructure (6,814) - - (6,814) Machinery and equipment (71,303) (12,122) 1,681 (81,744) Total accumulated depreciation (1,257,713) (313,027) 1,681 (1,569,059) Total capital assets being depreciated, net 3,961,731 185,315 183,561 4,330,607 Total, net $ 4,339,220 $ 322,475 $ 183,561 $ 4,908,685 49  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2010 NOTE 5 - CHANGES IN CAPITAL ASSETS (CONTINUED) Discretely Presented Component Unit (Continued) Amortization of equipment under capital lease is included with depreciation expense in the financial statements. Depreciation expense was charged to functions/programs of the primary government as follows: Governmental Activities General government $ 136,666 Public safety 415,325 Physical environment 58,870 Transportation 338,274 Culture and recreation 404,651 Total depreciation expense - governmental activities $ 1,353,786 Business-Type Activities Utilities Fund $ 1,428,340 Sanitation Fund 188,608 Golf Fund 302,720 Other Proprietary Funds 60,272 Total depreciation expense - business-type activities $ 1,979,940 Construction Commitments The City has begun certain projects which remain open at year-end. These projects are as follows: As part of the City's renewal and replacement plan, the City has spent a total of $781,453 installing new commercial and residential water meters as the existing meters are reaching the end of their useful life. The replacement is funded from net assets of the Utility Fund. The City is in the process of upgrading lift stations at various locations. The decision was made to close the City's existing Waste Water Treatment Plant (WWTP) due to aging, and the potential cost of upgrading the facility. The redirection of the City's effluent discharge to Okaloosa County's WWTP created the need to install larger pumps due to increased head pressure. As of September 30, 2010, the City has spent $124,728 on these upgrades which are slated for completion in 2011. The City has expended $56,891 thus far on the City's water line to the new Okaloosa County Judicial Center. This project is funded with impact fees and is expected to be completed in 2011. 50  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2010 NOTE 5 - CHANGES IN CAPITAL ASSETS (CONTINUED) Construction Commitments (Continued) The City entered into an agreement with the Florida Department of Transportation (FDOT) to replace the existing strain poles with mast arms to support the signal lights at the intersection of state road 85 and Hollywood Boulevard. The City has provided $246,990 to-date for this project, which will be completed by FDOT. This project is being constructed within the community redevelopment area and is included in the component unit, Community Redevelopment Agency. The City is continuing the expansion of the water reuse line. This project began as a partnership between Hurlburt Field and the City to install over 30,000 linear feet of re-use water main. Initial funding received from the Florida Defense Infrastructure Grant (FDIG) program allowed the installation of approximately 11,500 linear feet. No funding was expended on the Hurlburt Reuse line in fiscal year 2010. The City has expended $1,232,002 on this project to-date and is pursuing a State Revolving Fund (SRF) loan through the Florida Department of Environmental protection (DEP) to complete the remaining phases of this project. NOTE 6 - CHANGE IN ESTIMATE OF USEFUL LIVES During the year ended September 30, 2010, the City determined that the water meters used in the City's utility operations were aging, and should be replaced. As a result, the City re- assessed the assets' useful lives and determined that the original estimated useful lives for the meters of twenty to thirty years should be adjusted due to the current condition of the meters. The City estimated that many of the meters were no longer useful for service and that the remaining meters had a useful life of six months as of September 30, 2010. The change in the estimated useful life of the meters resulted in additional depreciation on the meters of the meters of $312,868 for the year ending September 30, 2010. As a result, of the additional depreciation, operating income and change in assets has been decreased in the Utilities Fund by $312,868 for the year ending September 30, 2010. 51  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2010 NOTE 6 - CHANGE IN ESTIMATE OF USEFUL LIVES (CONTINUED) Had the change in estimated useful lives not occurred during the year, future years' change in net assets would be decreased by the following amount, as a result of depreciation expense recognized in the future years, as follows: Effect of the Change on Future Operating Income Future operating income would decrease by: 2011 $ 24,957 2012 $ 49,914 2013 $ 49,914 2014 $ 49,914 2015 $ 49,914 2016 $ 49,914 2017 $ 25,465 2018 - 2031 $ 12,883 NOTE 7 - 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 also be found in Section E of this note. There is no separate report available for the individual pension plans. A. Basis of Accounting and Method Used to Value Investments Each plan's financial statements are prepared using the accrual basis of accounting. Plan member contributions are recognized in the period in which the contributions are due. Employer contributions to the plan are recognized when due and the employer has made a formal commitment to provide the contributions. Benefits and refunds are recognized when due and payable in accordance with the terms of the plan. Investments are reported at fair value. Securities traded on a national or international exchange are valued at the last reported sales price at current exchange rates. Administrative costs are financed from each respective fund's investment earnings. 52  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2010 NOTE 7 - DEFINED BENEFIT PENSION PLANS (CONTINUED) B. Plan Descriptions Membership of each plan consisted of the following at September 30, 2010, the date of the latest actuarial valuation: GERF PORF FRF Retirees and beneficiaries receiving benefits 129 37 24 Terminated plan members entitled to but not yet receiving benefits 12 9 - Disabled participants 6 5 1 Active plan members 154 43 37 Total 301 94 62 General Employees' Retirement Fund (GERF) - Plan Description Plan Description - The GERF provides retirement, disability, and death benefits to plan members and beneficiaries. Participation in the plan is mandatory for all full- time general municipal employees hired after May 14, 1996 through December 31, 2009. Employees hired after this date are not eligible to participate. Cost-of-living increases of up to 3% are provided to retirees and beneficiaries every year. City ordinance assigns the authority to establish and amend benefit provisions to the City. Police Officers' Retirement Fund (PORF) - Plan Description Plan Description - The PORF is administered by the Police Officers' Pension Fund Board of Trustees. The PORF provides retirement, disability, and death benefits to plan members and beneficiaries. Participation in the plan is mandatory for all certified police officers. Cost-of-living increases of up to 3% are provided to retirees and beneficiaries every year. City ordinance assigns the authority to establish and amend benefit provisions to the Board of Trustees. Firefighters' Retirement Fund (FRF) - Plan Description Plan Description - The FRF is administered by the Firefighters' Pension Fund Board of Trustees. The FRF provides retirement, disability, and death benefits to plan members and beneficiaries. Participation in the plan is mandatory for all firefighters. Cost-of-living increases of up to 3% are provided to retirees and beneficiaries every year. City ordinance assigns the authority to establish and amend benefit provisions to the Board of Trustees. 53  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2010 NOTE 7 - DEFINED BENEFIT PENSION PLANS (CONTINUED) C. Contributions, Funding Policy and Annual Pension Cost The contribution requirements of plan members and the City are established annually and amended by City ordinance. Plan members are required to contribute at a set percentage of their annual covered salaries. The City is required to contribute at an actuarially determined rate. The State of Florida also contributes to the Police Officers' Retirement Fund (PORF) and the Firefighters' Retirement Fund (FRF). Contributions from the State for the PORF of $165,213 and $165,184 for the FRF are included in the governmental activities revenue and expenses for the year ending September 30, 2010. None of the three Plans addresses maximum contribution rates. The City's annual pension cost for the current year and related information for each plan is as follows: GERF PORF FRF Contribution rates (percentage of covered payroll) City 26.4 % 20.3 % 25.3 % Plan members 5.0 % 5.0 % 6.6 % Annual pension cost $ 1,477,777 $ 500,007 $ 574,278 Contributions made Employer $ 1,477,777 $ 516,828 $ 574,278 State of Florida $ - $ 165,213 $ 165,184 Net pension obligation (asset) $ (2,105) $ (55,259) $ (181,809) Actuarial valuation date 9/30/2010 10/1/2009 10/1/2009 Individual Entry Actuarial cost method Age Entry Age Normal Entry Age Normal Amortization method Normal Cost, Level percentage of Level percentage of closed pay, closed pay, closed Remaining amortization period 15 years 24 years 30 Years Asset valuation method 5-year smoothed 4-year smoothed 4-year smoothed market market market Actuarial assumptions Invested rate of return 8.0 % 8.0 % 8.0 % Projected salary increases* 4.0-8.0% 7.5 % 6.5 % * Includes inflation at 4.0 % 3.0 % 3.0 % Post retirement COLA 3.0 % 3.0 % 3.0 % 54  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2010 NOTE 7 - DEFINED BENEFIT PENSION PLANS (CONTINUED) C. Contributions, Funding Policy and Annual Pension Cost (Continued) Three-Year Trend Information Actuarially Determined Percentage Net Pension Year Ending Contribution Contribution Obligation (Asset) GERF September 30, 2008 $ 1,231,168 100 % $ (2,584) September 30, 2009 1,268,019 100 % (2,261) September 30, 2010 1,477,777 100 % (2,105) PORF September 30, 2008 306,805 100 % (41,485) September 30, 2009 407,159 100 % (41,030) September 30, 2010 500,007 103 % (55,259) FRF September 29, 2008 193,079 100 % (192,457) September 30, 2009 421,935 110 % (190,344) September 30, 2010 574,278 100 % (181,809) The components of net pension cost, the increase in Net Pension Asset, and the Net Pension Asset for the year ended September 30, 2010, for the General Employees', Police Officers' and Firefighters' Retirement Funds are as follows: General Police Employees' Officers' Firefighters' Actuarially determined contribution $ 1,477,777 $ 500,007 $ 574,278 Interest on net pension asset (181) (3,282) (15,228) Adjustment to actuarially determined annual pension cost 337 5,874 23,763 Annual pension cost 1,477,933 502,599 582,813 Contribution made 1,477,777 516,828 574,278 Change in net pension asset (156) 14,229 (8,535) Net pension asset - beginning of year 2,261 41,030 190,344 Net pension asset - end of year $ 2,105 $ 55,259 $ 181,809 The funded status of each plan as of September 30, 2010, the most recent actuarial valuation date is as follows (dollar amounts in thousands): Actuarial Accrued Liability Annual Actuarial Value (AAL) Entry Age Unfunded AAL Funded Covered UAAL as % of Assets (a) (b) (UAAL) (b-a) Ratio (a/b) Payroll (c) of Payroll GERF $ 34,352,072 $ 40,510,991 $ 6,158,919 84.80 % $ 5,595,076 110.08 % PORF 18,874,149 24,702,783 5,828,634 76.40 % 2,195,529 265.48 % FRF 10,591,930 17,167,805 6,575,875 61.70 % 2,116,516 310.69 % 55  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2010 NOTE 7 - DEFINED BENEFIT PENSION PLANS (CONTINUED) D. Required Supplementary Information The schedule of funding progress and schedule of employer contributions can be found in the supplemental information of this comprehensive annual financial report. E. 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, 2010: COMBINING STATEMENT OF PLAN NET ASSETS Employee Retirement Funds Total General Police Employee Employees' Officers' Firefighters' Retirement Retirement Retirement Retirement Funds ASSETS Cash and cash equivalents $ 1,423,372 $ 1,429,507 $ 334,468 $ 3,187,347 Due from City - - 34,072 34,072 Investments, at market U.S. Government and agency obligations 5,461,079 3,232,280 1,792,305 10,485,664 Corporate obligations 5,126,766 2,200,410 1,709,345 9,036,521 Corporate equity 11,349,173 6,796,607 - 18,145,780 Mutual funds 6,626,208 3,593,937 5,913,045 16,133,190 Total investments, at market 28,563,226 15,823,234 9,414,695 53,801,155 TOTAL ASSETS $ 29,986,598 $ 17,252,741 $ 9,783,235 $ 57,022,574 LIABILITIES Due to City $ 5,776 $ 4,126 $ 4,126 $ 14,028 NET ASSETS HELD IN TRUST FOR PENSION BENEFITS AND OTHER PURPOSES $ 29,980,822 $ 17,248,615 $ 9,779,109 $ 57,008,546 56  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2010 NOTE 7 - DEFINED BENEFIT PENSION PLANS (CONTINUED) E. Fund Financial Statements (Continued) COMBINING STATEMENT OF CHANGES IN PLAN NET ASSETS Employee Retirement Funds Total General Police Employee Employees' Officers' Firefighters' Retirement Retirement Retirement Retirement Funds ADDITIONS Contributions Employer $ 1,477,777 $ 516,828 $ 574,278 $ 2,568,883 Plan members 322,527 108,768 139,499 570,794 State of Florida - 165,213 165,184 330,397 Total contributions 1,800,304 790,809 878,961 3,470,074 Investment income (loss) 2,677,998 1,361,863 969,611 5,009,472 Less investment expense (111,054) (84,250) (35,150) (230,454) Net investment income (loss) 2,566,944 1,277,613 934,461 4,779,018 Miscellaneous revenue 51,060 1,462 386 52,908 TOTAL ADDITIONS 4,418,308 2,069,884 1,813,808 8,302,000 DEDUCTIONS Benefits and refunds paid Retirement payments 1,944,640 1,005,184 974,267 3,924,091 Disability payments 63,055 92,107 24,634 179,796 Refunds 119,321 40,366 26,904 186,591 Total benefits and refunds paid 2,127,016 1,137,657 1,025,805 4,290,478 Administrative expenses Legal 13,564 11,209 5,558 30,331 Contractual services 68,800 39,354 32,997 141,151 Other 8,338 5,439 12,592 26,369 Total administrative expenses 90,702 56,002 51,147 197,851 TOTAL DEDUCTIONS 2,217,718 1,193,659 1,076,952 4,488,329 NET INCREASE (DECREASE) 2,200,590 876,225 736,856 3,813,671 BEGINNING OF YEAR 27,780,232 16,372,390 9,042,253 53,194,875 END OF YEAR $ 29,980,822 $ 17,248,615 $ 9,779,109 $ 57,008,546 57  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2010 NOTE 8 - DEFINED CONTRIBUTION PENSION PLAN General Employees Defined Benefit Pension Plan In December 2009, Council passed resolutions to close the General Employees Defined Benefit Plan to employees as of December 31, 2009. All full-time employees hired after January 1, 2010 became members of the City of Fort Walton Beach 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. 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, and employees can increase their contribution by an additional 2½%, which would also be matched by the employer (City). Members of the General Employees Defined Benefit Pension Plan who are not fully or partially vested may transfer their contribution to the Plan. Elections to make the transfer are irrevocable. Members of the General Employees Defined Benefit Pension Plan who are fully vested may also transfer to the Plan and shall be eligible for a deferred vested benefit based on their vested interest in the Plan, credited service and final average earnings as of the date they join the Plan. 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 $20,033 and $20,033, respectively, for the year ending September 30, 2010. NOTE 9 - DEFERRED COMPENSATION PLAN The City offers employees a deferred compensation plan created in accordance with Internal Revenue Code Section 457. 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 employee's benefit. The plan participants, individually, select and make changes in funding options made available by the independent plan administrator. Since plan 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. In accordance with GASB Statement No. 32, the assets and liabilities of the plan are not reflected in the City's financial statements since the City has no fiduciary responsibilities, other than administrative, in connection with the Plan. Assets of the plan have a fair value of $2,242,098 at September 30, 2010. Contributions made by plan members during the year ended September 30, 2010, were $217,940. 58  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2010 NOTE 10 - OTHER POST EMPLOYMENT BENEFITS (OPEB) A. 