Fort Walton Beach — Comprehensive Annual Financial Report September 30, 2014

Comprehensive Annual Financial Report www.fwb.org City of Fort Walton Beach, FL With Compliance Matters and Responses Fiscal Year Ended September 30, 2014 CITY OF FORT WALTON BEACH, FLORIDA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2014 PREPARED BY: THE FINANCE DEPARTMENT BRANDY FERRIS, FINANCE DIRECTOR CITY OF FORT WALTON BEACH 107 MIRACLE STRIP PARKWAY FORT WALTON BEACH, FLORIDA 32548 WWW.FWB.ORG  CITY OF FORT WALTON BEACH, FL City Council Left to right (standing): Bobby Griggs (Seat 1), Joyce Gossom (Seat 2), Amy Jamieson (Seat 5), Helen Rigdon (Seat 6), and Dick Rynearson (Seat 7). Left to right (seated): John Mead (Seat 3), Mayor Mike Anderson, and Mike Holmes (Seat 4). Council members are elected in odd years for four year staggered terms. City Council meets on the second and fourth Tuesday of each month at 6:00 p.m. in the City Council Chambers located at 107 Miracle Strip Parkway, Fort Walton Beach, Florida. Appointed Officers Department Directors City Manager – Michael Beedie Engineering & Utility Services – Tim Bolduc City Clerk – Kim Barnes Financial Services – Brandy L. Ferris City Attorney – Hayward Dykes, Jr. Fire Services – Ken Perkins, Chief Human Resources – Tarey Franxman Police Services – Ted Litschauer, Chief Recreation & Cultural Services – Jeff Peters I. INTRODUCTORY SECTION  TABLE OF CONTENTS  LETTER OF TRANSMITTAL  GOVERNMENT FINANCE OFFICERS CERTIFICATE OF ACHIEVEMENT FOR EXCELLENCE IN FINANCIAL REPORTING  ORGANIZATIONAL CHART  CITY OF FORT WALTON BEACH, FLORIDA TABLE OF CONTENTS FOR THE YEAR ENDED SEPTEMBER 30, 2014 Page CITY OFFICIALS I. INTRODUCTORY SECTION Table of Contents i Letter of Transmittal City Manager and Finance Director iv GFOA Certificate of Achievement x Organizational Chart xi II. FINANCIAL SECTION Independent Auditors’ Report 1 A. MANAGEMENT’S DISCUSSION AND ANALYSIS 4 B. BASIC FINANCIAL STATEMENTS Government-Wide Financial Statements Statement of Net Position 14 Statement of Activities 15 Fund Financial Statements Governmental Funds Balance Sheet 16 Reconciliation of the Balance Sheet to the Statement of Net Position 17 Statement of Revenues, Expenditures and Changes in Fund Balance 18 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balance to the Statement of Activities 19 Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual - General Fund 20 Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual – Community Redevelopment Agency 21 Proprietary Funds Statement of Net Position 22 Statement of Revenues, Expenses and Changes in Net Position 24 Statement of Cash Flows 25 Fiduciary Funds Statement of Fiduciary Net Position 27 Statement of Changes in Fiduciary Net Position 28 Notes to the Financial Statements 29 i  CITY OF FORT WALTON BEACH, FLORIDA TABLE OF CONTENTS FOR THE YEAR ENDED SEPTEMBER 30, 2014 Page Schedule II. FINANCIAL SECTION (CONTINUED) C. REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) Pension Schedules Schedule of Changes in the City’s Net Pension Liability and Related Ratios 77 Schedule of Contributions 78 Notes to the Schedule of Contributions – General Employees’ Retirement Fund 79 Notes to the Schedule of Contributions – Police Officers’ Retirement Fund 80 Notes to the Schedule of Contributions – Firefighters’ Retirement Fund 81 Schedule of Other Post-Employment Obligations 82 D. COMBINING AND INDIVIDUAL FUND STATEMENTS AND SCHEDULES Non-Major Governmental Funds Combining Balance Sheet 83 Combining Statement of Revenues, Expenditures and Changes in Fund Balance 84 Schedules of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual Law Enforcement Trust Special Revenue Fund 85 Law Enforcement Trust Training Special Revenue Fund 86 Florida Building Code Special Revenue Fund 87 Community Development Block Grant Special Revenue Fund 88 Beal Memorial Cemetery Perpetual Care Special Revenue Fund 89 Debt Service Fund 90 Non-Major Fund – Enterprise Fund Statement of Net Position 91 Statement of Revenues, Expenses and Changes in Net Position 92 Statement of Cash Flows 93 III. STATISTICAL SECTION (UNAUDITED) Net Position by Component 94 1 Changes in Net Position 95 2 Fund Balances - Governmental Funds 97 3 Changes in Fund Balances - Governmental Funds 98 4 Revenues and Other Sources 99 5 Assessed Value of Taxable Property 100 6 Property Tax Rates Per $1,000 of Taxable Value - All Direct and Overlapping Governments 101 7 ii  CITY OF FORT WALTON BEACH, FLORIDA TABLE OF CONTENTS FOR THE YEAR ENDED SEPTEMBER 30, 2014 Page Schedule III. STATISTICAL SECTION (UNAUDITED) Principal Taxpayers 102 8 Property Tax Levies and Collections 103 9 Ratios of Outstanding Debt by Type 104 10 Ratio of Net General Bonded Debt Outstanding 105 11 Pledged Revenue Coverage – Schedule of Revenue Bond Coverage 106 12 Direct and Overlapping Governmental Activities Debt – General Obligations 107 13 Major Employers 108 14 Miscellaneous Demographical Statistics 109 15 Full-Time Equivalent Employees by Function/Program 110 16 Permits, Licenses and Recreation Facilities 111 17 Elections - Okaloosa County Voter Registration 112 18 Special Assessment Billings and Collections 113 19 Major Revenue Sources 114 20 Water and Wastewater Service Rates 115 21 Sanitation and Recycling Service Rates 116 22 Operating Indicators by Function/Program 117 23 Capital Asset Statistics by Function/Program 118 24 Insurance Coverage 119 25 IV. COMPLIANCE SECTION Schedule of Expenditures of State Financial Assistance 122 Notes to the Schedule of Expenditures of State Financial Assistance 123 Independent Auditors’ Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 124 Independent Auditors’ Report on Compliance with Requirements Applicable to Each Major State Project and Internal Control Over Compliance in Accordance With Chapter 10.550, Rules of the Auditor General 126 Schedule of Findings and Questioned Costs 128 Independent Accountants’ Report on an Examination of Compliance Requirements in Accordance with Chapter 10.550, Rules of the 129 Auditor General Management Letter 130 iii (THIS PAGE INTENTIONALLY LEFT BLANK.)  City of Fort Walton Beach Treasure of the Emerald Coast 107 Miracle Strip Parkway, SW * Fort Walton Beach, Fl 32548 (850) 833-9512 * Fax (850) 833-9640 * www.fwb.org February 19, 2015 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, 2014, is hereby submitted herewith pursuant to Florida Statutes Chapter 218.39(1)(d) requiring each local government entity to complete an audit report within nine months after the end of the fiscal year. This report consists of management’s representations concerning the finances of the City of Fort Walton Beach, Florida. Consequently, management assumes full responsibility for the completeness and reliability of all the information presented in this report. To provide a reasonable basis for making these representations, management of the City of Fort Walton Beach has established a comprehensive internal control framework that is designed both to protect the government’s assets from loss, theft, or misuse and to compile sufficient reliable information for the preparation of the City’s financial statements in conformance with GAAP (Generally Accepted Accounting Principles). Because the cost of internal controls should not outweigh their benefits, the City’s comprehensive framework of internal controls has been designed to provide reasonable, rather than absolute, assurance that the financial statements will be free from material misstatement. As management, we assert that, to the best of our knowledge and belief, this financial report is complete and reliable in all material respects. The financial statements of the City of Fort Walton Beach have been audited by Warren Averett, LLC, a firm of licensed certified public accountants. The goal of the independent audit was to provide reasonable assurance that the financial statements of the City for the fiscal year ending September 30, 2014, 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 unmodified opinion that the City of Fort Walton Beach’s financial statements for the fiscal year ending September 30, 2014, are fairly presented in conformity with GAAP. The independent auditor’s iv  report is presented in Section II - Financial Section as the first component of this section of the report. The independent audit of the financial statements of the City of Fort Walton Beach was part of a broader, 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 state awards. These reports are available in the Compliance section of this report. Generally accepted accounting principles require that management provide a narrative introduction, overview, and analysis to accompany the basic financial statements in the form of Management’s Discussion and Analysis (MD&A). This letter of transmittal is designed to complement MD&A and should be read in conjunction with it. The City of Fort Walton Beach’s MD&A can be found immediately following the report of the independent auditor. GOVERNMENT PROFILE DATE OF INCORPORATION: June 16, 1941 FORM OF GOVERNMENT: Council & Manager PAVED STREETS: 93.12 miles GEOGRAPHIC AREA: 7.41 square miles SIDEWALKS: 64.05 miles TAXABLE ASSESSED VALUE: $1,147,373,788 WATER & SEWER LINES: 264.66 miles CITY MILLAGE RATE: 5.7697 STORM DRAIN: 42.01 miles POPULATION: 20,719 POLICE STATIONS: 1 FIRE STATIONS: 2 EMPLOYEES: 351 positions, 292.05 FTE’s LIBRARIES: 1 MUSEUMS: 4 SWORN POLICE OFFICERS: 43 18-HOLE GOLF COURSES: 2 FIREFIGHTING PERSONNEL: 36 ACRES OF PARKS: 182.70 The City of Fort Walton Beach, Florida prides itself on being a small, family-oriented seaside community boasting a downtown area that was home to a significant prehistoric Native American community on the Gulf Coast of Northwest Florida. Situated at the junction of two major highways - US 98 (Miracle Strip Parkway) and SR 85 (Eglin Parkway) - Fort Walton Beach enjoys the benefits of its crossroads location along the coastal portion of the Northwest Florida regional transportation network. The City offers a full-service government providing police and fire protection; cultural and recreational activities including parks, a library, a museum, and two championship golf courses; planning and zoning; public works such as street, sidewalk, right-of- way, and cemetery maintenance; utilities service including water, sewer, and storm water; and garbage and recycling collection to a coastal community of 20,719 full-time residents. The City has an exciting and romantic history. As early as 600 B.C., Indian tribes were attracted to Fort Walton Beach from the Mississippi and Tennessee River Valleys and the Southeast Georgia coast. The beginning for the City occurred following the War Between the States when Alabama war veteran John Brooks selected a site of 111 acres where he built a three-room cabin in 1867. Other settlers soon followed. By 1884, the population of the area required establishment of a small schoolhouse. In 1902, the first hotel, Brooks House, was built along the v First Schoolhouse sound and shortly thereafter the first post office was built in 1906. The Montgomery, Alabama, Maxwell Field military base developed an airfield in Fort Walton in 1933 on 137 acres of land and used it as a bombing and gunnery range. The most significant factor in the City's growth was the creation and later expansion, of that airfield, which is now Eglin Air Force Base (the largest military installation in the world) in 1937, the year the City Charter was adopted. Originally chartered as a municipality under the laws of the State of Florida, actual formation of the City was in 1941 when the Florida legislature officially named it the Town of Fort Walton. In 1953, the Florida Legislature granted the City a new charter at which time the name was changed to Fort Walton Beach. The name Walton originates from Colonel George Walton, who was Secretary of the East-West Florida Territory in 1822-26 and son of George Walton, signer of the Declaration of Independence and Governor of Georgia. The presence of the military base provided the key economic stimulus for the City's early growth, supplemented by the attractiveness of the location. The City enjoyed a substantial population and economic boom from the 1950's through the end of the 1970's. Subsequently, things started to slow down. The military base became less important to the City's economy than the growing tourism industry. In the late 1960’s and early 1970’s Fort Walton Beach began to experience a decline in economic prosperity, some of which can be attributed to the utility and transportation infrastructure getting older and commercial and residential structures becoming deteriorated. New development began to take place in the surrounding communities. The City, having nearly run out of developable land, started to focus attention on finding ways to induce private enterprise investment in the City and thus capturing a greater share of the local and regional market. The City’s premier gathering place along the Santa Rosa Sound has been the Fort Walton Landing Park since its purchase in 1986. Building upon that with the complete reconstruction of Brooks Street, including the Brooks Bridge Park in 2013, the City’s downtown waterfront was opened up to an extent never before realized and spurred economic growth downtown. In 2014, the City implemented an Entertainment District in its downtown area, bringing a steady stream of events and activity to the area that have brought forth revitalization of the area. Outside of downtown, the City began construction of a new recreational complex, which promises to add to the attraction of the City. Recreation Complex – slated to open Spring 2015 Downtown Redevelopment: Brooks Bridge Park The financial reporting entity (the government) includes all the funds and account groups of the City of Fort Walton Beach, Florida, as well as component units. Component units are legally separate entities for which the primary government is financially accountable. Accordingly, the Fort Walton Beach Community Redevelopment Agency is reported as a blended component unit of the City of Fort Walton Beach. The 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. vi  A Budget Policy Workshop is held with City Council in June 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 and operational funding needs within budget development parameters. In addition, they must conduct a comprehensive review of departmental objectives, accomplishments, and performance measures. A Budget Committee is formed comprised of the City Manager, Finance Director, and Financial Analyst. 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. 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. financial services), and division (e.g. purchasing). Department Directors may request transfers of appropriations within a department and between divisions to transfer appropriations between line items, not to increase the total budget or to transfer resources between funds. Transfers of appropriations between funds require the approval of the City Council. The budget may be amended at any time by Resolution of City Council. Budget-to-actual comparisons are provided in the report for each individual governmental fund for which an appropriated annual budget has been adopted. For the General Fund and the Community Redevelopment Agency Fund, this comparison is presented on page 20 & 21 as part of the basic financial statements for the governmental funds. For governmental funds with appropriated annual budgets, other than those previously mentioned, this comparison is presented in the combining and individual fund statements and schedules, Section D of this report, which starts on page 83. 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, however economic stabilization is evident. For fiscal year 2014-15, the State of Florida projects an increase for each of the City’s revenue sharing funds, which suggests an uptick in discretionary spending. The Okaloosa County Property Appraiser anticipates a 1.71% increase in taxable assessed value for the City, signifying an end to the downward spiral in the real estate market. Eglin Air Force Base is the world’s largest Department of Defense installation, spanning 724 square miles. Defense contractor companies are established throughout the Northwest Florida region. It is estimated that local military bases currently represent a $6.0 billion annual economic impact on the area, with approximately 73% of the local economy supported by the military. Being located on the Gulf of Mexico in Northwest Florida, tourism is a large part of the regional economy. Regional accolades continue to enhance the area’s image, promote visibility, and generate additional tourism and sales tax dollars. Local tourism has benefited from the national vii  shift to vacation sites accessible by driving instead of flying. The Fort Walton Beach-Destin area is a popular drive destination in Florida, according to a survey of auto visitors by Visit Florida. Long-Term Financial Planning The City undertakes several processes to assist in future planning, such as:  A 5-year CIP (Capital Improvement Program) Plan is developed and approved by City Council each year during the annual budget process.  5-year replacement plans for capital equipment, including vehicles, machinery, and computer hardware and software, are also developed and approved by Management each year during the annual budget process Relevant Financial Policies The City has several financial policies that are utilized during daily operations, as well as during the budget and financial planning processes. The City utilizes fund balance reserves only for one- time non-recurring expenditures. In addition, the City maintains its fund balance level in the General Fund at 30% of fund expenditures – this policy helps to ensure that the City has sufficient funding in place for emergency and disaster relief. Major Initiatives These indicators, as well as others, were taken into account when adopting the City’s budget for fiscal year 2015. The City’s total budget for fiscal year 2015 totals $37.2 million, which is $2.5 million higher than the fiscal year 2014 approved budget, due to efforts to return the City to financial stability and programmatic sustainability, including completion of outstanding capital projects. The 2015 budget allocates $18.6 million, a 1.6% increase as compared to the fiscal year 2014 budget, to the General fund, $15.4 million to the Enterprise funds, and $3.2 million to other funds. For the fiscal year 2015 budget, the ad valorem rate was maintained at 5.7697 mills. A 9% increase in water and sewer rates is included in the budget, and stormwater fees are scheduled to increase $0.50. No other significant changes to the City’s various rate and fees are included in the fiscal year 2015 budget. AWARDS AND ACKNOWLEDGEMENTS Awards The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of Fort Walton Beach for its Comprehensive Annual Financial Report for the fiscal year ended September 30, 2013. This was the twenty-eighth consecutive year that the City received this prestigious award. In order to be awarded a Certificate of Achievement, the City must publish an easily readable and efficiently organized Comprehensive Annual Financial Report, satisfying both GAAP and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. We believe our current report continues to meet the Certificate of Achievement Program requirements and we are submitting it to the GFOA to determine its eligibility for another certificate. In addition, the government also received the GFOA’s Distinguished Budget Presentation Award for its annual budget dated October 1, 2014. This was the nineteenth consecutive year that the City received this prestigious award. In order to qualify for the Distinguished Budget Presentation viii Award, the City’s budget document was judged proficient in several categories, including as a policy document, a financial plan, an operations guide, and a communications device. Acknowledgments The preparation of this report would not have been possible without the efficient and dedicated services of the entire staff of the Finance Department. We would like to express our appreciation to all members of the Department who assisted and contributed to the preparation of this report. We would also like to thank the Mayor and City Council for their unfailing support for maintaining the highest standards of professionalism in the management of the City of Fort Walton Beach’s finances and for their attention in conducting the financial operations of the City in a responsible and progressive manner. Appreciation is also expressed to the accounting firm of Warren Averett, LLC for their continued assistance and professionalism. Respectfully submitted, Michael D. Beedie, PE Brandy L. Ferris, CPA City Manager Finance Director ix (THIS PAGE INTENTIONALLY LEFT BLANK.)  Citizens of Fort Walton Beach City Council City Clerk City Manager City Attorney 2.75 FTE 2.00 FTE Administrative Engineering & Utility Financial Fire Police Recreation Services Services Services Services Services Services 5.00 FTE 94.50 FTE 16.00 FTE 37.00 FTE 59.99 FTE 71.41 FTE Accounting Uniform Patrol Building Inspections Advanced Life Human Resources K-9 Patrol Athletics – & Permitting Auditing Support Adult & Youth Information Criminal Code Enforcement Budgeting Fire Suppression Technology Investigations Recreation Centers CRA & CDBG Purchasing Fire Prevention and Programming Insurance & Community Risk Management Engineering Debt Service & Fire Inspection Policing Grounds Management Maintenance: Fleet & Facilities Hazardous Materials Crime Prevention Parks, Right-Of- Treasury Response Way and Cemetery Garbage Collection Communications Utility Billing Fire Education Library Planning Records Contingencies & Museum Streets & Stormwater Support Services Transfers Mgmt Golf Club School Crossing Water Production & Operations Guards Distribution Reserve Officers Sewer Collection (THIS PAGE INTENTIONALLY LEFT BLANK.) II. FINANCIAL SECTION  INDEPENDENT AUDITOR’S REPORT  MANAGEMENT’S DISCUSSION AND ANALYSIS  BASIC FINANCIAL STATEMENTS GOVERNMENT-WIDE FINANCIAL STATEMENTS FUND FINANCIAL STATEMENTS NOTES TO FINANCIAL STATEMENTS  REQUIRED SUPPLEMENTARY INFORMATION  COMBINING AND INDIVIDUAL FUND STATEMENTS AND SCHEDULES  INDEPENDENT AUDITORS’ REPORT To the Honorable Mayor and City Council Members City of Fort Walton Beach, Florida Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Fort Walton Beach, Florida, as of and for the year ended September 30, 2014, and the related notes to the financial statements, which collectively comprise the City's basic financial statements, as listed in the table of contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. 1 Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Fort Walton Beach, Florida, as of September 30, 2014, and the respective changes in financial position, and, where applicable, cash flows thereof, and the respective budgetary comparison for the General Fund and Community Redevelopment Agency (special revenue fund) for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that Management's Discussion and Analysis on pages 4 – 13, the Schedule of Changes in the City’s Net Position Liability and Related Ratios on page 77, the Schedule of Contributions on page 78, the Notes to the Schedule of Contributions on pages 79-81, and the Schedule of Other Post– Employment Obligations on page 82 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City of Fort Walton Beach, Florida's basic financial statements. The introductory section, combining and individual non–major fund financial statements, and statistical section, as listed in the table of contents, are presented for purposes of additional analysis and are not a required part of the basic financial statements. The Schedule of Expenditures of State Financial Assistance is presented for purposes of additional analysis as required by Chapter 10.550, Rules of the Auditor General, and is also not a required part of the basic financial statements. The combining and individual non–major fund financial statements, budgetary comparison schedules, and the Schedule of Expenditures of State Financial Assistance are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining and individual non–major fund financial statements, budgetary comparison schedules, and the Schedule of Expenditures of State Financial Assistance are fairly stated in all material respects in relation to the basic financial statements as a whole. 2 The introductory and statistical sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on them. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated February 19, 2015, on our consideration of the City of Fort Walton Beach, Florida’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters included under the heading “Independent Auditors’ Report on Internal Control over Financial Reporting and on Compliance and Other Matters based on an Audit of the Financial Statements performed in accordance with Government Auditing Standards”. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering City of Fort Walton Beach, Florida’s internal control over financial reporting and compliance. Fort Walton Beach, Florida February 19, 2015 3 (THIS PAGE INTENTIONALLY LEFT BLANK.)  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, 2014. 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
The assets of the City of Fort Walton Beach exceeded its liabilities by $65.3 million (net position). Of this amount, $20.4 million represents unrestricted assets that are available to meet the City’s ongoing obligations to citizens and creditors.
The government’s net position decreased by $141,234, primarily attributable to the return of a portion of a prior year capital contribution from a joint project with Okaloosa County, which was offset by increased property tax revenue related to a millage rate increase. The revenue changes were coupled with higher than anticipated expenses in the Utilities Fund due to increased wastewater flows to Okaloosa County’s Arbennie Pritchett WRF as a result of higher accuracy meters and the introduction of inflow and infiltration into the system.
As of the close of the fiscal year, the City of Fort Walton Beach’s governmental funds reported combined ending fund balances of $19.7 million, a decrease of $2.3 million in comparison with the prior year. Approximately 54.3% of this amount, or $10.7 million, is available for spending at the discretion of City Council.
At the end of the fiscal year, unrestricted fund balance for the General Fund was $8.5 million, or 41.2% of total General Fund expenditures.
The City of Fort Walton Beach’s total debt increased by $6.0 million, or 19.7%, during the fiscal year. This increase is a result of the continuing construction of a new pump station and force main project, which is being financed via a State Revolving Fund loan in the Utilities Fund.
The City implemented the Government Accounting Standards Board Statement 67 (GASB 67) and has provided disclosures which improve the understanding of pension fund assets and liabilities. However, the required disclosures are not consistent with the method the City uses for funding its three single employer pension plans. GASB 67 determines the pension liability utilizing the individual entry age actuarial funding method. The net pension liability as of September 30, 2014, reported on page 77, is $3.5 million for the General Employees’ Retirement Fund, $5.5 million for the Firefighters’ Pension Trust Fund, and $4.5 million for the Police Officers’ Retirement Fund. OVERVIEW OF THE FINANCIAL STATEMENTS This discussion and analysis intends to serve as an introduction to the City of Fort Walton Beach’s basic financial statements, which are comprised of three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves. The focus of financial statements prepared in accordance with the Governmental Accounting Standards Board (GASB) Statement 34 is on both the City as a whole (government-wide) and on major individual funds. Both perspectives (government-wide and major funds) allow the user to address relevant questions, broaden a basis for comparison (year-to-year or government-to-government), and enhance the City’s accountability. Government-Wide Financial Statements Designed to be corporate-like, the government-wide financial statements consolidate governmental and business-type activities into two columns, which sum to a total for Primary Government. This provides readers with a broad overview of the City of Fort Walton Beach’s finances in a manner similar to a private-sector business. Two statements, the statement of net position and the statement of activities, are utilized to provide information on a government-wide basis. The statement of net position presents information on all of the City of Fort Walton Beach’s assets and liabilities, with the difference between the two reported as net position. This statement combines and consolidates the governmental 4  funds’ current financial resources (short-term available resources) with capital assets and long-term obligations. Over time, increases or decreases in net position may serve as a useful indicator of the financial position of the City of Fort Walton Beach. The statement of activities presents information showing how the government’s net position changed during the most recent fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flow in future fiscal periods. Both of the government-wide financial statements distinguish functions of the City of Fort Walton Beach that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business-type activities). The governmental activities of the City of Fort Walton Beach include general government (city clerk, city council, city manager, human resources, finance, purchasing, fleet maintenance, service maintenance, and non-departmental expenses), public safety (police, fire, building, and code enforcement services), physical environment (cemetery), transportation (engineering, streets, public works, and right-of-way), economic development (Community Development Block Grant Program, and community redevelopment agency), culture and recreation (parks, golf, library, and museum), and debt service interest. The business-type activities of the City of Fort Walton Beach include utilities (water, sewer, and storm water), and sanitation. The government-wide financial statements include not only the City of Fort Walton Beach itself (known as the primary government), but a component unit, the Community Redevelopment Agency (CRA), which is a legally separate entity for which the City of Fort Walton Beach is financially accountable. The CRA is considered a blended component unit of the City of Fort Walton Beach, Florida and is presented as a special revenue fund as part of the primary government. The government-wide financial statements are found on pages 14-15 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 16-21 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 eight individual governmental funds (General Fund, Community Redevelopment Agency Fund, Florida Building Code Fund, Law Enforcement Trust Fund, Law Enforcement Training Fund, Debt Service Fund, Community Development Block Grant Fund, and Beal Memorial Cemetery Perpetual Care Fund). Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures, and changes in fund balance for the General Fund and the Community Redevelopment Agency Fund. Data from the other six governmental funds are combined into a single, aggregated presentation. Individual fund data for each of these non-major governmental funds is provided in the form of combining statements elsewhere in this report. 5  The City of Fort Walton Beach adopts an annual appropriated budget for its General Fund, as well as each of the other governmental funds. A budgetary comparison statement is provided for the General Fund on page 20 of this report. Proprietary Funds All proprietary funds of the City of Fort Walton Beach are maintained as enterprise funds. Enterprise funds are used to report the same functions presented as business-type activities in the statement of net position and the statement of activities. The City of Fort Walton Beach uses enterprise funds to account for its utilities operations (water operations and distribution, sewer collections and treatment, and stormwater management), and sanitation operations (garbage). Proprietary funds provide the same type of information as the government-wide financial statements, only in more detail. The proprietary fund financial statements provide separate information on utilities operations, sanitation operations, and stormwater operations, all of which are considered major funds of the City of Fort Walton Beach except for stormwater, which is considered non-major. The basic proprietary fund financial statements are found on pages 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 79-81of this report. The combining statements referred to earlier in connection with non-major governmental and proprietary funds immediately follow the required supplementary information on Pension funds and can be found beginning on page 83 of this report. GOVERNMENT-WIDE FINANCIAL ANALYSIS As noted earlier, net position may serve over time as a useful indicator of a government’s financial position. In the case of the City of Fort Walton Beach, assets exceeded liabilities by $65.3 million (net position), as reported in Table 1. The government’s net position decreased by $141,234 for the fiscal year ended September 30, 2014. By far, the largest portion of the City’s assets, $38.6 million or 59.2%, reflects its investment in capital assets (e.g. land, infrastructure, buildings, machinery, and equipment) less any related debt still outstanding that was used to acquire those assets. The City uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the City of Fort Walton Beach reports investment in its capital assets net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since capital assets themselves cannot be used to liquidate these liabilities. An additional portion of the City’s assets, 9.6%, represents resources that are subject to external restrictions on how they may be used. The remaining balance of $20.4 million is unrestricted and may be used to meet the government’s ongoing obligations to citizens and creditors. 6  Table 1 Statement of Net Position As of September 30 (In Thousands of Dollars) Governmental Business-Type Activities Total Activities 2014 2013 2014 2013 2014 2013 Current & Other $22,896 $23,855 $13,717 $10,916 $36,613 $34,771 Capital Assets 34,054 29,478 37,162 37,834 71,216 67,312 Total Assets 56,950 53,333 50,879 48,750 107,829 102,083 Long-Term Liabilities Outstanding 13,812 14,159 23,745 17,193 37,557 31,352 Other Liabilities 2,734 1,819 2,246 3,478 4,980 5,297 Total Liabilities 16,546 15,978 25,991 20,671 42,537 36,649 Net Position Net Investment in Capital Assets 24,866 23,532 13,779 17,306* 38,645 40,838 Restricted 4,837 4,494 1,450 1,393 6,287 5,887 Unrestricted 10,701 9,329 9,659 9,380* 20,360 18,709 Total Net Position $40,404 $37,355 $24,888 $28,079 $65,292 $65,434 *Prior year reclassification to conform to current year presentation Reported in Table 2 are the key elements of the decrease in net position for the current year. Table 2 Statement of Activities Governmental Activities Business-Type Activities Total Activities 2014 2013 2014 2013 2014 2013 Revenues Program Revenue: Charges for Services $3,342,068 $1,985,972 $12,753,215 $14,472,546 $16,095,283 $16,458,518 Operating Grants & Contributions 682,200 786,652 - 1,071 682,200 787,723 Capital Grants & Contributions 109,629 80,936 (157,294) 1,871,295 (47,665) 1,952,231 General Revenue: Property Taxes 5,385,235 4,175,136 - - 5,385,235 4,175,136 Other Taxes 6,252,166 6,002,679 - - 6,252,166 6,002,679 Tax Increments for Redevelopment 1,501,208 1,311,101 - - 1,501,208 1,311,101 Other Revenue 3,793,529 2,789,436 85,321 38,273 3,878,850 2,827,709 Total Revenues 21,066,035 17,131,912 12,681,242 16,383,185 33,747,277 33,515,097 Expenses Primary Government General Government 3,179,768 2,662,406 - - 3,179,768 2,262,406 Public Safety 9,685,621 9,729,228 - - 9,685,621 9,729,228 Physical Environment 392,255 379,681 - - 392,255 379,681 Transportation 1,495,374 1,631,665 - - 1,495,374 1,631,665 Economic Development 803,175 1,090,025 - - 803,175 1,090,025 Culture & Recreation 4,829,004 2,715,977 - - 4,829,004 2,715,977 Debt Service Interest 483,301 324,405 - - 483,301 324,405 Business-Type Expenses Utilities - - 9,185,338 7,644,240 9,185,338 7,644,240 Sanitation - - 3,393,269 3,163,638 3,393,269 3,163,638 Golf - - 2,215 2,023,186 2,215 2,023,186 Other - - 439,191 611,962 439,191 611,962 Total Expenses 20,868,498 18,533,387 13,020,013 13,443,026 33,888,511 31,976,413 Increase/(Decrease) in Net Position 197,537 (1,401,475) (338,771) 2,940,159 (141,234) 1,538,684 before Transfers Transfers 2,851,638 (2,145,441) (2,851,638) 2,145,441 - - Special Item – Impairment Loss - (271,287) - (786,713) - (1,058,000) Increase/(Decrease) in Net Position 3,049,175 (3,818,203) (3,190,409) 4,298,887 (141,234) 480,684 Net Position – Beginning 37,355,274 41,173,477 28,078,500 23,779,613 65,433,774 64,953,090 Net Position – Ending $40,404,449 $37,355,274 $24,888,091 $28,078,500 $65,292,540 $65,433,774 7 The overall decrease in the City’s net position was $141,234 during the fiscal year. The governmental activities experienced an increase, primarily related to the transfer of assets from the former Golf Enterprise Fund that was combined with the General Fund on October 1, 2014. In addition, the millage rate was increased, which resulted in additional property tax revenue. The business activities experienced a decrease primarily related to the transfer of assets from the former Golf Enterprise Fund that was combined with the General Fund on October 1, 2014. In addition, last year’s revenue included an estimated increase in capital contributions and grants due to a joint project with Okaloosa County. The amount received was less than the estimate in the current year. The details related to this decrease are analyzed further in the Financial Impacts section of this discussion. Current Year Impacts – Governmental Activities Governmental activities increased the City’s net position by $3.0 million for the fiscal year ended September 30, 2014. Key elements of this change are as follows:
Charges for services, Culture & Recreation expenses, and transfers combined to increase net position due to the decision by City Council to combine the former Golf Enterprise Fund with the General Fund.
