Fort Walton Beach — Comprehensive Financial Report September 30, 2017

CITY OF FORT WALTON BEACH, FLORIDA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2017 PREPARED BY: THE FINANCE DEPARTMENT Brandy L. Ferris, Finance Director CITY OF FORT WALTON BEACH 107 MIRACLE STRIP PARKWAY FORT WALTON BEACH, FLORIDA 32548 WWW.FWB.ORG  CITY OF FORT WALTON BEACH, FL City Council Left to right (standing): Mike Holmes, John Mead, Nic Allegretto, David Schmidt and Scott Smith Left to right (seated): Amy Jamieson, Mayor Dick Rynearson and Diane Keller 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 City Manager – Michael Beedie City Clerk – Kim Barnes City Attorney – Hayward Dykes, Jr. Directors Financial Services – Brandy Ferris Fire Services – Ken Perkins Human Resources – Tarey Franxman Police Services – Ed Ryan Public Works – Tim Bolduc Recreation Services – Jeff Peters Utility Services – Daniel Payne  Core Values Rather than being just words found on the website or located at the top of letterhead, these core values are the guiding principles by which City Council, Department Directors, and City Staff will conduct themselves, allocate resources, and prioritize goals and objectives. These principles form a non-negotiable code of conduct and will guide our government on who we hire, how we train, and how we reward. These values will define who we are, what we stand for, and influence policies, procedures, and guidelines. Adopted by City Council in May 2011, after a collaborative effort by Department Directors and the City Manager to consolidate employee suggestions, these five core values represent the first milestone in instituting the City’s new Performance Excellence Program. Integrity We will conduct ourselves in an honest, trustworthy, and ethical manner. Accountability We will take full responsibility for our actions, resources, and attitudes. Teamwork We will work together to provide quality services. Customer Service We will be professional, use all available resources, and strive to meet the needs of our customers. Continual Improvement We will promote a culture that seeks to better our organization. Adopted by City Council in September 2011, after a collaborative effort by Department Directors and the City Manager, the updated Vision and Mission for the City are as follows: Vision The City of Fort Walton Beach: a recognized leader in the provision of Community Services. Mission To enhance and protect the Community by providing quality services.  CITY OF FORT WALTON BEACH, FLORIDA TABLE OF CONTENTS FOR THE YEAR ENDED SEPTEMBER 30, 2017 Page CITY OFFICIALS I. INTRODUCTORY SECTION Table of Contents i Letter of Transmittal City Manager and Finance Director iv GFOA Certificate of Achievement xi Organizational Chart xii II. FINANCIAL SECTION Independent Auditors’ Report 1 A. MANAGEMENT’S DISCUSSION AND ANALYSIS 4 B. BASIC FINANCIAL STATEMENTS Government-Wide Financial Statements Statement of Net Position 15 Statement of Activities 16 Fund Financial Statements Governmental Funds Balance Sheet 17 Reconciliation of the Balance Sheet to the Statement of Net Position 18 Statement of Revenues, Expenditures and Changes in Fund Balance 19 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balance to the Statement of Activities 20 Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual - General Fund 21 Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual – Community Redevelopment Agency 22 Proprietary Funds Statement of Net Position 23 Statement of Revenues, Expenses and Changes in Net Position 25 Statement of Cash Flows 26 Fiduciary Funds Statement of Fiduciary Net Position 28 Statement of Changes in Fiduciary Net Position 29 Notes to the Financial Statements 30 i  CITY OF FORT WALTON BEACH, FLORIDA TABLE OF CONTENTS FOR THE YEAR ENDED SEPTEMBER 30, 2017 Page Schedule II. FINANCIAL SECTION (CONTINUED) C. REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) Pension and OPEB Schedules Schedules of Changes in Net Pension Liability and Related Ratios 84 Schedule of Changes in Net OPEB Liability and Related Ratios 87 Schedule of Pension Contributions 88 Schedule of Investment Returns 89 Notes to the Schedule of Pension Contributions – General Employees’ Retirement Fund 90 Notes to the Schedule of Pension Contributions – Police Officers’ Retirement Fund 92 Notes to the Schedule of Pension Contributions – Firefighters’ Retirement Fund 94 D. COMBINING AND INDIVIDUAL FUND STATEMENTS AND SCHEDULES Non-Major Governmental Funds Combining Balance Sheet 95 Combining Statement of Revenues, Expenditures and Changes in Fund Balance 96 Schedules of Revenues, Expenditures, and Changes in Fund Balance – Budget and Actual Law Enforcement Trust Special Revenue Fund 97 Law Enforcement Trust Training Special Revenue Fund 98 Florida Building Code Special Revenue Fund 99 Community Development Block Grant Special Revenue Fund 100 Beal Memorial Cemetery Perpetual Care Special Revenue Fund 101 Debt Service Fund 102 III. STATISTICAL SECTION (UNAUDITED) Net Position by Component 103 1 Changes in Net Position 104 2 Fund Balances – Governmental Funds 106 3 Changes in Fund Balances – Governmental Funds 107 4 Revenues and Other Sources 108 5 Assessed Value of Taxable Property 109 6 ii  CITY OF FORT WALTON BEACH, FLORIDA TABLE OF CONTENTS FOR THE YEAR ENDED SEPTEMBER 30, 2017 Page Schedule III. STATISTICAL SECTION (UNAUDITED) Property Tax Rates Per $1,000 of Taxable Value – All Direct and Overlapping Governments 110 7 