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. B. Funding Policy The City is financing the post employee benefits on a "pay-as-you-go" basis. For fiscal year 2010, 56 retirees and/or dependents received health care benefits. Annual required implied contributions were $328,899 for the current fiscal year, towards which the City made an implied contribution of $236,253. Retiree contributions totaled $325,556 for the fiscal year ended September 30, 2010. At September 30, 2010, the City recorded a net OPEB obligation of $106,474 for governmental activities and $40,008 for business-type activities in its government-wide statement of net assets. 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. C. Membership At September 30, 2010, membership consisted of: Retirees and beneficiaries currently receiving benefits 56 Terminated employees entitled to benefits but not receiving them - Active employees 190 Total 246 Participating employers 1 D. Annual OPEB Cost and Net OPEB Obligation The City's annual other post employment benefit (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 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. 59  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2010 NOTE 10 - OTHER POST EMPLOYMENT BENEFITS (OPEB) (CONTINUED) D. Annual OPEB Cost and Net OPEB Obligation (Continued) The following table shows the components of the City's annual OPEB cost for the year, the amount actually contributed to the plan, and changes in the City's net OPEB obligation to the retiree health plan: Annual required contribution $ 331,300 Interest on net OPEB obligation 6,592 Adjustment to annual required contribution (8,993) Annual OPEB cost (expense) total 328,899 Employer contributions (236,253) Increase in net OPEB obligation 92,646 Net OPEB obligation - beginning of year 146,482 Net OPEB obligation - end of year $ 239,128 The City's annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for the past two years (fiscal year ending September 30, 2009 was the first year of implementation), were as follows: Three-Year Trend Information Annual Net Pension Pension Cost City* Percentage Obligation (APC) Contributions Contributed (Asset) September 30, 2008 $ - $ - - % $ - September 30, 2009 442,811 296,328 67.00 % 146,482 September 30, 2010 328,899 236,253 72.00 % 239,128 *Limited to the difference between age-adjusted and composite premiums paid for retirees during the year. E. 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 schedule of employer contributions can also be found in the supplemental information of this comprehensive annual report. 60  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2010 NOTE 10 - OTHER POST EMPLOYMENT BENEFITS (OPEB) (CONTINUED) E. Required Supplementary Information (Continued) 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. F. 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 actuarial valuation as of September 30, 2010, the Projected Unit Credit Actuarial Costs Method (PUC) was used. The actuarial assumptions included a 4.5% investment rate of return and an annual healthcare costs trend rate of 9% initially (fiscal year ending September 30, 2010), reduced by decrements to an ultimate rate of 5% beginning in fiscal year ending September 30, 2014. Both rates included a 5% inflation assumption. The actuarial value of assets was determined using techniques that spread the effects of short-term volatility in the market value of investments over a five-year period. The unfunded actuarial accrued liability is being amortized over a thirty-year period, utilizing the level dollar payment method. Amortizations were assumed to begin on October 1, 2009, and to continue monthly for the 30 remaining years. The actuarial accrued liability was $4,768,818 for the year ended September 30, 2010, and is equal to the unfunded actuarial accrued liability. 61  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2010 NOTE 11 - 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, 2010. 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. During fiscal year 1997, the City Council approved a self-insured dental program for its employees, retirees and Consolidated Omnibus Budget Reconciliation Act (COBRA) participants. As part of this program, the City originally purchased aggregate stop-loss coverage; however, it was discontinued beginning in fiscal year 1999 as paid claims did not exceed the stop-loss amount in either of the two previous fiscal years. The City contracts with a service agent and third party administrator to process claims. The risk financing activities are recorded in each individual fund. During September 30, 2010, all funds of the City participated in the City's dental self- insurance program and made payments on historical cost information of the amounts needed to pay prior and current year claims. Changes in the Fund's claim liability amount in fiscal year 2010 and 2009 are as follows: Beginning of Year Incurred Payment of End of Year Claims Liability Claims Claims Claims Liability Fiscal Year 2009 $ - $ 166,864 $ 166,864 $ - Fiscal Year 2010 - 133,301 133,301 - NOTE 12 - 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, 2010, was $233,265 in the General Fund, $14,990 in the Utilities Funds and $33,040 in the Golf 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, 2010, totaled $66,879. 62  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2010 NOTE 12 - OPERATING LEASES (CONTINUED) Lessor (Continued) Future minimum lease payments receivable are as follows: Governmental Business-Type Activities Year Ending September 30 Activities Utilities Golf 2011 $ 214,911 $ 15,141 $ 101,368 2012 207,812 15,444 90,877 2013 210,740 15,753 69,223 2014 202,872 16,068 69,915 2015 202,744 16,389 70,614 Total minimum lease payments $ 1,039,079 $ 78,795 $ 401,997 Lessee The City leases golf course equipment in the Golf Fund in an operating lease, through a finance company. The lease term began July 1, 2009, and terminates January 1, 2013. Monthly lease payments are $9,593 per month. Lease expense for the year ending September 30, 2010, was $115,116. Future minimum lease payments are as follows: Business-Type Activities Year Ending September 30 Golf 2011 $ 115,116 2012 115,116 2013 28,779 Total minimum lease payments $ 259,011 NOTE 13 - CAPITAL LEASES The City has entered into lease agreements as lessee for financing the acquisition of certain public safety vehicles, land moving equipment, golf system equipment, and various other types of equipment. 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 and the Utilities, Golf, and Stormwater Enterprise Funds respectively. 63  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2010 NOTE 13 - CAPITAL LEASES (CONTINUED) The assets acquired through capital leases are as follows: Business-Type Activities Other Governmental Enterprise Assets Activities Utilities Golf Funds Golf carts $ - $ - $ - $ - Golf lawn maintenance equipment - - 248,639 - Backhoes - 63,813 - - Wheel loaders - 76,546 - - Fire truck 299,948 - - - Street sweeper - - - 143,698 Total leases acquired 299,948 140,359 248,639 143,698 Accumulated depreciation (177,470) (69,542) (87,006) (76,605) Net assets acquired by lease $ 122,478 $ 70,817 $ 161,633 $ 67,093 The future minimum lease obligations and net present value of these minimum lease payments as of September 30, 2010, are as follows: Business-Type Activities Other Governmental Enterprise Year Ending September 30 Activities Utilities Golf Funds 2011 $ 48,496 $ 7,770 $ 54,148 $ 17,497 2012 - - 54,148 - 2013 - - 13,537 - Total minimum lease payments 48,496 7,770 121,833 17,497 Less amount representing interest (1,122) (149) (4,878) (336) Present value of minimum lease payments $ 47,374 $ 7,621 $ 116,955 $ 17,161 64  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2010 NOTE 14 - 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, 2010: Beginning Ending Due Within Balance Additions Reductions Balance One Year Governmental Activities Capital improvement revenue bonds Series 2001 $ 4,885,000 $ - $ (130,000) $ 4,755,000 $ 140,000 Less deferred amounts for issuance costs (48,395) - 2,179 (46,216) - *Capital leases 93,003 - (45,629) 47,374 47,374 Compensated absences 790,304 288,150 (443,295) 635,159 158,790 Total governmental activities $ 5,719,912 $ 288,150 $ (616,745) $ 5,391,317 $ 346,164 Business-Type Activities Public improvement refunding bonds Series 1998 $ 725,000 $ - $ (355,000) $ 370,000 $ 370,000 Less deferred amounts for issuance discount (6,887) - 3,849 (3,038) - Less deferred amounts for loss on refunding (31,672) - 17,677 (13,995) - Capital improvement revenue bonds Series 1999 2,810,000 - (75,000) 2,735,000 85,000 Less deferred amounts for issuance discount (27,338) - 1,353 (25,985) - Florida municipal loan revenue bonds Series 2000 295,000 - (145,000) 150,000 150,000 Less deferred amounts for issuance discount (334) - 297 (37) (37) Utility system revenue bonds Series 2005 10,910,000 - (160,000) 10,750,000 165,000 Less deferred amounts for issuance discounts (130,311) - 5,091 (125,220) Compensated absences 212,914 133,601 (135,691) 210,824 52,705 * Capital leases 226,886 - (85,149) 141,737 75,619 Total business-type activities $ 14,983,258 $ 133,601 $ (927,573) $ 14,189,286 $ 898,287 *Adjusted for capital lease transferred to business-type activities. 65  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2010 NOTE 14 - LONG-TERM DEBT (CONTINUED) Description of Long-Term Debt Outstanding Current Long-Term Total GOVERNMENTAL ACTIVITIES Revenue Bonds $5,740,000 City of Fort Walton Beach, Florida, Capital Improvement Bonds, Series 2001, due in annual installments of $55,000 to $350,000 through 2031; interest at 2.5% to 5.0%. Available non-ad valorem revenues are pledged for payment of the bonds. Proceeds used for construction of certain capital improvements. $ 140,000 $ 4,615,000 $ 4,755,000 Less unamortized bond discount - (46,216) (46,216) Total revenue bonds 140,000 4,568,784 4,708,784 Leases $299,948 capital lease payable, 2005, due in monthly installments of $12,124 through August 2011, collateralized by a fire pumper. 47,374 - 47,374 Total leases 47,374 - 47,374 Accrued Compensated Absences Total long-term portion of accumulated, vested annual and sick leave for governmental fund types. 158,790 476,369 635,159 TOTAL GOVERNMENTAL ACTIVITIES $ 346,164 $ 5,045,153 $ 5,391,317 BUSINESS-TYPE ACTIVITIES Revenue bonds $10,910,000 Utility System Revenue Bonds, Series 2005, due in annual installments of $160,000 to $690,000 beginning 2010 through 2035, with interest- only payments from 2005 through 2009; interest at 3.1% to 4.6%. Net revenues derived by the City from the utility operations are pledged for the payment of the bonds. Proceeds used for water system and wastewater system improvements. $ 165,000 $ 10,585,000 $ 10,750,000 Less unamortized bond discount - (125,220) (125,220) $1,250,000 Florida Municipal Loan Council Revenue Bonds, Series 2000B, due in annual installments of $105,000 to $150,000 through November 2010; interest at 4.25% to 4.75%. Available non-ad valorem and net revenues from Sewer Fund services are pledged for payment of the bonds. Proceeds used for constructing City sewer system improvements. 150,000 - 150,000 Less unamortized bond discount (37) - (37) 66  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2010 NOTE 14 - LONG-TERM DEBT (CONTINUED) Description of Long-Term Debt Outstanding (Continued) Current Long-Term Total BUSINESS-TYPE ACTIVITIES (CONTINUED) Revenue bonds (Continued) $4,680,000 City of Fort Walton Beach, Florida, Public Improvement Revenue Refunding Bonds, Series 1998, due in annual installments of $200,000 to $500,000 through 2011; interest at 3.100% to 4.250%. Available half-cent sales taxes are pledged for payment of the bonds. Proceeds used for sewer and golf system improvements. The liability is recorded pro rata in the respective funds. 370,000 - 370,000 Less unamortized bond discount - (3,038) (3,038) Less unamortized deferred loss on refunding - (13,995) (13,995) $3,055,000 City of Fort Walton Beach, Florida, Capital Improvement Bonds, Series 1999A, due in annual installments of $25,000 to $200,000 through 2029; interest at 4.00% to 5.75%. Available non-ad valorem and net revenues from golf course recreation facilities are pledged for payment of the bonds. Proceeds used for capital improvements of golf recreation facilities. 85,000 2,650,000 2,735,000 Less unamortized bond discount - (25,985) (25,985) Total revenue bonds 769,963 13,066,762 13,836,725 Leases $248,589 capital lease payable, 2008, due in monthly installments of $4,512 through December 2012, collateralized by lawn maintenance equipment. 50,837 66,118 116,955 $63,813 capital lease payable, 2004, due in quarterly installments of $2,590 through May 2011, collateralized by an extend-a-hoe. 7,621 - 7,621 $143,698 capital lease payable, 2004, due in quarterly installments of $5,832 through May 2011, collateralized by a street sweeper. 17,161 - 17,161 Total leases 75,619 66,118 141,737 Accrued Compensated Absences Accumulated, vested annual compensation for Enterprise Funds. 52,705 158,119 210,824 TOTAL BUSINESS-TYPE ACTIVITIES $ 898,287 $ 13,290,999 $ 14,189,286 GRAND TOTAL LONG-TERM DEBT $ 19,580,603 67  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2010 NOTE 14 - 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, 2010, are as follows: Governmental Activities Revenue Bonds Leases Year Ending September 30 Principal Interest Principal Interest 2011 $ 140,000 $ 231,520 $ 47,374 $ 1,122 2012 145,000 225,640 - - 2013 150,000 219,405 - - 2014 155,000 212,805 - - 2015 165,000 205,830 - - 2016-2020 935,000 905,905 - - 2021-2025 1,190,000 652,785 - - 2026-2030 1,525,000 323,750 - - 2031-2035 350,000 17,500 - - Total $ 4,755,000 $ 2,995,140 $ 47,374 $ 1,122 Business-Type Activities Municipal Loan/Revenue Bonds Leases Year Ending September 30 Principal Interest Principal Interest 2011 $ 770,000 $ 637,468 $ 75,619 $ 3,796 2012 360,000 608,174 52,661 1,487 2013 375,000 594,101 13,457 79 2014 390,000 578,954 - - 2015 405,000 562,781 - - 2016-2020 2,175,000 2,534,894 - - 2021-2025 2,840,000 2,029,093 - - 2026-2030 3,520,000 1,288,025 - - 2031-2035 3,170,000 440,325 - - Total $ 14,005,000 $ 9,273,815 $ 141,737 $ 5,362 NOTE 15 - COMMENTS REQUIRED BY THE BOND AND NOTE ORDINANCES Public Improvement Refunding Revenue Bonds, Series 1998 1. The Statement of Net Assets, Statement of Revenues, Expenses and Changes in Net Assets, and Statement of Cash Flows for the Utilities and Golf Enterprise Funds are shown in the financial statements section of the report. 68  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2010 NOTE 15 - COMMENTS REQUIRED BY THE BOND AND NOTE ORDINANCES (CONTINUED) Public Improvement Refunding Revenue Bonds, Series 1998 (Continued) 2. The City is required to establish Sinking Fund amounts sufficient to pay 1/6 of all interest becoming due on the Bonds on the next semi-annual interest payment date and 1/12 of all principal maturing on the Bonds in the current Bond Year. Sinking Fund Principal/Interest Requirement at Utilities Fund Golf Fund Payments Due September 30, 2010 Allocation Allocation Principal due at July 1, 2011 $ 370,000 $ 92,500 $ 74,000 $ 18,500 Interest due at January 1, 2011 7,863 3,932 3,146 786 Total $ 377,863 $ 96,432 $ 77,146 $ 19,286 (1) (1) Amounts are included in restricted cash amounts on the Statement of Net Assets of the respective funds. 3. The payment of regularly scheduled debt service on the 1998 Bonds is insured by a policy of municipal bond insurance issued by Financial Security Assurance, Inc. (FSA). The City is required to establish a reserve in the amount of the Reserve Requirement established in the ordinance authorizing the issuance of the 1999 Bonds. The Reserve Requirement is the maximum bond service amount in the current or any subsequent year. The City has satisfied the Reserve Requirement by obtaining, on the date of the issuance, a municipal bond debt service reserve account insurance policy. The City expects to issue a Notice of Material Event with respect to the 1998 Bonds based on a change in the rating status of FSA. 4. Insurance schedules are included in the statistical section of the insurance in force at September 30, 2010. 5. The City is not aware of any noncompliance with the bond ordinances. Capital Improvement Revenue Bonds, Series 1999 1. The Statement of Net Assets, Statement of Revenues, Expenses and Changes in Net Assets, and Statement of Cash Flows for the Golf Enterprise Fund are shown in the financial statements section of the report. 