Property taxes increased by $1.2 million, or 29.0%, due to an increase in the millage rate from 4.5383 to 5.7697. Tax increments for redevelopment increased by $190,107, or 14.5%, for the same reason.
Capital grants for governmental activities increased $28,693, or 35.5%, as a result of the receipt of a Florida Department of Transportation local agency grant.
Other revenue increased by $763,208, or 369.3%, due to higher investment earnings as a result of greater diversification of the City’s portfolio, as well the sale of capital assets, including the Chester Pruitt Recreation Facility.
Economic development expenses decreased $286,850, or 26.3%, as a result of fewer economic incentive grants being provided through the Community Redevelopment Agency in the fiscal year 2014 than in the previous year.
Overall, expenses for governmental activities increased by $2.3 million, or 12.6%, from the prior year, all of which were offset by a related revenue increase of $3.9 million, or 23%, as a result of the City’s focus on future sustainability of programs and services. Chart 1 Expense and Program Revenue – Governmental Activities (In Millions) Debt Service Interest Revenues Culture & Recreation Expenses Economic Development Transportation Physical Environment Public Safety General Government $- $2 $4 $6 $8 $10 8  Chart 2 Revenues by Source – Governmental Activities Other Revenue, $969,872 , 4.6% Charges for Franchise Fees, Services, $2,004,101 , 9.5% $3,342,068 , 15.9% Operating Grants & Municipal Revenue Contributions, Sharing, $819,556 , $682,200 , 3.2% 3.9% Capital Grants & Contributions, $109,629 , 0.5% Tax Increments for Redevelopment, $1,501,208 , 7.1% Property Taxes, $5,385,235 , 25.6% Other Taxes, $3,889,976 , 18.5% Sales Tax, $2,362,190 , 11.2% Current Year Impacts – Business-Type Activities Business-type activities decreased the City’s net position by $3.2 million for the fiscal year ended September 30, 2014. Key elements of this change are as follows: • Capital grants and contributions decreased $2.0 million, or 108.4% due to prior year funding received for a joint project with Okaloosa County. • Charges for services decreased by $1.7 million, or 11.9%, as a result of the decision by City Council to combine the former Golf Enterprise Fund with the General Fund. This decision also resulted in a nearly offsetting decrease in expenses of $2.0 million, or 99.9%. The transfer of assets from this Fund accounted for the remaining decline in net assets. Chart 3 Expenses and Program Revenue – Business-Type Activities (In Millions) $10 $8 Expenses $6 Revenues $4 $2 $- Utilities Sanitation Golf Stormwater 9  Chart 4 Revenues by Source – Business-Type Activities Miscellaneous Income, $85,321 , 0.7% Charges for Services, $12,753,215 , 99.3% *There was a negative capital contribution that is not included on Chart 4 in the amount of $157,294 FINANCIAL ANALYSIS OF THE CITY’S FUNDS As noted earlier, the City of Fort Walton Beach uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. Governmental Funds The focus of the City’s governmental funds is to provide information on near-term inflows, outflows, and balances of available resources. Such information is useful in assessing the City’s financing requirements. In particular, unrestricted fund balance may serve as a useful measure of a government’s net resources available for spending at the end of the fiscal year. As of September 30, 2014, the City of Fort Walton Beach’s governmental funds have combined ending fund balances of $19.7 million, a decrease of $2.3 million in comparison with the prior year. Approximately 54.3% of this amount, or $10.7 million, is available for spending at the discretion of City Council. The remainder of fund balance is non- spendable or restricted. Details of the fund balance classifications can be found on page 16 of this report, as well as in Note 18. The General Fund is the chief operating fund of the City. At the end of this fiscal year, unrestricted fund balance of the General Fund was $8.5 million, while total fund balance reached $12.8 million. As a measure of the General Fund’s liquidity, it may be useful to compare both unrestricted fund balance and total fund balance to total expenditures. Unrestricted fund balance represents 41.2% of the total General Fund expenditures, while total fund balance represents 62.4% of that same amount. During the 2014 fiscal year, the fund balance of the City’s General Fund decreased by $2.9 million. This decrease was primarily related to the use of Capital Improvement Revenue Note funds that were restricted in the prior year for the construction of the new recreation complex. The Community Redevelopment Agency Fund’s fund balance increased by $239,934. This increase is due to lower than anticipated spending levels. Proprietary Funds The City of Fort Walton Beach’s proprietary funds provide the same type of information found in the government- wide financial statements, but in more detail. Unrestricted net position of the proprietary funds totaled $9.7 million at September 30, 2014, of which the Utilities Fund amounted to $7.0 million, the Sanitation Fund totaled $2.1 million, and the Stormwater Utility Fund was $479,914. The Golf Fund was transferred during the year to the General Fund. In total, net position of the proprietary 10  funds decreased $3.2 million. The factors concerning the finances of these four funds have already been addressed in the discussion of the City of Fort Walton Beach’s business-type activities. Fiduciary Funds The City of Fort Walton Beach implemented GASB 67, Financial Reporting for Pension Plans, in 2014. This requires the use of the entry age normal actuarial valuation method to determine the total pension liability. For the fiscal year ended September 30, 2014, the General Employees’ Retirement Fund’s funded ratio, an indicator of funding status, increased from 87.8% to 92.8%. Employees’ contribute 5% of pay to the Plan and the City contributed $1.3 million, or 30.7% of payroll. The Firefighters’ Pension Trust Fund’s funded ratio increased from 64.8% to 68.5% over the previous fiscal year. Employees’ contribute 6.6% of pay to the Plan and the City contributed $715,439, or 30.2% of payroll. The contribution in fiscal year 2014 included $89,886 of excess State of Florida contributions. The Police Officers’ Retirement Fund’s funded ratio increased from 74.5% to 81.4% over the previous fiscal year. Employees’ contribute 5% of pay to the Plan and the City contributed $836,053, or 29.5% of payroll. Additional information on the pension plans can be found on pages 48-59 of this report. The General Employees’ Retirement Fund was closed to new entrants in January 2010 and all new hires are required to participate in a defined contribution plan, which is administered by the International City Managers Association Retirement Corporation. Additional information on the defined contribution plan can be found on page 60 of this report. GENERAL FUND BUDGETARY HIGHLIGHTS A schedule comparing the original to the final budget and the variance from the final budget to the actual results is included on page 20 of the financial statements. Differences between the original budget and the final amended budget were $10.5 million. Significant information related to this difference is summarized as follows: • The City added expenditures for the construction of a new recreation complex in an amount of $8.5 million. Actual results, when compared to the final budget, show a variance of $7.2 million for expenditures. This variance is primarily due to amending the budget for grant revenue received and capital expenditures planned, but not yet expended. CAPITAL ASSET AND DEBT ADMINISTRATION Capital Assets The City’s investment in capital assets for its governmental and business-type activities, as of September 30, 2014, was $38.6 million (net of accumulated depreciation and related debt). This represents a net decrease of $2.2 million, or 5.7%. Highlights are summarized as follows:
Fewer assets were purchased that were over the GASB 34 threshold.
Capital assets outdated, unserviceable, and no longer used are systematically disposed of on an annual basis, including the disposal of several large assets (fire truck, recreation center).
The City completed construction of a new force main and pump station and placed the item into service in the fiscal year. 11  Table 3 Total Capital Assets Net of Accumulated Depreciation Governmental Activities Business-Type Activities Total Activities FY 2014 FY 2013 FY 2014 FY 2013 FY 2014 FY 2013 Land $9,936,698 $ 9,961,261 $709,678 $ 765,078 $10,646,376 $10,726,339 Buildings 7,359,920 6,434,774 143,929 1,926,888 7,503,849 8,361,662 Improvements other than Buildings 5,840,259 5,926,341 31,197,741 17,212,291 37,038,000 23,138,632 Infrastructure 4,049,905 4,121,764 - - 4,049,905 4,121,764 Intangible Assets 172,874 281,928 66,414 18,277 239,288 300,205 Machinery & Equipment 2,166,103 1,713,565 4,460,910 2,455,379 6,627,013 4,161,944 Equipment under Capital Lease 57,954 58,565 - - 57,954 58,565 Easements - - 34,642 34,642 34,642 34,642 Construction in Progress 4,470,218 979,617 548,914 15,421,355 5,019,132 16,400,972 $34,053,931 $29,477,815 $37,162,228 $37,833,910 $71,216,159 $67,311,725 Additional information on the capital assets of the City of Fort Walton Beach can be found in Note 5 of this report on pages 45-47. Long-Term Debt As shown in the following table, as of September 30, 2014, the City had total bonded debt, revenue notes, and capital leases outstanding of $36.7 million. All of the City’s debt represents bonds and notes secured solely by specified revenue sources (i.e. revenue bonds/notes) and capital leases. The City has no general obligation or special assessment debt. The State of Florida does not place a legal limit of debt on municipalities. For general obligation debts greater than one year, the City is required to conduct a voter referendum. Table 4 Outstanding Debt Governmental Assets Business-Type Activities Total Activities FY 2014 FY 2013 FY 2014 FY 2013 FY 2014 FY 2013 Revenue Bonds $ - $ - $9,640,146 $9,925,055 $9,640,146 $9,925,055 Revenue Notes 13,008,515 13,535,936 - 73,533 13,008,515 13,609,469 State Revolving Fund - - 14,004,706 7,068,522 14,004,706 7,068,522 Capital Leases 89,654 101,696 - - 89,654 101,696 $13,098,169 $13,637,632 $23,644,852 $17,067,100 $36,743,021 $30,704,742 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 65-69. ECONOMIC FACTORS AND NEXT YEAR’S BUDGET AND RATES Economic indicators and factors that are useful for evaluating the framework within which the City operates are discussed below.
The Consumer Price Index (CPI) is 2.3% higher than a year ago. This indicator translates into a higher cost of providing services to residents.
The Municipal Cost Index is 2.4% higher than a year ago. This index is prepared to show the effects of inflation on the cost of providing municipal services.
The Consumer Confidence Index is at its highest level since 2008. This indicator measures economic conditions by gauging the future spending of consumers.
The Leading Economic Index has had broad based growth over the past six months and is designed to signal turning point patterns in economic data.
The military has a significant presence in our community. These installations are essential to the continued long-term economic vitality of this area. Combined, the military and defense-related industries have a $6.0 12  billion annual impact on Okaloosa County’s economy, with approximately 73% 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 2015. The City’s budget for fiscal year 2015 totals $37.2 million, which is $2.5 million higher than the fiscal year 2014 approved budget, due to efforts to return the City to financial stability and programmatic sustainability, in addition to an uptick in scheduled and completed capital projects. The 2015 budget allocates $18.6 million, a 1.6% increase as compared to the fiscal year 2014 budget, to the General fund, $15.4 million to the Enterprise funds, and $3.2 million to other funds. For the fiscal year 2015 budget, the ad valorem rate was maintained at 5.7697 mills. A 9% increase in water and sewer rates is included in the budget, and stormwater fees are scheduled to increase $0.50. No other significant changes to the City’s various rate and fees are included in the fiscal year 2015 budget. Personnel expenses account for approximately 47.7% of the City’s budget. The City’s fiscal year 2015 budget remains relatively stable in this category, at 292.05 full time equivalent positions. 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. 13  CITY OF FORT WALTON BEACH, FLORIDA STATEMENT OF NET POSITION SEPTEMBER 30, 2014 Primary Government Governmental Business-Type Total Activities Activities ASSETS Cash and cash equivalents $ 15,477,455 $ 10,691,815 $ 26,169,270 Investments 2,216,592 - 2,216,592 Receivables, net 225,274 799,955 1,025,229 Internal balances (500,000) 500,000 - Due from other governments 58,265 - 58,265 Inventory, at cost 263,762 22,886 286,648 Restricted assets Cash and cash equivalents 3,936,086 1,686,444 5,622,530 Capital assets Non-depreciable/amortizable 14,406,916 1,293,234 15,700,150 Depreciable/amortizable, net 19,647,015 35,868,994 55,516,009 Other assets Net pension asset 811,635 - 811,635 Other receivables, net 407,000 15,640 422,640 TOTAL ASSETS 56,950,000 50,878,968 107,828,968 LIABILITIES Accounts payable 1,088,139 895,237 1,983,376 Accrued liabilities 705,317 137,752 843,069 Due to other governments - 488,939 488,939 Unearned revenues 27,425 37,490 64,915 Payable from restricted assets Accrued interest 83,113 105,562 188,675 Customer deposits - 236,246 236,246 Non-current liabilities Due within one year Compensated absences 178,891 44,476 223,367 Leases payable 13,774 - 13,774 Notes payable 636,928 - 636,928 Revenue bonds payable - 300,000 300,000 Due in more than one year Compensated absences 536,673 133,429 670,102 Leases payable 75,880 - 75,880 Notes payable 12,371,587 - 12,371,587 Revenue bonds payable - 9,340,146 9,340,146 State revolving loans payable - 14,004,706 14,004,706 Other post-employment benefits 827,824 266,894 1,094,718 TOTAL LIABILITIES 16,545,551 25,990,877 42,536,428 NET POSITION Net investment in capital assets 24,866,399 13,779,184 38,645,583 Restricted Debt service 25,449 1,082,935 1,108,384 System improvements - 367,263 367,263 Improvement districts 4,073,364 - 4,073,364 Public safety 565,946 - 565,946 Other purposes 172,630 - 172,630 Unrestricted 10,700,661 9,658,709 20,359,370 TOTAL NET POSITION $ 40,404,449 $ 24,888,091 $ 65,292,540 See notes to the financial statements. 14  CITY OF FORT WALTON BEACH, FLORIDA STATEMENT OF ACTIVITIES FOR THE YEAR ENDED SEPTEMBER 30, 2014 Net (Expense) Revenue and Changes in Net Position Program Revenues Primary Government Charges for Operating Grants Capital Grants and Governmental Business-Type Function/program activities Expenses Services and Contributions Contributions Activities Activities Total Governmental activities General government $ 3,179,768 $ 476,824 $ - $ 6,158 $ (2,696,786) $ - $ (2,696,786) Public safety 9,685,621 495,111 417,953 2,995 (8,769,562) - (8,769,562) Physical environment 392,255 376,998 86,081 - 70,824 - 70,824 Transportation 1,495,374 140,038 - 97,648 (1,257,688) - (1,257,688) Economic environment 803,175 10 79,482 - (723,683) - (723,683) Culture and recreation 4,829,004 1,853,087 98,684 2,828 (2,874,405) - (2,874,405) Debt service interest 483,301 - - - (483,301) - (483,301) Total governmental activities 20,868,498 3,342,068 682,200 109,629 (16,734,601) - (16,734,601) Business-type activities Utilities 9,185,338 8,586,045 - (157,294) - (756,587) (756,587) Sanitation 3,393,269 3,571,037 - - - 177,768 177,768 Golf 2,215 - - - - (2,215) (2,215) Stormwater 439,191 596,133 - - - 156,942 156,942 Total business-type activities 13,020,013 12,753,215 - (157,294) (424,092) (424,092) Total primary government $ 33,888,511 $ 16,095,283 $ 682,200 $ (47,665) $ (16,734,601) $ (424,092) $ (17,158,693) General revenues Taxes Property taxes $ 5,385,235 $ - $ 5,385,235 Sales taxes 2,362,190 - 2,362,190 Utility service taxes 3,889,976 - 3,889,976 Tax increments for redevelopment districts 1,501,208 - 1,501,208 Franchise fees 2,004,101 - 2,004,101 Intergovernmental, unrestricted 819,556 - 819,556 Gain on sale of assets 520,152 22,813 542,965 Miscellaneous 103,986 6,839 110,825 Investment earnings 345,734 55,669 401,403 Transfers 2,851,638 (2,851,638) - Total general revenues and transfers 19,783,776 (2,766,317) 17,017,459 Change in net position 3,049,175 (3,190,409) (141,234) Net position at beginning of year 37,355,274 28,078,500 65,433,774 Net position at end of year $ 40,404,449 $ 24,888,091 $ 65,292,540 See notes to the financial statements. 15  CITY OF FORT WALTON BEACH, FLORIDA GOVERNMENTAL FUNDS BALANCE SHEET SEPTEMBER 30, 2014 Community Other Total Redevelopment Governmental Governmental General Agency Funds Funds ASSETS Cash and cash equivalents $ 10,754,613 $ 4,104,871 $ 617,971 $ 15,477,455 Investments - - 2,216,592 2,216,592 Receivables 632,274 - - 632,274 Due from other funds 56,245 - - 56,245 Due from other governments - - 58,265 58,265 Inventory, at cost 262,964 798 - 263,762 Restricted assets Cash and cash equivalents 3,910,637 - 25,449 3,936,086 TOTAL ASSETS $ 15,616,733 $ 4,105,669 $ 2,918,277 $ 22,640,679 LIABILITIES Accounts payable $ 1,063,610 $ 12,187 $ 12,342 $ 1,088,139 Accrued liabilities 670,393 20,118 14,806 705,317 Due to other funds - - 56,245 56,245 Advance from other funds 500,000 - - 500,000 Unearned revenue 27,425 - - 27,425 Total liabilities 2,261,428 32,305 83,393 2,377,126 DEFERRED INFLOW OF RESOURCES Unavailable revenue 534,250 - - 534,250 FUND BALANCE Nonspendable 262,964 798 - 263,762 Restricted 4,083,267 4,072,566 591,395 8,747,228 Committed 5,589,056 - 2,249,720 7,838,776 Assigned 1,584,887 - - 1,584,887 Unassigned 1,300,881 - (6,231) 1,294,650 Total fund balances 12,821,055 4,073,364 2,834,884 19,729,303 TOTAL LIABILITIES, DEFERRED INFLOW OF RESOURCES, AND FUND BALANCE $ 15,616,733 $ 4,105,669 $ 2,918,277 $ 22,640,679 See notes to the financial statements. 16  CITY OF FORT WALTON BEACH, FLORIDA GOVERNMENTAL FUNDS RECONCILIATION OF THE BALANCE SHEET TO THE STATEMENT OF NET POSITION SEPTEMBER 30, 2014 Amounts reported for governmental activities in the Statement of Net Position are different because: Capital assets used in governmental activities are not financial resources and therefore are not reported in the funds. Governmental non-depreciable/amortizable assets 14,406,916 Governmental depreciable/amortizable assets 54,126,121 Less accumulated depreciation/amortization (34,479,106) 34,053,931 Other assets used in governmental activities are not current financial resources and therefore are not reported in the governmental funds. Net pension asset 811,635 Unavailable revenues in governmental funds is susceptible to full accrual on the entity-wide statements. Special assessment for street resurfacing 109,250 Receivable related to sale of capital asset 425,000 534,250 Long-term liabilities are not due and payable in the current period and therefore are not reported in the governmental funds. Notes payable (13,008,515) Accrued interest (83,113) Capital leases (89,654) Compensated absences (715,564) Other post-employment benefits (827,824) (14,724,670) Net position of governmental activities (page 14) $ 40,404,449 See notes to the financial statements. 17  CITY OF FORT WALTON BEACH, FLORIDA GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE FOR THE YEAR ENDED SEPTEMBER 30, 2014 Community Other Total Redevelopment Governmental Governmental General Agency Funds Funds REVENUES Taxes $ 10,578,384 $ 959,428 $ - $ 11,537,812 Permits and fees 2,023,040 - 369,447 2,392,487 Intergovernmental 2,735,453 541,780 98,846 3,376,079 Charges for services 2,373,476 10 - 2,373,486 Fines 99,121 - 34,524 133,645 Miscellaneous 481,437 127,699 218,390 827,526 Total revenues 18,290,911 1,628,917 721,207 20,641,035 EXPENDITURES Current General governmental services 2,891,275 - - 2,891,275 Public safety 8,365,184 418,022 299,670 9,082,876 Physical environment 308,702 - 17,162 325,864 Transportation 867,730 - - 867,730 Economic environment - 669,151 76,435 745,586 Culture and recreation 3,744,452 - - 3,744,452 Capital outlay 4,385,057 301,810 34,229 4,721,096 Debt service Principal - - 612,996 612,996 Interest - - 377,574 377,574 Total expenditures 20,562,400 1,388,983 1,418,066 23,369,449 EXCESS OF REVENUES OVER (UNDER) EXPENDITURES (2,271,489) 239,934 (696,859) (2,728,414) OTHER FINANCING SOURCES (USES) Transfers in 620,433 - 1,015,732 1,636,165 Transfers out (1,241,454) - - (1,241,454) Total other financing sources (uses) (621,021) - 1,015,732 394,711 NET CHANGE IN FUND BALANCE (2,892,510) 239,934 318,873 (2,333,703) FUND BALANCE AT BEGINNING OF YEAR 15,713,565 3,833,430 2,516,011 22,063,006 FUND BALANCE AT END OF YEAR $ 12,821,055 $ 4,073,364 $ 2,834,884 $ 19,729,303 See notes to the financial statements. 18  CITY OF FORT WALTON BEACH, FLORIDA GOVERNMENTAL FUNDS RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED SEPTEMBER 30, 2014 Net change in fund balance - governmental funds (page 18) $ (2,333,703) Amounts reported for governmental activities in the Statement of Activities are different because: Governmental funds do not report capital assets on the Balance Sheet; however, they are reported in the government-wide financial statements. Governmental funds report capital outlays as expenditures; however, in the Statement of Activities, the cost of those assets is depreciated/amortized over the estimated useful lives of the assets. Expenditures for capital assets 4,678,313 Less current year depreciation/amortization (2,546,728) 2,131,585 Governmental funds do not report capital assets on the Balance Sheet; however, they are reported in the government-wide financial statements. Accordingly, proceeds received for disposals of capital assets are shown as income in the governmental financial statements and a gain or loss is reported in the Statement of Activities. In addition, capital asset reassignments are reported as transfers on the Statement of Activities. Disposals of capital assets and adjustments (1,518,288) Accumulated depreciation/amortization associated with disposals and adjustments 1,343,445 Reassignment of capital assets 2,619,374 2,444,531 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 (3,328) Special assessment for interest and penalties 2,013 Receivable related to sale of capital asset 425,000 423,685 The issuance of long-term debt provides current financial resources to governmental funds, while the repayment of the principal of long-term debt consumes the current financial resources of governmental funds. Neither transaction, however, has any effect on net position. Also, governmental funds report the effect of issuance costs, premiums, discounts and similar items when debt is first issued, whereas these amounts are deferred and amortized in the Statement of Activities. In addition, long-term debt reassignments are reported as transfers on the Statement of Activities. Debt principal payments 612,996 Amortization of note issue costs (26,879) Change in accrued interest on long-term debt (78,848) Reassignment of long-term debt (74,014) 433,255 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: Net pension asset 205,006 Change in long-term compensated absences 9,936 Change in other post-employment benefits (176,687) Reassignment of other long-term liabilities (88,433) (50,178) Change in net position of governmental activities (page 15) $ 3,049,175 See notes to the financial statements. 19  CITY OF FORT WALTON BEACH, FLORIDA GENERAL FUND STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE – BUDGET AND ACTUAL FOR THE YEAR ENDED SEPTEMBER 30, 2014 Budgeted Amounts Variance with Final Budget - Positive Original Final Actual (Negative) REVENUES Taxes $ 10,068,657 $ 10,168,096 $ 10,578,384 $ 410,288 Permits and fees 1,792,424 1,792,424 2,023,040 230,616 Intergovernmental 2,450,861 4,323,238 2,735,453 (1,587,785) Charges for services 2,611,329 2,622,588 2,373,476 (249,112) Fines 118,700 118,700 99,121 (19,579) Miscellaneous 431,768 491,556 481,437 (10,119) Total revenues 17,473,739 19,516,602 18,290,911 (1,225,691) EXPENDITURES Current General governmental services 2,940,726 4,264,401 2,891,275 1,373,126 Public safety 8,274,953 8,402,585 8,365,184 37,401 Physical environment 296,726 296,857 308,702 (11,845) Transportation 1,037,256 1,039,448 867,730 171,718 Culture and recreation 3,846,982 3,958,323 3,744,452 213,871 Capital outlay 842,865 9,780,254 4,385,057 5,395,197 Total expenditures 17,239,508 27,741,868 20,562,400 7,179,468 EXCESS OF REVENUES OVER (UNDER) EXPENDITURES 234,231 (8,225,266) (2,271,489) 5,953,777 OTHER FINANCING SOURCES (USES) Issuance of debt - 500,000 - (500,000) Transfers in 620,433 620,433 620,433 - Transfers out (1,098,336) (1,098,336) (1,241,454) (143,118) Total other financing sources (uses) (477,903) 22,097 (621,021) (643,118) NET CHANGE IN FUND BALANCE (243,672) (8,203,169) (2,892,510) 5,310,659 FUND BALANCE AT BEGINNING OF YEAR 243,672 8,203,169 15,713,565 7,510,396 FUND BALANCE AT END OF YEAR $ - $ - $ 12,821,055 $ 12,821,055 See notes to the financial statements. 20  CITY OF FORT WALTON BEACH, FLORIDA COMMUNITY REDEVELOPMENT AGENCY STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE – BUDGET AND ACTUAL FOR THE YEAR ENDED SEPTEMBER 30, 2014 Budgeted Amounts Variance with Final Budget Original Final Actual - REVENUES Taxes $ 959,428 $ 959,428 $ 959,428 $ - Intergovernmental 570,498 619,490 541,780 (77,710) Charges for services - - 10 10 Miscellaneous 62,620 62,620 127,699 65,079 Total revenues 1,592,546 1,641,538 1,628,917 (12,621) EXPENDITURES Current Public safety 498,405 499,017 418,022 80,995 Economic environment 1,092,351 1,855,755 669,151 1,186,604 Capital outlay 1,790 308,511 301,810 6,701 Total expenditures 1,592,546 2,663,283 1,388,983 1,274,300 NET CHANGE IN FUND BALANCE - (1,021,745) 239,934 1,261,679 FUND BALANCE AT BEGINNING OF YEAR - 1,021,745 3,833,430 2,811,685 FUND BALANCE AT END OF YEAR $ - $ - $ 4,073,364 $ 4,073,364 See notes to the financial statements. 21  CITY OF FORT WALTON BEACH, FLORIDA PROPRIETARY FUNDS STATEMENT OF NET POSITION SEPTEMBER 30, 2014 Other Sanitation Enterprise Utilities Fund Fund Golf Fund Fund Total ASSETS Current assets Cash and cash equivalents $ 8,262,675 $ 1,935,210 $ - $ 493,930 $ 10,691,815 Restricted assets - cash and cash equivalents 1,684,474 1,970 - - 1,686,444 Receivables, net 566,999 198,075 - 34,881 799,955 Advance to other funds - 45,663 - - 45,663 Inventory - at cost 22,886 - - - 22,886 Total current assets 10,537,034 2,180,918 - 528,811 13,246,763 Capital assets, net Non-depreciable/amortizable 1,264,702 - - 28,532 1,293,234 Depreciable/amortization, net 33,336,835 1,429,237 - 1,102,922 35,868,994 Total capital assets 34,601,537 1,429,237 - 1,131,454 37,162,228 Other assets Advance to other funds - 454,337 - - 454,337 Other receivables, net 15,640 - - - 15,640 Total other assets 15,640 454,337 - - 469,977 Total non-current assets 34,617,177 1,883,574 - 1,131,454 37,632,205 TOTAL ASSETS $ 45,154,211 $ 4,064,492 $ - $ 1,660,265 $ 50,878,968 See notes to the financial statements. 22  CITY OF FORT WALTON BEACH, FLORIDA PROPRIETARY FUNDS STATEMENT OF NET POSITION - CONTINUED SEPTEMBER 30, 2014 Other Sanitation Enterprise Utilities Fund Fund Golf Fund Fund Total LIABILITIES Current liabilities Accounts payable $ 577,096 $ 314,070 $ - $ 4,071 $ 895,237 Accrued liabilities Compensated absences 29,865 12,202 - 2,409 44,476 Wages 85,882 39,056 - 12,547 137,485 Other 144 99 - 24 267 Due to other governments 480,876 8,063 - - 488,939 Revenue bonds payable 300,000 - - - 300,000 Payable from restricted assets Accrued interest 105,562 - - - 105,562 Customer deposits 234,276 1,970 - - 236,246 Unearned revenue 37,490 - - - 37,490 Total current liabilities 1,851,191 375,460 - 19,051 2,245,702 Non-current liabilities Accrued liabilities Compensated absences 89,595 36,606 - 7,228 133,429 Revenue bonds payable 9,340,146 - - - 9,340,146 State revolving loan payable 14,004,706 - - - 14,004,706 Other post-employment benefits 162,851 81,425 - 22,618 266,894 Total non-current liabilities 23,597,298 118,031 - 29,846 23,745,175 TOTAL LIABILITIES 25,448,489 493,491 - 48,897 25,990,877 NET POSITION Net investment in capital assets 11,218,493 1,429,237 - 1,131,454 13,779,184 Restricted Debt service 1,082,935 - - - 1,082,935 System improvements 367,263 - - - 367,263 Unrestricted 7,037,031 2,141,764 - 479,914 9,658,709 TOTAL NET POSITION $ 19,705,722 $ 3,571,001 $ - $ 1,611,368 $ 24,888,091 See notes to the financial statements. 23  CITY OF FORT WALTON BEACH, FLORIDA PROPRIETARY FUNDS STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION FOR THE YEAR ENDED SEPTEMBER 30, 2014 Other Sanitation Enterprise Utilities Fund Fund Golf Fund Fund Total OPERATING REVENUES Charges for services $ 8,569,174 $ 3,571,037 $ - $ 596,133 $ 12,736,344 OPERATING EXPENSES Personal services 1,892,340 924,820 - 226,121 3,043,281 Operating 4,977,711 2,211,906 - 145,203 7,334,820 Depreciation/amortization expense 1,714,552 256,543 - 67,867 2,038,962 Total operating expenses 8,584,603 3,393,269 - 439,191 12,417,063 OPERATING INCOME (LOSS) (15,429) 177,768 - 156,942 319,281 NON-OPERATING REVENUES (EXPENSES) Rental income 16,871 - - - 16,871 Interest expense (414,812) - - - (414,812) Amortization (185,525) - (2,215) - (187,740) Gain (loss) on disposal of capital assets (16,592) - - 39,405 22,813 Gain (loss) on investment (17,068) (4,949) - (1,052) (23,069) Interest 55,545 18,613 - 4,580 78,738 Grants in aid (398) - - - (398) Miscellaneous 2,186 4,130 - 523 6,839 Total non-operating revenues (expenses) (559,793) 17,794 (2,215) 43,456 (500,758) INCOME (LOSS) BEFORE CONTRIBUTIONS AND TRANSFERS (575,222) 195,562 (2,215) 200,398 (181,477) CONTRIBUTIONS AND TRANSFERS Capital grants and contributions (157,294) - - - (157,294) Transfers in - - 225,722 - 225,722 Transfers out (490,433) (130,000) - - (620,433) Transfer of long-term assets and liabilities to governmental activities - - (2,456,927) - (2,456,927) Total capital contributions and transfers (647,727) (130,000) (2,231,205) - (552,005) CHANGE IN NET POSITION (1,222,949) 65,562 (2,233,420) 200,398 (3,190,409) NET POSITION AT BEGINNING OF YEAR 20,928,671 3,505,439 2,233,420 1,410,970 28,078,500 NET POSITION AT END OF YEAR $ 19,705,722 $ 3,571,001 $ - $ 1,611,368 $ 24,888,091 See notes to the financial statements. 