Principal Taxpayers 111 8 Property Tax Levies and Collections 112 9 Ratios of Outstanding Debt by Type 113 10 Ratio of Net General Bonded Debt Outstanding 114 11 Pledged Revenue Coverage – Schedule of Revenue Bond Coverage 115 12 Direct and Overlapping Governmental Activities Debt – General Obligations 116 13 Major Employers 117 14 Miscellaneous Demographical Statistics 118 15 Full-Time Equivalent Employees by Function/Program 119 16 Permits, Licenses and Recreation Facilities 120 17 Elections - Okaloosa County Voter Registration 121 18 Special Assessment Billings and Collections 122 19 Major Revenue Sources 123 20 Water and Wastewater Service Rates 124 21 Sanitation and Recycling Service Rates 125 22 Operating Indicators by Function/Program 126 23 Capital Asset Statistics by Function/Program 127 24 Insurance Coverage 128 25 IV. COMPLIANCE SECTION Schedule of Receipts and Expenditures of Funds Related to the Deepwater Horizon Oil Spill 131 Independent Auditors’ Report on the Schedule of Receipts and Expenditure of Funds Related to the Deepwater Horizon Oil Spill 132 Schedule of Expenditures of State Financial Assistance 133 Notes to the Schedule of Expenditures of State Financial Assistance 134 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 135 Independent Auditors’ Report on Compliance for Each Major State Project and on Internal Control Over Compliance Required by Chapter 10.550, Rules of the Auditor General 137 Schedule of Findings and Questioned Costs 139 Independent Accountants’ Report on an Examination of Compliance Requirements in Accordance with Chapter 10.550, Rules of the Auditor General 140 Management Letter 141 iii  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 March 19, 2018 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, 2017, 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, 2017, 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. iv  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, 2017, are fairly presented in conformity with GAAP. The independent auditor’s report is presented in Section II - Financial Section as the first component of this section of the report. The independent audit of the financial statements of the City of Fort Walton Beach was part of a broader, 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: 64.73 miles TAXABLE ASSESSED VALUE: $1,280,098,652 WATER & SEWER LINES: 283.67 miles CITY MILLAGE RATE: 5.7697 STORM DRAIN: 42.10 miles POPULATION: 22,519 POLICE STATIONS: 1 FIRE STATIONS: 2 EMPLOYEES: 358 positions, 299.53 FTE’s LIBRARIES: 1 MUSEUMS: 4 SWORN POLICE OFFICERS: 44 18-HOLE GOLF COURSES: 2 FIREFIGHTING PERSONNEL: 36 ACRES OF PARKS: 206 The City of Fort Walton Beach, Florida prides itself on being a small, family-oriented seaside community boasting a downtown area that was home to a significant prehistoric Native American community on the Gulf Coast of Northwest Florida. Situated at the junction of two major highways - US 98 (Miracle Strip Parkway) and SR 85 (Eglin Parkway) - Fort Walton Beach enjoys the benefits of its crossroads location along the coastal portion of the Northwest Florida regional transportation network. The City offers a full-service government providing police and fire protection; cultural and recreational activities including parks, a library, a museum, and two championship golf courses; planning and zoning; public works such as street, sidewalk, right-of-way, and cemetery maintenance; utilities service including water, sewer, and storm water; and garbage and recycling collection to a coastal community of 22,519 full-time residents. v The City has an exciting and romantic history. As early as 600 B.C., Indian tribes were attracted to Fort Walton Beach from the Mississippi and Tennessee River Valleys and the Southeast Georgia coast. The beginning for the City occurred following the War Between the States when Alabama war veteran John Brooks selected a site of 111 acres where he built a three-room cabin in 1867. Other settlers soon followed. By 1884, the population of the area required establishment of a small schoolhouse. In 1902, the first hotel, Brooks House, was built along the sound and shortly thereafter the first post office was built in 1906. The First Schoolhouse Montgomery, Alabama, Maxwell Field military base developed an airfield in Fort Walton in 1933 on 137 acres of land and used it as a bombing and gunnery range. The most significant factor in the City's growth was the creation and later expansion, of that airfield, which is now Eglin Air Force Base (the largest military installation in the world) in 1937, the year the City Charter was adopted. Originally chartered as a municipality under the laws of the State of Florida, actual formation of the City was in 1941 when the Florida legislature officially named it the Town of Fort Walton. In 1953, the Florida Legislature granted the City a new charter at which time the name was changed to Fort Walton Beach. The name Walton originates from Colonel George Walton, who was Secretary of the East-West Florida Territory in 1822-26 and son of George Walton, signer of the Declaration of Independence and Governor of Georgia. The presence of the military base provided the key economic stimulus for the City's early growth, supplemented by the attractiveness of the location. The City enjoyed a substantial population and economic boom from the 1950's through the end of the 1970's. Subsequently, things started to slow down. The military base