69  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2010 NOTE 15 - COMMENTS REQUIRED BY THE BOND AND NOTE ORDINANCES (CONTINUED) Capital Improvement Revenue Bonds, Series 1999 (Continued) 2. The City is required to establish Sinking Fund amounts sufficient to pay 1/6 of all interest becoming due on the bonds on the next semi-annual interest payment date and 1/12 of all principal maturing on the bonds in the current bond year. Additionally, the City is required to establish additional Sinking Fund amounts sufficient to cover the cost of operations and maintenance for the next ensuing month. Annual O&M, Sinking Fund Interest, and Requirement at Principal Costs September 30, 2010 Operation and maintenance costs $ 2,010,567 $ 167,547 Principal due at July 1, 2011 85,000 21,250 Interest due at January 1, 2011 80,573 40,287 Total $ 2,176,140 $ 229,084 (1) (1) Amounts are included in restricted cash amounts on the Statement of Net Assets of the Golf Fund. 3. The payment of regularly scheduled debt service on the 1999 Bonds is insured by a policy of municipal bond insurance issued by Ambac Assurance Corporation (AMBAC). The City is required to establish a reserve in the amount of the Reserve Requirement established in the ordinance authorizing the issuance of the 1999 Bonds. The Reserve Requirement is the maximum bond service amount in the current or any subsequent year. The City satisfied the Reserve Requirement by obtaining, on the date of the issuance, a municipal bond debt service reserve account insurance policy from AMBAC. The City expects to issue a Notice of Material Event with respect to the 1999 Bonds based on a change in the rating status of AMBAC. 4. Insurance schedules are included in the statistical section of the insurance in force at September 30, 2010. 5. The City is not aware of any noncompliance with the bond ordinances. Capital Improvement Revenue Bonds, Series 2001 1. The Balance Sheet and Statement of Revenues, Expenses, and Changes in Fund Balance of the Debt Service Fund are shown in the financial statements section of the report. 70  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2010 NOTE 15 - COMMENTS REQUIRED BY THE BOND AND NOTE ORDINANCES (CONTINUED) Capital Improvement Revenue Bonds, Series 2001 (Continued) 2. The City is required to establish Sinking Fund amounts sufficient to pay 1/6 of all interest becoming due on the bonds on the next semi-annual interest payment date and 1/12 of all principal maturing on the bonds in the current bond year. Sinking Fund Principal/Interest Requirement at Payments Due September 30, 2010 Principal due at July 1, 2011 $ 140,000 $ 35,000 Interest due at January 1, 2011 115,760 57,880 Total $ 255,760 $ 92,880 (1) (1) Amounts are included in restricted cash amounts on the Balance Sheet of the Debt Service Fund. 3. The payment of regularly scheduled debt service on the 2001 Bonds is insured by a policy of municipal bond insurance issued by Ambac Assurance Corporation (AMBAC). The City is required to establish a reserve in the amount of the Reserve Requirement established in the ordinance authorizing the issuance of the 2001 Bonds. The Reserve Requirement is the maximum bond service amount in the current or any subsequent year. The City satisfied the Reserve Requirement by obtaining, on the date of the issuance, a municipal bond debt service reserve account insurance policy from AMBAC. The City expects to issue a Notice of Material Event with respect to the 2001 Bonds based on a change in the rating status of AMBAC. 4. Insurance schedules are included in the statistical section of the insurance in force at September 30, 2010. 5. The City is not aware of any noncompliance with the bond ordinances. Utility System Revenue Bonds, Series 2005 1. The Balance Sheet and Statement of Revenues, Expenses, and Changes in Fund Balance of the Debt Service Fund are shown in the financial statements section of the report. 2. The City is required to establish Sinking Fund amounts sufficient to pay 1/6 of all interest becoming due on the Bonds on the next semi-annual interest payment date and 1/12 of all principal maturing on the Bonds in the current Bond Year. Sinking Fund Principal/Interest Requirement at Payments Due September 30, 2010 Principal due at July 1, 2010 $ 165,000 $ 41,250 Interest due at January 1, 2010 228,517 114,259 Total $ 393,517 $ 155,509 (1) (1) Amounts are included in restricted cash amounts on the Balance Sheet of the Utility Fund. 71  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2010 NOTE 15 - COMMENTS REQUIRED BY THE BOND AND NOTE ORDINANCES (CONTINUED) Utility System Revenue Bonds, Series 2005 (Continued) 3. The payment of regularly scheduled debt service on the 2005 Bonds is insured by a policy of municipal bond insurance issued by Ambac Assurance Corporation (AMBAC). The City is required to establish a reserve in the amount of the Reserve Requirement established by the ordinance authorizing the issuance of the 2001 Bonds. The Reserve Requirement is the maximum bond service amount in the current or any subsequent year. The City satisfied the Reserve Requirement by obtaining, on the date of the issuance, a municipal bond debt service reserve account insurance policy from AMBAC. The City expects to issue a Notice of Material Event with respect to the 2005 Bonds based on a change in the rating status of AMBAC. 4. Insurance schedules are included in the Statistical Section of the insurance in force at September 30, 2010. 5. The City is not aware of any noncompliance with the bond ordinances. NOTE 16 - DEFERRED AND UNEARNED REVENUE Governmental funds report deferred revenue in connection with receivables that are not considered to be available to liquidate liabilities of the current period. Governmental and proprietary funds also defer revenue recognition in connection with resources received, but not yet earned. At September 30, 2010, the various components of deferred and unearned revenue were as follows: Unavailable Unearned Total Governmental Funds Special assessment for street resurfacing not yet due $ 125,019 $ - $ 125,019 Utilities Fund Prepaid utility bills - 18,070 18,070 Golf Fund Prepaid lease revenue - 2,216 2,216 Gift and prepaid cards - 16,191 16,191 Total Golf Fund - 18,407 18,407 Total $ 125,019 $ 36,477 $ 161,496 72  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2010 NOTE 17 - INTERFUND RECEIVABLES, PAYABLES AND TRANSFERS The composition of interfund balances as of September 30, 2010, is as follows: Due to/from Other Funds Receivable Fund Payable Fund Amount General Nonmajor Governmental Fund $ 744 General Golf 271,527 $ 272,271 General Fund receivables from the Nonmajor Proprietary Fund (Community Development Block Grant Fund) in the amount of $744 and from the Golf Fund in the amount of $271,527 are the result of eliminating temporary deficit cash balances. Transfers In Nonmajor Govern- Utility Transfers Out General Fund mental Fund Fund Golf Fund Total General $ - $ 439,615 $ - $ 178,000 $ 617,615 Nonmajor governmental 56,967 - - - 56,967 Utilities 1,097,641 - - - 1,097,641 Sanitation 708,003 - 40,000 - 748,003 Golf 25,000 - - - 25,000 Nonmajor proprietary 15,000 - - - 15,000 $ 1,902,611 $ 439,615 $ 40,000 $ 178,000 $ 2,560,226 The transfers out of the General Fund of $617,615 consist of a $416,889 transfer to the Debt Service Fund (nonmajor governmental fund) for principal and interest payments on debt, a $22,726 transfer to the Cemetery Perpetual Care Fund (nonmajor governmental fund) for maintenance, and a $178,000 transfer to the Golf fund as part of the City's approved two-year plan to forgive the Golf Fund's cash deficit. Transfers in to the General Fund of $1,902,611 consist of a $15,555 transfer from the Beal Cemetery Perpetual Care Fund (nonmajor governmental fund) to cover improvements made to the Beal Memorial Cemetery. The remaining transfers from all other funds are to cover shared expenses per the City's cost allocation plan. The transfer of $40,000 from the Sanitation Fund to the Utility Fund is for reimbursement of billing and administration services. 73  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2010 NOTE 18 - 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. Soundside Apartments Planned Unit Development In June 2010, the City entered into a Memorandum of Understanding with the City of Fort Walton Beach Community Redevelopment Agency, the Fort Walton Beach Housing Authority, and Soundside Apartments, LLC for the Soundside Apartments planned unit development (PUD). According to the Memorandum, Germany Terrace, a 50-unit public housing development, will be redeveloped into a 200-unit affordable housing complex. The City also entered into a related Interlocal Agreement whereby the City approved the use of $2.5 million in Community Redevelopment Agency Special Revenue Trust Funds for site demolition, infrastructure improvements, site restoration and other costs for the project. The total amount will be assessed to, and eventually repaid by the property owner, Soundside LLC, to the City, at no more than $119,000 per year at 1.5% interest, and shall become payable no sooner than 2 years after the closing date, payable over a 30-year period. This Soundside special assessment is included in the Community Redevelopment Agency (component unit). The special assessment receivable at September 30, 2010 was $73,440. Decommission of Wastewater Treatment Facility The City is in the preliminary phase of decommissioning its wastewater treatment plant that was closed in March 2010. Some progress has been made and to date, nominal costs have been incurred. The City has approval to use proceeds from the 2010 Utility System Revenue Bonds to fund the project. Based on uncertainties in the scope of work and planned future use of the facility, an estimate of $250,000 for these closure costs has been recorded at September 30, 2010. The estimate is subject to change in the near term as the type of fill material the Florida Department of Environmental Protection will require the City to use is uncertain. 74  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2010 NOTE 18 - 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 $2.46 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 $3,750 per month. Beginning March 2011, and each year thereafter, the Readiness to Serve Fee will increase by 3%, annually. Service to the City is scheduled to begin March 2010. The minimum commitment by the City under the Agreement is as follows: Fiscal Year Ending September 30, 2011 $ 45,788 2012 46,589 2013 47,404 2014 48,234 2015 49,078 2016 through 2020 258,576 2021 through 2025 282,007 2026 through 2030 307,562 2031 through 2035 335,432 2036 through 2039 290,102 Total $ 1,710,772 Fees paid during the year ended September 30, 2010, were $1,043,698. Oil Spill The City, along with all of Northwest Florida, was impacted by the explosion of the Deepwater Horizon oil rig in April 2010. The City has filed claims for lost income in its golf club, utilities, and sanitation operation, as well as lost sales tax. No amounts have been received as of the date of this report. The impacts of the spill to the City in both the short and long-term is uncertain. 75  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2010 NOTE 19 - GASB PRONOUNCEMENTS ISSUED BUT NOT YET ADOPTED GASB Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions, will be effective for the City beginning with its year ending September 30, 2011. This Statement establishes fund balance classifications that comprise a hierarchy based primarily on the extent to which a government is based to observe constraints imposed upon the use of the resources reporting in the governmental funds. Management has not determined what impact, if any, this GASB statement may have on its financial statements. NOTE 20 - SUBSEQUENT EVENTS State Revolving Loan Agreement The City adopted Resolution 2010-35 in November 2010, approving a Revolving Loan Grant Agreement with the State of Florida in the amount of $2,183,598. The loan has an interest rate of 2.57%, with a payback period of 20 years. Funds from the loan and proceeds from a $500,000 Defense Infrastructure grant will be used to complete the Hurlburt Field Reuse Water Main. Defeasance of Capital Improvement Revenue Bonds, Series 1999 A & B On November 15, 2010, the City's General Fund loaned the Golf Fund $2,735,000 for the defeasance of the Capital Improvement Revenue Bonds, Series A and B. The loan from the General Fund will be paid back over a 20-year period at an interest rate of 1.50%. City Council as Community Redevelopment Agency In January 2011, City Council voted to direct the City Manager and City Attorney to take necessary actions to appoint the Council as the governing body of the Community Redevelopment Agency. Prior to this action, the Community Redevelopment Agency was governed by a board appointed by Council, as described in Note 1-A. 76 REQUIRED SUPPLEMENTARY INFORMATION  Schedule A-1 City of Fort Walton Beach, Florida REQUIRED SUPPLEMENTAL INFORMATION SCHEDULE OF FUNDING PROGRESS Unaudited Actuarial Accrued Actuarial Liability Unfunded Annual UAAL as Actuarial Valuation Value of (AAL) Entry AAL (UAAL) Funded Ratio Covered % of Date Assets (a) Age (b) (b-a) (a/b) Payroll (c) Payroll General Employees' Retirement Fund September 30, 2010 $ 34,352,072 $ 40,510,991 $ 6,158,919 84.80 % $ 5,595,076 110.08 % September 30, 2009 33,336,278 38,412,778 5,076,500 86.78 % 7,252,396 70.00 % September 30, 2008 33,388,423 37,349,742 3,961,319 89.39 % 7,521,520 52.67 % September 30, 2007 32,271,940 34,783,263 2,511,323 92.78 % 8,199,930 30.63 % September 30, 2006 29,449,082 33,885,353 4,436,271 86.91 % 7,715,643 57.50 % September 30, 2005 27,938,158 31,397,476 3,459,318 88.98 % 7,190,199 48.11 % September 30, 2004 27,560,774 27,815,278 254,504 99.09 % 7,064,964 3.60 % September 30, 2003 27,329,284 26,020,734 (1,308,550) 105.03 % 6,823,892 N/A September 30, 2002 26,084,080 24,690,082 (1,393,998) 105.65 % 6,687,895 N/A September 30, 2001 26,691,964 22,847,320 (3,844,644) 116.83 % 6,127,128 N/A Police Officers' Retirement Fund* September 30, 2010 $ 18,874,149 $ 24,702,783 $ 5,828,634 76.40 % $ 2,195,529 265.48 % September 30, 2009 18,858,173 23,738,682 4,880,509 79.44 % 2,557,811 190.81 % September 30, 2008 18,832,627 22,743,407 3,910,780 82.80 % 2,530,182 154.57 % September 30, 2007 18,586,034 21,595,595 3,009,561 86.06 % 2,602,616 115.64 % September 30, 2006 17,266,489 19,896,104 2,629,615 86.78 % 2,257,286 116.49 % September 30, 2005 16,143,601 18,672,706 2,529,105 86.46 % 2,426,479 104.23 % September 30, 2004 15,294,319 16,603,462 1,309,143 92.12 % 2,245,042 58.31 % September 30, 2003 14,898,774 14,898,774 - 100.00 % 2,222,145 N/A September 30, 2002 14,464,798 14,464,798 - 100.00 % 2,066,386 N/A September 30, 2001 14,100,143 14,100,143 - 100.00 % 1,913,535 N/A Firefighters' Retirement Fund September 30, 2010 $ 10,591,930 $ 17,167,805 $ 6,575,875 61.70 % $ 2,116,516 310.69 % September 30, 2009 10,492,503 15,950,522 5,458,019 65.78 % 1,988,762 274.44 % September 30, 2008 10,537,442 14,539,341 4,001,899 72.48 % 1,632,275 245.17 % September 30, 2007 10,264,599 13,579,972 3,315,373 75.59 % 1,409,038 235.29 % September 30, 2006 9,499,462 11,757,764 2,258,302 80.79 % 1,807,962 124.91 % September 30, 2005 8,907,687 10,992,666 2,084,979 81.03 % 1,455,105 143.29 % September 30, 2004 8,602,487 9,919,601 1,317,114 86.72 % 1,293,587 101.82 % September 30, 2003 8,479,212 8,404,972 (74,240) 100.88 % 1,111,281 N/A September 30, 2002 8,363,938 8,340,554 (23,384) 100.28 % 1,085,453 N/A September 30, 2001 8,248,667 8,266,552 17,885 99.78 % 974,435 1.84 % 7,927,640 7,998,087 70,447 99.12 % 910,811 7.73 % * The aggregate method of valuation used for the Police Officers' Retirement Fund does not identify or separately amortize the unfunded actuarial liabilities. Note: The information presented in this schedule was determined as part of the actuarial valuations at the dates indicated. Additional information as of the latest actuarial valuation can be found in Note 7 to the financial statements. 77  Schedule A-2 City of Fort Walton Beach, Florida REQUIRED SUPPLEMENTAL INFORMATION SCHEDULE OF CONTRIBUTIONS FROM THE EMPLOYER AND OTHER CONTRIBUTING ENTITIES Unaudited General Employees' Retirement Fund Annual Required Employer Other Entity Percentage Contribution Contribution Contribution Contributed September 30, 2010 $ 1,477,933 $ 1,477,777 $ - 99.99 % September 30, 2009 1,477,777 1,477,777 - 100.00 % September 30, 2008 1,267,684 1,268,260 - 100.05 % September 30, 2007 1,231,003 1,231,004 - 100.00 % September 30, 2006 1,070,599 1,071,742 - 100.11 % September 30, 2005 678,947 680,552 - 100.24 % September 30, 2004 491,258 491,258 - 100.00 % September 30, 2003 467,351 467,351 - 100.00 % September 30, 2002 192,318 192,318 - 100.00 % September 30, 2001 201,782 201,782 - 100.00 % 267,431 267,431 - 100.00 % Police Officers' Retirement Fund Annual Required City State Percentage Contribution Contribution Contribution Contributed September 30, 2010 $ 665,220 $ 516,828 $ 165,213 102.53 % September 30, 2009 578,670 407,159 171,511 100.00 % September 30, 2008 488,381 306,805 181,576 * 100.00 % September 30, 2007 516,528 334,952 181,576 * 100.00 % September 30, 2006 433,829 252,252 181,576 * 100.00 % September 30, 2005 460,501 278,925 181,576 * 100.00 % September 30, 2004 360,576 179,000 181,576 100.00 % September 30, 2003 335,420 153,845 181,576 100.00 % September 30, 2002 253,331 78,699 174,632 100.00 % September 30, 2001 318,302 171,511 150,027 101.02 % 279,869 131,134 148,736 100.00 % * "Frozen" at $181,576 per Chapter 185, as amended, though actual contribution has been higher. Firefighters' Retirement Fund Annual Required City State Percentage Contribution Contribution Contribution Contributed September 30, 2010 $ 708,063 $ 574,278 $ 165,184 104.43 % September 30, 2009 555,720 421,935 133,785 * 100.00 % September 30, 2008 326,864 225,055 133,785 * 109.78 % September 30, 2007 299,027 169,381 129,646 * 100.00 % September 30, 2006 240,332 110,686 129,646 * 100.00 % September 30, 2005 200,627 77,963 122,664 * 100.00 % September 30, 2004 174,346 51,682 122,664 100.00 % September 30, 2003 163,705 83,839 121,103 125.19 % September 30, 2002 102,044 21,328 112,125 130.78 % September 30, 2001 123,692 44,990 111,156 126.24 % 79,143 - 103,941 131.33 % * "Frozen" per Chapter 175, as amended, though actual contribution has been higher. Additional information as of the latest actuarial valuation can be found in Note 7 to the financial statements. 