24  CITY OF FORT WALTON BEACH, FLORIDA PROPRIETARY FUNDS STATEMENT OF CASH FLOWS FOR THE YEAR ENDED SEPTEMBER 30, 2014 Other Sanitation Enterprise Utilities Fund Fund Golf Fund Funds Total CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers and users $ 8,625,726 $ 3,587,260 $ - $ 596,959 $ 12,809,945 Payments to suppliers (6,512,551) (2,008,037) - (150,269) (8,670,857) Payments to employees (1,852,235) (917,287) - (231,970) (3,001,492) Miscellaneous income 19,057 4,130 - 523 23,710 Net cash provided by operating activities 279,997 666,066 - 215,243 1,161,306 CASH FLOWS FROM NON-CAPITAL FINANCING ACTIVITIES Change in intergovernmental balances 157,294 257 - - 157,551 Advance to other funds - (500,000) - - (500,000) Grants and aids (398) - - - (398) Transfers in - - 225,722 - 225,722 Transfers out (490,433) (130,000) (230,015) - (850,448) Net cash used in non-capital financing activities (333,537) (629,743) (4,293) - (967,573) CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Acquisitions of capital assets (3,423,162) (289,545) - (299,710) (4,012,417) Proceeds from disposal of capital assets 9,171 - - 39,405 48,576 Capital grants and contributions (157,294) - - - (157,294) Proceeds from state revolving loan 6,936,184 - - - 6,936,184 Principal paid on revenue bonds and notes payable (290,000) - - - (290,000) Interest paid on bonds, loan, lease, and advance payables (417,440) - - - (417,440) Net cash provided by (used in) capital and related financing activities 2,657,459 (289,545) - (260,305) 2,107,609 CASH FLOWS FROM INVESTING ACTIVITIES Interest income 38,477 13,664 - 3,528 55,669 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,642,396 (239,558) (4,293) (41,534) 2,357,011 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 7,304,753 2,176,738 4,293 535,464 10,021,248 CASH AND CASH EQUIVALENTS AT END OF YEAR $ 9,947,149 $ 1,937,180 $ - $ 493,930 $ 12,378,259 See notes to the financial statements. 25  CITY OF FORT WALTON BEACH, FLORIDA PROPRIETARY FUNDS STATEMENT OF CASH FLOWS - CONTINUED FOR THE YEAR ENDED SEPTEMBER 30, 2014 Other Sanitation Enterprise Utilities Fund Fund Golf Fund Funds Total CASH AND CASH EQUIVALENTS AT END OF YEAR CONSIST OF Current assets $ 8,262,675 $ 1,935,210 $ - $ 493,930 $ 10,691,815 Restricted assets 1,684,474 1,970 - - 1,686,444 Total cash and cash equivalents $ 9,947,149 $ 1,937,180 $ - $ 493,930 $ 12,378,259 RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH PROVIDED BY OPERATING ACTIVITIES Operating income (loss) $ (15,429) $ 177,768 $ - $ 156,942 $ 319,281 Adjustments to reconcile operating income (loss) to net cash provided by operating activities: Depreciation 1,714,552 256,543 - 67,867 2,038,962 Miscellaneous revenue 19,057 4,130 - 523 23,710 Decrease (increase) in assets: - Accounts receivable (19,725) 14,993 - 826 (3,906) Inventory 3,611 - - - 3,611 Increase (decrease) in liabilities: Accounts payable (1,537,056) 204,872 - (2,313) (1,334,497) Compensated absences payable (74) (5,998) - (1,609) (7,681) Wages 4,725 (657) - (5,625) (1,557) Other liabilities (1,395) (1,003) - (2,753) (5,151) Customer deposits 70,417 1,230 - - 71,647 Other post-employment benefits 35,454 14,188 - 1,385 51,027 Unearned revenue 5,860 - - - 5,860 Net cash provided by operating activities $ 279,997 $ 666,066 $ - $ 215,243 $ 1,161,306 SUPPLEMENTAL DISCLOSURES OF NONCASH TRANSACTIONS Amortization of bond and note issue costs $ 180,434 $ - $ 2,215 $ - $ 182,649 Amortization of discounts and deferred loss on refunding $ 5,091 $ - $ - $ - $ 5,091 Transfer of long-term assets and liabilities to governmental activities $ - $ - $ 2,456,927 $ - $ 2,456,927 See notes to the financial statements. 26  CITY OF FORT WALTON BEACH, FLORIDA FIDUCIARY FUNDS STATEMENT OF FIDUCIARY NET POSITION SEPTEMBER 30, 2014 Employee Retirement Funds ASSETS Cash and cash equivalents $ 2,833,960 Investments, at market U.S. Government and Agency obligations 11,709,296 Corporate obligations 6,499,322 Corporate equity 34,729,328 Mutual funds 17,578,784 Total investments 70,516,730 Due from State of Florida 17,330 TOTAL ASSETS $ 73,368,020 FIDUCIARY NET POSITION Held in trust for pension and employee retirement benefits $ 73,368,020 See notes to the financial statements. 27  CITY OF FORT WALTON BEACH, FLORIDA FIDUCIARY FUNDS STATEMENT OF CHANGES IN FIDUCIARY NET POSITION FOR THE YEAR ENDED SEPTEMBER 30, 2014 Employee Retirement Funds ADDITIONS Contributions Employer $ 2,847,943 Plan members 445,002 State of Florida 389,975 Total contributions 3,682,920 Investment income (loss) 6,697,120 Less investment expense (334,676) Net investment income (loss) 6,362,444 Miscellaneous revenue 1,118 TOTAL ADDITIONS 10,046,482 DEDUCTIONS Benefits and refunds paid Retirement payments 4,999,187 Disability payments 154,768 Refunds 124,704 Total benefits and refunds paid 5,278,659 Adminitrative expenses Legal 20,619 Contractual services 122,858 Other 36,782 Total administrative expenses 180,259 TOTAL DEDUCTIONS 5,458,918 NET CHANGE IN FIDUCIARY NET POSITION 4,587,564 FIDUCIARY NET POSITION AT BEGINNING OF YEAR 68,780,456 FIDUCIARY NET POSITION AT END OF YEAR $ 73,368,020 See notes to the financial statements. 28 (THIS PAGE INTENTIONALLY LEFT BLANK.)  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF CITY Description of City The City of Fort Walton Beach, Florida, (the City) was originally chartered as a municipality under laws of the State of Florida Special Act of the Florida Legislature in 1937. The City Manager – Council form of government was established in 1953. As authorized by its charter, the City provides the following services: public safety (police, fire, and inspection), highways and streets, water and sewer, sanitation, stormwater, culture and recreation, public improvements, planning and zoning, and general administrative services. The financial statements of the City have been prepared in accordance with accounting principles generally accepted (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: 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. 61 for determining financial accountability of potential component units in evaluating all potential component units. In accordance with GASB No. 61, the City (primary government) is financially accountable if it appoints a voting majority of the potential component unit's governing board and 1) it is able to impose its will on the organization or 2) there is a potential for the organization to provide specific financial benefit to or impose specific financial burden on the City. In addition, component units can be other organizations for which the nature and significance of their relationship with the primary government are such that exclusion would cause the reporting entity's financial statements to be misleading or incomplete. As of September 30, 2014, the City of Fort Walton Beach had one component unit, as defined by GASB No. 61, which has been presented in the financial statements of the primary government using the blended presentation method, and is presented as a governmental fund type with a fiscal year end of September 30. The Fort Walton Beach Community Redevelopment Agency (the Agency) was formed to prepare a community redevelopment plan for a designated geographic area within the City of Fort Walton Beach, Florida. All of the City's council members serve as board members of the Agency. The Agency's governing body is the same as the governing body of the City. The Agency functions as a department of the City of Fort Walton Beach, Florida. City management have operational and fiscal responsibility for the Agency’s activities. 29  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF CITY – CONTINUED The Reporting Entity – Continued The Fort Walton Beach Housing Authority (the Authority) is considered a related organization to the City rather than a component unit. The City Council 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. Government–Wide and Fund Financial Statements The basic financial statements include both government–wide (based on the City as a whole) and fund financial statements. The government–wide financial statements (i.e., the statement of net position and the statement of activities) report information on all of the non-fiduciary activities of the primary government and its component unit. For the most part, the 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. The Statement of Activities demonstrates the degree to which the direct expenses of a given function or segment is offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues. Separate fund financial statements are provided for the governmental and proprietary funds. Major individual governmental funds and major enterprise funds are reported as separate columns in the fund financial statements. Separate fund financial statements for the fiduciary funds are disclosed within Note 7 of these financial statements. Measurement Focus and Basis of Accounting The government–wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the proprietary fund and fiduciary fund financial statements. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Pension plans recognize revenue when contributions are due as there is a statutory requirement to make the contribution. Property taxes are recorded as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. 30  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF CITY – CONTINUED Measurement Focus and Basis of Accounting – Continued Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the City considers revenues to be available if they are collected within 6 months of the end of the current fiscal period, except for property taxes, for which the period is 60 days. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due. Franchise fees, licenses, and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. Only the portion of special assessments and other receivables within the current fiscal period are considered to be susceptible to accrual as revenue of the current period. Sales taxes, gasoline taxes, and other intergovernmental revenues collected and held by the state at year–end on behalf of the City, are also recognized as revenue. All other revenue items are considered to be measurable and available only when cash is received by the government. The Okaloosa County Tax Collector bills and collects property taxes for the City in accordance with the laws of the State of Florida. Property taxes attach as an enforceable lien on property as of the date of assessment and remain in effect until discharge by payment. Taxes are payable when levied (on November 1, or as soon thereafter as the assessment roll becomes available to the Tax Collector). The following is the current property tax calendar: Lien Date January 1, 2014 Levy Date November 1, 2014 Due Date November 1, 2014 Deliquent Date April 1, 2015 Discounts of 1% for each month taxes are paid prior to March 2015 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 2014 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. 31  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF CITY – CONTINUED Basis of Presentation The financial transactions of the City are recorded in individual funds. Each fund is a separate accounting entity with a self–balancing set of accounts recording cash and other financial resources, together with all related liabilities and residual equities or balances, and changes therein, which are segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions or limitations. As a general rule, the effect of interfund activity has been eliminated from the government–wide financial statements. Exceptions to this general rule are other charges between the government's utility function and various other functions of the government. Elimination of these charges would distort the direct costs and program revenues reported for the various functions concerned. Amounts reported as program revenues include 1) charges to customers or applicants for goods, services, or privileges provided, 2) operating grants and contributions, and 3) capital grants and contributions, including special assessments. Internally dedicated resources are reported as general revenues rather than as program revenues. Likewise, general revenues include all taxes. 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. The following three broad classifications are used to categorize the fund types used by the City: Governmental Governmental funds focus on the determination of financial position and changes in financial position (sources, uses, and balances of financial resources) and not net income. The City has the following major governmental funds: General Fund – This is the City's primary operating fund and is used to account for all financial resources except those required to be accounted for in another fund. Community Redevelopment Fund – The community redevelopment fund is the operating fund of the Fort Walton Beach Community Redevelopment Agency (the "Agency"). It is used to account for the activities of the Agency. Revenue sources of this fund include tax increment financing proceeds from ad valorem taxes as well as investment income. 32  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF CITY – CONTINUED Basis of Presentation – Continued Proprietary Proprietary funds focus on the determination of net income, changes in net position, financial position, and cash flows. All of the City's proprietary funds are enterprise funds, as fees are charged to external users for services. The following is a description of the major proprietary funds of the City: Utilities Fund – Used to account for the operations of the City, which provides distribution of potable water, sales and service and sanitary wastewater collection, treatment and disposal. Sanitation Fund – Accounts for the operation of the City that provides for solid waste collection and disposal. Golf Fund – Prior to fiscal year 2014, accounted for the operations and maintenance of the City– owned golf courses. As disclosed in Note 6 to these financial statements, these operations and maintenance activities were transferred to the General Fund. Fiduciary Fiduciary funds are used to account for the assets held on behalf of outside parties, including other governments, or on behalf of other funds within the City. The City has the following type of Fiduciary fund: Pension Trust Funds – Used to report the resources that are required to be held in trust for the members and beneficiaries of the three defined benefit pension plans administered by the City: General Employees' Retirement Fund, Police Officers' Retirement Fund, and Firefighters' Retirement Fund. Assets, Liabilities, Deferred Inflows/Outflows of Resources, and Net Position or Equity Cash and Cash Equivalents The City 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. 33  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF CITY – CONTINUED Assets, Liabilities, Deferred Inflows/Outflows of Resources, and Net Position or Equity – Continued 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. 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. The Beal Memorial Cemetery Perpetual Care Special Revenue Fund also invests excess cash in allowable debt and equity investments to maximize return on investment. Investments are stated at fair value, based on quoted market prices. The City's cash and investment pool and certain individual funds participate in the Local Government Surplus Trust Fund – Florida PRIME, 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. GASB Statement No. 31, titled Accounting and Financial Reporting for Certain Investments and for External Investment Pools, applies to the Florida PRIME. GASB 31 outlines the two options for accounting and reporting for money market investment pools as either "2a–7 like" or fluctuating net asset value (NAV). GASB 31 describes a "2a–7 like" pool as an external investment pool that is not registered with the Securities and Exchange Commission (SEC) as an investment company, but nevertheless has a policy that it will, and does, operate in a manner consistent with Rule 2a–7 under the Investment Company Act of 1940 (the 1940 Act). Rule 2a–7 is the rule that permits money market funds to use amortized cost to maintain a constant NAV of $1.00 per share, provided that such funds meet certain conditions. City investments with the SBA may be made or liquidated by wire on a same day basis, subject to limitations described in Note 3. The Florida PRIME is considered a SEC "2a–7 like" fund, thus the account balance is also considered the fair value of the City's investment. 34  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF CITY – CONTINUED Assets, Liabilities, Deferred Inflows/Outflows of Resources, and Net Position or Equity – Continued Deposits and Investments – Continued 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 General Employees’ Retirement Fund may invest up to 10% of its assets in value added real estate and Firefighters' Retirement Pension Trust Fund may invest up to 20% of its assets at cost in real estate. The Beal Memorial Cemetery Special Revenue Fund may invest in domestic equities, international equities, real estate investment trusts, Treasury Inflation Protected Securities ("TIPS"), fixed income investments and Rule 2(a)–7 like cash equivalents. 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." Advances between funds, as reported in the fund financial statements, are offset by a fund balance nonspendable 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. 35  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF CITY – CONTINUED Assets, Liabilities, Deferred Inflows/Outflows of Resources, and Net Position or Equity – Continued Receivables and Payables – Continued 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. The General Fund inventory balance is considered nonspendable 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 Capital Improvement Note, Series 2011; in the Utility Fund, for the repayment of the Utility System Revenue Bonds, Series 2005; and, customer utility deposits and impact fees received are restricted in the Utilities Fund and Sanitation Fund. Capital Assets Capital assets, which include property, plant, equipment, and infrastructure assets (roads, bridges, curbs and sidewalks, drainage systems, lighting systems and similar items), are reported in the applicable governmental or business–type activities columns in the government–wide financial statements. Capital assets are defined by the City as assets with an initial cost more than the following: Land All Buildings and improvements $ 10,000 Infrastructure $ 10,000 Improvements - other $ 10,000 Equipment, vehicles, computers $ 1,000 Library books All In the case of the initial capitalization of general infrastructure assets (i.e. those reported by governmental activities) the government chose to include all such items regardless of their acquisition date or amount. The government was able to estimate the historical cost for the initial reporting of these assets through various allowable estimating techniques. As the government constructs or acquires additional capital assets each period, including infrastructure assets, they are capitalized and reported at historical cost. The reported value excludes normal maintenance and repairs which are essentially amounts spent in relation to capital assets that do not increase the capacity or efficiency of the item or extend its useful life beyond the original estimate. Donated capital assets are recorded at estimated fair market value at the date of donation. 36  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF CITY – CONTINUED Assets, Liabilities, Deferred Inflows/Outflows of Resources, and Net Position or Equity – Continued Capital Assets – Continued 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 Deferred Inflows/Outflows of Resources In addition to assets, the statement of financial position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period(s) and so will not be recognized as an outflow of resources (expense/expenditure) until then. At this time, the City has no transactions that meet the definition of deferred outflows of resources. In addition to liabilities, the statement of financial position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of fund balance that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until that time. The governmental funds report unavailable revenue from special assessments and long-term receivables. These amounts are deferred and recognized as an inflow of resources in the period the amounts become available. 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. 37  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF CITY – CONTINUED Assets, Liabilities, Deferred Inflows/Outflows of Resources, and Net Position or Equity – Continued Long–Term Obligations In the government-wide financial statements and proprietary fund types in the fund financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities, business-type activities, or proprietary fund type statement of net position. Bond premiums and discounts are deferred and amortized over the life of the bonds using the effective and straight–line interest methods. Bond issuance costs are expensed as they are incurred. Bonds payable are reported net of the applicable bond premium or discount. In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. Classification of Fund Balance GASB Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions, establishes fund balance classifications that comprise a hierarchy based primarily on the extent to which a government is bound to observe constraints imposed upon the use of the resources reported in governmental funds. Fund balance classifications, under GASB 54, are comprised of the following: Nonspendable – includes amounts that are (a) not in spendable form, or (b) legally or contractually required to be maintained intact. The "not in spendable form" criterion includes items that are not expected to be converted to cash, for example: inventories, deposits, prepaid items, and advances to other funds. Restricted – includes amounts that can be spent only for the specific purposes stipulated by external resource providers, constitutionally or through enabling legislation. Restrictions may effectively be changed or lifted only with the consent of resource providers. Committed – includes fund balance amounts that can be used only for the specific purposes that are internally imposed by a formal action (a Resolution) of the government’s highest level of decision making authority, the City Council. Commitments may be changed or lifted only by the City taking the same formal action (a Resolution) that imposed the constraint initially. Contractual obligations are included to the extent that existing resources in the fund have been specifically committed for use in satisfying those contractual obligations. Assigned – includes spendable fund balance amounts that are intended to be used for specific purposes that are neither considered restricted or committed. Intent is expressed by (a) the City Council or (b) a body (for example: a budget or finance committee) or official to which the City Council has delegated the authority to assign amounts to be used for specific purposes. This indicates that resources in these funds are, at a minimum, intended to be used for the purposes of that fund. The City Council has delegated authority to the City Manager and Finance Director in accordance with the City's fund balance policy. 38  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF CITY – CONTINUED Assets, Liabilities, Deferred Inflows/Outflows of Resources, and Net Position or Equity – Continued Unassigned – includes residual positive fund balance within the General Fund which has not been classified within the other above mentioned categories. Unassigned fund balance may also include negative balances for any governmental fund if expenditures exceed amounts restricted, committed, or assigned for those specific purposes. These classifications reflect not only the nature of funds, but also provide clarity to the level of restriction placed upon fund balance. Fund balance can have different levels of restraint, such as external versus internal compliance requirements. Unassigned fund balance is a residual classification with the General Fund. The General Fund should be the only fund that reports a positive unassigned balance. In all other funds, unassigned is limited to negative residual fund balance. The City's General Fund formal fund balance policy establishes a targeted minimum reserve balance in its Committed Fund Balance equal to 30% of annual budgeted expenditures, which constitutes the City’s minimum fund balance policy. In circumstances when an expenditure is made for a purpose for which amounts are available in multiple fund balance classifications, fund balance is generally depleted in the order of restricted, committed, assigned, and unassigned. Net Positions When both restricted and unrestricted resources are available for use, it is the government's policy to use restricted resources first and then unrestricted resources, as they are needed. Estimates The preparation of financial statements in conformity with 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. 2. STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY Budgets Budgets are adopted on a basis consistent with generally accepted accounting principles. Annual appropriated budgets are adopted by resolution for all governmental and proprietary funds. However, budgets for proprietary funds are not legally required to be reported on and are not included in these financial statements. All appropriations lapse at fiscal year-end except for appropriations related to multi–year capital projects. 39  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 2. STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY – CONTINUED 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 a resolution. Budget amendments are periodically passed via 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/unassigned fund balance to the level required to accomplish current year objectives. The level of budgetary control (that is the level at which expenditures cannot legally exceed appropriations) has been established at the fund level. The City Manager and Finance Director are authorized to transfer budgeted amounts within departments of a fund and between departments of a fund; however, any revisions that alter the total expenditures of any fund must be approved by the City Council. Budget amounts reflected in the financial statements are originally adopted amounts as amended by action of the City Council by revision of fund totals. All amendments to originally adopted amounts were made in a legally permissible manner. Encumbrances Encumbrances represent commitments related to unperformed contracts for goods or services. Encumbrance accounting, under which purchase orders, contracts, and other commitments for the expenditure of resources are recorded in order to reserve that portion of the applicable appropriation, is employed in the governmental funds. Encumbrances outstanding at year–end are reported as reservations of fund balances and do not constitute expenditures or liabilities because the commitments will be reappropriated and honored during the subsequent year. 3. DEPOSITS AND INVESTMENTS The City maintains a cash and investment management pool in which each fund (except the Community Development Block Grant Special Revenue Fund and the Pension Trust Funds) participates on a dollar equivalent and daily transaction basis. The City's cash and investment management pool includes pooled cash maintained in interest–bearing demand deposit accounts, certificates of deposit, and pooled investments of the Local Government Surplus Trust Fund. Interest income (which includes unrealized gains and losses) is distributed monthly based on balance at date of distribution. 40  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 3. DEPOSITS AND INVESTMENTS – CONTINUED 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. 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 $32,107,497, all of which was held by qualified public depositories or permitted investments under Chapter 280, Florida Statutes. Investments As of September 30, 2014, the City's investments consist of those held in the various pension trust funds and the Beal Memorial Cemetery Perpetual Care Special Revenue Fund. The types of investments, which can be made by the City, are restricted by state statutes, retirement fund plan documents, and other contractual agreements. A description of the requirements and the types of investments allowed can be found in Note 1. As of September 30, 2014, the City held the following investments and related maturities: INV E S TME NT MATURITIE S (Y E ARS ) Fa ir V a lue <1 1- 5 5 - 10 10 - 15 15 - 2 0 20-25 25-30 >3 0 Investments subject to interest rate risk Corporate debt $ 6,499,323 $ 400,520 $ 2,649,905 $ 3,338,221 $ 32,653 $ 27,471 $ 19,717 $ 30,836 $ - Corporate CMOs 39,290 - - - - 10,278 - 29,012 - U.S. Treasury 7,915,822 186,484 3,699,330 1,785,712 81,137 56,838 154,278 1,952,043 - U.S. Government Agencies 1,166,498 - 1,074,036 92,462 - - - - - U.S. Government Agency Pools 3,357,578 - - 2,230,462 905,890 133,273 73,372 14,581 - 18,978,511 $ 587,004 $ 7,423,271 $ 7,446,857 $ 1,019,680 $ 227,860 $ 247,367 $ 2,026,472 $ - Investments not subject to interest rate risk Money market funds 102,491 Corporate equities 36,073,536 Mutual funds 17,578,784 Total $ 72,733,322 41  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 3. DEPOSITS AND INVESTMENTS – CONTINUED Investments – Continued 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 flow requirements. The investment policies for the pension plans do not specifically address interest rate risk. 