became less important to the City's economy than the growing tourism industry. In the late 1960’s and early 1970’s Fort Walton Beach began to experience a decline in economic prosperity, some of which can be attributed to the utility and transportation infrastructure getting older and commercial and residential structures becoming deteriorated. New development began to take place in the surrounding communities. The City, having nearly run out of developable land, started to focus attention on finding ways to induce private enterprise investment in the City and thus capturing a greater share of the local and regional market. The City’s premier gathering place along the Santa Rosa Sound has been the Fort Walton Landing Park since its purchase in 1986. Building upon that with the complete reconstruction of Brooks Street, including the Brooks Bridge Park in 2013, the City’s downtown waterfront was opened up to an extent never before realized and spurred economic growth downtown. Outside of downtown, the City completed construction of a new recreational complex, which has added to the attraction of the City. Downtown Redevelopment: Brooks Bridge Park Recreation Complex – opened Summer 2015 vi The financial reporting entity (the government) includes all the funds and account groups of the City of Fort Walton Beach, Florida, as well as component units. Component units are legally separate entities for which the primary government is financially accountable. Accordingly, the Fort Walton Beach Community Redevelopment Agency is reported as a blended component unit of the City of Fort Walton Beach. The budget process begins in January with the Finance Director and Budget & Grants Analyst developing five-year financial forecasts for the General and Enterprise Funds, including best, likely, and worst-case scenarios. Revenue assumptions are developed using financial forecasting software to analyze historical trends and account for any anticipated major economic or legislative changes. Revenue projections are continually updated until the budget is adopted to ensure the amounts are based on the most current information available. Expenditure assumptions are similarly developed in the forecast model considering relevant benchmark indices such as the municipal cost index, consumer price index, and producer price index. New programs and projects are also included to determine the future impact of current financial decisions. FISCAL YEAR FINANCIAL FORECAST BEGINS Oct DEVELOPED In March, the City Council, acting as the Legislative Body of 1 Jan the City holds a Strategic Planning Session. The goals set BUDGET BUDGET during this meeting, are used by staff to formulate the budget ADOPTION MEETING Sep Jun policy items that are presented to City Council in June and then utilized to prepare the Budget. A Budget Meeting is held with PUBLIC DEPARTMENT City Council in June to determine Council’s priorities and BUDGET WORKSHOPS MEETINGS position issues specific to development of the operational and Aug BUDGET COMMITTEE May/Jun capital budgets for the upcoming fiscal year. City Council’s REVIEW Jun/Jul decisions provide the framework under which the budget is prepared to meet City Council’s programmatic objectives within available fiscal resources projected in the five-year forecasts. The meeting is open to the public and the public is encouraged to attend and participate. Department Directors are responsible for identifying their staffing needs, operational funding needs within budget development parameters, five-year capital requests, as well as corresponding revenue sources to fund their needs. In addition, they must conduct a comprehensive review of departmental goals, objectives, and metrics. The City Charter charges the City Manager with the duty of presenting a balanced budget to City Council. In order to accomplish this goal, a Budget Committee is formed comprised of the City Manager, Finance Director, and Budget & Grants Manger. The Committee conducts comprehensive meetings with Department Directors to review their budget requests and a collaborative effort is undertaken to achieve City Council and department goals within fiscal constraints. The Budget Committee enlists assistance for areas of specialized interests, such as the Information Technology Manager for computer issues and the Human Resources Manager for personnel and risk management issues. Department goals, objectives, and metrics are also evaluated during budget development to determine the effectiveness of program activities and appropriate funding levels. After the departmental meetings, the Budget Committee finalizes the proposed budget given revenue projections, economic conditions, funding requirements, and City Council program priorities and issues previously identified in the budget process. Once a balanced budget is achieved, it is presented to City Council for consideration. vii  The City Council is required by Florida State Statute and City Charter to hold public hearings on the proposed budget and adopt a final budget no later than September 30th, the close of the City’s fiscal year. The appropriated budget is prepared by fund, department (e.g. financial services), and division (e.g. purchasing). Department Directors may request transfers of appropriations within a department and between divisions to transfer appropriations between line items, not to increase the total budget or to transfer resources between funds. Transfers of appropriations