78  Schedule A-3 City of Fort Walton Beach, Florida REQUIRED SUPPLEMENTAL INFORMATION SCHEDULE OF OTHER POST-EMPLOYMENT OBLIGATIONS Unaudited Actuarial Accrued Annual UAAL as Actuarial Valuation Liability Actuarial Value Unfunded Percentage Covered % of Date (AAL) of Assets AAL (UAAL) Funded Payroll Payroll September 30, 2010 $ 4,768,818 $ - $ 4,768,818 - % $ 8,291,828 57.51 % September 30, 2009 6,496,763 - 6,496,763 - % 9,000,120 72.19 % September 30, 2008 - - - - - - 79 (THIS PAGE INTENTIONALLY LEFT BLANK.)  CITY OF FORT WALTON BEACH, FLORIDA Combining and Individual Fund Statements and Schedules These financial statements provide a more detailed view of the “Basic Financial Statements” presented in the preceding subsection. Combining statements are presented when there is more than one fund of a given fund type. Individual fund statements are necessary to present budgetary comparisons.  NON-MAJOR GOVERNMENTAL FUNDS SPECIAL REVENUE FUNDS The Special Revenue Funds are used to account for the proceeds of specific revenue sources (other than special assessments, expendable trusts, or for major capital projects) that are legally restricted to expenditure for specified purposes. Law Enforcement Trust Special Revenue Fund To account for funds received from the sale of confiscated property to be utilized for drug enforcement. Law Enforcement Trust Training Special Revenue Fund To account for funds received from court fines to be used for additional police department training. Community Development Block Grant Special Revenue Fund To account for funds received under the Community Development Block Grant and expenditures of such funds in accordance with federal guidelines. Beal Memorial Cemetery Perpetual Care Special Revenue Fund To accumulate funds to meet the requirements of maintaining the City owned cemetery. DEBT SERVICE FUND The Debt Service Fund is used to account for the accumulation of resources for, and the payment of, general long-term debt principal and interest in accordance with bond ordinances.  Statement B-1 City of Fort Walton Beach, Florida NON-MAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEET September 30, 2010 Special Revenue Funds Community Beal Memorial Total Nonmajor Law Enforcement Law Enforcement Development Cemetery Governmental Trust Trust Training Block Grant Perpetual Care Debt Service Funds ASSETS Cash and cash equivalents $ 276,917 $ 7,061 $ - $ 1,898,261 $ - $ 2,182,239 Accounts receivable 27 - - 184 - 211 Prepaids - 350 - - - 350 Due from other governments 4,147 - 4,374 - - 8,521 Cash and cash equivalents - restricted - - - - 92,880 92,880 TOTAL ASSETS $ 281,091 $ 7,411 $ 4,374 $ 1,898,445 $ 92,880 $ 2,284,201 LIABILITIES AND FUND BALANCE Liabilities Accounts payable $ 7,769 $ - $ 14 $ - $ - $ 7,783 Accrued expenses and other liabilities 10,462 671 - - - 11,133 Due to other funds - - 744 - - 744 Total liabilities 18,231 671 758 - - 19,660 Fund balance Reserved for debt service - - - - 92,880 92,880 Reserved for prepaids - 350 - - - 350 Reserved for encumbrances 1,544 - 10,889 - - 12,433 Unreserved, designated 5,117 - - - - 5,117 Unreserved/undesignated 256,199 6,390 (7,273) 1,898,445 - 2,153,761 Total fund balance 262,860 6,740 3,616 1,898,445 92,880 2,264,541 TOTAL LIABILITIES AND FUND BALANCE $ 281,091 $ 7,411 $ 4,374 $ 1,898,445 $ 92,880 $ 2,284,201 80  Statement B-2 City of Fort Walton Beach, Florida NON-MAJOR GOVERNMENTAL FUNDS COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE Year Ended September 30, 2010 Special Revenue Funds Law Law Community Beal Memorial Total Nonmajor Enforcement Enforcement Development Cemetery Governmental Trust Trust Training Block Grant Perpetual Care Debt Service Funds REVENUES Intergovernmental $ 204,127 $ - $ 161,247 $ - $ - $ 365,374 Fines and forfeits 4,396 10,310 - - - 14,706 Miscellaneous 54,448 122 27 21,716 - 76,313 TOTAL REVENUES 262,971 10,432 161,274 21,716 - 456,393 EXPENDITURES Current Public safety 19,324 24,290 - - - 43,614 Economic environment - - 98,996 - - 98,996 Capital outlay 205,646 - 34,952 - - 240,598 Debt service Principal - - - - 175,629 175,629 Interest - - - - 239,716 239,716 Other debt service costs - - - - 377 377 TOTAL EXPENDITURES 224,970 24,290 133,948 - 415,722 798,930 EXCESS OF REVENUES OVER (UNDER) EXPENDITURES 38,001 (13,858) 27,326 21,716 (415,722) (342,537) OTHER FINANCING SOURCES (USES) Transfers in - - - 22,726 416,889 439,615 Transfers out (8,952) - (32,461) (15,555) - (56,968) TOTAL OTHER FINANCING SOURCES (USES) (8,952) - (32,461) 7,171 416,889 382,647 NET CHANGE IN FUND BALANCE 29,049 (13,858) (5,135) 28,887 1,167 40,110 FUND BALANCE - BEGINNING OF YEAR 233,811 20,598 8,751 1,869,558 91,713 2,224,431 FUND BALANCE - END OF YEAR $ 262,860 $ 6,740 $ 3,616 $ 1,898,445 $ 92,880 $ 2,264,541 81  Schedule C-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 Year Ended September 30, 2010 Budgeted Amounts Variance with Final Budget - Positive Original Final Actual (Negative) REVENUES Intergovernmental $ - $ 166,604 $ 204,127 $ 37,523 Fines and forfeits - 1,385 4,396 3,011 Miscellaneous 5,700 5,700 54,448 48,748 TOTAL REVENUES 5,700 173,689 262,971 89,282 EXPENDITURES Current operations Public safety 10,825 19,801 19,324 477 Capital outlay - 210,967 205,646 5,321 TOTAL EXPENDITURES 10,825 230,768 224,970 5,798 EXCESS OF REVENUES OVER (UNDER) EXPENDITURES (5,125) (57,079) 38,001 95,080 OTHER FINANCING SOURCES Transfers Out (6,000) (8,952) (8,952) - NET CHANGE IN FUND BALANCE (11,125) (66,031) 29,049 95,080 FUND BALANCE - BEGINNING OF YEAR 11,125 66,031 233,811 167,780 FUND BALANCE - END OF YEAR $ - $ - $ 262,860 $ 262,860 82  Schedule C-2 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 Year Ended September 30, 2010 Budgeted Amounts Variance with Final Budget - Positive Original Final Actual (Negative) REVENUES Fines and forfeits $ 12,000 $ 12,000 $ 10,310 $ (1,690) Miscellaneous 600 600 122 (478) TOTAL REVENUES 12,600 12,600 10,432 (2,168) EXPENDITURES Current operations Public Safety 30,580 30,580 24,290 6,290 TOTAL EXPENDITURES 30,580 30,580 24,290 6,290 EXCESS OF REVENUES OVER (UNDER) EXPENDITURES (17,980) (17,980) (13,858) 4,122 NET CHANGE IN FUND BALANCE (17,980) (17,980) (13,858) (31,838) FUND BALANCE - BEGINNING OF YEAR 17,980 17,980 20,598 2,618 FUND BALANCE - END OF YEAR $ - $ - $ 6,740 $ (29,220) 83  Schedule C-3 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 Year Ended September 30, 2010 Budgeted Amounts Variance with Final Budget - Positive Original Final Actual (Negative) REVENUES Intergovernmental $ 142,221 $ 160,964 $ 161,247 $ 283 Miscellaneous - - 27 27 TOTAL REVENUES 142,221 160,964 161,274 310 EXPENDITURES Current operations Economic environment 113,777 174,478 98,996 75,482 Capital outlay - - 34,952 34,952 TOTAL EXPENDITURES 113,777 174,478 133,948 110,434 EXCESS OF REVENUES OVER (UNDER) EXPENDITURES 28,444 (13,514) 27,326 40,840 Transfers out (28,444) (31,026) (32,461) (1,435) TOTAL OTHER FINANCING SOURCES (USES) (28,444) (31,026) (32,461) (1,435) NET CHANGE IN FUND BALANCE - (44,540) (5,135) 39,405 FUND BALANCE - BEGINNING OF YEAR - 44,540 8,751 (35,789) FUND BALANCE - END OF YEAR $ - $ - $ 3,616 $ 3,616 84  Schedule C-4 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 Year Ended September 30, 2010 Budgeted Amounts Variance with Final Budget - Positive Original Final Actual (Negative) REVENUES Interest $ 30,000 $ 30,000 $ 21,716 $ (8,284) TOTAL REVENUES 30,000 30,000 21,716 (8,284) EXPENDITURES Physical environment 47,900 47,900 - 47,900 TOTAL EXPENDITURES 47,900 47,900 - 47,900 EXCESS OF REVENUES OVER EXPENDITURES (17,900) (17,900) 21,716 39,616 OTHER FINANCING SOURCES Transfers in 32,900 32,900 22,726 - Transfers out (15,000) (30,555) (15,555) 15,000 TOTAL OTHER FINANCING SOURCES 17,900 2,345 7,171 15,000 NET CHANGE IN FUND BALANCE - (15,555) 28,887 44,442 FUND BALANCE (DEFICIT) - BEGINNING OF YEAR - 15,555 1,869,558 1,854,003 FUND BALANCE - END OF YEAR $ - $ - $ 1,898,445 $ 1,898,445 85  Schedule C-5 City of Fort Walton Beach, Florida DEBT SERVICE FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL Year Ended September 30, 2010 Budgeted Amounts Variance with Final Budget - Positive Original Final Actual (Negative) REVENUES Interest $ - $ - $ - $ - EXPENDITURES Debt service Principal 175,629 175,629 175,629 - Interest 239,716 239,716 239,716 - Other debt service costs 377 377 377 - TOTAL EXPENDITURES 415,722 415,722 415,722 - EXCESS OF REVENUES OVER (UNDER) EXPENDITURES (415,722) (415,722) (415,722) - OTHER FINANCING SOURCES Transfers in 415,722 415,722 416,889 1,167 NET CHANGE IN FUND BALANCE - - 1,167 1,167 FUND BALANCE - BEGINNING OF YEAR - - 91,713 91,713 FUND BALANCE - END OF YEAR $ - $ - $ 92,880 $ 92,880 86 (THIS PAGE INTENTIONALLY LEFT BLANK.)  NON-MAJOR FUND ENTERPRISE FUND Stormwater Fund Accounts for the operations and maintenance of the City's stormwater system.  Statement D-1 City of Fort Walton Beach, Florida NON-MAJOR PROPRIETARY FUNDS STATEMENT OF NET ASSETS September 30, 2010 Stormwater Fund ASSETS Current assets Cash and cash equivalents $ 359,436 Receivables, net 40,388 Total current assets 399,824 Capital assets, net Depreciable, net 831,583 Total capital assets 831,583 TOTAL ASSETS $ 1,231,407 LIABILITIES Current liabilities Accounts payable 4,573 Accrued liabilities Compensated absences 2,030 Wages 9,908 Leases payable 17,161 Total current liabilities 33,672 Non-current liabilities Accrued liabilities Compensated absences 6,090 Other post-employment benefits 893 Total non-current liabilities 6,983 TOTAL LIABILITIES 40,655 NET ASSETS Invested in capital assets, net of related debt 814,422 Unrestricted 376,330 TOTAL NET ASSETS $ 1,190,752 87  Statement D-2 City of Fort Walton Beach, Florida NON-MAJOR PROPRIETARY FUNDS STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS September 30, 2010 Stormwater Fund OPERATING REVENUES Charges for services $ 626,903 OPERATING EXPENSES Personal services 249,661 Operating 63,807 Depreciation 60,272 TOTAL OPERATING EXPENSES 373,740 OPERATING INCOME 253,163 NON-OPERATING REVENUES (EXPENSES) Intergovernmental 121,058 Interest expense (1,211) Gain (loss) on disposal of capital assets 19,314 Interest 1,407 Miscellaneous 338 TOTAL NON-OPERATING REVENUES (EXPENSES) 140,906 INCOME (LOSS) BEFORE CONTRIBUTED CAPITAL AND TRANSFERS 394,069 Transfer out (15,000) TOTAL TRANSFERS (15,000) CHANGE IN NET ASSETS 379,069 NET ASSETS - BEGINNING OF YEAR 811,683 NET ASSETS - END OF YEAR $ 1,190,752 88  Statement D-3 City of Fort Walton Beach, Florida NON-MAJOR PROPRIETARY FUNDS STATEMENT OF CASH FLOWS September 30, 2010 Stormwater Fund CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers and users $ 620,178 Payments to suppliers (189,007) Payments to employees (252,604) Miscellaneous income 338 Net cash provided by operating activities 178,905 CASH FLOWS FROM NON-CAPITAL FINANCING ACTIVITIES Borrowings (repayments) Interfund balances (16,901) Change in intergovernmental balances 320,194 Intergovernmental revenues received 121,058 Transfers out (15,000) Net cash provided (used) by non-capital financing activities 409,351 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Acquisitions of capital assets (231,645) Proceeds from disposal of capital assets 24,748 Principal paid on leases payable (22,119) Interest paid on bonds, loans, and leases payable (1,211) Net cash provided (used) by capital and related financing activities (230,227) NET CASH FLOWS FROM INVESTING ACTIVITIES Interest income 1,407 Net cash provided by investing activities 1,407 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 359,436 CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR - CASH AND CASH EQUIVALENTS - END OF YEAR $ 359,436 Continued... 89  Statement D-3 City of Fort Walton Beach, Florida NON-MAJOR PROPRIETARY FUNDS STATEMENT OF CASH FLOWS September 30, 2010 Stormwater Fund RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES Operating income $ 253,163 Adjustments to reconcile operating income to net cash provided by operating activities Depreciation 60,272 Miscellaneous revenue 338 (Gain) loss on disposal of capital assets (19,314) Decrease (increase) in assets Accounts receivable (6,725) Increase (decrease) in liabilities Accounts payable (105,886) Compensated absences payable (692) Wages (563) Other post employment benefits (1,688) Net cash provided by operating activities $ 178,905 90  DISCRETELY PRESENTED COMPONENT UNIT Fort Walton Beach Community Redevelopment Agency To account for funds relating to the Fort Walton Beach Community Redevelopment activities.  Statement E-1A Fort Walton Beach Community Redevelopment Agency GENERAL FUND BALANCE SHEET September 30, 2010 ASSETS Cash and cash equivalents $ 3,579,531 Prepaids 86 Accounts receivable 401 Assessments receivable 73,440 TOTAL ASSETS $ 3,653,458 LIABILITIES AND FUND BALANCE Liabilities Accounts payable $ 42,862 Accrued liabilities 6,145 Deferred revenue 73,440 Total liabilities 122,447 Fund balance Prepaids 86 Unreserved Designated Encumbrances 271,751 Capital projects 3,259,174 Total fund balance 3,531,011 TOTAL LIABILITIES AND FUND BALANCE $ 3,653,458 91  Statement E-1B Fort Walton Beach Community Redevelopment Agency GENERAL FUND RECONCILIATION OF THE BALANCE SHEET TO THE STATEMENT OF NET ASSETS September 30, 2010 Fund balance - Community Redevelopment Agency (page 91) $ 3,531,011 Amounts reported for governmental activities in the statement of net assets are different because: Capital assets used in governmental activities are not financial resources and therefore are not reported in the funds. Governmental non-depreciable capital assets 578,078 Governmental depreciable capital assets 5,899,666 Less accumulated depreciation (1,569,059) 4,908,685 Deferred revenue in the governmental funds is susceptible to full accrual on the entity-wide financial statements Special assessment for affordable housing 73,440 Long-term liabilities are not due and payable in the current period and therefore are not reported in the funds. Compensated absences (3,614) Net assets of Community Redevelopment Agency (page 16) $ 8,509,522 92  Statement E-2A Fort Walton Beach Community Redevelopment Agency GENERAL FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET TO ACTUAL Year Ended September 30, 2010 Budgeted Amounts Variance with Final Budget - Positive Original Final Actual (Negative) REVENUES Taxes $ 952,259 $ 952,259 $ 952,259 $ - Intergovernmental 748,340 748,340 746,162 (2,178) Miscellaneous 83,650 83,650 148,038 64,388 TOTAL REVENUES 1,784,249 1,784,249 1,846,459 62,210 EXPENDITURES Current operations Public safety - 110,528 125,964 (15,436) Economic environment 733,539 1,073,895 458,922 614,973 Capital outlay 351,614 752,329 937,867 (185,538) TOTAL EXPENDITURES 1,085,153 1,936,752 1,522,753 429,435 EXCESS OF REVENUES OVER (UNDER) EXPENDITURES 699,096 (152,503) 323,706 476,209 NET CHANGE IN FUND BALANCE 699,096 (152,503) 323,706 476,209 FUND BALANCE - BEGINNING OF YEAR (699,096) 152,503 3,207,305 3,054,802 FUND BALANCE - END OF YEAR $ - $ - $ 3,531,011 $ 3,531,011 93  Statement E-2B Fort Walton Beach Community Redevelopment Agency GENERAL FUND RECONCILIATION OF THE SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE TO THE STATEMENT OF ACTIVITIES Year Ended September 30, 2010 Net change in fund balance - Community Redevelopment Agency (page 93) $ 323,706 Amounts reported for governmental activities in the statement of activities are different because: Governmental funds report capital outlays as expenditures. However in the statement of activities, the cost of those assets is depreciated over their estimated useful lives. Expenditures for capital assets 882,492 Less current year depreciation (313,027) 569,465 Disposal of capital assets (1,681) Accumulated depreciation associated with disposals 1,681 - Revenues in the statement of activities that do not provide current financial resources are not reported as revenues in the governmental funds Special assessments for affordable housing 73,440 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. Compensated absences (1,857) Change in net assets of Community Redevelopment Agency (page17) $ 964,754 94 III. STATISTICAL SECTION This section contains statistical tables reflecting various supplemental financial data concerning General Government and Proprietary Fund Operations. When applicable, a 10-year history has been depicted to disclose trends in finance-related matters. These tables have been included as a part of this report for information purposes only, and therefore, have not been subjected to audit by the City’s independent certified public accountants.  