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 "A" or higher by Moody, S&P, or Fitch, except that up to 10% of the fixed income securities may have a rating below "A" but not less than "Baa". As of September 30, 2014, the General Employees' Pension Plan held no investments 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 in the General Employees' Pension Plan whose rating was less than "A" at September 30, 2014, comprised 5.39% 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 "Baa/BBB" or higher by a major rating service. The Firefighters' Pension Fund limits investment in fixed income securities to those securities rated "Baa/BBB" or higher by a major rating service. All Pension Plans were in compliance with its respective investment policy regarding credit rate risk as of September 30, 2014. The Moody's rating ranges of the different investment classes held by each respective plan at September 30, 2014, are as follows: General Pension Police Pension Plan Plan Fire Pension Plan Money market funds Aaa-A Aaa-A Aaa-A Corporate CMOs Aaa-Aa1 N/A N/A Corporate debt Aaa-Baa3 Aa2-A3 Aa2-Baa2 U.S. Treasury Aaa Aaa Aaa U.S. government agencies Aaa-A2 Aaa Aaa U.S. government pools A1 N/A N/A The Beal Memorial Cemetery investment policy does not limit investments to those with specific credit ratings for domestic or international equities. The overall rating of fixed income investments shall be at least investment grade based on the rating of two of the three Nationally Recognized Statistical Rating Organizations (NRSRO). Concentration 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. 42  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 3. DEPOSITS AND INVESTMENTS – CONTINUED Investments – Continued Concentration Credit Risk – Continued The General Employees' Pension Fund limits investment of fixed income securities of any single issuer to no more than 5% of the cost of all fixed income securities. Investments in collateralized mortgage obligations are limited to 15% of the market value of the total fixed income portfolio and must be backed by mortgage securities rated "Aaa" by Moody's or "AAA" by Standard & Poor's and Fitch rating services. As of September 30, 2014, the largest investment in a single corporate issuer of debt was below 1% of the cost of all fixed income securities. Total investments in collateralized mortgage obligations (CMOs) were 14.03% of the total market value of the total fixed income portfolio. No more than 5% 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 not specifically permitted by the policy. As of September 30, 2014, the largest investment in a single corporate issuer of debt was below 1% of the value of all corporate fixed income securities. Total investments in collateralized mortgage obligations were 38.11% of the total market value of the total fixed income portfolio. No more than 5% of the market value of the total fixed income investments may be held in the Firefighters' Pension Fund may be held in any single corporate issuer. Investments in collateralized mortgage obligations are limited to 15% 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), or that are rated "Aaa" by Moody's or "AAA" by Standard & Poor's rating services. As of September 30, 2014, the largest investment in a single corporate issuer of debt was 5.62% 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 2.47% of the total market value of the total fixed income portfolio. The Beal Memorial Cemetery investment policy limits investment concentrations as follows:  Domestic Equities – no more than 5% of the total equity portfolio valued at market may be invested in the equity of any one corporation; ownership of the shares of one company shall not exceed 2% of those outstanding and not more than 25% of equity valued at market may be held in any one sector.  International Equities – no more than 5% of the total equity portfolio valued at market may be invested in the common equity of any one corporation; ownership of the shares of one company shall not exceed 2% of those outstanding and not more than 25% of equity valued at market may be held in any one sector.  Fixed Income Investments – securities of any one issuer shall not exceed 5% of a total bond portfolio at time of purchase. 43  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 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 on the previous page, 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. The City maintains $82,838 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, 2014, is 39 days. Next interest rate reset dates for floating rate securities are used in the calculation of the WAM. 4. RECEIVABLES Receivables at September 30, 2014, were as follows: Governmental Activities Business-Type Activities Other Proprietary General Utilities Sanitation Funds Total Taxes $ 17,754 $ - $ - $ - $ 17,754 Accounts 80,271 601,814 207,494 37,175 926,754 Less allowance for doubtful accounts - (37,734) (9,419) (2,294) (49,447) Assessments 109,249 18,559 - - 127,808 Other 425,000 - - - 425,000 Total receivables, net $ 632,274 $ 582,639 $ 198,075 $ 34,881 $ 1,447,869 During fiscal year 2014, the City sold a recreational center for $425,000 and will receive the proceeds over twelve years. The City has calculated imputed interest on the receivable, but it has not been recorded as the imputed amount was deemed to be immaterial to the financial statements. Due from Other Governments The City's receivables from other governments for governmental activities as of September 30, 2014, are $58,265. Due from other governments consists primarily of Community Development Block Grant receivables due from the federal government. 44  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 5. CHANGES IN CAPITAL ASSETS Capital asset activity for the year ended September 30, 2014, was as follows: Beginning Decreases/ Ending Balance Increases Transfers Balance Governmental activities Capital assets not being depreciated/amortized Land $ 9,961,261 $ 101,108 $ (125,671) $ 9,936,698 Construction in progress 979,617 3,620,737 (130,136) 4,470,218 Total capital assets not being depreciated/amortized 10,940,878 3,721,845 (255,807) 14,406,916 Capital assets being depreciated/amortized Buildings 13,562,845 2,300 2,528,269 16,093,414 Improvements other than buildings 11,458,797 194,250 3,569,169 15,222,216 Infrastructure 12,443,218 168,397 53,338 12,664,953 Software 499,248 13,936 - 513,184 Machinery and equipment 7,895,060 577,585 1,100,319 9,572,964 Equipment under capital lease 59,390 - - 59,390 Total capital assets being depreciated/amortized 45,918,558 956,468 7,251,095 54,126,121 Less accumulated depreciation/amortization Buildings (7,128,072) (910,749) (694,673) (8,733,494) Improvements other than buildings (5,532,455) (602,905) (3,246,597) (9,381,957) Infrastructure (8,321,454) (329,134) 35,540 (8,615,048) Software (217,320) (122,276) (714) (340,310) Machinery and equipment (6,181,495) (580,339) (645,027) (7,406,861) Equipment under capital lease (825) (1,325) 714 (1,436) Total accumulated depreciation/amortization (27,381,621) (2,546,728) (4,550,757) (34,479,106) Total capital assets being depreciated/amortized, net 18,536,937 (1,590,260) 2,700,338 19,647,015 Governmental activities, net $ 29,477,815 $ 2,131,585 $ 2,444,531 $ 34,053,931 45  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 5. CHANGES IN CAPITAL ASSETS – CONTINUED Beginning Decreases/ Ending Balance Increases Transfers Balance Business-type activities Capital assets not being depreciated/amortized Land $ 765,078 $ - $ (55,400) $ 709,678 Construction in progress 15,421,355 1,488,473 (16,360,914) 548,914 Easements 34,642 - - 34,642 Total capital assets not being depreciated/amortized 16,221,075 1,488,473 (16,416,314) 1,293,234 Capital assets being depreciated/amortized Buildings 3,625,890 - (3,132,014) 493,876 Improvements other than buildings 36,467,707 1,717,562 5,541,449 43,726,718 Software 39,330 - 63,767 103,097 Machinery and equipment 8,627,603 806,382 428,514 9,862,499 Total capital assets being depreciated/amortized 48,760,530 2,523,944 2,901,716 54,186,190 Less accumulated depreciation/amortization Buildings (1,699,002) (14,161) 1,363,216 (349,947) Improvements other than buildings (19,255,417) (1,323,670) 8,050,110 (12,528,977) Software (21,052) (15,631) - (36,683) Machinery and equipment (6,172,224) (685,500) 1,456,135 (5,401,589) Total accumulated depreciation/amortization (27,147,695) (2,038,962) 10,869,461 (18,317,196) Total capital assets being depreciated/amortized, net 21,612,835 484,982 13,771,177 35,868,994 Business-type activities, net $ 37,833,910 $ 1,973,455 $ (2,645,137) $ 37,162,228 46  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 5. CHANGES IN CAPITAL ASSETS – CONTINUED Amortization of equipment under capital lease is included with depreciation expense in the financial statements. Depreciation and amortization expense was charged to functions/programs of the primary government as follows: Governmental activities General government $ 179,831 Public safety 590,162 Physical environment 64,710 Transportation 619,062 Economic environment 55,086 Culture and recreation 1,037,877 Total depreciation/amortization expense - governmental activities $ 2,546,728 Business-type activities Utilities fund $ 1,714,552 Sanitation fund 256,543 Other proprietary funds 67,867 Total depreciation/amortization expense - business-type activities $ 2,038,962 Construction Commitments In fiscal year 2013, the City began replacing a thirty inch pre-stressed concrete cylinder pressure (PCCP) force main, construction of a four million gallon wet weather storage tank, and upgrades to Pump Station #1. The City spent $2,698,349 during the fiscal year, and has expended $17,877,029 to date on these projects which were effectively completed and placed in service during fiscal year 2014. The remaining close out tasks are scheduled for completion in fiscal year 2015. Estimated total cost for these projects is $18.2 million and is being funded with a State Revolving Fund (SRF) loan from the Florida Department of Environmental Protection (FDEP), available proceeds from the 2005 Utility Improvement Bond, and cost sharing with Okaloosa County for the common portion of the force main. Capital contributions from Okaloosa County, Florida, were estimated in fiscal year 2013. In fiscal year 2014, costs were finalized and the amount to be contributed by the County was $157,294 less than estimated. This change in estimate is recorded as a component of capital grants and contributions in the accompanying financial statements. In 2011, the City began the next phase of streetscape and pedestrian crosswalk improvements in the downtown area. To date $18,550 has been spent. These projects are funded by the Community Redevelopment Agency. The Department of Transportation’s (DOT) approval of the plans was received and the construction contract was awarded in fiscal year 2014. Construction is projected to be completed in the spring of 2015. In fiscal year 2012, the City began a project to consolidate four recreation centers into a new recreation complex. Construction began in late 2013 and is projected to be completed in the spring of 2015. $3,574,404 was expended in fiscal year 2014. To date $4,434,292 has been spent on the complex with an estimated total cost of $8.1 million dollars. The City is funding the construction with a Capital Improvement Revenue Note and intends to obtain additional funding by applying for grants, obtaining private sponsors, and evaluating current City properties for lease or sale opportunities. 47  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 6. REASSIGNMENT OF GOLF OPERATIONS City Council voted to reassign operations of the City’s golf course from the Golf Enterprise Fund to the General Fund effective October 1, 2013 as charges for services were not sufficient to recover operating costs of the golf club. There was no long-term debt pledged by golf fees at October 1, 2013. Starting in fiscal year 2014, operations of the City’s golf course were accounted for in the culture and recreation function of the General Fund. The Golf Enterprise Fund had a fiscal year 2014 decrease in net position of $2,233,420, primarily due to transfers of long-term assets and liabilities which reduced net position. Since the governmental funds do not record long term assets or liabilities; this transfer in is not reflected in the governmental funds. The current assets and liabilities of the Golf Enterprise Fund were also reassigned into the General Fund as of October 1, 2013. Current assets transferred totaled $36,134, and current liabilities transferred totaled $261,856, which were collectively treated as a net transfer of $225,722 into the Golf Enterprise Fund from the General Fund. In the government-wide financial statements, reassignment of long-term assets and liabilities are treated as transfers between governmental and business-type activities. Transfers related to this reassignment on the government-wide Statement of Activities totaled a net transfer of $2,231,205 from the business-type activities to the government-wide activities. 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 be found under subheading “Fund Financial Statements” of this note. There is no separate report available for the individual pension plans. 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. 48  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 7. DEFINED BENEFIT PENSION PLANS – CONTINUED Information on each of the three plans follows: Plan Description-General Employees’ Retirement Fund (GERF) Plan Administration The authority and responsibility for the establishment, amendment and administration of this Plan is vested in the City Council of the City of Fort Walton Beach, and the members thereof shall be designated as trustees of the fund. The trustees are authorized to adopt reasonable rules and regulations for the administration of the fund created by this Plan. The City finance director shall administer this Plan for the trustees and participants, subject at all times to the limitations and conditions specified in or imposed by provisions of this Plan and the rules and regulations adopted by the City Council. The trustees and the plan administrator shall serve without additional compensation beyond that already provided by the City for their respective duties. Plan Membership as of October 1, 2013 Inactive Plan Members or Benficiaries Currently Receiving Benefits 134 Inactive Plan Members Entitled to but Not Yet Receiving Benefits 13 Active Plan Members 121 268 Benefits Provided The plan provides retirement, termination, disability and death benefits. A member may retire at age 52 with 10 years of credited service (early retirement), at age 62 and 10 years of credited service (normal retirement) or postpone retirement. Benefits become 100% vested upon completion of 10 years of credited service. For the City Manager, Finance Director, or Department Heads, including Chief of Police, the member becomes vested at 20% per year. The plan provides retirement benefits which are a modified cash refund annuity payable for life in the amounts a percentage (2.75% or 2.5%) of final average earnings times the years of credited service with maximum of 75% or 100% of current compensation depending on vested status at April 5, 1999. Benefits are reduced by .25% for each month by which the early retirement date precedes the normal retirement date. Varied benefits exist for service and non-service connected disabilities as well as death in the line of duty or other pre-retirement death. In accordance with the annual increase in CPI-U as measured in December, all retirees are entitled to an adjustment payable each April 1, subject to a minimum of 0% and a maximum of 3%. The adjustment does not apply to members who retire following a vested terminated status or disability retirees. The plan was closed to new entrants effective December 31, 2009. 49  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 7. DEFINED BENEFIT PENSION PLANS -- CONTINUED Funding Policy and Contributions The City Council adopted a funding policy as provided in Chapter 112, Florida Statutes that provides for annual employer contributions based upon an annual actuarial valuation. The actuarially determined rate is the estimated amount necessary to pay current costs of benefits earned by plan members during the year with an additional amount to finance the unfunded liability over a closed 15 year period. The contribution is determined using the entry age normal level dollar actuarial cost method. The contribution to the Plan for FY2014 was $1,296,450 by the Employer computed through an actuarial valuation performed as of October 1, 2011 and represented 27.9% of covered payroll. Members contributed $212,790, a rate of 5% of annual pay. Once a member reaches 40 years of service contributions to the plan are not required. Investments Investment Policy: The following was the City Council's adopted asset allocation policy as of September 30, 2014: Asset Class Target Allocation Domestic Equity 55.00% International Equity 10.00% Domestic Core Fixed Income 25.00% Value-Add Real Estate 10.00% Total 100.00% Concentrations: The Plan did not hold investments in any one organization that represent 5 percent or more of the Pension Plan's fiduciary net position. Rate of Return: For the year ended September 30, 2014, the annual money-weighted rate of return on Pension Plan investments, net of pension plan investment expense, was 8.82 percent. The money-weighted rate of return expresses investment performance, net of investment expense, adjusted for the changing amounts actually invested. Net Pension Liability of the Sponsor The components of the net pension liability of the sponsor on September 30, 2014, were as follows: Total Pension Liability $ 42,730,212 Plan Fiduciary Net Position (39,242,245) Sponsor's Net Pension Liability $ 3,487,967 Plan Fiduciary Net Position as a Percentage of Total Pension Liability 91.84% 50  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 7. DEFINED BENEFIT PENSION PLANS -- CONTINUED Actuarial Assumptions: The total pension liability was determined by an actuarial valuation as of October 1, 2013 updated to September 30, 2014, using the following actuarial assumptions applied to all measurement periods. Inflation 3.00% Salary Increases 3.50% - 6.50% Investment Rate of Return 7.90% Mortality rates were based on the RP 2000 Combined Healthy Participant Mortality Tables for males and females. There is no provision for future mortality improvements after 2000 being made. The long-term expected rate of return on pension plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expenses and inflation) are developed for each major asset class. These ranges are combined to produce the long term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. Best estimates of arithmetic real rates of return for each major asset class included in the pension plan's target asset allocation as of September 30, 2014 are summarized in the following table: Long Term Expected Asset Class Real Rate of Return Domestic Equity 7.50% International Equity 8.50% Domestic Core Fixed Income 2.50% Value-Add Real Estate 2.50% Discount Rate: The discount rate used to measure the total pension liability was 7.90 percent. The projection of cash flows used to determine the discount rate assumed that plan member contributions will be made at the current contribution rate and that sponsor contributions will be made at rates equal to the difference between actuarially determined contribution rates and the member rate. Based on those assumptions, the pension plan's fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. Current 1% Decrease Discount Rate 1% Increase 6.90% 7.90% 8.90% Sponsor's Net Pension Liability $ 7,968,673 $ 3,487,967 $ (323,599) 51  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 7. DEFINED BENEFIT PENSION PLANS -- CONTINUED Plan Description-Police Officers’ Retirement Fund (PORF) Plan Administration The Police Officers’ Retirement Board of Trustees (Police Board) is designated as the plan administrator. The Police Board shall consist of five Trustees, two of whom, unless otherwise prohibited by law, shall be legal residents of the City, who shall be appointed by the Fort Walton Beach City Council, and two of whom shall be Members of the System, who shall be elected by a majority of the Police Officers who are Members of the System. The fifth Trustee shall be chosen by a majority of the previous four Trustees as provided for herein, and such person's name shall be submitted to the Fort Walton Beach City Council who shall, as a ministerial duty, appoint such person to the Police Board as its fifth Trustee. Plan Membership as of October 1, 2013 Inactive Plan Members or Benificiaries Currently Receiving Benefits 45 Inactive Plan Members Entitled to but Not Yet Receiving Benefits 11 Active Plan Members 39 95 Benefits Provided The plan provides retirement, termination, disability and death benefits. A member may retire at age 50 with 10 years of credited service or completion of 25 years of credited service (early retirement) or at age 55 and the completion of 10 years of service or the completion of 30 years of credited service (normal retirement). Members hired between ages 45 and 50 must work 10 years. Benefits become 100% vested upon completion of 10 years of credited service. The plan provides retirement benefits which are a ten year certain life annuity in the amount of 2.75% of average final compensation times credited service with a maximum benefit of 75% of average final compensation. Benefits are reduced 6% for each year prior to the age of 55. Varied benefits exist for disability and pre-retirement death. Each April 1 the benefit paid to service retires is adjusted in accordance with the CPI increase during the previous year not to exceed 3%. Funding Policy and Contributions The City Council adopted a funding policy as provided in Chapter 112, Florida Statutes that provides for annual employer contributions based upon an annual actuarial valuation. The actuarially determined rate is the estimated amount necessary to pay current costs of benefits earned by plan members during the year with an additional amount to finance the unfunded liability over a closed 30 year period. The contribution is determined using the entry age normal level percentage of pay actuarial cost method. The contribution to the Plan for FY2014 was $836,053 by the Employer and $175,703 by the State of Florida computed through an actuarial valuation performed as of October 1, 2012 and represented 47.2% of covered payroll. Members contributed $96,590, a rate of 5% of annual pay. Officers who have completed 27.27 years of service contribute 0.5% of annual pay. 52  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 7. DEFINED BENEFIT PENSION PLANS -- CONTINUED Plan Description-Police Officers’ Retirement Fund (PORF) - Continued Investments Investment Policy: The following was the Police Board's adopted asset allocation policy as of September 30, 2014: Asset Class Target Allocation Domestic Equity - Growth 45.00% International Equity 15.00% Core Fixed Income 40.00% Total 100.00% Concentrations: The Plan did not hold investments in any one organization that represent 5 percent or more of the Pension Plan's fiduciary net position. Rate of Return: For the year ended September 30, 2014, the annual money-weighted rate of return on Pension Plan investments, net of pension plan investment expense, was 9.96 percent. The money-weighted rate of return expresses investment performance, net of investment expense, adjusted for the changing amounts actually invested. Net Pension Liability of the Sponsor Total Pension Liability $ 25,008,402 Plan Fiduciary Net Position (20,463,453) Sponsor's Net Pension Liability $ 4,544,950 Plan Fiduciary Net Position as a Percentage of Total Pension Liability 81.83% Actuarial Assumptions: The total pension liability was determined by an actuarial valuation as of October 1, 2013, updated to September 30, 2014, using the following actuarial assumptions applied to all measurement periods. Inflation 3.00% Salary Increases 3.00% -10.00% Investment Rate of Return 8.00% Mortality rates were based on the RP-2000 Combined Healthy Table (sex distinct) with a five year set forward for disabled lives. Based on a study over 650 public safety funds, this table reflects a 10% margin for future morality improvements. The actuarial assumptions used in the October 1, 2013 valuation were based on the results of an actuarial experience study for the period 1991-2012. 53  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 7. DEFINED BENEFIT PENSION PLANS -- CONTINUED Net Pension Liability of the Sponsor - Continued The long-term expected rate of return on pension plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expenses and inflation) are developed for each major asset class. These ranges are combined to produce the long term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. Best estimates of arithmetic real rates of return for each major asset class included in the pension plan's target asset allocation as of September 30, 2014 are summarized in the following table: Long Term Expected Asset Class Real Rate of Return Domestic Equity - Growth 7.50% International Equity 8.50% Core Fixed Income 2.50% Discount Rate: The discount rate used to measure the total pension liability was 8.00 percent. The projection of cash flows used to determine the discount rate assumed that plan member contributions will be made at the current contribution rate and that sponsor contributions will be made at rates equal to the difference between actuarially determined contribution rates and the member rate. Based on those assumptions, the pension plan's fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. Current 1% Decrease Discount Rate 1% Increase 7.00% 8.00% 9.00% Sponsor's Net Pension Liability $ 7,406,697 $ 4,544,950 $ 2,375,686 54  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 7. DEFINED BENEFIT PENSION PLANS – CONTINUED Plan Description – Firefighters’ Retirement Fund (FRF) Plan Administration The Plan is administered by the Firefighters’ Retirement Board of Trustees (Fire Board) comprised of: a. Two Members of the Fund elected by a majority of the membership, b. Two City residents appointed by the City Council, c. Fifth Member elected by other four and appointed by Council as a ministerial duty. Plan Membership as of October 1, 2013 Inactive Plan Members or Benificiaries Currently Receiving Benefits 24 Inactive Plan Members Entitled to but Not Yet Receiving Benefits 1 Active Plan Members 36 61 Benefits Provided The plan provides retirement, disability and death benefits. A member may retire at age 45 with 10 years of credited service (early retirement) or at age 55 and 10 years of credited service or 25 years of credited service regardless of age (normal retirement). Benefits become 100% vested upon completion of 10 years of credit service. The plan provides a retirement benefit which are a 10 year certain and life thereafter annuity in the amount of 2.75% of average final compensation times credited service. Benefits are reduced 0.25% for each month prior to the normal retirement date. Varied benefits exist for disability and pre-retirement death. Benefits for service retirees are adjusted for a 3% cost of living increase on the January 1 following the later of age 58 or the date of retirement. Funding Policy and Contributions The City Council adopted a funding policy as provided in Chapter 112, Florida Statutes that provides for annual employer contributions based upon an annual actuarial valuation. The actuarially determined rate is the estimated amount necessary to pay current costs of benefits earned by plan members during the year with an additional amount to finance the unfunded liability over a closed 30 year period. The contribution is determined using the entry age normal level percentage of pay actuarial cost method. The contribution to the Plan for FY2014 was $715,439 by the Employer and $214,272 by the State of Florida computed through an actuarial valuation performed as of October 1, 2012 and represented 40.1% of covered payroll. Members contributed $135,622, a rate of 6.6% of annual pay. 55  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 7. DEFINED BENEFIT PENSION PLANS – CONTINUED Plan Description – Fire Fighters’ Retirement Fund (FRF) - Continued Investments Investment Policy: The following was the Fire Board's adopted asset allocation policy as of September 30, 2014: Asset Class Target Allocation Domestic Equity- Large Cap Core 27.00% Domestic Equity- Opportunistic 18.00% International Equity 15.00% Domestic Core Fixed Income 30.00% Core Real Estate 10.00% 100.00% Concentrations: The Plan did not hold investments in any one organization that represent 5 percent or more of the Pension Plan's fiduciary net position. Rate of Return: For the year ended September 30, 2014, the annual money-weighted rate of return on Pension Plan investments, net of pension plan investment expense, was 9.72 percent. The money-weighted rate of return expresses investment performance, net of investment expense, adjusted for the changing amounts actually invested. Deferred Retirement Option Program Eligibility: Satisfaction of Normal Retirement requirements. Participation: Not to Exceed 60 Months Rate of Return: At the Member’s election: (1) 6.5% annual rate, or (2) actual net rate of investment return (total return net of brokerage commissions, management fees, and transaction costs). The DROP balance as September 30, 2014 is $0. Net Pension Liability of the Sponsor The components of the net pension liability of the sponsor on September 30, 2014 were as follows: Total Pension Liability $ 19,195,485 Plan Fiduciary Net Position (13,662,320) Sponsor's Net Pension Liability $ 5,533,165 Plan Fiduciary Net Position as a Percentage of Total Pension Liability 71.17% 56  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 7. DEFINED BENEFIT PENSION PLANS – CONTINUED Net Pension Liability of the Sponsor - Continued Actuarial Assumptions: The total pension liability was determined by an actuarial valuation as of October 1, 2013 updated to September 30, 2014, using the following actuarial assumptions applied to all measurement periods. Inflation 3.00% Salary Increases 6.50% Investment Rate of Return 8.00% Mortality rates were based on the RP-2000 Combined Healthy Table, set forward 5 years for Disability Retirees. Based on a study of over 650 public safety funds, this table reflects a 10% margin for future mortality improvements. The long-term expected rate of return on pension plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expenses and inflation) are developed for each major asset class. These ranges are combined to produce the long term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. Best estimates of arithmetic real rates of return for each major asset class included in the pension plan's target asset allocation as of September 30, 2014 are summarized in the following table: Long Term Expected Asset Class Real Rate of Return Domestic Equity- Large Cap Core 7.50% Domestic Equity- Opportunistic 7.50% International Equity 8.50% Domestic Core Fixed Income 2.50% Core Real Estate 4.50% Discount Rate: The discount rate used to measure the total pension liability was 8.00 percent. The projection of cash flows used to determine the discount rate assumed that plan member contributions will be made at the current contribution rate and that sponsor contributions will be made at rates equal to the difference between actuarially determined contribution rates and the member rate. Based on those assumptions, the pension plan's fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. Current 1% Decrease Discount Rate 1% Increase 7.00% 8.00% 9.00% Sponsor's Net Pension Liability $ 7,817,066 $ 5,533,165 $ 3,784,205 57  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 7. DEFINED BENEFIT PENSION PLANS – CONTINUED The components of net pension cost, the increase in Net Pension Asset, and the Net Pension Asset for the year ended September 30, 2014, most recent actuarial date, for the General Employees', Police Officers' and Firefighters' Retirement Funds are as follows: General Employees' Police Officers' Firefighters' Actuarially determined contribution $ 1,187,794 $ 932,426 * $ 824,007 * Interest on net pension asset (12,061) (13,949) (22,367) Adjustment to actuarially determined pension cost 16,430 13,688 17,058 Annual pension cost 1,192,163 932,165 818,698 Contribution made 1,296,450 1,011,756 * 839,825 * Change in net pension asset 104,287 79,591 21,127 Net pension asset - beginning of year 152,674 174,368 279,588 Net pension asset - end of year $ 256,961 $ 253,959 $ 300,715 * Beginning 9/30/2012, this includes both City and State contributions Required Supplementary Information The Schedule of Changes in the Net Pension Liability and Related Ratios along with the Schedule of City Contributions for each plan is presented as Required Supplementary Information (RSI) following the notes to the financial statements on pages 77-81. 