between funds require the approval of the City Council. The budget may be amended at any time by Resolution of City Council. Budget-to-actual comparisons are provided in the report for each individual governmental fund for which an appropriated annual budget has been adopted. For the General Fund and the Community Redevelopment Agency Fund, this comparison is presented on page 21 & 22 as part of the basic financial statements for the governmental funds. For governmental funds with appropriated annual budgets, other than those previously mentioned, this comparison is presented in the combining and individual fund statements and schedules, Section D of this report, which starts on page 97. FACTORS AFFECTING FINANCIAL CONDITION The information presented in the financial statements is best understood when it is considered from the broader perspective of the specific environment within which the City of Fort Walton Beach operates. Local Economy The FY 2017-18 budget of $41,571,702 is $2,943,194, or 7.6%, more than the adopted FY 2016-17 budget due to increased operating expenses, primarily related to pension costs. Additionally, ad valorem revenues are anticipated to increase 4.4% in the General Fund, generating approximately $247K in additional revenue, and 5.2% in the CRA fund, generating an additional $54K. The budget is predicated on maintaining a millage rate of 5.7697 mills. Eglin Air Force Base is the world’s largest Department of Defense installation, spanning 724 square miles. Defense contractor companies are established throughout the Northwest Florida region. It is estimated that local military bases currently represent a $6.0 billion annual economic impact on the area, with approximately 70% of the local economy supported by the military. Being located on the Gulf of Mexico in Northwest Florida, tourism is a large part of the regional economy. Regional accolades continue to enhance the area’s image, promote visibility, and generate additional tourism and sales tax dollars. Local tourism has benefited from the national shift to vacation sites accessible by driving instead of flying. The Fort Walton Beach-Destin area is a popular drive destination in Florida, according to a survey of auto visitors by Visit Florida. Long-Term Financial Planning The City undertakes several processes to assist in future planning, such as:  A 5-year CIP (Capital Improvement Program) Plan is developed and approved by City Council each year during the annual budget process.  5-year replacement plans for capital equipment, including vehicles, machinery, and computer hardware and software, are also developed and approved by Management each year during the annual budget process  Annual Strategic Plan, which focuses on a 1 – 3 year time period. viii  Relevant Financial Policies The City has several financial policies that are utilized during daily operations, as well as during the budget and financial planning processes. The City utilizes fund balance reserves only for one-time non-recurring expenditures. In addition, the City maintains its fund balance level in the General Fund at 30% of fund expenditures – this policy helps to ensure that the City has sufficient funding in place for emergency and disaster relief. Major Initiatives These financial policies, as well as other indicators, were taken into account when adopting the City’s budget for fiscal year 2018. The City’s budget for fiscal year 2018 totals $41.6 million, which is $2.9 million higher than the fiscal year 2017 approved budget, due to increased operating expenses, primarily related to pension costs. The 2018 budget allocates $22.3 million, an 11.3% increase as compared to the fiscal year 2017 budget, to the General fund, $15.9 million to the Enterprise funds, and $3.4 million to other funds. For the fiscal year 2018 budget, the ad valorem rate was maintained at 5.7697 mills. A 4.0% increase in water and sewer rates is included in the budget, and stormwater fees are scheduled to increase $0.25. No other significant changes to the City’s various rate and fees are included in the fiscal year 2018 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, 2016. This was the fourteenth 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, 2017. This was the twenty-second consecutive year that the City received this prestigious award. In order to qualify for the Distinguished Budget Presentation Award, the City’s budget document was judged proficient in several categories, including as a policy document, a financial plan, an operations guide, and a communications device. ix 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, CGFM City Manager Finance Director x xi  Citizens of Fort Walton Beach City Council City Clerk City Manager City Attorney 2.50 FTE 3.00 FTE 0400 0200 Financial Utility Services Public Works Fire Services Human Resources Police Services Recreation Services 47 FTE 48 FTE Services 37.00 FTE 8.30 FTE 67.4 FTE 71.71 FTE 14.50 FTE 1300 1200 0900 0300 & 0320 0800 1000 & 1010 0500 & 0520 & 0530 Engineering Building Inspections Accounting Advanced Life Human Resources Uniform Patrol Athletics – Adult & & Permitting Support Youth GIS/CAD Auditing Insurance & Risk K-9 Patrol Code Enforcement Fire Suppression Management Recreation Centers Stormwater & Streets Budgeting Criminal and Programming CDBG Fire Prevention IT Investigations Water Production & Purchasing Grounds Distribution Fleet & Facilities Fire Inspection Community Policing/ Maintenance: Parks, Debt Service & CRA Sewer Collection Sanitation Management Hazardous Materials Right-Of-Way and Response Crime Prevention Cemetery Planning Treasury Fire Education Communications Library CRA Utility Billing Records Museum Contingencies & Transfers Support Services Golf Club Operations School Crossing Guards Reserve Officers xii  INDEPENDENT AUDITORS’ REPORT To the Honorable Mayor and City Council Members City of Fort Walton Beach, Florida Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the business- type activities, each major fund, and the aggregate remaining fund information of the City of Fort Walton Beach, Florida (the City), as of and for the year ended September 30, 2017, and the related notes to the financial statements, which collectively comprise the City's basic financial statements, as listed in the table of contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. 1 Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Fort Walton Beach, Florida, as of September 30, 2017, 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. Emphasis of Matter As discussed in Note 21, the City implemented Governmental Accounting Standards Board (GASB) Statement No. 75, Accounting and Reporting for Postemployment Benefits Other Than Pensions, as of October 1, 2016. These standards significantly changed the accounting for the City’s other postemployment benefits liability and related disclosures. Our opinions are not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that management's discussion and analysis on pages 4-14 and the schedules related to the pension and OPEB liabilities, contributions, and investment returns on pages 84-94 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City's basic financial statements. The introductory section, combining and individual non-major fund financial statements and schedules, and statistical section, as listed in the table of contents, are presented for purposes of additional analysis and are not a required part of the basic financial statements. The accompanying 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 not a required part of the basic financial statements. 2 Other Matters (Continued) Other Information (Continued) The combining and individual non-major fund financial statements and 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 and 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. 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 March 19, 2018, on our consideration of the City’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City’s internal control over financial reporting and compliance. Fort Walton Beach, Florida March 19, 2018 3  MANAGEMENT’S DISCUSSION AND ANALYSIS As management of the City of Fort Walton Beach, Florida, we offer readers of the City of Fort Walton Beach’s financial statements this narrative overview and analysis of the financial activities of the City of Fort Walton Beach for the fiscal year ended September 30, 2017. We encourage readers to consider the information presented here in conjunction with additional information that we have furnished in our letter of transmittal, which can be found on pages iv-x of this report. FINANCIAL HIGHLIGHTS  The assets and deferred outflows of the City of Fort Walton Beach exceeded its liabilities and deferred inflows by $54.2 million (total net position). Of this amount, $10.3 million represents unrestricted assets that are available to meet the City’s ongoing obligations to citizens and creditors.  The government’s net position increased by $1.3 million during the fiscal year. Governmental activities experienced a decrease which is primarily related to a change in net pension liabilities. Business activities increased net position mainly attributable to State Stormwater capital grants received.  As of the close of the fiscal year, the City of Fort Walton Beach’s governmental funds have combined ending fund balances of $17.2 million, an increase of $779,734 in comparison with the prior year. This increase is attributable to franchise fees received. Approximately 86.4% of this amount, or $14.9 million, is available for spending at the discretion of City Council.  At the end of this fiscal year, committed, assigned, and unassigned fund balance of the General Fund was $12.1 million, or 63.2% of the total General Fund expenditures.  The City of Fort Walton Beach’s total debt decreased by $1.8 million, or 5.0%, during the fiscal year. This decrease is proportional to scheduled principal payments. OVERVIEW OF THE FINANCIAL STATEMENTS This discussion and analysis intends to serve as an introduction to the City of Fort Walton Beach’s basic financial statements, which are comprised of three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves. The focus of financial statements prepared in accordance with the Governmental Accounting Standards Board (GASB) Statement 34 is on both the City as a whole (government-wide) and on major individual funds. Both perspectives (government-wide and major funds) allow the user to address relevant questions, broaden a basis for comparison (year-to-year or government-to- government), and enhance the City’s accountability. Government-Wide Financial Statements Designed to be corporate-like, the government-wide financial statements consolidate governmental and business-type activities into two columns, which sum to a total for Primary Government. This provides readers with a broad overview of the City of Fort Walton Beach’s finances in a manner similar to a private-sector business. Two statements, the statement of net position and the statement of activities, are utilized to provide information on a government-wide basis. 