Fort Walton Beach — Annual Comprehensive Financial Report, September 30, 2025 — reading text

the General Fund. The General Fund should be the only fund that reports a positive unassigned balance. In all other funds, unassigned is limited to negative residual fund balance. The City's formal fund balance policy establishes a targeted minimum reserve balance in the General Fund for committed fund balance equal to 30% of annual budgeted expenditures, which constitutes the City’s minimum fund balance policy. In circumstances when an expenditure is made for a purpose for which amounts are available in multiple fund balance classifications, fund balance is generally depleted in the order of restricted, committed, assigned, and unassigned. Net Position When both restricted and unrestricted resources are available for use, it is the government's policy to use restricted resources first and then unrestricted resources, as they are needed. Change in Accounting Principle Effective October 1, 2024, the City adopted the provisions of GASB Statement No. 101, Compensated Absences (GASBS 101). This pronouncement establishes a unified model for recognition and measurement of liabilities associated with compensated absences, including vacation, sick leave and other paid time off. GASBS 101 is expected to result in a liability for compensated absences that more appropriately reflects when a government incurs an obligation and can be applied consistently to different types of leave offered by governmental employers. As part of the implementation process, the City has evaluated whether leave is more likely than not to be used for time off or otherwise paid in cash or settled through noncash means by assessing relevant factors, such as the City’s employment policies related to compensated absences; historical information about the use, payment, or forfeiture of compensated absences; and known information that would indicate that historical information may not be representative of future trends or patterns. GASBS 101 was retroactively implemented, which resulted in a restatement of the City’s beginning net position. The effects of the restatement on beginning net position for each reporting unit can be found in Note 20. 36  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2025 Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassifications Certain amounts presented in the prior year have been reclassified in order to be consistent with the current year presentation. Such reclassifications have no effect on total fund balance or net position previously reported. Subsequent Events The City has evaluated events and transactions that occurred between September 30, 2025, and March 27, 2026, which is the date the financial statements were available to be issued, for possible recognition or disclosure in the financial statements. 2. STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY Budgets Budgets are adopted on a basis consistent with U.S. GAAP. 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. Encumbrances Encumbrances represent commitments related to unperformed contracts for goods or services. Encumbrance accounting is a form of budgetary control to ensure that appropriations are not exceeded. Encumbrances outstanding that are not expected to be satisfied by restricted or committed resources are reported as assignments of fund balance in the governmental fund types. 3. DEPOSITS AND INVESTMENTS The City maintains a cash and investment management pool in which each major governmental and enterprise fund participates on a dollar equivalent and daily transaction basis. The City's cash and investment management pool includes pooled cash maintained in interest-bearing demand deposit accounts, and pooled investments managed by a financial institution. Interest income (which includes unrealized gains and losses) is distributed monthly based on the average balances. Deposits Custodial Credit Risk – It is the City's policy to maintain its deposits only with "Qualified Public Depositories" as defined in Chapter 280, Florida Statutes. The provisions of this statute allow Qualified Public Depositories to participate in a multiple financial institution collateral pool to ensure the security for public deposits. All Qualified Public Depositories must place with (or in the name of) the Chief Financial Officer of the State of Florida, collateral in the amount of the average daily balance of public deposits multiplied by the average monthly balance of public deposits or 125 percent of the average daily balance of public deposits greater than capital. In the event of default by a Qualified Public Depository, excess losses over insurance and collateral will be recovered through assessments to all Qualified Public Depositories of the same type as the depository in default. 37  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2025 Under this method, all City deposits, including certificates of deposit, are considered fully insured. As of September 30, 2025, the value of the City's deposits was $6,968,397, all of which was held by Qualified Public Depositories under Florida Statutes. Investments As of September 30, 2025, the City's investments consist of the pooled investments held by each fund to maximize earnings on surplus cash, those held in the various pension trust funds and the Beal Memorial Cemetery Perpetual Care special revenue fund. The types of investments, which can be made by the City, are restricted by state statutes, retirement fund plan documents, and other contractual agreements. A description of the requirements and the types of investments allowed can be found in Note 1. Interest Rate Risk – The City's investment policy encourages matching investment maturities with known cash needs and anticipated cash flow requirements in order to manage interest rate risk. Investments of current operating funds shall have maturities of no longer than 24 months. Investments of bond reserves, construction funds, and other non-operating funds shall have a term appropriate to the need for funds and in accordance with debt covenants, but in no event shall the investment duration of these funds exceed five years. The investment policies for the pension trust funds do not specifically address interest rate risk. As of September 30, 2025, the City held the following investments and related maturities: INVESTMENT MATURITIES (YEARS) Fair Value <1 1-5 5-10 10-15 15-20 20-25 25-30 >30 Investments subject to interest rate risk: Corporate debt $ 12,996,438 $ 453,029 $ 12,083,499 $ 459,910 $ - $ - $ - $ - $ - Municipal debt 124,759 124,759 - - - - - - - U.S. Treasury 23,921,401 - 18,672,603 3,570,557 - 1,105,166 573,075 - - U.S. Government agencies CMO's 5,237,644 - - - 159,029 164,054 53,286 4,861,275 - 42,280,242 $ 577,788 $ 30,756,102 $ 4,030,467 $ 159,029 $ 1,269,220 $ 626,361 $ 4,861,275 $ - Investments not subject to interest rate risk: Money market funds 2,719,068 Mutual and exchange- traded funds 100,888,865 Real estate investment funds 8,871,543 Infrastructure investment funds 7,518,553 External investment pools 9,486,050 Total $ 171,764,321 Credit Rate Risk – State law limits investments of surplus public funds to those investments described on the previous page. The table on the next page outlines the authorized investments of the pension trust funds. 38  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2025 General Police Employees' Officers' Firefighters' Retirement Retirement Retirement Investment Type Fund Fund Fund Money Market or short- Minimum rating of Limited to obligations Minimum rating of term investment fund A1 by S&P or backed by full faith & A1 by S&P or (STIF) options P1 by Moody's credit of US government P1 by Moody's Minimum rating in one Minimum rating of Minimum rating in one of Fixed-income securities of the four highest "investment grade" or the four highest classifications by a higher by a major rating classifications by a major major rating service service rating service 1 (1) No more than 5% of the total portfolio may be invested in securities that fall below these rating guidelines. All pension trust funds were in compliance with respective investment policies regarding credit rate risk as of September 30, 2025. The Moody's rating ranges of the different investment classes held by each respective plan at September 30, 2025, are as follows: General Pension Police Pension Plan Plan Fire Pension Plan Corporate debt N/A Aa2-A3 Aa2-A3 U.S. Treasury N/A Aa1 Aaa U.S. government agency pools N/A NR NR The Beal Memorial Cemetery investment policy does not limit investments to those with specific credit ratings for domestic or international equities. The overall rating of fixed income investments shall be at least investment grade based on the rating of two of the three Nationally Recognized Statistical Rating Organizations (NRSRO). Concentration of Credit Risk – The City limits the amount that may be invested in any one issuer based on the type of investment. Investments issued by or explicitly guaranteed