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, 2014: COMBINING STATEMENT OF PLAN NET POSITION Employee Retirement Funds General Total Employee Employees' Police Officers' Firefighters' Retirement Retirement Retirement Retirement Funds ASSETS Cash and cash equivalents $ 1,579,027 $ 862,548 $ 392,385 $ 2,833,960 Due from State of Florida - - 17,330 17,330 Investments, at market U.S. Government and Agency obligations 5,950,468 4,435,121 1,323,707 11,709,296 Corporate obligations 2,475,038 1,100,573 2,923,711 6,499,322 Corporate equity 23,456,009 5,545,016 5,728,303 34,729,328 Mutual funds 5,781,703 8,520,198 3,276,883 17,578,784 Total investments, at market 37,663,218 19,600,908 13,252,604 70,516,730 TOTAL ASSETS $ 39,242,245 $ 20,463,456 $ 13,662,319 $ 73,368,020 NET POSITION HELD IN TRUST FOR PENSION BENEFITS AND OTHER PURPOSES $ 39,242,245 $ 20,463,456 $ 13,662,319 $ 73,368,020 58  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 7. DEFINED BENEFIT PENSION PLANS – CONTINUED Fund Financial Statements – Continued COMBINING STATEMENT OF CHANGES IN PLAN NET POSITION Employee Retirement Funds General Total Employee Employees' Police Officers' Firefighters' Retirement Retirement Retirement Retirement Funds ADDITIONS Contributions Employer $ 1,296,450 $ 836,054 $ 715,439 $ 2,847,943 Plan members 212,790 96,590 135,622 445,002 State of Florida - 175,703 214,272 389,975 Total contributions 1,509,240 1,108,347 1,065,333 3,682,920 Investment income (loss) 3,442,292 1,964,121 1,290,707 6,697,120 Less investment expense (184,795) (77,836) (72,045) (334,676) Net investment income (loss) 3,257,497 1,886,285 1,218,662 6,362,444 Miscellaneous revenue 657 461 - 1,118 TOTAL ADDITIONS 4,767,394 2,995,093 2,283,995 10,046,482 DEDUCTIONS Benefits and refunds paid Retirement payments 2,443,931 1,511,407 1,043,849 4,999,187 Disability payments 46,851 102,023 5,894 154,768 Other 84,522 18,623 21,559 124,704 Total benefits and refunds paid 2,575,304 1,632,053 1,071,302 5,278,659 Administrative expenses Legal 3,144 13,205 4,270 20,619 Contractual 57,425 34,077 31,356 122,858 Other 11,914 8,458 16,410 36,782 Total administrative expenses 72,483 55,740 52,036 180,259 TOTAL DEDUCTIONS 2,647,787 1,687,793 1,123,338 5,458,918 NET INCREASE (DECREASE) 2,119,607 1,307,300 1,160,657 4,587,564 BEGINNING OF YEAR 37,122,638 19,156,156 12,501,662 68,780,456 END OF YEAR $ 39,242,245 $ 20,463,456 $ 13,662,319 $ 73,368,020 59  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 8. DEFINED CONTRIBUTION PENSION PLAN City of Fort Walton Beach Defined Contribution Plan In December 2009, City Council closed the General Employees’ Defined Benefit Plan. All general, full-time employees hired on or after January 1, 2010, are members of the Defined Contribution Retirement Plan (Plan). The Plan is a money purchase defined contribution retirement plan administered by ICMA Retirement Corporation, with the City serving as trustee. All funds are held in the ICMA Retirement Corporation Governmental Money Purchase Plan & Trust in the name of each participant. The City finance director serves as the coordinator for the Plan. The Plan requires a 5% payroll contribution by the employee with a 5% employer (City) match. Employees can increase their contribution; however, only an additional 2½% is eligible for City match. Members of the General Employees’ Defined Benefit Pension Plan, who were not fully or partially vested at the time the Plan was opened, were permitted to transfer their contributions to the Plan as a one–time, irrevocable election. The Plan participants individually select and make changes in funding options, which are made available by the independent plan administrator. Since participants select the investment fund or funds in which their deferred compensation accounts are invested, the City has no liability for investment losses. The authority for establishing and amending the Plan's provisions lies with the City Council. The City Council also has the authority for amending contribution requirements. Contributions made to the Plan by the employees and by the City were $105,017 and $105,017, respectively, for the year ending September 30, 2014. The City’s contributions vest 20% each year beginning after one year of employment. Participants are fully vested after 5 years of service. 9. DEFERRED COMPENSATION PLAN The City offers employees a deferred compensation plan created in accordance with Internal Revenue Code Section 457 (Plan). The Plan is a tax–deferred supplemental retirement program that allows City employees to contribute a portion of their salary, before federal income taxes, to a retirement account. The assets are held in trust for the employees’ benefit. The Plan participants individually select and make changes in funding options, which are made available by the independent plan administrator. Since participants select the investment fund or funds in which their deferred compensation accounts are invested, the City has no liability for investment losses. The City’s fiduciary responsibility is to administer the Plan properly and to assure the investment alternatives made available are reasonable. Assets of the plan have a fair value of $2,673,655 at September 30, 2014. Contributions made by plan members during the year ended September 30, 2014, were $72,966. 10. OTHER POST EMPLOYMENT BENEFITS (OPEB) The latest actuarial valuation was performed as of September 30, 2013. GASB No. 45 allows for performing actuarial valuations biennially with results applicable to two reporting years. Unless otherwise noted, the following disclosures are represented as of September 30, 2014: 60  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 10. OTHER POST EMPLOYMENT BENEFITS (OPEB) – CONTINUED Plan Description Pursuant to Section 112.0801, Florida Statutes, the City is mandated to permit eligible retirees (as defined in the City's pension plans) and their eligible dependents to participate in the health insurance program at a cost to the retiree that is no greater than the cost at which coverage is available for active employees. Retirees pay 100% of the blended (active and retiree combined) equivalent premium rates. The blended rates provide an implicit subsidy for retirees because, on an actuarial basis, their current and future claims are expected to result in higher costs to the plan on average than those of active employees. The City provides this benefit to its employees through a single-employer defined benefit plan. The plan does not issue a separate report. Funding Policy The City is financing the post employee benefits on a "pay–as–you–go" basis. Annual required contributions were $501,876 for the current fiscal year, towards which the City made a contribution of $275,495. Retiree contributions totaled $363,483 for the fiscal year ended September 30, 2014. At September 30, 2014, the City recorded a net OPEB obligation of $827,824 for governmental activities and $266,894 for business–type activities in its government–wide statement of net position. The OPEB obligation is a function of the annual required contribution, interest, adjustments to the annual required contribution, annual pension costs, and actual employers' contributions made to the plan. Membership At September 30, 2014, membership consisted of: Retirees and beneficiaries currently receiving benefits 95 Terminated employees entitled to benefits but not receiving them 0 Active employees 221 Total 316 Participating employers 1 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. 61  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 10. OTHER POST EMPLOYMENT BENEFITS (OPEB) – CONTINUED Annual OPEB Cost and Net OPEB Obligation – Continued The following table shows the components of the City's annual OPEB cost for the fiscal year ended September 30, 2014, the amount actually contributed to the plan, and changes in the City's net OPEB obligation to the retiree health plan: Annual required contributions $ 501,876 Interest on net OPEB obligation 34,680 Adjustment to annual required contribution (33,347) Annual OPEB cost (expense) total 503,209 Employer contributions (275,495) Increase in net OPEB obligation 227,714 Net OPEB obligation - beginning of year 867,004 Net OPEB obligation - end of year $ 1,094,718 For the governmental activities, the net other postemployment benefit obligation is generally liquidated by the general fund. The City's annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for the past three years, were as follows: Three-Year Trend Information Net OPEB Annual OPEB City Percentage Obligation Cost Contributions * Contributed (Asset) October 1, 2012 $ 490,753 $ 278,132 56.67% $ 658,823 October 1, 2013 484,115 275,935 57.00% 867,004 October 1, 2014 503,210 275,495 54.75% 1,094,718 * Limited to the difference between age-adjusted and composite premiums paid for retirees during the year. Funded Status and Funding Progress As of October 1, 2013, the most recent actuarial valuation date, the plan funded status was as follows: Actuarial UAAL as a Accrued Unfunded Annual % of Actuarial Value of Liability (AAL) AAL (UAAL) Funded Covered Payroll Assets (a) Entry Age (b) (b-a) Ratio (a/b) Payroll (c) [c/(b-a)] October 1, 2012 $0 $4,768,818 4,768,818 0.00% 8,291,828 57.51% October 1, 2013 $0 $6,312,795 $6,312,795 0.00% $6,578,002 95.97% October 1, 2014 $0 $ 5,651,699 $ 5,651,699 0.00% $ 7,300,258 77.42% 62  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 10. OTHER POST EMPLOYMENT BENEFITS (OPEB) – CONTINUED Required Supplementary Information The Schedule of Funding Progress immediately following the notes to the financial statements presents multi-year trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits. The Schedule of Employer Contributions can also be found in the supplemental information of this comprehensive annual report. The projection of future benefit payments for an ongoing plan involves estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multi-year trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. Actuarial Methods and Assumptions Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. Actuarial valuations involve estimates of the value of reported amounts and assumptions about the probability of events far into the future. Actuarially determined amounts are subject to continual revision as results are compared to past expectations and new estimates are made about the future. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long–term perspective of the calculations. In the latest actuarial valuation as of October 1, 2013, the Individual Entry Age Normal Cost Method (with an increasing Normal Cost pattern consistent with the salary increase assumptions) was used. The actuarial assumptions included a 4% investment rate of return and an annual healthcare costs trend rate of 1.3%, which will be increased to an ultimate rate of 5.42% beginning in fiscal year ending September 30, 2032. The investment rate of return included a 3% inflation assumption. The unfunded actuarial accrued liability is being amortized in a closed amortization, calculated as a level percent of payroll over a twenty-six year period. 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, 2014. 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. 63  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 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. In fiscal year 2014, Golf operations were moved from the Golf Fund to the General Fund. Income for the year ended September 30, 2014, was $261,480 in the General Fund and $16,871 in the Utilities Funds. 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, 2014, totaled $75,386. Future minimum lease payments are as follows: Governmental Business-Type Year Ending September 30 Activities Activities 2015 $ 320,135 $ 17,377 2016 316,107 17,898 2017 314,523 18,435 2018 295,059 18,988 2019 293,425 19,558 Total minimum lease payments $ 1,539,249 $ 92,256 Lessee The City leases golf course equipment and golf carts in the General Fund through operating leases with two finance companies. During 2011, a four year operating lease was signed for golf equipment. The lease term began April 1, 2011 and terminates March 31, 2015. During 2013, a lease for golf carts and utility vehicles was signed. The lease term began January 1, 2013 and terminates June 30, 2016. In fiscal year 2014, Golf operations were moved from the Golf Fund to the General Fund. Monthly lease payments are $9,128. Lease expense for the fiscal year ending September 30, 2014 was $109,534. Future minimum lease payments are as follows: Governmental Year Ending September 30 Activities 2015 $ 108,653 2016 80,829 Total minimum lease payments $ 189,482 64  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 12. OPERATING LEASES – CONTINUED Lessee – Continued The City leases copiers in the General, Utilities, and Sanitation Funds through Xerox. During 2010, five year operating leases were signed for copiers. The lease term began June 1, 2010 and terminates May 31, 2015. In 2011, an additional five year copier lease was signed. The lease term began January 1, 2011 and terminates December 31, 2015. Monthly lease payments in each fund are as follows: General Fund: $3,248; Utilities Fund: $177; and Sanitation Fund: $63. Lease expense for the year ending September 30, 2014 was as follows: General Fund: $38,978; Utilities Fund: $2,128; and Sanitation Fund: $758. Future minimum lease payments are as follows: Business-Type Activities Governmental Year Ending September 30 Activities Utilities Sanitation 2015 $ 28,914 $ 1,419 $ 505 2016 2,197 - - Total minimum lease payments $ 31,111 $ 1,419 $ 505 13. CAPITAL LEASES The City has entered into a lease agreement as lessee for financing the acquisition of a telephone system. The lease agreement qualifies as a capital lease for accounting purposes as a result of the transfer of title or bargain purchase option and therefore has been recorded at the present value of the future minimum lease payments as of the inception date in the General Fund. The assets acquired through capital leases are as follows: Governmental Assets Activities Telephone system $ 103,784 Accumulated depreciation (10,723) Assets acquired by lease, net $ 93,061 The future minimum lease obligations and net present value of these minimum lease payments as of September 30, 2014, are as follows: Governmental Year Ending September 30 Activities 2015 $ 25,058 2016 25,058 2017 25,058 2018 25,058 2019 22,970 Total minimum lease payments 123,202 Less amount representing interest (33,548) Present value of minimum lease payments $ 89,654 65  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 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, 2014: Beginning Reductions / Ending Due Within Balance Additions Transfers Balance One Year Governmental activities Revenue notes payable $ 13,535,936 $ - $ (527,421) $ 13,008,515 $ 636,928 Capital leases 101,696 - (12,042) 89,654 13,774 Compensated absences 690,149 741,741 (716,326) 715,564 178,891 Total governmental activities $ 14,327,781 $ 741,741 $ (1,255,789) $ 13,813,733 $ 829,593 Beginning Reductions / Ending Due Within Balance Additions Transfers Balance One Year Business-type activities Revenue bonds payable $ 10,035,000 $ - $ (290,000) $ 9,745,000 $ 300,000 Less deferred amounts for issuance discounts (109,945) - 5,091 (104,854) - Revenue notes payable 73,533 - (73,533) - - State revolving loans 7,068,522 6,936,184 - 14,004,706 - Compensated absences 220,937 148,403 (191,435) 177,905 44,476 Total business-type activities $ 17,288,047 $ 7,084,587 $ (549,877) $ 23,822,757 $ 344,476 66  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 14. LONG–TERM DEBT – CONTINUED Description of Long–Term Debt Outstanding Current Long-Term Total GOVERNMENTAL ACTIVITIES Revenue Notes $8,500,000 City of Fort Walton Beach, Florida, Capital Improvement Revenue Note, Series 2013A, 2.69% interest due semi annually and principal due annually ranging from $326,969 to $464,334 through 2027 with a balloon payment of $3,000,000 due in 2028. Budgeted and appropriated half cent sales tax is pledged for payment of the bonds. Proceeds used to finance the construction of the City's new recreational complex along with the purchase of a bucket truck and a grounds sweeper for City's municipal golf course. $ 337,670 $ 7,835,361 $ 8,173,031 $4,470,610 City of Fort Walton Beach, Florida, Capital Improvement Refunding Revenue Note, Series 2013, 2.30% interest due semi annually and principal due annually ranging from $187,659 to $299,010 through 2031. Available non ad valorem revenues are pledged for payment of the bonds. Proceeds used for refunding Series 2001 revenue bonds for construction of certain capital improvements. 210,709 4,072,242 4,282,951 $739,805 City of Fort Walton Beach, Florida, Capital Improvement Revenue Note, Series 2011, due in quarterly installments of $24,449 through April 2016 then $21,156 from June 2016 through April 2021; interest at 2.55%. Available non ad valorem revenues are pledged for payment of the bonds. Proceeds used for purchase of a fire truck and golf equipment. 88,549 463,984 552,533 Total revenue notes 636,928 12,371,587 13,008,515 Lease $103,784 capital lease payable, 2013, due in monthly installments of $2,088 through August 2019, collateralized by a the City's phone system. 13,774 75,880 89,654 Accrued Compensated Absences Total long-term portion of accumulated, vested annual and sick leave for governmental fund types 178,891 536,673 715,564 TOTAL GOVERNMENTAL ACTIVITIES $ 829,593 $ 12,984,140 $ 13,813,733 67  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 14. LONG–TERM DEBT – CONTINUED Description of Long–Term Debt Outstanding - Continued Current Long-Term Total 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. $ 300,000 $ 9,445,000 $ 9,745,000 Less unamortized bond discount - (104,854) (104,854) 300,000 9,340,146 9,640,146 State Revolving Loans $19,504,447 State of Florida Department of Environmental Protection Revolving Loan Fund; semi annual payments of $594,037 including interest at 1.90% beginning November 15, 2015, through May 15, 2034 if fully drawn. As of September 30, 2014, $14,004,706 has been drawn on the loan. Proceeds used for force main replacement, storage tank construction and pump station upgrades as disclosed in Note 5. - 14,004,706 14,004,706 Accrued Compensated Absences Accumulated, vested annual compensation for Enterprise Funds 44,476 133,429 177,905 TOTAL BUSINESS-TYPE ACTIVITIES $ 344,476 $ 23,478,281 $ 23,822,757 GRAND TOTAL LONG-TERM DEBT $ 37,636,490 For the governmental activities, compensated absences are generally liquidated by the General Fund. 68  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 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, 2014, are as follows: Refunding Leases Revenue Note Year Ending September 30 Principal Interest Principal Interest 2015 $ 13,774 $ 11,284 $ 636,928 $ 331,610 2016 15,755 9,303 646,256 315,400 2017 18,021 7,036 651,675 299,112 2018 20,613 4,444 664,711 282,526 2019 21,491 1,479 682,573 265,599 2020-2024 - - 3,402,957 1,068,812 2025-2029 - - 5,730,407 561,053 2030-2031 - - 593,008 20,516 Total $ 89,654 $ 33,546 $ 13,008,515 $ 3,144,628 Business-Type Activities Municipal Loan/Revenue Bonds State Revolving Loan Year Ending September 30 Principal Interest Principal Interest 2015 $ 300,000 $ 422,246 $ - $ 594,037 2016 310,000 410,996 931,948 256,126 2017 320,000 399,371 949,739 238,335 2018 335,000 386,571 967,870 220,204 2019 350,000 373,171 986,347 201,727 2020-2024 1,975,000 1,638,001 5,221,471 718,899 2025-2029 2,430,000 1,176,453 4,947,331 204,703 2030-2034 3,035,000 577,010 - - 2035 690,000 31,050 - - Total $ 9,745,000 $ 5,414,869 $ 14,004,706 $ 2,434,031 On May 6, 2013, the City issued $4,470,610 of Capital Improvement Refunding Revenue Notes, Series 2013, with a fixed interest rate of 2.69% for the purpose of current refunding the remaining outstanding principal on its Capital Improvement Bonds, Series 2001, which bore interest ranging from 2.50% to 5.00%. The refunding was undertaken to take advantage of favorable interest rates. The cash flow requirement of the refunded 2001 bonds, prior to the refunding, was $6,898,278 from July 1, 2013 to July 1, 2031. The cash flow requirements of the 2013 refunding notes are $5,529,544. The current refunding resulted in an economic gain (difference between the present value of the debt service payments on the old and new debt) of approximately $1,200,000. 69  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 15. COMMENTS REQUIRED BY THE BOND AND ORDINANCES Utility System Revenue Bonds, Series 2005 1. The Balance Sheet and Statement of Revenues, Expenses, and Changes in Fund Balance of the Utility Fund are shown in the financial section of the report. 2. 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 Requirement at Principal/Interest September 30, Payments Due 2014 Principal due at July 1, 2015 $ 300,000 $ 75,000 Interest due at January 1, 2015 211,123 105,562 Total $ 511,123 $ 180,562 1 (1) Amounts are included in restricted cash amounts on the Statement of Net Position of the Utility Fund 3. The City is required to establish a reserve in the amount of the Reserve Requirement established by the ordinance authorizing the issuance of the 2005 Bonds. The Reserve Requirement is the maximum bond service amount in the current or any subsequent year. The City satisfied the Reserve Requirement by establishing a reserve of $902,373 at September 30, 2014. 4. The City is not aware of any noncompliance with the bond ordinances. Capital Improvement Revenue Note, Series 2011 1. The Balance Sheet and Statement of Revenues, Expenses, Expenditures, and Changes in Fund Balance of the Debt Service Fund are shown in the financial section of the report. 2. The City is required to establish sinking fund amounts sufficient to pay all principal and interest becoming due on the bonds on the next quarter payment date. Sinking Fund Requirement at Principal/Interest September 30, Payments Due 2014 Principal due at October 1, 2014 $ 21,927 $ 21,927 Interest due at October 1, 2014 3,522 3,522 Total $ 25,449 $ 25,449 1 (1) Amounts are included in restricted cash amounts on the Balance Sheet of the Debt Service Fund 3. The City is not aware of any noncompliance with the bond ordinances. Capital Improvement Refunding Revenue Note, Series 2013 1. The Balance Sheet and Statement of Revenues, Expenditures, and Changes in Fund Balance of the Debt Service Fund are shown in the financial section of the report. 70  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 15. COMMENTS REQUIRED BY THE BOND AND ORDINANCES - CONTINUED Capital Improvement Refunding Revenue Note, Series 2013 - Continued 2. The City is required to establish sinking fund amounts sufficient to pay all principal and interest becoming due on the notes on the next semi–annual payment date. The sinking fund was not required to be funded at September 30, 2014. 3. The City is not aware of any noncompliance with the covenants. Capital Improvement Revenue Note, Series 2013A 1. The Balance Sheet and Statement of Revenues, Expenses, Expenditures, and Changes in Fund Balance of the Debt Service Fund are shown in the financial section of the report. 2. The City is required to establish sinking fund amounts sufficient to pay all principal and interest becoming due on the notes on the next semi–annual payment date. The sinking fund was not required to be funded at September 30, 2014. 3. The City is not aware of any noncompliance with the covenants. 16. UNEARNED / UNAVAILABLE REVENUE Governmental funds report unavailable 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, 2014, the various components of unearned/unavailable revenue were as follows: General Fund Unavailable 1 Unearned Special assessment for street resurfacing $ 109,250 $ - Long-term receivable from sale of building 425,000 - Prepaid lease revenue - 6,074 Gift and prepaid cards - 21,351 Total General Fund 534,250 27,425 Utilities Fund Prepaid utility bills - 37,490 Total $ 534,250 $ 64,915 (1) Unavailable revenue is presented as a deferred inflow of resources in the governmental funds and recognized as revenues when earned in the Statement of Activities. 71  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 17. INTERFUND RECEIVABLES, PAYABLES AND TRANSFERS The composition of interfund balances as of September 30, 2014, is as follows: Due to/from Other Funds Receivable Fund Payable Fund Amount General Community Development Block Grant $ 56,245 Advance to/from Other Funds Receivable Fund Payable Fund Amount Sanitation General $ 500,000 General Fund receivables from the Community Development Block Grant Fund in the amount of $56,245 are the result of eliminating temporary deficit cash balances. On September 30, 2014, the City’s Sanitation Fund loaned the General Fund $500,000 to purchase a Fire Engine. The loan from the Sanitation Fund will be paid back over a 10 year period at an interest rate of 2.00%. The balance of the advance as of September 30, 2014 is $500,000. Transfers In Nonmajor Governmental Transfers Out General Fund Fund Golf Fund Total General $ - $ 1,015,732 $ 225,722 $ 1,241,454 Utilities 490,433 - - 490,433 Sanitation 130,000 - - 130,000 $ 620,433 $ 1,015,732 $ 225,722 $ 1,861,887 The transfers out of the General Fund are $1,241,454. These transfers consists of a $994,863 transfer to the Debt Service Fund (Nonmajor Governmental Fund) for principal and interest payments on debt, and a $20,869 transfer to the Cemetery Perpetual Care Fund (Nonmajor Governmental Fund) for maintenance. During the fiscal year 2013-14 budget process, City Council voted to terminate the Golf Enterprise Fund and collapse operations into the City’s General Fund beginning in fiscal year 2014. The General Fund transferred $ 225,722 to the Golf Fund to liquidate the Golf Fund's negative equity. Transfers in to the General Fund of $620,433 consist of franchise fees from the Utility Fund of $490,433 and compensation from the Sanitation Fund for additional roadway wear & tear caused by the heavy trucks in the amount of $130,000. 72  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 18. GOVERNMENTAL FUND BALANCES At September 30, 2014, the City's governmental fund balances were classified as follows: Community Other Total Redevelopment Governmental Governmental General Fund Agency Funds Funds Nonspendable Inventory $ 262,964 $ 798 $ - $ 263,762 Restricted for Improvement districts - 4,072,566 - 4,072,566 Capital projects 3,910,637 - - 3,910,637 Library 171,450 - - 171,450 Public safety - - 565,946 565,946 Debt service - - 25,449 25,449 Other purposes 1,180 - - 1,180 Total restricted 4,083,267 4,072,566 591,395 8,747,228 Committed Cemetery maintenance - - 2,249,720 2,249,720 Natural disaster recovery 5,589,056 - - 5,589,056 Total committed 5,589,056 - 2,249,720 7,838,776 Assigned to Capital projects 1,473,250 - - 1,473,250 Self-insurance dental program refund 34,819 - - 34,819 Citizen police academy 3,057 - - 3,057 Other purposes 73,761 - - 73,761 Total assigned 1,584,887 - - 1,584,887 Unassigned 1,300,881 - (6,231) 1,294,650 $ 12,821,055 $ 4,073,364 $ 2,834,884 $ 19,729,303 73  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 19. ENCUMBRANCES The amount of encumbrances outstanding as of September 30, 2014, is as follows: Governmental Funds - General Fund $ 934,731 Encumbrances at year end do not constitute expenditures or liabilities; therefore, they are not reflected in the financial statements. 20. COMMITMENTS AND CONTINGENCIES Grants Amounts received or receivable from grant agencies are subject to audit and adjustment by grantor agencies, principally the federal government. Any disallowed claims, including amounts already collected, may constitute a liability of the applicable funds. The amount, if any, of expenditures which may be disallowed by the grantor cannot be determined at this time, although the City expects such amount, if any, to be immaterial. 