The statistical section of the City's comprehensive annual financial report presents detailed information as a context for understanding what the information in the financial statements, note disclosures and required supplementary information says about the City's overall financial health. Financial Trends These schedules contain trend information to help the reader understand how the City's financial performance and well-being have changed over time. Revenue Capacity These schedules contain information to help the reader assess the City's most significant local revenue source, the property tax. Debt Capacity These schedules present information to help the reader assess the affordability of the City's current levels of outstanding debt and the City's ability to issue additional debt in the future. Demographic and Economic Information These schedules offer demographic and economic indicators to help the reader understand the environment within which the City's financial activities take place. Operating Information These schedules contain service and infrastructure data to help the reader understand how the information in the City's financial report relates to the services the City provides and the activities it performs. 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 34 in 2002; schedules presenting government-wide information include information beginning in that year.  City of Fort Walton Beach, Florida SCHEDULE 1 NET ASSETS BY COMPONENT Last Nine Fiscal Years (full accrual basis of accounting) (amounts expressed in thousands) Fiscal Year 2002 2003 2004 2005 2006 2007 2008 2009 2010 Governmental Activities Invested in capital assets, net of related debt $ 16,643,589 $ 19,494,125 $ 19,401,390 $ 17,236,582 $ 21,097,792 $ 22,013,431 $ 21,095,355 $ 20,563,790 $ 20,605,683 Restricted Debt service 92,478 91,691 92,153 92,544 92,788 92,730 91,713 91,713 92,880 System improvements - - - - - - - - - Capital projects 3,193,992 966,147 685,174 700,975 241,114 56,550 - - - Public safety 340,793 324,450 301,230 305,647 266,492 307,983 307,983 254,409 269,600 Perpetual care - expendable 1,359,719 1,425,913 1,488,402 1,556,661 1,663,521 1,787,789 1,877,086 1,869,558 1,898,445 Other purposes 387,071 395,990 817,932 533,486 474,924 657,116 473,655 463,168 477,194 Unrestricted 8,323,881 9,789,683 10,131,552 13,959,800 11,385,751 8,564,657 9,821,155 9,347,576 8,975,046 Total governmental activities net assets $ 30,341,523 $ 32,487,999 $ 32,917,833 $ 34,385,695 $ 35,222,382 $ 33,480,256 $ 33,666,947 $ 32,590,214 $ 32,318,848 Business-Type Activities Invested in capital assets net of related debt $ 19,914,970 $ 20,225,644 $ 19,907,722 $ 20,014,208 $ 20,352,399 $ 21,051,160 $ 21,043,965 $ 17,577,019 $ 18,928,438 Restricted Debt service 380,072 323,917 317,444 319,139 333,522 323,430 316,153 471,441 481,023 System improvements - 60,726 160,754 352,360 106,434 39,414 60,709 98,292 61,559 Unrestricted 8,258,643 7,640,124 7,820,602 7,652,753 8,358,417 9,011,906 8,301,545 8,276,703 6,791,840 Total business-type activities net assets $ 28,553,685 $ 28,250,411 $ 28,206,522 $ 28,338,460 $ 29,150,772 $ 30,425,910 $ 29,722,372 $ 26,423,455 $ 26,262,860 Primary Government Invested in capital assets net of related debt $ 36,558,559 $ 39,719,769 $ 39,309,112 $ 37,250,790 $ 41,450,191 $ 43,064,591 $ 42,139,320 $ 38,140,809 $ 38,728,907 Restricted 5,754,125 3,588,834 3,863,089 3,860,812 3,178,795 3,265,012 3,127,299 3,257,332 3,297,029 Unrestricted 16,582,524 17,429,807 17,952,154 21,612,553 19,744,168 17,576,563 18,122,700 17,624,279 16,805,772 Total primary government net assets $ 58,895,208 $ 60,738,410 $ 61,124,355 $ 62,724,155 $ 64,373,154 $ 63,906,166 $ 63,389,319 $ 59,022,420 $ 58,831,708 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: Schedule reported only 9 years due to the City implementing GASB 34 in 2002, years prior to 2002 not available. 95  City of Fort Walton Beach, Florida SCHEDULE 2 CHANGES IN NET ASSETS Last Nine Fiscal Years (full accrual basis of accounting) (amounts expressed in thousands) Fiscal Year 2002 2003 2004 2005 2006 2007 2008 2009 2010 Expenses Governmental activities General government $ 3,615,300 $ 3,396,418 $ 5,884,025 $ 6,935,799 $ 4,841,926 $ 4,563,855 $ 5,494,094 $ 4,625,871 $ 5,306,003 Public safety 6,050,460 6,317,104 6,952,351 7,623,363 8,032,018 9,641,338 10,048,884 9,908,644 9,231,632 Physical environment 267,990 283,558 276,987 276,525 299,362 354,439 343,411 350,374 304,907 Transportation 1,482,662 1,478,559 1,562,995 1,678,395 1,791,455 1,943,966 2,135,639 1,672,741 1,543,310 Economic environment 206,625 204,133 210,649 199,284 313,153 335,185 127,355 266,132 98,996 Culture and recreation 2,371,853 2,487,468 2,712,947 2,754,947 2,989,900 3,115,151 3,097,289 3,028,285 2,944,221 Debt service interest 220,715 272,858 267,160 238,090 309,094 331,771 302,948 247,703 240,940 Total government activities 14,215,605 14,440,098 17,867,114 19,706,403 18,576,908 20,285,705 21,549,620 20,099,750 19,670,009 Business-type activities Utilities 4,217,715 4,257,184 4,403,421 4,938,340 5,329,682 5,859,301 5,809,192 5,474,550 6,725,349 Sanitation 2,429,908 2,617,919 2,738,742 2,945,209 2,888,403 3,008,205 2,609,129 2,493,357 2,466,881 Golf 2,353,526 2,558,102 2,596,450 2,603,460 2,631,289 2,780,632 2,547,992 2,479,804 2,203,739 Other programs - - - - - - - 469,421 374,951 Total business-type activities 9,001,149 9,433,205 9,738,613 10,487,009 10,849,374 11,648,138 10,966,313 10,917,132 11,770,920 Total primary government expenses $ 23,216,754 $ 23,873,303 $ 27,605,727 $ 30,193,412 $ 29,426,282 $ 31,933,843 $ 32,515,933 $ 31,016,882 $ 31,440,929 Program Revenues Governmental activities Charges for services General government $ 379,829 $ 1,857,731 $ 1,973,238 $ 2,108,169 $ 2,381,669 $ 2,456,663 $ 2,752,330 $ 2,921,887 $ 2,759,080 Public safety 441,515 579,453 567,601 873,041 600,259 579,365 641,941 642,364 467,835 Physical environment 341,484 352,335 345,529 302,727 342,815 316,520 348,838 286,623 289,654 Transportation 231,872 81,299 102,068 68,402 72,815 241,622 93,987 87,654 83,586 Economic environment - - - - - - - - - Culture and recreation 326,269 354,062 351,450 382,858 400,175 421,733 417,253 426,110 408,351 Debt service interest - - - - - - - - - Operating grants and contributions 427,188 343,034 2,541,755 3,228,819 642,631 1,266,681 903,079 1,119,033 639,370 Capital grants and contributions 2,005,348 1,197,540 56,332 261,332 373,994 233,878 50,687 88,941 731,275 Total governmental activities program revenues 4,153,505 4,765,454 5,937,973 7,225,348 4,814,358 5,516,462 5,208,115 5,572,612 5,379,151 Business-type activities Charges for services Utilities 5,123,375 5,360,195 5,888,862 6,279,899 6,552,526 7,006,005 6,505,297 6,403,262 6,761,654 Sanitation 3,118,505 3,178,351 3,244,899 3,315,188 3,374,157 3,433,172 3,446,397 3,384,375 3,345,127 Golf 2,050,888 2,034,981 2,275,678 2,335,114 2,621,957 2,558,253 2,380,448 2,181,988 1,934,392 Other programs - - - - - - - 654,346 626,903 Operating grants and contributions - - - - - - 39,403 - - Capital grants and contributions 960 95,034 100,027 198,568 95,644 1,079,034 92,872 555,698 173,370 Total business-type activities program revenues 10,293,728 10,668,561 11,509,466 12,128,769 12,644,284 14,076,464 12,464,417 13,179,669 12,841,446 Total primary government program revenues $ 14,447,233 $ 15,434,015 $ 17,447,439 $ 19,354,117 $ 17,458,642 $ 19,592,926 $ 17,672,532 $ 18,752,281 $ 18,220,597 Continued… 96  City of Fort Walton Beach, Florida SCHEDULE 2 CHANGES IN NET ASSETS Last Nine Fiscal Years (full accrual basis of accounting) (amounts expressed in thousands) Fiscal Year 2002 2003 2004 2005 2006 2007 2008 2009 2010 Net (Expense)/Revenue Governmental activities $ (10,062,100) $ (9,674,644) $ (11,929,141) $ (12,481,055) $ (13,762,550) $ (14,769,243) $ (16,341,505) $ (14,527,138) $ (14,290,859) Business-type activities 1,292,579 1,235,356 1,770,853 1,641,760 1,794,910 2,428,326 1,498,104 2,262,537 1,070,526 Total primary government net expense $ (8,769,521) $ (8,439,288) $ (10,158,288) $ (10,839,295) $ (11,967,640) $ (12,340,917) $ (14,843,401) $ (12,264,601) $ (13,220,333) General Revenues and Other Changes in Net Assets Governmental activities Taxes Property taxes $ 3,543,052 $ 3,647,851 $ 3,763,976 $ 3,913,016 $ 4,557,414 $ 5,180,212 $ 5,052,903 $ 4,631,028 $ 4,380,221 Sales taxes 2,111,570 2,240,659 2,393,744 2,466,783 2,529,028 2,363,078 2,214,232 1,977,959 1,943,337 Utility service taxes 4,147,433 3,100,862 3,163,325 3,690,239 4,006,985 1,420,142 5,094,918 3,454,691 3,914,362 Intergovernmental, unrestricted 590,969 589,120 619,197 877,198 889,450 845,090 740,554 709,550 712,776 Gain on sale of assets 689,120 164,186 99,587 456,675 (1,053) 477,494 2,592 2,950 795,860 Miscellaneous 55,922 83,595 100,950 46,174 37,595 56,788 61,199 54,223 492,052 Investment earnings 378,964 282,019 226,863 324,687 599,818 755,389 444,488 269,896 152,884 Insurance recoveries - - - 299,145 - - - - Transfers 2,022,441 1,712,828 1,991,333 1,875,000 1,980,000 1,928,924 2,917,310 2,310,464 1,667,644 Total governmental activities 13,539,471 11,821,120 12,358,975 13,948,917 14,599,237 13,027,117 16,528,196 13,410,761 14,059,136 Business-type activities Taxes Utility service taxes 8,512 6,774 7,807 - 14,200 7,844 5,930 4,597 - Gain on sale of assets 20,119 27,641 - 174,610 34,978 482 98,907 56,795 Miscellaneous 9,890 4,209 12,342 10,261 73,714 15,118 129,678 141,406 177,657 Investment earnings 223,739 143,097 128,808 354,915 734,878 713,872 579,578 340,155 202,071 Transfers (1,975,865) (1,712,828) (1,991,333) (1,875,000) (1,980,000) (1,925,000) (2,917,310) (2,310,464) (1,667,644) Special item: Impairment loss - - - - - - - (3,836,055) - Total business-type activities (1,733,724) (1,538,629) (1,814,735) (1,509,824) (982,598) (1,153,188) (2,201,642) (5,561,454) (1,231,121) Total primary government $ 11,805,747 $ 10,282,491 $ 10,544,240 $ 12,439,093 $ 13,616,639 $ 11,873,929 $ 14,326,554 $ 7,849,307 $ 12,828,015 Change in Net Assets Governmental activities $ 3,477,371 $ 2,146,476 $ 429,834 $ 1,467,862 $ 836,687 $ (1,742,126) $ 186,691 $ (1,116,377) $ (231,722) Business-type activities (441,145) (303,273) (43,882) 131,936 812,312 1,275,138 (703,538) (3,298,917) (160,595) Total primary government $ 3,036,226 $ 1,843,203 $ 385,952 $ 1,599,798 $ 1,648,999 $ (466,988) $ (516,847) $ (4,415,294) $ (392,317) 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: Schedule reported only 9 years due to the City implementing GASB 34 in 2002, for years prior to 2002 reporting requirements differed. 97  City of Fort Walton Beach, Florida SCHEDULE 3 FUND BALANCES - GOVERNMENTAL FUNDS Last Nine Fiscal Years (modified accrual basis of accounting) (amounts expressed in thousands) Fiscal Year 2002 2003 2004 2005 2006 2007 2008 2009 2010 General Fund Reserved $ 544,800 $ 506,771 $ 957,768 $ 4,756,085 $ 539,749 $ 701,829 $ 509,080 $ 482,179 $ 499,384 Unreserved 9,362,131 9,773,808 10,179,527 10,022,750 11,129,373 12,161,545 9,367,864 9,709,202 9,314,142 Total general fund $ 9,906,931 $ 10,280,579 $ 11,137,295 $ 14,778,835 $ 11,669,122 $ 12,863,374 $ 9,876,944 $ 10,191,381 $ 9,813,526 All Other Governmental Funds Reserved $ 2,075,198 $ 292,286 $ - $ - $ - $ - $ - $ 50,117 $ 12,783 Unreserved, reported in Capital projects 1,118,794 673,861 685,174 700,975 241,114 56,550 8,751 - Debt service 92,478 91,691 92,153 92,544 92,788 92,730 91,713 91,713 92,880 Special revenue funds 1,700,512 1,750,363 1,789,633 1,862,308 1,933,979 2,095,772 2,153,440 2,073,850 2,158,878 Total all other governmental funds $ 4,986,982 $ 2,808,201 $ 2,566,960 $ 2,655,827 $ 2,267,881 $ 2,245,052 $ 2,245,153 $ 2,224,431 $ 2,264,541 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: Schedule reported only 9 years due to the City implementing GASB 34 in 2002, for years prior to 2002 reporting requirements differed. 98  City of Fort Walton Beach, Florida SCHEDULE 4 CHANGES IN FUND BALANCES - GOVERNMENTAL FUNDS Last Nine Fiscal Years (modified accrual basis of accounting) Fiscal Year 2002 2003 2004 2005 2006 2007 2008 2009 2010 Revenues Taxes $ 8,375,351 $ 8,900,322 $ 9,102,668 $ 9,872,190 $ 11,086,466 $ 10,804,833 $ 9,039,398 $ 9,160,133 $ 9,414,513 Licenses and permits 324,860 325,274 358,675 706,345 517,728 496,614 2,225,224 2,320,683 2,406,916 Intergovernmental 4,548,074 3,687,649 4,990,501 6,261,885 3,836,216 3,661,644 2,914,162 2,950,179 3,502,904 Charges for services 774,411 899,844 933,006 848,651 900,170 911,026 1,216,687 1,132,681 907,476 Fines and forfeits 295,755 358,988 305,851 329,038 247,329 247,493 268,415 387,449 204,849 Miscellaneous 1,228,465 1,067,426 637,460 1,052,422 850,248 3,588,708 1,211,662 1,020,342 1,370,077 Total Revenues 15,546,916 15,239,503 16,328,161 19,070,531 17,438,157 19,710,318 16,875,548 16,971,467 17,806,735 Expenditures General governmental services 3,467,844 3,537,638 5,722,625 6,737,331 4,646,594 4,355,885 5,306,276 4,419,077 5,095,790 Public safety 5,794,370 6,450,462 6,497,304 7,124,082 7,750,191 9,170,719 9,614,744 9,379,319 8,872,424 Physical environment 216,485 224,246 211,388 211,178 233,942 276,086 278,273 283,460 250,691 Transportation 1,230,487 1,263,289 1,183,153 1,284,018 1,364,414 1,550,204 1,750,680 1,316,954 1,207,449 Economic environment 206,625 203,595 210,649 199,284 313,153 335,185 127,355 266,132 98,996 Culture and recreation 2,012,907 2,197,934 2,250,304 2,277,069 2,503,469 2,636,387 2,698,993 2,582,642 2,535,682 Capital outlay 6,991,004 4,374,809 1,402,355 1,558,462 5,612,616 1,457,758 652,734 520,722 1,335,369 Debt service Principal 178,748 232,289 145,097 195,722 194,675 355,459 2,052,797 168,949 175,629 Interest and other costs 153,218 273,202 265,769 274,122 307,334 330,136 297,335 246,774 240,093 Total expenditures 20,251,688 18,757,464 17,888,644 19,861,268 22,926,388 20,467,819 22,779,187 19,184,029 19,812,123 Excess of revenue over (under) expenditures (4,704,772) (3,517,961) (1,560,483) (790,737) (5,488,231) (757,501) (5,903,639) (2,212,562) (2,005,388) Other Financing Sources (Uses) Transfers in 2,536,445 2,419,143 2,516,798 2,376,403 2,618,738 2,644,727 5,367,633 3,191,822 2,342,226 Transfers out (514,004) (706,315) (525,465) (501,403) (638,738) (715,802) (2,450,323) (685,545) (674,583) Insurance recoveries - - - 299,145 - - - - - Lease proceeds 58,000 - 143,698 299,948 - - - - - Debt proceeds 5,674,626 - - 2,039,191 - - - - - Contributions from others - - 40,929 7,860 10,572 - - - - Total other financing sources (uses) 7,755,067 1,712,828 2,175,960 4,521,144 1,990,572 1,928,925 2,917,310 2,506,277 1,667,643 Net change in fund balance $ 3,050,295 $ (1,805,133) $ 615,477 $ 3,730,407 $ (3,497,659) $ 1,171,424 $ (2,986,329) $ 293,715 $ (337,745) Debt service as a percentage of noncapital expenditures 2.50% 3.51% 2.49% 2.57% 2.90% 3.61% 10.62% 2.23% 2.25% 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: Schedule reported only 9 years due to the City implementing GASB 34 in 2002, for years prior to 2002 reporting requirements differed. 99  City of Fort Walton Beach, Florida SCHEDULE 5 REVENUES AND OTHER SOURCES (1) Last Ten Fiscal Years Unaudited Other Fiscal Licenses and Intergovernmental Charges for Fines and Interest and Financing Year Taxes Permits Revenues Services Forfeitures Other Revenues Sources TOTAL 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 2006 11,086,466 517,727 3,836,216 900,170 247,329 860,820 2,618,738 20,067,466 2005 10,379,692 706,345 6,699,651 848,651 329,038 1,387,243 4,715,542 25,066,162 2004 9,506,835 358,675 5,514,537 933,006 305,851 653,600 2,701,425 19,973,929 2003 9,272,422 325,274 4,027,442 899,844 358,988 1,086,958 2,419,143 18,390,071 2002 8,707,276 324,860 4,831,914 774,411 295,755 1,271,123 8,269,071 24,474,410 2001 7,926,999 364,647 3,541,556 729,542 156,766 892,042 2,253,572 15,865,124 (1) Includes General Fund, LETFs, CDBG 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. 100  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 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 2006 1,980,162,078 137,191,649 2,117,353,727 761,995,075 1,355,358,652 4.6458 2005 1,518,656,395 129,244,507 1,647,900,902 548,237,161 1,099,663,741 4.9700 2004 1,194,748,692 123,444,654 1,318,193,346 400,213,897 917,979,449 4.9700 2003 1,089,753,957 124,154,533 1,213,908,490 350,277,840 863,630,650 4.9700 2002 1,038,333,842 123,362,138 1,161,695,980 330,677,926 831,018,054 4.9700 2001 1,002,041,532 123,331,603 1,125,373,135 323,878,140 801,494,995 4.9700 (1) Florida State Law requires all property to be assessed at current fair market. The January 2010 assessment is the basis for Fiscal Year 2010-11 tax revenues. Source: Okaloosa County Property Appraiser 101  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 Tax Year Government or District 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 County 3.2899 3.2899 3.2995 3.3443 3.6500 4.2500 4.2500 4.2500 4.2500 4.2500 School 7.5340 7.6390 7.6240 7.6390 7.7860 8.0630 8.2940 8.2940 8.4120 8.2180 NW Florida Water Management 0.0450 0.0450 0.0450 0.0450 0.0500 0.0500 0.0500 0.0500 0.0500 0.0500 Fort Walton Beach 4.5383 4.1986 4.1986 4.1986 4.6458 4.9700 4.9700 4.9700 4.9700 4.9700 Total Direct Rate 15.4072 15.1725 15.1671 15.2269 16.1318 17.3330 17.5640 17.5640 17.6820 17.4880 Cinco Bayou 2.1000 2.0639 2.0639 2.0639 2.3000 2.3000 2.3000 2.3000 2.3000 2.3000 Crestview 5.8466 5.8466 5.8466 5.8466 6.4989 6.9990 6.9990 6.9990 6.9990 6.9990 Destin 1.4550 1.4550 1.4550 1.4550 1.5000 1.8000 1.8000 1.8000 1.8000 1.7500 Laurel Hill 3.5000 3.5000 4.8400 5.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 Mary Esther 2.6435 2.6996 2.6996 3.0125 3.4000 3.5000 3.5000 3.5000 3.5000 2.8370 Niceville 3.6301 3.4500 3.2000 3.2669 3.5000 3.5000 3.5000 3.3000 3.0000 3.0000 Shalimar 2.0000 2.0000 2.0000 2.0000 2.2000 2.4000 2.7000 2.8000 2.8000 3.0000 Valparaiso 3.9330 4.1591 3.7500 2.8754 3.1200 3.9900 3.9900 3.9900 3.9900 3.5000 Parks MSTU 0.1800 0.1800 0.1800 0.1888 0.2085 N/A 0.2654 N/A N/A N/A Destin Fire 1.0000 1.0000 0.9009 0.8004 0.8000 0.8300 0.8600 0.8600 0.7386 0.7386 East Niceville Fire 2.3500 2.3500 2.0000 1.9200 2.0000 2.0000 1.0000 1.0000 1.0000 1.0000 Florosa Fire 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 0.9798 North Bay Fire 2.2500 2.0500 1.7827 1.6819 1.8000 2.0700 1.8750 1.8500 1.7500 1.6500 Ocean City - Wright Fire 2.0000 1.8144 1.8144 1.6460 1.7800 1.8300 1.8000 1.8000 1.6900 1.6900 Okaloosa Island Fire 2.7949 2.1900 1.9998 2.0250 1.9855 2.4305 2.6461 2.9500 3.3042 3.3745 (1) As of levy date, November 1 of each year listed. The 2010 millage rate is the basis for Fiscal Year 2010-11 tax revenues. N/A: Not available. Source: Okaloosa County Tax Collector 102  City of Fort Walton Beach, Florida SCHEDULE 8 PRINCIPAL TAXPAYERS Unaudited 2010 2001 Total Total Assessed Assessed Taxpayer Value Percentage Rank Value Percentage Rank 99 Eglin Ltd. $ 13,953,676 1.15% 1 $ 9,095,596 1.13% 3 Presidio Developers, LLC 8,857,700 0.73% 2 BLC Westwood, LLC 7,634,171 0.63% 3 DRS Training & Control Systems 6,253,192 0.52% 4 6,222,861 0.78% 6 DDRM Shoppes at Paradise 5,722,845 0.47% 5 EHC II - Captain's Quarters, LLC 4,936,424 0.41% 6 FNBT.COM Bank 4,850,988 0.40% 7 Choctaw Plaza LTD 4,797,756 0.40% 8 Mariner Plaza Realty Assoc. 4,633,601 0.38% 9 4,237,700 0.53% 8 DEAS J Jr ET AL 4,463,440 0.37% 10 Sprint Florida, Inc. 27,139,473 3.39% 1 Gulf Power Co. 11,739,480 1.46% 2 Aero Technical Service 8,716,051 1.09% 4 American Senior Living of FWB 7,322,125 0.91% 5 Home Depot 6,052,857 0.76% 7 Emerald Coast Housing Corp 4,131,858 0.52% 9 Chromalloy 3,987,586 0.50% 10 Total Taxable Assessed Value of Principal Taxpayers 66,103,793 5.46% 88,645,587 11.06% Total Taxable Assessed Value of Other Taxpayers 1,143,636,711 94.54% 712,849,408 88.94% Total Taxable Assessed Value $ 1,209,740,504 100.00% $ 801,494,995 100.00% (1) The 2010 tax roll is the basis for Fiscal Year 2010-11 tax revenues. Source: Okaloosa County Property Appraiser 103  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 2010 The 2010 tax levy is the basis for Fiscal Year 2010-11 tax revenues. 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% 2006 6,317,712 6,085,783 96.3% 17,701 6,103,484 96.6% 17,752 0.3% 2005 5,481,001 5,271,070 96.2% 23,903 5,294,973 96.6% 17,072 0.3% 2004 4,577,392 4,408,022 96.3% 16,643 4,424,665 96.7% 15,383 0.3% 2003 4,305,962 4,151,604 96.4% 16,263 4,167,867 96.8% 11,174 0.3% 2002 4,145,081 3,996,625 96.4% 24,236 4,020,861 97.0% 14,663 0.4% 2001 4,001,772 3,852,832 96.3% 21,379 3,874,211 96.8% 17,892 0.4% (1) Includes discount taken for early payment of taxes (maximum of 4%). Source: Okaloosa County Tax Collector 104  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 Total Percentage Fiscal Obligation Lease Notes Revenue Obligation Lease Revenue Primary of Personal Per Year Bonds Payable Payable Bonds Bonds Payable Bonds Government Income (1) Capita (2) 2010 - $ 47,374 - $ 4,755,000 - $ 141,737 $ 14,005,000 $ 18,949,111 0.26% 930.93 2009 - 93,003 - 4,885,000 - 226,886 14,740,000 19,944,889 0.28% 964.69 2008 - 197,509 - 5,010,000 - 584,170 15,300,000 21,091,679 0.31% 1,008.30 2007 - 260,306 - 7,000,000 - 479,246 15,835,000 23,574,552 0.35% 1,122.17 2006 - 320,764 - 7,295,000 - 614,203 16,345,000 24,574,967 0.37% 1,176.85 2005 - 400,433 - 7,410,000 - 447,370 16,830,000 25,087,803 0.39% 1,209.93 2004 - 186,213 - 5,475,000 - 594,046 6,385,000 12,640,259 0.21% 613.04 2003 - 82,613 - 5,580,000 - 794,485 6,835,000 13,292,098 0.24% 647.98 2002 - 209,901 - 5,685,000 - 628,656 7,495,000 14,018,557 0.27% 692.65 2001 - 275,649 - - - 758,781 5,135,000 9,169,430 0.19% 459.09 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. 105  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) 2010 $ - 0.00% $ - 2009 - 0.00% - 2008 - 0.00% - 2007 - 0.00% - 2006 - 0.00% - 2005 - 0.00% - 2004 - 0.00% - 2003 - 0.00% - 2002 - 0.00% - 2001 - 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. 106  City of Fort Walton Beach, Florida SCHEDULE 12-A PLEDGED REVENUE COVERAGE SEWER PUBLIC IMPROVEMENT REFUNDING REVENUE BONDS - SERIES 1998 Last Ten Fiscal Years Unaudited Net Revenue Direct Available Fiscal Operating Sales Operating for Debt Debt Service Requirements Year Revenue Tax (1) Expenses (2) Service Principal Interest Total Coverage 2010 $ 6,761,654 $ 1,092,299 $ 4,764,332 $ 3,089,621 $ 266,250 $ 22,976 $ 289,226 10.68 2009 6,403,262 1,125,374 3,773,737 3,754,899 258,750 33,650 292,400 12.84 2008 6,505,297 1,256,319 4,206,922 3,554,694 247,500 43,550 291,050 12.21 2007 6,992,419 1,356,831 4,178,980 4,170,270 236,250 52,763 289,013 14.43 2006 6,538,169 1,460,850 3,657,369 4,341,650 225,000 61,538 286,538 15.15 2005 6,259,731 1,432,060 3,429,396 4,262,395 217,500 69,912 287,412 14.83 2004 5,876,502 1,371,506 3,085,717 4,162,291 210,000 77,787 287,787 14.46 2003 5,348,195 1,204,946 2,877,190 3,675,951 433,750 106,023 539,773 6.81 2002 5,123,375 1,141,363 2,838,501 3,426,237 416,250 120,969 537,219 6.38 2001 2,996,967 1,119,279 1,652,960 2,463,286 403,750 135,253 539,003 4.57 (1) Bond ordinance requires sales tax to be part of bond covenant. (2) Depreciation not included. 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. 107  City of Fort Walton Beach, Florida SCHEDULE 12-B PLEDGED REVENUE COVERAGE GOLF PUBLIC IMPROVEMENT REFUNDING REVENUE BONDS - SERIES 1998 Last Ten Fiscal Years Unaudited Net Revenue Direct Available Fiscal Operating Sales Operating for Debt Debt Service Requirements Year Revenue Tax (1) Expenses (2) Service Principal Interest Total Coverage 2010 $ 1,934,392 $ 273,075 $ 1,722,676 $ 484,791 $ 88,750 $ 7,659 $ 96,409 5.03 2009 2,181,988 281,343 1,842,689 620,642 86,250 11,217 97,467 6.37 2008 2,380,448 314,080 1,919,524 775,004 82,500 14,517 97,017 7.99 2007 2,461,151 339,208 2,050,197 750,162 78,750 17,588 96,338 7.79 2006 2,526,754 365,212 1,896,332 995,634 75,000 20,513 95,513 10.42 2005 2,240,899 358,015 1,854,012 744,902 72,500 23,304 95,804 7.78 2004 2,180,552 342,878 1,821,019 702,411 70,000 25,929 95,929 7.32 2003 1,942,550 301,236 1,816,706 427,080 66,250 16,194 82,444 5.18 2002 2,050,888 285,341 1,847,205 489,024 63,750 18,527 82,277 5.94 2001 2,099,824 279,820 1,609,396 770,248 61,250 20,518 81,768 9.42 (1) Bond ordinance requires sales tax to be part of bond covenant. (2) Depreciation not included. 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. 108  City of Fort Walton Beach, Florida SCHEDULE 12-C 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 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 2006 29,460,549 31,084,778 300,000 931,488 1,231,488 25.24 2005 32,709,007 29,841,670 285,000 552,986 837,986 35.61 2004 26,974,332 26,011,445 275,000 492,124 767,124 33.91 2003 25,048,557 25,106,627 265,000 502,591 767,591 32.71 2002 25,164,696 24,139,057 215,000 400,090 615,090 39.24 2001 23,113,418 22,489,206 55,000 218,874 273,874 82.12 (1) Non-Ad Valorem Revenues of General Fund, Capital Projects Fund, other governmental funds, and proprietary funds (2) Combined Debt Service requirements for Golf Capital Improvement Revenue Bonds-Series 1999, Florida Municipal Loan Council Revenue Bonds-Series 2000B, and Capital Improvement Revenue Bonds-Series 2001, Utility System Revenue Bond, Series 2005. 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. 109  City of Fort Walton Beach, Florida SCHEDULE 13 DIRECT AND OVERLAPPING GOVERNMENTAL ACTIVITIES DEBT GENERAL OBLIGATIONS Unaudited Percentage Amount Net Debt Applicable to Applicable to Governmental Unit Outstanding Fort Walton Beach Fort Walton Beach Total Overlapping Debt Okaloosa County School District $ 69,520,000 35.85% (1) $ 24,922,920 Okaloosa County 10.42% (2) - City of Fort Walton Beach revenue bonds 4,755,000 100.00% 4,755,000 Total Overlapping Debt 74,275,000 29,677,920 Direct Debt City of Fort Walton Beach leases 47,374 100.00% 47,374 Okaloosa County 26,615,000 10.42% (2) 2,773,276 Total Direct Debt 26,662,374 2,820,650 Total Direct and Overlapping Debt $ 100,937,374 $ 32,498,570 Source: Okaloosa County, Okaloosa County School Board (1) Calculation based on number of total schools in Okaloosa County School District versus number of schools in Fort Walton Beach. (2): Calculation based on total population in Okaloosa County versus number of population in Fort Walton Beach. 110  City of Fort Walton Beach, Florida SCHEDULE 14 MAJOR EMPLOYERS Unaudited 2010 2001 Percentage Percentage of Total of Total Employer Product Employees Employment Ranking Employees Employment Ranking (1) USAF - Eglin Air Force Development Test Center 16,476 20.75% 1 10,225 14.22% USAF - Hurlburt(2) Air Force Special Ops Command 11,171 14.07% 2 7,252 10.09% Okaloosa County School District Education Services 3,278 4.13% 3 5,377 7.48% Okaloosa County (3) Local Government Services 1,383 1.74% 4 753 1.05% Ft. Walton Beach Medical Center Medical Services 1,305 1.64% 5 850 1.18% DRS Training and Control Systems Defense Electronics 875 1.10% 6 600 0.83% InDyne Military Technical Support 786 0.99% 7 Northwest Florida State College Education Services 763 0.96% 8 ResortQuest Property Management 750 0.94% 9 1,500 2.09% BAE Systems Technical Services Military Technical Support 700 0.88% 10 Tybrin Corporation Military Technical Support 600 0.83% Marconi Services Technical Support for Military 1,000 1.39% State of Florida State Government Services 966 1.34% 37,487 45.94% 29,123 40.73% (1) Includes military, civilian, and contractor personnel. (2) Includes military and civilian personnel. (3) Includes County Commission, Clerk of Court, Property Appraiser, Sheriff, Supervisor of Elections, and Tax Collector. Source: Personnel Department of each employer 111  City of Fort Walton Beach, Florida SCHEDULE 15 MISCELLANEOUS DEMOGRAPHICAL STATISTICS Last Ten Fiscal Years Unaudited Okaloosa County FWB as a % Personal Income Per Capita Unemployment Fiscal Year FWB Population Population of the County (thousands of dollars) Personal Income Rate 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% 2006 20,882 192,672 10.84% 6,761,736 36,529 2.4% 2005 20,735 188,939 10.97% 6,360,148 34,755 2.9% 2004 20,619 185,778 11.10% 5,982,411 33,068 3.4% 2003 20,513 181,102 11.33% 5,506,510 30,969 3.8% 2002 20,239 176,971 11.44% 5,166,167 29,481 4.4% 2001 19,973 170,498 11.71% 4,757,566 27,703 4.0% OKALOOSA COUNTY EDUCATION FY 2010 FY 2009 FY 2008 Schools: Grades K-5 18 19 19 Grades 6-8 7 8 8 Grades 9-12 4 4 4 PK-12 / Charter / Alternate 2 / 4 / 10 2 / 3 / 11 2 / 3 / 10 Grades K-8 1 n/a n/a Vocational / Technical 1 1 1 Exceptional Children 2 1 1 Students: Grades K-5 12,975 12,795 12,963 Grades 6-8 6,471 6,603 6,725 Grades 9-12 8,889 9,082 9,546 Vocational and Adult Students 302 341 298 Exceptional Children 4,270 5,218 5,626 Charter 1,431 1,315 1,198 Personnel: Instructional (Classroom) 1,849 1,999 1,867 Non-Instructional 1,013 1,154 1,264 Source: Office of Economic & Demographic Research, FL Research & Economic Database, FL Labor Market Statistics Okaloosa County School Board 112  City of Fort Walton Beach, Florida SCHEDULE 16 FULL-TIME EQUIVALENT EMPLOYEES BY FUNCTION/PROGRAM Last Nine Fiscal Years Unaudited Full-Time Equivalent Employees as of September 30 2010 2009 2008 2007 2006 2005 2004 2003 2002 General Government City Manager 2.00 2.00 3.00 4.00 3.00 3.00 3.00 3.00 4.00 Human Resources 4.00 4.00 4.00 4.00 4.00 4.00 4.00 4.00 5.00 Risk Management 1.00 1.00 - - - - - - - Information Technology 2.75 2.75 3.00 4.00 4.00 4.00 4.00 4.00 4.00 City Clerk 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 Finance 7.00 7.00 7.00 7.00 7.75 8.00 9.00 9.00 9.00 Purchasing 2.50 2.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 Public Safety Police 67.59 68.05 74.05 73.17 72.95 72.95 74.95 75.95 75.95 Fire 38.00 38.00 39.00 39.00 39.00 33.00 33.00 33.00 33.00 Recreation & Cultural Services Administration 16.41 17.67 32.57 33.12 34.52 34.52 34.52 34.52 34.52 Parks Maintenance 11.00 11.90 - - - - - - - Right-of-Way Maintenance 7.00 8.00 9.00 9.00 9.00 9.00 10.00 10.00 9.00 Senior Citizens Center 1.85 1.85 2.38 2.58 2.58 2.58 3.08 3.08 3.08 Library 9.90 9.90 10.60 11.10 11.10 11.10 11.10 10.50 10.50 Museum 3.85 4.98 5.18 6.01 7.01 7.01 7.01 7.01 7.01 Cemetery 3.00 3.50 3.50 3.50 3.00 3.00 3.00 3.00 3.00 Engineering Services Administration 6.00 6.00 7.00 7.00 8.00 10.00 10.00 10.00 10.00 Planning & Zoning 1.00 - 4.00 4.00 5.00 5.00 5.00 5.00 5.00 Building & Permitting 3.00 3.00 6.00 6.00 4.00 4.00 4.00 4.00 4.00 Code Enforcement 2.00 2.00 - - - - - - - Fleet Maintenance 10.00 11.00 12.00 12.00 12.00 13.00 13.00 13.00 13.00 Facilities Maintenance 11.00 11.00 10.00 11.00 11.00 11.00 11.00 11.00 12.00 Streets Maintenance 6.50 6.50 14.50 13.50 15.00 15.00 15.00 16.00 16.00 Community Development Block Grant - - - 1.00 1.00 1.00 1.00 1.00 1.00 Community Redevelopment Agency 1.00 1.00 1.00 1.75 1.75 1.00 1.00 1.00 1.00 Utility (Water/Sewer) Enterprise Customer Service 7.50 7.50 8.00 9.00 9.00 8.00 8.00 8.00 8.00 Administration 1.00 2.00 6.00 5.00 5.00 - - - - Water Operations 7.00 7.00 7.00 7.00 7.00 7.00 7.00 7.00 7.00 Sewer Operations 2.00 11.00 11.00 13.00 13.00 16.00 16.00 15.00 15.00 Water Distribution 6.00 6.00 6.00 7.00 7.00 6.00 6.00 6.00 6.00 Sewer Collections 11.00 11.00 11.00 12.00 11.00 11.00 11.00 11.00 11.00 Sanitation Enterprise Solid Waste 19.62 19.87 21.00 21.00 21.00 22.00 22.00 22.00 22.00 Recycling - - - 4.00 4.00 4.00 4.00 4.00 4.00 Golf Enterprise Golf Club 14.26 31.01 36.51 36.56 36.56 36.36 37.56 37.61 37.61 Golf Grounds Maintenance 15.75 - - - - - - - - Stormwater Enterprise Stormwater 7.00 8.00 - - - - - - - Total 312.48 329.48 362.29 375.29 377.22 370.52 376.22 376.67 378.67 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 17 PERMITS, LICENSES AND RECREATION FACILITIES Last Ten Fiscal Years Unaudited MISCELLANEOUS PERMITS Year Mechanical Electrical Gas Plumbing Water & Sewer 2010 212 290 87 154 27 2009 142 285 52 158 16 2008 168 298 97 178 20 2007 177 340 109 157 30 2006 202 473 126 235 32 2005 152 438 103 162 37 2004 163 396 61 182 53 2003 145 371 84 158 70 2002 168 337 70 128 63 2001 264 368 85 259 64 BUSINESS TAX RECEIPTS ISSUED (formerly referred to as occupational licenses) Year Number Sold (1) 2010 688 2009 2,333 2008 2,422 2007 2,495 2006 2,446 2005 2,492 2004 2,389 2003 2,279 2002 2,324 2001 2,346 (1) Decrease due to no longer requiring BTR for contractors whose home office is outside City limits MUNICIPAL RECREATIONAL FACILITIES 2 18-hole Golf Courses 1 Library 1 18-hole Disc Golf Course 3 Museums 1 Auditorium 20 Playgrounds 7 Baseball-Softball Facilities 1 Racquetball Court Facility 1 BMX/Skateboard Facility 4 Recreation Centers 5 Boat Ramps 2 Soccer Field Facilities 5 Exercise/Walking Tracks 4 Tennis Court Facilities 1 Fairgrounds 7 Undeveloped Parks 1 Football Stadium 4 Waterfront Parks 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. 