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 an amended Interlocal Agreement whereby the City approved the use of up to $700,000 in Community Redevelopment Agency Special Revenue Trust Fund for site demolition, infrastructure improvements, site restoration and other costs for the project. The total amount will be eventually repaid by the property owner, Soundside LLC, to the City’s Community Redevelopment Agency, at no more the $52,142 per year at 1.5% interest, and shall become payable no sooner than three (3) years after the closing date, payable over a 40-year period. The total amount provided from the Community Redevelopment Agency of the City, which remains unpaid as of September 30, 2014 is $352,273. 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. 74  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 20. COMMITMENTS AND CONTINGENCIES – CONTINUED Wastewater Service Interlocal Agreement with Okaloosa County – Continued On a monthly basis, the County will bill the City at a rate equal to $2.77 per each 1,000 gallons of wastewater flow. Additionally, the City will pay to the County the Sewer Readiness to Serve Fee, which is equal to $4,221 per month. Each year in March, the Readiness to Serve Fee will increase by 3%. The minimum commitment by the City under the Agreement is as follows: Fiscal Year Ending September 30 2015 $ 51,534 2016 53,080 2017 54,673 2018 56,313 2019 58,002 2020 through 2024 317,180 2025 through 2029 367,699 2030 through 2034 426,263 2035 through 2039 494,156 Total $ 1,878,900 Fees paid for wastewater treatment to Okaloosa County, Florida during the year ended September 30, 2014, were $2,920,986. 21. GASB PRONOUNCEMENTS ISSUED BUT NOT YET ADOPTED In June 2012, the GASB issued GASB Statement No. 68, Accounting and Financial Reporting for Pensions – an amendment to Statement No. 27. This Statement enhances the financial reporting by state and local governments for pensions. It also improves information provided by state and local governmental employers about financial support for pensions that is provided by other entities. This statement requires governments providing defined benefit pensions to recognize their long–term obligation for pension benefits as a liability for the first time, and to more comprehensively and comparably measure the annual costs of pension benefits. It also enhances accountability and transparency through revised and new disclosures and required supplementary information. Management believes GASB Statement No. 68 will have a significant impact on the financial position and changes in net position of the City. The estimated net pension liabilities expected to be recorded upon adoption for each plan can be found in the required supplementary information. The provisions of this Statement are effective for financial statements for periods beginning after June 15, 2014, which requires the City to implement this statement in FY 2014–2015. 75  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2014 22. SUBSEQUENT EVENTS Sale of Property at 31 Memorial Parkway SW On October 14, 2014, the City sold a portion of the property located at 31 Memorial Parkway SW to the Emerald Coast Science Center for $462,000. The City is offering owner financing for the purchase amortized over a 20-year period at 5% interest with a balloon payment after twelve years. The down payment was $20,000. Venture Hive On January 27, 2015, City Council approved the allocation of up to $500,000 of Community Redevelopment Agency fund balance to assist in starting up a Venture Hive entrepreneurship education company which offers institutions and communities effective turnkey models to create and entrepreneurial ecosystem. Utility Rate Study On October 14, 2014, City Council approved a 5-year utility rate study for both the Utilities Fund and the Stormwater Fund. For fiscal year 2014-15, the rates for the Utility Fund were adjusted by 9.00% and the rates for the Stormwater Fund were adjusted by $.50 per ERU. The full study can be found on the City’s website at www.fwb.org. Okaloosa Public Transit Cooperative Agreement On January 27, 2015, the City entered into an Agreement with Okaloosa County and nine municipalities within the County to form and Okaloosa County Public Transit Cooperative. The current Agreement does not require any financial commitment by the City. 76 REQUIRED SUPPLEMENTARY INFORMATION  CITY OF FORT WALTON BEACH, FLORIDA REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF CHANGES IN THE CITY’S NET PENSION LIABILITY AND RELATED RATIOS (UNAUDITED) Fiscal year ending September 30, 2014 GERF PERF FERF Total Pension Liability Service cost $ 622,382 $ 322,118 $ 414,836 Interest 3,222,809 1,905,286 1,425,875 Differences between expected and actual experiences - - - Change in excess state money - - 89,886 Benefit payments, including refunds of employee contributions (2,575,304) (1,632,053) (1,071,302) Net change in total pension liability 1,269,887 595,351 859,295 Total pension liability - beginning 41,460,324 24,413,051 18,336,190 Total pension liability - ending (a) $ 42,730,211 $ 25,008,402 $ 19,195,485 Plan Fiduciary Net Position Contributions - employer $ 1,296,450 $ 836,053 $ 715,439 Contributions - state - 175,703 214,272 Contributions - member 212,790 96,591 135,622 Net investment income 3,228,153 1,869,244 1,201,162 Benefit payments, including refunds of employee contributions (2,575,304) (1,632,053) (1,071,302) Administrative expenses (42,482) (38,238) (34,536) Other - - - Net change in plan fiduciary net position 2,119,607 1,307,300 1,160,657 Plan fiduciary net position - beginning 37,122,638 19,156,156 12,501,662 Plan fiduciary net position - ending (b) $ 39,242,245 $ 20,463,456 $ 13,662,319 Net pension liability - ending (a) - (b) $ 3,487,966 $ 4,544,946 $ 5,533,166 Plan fiduciary net position as a percentage of the total pension liability 91.84% 81.83% 71.17% Covered employee payroll $ 4,255,801 $ 1,975,478 $ 2,054,879 Net pension liability as a percentage of covered employee payroll 81.96% 230.07% 269.27% Actual money-weighted rate of return, net of investment expense 8.82% 9.96% 9.72% Notes to schedule: This information is not available for previous years. The General Employees Pension Plan was closed to new entrants effect December 31, 2009. 77  CITY OF FORT WALTON BEACH, FLORIDA REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF CONTRIBUTIONS (UNAUDITED) LAST TEN FISCAL YEARS 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 General Employees' Retirement Fund Actuarially determined contribution $ 1,187,794 $ 1,268,253 $ 1,258,659 $ 1,091,338 $ 1,477,933 $ 1,268,428 $ 1,268,019 $ 1,231,003 $ 1,070,599 $ 678,947 Contributions in relation to the actuarially determined contributions 1,296,450 1,318,790 1,306,268 1,159,438 1,477,777 1,268,260 1,267,864 1,231,003 1,071,742 680,552 Contribution deficiency (excess) $ (108,656) $ (50,537) $ (47,609) $ (68,100) $ 156 $ 168 $ 155 $ - $ (1,143) $ (1,605) Covered employee payroll $ 4,255,801 $ 4,259,070 $ 4,542,537 $ 5,004,486 $ 5,595,076 $ 7,252,396 $ 7,521,520 $ 8,199,930 $ 7,715,643 $ 7,190,199 Contributions as a percentage of covered employee payroll 30.46% 30.96% 28.76% 23.17% 26.41% 17.49% 16.86% 15.01% 13.89% 9.46% Police Officers' Retirement Fund Actuarially determined contribution $ 932,426 $ 881,697 $ 875,055 $ 682,860 $ 665,220 $ 578,670 $ 488,381 $ 516,528 $ 433,829 $ 460,501 Contributions in relation to the actuarially determined contributions 1,011,756 925,589 968,003 682,860 665,220 578,670 488,381 516,528 433,829 460,501 Contribution deficiency (excess) $ (79,330) $ (43,892) $ (92,948) $ - $ - $ - $ - $ - $ - $ - Covered employee payroll $ 1,975,478 $ 2,038,886 $ 2,178,847 $ 2,239,545 $ 2,195,529 $ 2,557,811 $ 5,230,182 $ 2,602,616 $ 2,257,286 $ 2,426,479 Contributions as a percentage of covered employee payroll 51.22% 45.40% 44.43% 30.49% 30.30% 22.62% 9.34% 19.85% 19.22% 18.98% Firefighters' Retirement Fund Actuarially determined contribution $ 824,007 $ 817,997 $ 700,045 $ 675,386 $ 708,063 $ 555,720 $ 326,864 $ 299,027 $ 240,332 $ 200,627 Contributions in relation to the actuarially determined contributions 839,825 829,245 784,705 675,386 708,063 555,720 358,840 299,027 240,332 200,627 Contribution deficiency (excess) $ (15,818) $ (11,248) $ (84,660) $ - $ - $ - $ (31,976) $ - $ - $ - Covered employee payroll $ 2,054,879 $ 2,153,568 $ 1,946,811 $ 1,961,080 $ 2,116,516 $ 1,988,762 $ 1,632,275 $ 1,409,038 $ 1,807,962 $ 1,455,105 Contributions as a percentage of covered employee payroll 40.87% 38.51% 40.31% 34.44% 33.45% 27.94% 21.98% 21.22% 13.29% 13.79% See notes to the schedule of contributions. 78  CITY OF FORT WALTON BEACH, FLORIDA REQUIRED SUPPLEMENTARY INFORMATION NOTES TO THE SCHEDULE OF CONTRIBUTIONS (UNAUDITED) GENERAL EMPLOYEES’ RETIREMENT FUND Valuation Date: October 1, 2011 Notes: Actuarially determined contribution rates are calculated as of October 1, which is three years prior to the end of the fiscal year in which contributions are reported Methods and Assumptions Used to Determine Contribution Rates: Actuarial cost method: Individual Entry-Age Actuarial Cost Method Amortization method: Level dollar contributions over a reasonable period of future years Remaining amortization period: 15 years Actuarial value of Determined by adjusting the expected value of assets as of the valuation date by a assets: portion of the cumulative differences between the market value of assets and the expected value of assets as of the previous four valuation dates. Inflation: 3.0% per year Salary increases: 3.50% to 7.50% (depending on age) per year until the assumed retirement age. Interest rate: 7.90% per year, compounded annually, net of investment related expenses Cost of living increase: None Retirement age: Normal Retirement Termination rates: See table below. Rates do not apply to members eligible to retire and do not include separation on account of death or disability. Disability rates: See table below. 100% of disabilities are assumed to be service-connected Mortality: RP-2000 Combined Healthy Participant Mortality Tables for males and females. There is no provision for future mortality improvements after 2000 being made. Other Information: Termination and Disability Rate Table % Terminating % Becoming Disabled Age During the Year During the Year 30 7.40% 0.17% 40 6.11% 0.39% 50 4.32% 0.98% 60 5.63% 2.30% 79  CITY OF FORT WALTON BEACH, FLORIDA REQUIRED SUPPLEMENTARY INFORMATION NOTES TO THE SCHEDULE OF CONTRIBUTIONS (UNAUDITED) POLICE OFFICERS’ RETIREMENT FUND Valuation Date: October 1, 2012 Notes: Actuarially determined contribution rates are calculated as of October 1, which is two year(s) prior to the end of the fiscal year in which contributions are reported Methods and Assumptions Used to Determine Contribution Rates: Actuarial cost method: Entry Age Normal Actuarial Cost Method Amortization method: Level Percentage of Pay, Closed Remaining amortization period: 30 years Actuarial value of Each year, the prior Actuarial Value of Assets is brought forward utilizing the assets: historical geometric 4-year average Market Value return. It is possible that over time this technique will produce an insignificant bias above or below Market Value Inflation: 3.0% per year Salary increases: 7.50% per year until the assumed retirement age. Projected salary at retirement is increased 20% to account for non-regular compensation Interest rate: 8.00% per year, compounded annually, net of investment related expenses Cost-of-living increase: 3.00% per year beginning at retirement Payroll growth: 3.00% per year, but limited to the 10-year historical average (0.5% in 2012) Retirement age: Earlier of 1) Age 55, or 2) 30 years of service, regardless of age. Also any Member who has reached Normal Retirement is assumed to continue employment for one additional year Early retirement: Earlier of 1) Age 50 and 10 years of service, or 2) 25 years of service, regardless of age, members are assumed to retire with an immediate subsidized benefit at the rate of 2% per year Termination rates: See table below Disability rates: See table below. It is assumed that 75% of disablements and active Member deaths are service related Mortality: RP-2000 Combined Healthy Table (sex distinct) with a five year set forward for disabled lives. Based on a study of over 650 public safety funds, this table reflects a 10% margin for future morality improvements Other Information: Termination and Disability Rate Table % Terminating % Becoming Disabled Age During the Year During the Year 20 7.90% 0.14% 30 7.20% 0.18% 40 5.20% 0.30% 50 2.60% 1.00% 80  CITY OF FORT WALTON BEACH, FLORIDA REQUIRED SUPPLEMENTARY INFORMATION NOTES TO THE SCHEDULE OF CONTRIBUTIONS (UNAUDITED) FIREFIGHTERS’ RETIREMENT FUND Valuation Date: October 1, 2012 Notes: Actuarially determined contribution rates are calculated as of October 1, which is two year(s) prior to the end of the fiscal year in which contributions are reported Methods and Assumptions Used to Determine Contribution Rates: Actuarial cost method: Entry Age Normal Actuarial Cost Method Amortization method: Level Percentage of Pay, Closed Remaining amortization period: 30 years Actuarial value of Each year, the prior Actuarial Value of Assets is brought forward utilizing the assets: historical geometric 4-year average Market Value return. It is possible that over time this technique will produce an insignificant bias above or below Market Value Inflation: 3.0% Salary increases: 6.50% per year until the assumed retirement age Interest rate: 8.00% per year compounded annually, net of investment related expenses Normal retirement: Earlier of Age 55 and 10 years of service or 25 years of service, regardless of age. Also, any Member who has reached Normal Retirement is assumed to continue employment for one additional year Early retirement: Commencing with the earliest Early Retirement Age (45), Members are assumed to retire with an immediate subsidized benefit at the rate of 3.00% per year Disability rates: See table below Termination rates: See table below Payroll increase: 3.00% per year Mortality: RP-2000 Combined Healthy Table. Set forward 5 years for Disability Other Information: Termination and Disability Rate Table % Terminating % Becoming Disabled Age During the Year During the Year 20 7.90% 0.14% 30 7.20% 0.18% 40 5.20% 0.30% 50 2.60% 1.00% 81  CITY OF FORT WALTON BEACH, FLORIDA REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF OTHER POST-EMPLOYMENT OBLIGATIONS (UNAUDITED) Actuarial UAAL as Accrued Actuarial Unfunded Annual % of Actuarial Valuation Liability Value of AAL (UAAL) Percentage Covered Payroll Date (AAL) (a) Assets (b) (b-a) Funded Payroll (c) [c/(b-a)] October 1, 2012* $ - $ 5,651,699 $ 5,651,699 0.00% $ 7,300,258 77.42% October 1, 2010* - 6,312,795 6,312,795 0.00% 6,578,002 95.97% September 30, 2010** - 4,768,818 4,768,818 0.00% 8,291,828 57.51% September 30 2009 - 6,496,763 6,496,763 0.00% 9,000,120 72.19% *Determined using the Projected Unit Credit Method. **Determined using the Entry Age Normal Method, payroll shown accounts only for employees with medical coverage. 82  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. Florida Building Code Fund To account for funds received from building permits and inspections to be utilized for enforcing the Florida Building Code per State Statute. 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.  CITY OF FORT WALTON BEACH, FLORIDA NON-MAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEET SEPTEMBER 30, 2014 Special Revenue Funds Beal Memorial Total Law Law Community Cemetery Nonmajor Enforcement Enforcement Florida Development Perpetual Governmental Trust Trust Training Building Code Block Grant Care Debt Service Funds ASSETS Cash and cash equivalents $ 278,689 $ 10,951 $ 290,764 $ - $ 37,567 $ - $ 617,971 Investments - - - - 2,216,592 - 2,216,592 Due from other governments 2,728 - - 55,537 - - 58,265 Cash and cash equivalents - restricted - - - - - 25,449 25,449 TOTAL ASSETS $ 281,417 $ 10,951 $ 290,764 $ 55,537 $ 2,254,159 $ 25,449 $ 2,918,277 LIABILITIES AND FUND BALANCE Liabilities Accounts payable $ - $ 475 $ 1,905 $ 5,523 $ 4,439 $ - $ 12,342 Accrued liabilities 1,850 - 12,956 - - - 14,806 Due to other funds - - - 56,245 - - 56,245 Total liabilities 1,850 475 14,861 61,768 4,439 - 83,393 Fund balance Restricted 279,567 10,476 275,903 - - 25,449 591,395 Committed - - - - 2,249,720 - 2,249,720 Unassigned - - - (6,231) - - (6,231) Total fund balances 279,567 10,476 275,903 (6,231) 2,249,720 25,449 2,834,884 TOTAL LIABILITIES AND FUND BALANCE $ 281,417 $ 10,951 $ 290,764 $ 55,537 $ 2,254,159 $ 25,449 $ 2,918,277 83  CITY OF FORT WALTON BEACH, FLORIDA NON-MAJOR GOVERNMENTAL FUNDS COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE FOR THE YEAR ENDED SEPTEMBER 30, 2014 Special Revenue Funds Law Law Community Beal Memorial Total Nonmajor Enforcement Enforcement Florida Building Development Cemetery Governmental Trust Trust Training Code Block Grant Perpetual Care Debt Service Funds REVENUES Permits and fees $ - $ - $ 369,447 $ - $ - $ - $ 369,447 Intergovernmental 19,364 - - 79,482 - - 98,846 Fines 28,742 5,782 - - - - 34,524 Miscellaneous 6,148 64 1,390 - 210,788 - 218,390 Total revenues 54,254 5,846 370,837 79,482 210,788 - 721,207 EXPENDITURES Current Public safety 15,903 6,558 277,209 - - - 299,670 Physical environment - - - - 17,162 - 17,162 Economic environment - - - 76,435 - - 76,435 Capital outlay 26,854 - 842 6,533 - - 34,229 Debt service Principal - - - - - 612,996 612,996 Interest - - - - - 377,574 377,574 Total expenditures 42,757 6,558 278,051 82,968 17,162 990,570 1,418,066 EXCESS OF REVENUES OVER (UNDER) EXPENDITURES 11,497 (712) 92,786 (3,486) 193,626 (990,570) (696,859) OTHER FINANCING SOURCES (USES) Transfers in - - - - 20,869 994,863 1,015,732 NET CHANGE IN FUND BALANCE 11,497 (712) 92,786 (3,486) 214,495 4,293 318,873 FUND BALANCE AT BEGINNING OF YEAR 268,070 11,188 183,117 (2,745) 2,035,225 21,156 2,516,011 FUND BALANCE AT END OF YEAR $ 279,567 $ 10,476 $ 275,903 $ (6,231) $ 2,249,720 $ 25,449 $ 2,834,884 84  CITY OF FORT WALTON BEACH, FLORIDA LAW ENFORCEMENT TRUST SPECIAL REVENUE FUND SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL FOR THE YEAR ENDED SEPTEMBER 30, 2014 Budgeted Amounts Variance with Final Budget - Positive Original Final Actual (Negative) REVENUES Intergovernmental $ - $ 17,563 $ 19,364 $ 1,801 Fines - 13,107 28,742 15,635 Miscellaneous 3,715 3,715 6,148 2,433 Total revenues 3,715 34,385 54,254 19,869 EXPENDITURES Current Public safety 16,500 21,363 15,903 5,460 Capital outlay - 25,807 26,854 (1,047) Total expenditures 16,500 47,170 42,757 4,413 NET CHANGE IN FUND BALANCE (12,785) (12,785) 11,497 24,282 FUND BALANCE AT BEGINNING OF YEAR 12,785 12,785 268,070 255,285 FUND BALANCE AT END OF YEAR $ - $ - $ 279,567 $ 279,567 85  CITY OF FORT WALTON BEACH, FLORIDA LAW ENFORCEMENT TRUST TRAINING SPECIAL REVENUE FUND SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL FOR THE YEAR ENDED SEPTEMBER 30, 2014 Budgeted Amounts Variance with Final Budget - Positive Original Final Actual (Negative) REVENUES Fines $ 7,000 $ 7,000 $ 5,782 $ (1,218) Miscellaneous 135 135 64 (71) Total revenues 7,135 7,135 5,846 (1,289) EXPENDITURES Current Public safety 8,625 8,625 6,558 2,067 NET CHANGE IN FUND BALANCE (1,490) (1,490) (712) 778 FUND BALANCE AT BEGINNING OF YEAR 1,490 1,490 11,188 9,698 FUND BALANCE AT END OF YEAR $ - $ - $ 10,476 $ 10,476 86  CITY OF FORT WALTON BEACH, FLORIDA FLORIDA BUILDING CODE SPECIAL REVENUE FUND SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL FOR THE YEAR ENDED SEPTEMBER 30, 2014 Budgeted Amounts Variance with Final Budget - Positive Original Final Actual (Negative) REVENUES Permits and fees $ 287,050 $ 291,542 $ 369,447 $ 77,905 Miscellaneous 2,195 2,195 1,390 (805) Total revenues 289,245 293,737 370,837 77,100 EXPENDITURES Current Public safety 271,306 278,054 277,209 845 Capital outlay - - 842 (842) Total expenditures 271,306 278,054 278,051 3 NET CHANGE IN FUND BALANCE 17,939 15,683 92,786 77,103 FUND BALANCE AT BEGINNING OF YEAR - - 183,117 183,117 FUND BALANCE AT END OF YEAR $ 17,939 $ 15,683 $ 275,903 $ 260,220 87  CITY OF FORT WALTON BEACH, FLORIDA COMMUNITY DEVELOPMENT BLOCK GRANT SPECIAL REVENUE FUND SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL FOR THE YEAR ENDED SEPTEMBER 30, 2014 Budgeted Amounts Variance with Final Budget - Positive Original Final Actual (Negative) REVENUES Intergovernmental $ 117,639 $ 117,639 $ 79,482 $ (38,157) EXPENDITURES Current Physical environment 51,172 157,744 76,435 81,309 Capital outlay 66,467 79,256 6,533 72,723 Total expenditures 117,639 237,000 82,968 154,032 NET CHANGE IN FUND BALANCE - (119,361) (3,486) 115,875 FUND BALANCE AT BEGINNING OF YEAR - 119,361 (2,745) (122,106) FUND BALANCE AT END OF YEAR $ - $ - $ (6,231) $ (6,231) 88  CITY OF FORT WALTON BEACH, FLORIDA BEAL MEMORIAL CEMETERY PERPETUAL CARE SPECIAL REVENUE FUND SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL FOR THE YEAR ENDED SEPTEMBER 30, 2014 Budgeted Amounts Variance with Final Budget - Positive Original Final Actual (Negative) REVENUES Miscellaneous $ 31,000 $ 31,000 $ 210,788 $ 179,788 EXPENDITURES Current Physical environment 8,000 17,162 17,162 - EXCESS OF REVENUES OVER (UNDER) EXPENDITURES 23,000 13,838 193,626 179,788 OTHER FINANCING SOURCES (USES) Transfers in 36,000 36,000 20,869 (15,131) NET CHANGE IN FUND BALANCE 59,000 49,838 214,495 164,657 FUND BALANCE AT BEGINNING OF YEAR - - 2,035,225 2,035,225 FUND BALANCE AT END OF YEAR $ 59,000 $ 49,838 $ 2,249,720 $ 2,199,882 89  CITY OF FORT WALTON BEACH, FLORIDA DEBT SERVICE FUND SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL FOR THE YEAR ENDED SEPTEMBER 30, 2014 Budgeted Amounts Variance with Final Budget - Positive Original Final Actual (Negative) REVENUES Miscellaneous $ - $ - $ - $ - Total revenues - - - - EXPENDITURES Debt service Principal 663,651 663,651 612,996 50,655 Interest 398,685 398,685 377,574 21,111 Total expenditures 1,062,336 1,062,336 990,570 71,766 EXCESS OF REVENUES OVER (UNDER) EXPENDITURES (1,062,336) (1,062,336) (990,570) 71,766 OTHER FINANCING SOURCES (USES) Transfers in 1,062,336 1,062,336 994,863 (67,473) NET CHANGE IN FUND BALANCE - - 4,293 4,293 FUND BALANCE AT BEGINNING OF YEAR - - 21,156 21,156 FUND BALANCE AT END OF YEAR $ - $ - $ 25,449 $ 25,449 90  NON-MAJOR FUND ENTERPRISE FUND Stormwater Fund Accounts for the operations and maintenance of the City's stormwater system.  CITY OF FORT WALTON BEACH, FLORIDA NON-MAJOR PROPRIETARY FUND STATEMENT OF NET POSITION SEPTEMBER 30, 2014 Stormwater Fund ASSETS Current assets Cash and cash equivalents $ 493,930 Receivables, net 34,881 Total current assets 528,811 Capital Assets, net Non-depreciable/amortizable 28,532 Depreciable/amortization, net 1,102,922 Total capital assets 1,131,454 TOTAL ASSETS $ 1,660,265 LIABILITIES Current liabilities Accounts payable $ 4,071 Accrued liabilities Compensated absences 2,409 Wages 12,547 Other 24 Total current liabilities 19,051 Non-current liabilities Accrued liabilities Compensated absences 7,228 Other post-employment benefits 22,618 Total non-current liabilities 29,846 TOTAL LIABILITIES 48,897 NET POSITION Invested in capital assets, net of related debt 1,131,454 Unrestricted 479,914 TOTAL NET POSITION $ 1,611,368 91  CITY OF FORT WALTON BEACH, FLORIDA NON-MAJOR PROPRIETARY FUND STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION FOR THE YEAR ENDED SEPTEMBER 30, 2014 Stormwater Fund OPERATING REVENUES Charges for services $ 596,133 OPERATING EXPENSES Personal services 226,121 Operating 145,203 Depreciation/amortization expense 67,867 Total operating expenses 439,191 OPERATING INCOME (LOSS) 156,942 NON-OPERATING REVENUES (EXPENSES) Gain (loss) on disposal of capital assets 39,405 Gain (loss) on investment (1,052) Interest 4,580 Miscellaneous 523 Total non-operating revenues (expenses) 43,456 CHANGE IN NET POSITION 200,398 NET POSITION AT BEGINNING OF YEAR 1,410,970 NET POSITION AT END OF YEAR $ 1,611,368 92  CITY OF FORT WALTON BEACH, FLORIDA NON-MAJOR PROPRIETARY FUND STATEMENT OF CASH FLOWS FOR THE YEAR ENDED SEPTEMBER 30, 2014 Stormwater Fund CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers and users $ 596,959 Payments to suppliers (150,269) Payments to employees (231,970) Miscellaneous income 523 Net cash provided by operating activities 215,243 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Acquisitions of capital assets (299,710) Proceeds from disposal of capital assets 39,405 Net cash used in capital and related financing activities (260,305) CASH FLOWS FROM INVESTING ACTIVITIES Interest income 3,528 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (41,534) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 535,464 CASH AND CASH EQUIVALENTS AT END OF YEAR $ 493,930 RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES Operating income $ 156,942 Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation 67,867 Miscellaneous revenue 523 Decrease (increase) in assets: Accounts receivable 826 Increase (decrease) in liabilities: Accounts payable (2,313) Compensated absences payable (1,609) Wages (5,625) Other liabilities (2,753) Other post-employment benefits 1,385 Net cash provided by operating activities $ 215,243 93 (THIS PAGE INTENTIONALLY LEFT BLANK.) 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 POSITION BY COMPONENT Last Ten Fiscal Years (full accrual basis of accounting) 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Governmental Activities Net investment in capital assets $ 17,236,582 $ 21,097,792 $ 22,013,431 $ 21,095,355 $ 20,563,790 $ 20,605,683 $ 24,756,705 $ 25,379,050 $ 23,531,576 $ 24,866,399 Restricted Debt service 92,544 92,788 92,730 91,713 91,713 92,880 113,816 113,507 21,156 25,449 Capital projects 700,975 241,114 56,550 - - - - - - - Improvement Districts - - - - - - 4,212,984 3,736,100 3,833,430 4,073,364 Public safety 305,647 266,492 307,983 307,983 254,409 269,600 268,820 262,648 462,375 565,946 Perpetual care - expendable 1,556,661 1,663,521 1,787,789 1,877,086 1,869,558 1,898,445 - - - - Other purposes 533,486 474,924 657,116 473,655 463,168 477,194 234,568 194,193 177,129 172,630 Unrestricted 13,959,800 11,385,751 8,564,657 9,821,155 9,347,576 8,975,046 12,666,165 11,487,979 9,329,608 10,700,661 Total governmental activities net position $ 34,385,695 $ 35,222,382 $ 33,480,256 $ 33,666,947 $ 32,590,214 $ 32,318,848 $ 42,253,058 $ 41,173,477 $ 37,355,274 $ 40,404,449 Business-Type Activities Net investment in capital assets $ 20,014,208 $ 20,352,399 $ 21,051,160 $ 21,043,965 $ 17,577,019 $ 18,928,438 $ 17,037,456 $ 14,929,648 $ 17,305,881 $ 13,779,184 Restricted Debt service 319,139 333,522 323,430 316,153 471,441 481,023 184,711 184,933 1,087,405 1,082,935 System improvements 352,360 106,434 39,414 60,709 98,292 61,559 82,573 112,863 305,508 367,263 Unrestricted 7,652,753 8,358,417 9,011,906 8,301,545 8,276,703 6,791,840 6,859,952 8,552,169 9,379,587 9,658,709 Total business-type activities net position $ 28,338,460 $ 29,150,772 $ 30,425,910 $ 29,722,372 $ 26,423,455 $ 26,262,860 $ 24,164,692 $ 23,779,613 $ 28,078,381 $ 24,888,091 Primary Government Net investment in capital assets $ 37,250,790 $ 41,450,191 $ 43,064,591 $ 42,139,320 $ 38,140,809 $ 38,728,907 $ 41,794,161 $ 40,308,698 $ 40,837,576 $ 38,645,583 Restricted 3,860,812 3,178,795 3,265,012 3,127,299 3,257,332 3,297,029 5,097,472 4,604,244 5,887,003 6,287,587 Unrestricted 21,612,553 19,744,168 17,576,563 18,122,700 17,624,279 16,805,772 19,526,117 20,040,148 18,709,195 20,359,370 Total primary government net position $ 62,724,155 $ 64,373,154 $ 63,906,166 $ 63,389,319 $ 59,022,420 $ 58,831,708 $ 66,417,750 $ 64,953,090 $ 65,433,774 $ 65,292,540 Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. The City implemented GASB Statement 34 in 2002; schedules presenting government-wide information include information beginning in that year. Note: Beginning in FY11, the Community Redevelopment Area was included with the Governmental Activities and the Perpetual care - expendable was reclassified from Restricted to Unrestricted 94  City of Fort Walton Beach, Florida SCHEDULE 2 CHANGES IN NET POSITION Last Ten Fiscal Years (full accrual basis of accounting) 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Expenses Governmental activities General government $ 6,935,799 $ 4,841,926 $ 4,563,855 $ 5,494,094 $ 4,625,871 $ 5,306,003 $ 3,765,536 $ 4,314,050 $ 2,662,406 $ 3,179,768 Public safety 7,623,363 8,032,018 9,641,338 10,048,884 9,908,644 9,231,632 9,206,784 9,805,368 9,729,228 9,685,621 Physical environment 276,525 299,362 354,439 343,411 350,374 304,907 393,752 383,970 379,681 392,255 Transportation 1,678,395 1,791,455 1,943,966 2,135,639 1,672,741 1,543,310 1,570,038 1,592,150 1,631,665 1,495,374 Economic environment 199,284 313,153 335,185 127,355 266,132 98,996 545,242 707,603 1,090,025 803,175 Culture and recreation 2,754,947 2,989,900 3,115,151 3,097,289 3,028,285 2,944,221 2,677,051 2,880,815 2,715,977 4,829,004 Debt service interest 238,090 309,094 331,771 302,948 247,703 240,940 214,470 254,516 324,405 483,301 Total government activities 19,706,403 18,576,908 20,285,705 21,549,620 20,099,750 19,670,009 18,372,873 19,938,472 18,533,387 20,868,498 Business-type activities Utilities 4,938,340 5,329,682 5,859,301 5,809,192 5,474,550 6,725,349 9,162,926 7,017,160 7,644,240 9,185,338 Sanitation 2,945,209 2,888,403 3,008,205 2,609,129 2,493,357 2,466,881 2,524,994 2,741,266 3,163,638 3,393,269 Golf 2,603,460 2,631,289 2,780,632 2,547,992 2,479,804 2,203,739 2,199,453 2,012,165 2,023,186 2,215 Stormwater - - - - 469,421 374,951 339,543 497,211 611,962 439,191 Total business-type activities 10,487,009 10,849,374 11,648,138 10,966,313 10,917,132 11,770,920 14,226,916 12,267,802 13,443,026 13,020,013 Total primary government expenses $ 30,193,412 $ 29,426,282 $ 31,933,843 $ 32,515,933 $ 31,016,882 $ 31,440,929 $ 32,599,789 $ 32,206,274 $ 31,976,413 $ 33,888,511 Program Revenues Governmental activities Charges for services General government $ 2,108,169 $ 2,381,669 $ 2,456,663 $ 2,752,330 $ 2,921,887 $ 2,759,080 $ 2,556,270 $ 430,718 $ 409,983 $ 476,824 Public safety 873,041 600,259 579,365 641,941 642,364 467,835 430,017 373,855 640,271 495,111 Physical environment 302,727 342,815 316,520 348,838 286,623 289,654 394,513 439,555 404,429 376,998 Transportation 68,402 72,815 241,622 93,987 87,654 83,586 104,776 118,067 122,275 140,038 Economic environment - - - - - - 16,400 58,000 34,652 10 Culture and recreation 382,858 400,175 421,733 417,253 426,110 408,351 404,047 400,215 374,362 1,853,087 Operating grants and contributions 3,228,819 642,631 1,266,681 903,079 1,119,033 639,370 761,643 589,253 786,652 682,200 Capital grants and contributions 261,332 373,994 233,878 50,687 88,941 731,275 351,006 156,794 80,936 109,629 Total governmental activities program revenues 7,225,348 4,814,358 5,516,462 5,208,115 5,572,612 5,379,151 5,018,672 2,566,457 2,853,560 4,133,897 Business-type activities Charges for services Utilities 6,279,899 6,552,526 7,006,005 6,505,297 6,403,262 6,761,654 7,608,355 7,974,601 8,623,082 8,586,045 Sanitation 3,315,188 3,374,157 3,433,172 3,446,397 3,384,375 3,345,127 3,311,744 3,313,559 3,499,559 3,571,037 Golf 2,335,114 2,621,957 2,558,253 2,380,448 2,181,988 1,934,392 2,052,501 1,776,649 1,758,709 - Stormwater - - - - 654,346 626,903 481,854 577,706 591,196 596,133 Operating grants and contributions - - - 39,403 - - 118,226 - 1,071 - Capital grants and contributions 198,568 95,644 1,079,034 92,872 555,698 173,370 65,496 331,609 1,871,295 (157,294) Total business-type activities program revenues 12,128,769 12,644,284 14,076,464 12,464,417 13,179,669 12,841,446 13,638,176 13,974,124 16,344,912 12,595,921 Total primary government program revenues $ 19,354,117 $ 17,458,642 $ 19,592,926 $ 17,672,532 $ 18,752,281 $ 18,220,597 $ 18,656,848 $ 16,540,581 $ 19,198,472 $ 16,729,818 Continued… 95  City of Fort Walton Beach, Florida SCHEDULE 2 CHANGES IN NET POSITION Last Ten Fiscal Years (full accrual basis of accounting) 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Net (Expense)/Revenue Governmental activities $ (12,481,055) $ (13,762,550) $ (14,769,243) $ (16,341,505) $ (14,527,138) $ (14,290,859) $ (13,354,201) $ (17,372,015) $ (15,679,827) $ (16,734,601) Business-type activities 1,641,760 1,794,910 2,428,326 1,498,104 2,262,537 1,070,526 (588,740) 1,706,322 2,901,886 (424,092) Total primary government $ (10,839,295) $ (11,967,640) $ (12,340,917) $ (14,843,401) $ (12,264,601) $ (13,220,333) $ (13,942,941) $ (15,665,693) $ (12,777,941) $ (17,158,693) General Revenues and Other Changes in Net Position Governmental activities Taxes Property taxes $ 3,913,016 $ 4,557,414 $ 5,180,212 $ 5,052,903 $ 4,631,028 $ 4,380,221 $ 4,482,819 $ 4,295,068 $ 4,175,136 $ 5,385,235 Sales taxes 2,466,783 2,529,028 2,363,078 2,214,232 1,977,959 1,943,337 2,066,834 2,198,270 2,241,242 2,362,190 Utility service taxes 3,690,239 4,006,985 1,420,142 5,094,918 3,454,691 3,914,362 3,926,930 3,739,311 3,761,437 3,889,976 Tax Increments for Redevelopment district - - - - - - 1,547,609 1,386,521 1,311,101 1,501,208 Franchise Fees - - - - - - - 1,876,575 1,764,733 2,004,101 Intergovernmental, unrestricted 877,198 889,450 845,090 740,554 709,550 712,776 825,591 809,756 818,039 819,556 Gain on sale of assets 456,675 (1,053) 477,494 2,592 2,950 795,860 16,865 16,440 37,833 520,152 Miscellaneous 46,174 37,595 56,788 61,199 54,223 492,052 96,105 154,996 106,546 103,986 Investment earnings 324,687 599,818 755,389 444,488 269,896 152,884 133,419 159,465 62,285 345,734 Insurance Recoveries 299,145 - - - - - - - - - Special item: Impairment loss - - - - - - - - (271,287) - Transfers 1,875,000 1,980,000 1,928,924 2,917,310 2,310,464 1,667,644 1,682,717 1,656,032 (2,145,441) 2,851,638 Total governmental activities 13,948,917 14,599,237 13,027,117 16,528,196 13,410,761 14,059,136 14,778,889 16,292,434 11,861,624 19,783,776 Business-type activities Taxes Utility service taxes - 14,200 7,844 5,930 4,597 - - - - - Gain on sale of assets - 174,610 34,978 482 98,907 56,795 75,904 35,111 20,662 22,813 Miscellaneous 10,261 73,714 15,118 129,678 141,406 177,657 31,424 48,550 6,504 6,839 Investment earnings 354,915 734,878 713,872 579,578 340,155 202,071 65,961 69,622 11,107 55,669 Special item: Impairment loss - - - - (3,836,055) - - (588,652) (786,713) - Transfers (1,875,000) (1,980,000) (1,925,000) (2,917,310) (2,310,464) (1,667,644) (1,682,717) (1,656,032) 2,145,441 (2,851,638) Total business-type activities (1,509,824) (982,598) (1,153,188) (2,201,642) (5,561,454) (1,231,121) 173,289 (2,091,401) 1,397,001 (2,766,317) Total primary government $ 12,439,093 $ 13,616,639 $ 11,873,929 $ 14,326,554 $ 7,849,307 $ 12,828,015 $ 14,952,178 $ 14,201,033 $ 13,258,625 $ 17,017,459 Change in Net Position Governmental activities $ 1,467,862 $ 836,687 $ (1,742,126) $ 186,691 $ (1,116,377) $ (231,722) $ 1,424,688 $ (1,079,581) $ (3,818,203) $ 3,049,175 Business-type activities 131,936 812,312 1,275,138 (703,538) (3,298,917) (160,595) (2,098,168) (385,079) 4,298,887 (3,190,409) Total primary government $ 1,599,798 $ 1,648,999 $ (466,988) $ (516,847) $ (4,415,294) $ (392,317) $ (673,480) $ (1,464,660) $ 480,684 $ (141,234) Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. The City implemented GASB Statement 34 in 2002; schedules presenting government-wide information include information beginning in that year. Note: Beginning in FY11, the Community Redevelopment Area was included with the Governmental Activities Note: Beginning in FY12, Franchise Fees were reported as General Revenues - in prior years they were included in General Government - charges for services Note: Beginning in FY13, Cost Allocations were reported as expense reductions in General Government - in prior years they were reported as transfers. Note: Beginning in FY14, the Golf Enterprise Fund was transferred into the General Fund. 96  City of Fort Walton Beach, Florida SCHEDULE 3 FUND BALANCES - GOVERNMENTAL FUNDS Last Ten Fiscal Years (modified accrual basis of accounting) 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 General Fund Reserved $ 4,756,085 $ 539,749 $ 701,829 $ 509,080 $ 482,179 $ 499,384 $ - $ - $ - $ - Unreserved 10,022,750 11,129,373 12,161,545 9,367,864 9,709,202 9,314,142 - - - - Nonspendable - - - - - - 3,032,726 2,857,963 254,229 262,964 Restricted - - - - - - 234,768 194,193 7,868,522 4,083,267 Committed - - - - - - 5,219,706 5,040,585 5,501,353 5,589,056 Assigned - - - - - - 1,537,572 354,999 1,301,385 1,584,887 Unassigned - - - - - - 1,189,562 1,611,120 788,076 1,300,881 Total general fund $ 14,778,835 $ 11,669,122 $ 12,863,374 $ 9,876,944 $ 10,191,381 $ 9,813,526 $ 11,214,334 $ 10,058,860 $ 15,713,565 $ 12,821,055 All Other Governmental Funds Reserved $ - $ - $ - $ - $ 50,117 $ 12,783 $ - $ - $ - $ - Unreserved, reported in Capital projects 700,975 241,114 56,550 8,751 - - - - - Debt service 92,544 92,788 92,730 91,713 91,713 92,880 - - - - Special revenue funds 1,862,308 1,933,979 2,095,772 2,153,440 2,073,850 2,158,878 - - - - Nonspendable - - - - - - - - - 798 Restricted - - - - - - 4,595,420 4,112,255 4,316,961 4,663,961 Committed - - - - - - 1,929,448 1,959,836 2,035,225 2,249,720 Assigned - - - - - - - - - - Unassigned - - - - - - (306) (302) (2,745) (6,231) Total all other governmental funds $ 2,655,827 $ 2,267,881 $ 2,245,052 $ 2,245,153 $ 2,224,431 $ 2,264,541 $ 6,524,562 $ 6,071,789 $ 6,349,441 $ 6,908,248 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: The City implemented GASB 54 in FY11 and the Community Redevelopment Area was included with All Other Governmental Funds 97  City of Fort Walton Beach, Florida SCHEDULE 4 CHANGES IN FUND BALANCES - GOVERNMENTAL FUNDS Last Ten Fiscal Years (modified accrual basis of accounting) 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Revenues Taxes $ 9,872,190 $ 11,086,466 $ 10,804,833 $ 9,039,398 $ 9,160,133 $ 9,414,513 $ 10,438,481 $ 10,065,983 $ 9,901,157 $ 11,537,812 Licenses, permits, and fees 706,345 517,728 496,614 2,225,224 2,320,683 2,406,916 2,428,621 2,142,995 2,221,406 2,392,487 Intergovernmental 6,261,885 3,836,216 3,661,644 2,914,162 2,950,179 3,502,904 3,358,615 3,291,693 3,400,876 3,376,079 Charges for services 848,651 900,170 911,026 1,216,687 1,132,681 907,476 911,405 969,560 1,065,316 2,373,486 Fines and forfeits 329,038 247,329 247,493 268,415 387,449 204,849 151,616 142,936 241,923 133,645 Miscellaneous 1,052,422 850,248 3,588,708 1,211,662 1,020,342 1,370,077 817,975 537,975 431,625 827,526 Total Revenues 19,070,531 17,438,157 19,710,318 16,875,548 16,971,467 17,806,735 18,106,713 17,151,142 17,262,303 20,641,035 Expenditures General governmental services 6,737,331 4,646,594 4,355,885 5,306,276 4,419,077 5,095,790 3,699,506 3,899,740 2,514,734 2,891,275 Public safety 7,124,082 7,750,191 9,170,719 9,614,744 9,379,319 8,872,424 8,676,620 9,154,002 9,066,246 9,082,876 Physical environment 211,178 233,942 276,086 278,273 283,460 250,691 306,365 295,459 311,684 325,864 Transportation 1,284,018 1,364,414 1,550,204 1,750,680 1,316,954 1,207,449 994,272 966,050 1,012,387 867,730 Economic environment 199,284 313,153 335,185 127,355 266,132 98,996 493,526 652,086 1,032,659 745,586 Culture and recreation 2,277,069 2,503,469 2,636,387 2,698,993 2,582,642 2,535,682 2,233,104 2,383,239 2,267,141 3,744,452 Capital outlay 1,558,462 5,612,616 1,457,758 652,734 520,722 1,335,369 1,561,057 2,609,203 1,282,142 4,721,096 Debt service Principal 195,722 194,675 355,459 2,052,797 168,949 175,629 198,699 211,683 4,540,488 612,996 Interest and other costs 274,122 307,334 330,136 297,335 246,774 240,093 236,268 243,959 203,347 377,574 Total expenditures 19,861,268 22,926,388 20,467,819 22,779,187 19,184,029 19,812,123 18,399,417 20,415,421 22,230,828 23,369,449 Excess of revenue over (under) expenditures (790,737) (5,488,231) (757,501) (5,903,639) (2,212,562) (2,005,388) (292,704) (3,264,279) (4,968,525) (2,728,414) Other Financing Sources (Uses) Transfers in 2,376,403 2,618,738 2,644,727 5,367,633 3,191,822 2,342,226 2,296,944 2,284,416 673,836 1,636,165 Transfers out (501,403) (638,738) (715,802) (2,450,323) (685,545) (674,583) (614,227) (628,384) (2,819,277) (1,241,454) Insurance recoveries 299,145 - - - - - - - - - Lease proceeds 299,948 - - - - - - - 103,784 - Debt issuance 2,039,191 - - - - - 739,805 - 12,942,539 - Contributions from others 7,860 10,572 - - - - - - - - Total other financing sources (uses) 4,521,144 1,990,572 1,928,925 2,917,310 2,506,277 1,667,643 2,422,522 1,656,032 10,900,882 394,711 Net change in fund balance $ 3,730,407 $ (3,497,659) $ 1,171,424 $ (2,986,329) $ 293,715 $ (337,745) $ 2,129,818 $ (1,608,247) $ 5,932,357 $ (2,333,703) Debt service as a percentage of noncapital expenditures 2.57% 2.90% 3.61% 10.62% 2.23% 2.25% 2.58% 2.56% 22.65% 5.31% Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. The City implemented GASB Statement 34 in 2002; schedules presenting government-wide information include information beginning in that year. Note: Beginning in FY11, the Community Redevelopment Area was included with the Governmental Funds Note: Beginning in FY14, the Golf Enterprise Fund was transferred into the General Fund. 98  City of Fort Walton Beach, Florida SCHEDULE 5 REVENUES AND OTHER SOURCES (1) Last Ten Fiscal Years Unaudited Other Fiscal Licenses, Fees, Intergovernmental Charges for Fines and Interest and Financing Year Taxes and Permits Revenues Services Forfeitures Other Revenues Sources TOTAL 2014 $11,537,812 $2,392,487 $3,376,079 $2,373,486 $133,645 $827,526 $1,636,165 $22,277,200 2013 9,901,157 2,221,406 3,400,876 1,065,316 241,923 431,625 13,720,159 30,982,462 2012 10,065,983 2,142,995 3,291,693 969,560 142,936 537,975 2,284,416 19,435,558 2011 10,438,481 2,428,621 3,358,615 911,405 151,616 817,975 2,296,944 20,403,657 2010 9,414,513 2,406,916 3,502,904 907,476 204,849 1,370,077 2,342,226 20,148,961 2009 9,160,133 2,320,683 2,950,179 1,132,681 387,449 1,020,342 3,191,822 20,163,289 2008 9,039,398 2,225,224 2,914,162 1,216,687 268,415 1,211,662 5,367,633 22,243,181 2007 10,804,833 496,614 3,661,644 911,026 247,493 3,588,708 2,644,727 22,355,044 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 (1) Includes General Fund, LETFs, CDBG Fund, FBC Fund, CRA Fund, Debt Service Fund, Capital Projects Fund, and Beal Memorial Fund Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. The City implemented GASB Statement 34 in 2002; schedules presenting government-wide information include information beginning in that year. Note: Beginning in FY14, the Golf Enterprise Fund was transferred into the General Fund. 99  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 2014 $ 1,475,665,054 $ 108,533,120 $ 1,584,198,174 $ 434,639,300 $ 1,149,558,874 5.7697 2013 1,451,775,552 118,155,863 1,569,931,415 442,204,485 1,127,726,930 5.7697 2012 1,445,327,759 120,653,616 1,565,981,375 446,565,401 1,119,415,974 4.5383 2011 1,478,072,570 126,412,302 1,604,484,872 452,378,818 1,152,106,054 4.5383 2010 1,550,325,157 129,348,680 1,679,673,837 469,933,333 1,209,740,504 4.5383 2009 1,864,657,624 148,104,763 2,012,762,387 476,888,476 1,309,056,015 4.1986 2008 2,046,319,844 147,625,998 2,193,945,842 816,366,365 1,377,579,477 4.1986 2007 2,100,890,582 148,394,292 2,249,284,874 777,377,988 1,471,906,886 4.1986 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 (1) Florida State Law requires all property to be assessed at current fair market. The January 2014 assessment is the basis for Fiscal Year 2014-15 tax revenues. Source: Okaloosa County Property Appraiser 100  City of Fort Walton Beach, Florida SCHEDULE 7 PROPERTY TAX RATES PER $1,000 OF TAXABLE VALUE - ALL DIRECT AND OVERLAPPING GOVERNMENTS (1) Last Ten Fiscal Years Unaudited City of Fort Walton Beach Direct Rate Overlapping Rates* Okaloosa Northwest Florida Total Fiscal Total Direct Okaloosa County School Water Overlapping Year Basic Rate Rate County Board Management Rates 2014 5.7697 5.7697 3.4308 7.4410 0.0390 10.9108 2013 5.7697 5.7697 3.4308 7.5510 0.0400 11.0218 2012 4.5383 4.5383 3.2899 7.4760 0.0400 10.8059 2011 4.5383 4.5383 3.2899 7.7690 0.0400 11.0989 2010 4.5383 4.5383 3.2899 7.5340 0.0450 10.8689 2009 4.1986 4.1986 3.2899 7.6390 0.0450 10.9739 2008 4.1986 4.1986 3.2995 7.6240 0.0450 10.9685 2007 4.1986 4.1986 3.3443 7.6390 0.0450 11.0283 2006 4.6458 4.6458 3.6500 7.7860 0.0500 11.4860 2005 4.9700 4.9700 4.2500 8.0630 0.0500 12.3630 (1) As of levy date, November 1 of each year listed. The 2014 millage rate is the basis for Fiscal Year 2014-15 tax revenues. * Overlapping rates are those of local and county governments that apply to property owners within the City of Fort Walton B Source: Okaloosa County Tax Collector 101  City of Fort Walton Beach, Florida SCHEDULE 8 PRINCIPAL TAXPAYERS Unaudited 2014 2005 Total Total Assessed Assessed Taxpayer Value Percentage Rank Value Percentage Rank Gulf Power Co. $ 17,924,703 1.56% 1 $ 16,171,941 1.47% 2 Suso 2 Uptown, LP 14,293,746 1.24% 2 Fort Walton Machining, Inc. 6,090,252 0.53% 3 Cox Communications Gulf Coast, LLC 6,071,539 0.53% 4 Pacifica Walton Beach LLC 5,874,093 0.51% 5 99 Eglin LTD 5,832,398 0.51% 6 11,921,792 1.08% 3 Embarq Corp. 5,207,740 0.45% 7 HSU Paul S & Majes 4,841,868 0.42% 8 DRS Training & Control 4,776,715 0.42% 9 FNBT.COM Bank 4,677,929 0.41% 10 Sprint Florida, Inc. 21,250,752 1.93% 1 Aero Technical Service 9,992,057 0.91% 4 American Senior Living of FWB 9,603,077 0.87% 5 Metric Systems 6,164,931 0.56% 6 Emerald Coast Housing Corp. 5,832,431 0.53% 7 Dakota Group of NWF 5,777,969 0.53% 8 Inland Southeast Paradise Point 5,735,111 0.52% 9 Dea J. Jr & Thomas & Kilgore 5,716,175 0.52% 10 Total Taxable Assessed Value of Principal Taxpayers 75,590,983 6.58% 98,166,236 8.93% Total Taxable Assessed Value of Other Taxpayers 1,073,967,891 93.42% 1,001,497,505 91.07% Total Taxable Assessed Value $ 1,149,558,874 100.00% $ 1,099,663,741 100.00% (1) The 2014 tax roll is the basis for Fiscal Year 2014-15 tax revenues. Source: Okaloosa County Property Appraiser 102  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 2014 The 2014 tax levy is the basis for Fiscal Year 2014-15 tax revenues. 2013 $ 6,528,146 $ 6,269,683 96.0% $ 76,388 $ 6,346,071 97.2% $ 11,388 0.2% 2012 5,096,206 4,880,002 95.8% 50,880 4,930,882 96.8% 10,265 0.2% 2011 5,251,483 5,050,661 96.2% 38,067 5,088,728 96.9% 19,826 0.4% 2010 5,519,832 5,309,040 96.2% 78,863 5,387,903 97.6% 11,576 0.2% 2009 5,523,136 5,280,090 95.6% 45,233 5,325,323 96.4% 59,371 1.1% 2008 5,814,307 5,606,480 96.4% 25,515 5,631,996 96.9% 22,112 0.4% 2007 6,215,424 5,976,218 96.2% 23,448 5,999,666 96.5% 16,699 0.3% 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% (1) Includes discount taken for early payment of taxes (maximum of 4%). Source: Okaloosa County Tax Collector 103  City of Fort Walton Beach, Florida SCHEDULE 10 RATIOS OF OUTSTANDING DEBT BY TYPE Last Ten Fiscal Years Unaudited Governmental Activities Business Activities General General State Total Percentage Fiscal Obligation Lease Revenue Revenue Obligation Lease Revenue Revolving Revenue Primary of Personal Per Year Bonds Payable Notes Bonds Bonds Payable Notes Loans Bonds Government Income (1) Capita (2) 2014 $ - $ 89,654 $ 13,008,515 $ - $ - $ - $ - $ 14,004,706 $ 9,640,146 $ 36,743,021 0.42% 1,773.40 2013 - 101,696 13,535,936 - - - 73,533 7,068,522 9,925,055 30,704,742 0.36% 1,515.83 2012 - - 661,796 4,470,000 - 13,458 61,221 - 10,199,963 15,406,438 0.19% 762.92 2011 - - 728,480 4,615,000 - 66,118 76,586 - 10,464,872 15,951,056 0.21% 816.58 2010 - 47,374 - 4,755,000 - 141,737 - - 13,856,796 18,800,907 0.26% 923.65 2009 - 93,003 - 4,885,000 - 226,886 - - 14,575,130 19,780,019 0.28% 956.71 2008 - 197,509 - 5,010,000 - 584,170 - - 15,125,535 20,917,214 0.30% 999.96 2007 - 260,306 - 7,000,000 - 479,246 - - 15,651,029 23,390,581 0.34% 1,113.41 2006 - 320,764 - 7,295,000 - 614,203 - - 16,151,523 24,381,490 0.36% 1,167.58 2005 - 400,433 - 7,410,000 - 447,370 - - 16,626,891 24,884,694 0.39% 1,200.13 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. 104  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) 2014 $ - 0.00% $ - 2013 - 0.00% - 2012 - 0.00% - 2011 - 0.00% - 2010 - 0.00% - 2009 - 0.00% - 2008 - 0.00% - 2007 - 0.00% - 2006 - 0.00% - 2005 - 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. 105  City of Fort Walton Beach, Florida SCHEDULE 12 PLEDGED REVENUE COVERAGE SCHEDULE OF REVENUE BOND COVERAGE Last Ten Fiscal Years Unaudited Average Non-Ad Valorem Revenues Fiscal Non-Ad Valorem Avail. for Debt Service Requirements (2) (1) Year Revenues Debt Service Principal Interest Total Coverage 2014 $ 26,593,384 $ 26,466,080 $ 890,954 797,317 $ 1,688,271 15.68 2013 26,338,776 25,803,342 364,156 460,197 824,353 31.30 2012 25,267,908 25,556,504 497,049 697,060 1,194,109 21.40 2011 25,845,100 26,274,792 468,935 695,713 1,164,648 22.56 2010 26,704,483 26,355,374 510,000 874,423 1,384,423 19.04 2009 26,006,265 28,208,317 340,000 889,985 1,229,985 22.93 2008 30,410,368 31,235,238 325,000 904,730 1,229,730 25.40 2007 32,060,108 30,760,329 315,000 918,699 1,233,699 24.93 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 (1) Non-Ad Valorem Revenues of General Fund, Capital Projects Fund, other governmental funds, and proprietary funds. (2) Combined Debt Service requirements for Capital Improvement Revenue Note Series 2013 & 2013A, Utility System Revenue Bond, Series 2005, and 2011 Revenue Notes. See Financial Statement Notes for detail. Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. The City implemented GASB Statement 34 in 2002; schedules presenting government-wide information include information beginning in that year. 106  City of Fort Walton Beach, Florida SCHEDULE 13 DIRECT AND OVERLAPPING GOVERNMENTAL ACTIVITIES DEBT Unaudited Percentage Amount Net Debt Applicable to Applicable to Governmental Unit Outstanding Fort Walton Beach Fort Walton Beach Overlapping Debt Okaloosa County Revenue Bonds $ 28,454,000 (1) 10.94% (3) $ 3,114,192 Okaloosa County School District Certificates of Participation $ 47,708,000 31.11% (2) $ 14,842,489 Subtotal: Overlapping Debt $ 76,162,000 $ 17,956,681 Direct Debt City of Fort Walton Beach Revenue Notes $ 13,008,515 100.00% $ 13,008,515 City of Fort Walton Beach Lease Payable $ 89,654 100.00% $ 89,654 Subtotal: Direct Debt $ 13,098,169 $ 13,098,169 Total Direct and Overlapping Debt $ 89,260,169 $ 31,054,850 Source: Okaloosa County, Okaloosa County School Board (1) Clerk of Courts financial statements not available for FY 2013-2014, number estimated from FY 2012-2013 information. (2) Calculation based on total schools in Okaloosa County School District versus schools in Fort Walton Beach. (3) Calculation based on total population in Okaloosa County versus population in Fort Walton Beach. 107  City of Fort Walton Beach, Florida SCHEDULE 14 MAJOR EMPLOYERS Unaudited 2014 2005 Percentage Percentage of Total of Total Employer Product Employees Employment Ranking Employees Employment Ranking (1) USAF - Eglin Air Force Development Test Center 19,754 20.13% 1 20,000 21.16% 1 (2) USAF - Hurlburt Air Force Special Ops Command 10,495 10.69% 2 8,911 9.43% 2 Okaloosa County School District Education Services 3,324 3.39% 3 3,865 4.09% 3 (3) Okaloosa County Local Government Services 1,444 1.47% 4 1,440 1.52% 4 Jacobs Technology - TEAS Group(4) Military Technical Support 1,000 1.02% 5 (4) Fort Walton Beach Medical Center Medical Services 1,000 1.02% 6 989 1.05% 5 L-3 Cresview Aerospace(4) Military Technical Support 800 0.82% 7 (4) Lockheed Martin Corporation Military Technical Support 800 0.82% 8 InDyne Inc(4) Military Technical Support 800 0.82% 9 Northwest Florida State College Education Services 738 0.75% 10 ResortQuest Property Management 0.00% 850 0.90% 7 DRS Training and Control Systems Defense Electronics 0.00% 750 0.79% 8 BAE Systems Technical Services Military Technical Support 0.00% 950 1.01% 6 North Okaloosa Medical Center Medical Services 0.00% 624 0.66% 9 Sverdup Technologies Military Technical Support 0.00% 454 0.48% 10 40,155 41.32% 38,833 41.08% (1) Includes military, civilian, and contractor personnel; a portion of contractor personnel may be duplicated with private sector employees also listed here. (2) Includes military and civilian personnel. (3) Includes County Commission, Clerk of Court, Property Appraiser, Sheriff (estimated), Supervisor of Elections, and Tax Collector. (4) Economic Development Council estimated the employee count for largest employers in Okaloosa County for FY14. Source: Personnel Department of each employer 108  City of Fort Walton Beach, Florida SCHEDULE 15 MISCELLANEOUS DEMOGRAPHICAL STATISTICS Last Ten Fiscal Years Unaudited Fiscal Fort Walton Beach Okaloosa County FWB as a % Personal Income Per Capita Unemployment Year Population Population of the County (thousands of dollars) Personal Income Rate 2014 20,719 189,307 10.94% $ 8,775,211 $ 45,277 4.6% 2013 20,256 186,887 10.84% 8,546,210 44,960 4.7% 2012 20,194 185,803 10.87% 7,913,960 43,132 6.0% 2011 19,534 180,280 10.84% 7,497,082 42,007 7.3% 2010 20,355 195,346 10.42% 7,369,683 41,050 8.0% 2009 20,675 196,237 10.54% 7,090,979 39,158 7.2% 2008 20,918 197,597 10.59% 6,861,716 37,497 4.8% 2007 21,008 196,540 10.69% 6,781,908 37,423 2.9% 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% OKALOOSA COUNTY EDUCATION FY 2014 FY 2013 FY 2012 Schools: Grades K-5 18 18 18 Grades 6-8 7 7 7 Grades 9-12 4 4 4 PK-12 / Charter / Alternate 2 / 4 / 10 2 / 4 / 10 2 / 4 / 10 Grades K-8 1 1 1 Vocational / Technical 1 1 1 Exceptional Children 2 2 2 Students: Grades K-5 12,315 14,197 13,509 Grades 6-8 6,882 6,698 6,546 Grades 9-12 8,834 8,917 8,954 Adult Students 285 310 288 Exceptional Children 4,282 3,995 4,037 Personnel: Instructional (Classroom) 1,912 1,888 1,844 Non-Instructional 1,087 868 933 Source: Office of Economic & Demographic Research, FL Research & Economic Information Database, Okaloosa County School Board 109  City of Fort Walton Beach, Florida SCHEDULE 16 FULL-TIME EQUIVALENT EMPLOYEES BY FUNCTION/PROGRAM Last Ten Fiscal Years Unaudited Full-Time Equivalent Employees as of September 30 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 General Government City Manager 2.00 2.00 2.00 2.00 2.00 2.00 3.00 4.00 3.00 3.00 Administrative Services 3.00 3.00 3.00 3.00 4.00 4.00 4.00 4.00 4.00 4.00 Risk Management - - - - 1.00 1.00 - - - - Information Technology 2.00 2.00 2.00 2.00 2.75 2.75 3.00 4.00 4.00 4.00 City Clerk 2.50 2.50 2.50 2.50 3.00 3.00 3.00 3.00 3.00 3.00 Finance 7.00 7.00 7.00 7.00 7.00 7.00 7.00 7.00 7.75 8.00 Purchasing 2.75 2.50 2.50 2.50 2.50 2.00 5.00 5.00 5.00 5.00 Public Safety Police 60.99 59.99 70.99 67.99 67.59 68.05 74.05 73.17 72.95 72.95 Fire 37.00 37.00 37.00 37.00 38.00 38.00 39.00 39.00 39.00 33.00 Recreation & Cultural Services Administration 12.32 13.45 13.67 13.81 15.93 17.19 32.09 32.64 34.04 34.04 Parks Maintenance 10.00 10.00 11.00 11.00 11.00 11.90 - - - - Right-of-Way Maintenance 1.00 1.00 1.00 1.00 7.00 8.00 9.00 9.00 9.00 9.00 Senior Citizens Center 1.85 1.85 1.85 1.85 1.85 1.85 2.38 2.58 2.58 2.58 Golf Club 14.26 - - - - - - - - - Golf Grounds Maintenance 15.75 - - - - - - - - - Library 8.02 8.02 8.02 8.10 9.90 9.90 10.60 11.10 11.10 11.10 Museum 3.60 3.60 3.60 2.60 3.85 4.98 5.18 6.01 7.01 7.01 Cemetery 3.00 3.00 3.00 3.00 3.00 3.50 3.50 3.50 3.00 3.00 Engineering Services Administration 4.00 5.00 5.00 5.00 6.00 6.00 7.00 7.00 8.00 10.00 Planning & Zoning 2.00 1.00 1.00 1.00 1.00 - 4.00 4.00 5.00 5.00 Building & Permitting 4.00 4.00 3.70 3.00 3.00 3.00 6.00 6.00 4.00 4.00 Code Enforcement 2.00 2.00 2.00 2.00 2.00 2.00 - - - - Fleet Maintenance 9.00 9.00 8.75 8.75 10.00 11.00 12.00 12.00 12.00 13.00 Facilities Maintenance 7.00 8.00 8.00 8.00 11.00 11.00 10.00 11.00 11.00 11.00 Streets Maintenance 6.00 5.50 5.50 5.50 6.50 6.50 14.50 13.50 15.00 15.00 Community Development Block Grant 0.48 0.48 0.48 0.48 0.48 0.48 0.48 1.48 1.48 1.48 Community Redevelopment Agency 3.00 3.00 3.00 3.00 1.00 1.00 1.00 1.75 1.75 1.00 Utility (Water/Sewer) Enterprise Administration 8.00 7.00 7.00 6.75 1.00 2.00 6.00 5.00 5.00 - Customer Service 5.50 5.50 5.50 5.50 7.50 7.50 8.00 9.00 9.00 8.00 Water Operations 9.00 9.00 9.00 10.00 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 Water Distribution 5.00 5.00 5.00 5.00 6.00 6.00 6.00 7.00 7.00 6.00 Sewer Collections 13.00 13.00 12.00 12.00 11.00 11.00 11.00 12.00 11.00 11.00 Sanitation Enterprise Solid Waste 19.00 19.00 19.00 18.75 19.62 19.87 21.00 21.00 21.00 22.00 Recycling 1.00 - - - - - - 4.00 4.00 4.00 Golf Enterprise Golf Club - 14.26 14.26 14.26 14.26 31.01 36.51 36.56 36.56 36.36 Golf Grounds Maintenance - 15.75 15.75 15.75 15.75 - - - - - Stormwater Enterprise Stormwater 6.00 6.00 6.00 6.00 7.00 8.00 - - - - Total 291.02 289.40 300.07 296.09 312.48 329.48 362.29 375.29 377.22 370.52 Source: City of Fort Walton Beach Adopted Budget for the relevant year. Note: Golf Enterprise Fund moved to the General Fund in FY14. 110  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 2014 247 379 136 194 27 2013 148 188 121 82 26 2012 148 168 102 100 39 2011 249 255 74 159 18 2010 212 290 87 154 27 2009 142 285 52 158 16 2008 168 298 97 178 20 2007 177 340 109 157 30 2006 202 473 126 235 32 2005 152 438 103 162 37 BUSINESS TAX RECEIPTS ISSUED (formerly referred to as occupational licenses) Year Number Sold 2014 2,402 2013 2,087 2012 1,947 2011 2,269 2010 2,311 2009 2,364 2008 2,426 2007 2,499 2006 2,483 2005 2,496 MUNICIPAL RECREATIONAL FACILITIES 2 18-hole Golf Courses 1 Library 1 18-hole Disc Golf Course 4 Museums 1 Auditorium 23 Playgrounds 6 Baseball-Softball Facilities 1 Racquetball Court Facility 1 BMX/Skateboard Facility 1 Recreation Center 5 Boat Ramps 1 Soccer Field Facility 5 Exercise/Walking Tracks 4 Tennis Court Facilities 1 Fairgrounds 7 Undeveloped Parks 1 Football Stadium 4 Waterfront Parks Sources: City of Fort Walton Beach Customer Service, Building & Permitting, and Recreation departments. Note: Change in facility and athletic field totals due to the construction of the new Recreation Center, which will be complete in FY 2015. 111  City of Fort Walton Beach, Florida SCHEDULE 18 ELECTIONS - OKALOOSA COUNTY VOTER REGISTRATION Unaudited Registered Voters Pct Place Name Total Dems Reps NPA Other 01 BAKER 2,111 383 1,443 264 21 02 BLACKMON 633 145 418 66 4 03 MILLIGAN 1,203 233 744 204 22 04 HOLT 1,132 241 684 187 20 05 LAUREL HILL 986 259 533 175 19 06 GARDEN CITY 2,780 528 1,732 484 36 07 DORCAS 1,420 301 807 288 24 08 HONEY CREEK 3,723 875 2,117 676 55 09 YELLOW RIVER 3,621 747 2,135 681 58 10 WEST WRIGHT 5,576 1,335 2,842 1,274 125 11 EAST CRESTVIEW 6,768 1,506 3,622 1,505 135 12 WEST CRESTVIEW 845 474 199 165 7 13 NORTH CRESTVIEW 3,434 753 2,029 592 60 14 WEST NICEVILLE 2,570 478 1,484 552 56 15 VALPARAISO 2,852 513 1,668 606 65 16 SHALIMAR 2,781 617 1,520 575 69 17 CENTRAL WRIGHT 3,136 815 1,463 791 67 18 OCEAN CITY 2,366 603 1,181 540 42 19* EAST FWB 1,467 459 615 364 29 20 WEST DESTIN 2,305 436 1,346 464 59 21 MARY ESTHER 2,529 564 1,442 468 55 22* S CENTRAL FWB 1,926 599 891 404 32 23 EGLIN AFB 546 110 243 179 14 24* WEST FWB 2,721 744 1,347 580 50 25 N CENTRAL NICEVILLE 1,717 347 1,023 320 27 26 SEMINOLE 2,406 341 1,615 401 49 27 CINCO BAYOU 292 62 151 75 4 28* GARNIERS 352 63 233 50 6 29* GOLF COURSE 2,079 319 1,372 351 37 30 OKALOOSA ISLAND 1,396 217 797 339 43 31 LONGWOOD 1,805 285 1,245 249 26 32* FERRY PARK 2,313 450 1,394 419 50 33 ROCKY BAYOU 4,269 512 3,082 626 49 34 FLOROSA 3,312 747 1,669 818 78 35 NORTH DESTIN 2,883 355 1,855 621 52 36 SOUTH NICEVILLE 2,410 360 1,606 389 55 37 LAKE LORRAINE 2,678 360 1,833 435 50 38 NORTHGATE 2,123 478 1,188 408 49 39 EAST WRIGHT 2,312 575 1,189 507 41 40 SOUTH BLUEWATER 2,820 326 1,983 465 46 41* N CENTRAL FWB 1,313 239 842 211 21 42* NEW HEIGHTS 2,212 685 978 501 48 43 S CENTRAL NICEVILLE 2,124 427 1,226 432 39 44 CENTRAL DESTIN 1,730 337 922 439 32 45 SOUTH CRESTVIEW 4,286 957 2,206 1,052 71 46 NORTH BLUEWATER 4,273 545 2,867 779 82 47 WYNNEHAVEN BEACH 1,835 382 896 503 54 48* WESTWOOD RETIREMENT 162 43 107 11 1 49 EAST DESTIN 2,889 378 1,967 497 47 50 SOUTH DESTIN 2,976 384 1,997 531 64 51 AIRPORT ROAD 1,656 270 1,060 304 22 52 LIVE OAK 3,361 669 1,905 730 57 Countywide Total 108,870 21,230 63,934 21,656 2,050 *City Precinct City Total 14,545 3,601 7,779 2,891 274 Source: Okaloosa County Supervisor of Elections 112  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 2014 $ - $ 3,604 $ - $ 116,099 2013 - 5,302 - 119,704 2012 - 12,779 - 125,006 2011 - 5,986 - 137,785 2010 - 19,801 - 143,771 2009 - 6,528 - 163,572 2008 - 7,511 - 170,100 2007 218,730 72,576 33.18% 177,610 2006 0.00 1,965 - 31,456 2005 0.00 50,257 - 33,421 (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. 