114  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 1,971 492 1,289 178 12 02 BLACKMON 639 192 403 39 5 03 MILLIGAN 1,119 286 650 165 18 04 HOLT 1,142 320 634 175 13 05 LAUREL HILL 1,023 354 492 164 13 06 GARDEN CITY 2,268 558 1,372 311 27 07 DORCAS 1,450 391 776 260 23 08 HONEY CREEK 4,073 1,110 2,269 639 55 09 YELLOW RIVER 3,253 732 1,974 512 35 10 WEST WRIGHT 6,283 1,564 3,323 1,267 129 11 EAST CRESTVIEW 8,565 1,909 4,650 1,849 157 12 WEST CRESTVIEW 967 580 230 154 3 13 NORTH CRESTVIEW 3,271 861 1,854 505 51 14 WEST NICEVILLE 2,529 612 1,425 447 45 15 VALPARAISO 3,005 643 1,760 541 61 16 SHALIMAR 2,626 662 1,481 427 56 17 CENTRAL WRIGHT 3,324 954 1,583 717 70 18 OCEAN CITY 2,560 741 1,234 508 77 19* EAST FWB 1,507 556 589 325 37 20 WEST DESTIN 2,518 539 1,407 519 53 21 MARY ESTHER 2,800 724 1,565 461 50 22* S CENTRAL FWB 2,083 709 926 404 44 23 EGLIN AFB 972 251 428 277 16 24* WEST FWB 3,101 961 1,489 590 61 25 N CENTRAL NICEVILLE 1,870 451 1,087 305 27 26 SEMINOLE 2,622 440 1,781 364 37 27 CINCO BAYOU 284 64 167 46 7 28* GARNIERS 366 72 220 66 8 29* GOLF COURSE 2,151 403 1,403 308 37 30 OKALOOSA ISLAND 1,498 279 881 306 32 31 LONGWOOD 1,881 358 1,258 231 34 32* FERRY PARK 2,259 509 1,368 345 37 33 ROCKY BAYOU 4,176 570 3,026 525 55 34 FLOROSA 3,734 961 1,907 803 63 35 NORTH DESTIN 2,446 370 1,637 398 41 36 SOUTH NICEVILLE 2,484 422 1,677 341 44 37 LAKE LORRAINE 2,808 431 1,953 384 40 38 NORTHGATE 2,025 471 1,166 348 40 39 EAST WRIGHT 2,548 734 1,317 447 50 40 SOUTH BLUEWATER 2,831 364 2,051 373 43 41* N CENTRAL FWB 1,431 315 890 200 26 42* NEW HEIGHTS 2,410 815 1,098 465 32 43 S CENTRAL NICEVILLE 2,263 512 1,318 380 53 44 CENTRAL DESTIN 1,850 407 974 411 58 45 SOUTH CRESTVIEW 4,414 1,074 2,360 903 77 46 NORTH BLUEWATER 4,375 654 2,986 653 82 47 WYNNEHAVEN BEACH 2,079 510 995 514 60 48* WESTWOOD RETIREMENT 180 43 116 17 4 49 EAST DESTIN 2,514 337 1,735 398 44 50 SOUTH DESTIN 3,010 452 1,985 500 73 51 AIRPORT ROAD 1,640 326 1,066 232 16 52 LIVE OAK 3,284 684 1,940 605 55 Countywide Total 128,482 29,729 74,165 22,302 2,286 City Total 13,218 3,720 6,953 2,287 258 *City Precinct Source: Okaloosa County Supervisor of Elections 115  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 2010 $ - $ 19,801 0.00% $ 143,772 2009 - 6,528 0.00% 163,572 2008 - 7,511 0.00% 170,100 2007 218,730 72,576 33.18% 177,611 2006 0.00 1,965 0.00% 31,456 2005 0.00 50,257 0.00% 33,421 2004 0.00 37,510 0.00% 83,678 2003 0.00 13,783 0.00% 121,188 2002 161,037 27,452 17.05% 134,972 2001 0.00 92 0.00% 1,294 (1) Assessments are payable over a 20 year period. 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. 116  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 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% 2006 5,303,877 14.9% 6,544,881 18.4% 3,932,591 11.1% 3,369,729 9.5% 2,360,766 6.6% 2,500,736 7.0% 2005 4,421,852 11.8% 5,957,840 15.8% 3,727,073 9.9% 3,311,508 8.8% 2,179,849 5.8% 2,224,935 5.9% 2004 4,166,452 13.1% 4,983,270 15.7% 3,544,738 11.2% 3,240,131 10.2% 689,910 2.2% 2,173,351 6.9% 2003 4,019,951 13.7% 4,912,208 16.7% 3,245,492 11.0% 3,049,650 10.4% 1,890,754 6.4% 1,941,010 6.6% 2002 3,874,977 11.1% 4,506,698 12.9% 3,117,845 8.9% 2,991,869 8.5% 1,782,375 5.1% 2,014,890 5.8% 2001 3,657,749 3,920,650 2,967,563 3,081,666 1,511,849 2,036,423 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. 117  City of Fort Walton Beach, Florida SCHEDULE 21 WATER AND WASTEWATER SERVICE RATES Unaudited Monthly Water Rates (1,2) Residential Commercial Number of (3) (3) Inside Outside Inside Outside Meters (4) Lifeline Rate $7.72 $9.65 $7.72 $9.65 Monthly Base Charge(5), Meter Size: 3/4" $7.72 $9.65 $7.72 $9.65 9,157 1.0" $7.72 $9.65 $7.72 $9.65 349 1.5" $10.50 $13.12 $10.50 $13.12 115 2.0" $17.83 $22.28 $17.83 $22.28 226 3.0" $27.17 $33.96 $27.17 $33.96 14 4.0" $33.97 $42.46 $33.97 $42.46 18 6.0" $54.04 $67.55 $54.04 $67.55 1 8.0" or 10.0" $80.98 $101.22 $80.98 $101.22 1 Multi-Residential, Addt'l per Unit $5.71 $7.13 9,881 Residential Customers 7,849 Commercial Customers 946 Total Customers 8,795 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) $2.01 $2.51 Block 3 (4,001 - 8,000) $2.45 $3.06 Block 4 (8,001 +) $3.68 $4.60 Monthly Wastewater Rates (2) Residential Commercial (4) Lifeline Rate $16.91 Monthly Base Charge $16.91 $20.29 Gallonage Rate (per 1,000 gallons per unit) (5) Block 1 (0 - 2,000) Included in monthly base charge Block 2 (2,001 +) $4.64 $5.56 (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 125% for water. (4) Single family residence with less than 2,000 gallons per month (5) Residential service capped at 16,000 gallons per unit Source: City of Fort Walton Beach Comprehensive Fee Schedule 118  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 $ 5.25 $ 15.85 Residential Dumpsters, Individual Meters 10.60 5.25 15.85 Commercial One Container 28.60 5.97 34.57 Two Containers 57.20 11.95 69.15 Special Pick-up 37.35 5.97 43.32 Shared Dumpster (minimum charge) 28.60 5.97 34.57 Garbage and Trash Collection Garbage Tipping Total 2 Cubic Yards 2 times per week $ 60.70 $ 43.11 $ 103.81 3 times per week 91.05 64.63 155.68 4 times per week 121.45 86.16 207.61 5 times per week 151.75 107.69 259.44 6 times per week 182.10 129.21 311.31 4 Cubic Yards 2 times per week 85.70 86.16 171.86 3 times per week 128.55 129.21 257.76 4 times per week 171.40 172.27 343.67 5 times per week 214.25 215.32 429.57 6 times per week 257.10 258.38 515.48 6 Cubic Yards 2 times per week 112.50 129.21 241.71 3 times per week 168.75 193.79 362.54 4 times per week 224.95 258.38 483.33 5 times per week 281.20 322.96 604.16 6 times per week 337.45 387.59 725.04 8 Cubic Yards 2 times per week 135.70 172.27 307.97 3 times per week 203.55 258.38 461.93 4 times per week 271.40 344.48 615.88 5 times per week 339.25 430.64 769.89 6 times per week 407.10 516.75 923.85 One time fee to change size of dumpster $25.00 Extra Collection Garbage Tipping Total Extra residential trash pick-up $120.00 per hour, $15.00 minimum Extra commercial trash pick-up - 2 CY $ 26.00 $ 8.24 $ 34.24 Extra commercial trash pick-up - 4 CY 28.00 15.45 43.45 Extra commercial trash pick-up - 6 CY 30.00 21.63 51.63 Extra commercial trash pick-up - 8 CY 33.00 27.81 60.81 Source: City of Fort Walton Beach Comprehensive Fee Schedule 119  City of Fort Walton Beach, Florida SCHEDULE 23 OPERATING INDICATORS BY FUNCTION/PROGRAM Last Ten Fiscal Years Function Unaudited Fiscal Year 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 Public Safety Police Physical arrests 1,773 2,298 2,526 2,201 1,916 1,708 1,801 1,250 1,703 998 Traffic violations 6,207 6,430 7,211 5,171 5,399 5,633 7,138 8,208 7,415 6,148 Fire Emergency medical responses 2,791 2,645 2,484 2,567 2,441 1,671 1,605 1,738 1,760 1,500 Fire responses 1,158 477 479 517 335 403 143 1,217 100 80 Inspections 2,040 2,863 3,277 3,319 2,605 1,658 1,876 1,780 1,150 1,700 Code Enforcement Code violations 2,426 2,513 2,108 1,793 1,914 1,674 1,632 N/A N/A N/A Engineering Services Building permits issued n/a 1,429 1,582 1,710 2,341 3,151 1,907 1,779 1,818 2,067 Residential building permits issued 630 n/a n/a n/a n/a n/a n/a n/a n/a n/a Commercial building permits issued 380 n/a n/a n/a n/a n/a n/a n/a n/a n/a Value of permits (in millions) n/a $46.20 $37.40 $28.70 $31.10 $61.70 $20.80 $16.00 $16.60 $26.10 Value of residential permits (in millions) $7.108 n/a n/a n/a n/a n/a n/a n/a n/a n/a Value of commercial permits (in millions) $7.094 n/a n/a n/a n/a n/a n/a n/a n/a n/a Street resurfacing (lane miles) 5.71 1.53 0.78 0.46 2.25 3.55 3.17 3.61 3 5 Pot holes (hours spent repairing) 617 1,257 1,476 1,022 713 861 613 997 937 1,059 Sanitation Refuse collected (tons) 25,676 25,485 27,873 28,374 28,446 34,378 28,813 27,661 25,000 22,485 Recyclables collected (tons) 161 150 112 367 400 385 417 428 600 515 Culture and Recreation Parks and Recreation Recreation program participants 103,121 116,565 118,890 125,697 120,329 86,312 79,991 75,622 82,711 71,508 Adult athletic participants 10,009 11,406 14,591 14,669 14,239 1,155 968 1,725 1,665 1,467 Youth athletic participants 12,525 14,211 15,570 14,418 14,254 1,674 1,327 1,877 1,969 1,525 Skate/tennis park participants 15,297 18,480 24,100 29,088 29,396 24,741 24,670 19,936 29,550 N/A Library Circulation volume 135,314 142,148 137,002 126,271 124,489 118,368 116,883 106,603 93,167 80,623 Museum Number of visitors/participants 39,935 47,700 45,168 28,916 30,144 31,531 35,598 28,814 25,300 29,941 Water System New connections 27 16 20 30 32 37 53 70 63 674 Water customers 8,795 8,741 8,927 8,996 8,966 8,984 8,928 8,874 8,874 8,804 Water produced (million gallons) 897 941 963 1,071 1,128 1,046 1,046 1,024 1,077 1,104 Wastewater System Wastewater treated (million gallons)(1) 381 769 916 796 839 1,164 935 1,186 877 950 (1) Wastewater treatment transferred to County in March 2010 Source: City of Fort Walton Beach Performance Measures. 120  City of Fort Walton Beach, Florida SCHEDULE 24 CAPITAL ASSET STATISTICS BY FUNCTION/PROGRAM Last Nine Fiscal Years Unaudited Function/Program Fiscal Year 2010 2009 2008 2007 2006 2005 2004 2003 2002 Public Safety Police Stations 1 1 1 1 1 1 1 1 1 Patrol units 49 49 55 53 52 N/A N/A N/A N/A Engineering Services Miles of roads(1) 112.76 112.76 99.35 98.50 98.50 98.50 98.50 98.50 98.50 Miles of sidewalks 62.11 61.35 61.32 60.92 60.82 N/A N/A N/A N/A Signs fabricated and installed 910 1,110 1,223 1,481 1,412 1,509 894 918 860 Culture and Recreation Parks and Recreation Recreational Amenities(3) 76 91 90 90 89 82 89 82 81 Parks (acres) 180.26 180.26 180.26 180.26 173.58 143.55 144.44 143.55 141.05 Library Inventoried collection 74,317 73,641 71,006 69,061 68,064 67,517 59,843 60,830 63,086 Water and Sewer System Water lines (miles) 118.52 118.10 118.09 118.09 115.95 115.69 115.54 115.37 115.30 Sewer lines (miles) 118.77 118.77 118.77 118.77 118.77 118.64 118.64 118.29 118.26 Reuse Water lines (miles) 3.82 4.14 4.14 4.14 4.14 2.19 2.19 2.19 2.19 Elevated Storage Tank Capacity: 2 tanks 200,000 gal; 1 tank 750,000 gal; 2 tanks 500,000 gal Ground Storage Tank Capacity: 1 tank 135,000 gal; 1 tank 250,000 gal; 1 tank 1,000,000 gal Pumping Capacity of Water Wells: 9.231 million gallons per day Stormwater System Storm drains (miles)(2) 45.70 45.66 34.73 34.73 34.73 N/A N/A N/A N/A (1) FY 2009 Increase due to better data with GIS system and methodology change for calculation. (2) FY 2009 Adjustment due to better data with GIS system. (2) FY 2010 Adjustment due to re-evaluation of how amenities are counted. N/A: Not available. 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. 121  City of Fort Walton Beach, Florida SCHEDULE 25 INSURANCE COVERAGE September 30, 2010 Unaudited Agent, Broker, or Effective Dates Company Policy Number Company Rep. Type Amount Location 10/12/09 to 10/12/10 Fidelity National 1150113370 Fisher-Brown Agency Flood $ 402,700 B 4th Avenue & Carson $ 16,300 C Chester Pruitt Building 10/12/09 to 10/12/10 Fidelity National 1150113362 Fisher-Brown Agency Flood $ 402,700 B 50 Ferry Road $ 23,500 C Docie Bass Recreation Building 10/12/09 to 10/12/10 Fidelity National 1150113371 Fisher-Brown Agency Flood $ 402,700 B 14 Robinwood Drive SW $ 84,500 C Sanitation Building 12/06/09 to 12/06/10 Fidelity National 1150167295 Fisher-Brown Agency Flood $ 500,000 B #7 Hollywood Boulevard $ 500,000 C Police Department 10/12/09 to 10/12/10 Fidelity National 1150113360 Fisher-Brown Agency Flood $ 500,000 B #5 Hollywood Boulevard $ 260,100 C Fire Department 10/12/09 to 10/12/10 Fidelity National 1150113366 Fisher-Brown Agency Flood $ 366,100 B Memorial Parkway $ 31,100 C Senior Citizens Building 10/12/09 to 10/12/10 Fidelity National 1150113367 Fisher-Brown Agency Flood $ 402,700 B 107 Miracle Strip Parkway $ 128,200 C Auditorium 10/12/09 to 10/12/10 Fidelity National 1150113368 Fisher-Brown Agency Flood $ 402,700 B 107 Miracle Strip Parkway $ 382,900 C City Hall 10/12/09 to 10/12/10 Fidelity National 1150113361 Fisher-Brown Agency Flood $ 177,300 B 107 Miracle Strip Parkway $ 16,300 C Council Chamber 10/12/09 to 10/12/10 Fidelity National 1150113365 Fisher-Brown Agency Flood $ 402,700 B 107 Miracle Strip Parkway $ 382,900 C Annex Building 122  City of Fort Walton Beach, Florida SCHEDULE 25 INSURANCE COVERAGE September 30, 2010 Unaudited Agent, Broker, or Effective Dates Company Policy Number Company Rep. Type Amount Location 10/12/09 to 10/12/10 Fidelity National 1150113363 Fisher-Brown Agency Flood $ 389,700 B 107 Miracle Strip Parkway $ 16,300 C Utility Building 10/12/09 to 10/12/10 Fidelity National 1150113369 Fisher-Brown Agency Flood $ 402,700 B 141 Miracle Strip Parkway $ 51,200 C City Museum 10/12/09 to 10/12/10 Fidelity National 1150113364 Fisher-Brown Agency Flood $ 324,200 B 22 McGriff Street 7,900 C Child Care Facility 12/02/09 to 12/02/10 Fidelity National 1150164378 Fisher-Brown Agency Flood $ 38,500 B 338 Miracle Strip Parkway Restroom, East of Pavillion Liza Jackson Park 12/02/09 to 12/02/10 Fidelity National 1150164379 Fisher-Brown Agency Flood $ 38,500 B 338 Miracle Strip Parkway Restroom Near Ditch Liza Jackson Park 05/17/09 to 05/17/10 Fidelity National 92510117093 Fisher-Brown Agency Flood $ 98,300 B 55 Ferry Road Boy Scout Hut 07/23/09 to 07/23/10 Fidelity National 97700165626 Fisher-Brown Agency Flood $ 266,200 B 18 Robinwood Drive $ 33,600 C Pump Station #1 06/23/09 to 06/23/10 Fidelity National 92510234651 Fisher-Brown Agency Flood $ 55,000 B 168 Coral Drive SW City Hall Ball Field Restrooms 10/01/09 to 10/01/10 Indian Harbor Ins. Co. PEC0029247 Public Risk Insurance Agency Petroleum $ 1,000,000/inc Golf Course, Police, City Shop, Fuel Station, Liability $ 1,000,000/agg Wastewater Treatment Plant 10/01/09 to 10/01/10 PGIT PKFL1046200309-05 Public Risk Insurance Agency Inland $ 625,978/fine Art Museum Marine $ 10,000/schedul $ 5,672,449 $ 1,231,195 EDP/Minicomputer/Word Processor $ 250,000 Valuable Papers 123  City of Fort Walton Beach, Florida SCHEDULE 25 INSURANCE COVERAGE September 30, 2010 Unaudited Agent, Broker, or Effective Dates Company Policy Number Company Rep. Type Amount Location 09/16/09 to 09/16/10 Hartford 21BSBDB7453 Fisher-Brown Agency Public Official $ 50,000 Finance Director Bond 04/18/09 to 04/18/10 Hartford 21BSBDB7454 Fisher-Brown Agency Public Official $ 50,000 Customer Service Administrator, Finance Bond Department 10/01/09 to 10/01/10 PGIT PKFL1046200309-05 Public Risk Insurance Agency Auto $ 100,000 Person $ 200,000 Occurrence $ 1,000,000 CSL Liability 10/01/09 to 10/01/10 PGIT PKFL1046200309-05 Public Risk Insurance Agency Forgery $ 250,000 Alteration 10/01/09 to 10/01/10 PGIT PKFL1046200309-05 Public Risk Insurance Agency Money & varies by location Securities 10/01/09 to 10/01/10 PGIT PKFL1046200309-05 Public Risk Insurance Agency Crime $ 250,000 Public Employees Blanket Fidelity Bond 124  City of Fort Walton Beach, Florida SCHEDULE 25 INSURANCE COVERAGE September 30, 2010 Unaudited Agent, Broker, or Effective Dates Company Policy Number Company Rep. Type Amount Location 10/01/09 to 10/01/10 PGIT PKFL1046200309-05 Public Risk Insurance Agency General $ 100,000 Person Liability $ 200,000 Occurrence $ 5,000,000 CSL Liability 10/01/09 to 10/01/10 PGIT PKFL1046200309-05 Public Risk Insurance Agency Property $ 47,478,111 Blank Real & Personal Property, extra expense 10/01/09 to 10/01/10 PGIT PKFL1046200309-05 Public Risk Insurance Agency Property $ 100,000 Business Income Water & Wastewater Enterprises 10/01/09 to 10/01/10 FMIT FMIT0198 Florida League of Cities Worker's $ 1,000,000 Accident Comp $ 1,000,000 Disease 10/01/09 to 10/01/10 PGIT PKFL1046200309-05 Public Risk Insurance Agency Supplemental $ 5,000,000 Empl. Practice CSL 10/01/09 to 10/01/10 Federal Insurance 9906-62-32 LB Bryan & Co. AD&D $ 59,695 Occupational Death $ 59,695 Response to Emergency $ 179,085 Unlawful/Unintentional 10/01/09 to 10/01/10 PGIT PKFL1046200309-05 Public Risk Insurance Agency Boiler & $ 1,000,000 Accident/Direct Damage Machinery $ 250,000 Consequential Damage $ 50,000 Extra Expense 05/01/09 to 05/01/10 Travelers 103148718 Fisher-Brown Agency Fiduciary $ 2,000,000 Retirement Fund for General Liability Employees, Police, and Fire Source: City of Fort Walton Beach Risk Management Department 125 (THIS PAGE INTENTIONALLY LEFT BLANK.) IV. COMPLIANCE SECTION ƒ COMPLIANCE MATTERS ƒ MANAGEMENT LETTERS ƒ RESPONSES TO THE MANAGEMENT LETTER  City of Fort Walton Beach, Florida SCHEDULE OF EXPENDITURES OF FEDERAL FINANCIAL ASSISTANCE Year Ended September 30, 2010 Federal Agency Pass-Through Entity CFDA Transfer to Federal Project Number Contract/Grant Number Expenditures Subrecipients U.S. Department of Homeland Security Federal Emergency Management Agency Direct Program Assistance to Firefighters 2008 97.044 EMW2008FO02473 $ 1,762 $ - Indirect Program Pass-Through From State Department of Financial Services State Homeland Security Grant Program 2008-2009 97.073 53,015 - Total U.S. Department of Homeland Security 54,777 - U.S. Department of Transportation Federal Highway Administration Indirect Program Pass-Through From Florida Department of Transportation ARRA Local Agency Program Agreement, ARRA-521-B 20.205 426709-1-58-01 142,947 - ARRA Local Agency Program Agreement, ARRA-459-B 20.205 426713/14-1-58-01 152,726 - ARRA Local Agency Program Agreement, ARRA-458-B 20.205 426712/15-1-58-01 436,907 - Total U.S. Department of Transportation 732,580 - U.S. Department of Housing and Urban Development Direct Program Community Development Block Grant 2008 14.218 B-08-MC-12-00-30 5,674 - Community Development Block Grant 2009 14.218 B-09-MC-12-00-30 107,207 - ARRA Community Development Block Grant 2009 14.253 B-09-MY-12-00-30 38,366 - Total U.S. Department of Housing and Urban Development 151,247 - U.S. Department of Justice Indirect Program Pass-Through From U.S. Marshals Service Florida Regional Fugitive Task Force - VFTF091706 24,909 - Florida Regional Fugitive Task Force - VFTF101706 9,767 - Joint Law Enforcement Operations - ISDF100235A 5,521 - Florida Department of Law Enforcement Bulletproof Vest Partnership Program 2007 16.607 - 4,097 - Bulletproof Vest Partnership Program 2009 16.607 - 50 - Byrne Formula Grant-Justice Assistance Grant 2009 16.738 2009DJBX0185 11,781 - Byrne Formula Grant-Justice Assistance Grant 2009 16.738 2009SBB92637 49,320 - ARRA Byme Formula Grant-Justice Assistance Grant 2009 16.803 2010ARCOKAL1W7030 138,879 - Total U.S. Department of Justice 244,324 - TOTAL EXPENDITURES OF FEDERAL AWARDS $ 1,182,928 $ - The accompanying notes are an integral part of this schedule. 126 (THIS PAGE INTENTIONALLY LEFT BLANK.)  45 Eglin Pkwy. NE, Ste. 301, Fort Walton Beach, FL 32548 (850) 244-5121 Honorable Mayor and City Council Members City of Fort Walton Beach, Florida 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 We have audited the financial statements of governmental activities, the business-type activities, the discretely presented component units, each major fund, and the aggregate remaining fund information of the City of Fort Walton Beach, Florida, as of and for the year ended September 30, 2010, which collectively comprise the City of Fort Walton Beach's basic financial statements and have issued our report thereon dated March 1, 2011. 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. Internal Control over Financial Reporting In planning and performing our audit we considered the City of Fort Walton Beach's internal control over financial reporting as a basis for designing our auditing procedures for the purposes of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City of Fort Walton Beach's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the City's internal control over financial reporting. 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 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. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be deficiencies, significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. 127 Honorable Mayor and City Council Members City of Fort Walton Beach, Florida 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 (Continued) Compliance and Other Matters As part of obtaining reasonable assurance about whether the City of Fort Walton Beach'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. We noted certain matters that we reported to management of the City of Fort Walton Beach in a separate letter dated March 1, 2011. This report is intended solely for the information and use of the Audit Committee, Management, others within the organization, and City Council, and is not intended to be and should not be used by anyone other than these specified parties. March 1, 2011 128  45 Eglin Pkwy. NE, Ste. 301, Fort Walton Beach, FL 32548 (850) 244-5121 Honorable Mayor and City Council Members City of Fort Walton Beach, Florida REPORT ON COMPLIANCE WITH REQUIREMENTS THAT COULD HAVE A DIRECT AND MATERIAL EFFECT ON EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133 Compliance We have audited the compliance of the City of Fort Walton Beach (the City) with the types of compliance requirements described in the OMB Circular A-133 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, 2010. 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. Compliance with the requirements of laws, regulations, contracts and grants applicable to each of its major state projects is the responsibility of the City's management. Our responsibility is to express an opinion on the City's compliance based on our audit. 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 OMB Circular A-133. Those standards, and OMB Circular A-133, 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 state project 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. Our audit does not provide a legal determination on the City's compliance with those requirements. In our opinion, the City complied, in all material respects, with the requirements referred to above that are applicable to each of its major federal programs for the year ended September 30, 2010. 129 Honorable Mayor and City Council Members City of Fort Walton Beach, Florida Report on Compliance with Requirements that Could Have a Direct and Material Effect on Each Major Program and on Internal Control over Compliance in Accordance with OMB Circular A-133 (Continued) Internal Control over Compliance The Management of the City of Fort Walton Beach, Florida, is responsible for establishing and maintaining effective internal control over compliance with requirements of laws, regulations, contracts, and grants applicable to federal programs. In planning and performing our audit, we considered the City's internal control over compliance with requirements that could have a direct and material effect on a major federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with OMB Circular A-133, 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 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 a combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type that results in more than a remote likelihood 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. Our consideration of the 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 deficiencies, significant deficiencies, or material weaknesses. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above. This report is intended solely for the information and use of the Audit Committee, Management, others within the organization, City Council, federal awarding agencies, and pass through entities, and the State of Florida, Office of the Auditor General, and is not intended to be and should not be used by anyone other than these specified parties. March 1, 2011 130  City of Fort Walton Beach, Florida SCHEDULE OF FINDINGS AND QUESTIONED COSTS Year Ended September 30, 2010 I. SUMMARY OF AUDITOR'S RESULTS Financial Statements Type of auditor's report issued: Unqualified 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 auditor's report issued on compliance for major programs: Unqualified  Any audit findings disclosed that are required to be reported in accordance with OMB Circular A- 133 Section 510(a)? Yes X No Identification of major program: CFDA Number Name of Federal Project 20.205 ARRA Local Agency Program Agreement Dollar threshold used to distinguish between type A and type B programs $300,000 Auditee qualified as low-risk auditee? Yes X No II. FINANCIAL STATEMENT FINDINGS The results of our audit of the City of Fort Walton Beach, Florida did not disclose any findings required to be reported under GAGAS. Continued... 131  City of Fort Walton Beach, Florida SCHEDULE OF FINDINGS AND QUESTIONED COSTS Year Ended September 30, 2010 III. FINDINGS AND QUESTIONED COSTS FOR STATE PROJECTS We noted no matters involving noncompliance that are required to be reported in accordance with the U.S. Office of Management and Budget Circular A-133. IV. SUMMARY OF SCHEDULE OF PRIOR YEAR AUDIT FINDINGS The prior year single audit disclosed no findings in the Schedule of Findings and Questioned Costs and no unrecorded or unresolved findings exist for the prior audit's Summary of Audit Findings. 132  45 Eglin Pkwy. NE, Ste. 301, Fort Walton Beach, FL 32548 (850) 244-5121 Honorable Mayor and City Council Members City of Fort Walton Beach, Florida MANAGEMENT LETTER We have audited the financial statements of the City of Fort Walton Beach, Florida, as of and for the fiscal year ended September 30, 2010, and have issued our report thereon dated March 01, 2011. 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; and OMB Circular A- 133. We have issued our 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, Independent Auditor's Report on Compliance with Requirements Applicable to each Major Federal Program and on Internal Control over Compliance, and Schedule of Findings and Questioned Costs. Disclosures in these reports and schedule, which are dated March 01, 2011, should be considered in conjunction with this management letter. Additionally, our audit was conducted in accordance with Chapter 10.550, Rules of the Auditor General, which govern the conduct of local governmental entity audits performed in the State of Florida. This letter includes the following information, which is not included in the aforementioned auditor's report or schedule: 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 significant findings in the preceding financial report. Section 10.554(1)(i)2, Rules of the Auditor General, requires our audit to include a review of the provisions of Section 218.415, Florida Statutes, regarding the investment of public funds. In connection with our audit, we determined that the City of Fort Walton Beach, Florida, complied with Section 218.415, Florida Statutes. Section 10.554(1)(i)3., Rules of 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. 133 Honorable Mayor and City Council Members City of Fort Walton Beach, Florida Management Letter (Continued) Section 10.554(1)(i)4., Rules of Auditor General, requires that we address violations of laws, regulations, 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 more than inconsequential. In connection with our audit, we did not have any such findings. Section 10.554(1)(i)5., Rules of the Auditor General, provides that the auditor may, based on professional judgment, report the following matters that have an inconsequential effect on the financial statements, considering both quantitative and qualitative factors: (1) violations of provisions of contracts or grant agreements, fraud, illegal acts or abuse, and (2) deficiencies in internal control that are not significant deficiencies. In connection with our audit, we did not have any such findings. Section 10.554(l)(i)6., Rules of the Auditor General, requires that the name or official title and legal authority for the primary government and each component unit of the reporting entity be disclosed in this management letter, unless disclosed in the notes to the financial statements. 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. The present charter was enacted in 1953 as Chapter 29093, Laws of Florida. The City of Fort Walton Beach, Florida, 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 of Fort Walton Beach. Utilizing the standards set forth in GASB 14, 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, 2010. As a result, the Fort Walton Beach Housing Authority is not included in the City's annual financial report. Section 10.554(1)(i)7.a., Rules of the Auditor General, requires a statement be included as to whether or not the local government entity 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 of Fort Walton Beach, Florida did not meet any of the conditions described in Section 218.503(1), Florida Statutes. 134 Honorable Mayor and City Council Members City of Fort Walton Beach, Florida Management Letter (Continued) Section 10.554(1)(i)7.b., Rules of the Auditor General, requires that we determine whether the annual financial report for the City of Fort Walton Beach, Florida, for the fiscal year ended September 30, 2010, 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, 2010. In connection with our audit, we determined that these two reports were in agreement. Pursuant to Sections 10.554(1)(i)7.c., and 10.556(7), 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. Our assessment was performed as of September 30, 2010. PRIOR YEAR COMMENT GOLF ENTERPRISE FUND Observation The Golf Fund reflected break even financial performance during the year ended September 30, 2010 which is inclusive of a permanent transfer of $178,000 from the General Fund representing forgiveness of prior year loans to cover cash deficits. The Golf Fund has deficit unrestricted net assets of approximately $228,540 at September 30, 2010. Additional cash borrowings or approximately $130,000 were necessary from the General Fund during the year ended September 30, 2010. In addition the Golf Fund does not contribute its proportionate share in the City’s cost allocation plan for shared resources such as IT, purchasing, human resources and accounting. Recommendation We continue to recommend that City management closely monitor the fiscal operating of the Golf Fund. While the business plan developed in 2009 did result in cost saving, gross revenues of the club declined by approximately $248,000 which is believed to be attributable to the overall economy, weather conditions and the Gulf oil spill. The FY 10- 11 FY budget provides for the General Fund to pay off the 1999A Capital Improvement Bonds of approximately $2,735,000. The Golf Fund is scheduled to repay the amount over 20 years at an interest rate of 1.5% which is expected to improve cash flow by $80,000 to $100,000 a year. Continued analysis of rates, play and other factors should be monitored in order to determine if future budgetary transfers to supplement the Golf Fund operations are necessary. 135 Honorable Mayor and City Council Members City of Fort Walton Beach, Florida Management Letter (Continued) PRIOR YEAR COMMENT (CONTINUED) GOLF ENTERPRISE FUND (CONTINUED) Management Response As a result of on-going monitoring by the Management of the Golf Fund’s financial performance during FY 2009-10, the proposal to pay off the 1999A Capital Improvement Bonds via a loan from the General Fund was made to City Council and incorporated into the FY 2010-11 budget. The restructuring of this debt, in tandem with the final payment on the 1998 Refunding Bonds, should improve cash flow. Management will continue to monitor the Golf Fund and make future adjustments as necessary. CURRENT YEAR COMMENT INFORMATION TECHNOLOGY CONTROLS Observation The City has a protocol that requires computer backups of their server and user hard drives at varying intervals to prevent data loss in the event of unforeseen circumstances. However a recent server crash resulted in lost data from the Golf Club program, Advance Tee Time. While it was believed the data was backed up, the backup was made to the incorrect set of data files, resulting in lost historical information as well as significant employee time in recreating member records. Recommendation The City should incorporate testing computer back-ups on a periodic basis as part of its IT policies. The City, like other business entities is increasing reliant on IT systems in its business processes. Other items to consider in the disaster recovery plan include:  Location of, and access to, offsite storage.  A listing of all data files that would have to be obtained from the offsite storage location.  Identification of a backup location with similar or compatible equipment for emergency processing. We recommend an agreement for a backup processing location with a computer vendor or service center be executed in writing.  Responsibilities of various personnel in an emergency.  Priority of critical application and reporting requirements during the emergency period. 136 Honorable Mayor and City Council Members City of Fort Walton Beach, Florida Management Letter (Continued) CURRENT YEAR COMMENT (CONTINUED) INFORMATION TECHNOLOGY CONTROLS (CONTINUED) Management Response The City has implemented procedures to ensure that computer backups are protected and performed, including off-site storage, quarterly testing of computer backups, and an outlined policy that identifies the responsibilities of city personnel involved in the process. Pursuant to Chapter 119, Florida Statutes, this management letter is a public record and its distribution is not limited. Auditing standards generally accepted in the United States of America require us to indicate that this letter is intended solely for the information and use of management, and the Florida Auditor General, 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. March 1, 2011 137 (THIS PAGE INTENTIONALLY LEFT BLANK.)