113  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 2014 $ 6,886,443 20.6% $ 6,807,274 20.4% $ 5,177,966 15.5% $ 3,562,694 10.7% $ 3,238,894 9.7% $ 1,365,764 4.1% 2013 5,486,237 17.3% 6,355,549 20.1% 4,949,525 15.7% 3,499,459 11.1% 3,078,174 9.7% 1,591,423 5.0% 2012 5,681,589 18.5% 6,482,596 21.1% 4,839,764 15.8% 3,313,559 10.8% 3,052,071 9.9% 1,656,721 5.4% 2011 6,030,428 19.2% 6,673,824 21.2% 4,631,992 14.7% 3,307,993 10.5% 2,753,590 8.8% 1,954,589 6.2% 2010 5,332,480 17.5% 6,645,189 21.8% 4,154,795 13.6% 3,335,342 10.9% 2,379,913 7.8% 1,914,053 6.3% 2009 5,629,812 19.0% 6,425,482 21.7% 3,943,722 13.3% 3,363,185 11.4% 2,245,512 7.6% 2,164,174 7.4% 2008 6,021,743 20.6% 5,706,534 19.5% 3,984,282 13.6% 3,441,588 11.8% 2,271,327 7.8% 2,365,739 8.1% 2007 6,123,749 15.7% 5,645,463 14.5% 4,162,172 10.7% 3,427,925 8.8% 2,492,378 6.4% 2,441,793 6.3% 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% Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. The city implemented GASB Statement 34 in 2002; schedules presenting government-wide information include information beginning in that year. Note: Beginning in FY14, the Golf Enterprise Fund was transferred into the General Fund. 114  City of Fort Walton Beach, Florida SCHEDULE 21 WATER AND WASTEWATER SERVICE RATES Unaudited Monthly Water Rates(1,2) Residential Commercial Number of Inside Outside(3) Inside Outside(3) Meters Lifeline Rate(4) $8.55 $10.68 $8.55 $10.68 Monthly Base Charge(5), Meter Size: 3/4" $8.55 $10.68 $8.55 $10.68 8,891 1.0" $8.55 $10.68 $8.55 $10.68 327 1.5" $11.63 $14.53 $11.63 $14.53 108 2.0" $19.75 $24.68 $19.75 $24.68 220 3.0" $30.10 $37.62 $30.10 $37.62 14 4.0" $37.62 $47.02 $37.62 $47.02 19 6.0" $59.85 $74.81 $59.85 $74.81 0 8.0" or 10.0" $89.69 $112.11 $89.69 $112.11 1 Multi-Residential, Addt'l per Unit $6.33 $7.91 $8.55 $10.68 9,580 Residential Customers (6) 8,372 Commercial Customers (6) 1,108 Total Customers 9,480 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) $2.55 $3.18 Block 3 (4,001 - 8,000) $3.12 $3.90 Block 4 (8,001 +) $4.68 $5.85 Monthly Wastewater Rates(2) Residential Commercial Lifeline Rate(4) $18.75 Monthly Base Charge $18.75 $22.50 Gallonage Rate (per 1,000 gallons per unit)(5) Block 1 (0 - 2,000) Included in monthly base charge Block 2 (2,001 +) $5.89 $7.07 (1) Irrigation customers subject to water rates as outlined herein (2) Monthly Base Charge is per Unit. Residential Single Family and Commercial count as 1 unit Multi-Family and Multi-Commercial are billed according to meter size and unit count (3) Outside City surcharge of 25% for water (4) Single family residence with less than 2,000 gallons per month (5) Residential service capped at 16,000 gallons per unit (6) Billed in September Source: City of Fort Walton Beach Comprehensive Fee Schedule 115  City of Fort Walton Beach, Florida SCHEDULE 22 SANITATION AND RECYCLING SERVICE RATES Unaudited Basic Garbage Rates Garbage Tipping Total Residential One Container $ 10.60 $ 6.45 $ 17.05 Two Containers 21.20 12.80 34.00 Residential Dumpsters, Individual Meters 10.60 6.45 17.05 Commercial One Container 28.60 7.25 35.85 Two Containers 57.20 14.55 71.75 Shared Dumpster (minimum charge) 28.60 7.25 35.85 Garbage and Trash Collection Garbage Tipping Total 2 Cubic Yards 2 times per week $ 60.70 $ 52.40 $ 113.10 3 times per week 91.05 78.50 169.55 4 times per week 121.45 104.55 226.00 5 times per week 151.75 130.70 282.45 6 times per week 182.10 156.80 338.90 4 Cubic Yards 2 times per week 85.70 104.55 190.25 3 times per week 128.55 156.80 285.35 4 times per week 171.40 209.05 380.45 5 times per week 214.25 261.30 475.55 6 times per week 257.10 313.55 570.65 6 Cubic Yards 2 times per week 112.50 156.80 269.30 3 times per week 168.75 235.20 403.95 4 times per week 224.95 313.55 538.50 5 times per week 281.20 391.90 673.10 6 times per week 337.45 470.35 807.80 8 Cubic Yards 2 times per week 135.70 209.05 344.75 3 times per week 203.55 313.55 517.10 4 times per week 271.40 418.05 689.45 5 times per week 339.25 522.60 861.85 6 times per week 407.10 627.05 1,034.15 Compactor Commercial Rate x 3 x Bulk Container(s) Commercial Recycling Garbage Tipping Total 4 Cubic Yards 2 times per week 112.70 - 112.70 3 times per week 169.00 - 169.00 4 times per week 225.35 - 225.35 5 times per week 281.70 - 281.70 6 Cubic Yards 2 times per week 169.00 - 169.00 3 times per week 253.50 - 253.50 4 times per week 338.00 - 338.00 5 times per week 422.50 - 422.50 8 Cubic Yards 2 times per week 225.35 - 225.35 3 times per week 338.00 - 338.00 4 times per week 450.70 - 450.70 5 times per week 563.35 - 563.35 Contaminated Load Fee (per dump) 4 CY 20.00 31.20 51.20 6 CY 20.00 56.10 76.10 8CY 20.00 87.20 107.20 Source: City of Fort Walton Beach Comprehensive Fee Schedule 116  City of Fort Walton Beach, Florida SCHEDULE 23 OPERATING INDICATORS BY FUNCTION/PROGRAM Last Ten Fiscal Years Function Unaudited Fiscal Year 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 Public Safety Police Arrests 873 867 1,042 1,265 1,773 2,298 2,526 2,201 1,916 1,708 Traffic citations 3,119 3,413 3,773 3,246 6,207 6,430 7,211 5,171 5,399 5,633 Fire Emergency medical responses 3,278 3,231 3,197 3,041 2,791 2,645 2,484 2,567 2,441 1,671 Fire responses 1,389 1,277 1,288 1,224 1,158 477 479 517 335 403 Inspections 700 800 758 1,431 2,040 2,863 3,277 3,319 2,605 1,658 Code Enforcement Code violations 1,766 2,118 2,158 2,456 2,426 2,513 2,108 1,793 1,914 1,674 Engineering Services Building permits issued n/a n/a n/a n/a n/a 1,429 1,582 1,710 2,341 3,151 Residential building permits issued 1,220 1,095 697 588 630 n/a n/a n/a n/a n/a Commercial building permits issued 310 457 164 284 380 n/a n/a n/a n/a n/a Value of permits (in millions) n/a n/a n/a n/a n/a $46.20 $37.40 $28.70 $31.10 $61.70 Value of residential permits (in millions) $ 16 $ 15 $ 9 $ 10 $ 7 n/a n/a n/a n/a n/a Value of commercial permits (in millions) $ 27 $ 23 $ 9 $ 7 $ 7 n/a n/a n/a n/a n/a Street resurfacing (lane miles) 0.16 - 1.70 2.25 5.71 1.53 0.78 0.46 2.25 3.55 Pot holes (hours spent repairing) 528 813 989 1,014 617 1,257 1,476 1,022 713 861 Sanitation Refuse collected (tons) 26,102 24,059 25,374 25,332 25,676 25,485 27,873 28,374 28,446 34,378 Recyclables collected (tons) 754 615 375 251 161 150 112 367 400 385 Culture and Recreation Parks and Recreation Recreation program participants (3) n/a n/a 92,267 106,486 103,121 116,565 118,890 125,697 120,329 86,312 Recreation program registrations 651 571 n/a n/a n/a n/a n/a n/a n/a n/a Adult athletic participants (3) n/a n/a 6,728 9,003 10,009 11,406 14,591 14,669 14,239 1,155 Adult athletic registrations 426 467 n/a n/a n/a n/a n/a n/a n/a n/a Youth athletic participants (3) n/a n/a 14,548 13,038 12,525 14,211 15,570 14,418 14,254 1,674 Youth athletic registrations 1,347 1,253 n/a n/a n/a n/a n/a n/a n/a n/a Skate/tennis park participants (4) n/a n/a 13,114 18,291 15,297 18,480 24,100 29,088 29,396 24,741 Library Circulation volume 145,684 142,888 139,196 126,146 135,314 142,148 137,002 126,271 124,489 118,368 Museum Number of visitors/participants(1) 19,461 22,901 21,480 28,200 39,935 47,700 45,168 28,916 30,144 31,531 Water System New connections 27 26 39 18 27 16 20 30 32 37 Water customers 9,480 9,279 8,846 8,804 8,795 8,741 8,927 8,996 8,966 8,984 Water produced (million gallons) 884 855 868 899 897 943 963 1,071 1,127 1,046 Wastewater System Wastewater treated (million gallons)(2) - - - - 381 769 916 796 839 1,164 (1) Decline in 2011 primarily in outreach numbers; reducing outreach to be more in line with in-house service numbers at the suggestion of City Council (2) Wastewater treatment transferred to County in March 2010 (3) FY 2012-2013 total participants was changed to total registrations (4) FY 2012-2013 numbers were not required to be collected for the BMX Park or the Tennis Center Source: City of Fort Walton Beach Performance Measures. 117  City of Fort Walton Beach, Florida SCHEDULE 24 CAPITAL ASSET STATISTICS BY FUNCTION/PROGRAM Last Ten Fiscal Years Unaudited Function/Program Fiscal Year 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 Public Safety Police Stations 1 1 1 1 1 1 1 1 1 1 Sworn Officers 43 43 51 48 49 49 55 53 52 N/A Engineering Services Miles of roads 93.12 93.12 93.06 92.65 (2) 112.76 112.76 (1) 99.35 98.50 98.50 98.50 Miles of sidewalks 64.73 64.05 63.93 62.80 62.11 61.35 61.32 60.92 60.82 N/A Signs fabricated and installed 918 785 935 976 910 1,110 1,223 1,481 1,412 1,509 Culture and Recreation Parks and Recreation Recreational Amenities 116 (7) 117 (4) 122 122 122 (3) 91 90 90 89 82 Parks (acres) 180.26 180.26 180.26 180.26 180.26 180.26 180.26 180.26 173.58 143.55 Library Inventoried collection 72,729 74,649 74,448 72,873 74,317 73,641 71,006 69,061 68,064 67,517 Water and Sewer System Potable water lines (miles) 146.25 145.9 (5) 118.63 118.57 118.52 118.10 118.09 118.09 115.95 115.69 Sanitary sewer lines (miles) 130.32(5) 118.76 118.76 118.76 118.77 118.77 118.77 118.77 118.77 118.64 Reuse water lines (miles) 7.10 7.14 3.82 3.82 3.82 4.14 4.14 4.14 4.14 2.19 (6) Potable Water Elevated Storage Tank Capacity: 1 tank 200,000 gal; 1 tank 750,000 gal; 2 tanks 500,000 gal Potable Water Ground Storage Tank Capacity: 1 tank 135,000 gal; 1 tank 250,000 gal; 1 tank 1,000,000 gal; 1 tank 25,000 gal Pumping Capacity of Potable Water Wells: 9.231 million gallons per day Sanitary Sewer Ground Storage Tank Capacity: 4,000,000 gal Reuse Water Elevated Storage Tank Capacity: 1 tank 200,000 gal Reuse Water Ground Storage Tank Capacity: 1 tank 1,000,000 gal Stormwater System Storm drains (miles) 42.05 42.01 41.64 41.64 (2) 45.70 45.66 (1) 34.73 34.73 34.73 N/A (1) FY 2009 Increase due to better data with GIS system and methodology change for calculation. (2) FY 2011 Adjustment to only include City-maintained roads and stormwater pipe (collector, culvert, french drain). (3) FY 2010 Adjustment due to re-evaluation of how amenities are counted. (4) Decrease due to demolition of the Rec Center and fields. (5) Increase due to better data output from GIS system. (6) One elevated tank with 200,000 gallon capacity was converted to reuse water. (7) Decrease due to sale of Senior Center. New Recreation Center will be open mid FY 2015. N/A: Not available. Source: City of Fort Walton Beach Performance Measures. 118  City of Fort Walton Beach, Florida SCHEDULE 25 INSURANCE COVERAGE Unaudited Agent, Broker, or Effective Dates Company Policy Number Company Rep. Type Amount Location 10/12/14 to 10/12/15 Wright National 1150113370 Fisher-Brown Agency Flood $ 402,700 B 4th Avenue & Carson $ 16,300 C Chester Pruitt Building 10/12/14 to 10/12/15 Wright National 1150113362 Fisher-Brown Agency Flood $ 402,700 B 50 Ferry Road $ 23,500 C Docie Bass Recreation Building 10/12/14 to 10/12/15 Wright National 1150113371 Fisher-Brown Agency Flood $ 402,700 B 14 Robinwood Drive SW $ 84,500 C Sanitation Building 10/12/14 to 10/12/15 Wright National 1150167295 Fisher-Brown Agency Flood $ 500,000 B #7 Hollywood Boulevard $ 500,000 C Police Department 10/12/14 to 10/12/15 Wright National 1150113360 Fisher-Brown Agency Flood $ 500,000 B #5 Hollywood Boulevard $ 260,100 C Fire Department 10/12/14 to 10/12/15 Wright National 1150113366 Fisher-Brown Agency Flood $ 366,100 B Memorial Parkway $ 31,100 C Senior Citizens Building 10/12/14 to 10/12/15 Wright National 1150113367 Fisher-Brown Agency Flood $ 402,700 B 107 Miracle Strip Parkway $ 128,200 C Auditorium 10/12/14 to 10/12/15 Wright National 1150113368 Fisher-Brown Agency Flood $ 402,700 B 107 Miracle Strip Parkway $ 382,900 C City Hall 10/12/14 to 10/12/15 Wright National 1150113361 Fisher-Brown Agency Flood $ 177,300 B 107 Miracle Strip Parkway $ 16,300 C Council Chamber 10/12/14 to 10/12/15 Wright National 1150113365 Fisher-Brown Agency Flood $ 402,700 B 107 Miracle Strip Parkway $ 382,900 C Annex Building 10/12/14 to 10/12/15 Wright National 1150113363 Fisher-Brown Agency Flood $ 389,700 B 107 Miracle Strip Parkway $ 16,300 C Utility Building 10/12/14 to 10/12/15 Wright National 1150113369 Fisher-Brown Agency Flood $ 402,700 B 141 Miracle Strip Parkway $ 51,200 C City Museum 10/12/14 to 10/12/15 Wright National 1150113364 Fisher-Brown Agency Flood $ 324,200 B 22 McGriff Street 7,900 C Child Care Facility 12/02/14 to 12/02/15 Wright National 1150164378 Fisher-Brown Agency Flood $ 38,500 B 338 Miracle Strip Parkway Restroom, East of Pavillion 119  City of Fort Walton Beach, Florida SCHEDULE 25 INSURANCE COVERAGE Unaudited Agent, Broker, or Effective Dates Company Policy Number Company Rep. Type Amount Location Liza Jackson Park 12/02/14 to 12/02/15 Wright National 1150164379 Fisher-Brown Agency Flood $ 38,500 B 338 Miracle Strip Parkway Restroom Near Ditch Liza Jackson Park 05/17/14 to 05/17/15 Wright National 1150342974 Fisher-Brown Agency Flood $ 98,300 B 55 Ferry Road Boy Scout Hut 07/23/14 to 07/23/15 Wright National 1150518779 Fisher-Brown Agency Flood $ 266,200 B 18 Robinwood Drive $ 33,600 C Pump Station #1 06/23/14 to 06/23/15 Wright National 1150458831 Fisher-Brown Agency Flood $ 55,000 B 168 Coral Drive SW City Hall Ball Field Restrooms 10/01/14 to 10/01/15 AIG Environmental Tank Guard PEC002924704 Public Risk Insurance Agency Petroleum $ 1,000,000/inc Golf Course, Police, City Yard, Fuel Station Liability $ 1,000,000/agg Pump Station 10/01/14 to 10/01/15 PGIT PKFL1046200313-09 Public Risk Insurance Agency Inland $ 555,260 Fine Arts Marine $ 250,000 Rented, Borrowed, Leased Equipment $ 2,237,476 Contractor's Mobile Equipment $ 588,532 EDP/Minicomputer/Word Processor $ 250,000 Valuable Papers $ 231,933 Other Inland Marine $ 318,276 Emergency Svcs Portable Equipment $ 255,211 Communication Equipment 09/16/14 to 09/16/15 Hartford 21BSBDB7459 Fisher-Brown Agency Public Official $ 50,000 Finance Director Bond 04/18/14 to 04/18/15 Hartford 21BSBDB7454 Fisher-Brown Agency Public Official $ 50,000 Customer Service Administrator, Finance Bond Department 10/01/14 to 10/01/15 PGIT PKFL1046200313-09 Public Risk Insurance Agency Auto $ 100,000 Uninsured Motorist $ 1,000,000 CSL Liability 10/01/14 to 10/01/15 PGIT PKFL1046200313-09 Public Risk Insurance Agency Forgery $ 250,000 Alteration 10/01/14 to 10/01/15 PGIT PKFL1046200313-09 Public Risk Insurance Agency Money & $ 10,000 Securities 120  City of Fort Walton Beach, Florida SCHEDULE 25 INSURANCE COVERAGE Unaudited Agent, Broker, or Effective Dates Company Policy Number Company Rep. Type Amount Location 10/01/14 to 10/01/15 PGIT PKFL1046200313-09 Public Risk Insurance Agency Crime $ 250,000 Public Employees Blanket Fidelity Bond 10/01/14 to 10/01/15 PGIT PKFL1046200313-09 Public Risk Insurance Agency General $ 1,000,000 Occurance Liability 10/01/14 to 10/01/15 PGIT PKFL1046200313-09 Public Risk Insurance Agency Property $ 45,451,357 Blank Real & Personal Property 10/01/14 to 10/01/15 PGIT PKFL1046200313-09 Public Risk Insurance Agency Property $ 500,000 Business Income 500,000 Additional Expense 10/01/14 to 10/01/15 PGIT WC-FL1046200313-04 Public Risk Insurance Agency Worker's $ 1,000,000 Accident Comp $ 1,000,000 Disease 10/01/14 to 10/01/15 PGIT PKFL1046200313-09 Public Risk Insurance Agency Public Officials $ 5,000,000 Empl. Practice 5,000,000 10/01/13 to 10/01/15 Federal Insurance 9906-62-32 LB Bryan & Co. AD&D $ 59,695 Occupational Death Mutual of Omaha $ 59,695 Response to Emergency $ 179,085 Unlawful/Unintentional 10/01/14 to 10/01/15 PGIT PKFL1046200313-09 Public Risk Insurance Agency Boiler & $ 45,451,357 Machinery 05/01/14 to 05/01/15 Travelers 105927344 Fisher-Brown Agency Fiduciary $ 2,000,000 Retirement Fund for General Liability Employees and Fire Source: City of Fort Walton Beach Risk Management Department 121 IV. COMPLIANCE SECTION  COMPLIANCE MATTERS  MANAGEMENT LETTERS  RESPONSES TO THE MANAGEMENT LETTER  CITY OF FORT WALTON BEACH, FLORIDA SCHEDULE OF EXPENDITURES OF STATE FINANCIAL ASSISTANCE FOR THE YEAR ENDED SEPTEMBER 30, 2014 State Agency Pass-Through Entity CSFA Contract/Grant State Project Number Number Expenditures Florida Department of Environmental Protection Direct program Wastewater Treatment Facility Construction 37.077 WW284100 $ 4,308,766 TOTAL EXPENDITURES OF STATE FINANCIAL ASSISTANCE $ 4,308,766 See notes to the schedule of expenditures of state financial assistance. 122  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE SCHEDULE OF EXPENDITURES OF STATE FINANCIAL ASSISTANCE FOR THE YEAR ENDED SEPTEMBER 30, 2014 1. BASIS OF PRESENTATION Description of City The accompanying Schedule of Expenditures of State Financial Assistance includes the state grant activity of the City of Fort Walton Beach, Florida, and is presented on the accrual basis of accounting. The information in this schedule is presented in accordance with the requirements described in Chapter 10.550, Rules of the Auditor General. Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in the preparation of, the basic financial statements. 123  INDEPENDENT AUDITORS’ REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS To the Honorable Mayor and City Council Members City of Fort Walton Beach, Florida We have audited, in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, the financial statements of governmental activities, the business–type activities, each major fund, and the aggregate remaining fund information of the City of Fort Walton Beach, Florida, as of and for the year ended September 30, 2014, and the related notes to the financial statements, which collectively comprise the City of Fort Walton Beach, Florida's basic financial statements and have issued our report thereon dated February 19, 2015. Internal Control over Financial Reporting In planning and performing our audit, we considered the City of Fort Walton Beach, Florida's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City of Fort Walton Beach, Florida's internal control. Accordingly, we do not express an opinion on the effectiveness of the City's internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit, we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. 124 Compliance and Other Matters As part of obtaining reasonable assurance about whether the City of Fort Walton Beach, Florida's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Fort Walton Beach, Florida February 19, 2015 125  INDEPENDENT AUDITORS’ REPORT ON COMPLIANCE FOR EACH MAJOR STATE PROJECT AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH CHAPTER 10.550, RULES OF THE AUDITOR GENERAL To the Honorable Mayor and City Council Members City of Fort Walton Beach, Florida Report on Compliance for Each Major State Project We have audited City of Fort Walton Beach, Florida's compliance with the types of compliance requirements described in the Florida Department of Financial Services' State Projects Compliance Supplement that could have a direct and material effect on each of City of Fort Walton Beach, Florida's major state projects for the year ended September 30, 2014. City of Fort Walton Beach, Florida's major state projects are identified in the summary of auditor’s results section of the accompanying Schedule of Findings and Questioned Costs. Management's Responsibility Management is responsible for compliance with the requirements of laws, regulations, contracts, and grants applicable to its state projects. Auditors’ Responsibility Our responsibility is to express an opinion on compliance for each of City of Fort Walton Beach, Florida’s major state projects based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and Chapter 10.550, Rules of the Auditor General. Those standards and Chapter 10.550 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 City of Fort Walton Beach, Florida’s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major state project. However, our audit does not provide a legal determination of City of Fort Walton Beach, Florida's compliance. Opinion on Each Major State Project In our opinion, City of Fort Walton Beach, Florida, complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major state projects for the year ended September 30, 2014. 126 Report on Internal Control Over Compliance Management of City of Fort Walton Beach, Florida is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered City of Fort Walton Beach, Florida’s internal control over compliance with the types of requirements that could have a direct and material effect on each major state project to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major state project and to test and report on internal control over compliance in accordance with Chapter 10.550, 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 City of Fort Walton Beach, Florida’s internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a state project on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a state project will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a state project that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of Chapter 10.550. Accordingly, this report is not suitable for any other purpose. Fort Walton Beach, Florida February 19, 2015 127  CITY OF FORT WALTON BEACH, FLORIDA SCHEDULE OF FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED SEPTEMBER 30, 2014 I. SUMMARY OF AUDITORS' RESULTS Financial Statements Type of auditors' report issued: Unmodified Internal control over financial reporting: • Material weakness(es) identified? Yes X No None • Significant deficiency(ies) identified? Yes X Reported Noncompliance material to financial statements noted? Yes X No State Financial Assistance Internal control over major programs: • Material weakness(es) identified? Yes X No None • Significant deficiency(ies) identified? Yes X Reported Type of auditors' report issued on compliance for major programs: Unmodified • Any audit findings disclosed that are required to be reported in accordance with Chapter 10.550, Rules of the Auditor General? Yes X No Identification of major programs: CSFA Number Name of State Project 37.077 Water Treatment Facility Construction 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 audits of the City of Fort Walton Beach, Florida did not disclose any findings required to be reported under Chapter 10.550, Rules of the Auditor General. 128 (THIS PAGE INTENTIONALLY LEFT BLANK.)  INDEPENDENT ACCOUNTANTS’ REPORT ON AN EXAMINATION OF COMPLIANCE REQUIREMENTS IN ACCORDANCE WITH CHAPTER 10.550, RULES OF THE AUDITOR GENERAL To the Honorable Mayor and and Members of the City Council City of Fort Walton Beach, Florida We have examined the City of Fort Walton Beach, Florida’s (the City) compliance with Florida Statute 218.415 with regards to the investments for the year ended September 30, 2014. Management is responsible for the City’s compliance with those requirements. Our responsibility is to express an opinion on the City’s compliance based on our examination. Our examination was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants and, accordingly, included examining, on a test basis, evidence about the City’s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our examination provides a reasonable basis for our opinion. Our examination does not provide a legal determination on the City’s compliance with specified requirements. In our opinion, the City of Fort Walton Beach, Florida complied, in all material respects, with Florida Statute 218.415 with regards to the investments for the year ended September 30, 2014. Fort Walton Beach, Florida February 19, 2015 129 (THIS PAGE INTENTIONALLY LEFT BLANK.)  MANAGEMENT LETTER To the Honorable Mayor and City Council Members City of Fort Walton Beach, Florida Report on the Financial Statements We have audited the financial statements of the City of Fort Walton Beach, Florida (the City), as of and for the fiscal year ended September 30, 2014, and have issued our report thereon dated February 19, 2015. Auditors’ Responsibility 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 Chapter 10,550, Rules of the Florida Auditor General. Other Reports and Schedule We have issued our Independent Auditors’ Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards; Independent Auditor's Report on Compliance for Each Major State Project and on Internal Control over Compliance in Accordance with Chapter 10.550, Rules of the Auditor General; the Schedule of Findings and Questioned Costs; and Independent Accountants’ Report on an Examination of Compliance Requirements in Accordance with Chapter 10.550, Rules of the Auditor General. Disclosures in this report, which are dated February 19, 2015, should be considered in conjunction with this management letter. Prior Audit Findings Section 10.554(1)(i)1., Rules of the Auditor General, requires that we determine whether or not corrective actions have been taken to address findings and recommendations made in the preceding annual financial report. Corrective actions have been taken to address findings and recommendations made in the preceding annual financial audit report. Official Title and Legal Authority Section 10.554(1)(i)4., Rules of Auditor General, requires that the name or official title and legal authority for the primary government and each component unit of the reporting entity be disclosed in this management letter, unless disclosed in the notes to the financial statements. The City of Fort Walton Beach, Florida, was established as a municipality by a Special Act of the Florida Legislature in 1937. The City's original charter was enacted as Chapter 18539, Laws of Florida. 130 Official Title and Legal Authority - Continued The present charter was enacted in 1953 as Chapter 29093, Laws of Florida. The City had one component unit within its reporting entity. The Fort Walton Beach Community Redevelopment Agency was created pursuant to provisions of Chapter 163, Part III, Florida Statutes. This action, adopted by Resolution Number 77–38, also outlines the rights, powers, duties, privileges, and immunities invested in the governing body. City ordinance 1262, adopted on September 27, 1994, gave the City Council the authority to appoint an independent Board of Commissioners in place of the City Council effective January 1, 1995. During 1992, the Florida Department of Community Affairs determined that the Fort Walton Beach Housing Authority was a dependent special district of the City. Utilizing the standards set forth in GASB 61, the Fort Walton Beach Housing Authority was not considered as having met sufficient criteria for inclusion within the City's audited financial statements for the year ended September 30, 2014. As a result, the Fort Walton Beach Housing Authority is not included in the City's annual financial report. During 2011, the Fort Walton Beach Community Redevelopment Agency (the Agency) became a blended component unit of the City. The City's council members serve as board members of the Agency. The Agency's governing body is the same as the governing body of the City and the Agency provides services specifically to the Community Redevelopment Area of the City. Due to the nature and significance of the Agency's relationship with the City, exclusion of the Agency's financial operations would render the City's financial statements incomplete or misleading. Financial Condition Section 10.554(1)(i)5,.a., Rules of the Auditor General, requires that we report the results of our determination as to whether or not the City has met one or more of the conditions described in Section 218.503(1), Florida Statutes, and identification of the specific condition(s) met. In connection with our audit, we determined that the City did not meet any of the conditions described in Section 218.503(1), Florida Statutes. Pursuant to Sections 10.554(1)(i)5.c., and 10.556(8), Rules of the Auditor General, we applied financial condition assessment procedures. It is management's responsibility to monitor the City's financial condition, and our financial condition assessment was based in part on representations made by management and the review of financial information provided by same. Annual Financial Report Section 10.554(1)(i)5.b., Rules of the Auditor General, requires that we report the results of our determination as to whether the annual financial report for the City, for the fiscal year ended September 30, 2014, 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, 2014. In connection with our audit, we determined that these two reports were in agreement. Special District Component Units Section 10.554(1)(i)5.d, Rules of the Auditor General, requires that we determine whether or not a special district that is a component unit of a county, municipality, or special district, provided the financial information necessary for proper reporting of the component unit, within the audited financial statements of the county, municipality, or special district in accordance with Section 218.39(3)(b), Florida Statutes. In connection with our audit, we determined that all special district component units provided the necessary information for proper reporting in accordance with Section 218.39(3)(b), Florida Statutes. 131 Other Matters Section 10.554(1)(i)2., Rules of the Auditor General, requires that we address in the management letter any recommendations to improve financial management. In connection with our audit, we did not have any such recommendations. Section 10.554(1)(i)3., Rules of the Auditor General, requires that we address noncompliance with provisions of contracts or grant agreements, or abuse, that have occurred, or are likely to have occurred, that have an effect on the financial statements that is less than material but which warrants the attention of those charged with governance. In connection with our audit, we did not have any such findings. Purpose of this Letter Our management letter is intended solely for the information and use of the Legislative Auditing Committee, members of the Florida Senate and the Florida House of Representatives, the Florida Auditor General, Federal and other granting agencies, the City Council Members, and applicable management, and is not intended to be and should not be used by anyone other than these specified parties. We greatly appreciate the assistance and cooperation extended us during our audit. Fort Walton Beach, Florida February 19, 2015 132