4  The statement of net position presents information on all of the City of Fort Walton Beach’s assets, deferred outflows, liabilities, and deferred inflows, with the difference between them reported as net position. This statement combines and consolidates the governmental funds’ current financial resources (short-term available resources) with capital assets and long-term obligations. Over time, increases or decreases in net position may serve as a useful indicator of the financial position of the City of Fort Walton Beach. The statement of activities presents information showing how the government’s net position changed during the most recent fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flow in future fiscal periods. Both of the government-wide financial statements distinguish functions of the City of Fort Walton Beach that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business-type activities). The governmental activities of the City of Fort Walton Beach include general government (city clerk, city council, city manager, human resources, finance, purchasing, fleet maintenance, service maintenance, and non-departmental expenses), public safety (police, fire, building, and code enforcement services), physical environment (cemetery), transportation (engineering, streets, public works, and right-of-way), economic development (Community Development Block Grant Program, and community redevelopment agency), culture and recreation (parks, golf, library, and museum), and debt service interest. The business-type activities of the City of Fort Walton Beach include utilities (water, sewer, and storm water), and sanitation. The government-wide financial statements include not only the City of Fort Walton Beach itself (known as the primary government), but a component unit, the Community Redevelopment Agency (CRA), which is a legally separate entity for which the City of Fort Walton Beach is financially accountable. The CRA is considered a blended component unit of the City of Fort Walton Beach, Florida and is presented as a special revenue fund as part of the primary government. The government-wide financial statements are found on pages 15-16 of this report. Fund Financial Statements A fund is a grouping of related accounts used to maintain control over resources that have been segregated for specific activities or objectives. The City of Fort Walton Beach, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance- related legal requirements. All of the funds of the City of Fort Walton Beach can be divided into three categories: governmental funds, proprietary funds, and fiduciary funds. FUNDS Governmental Funds Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements are reported using an accounting method called modified accrual accounting, the focus of which is on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government’s near-term financial requirements. The basic governmental fund financial statements are on pages 17-22 of this report. 5  Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government’s near-term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balance provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The City of Fort Walton Beach maintains eight individual governmental funds (General Fund, Community Redevelopment Agency Fund, Florida Building Code Fund, Law Enforcement Trust Fund, Law Enforcement Training Fund, Debt Service Fund, Community Development Block Grant Fund, and Beal Memorial Cemetery Perpetual Care Fund). Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures, and changes in fund balance for the General Fund and the Community Redevelopment Agency Fund. Data from the other six governmental funds are combined into a single, aggregated presentation. Individual fund data for each of these non-major governmental funds is provided in the form of combining statements elsewhere in this report. The Community Redevelopment Agency Fund is considered a non-major fund for reporting purposes, however, the City chooses to present this Fund as a major fund in its financial statements. The City of Fort Walton Beach adopts an annual appropriated budget for its General Fund, as well as each of the other governmental funds. A budgetary comparison statement is provided for the General Fund on page 21 of this report. Proprietary Funds All proprietary funds of the City of Fort Walton Beach are maintained as enterprise funds. Enterprise funds are used to report the same functions presented as business-type activities in the statement of net position and the statement of activities. The City of Fort Walton Beach uses enterprise funds to account for its utilities operations (water operations and distribution, sewer collections and treatment, and stormwater management), and sanitation operations (garbage). Proprietary funds provide the same type of information as the government-wide financial statements, only in more detail. The proprietary fund financial statements provide separate information on utilities operations, sanitation operations, and stormwater operations, all of which are presented as major funds of the City of Fort Walton Beach although the Stormwater Fund could be considered a non-major fund for reporting purposes. The basic proprietary fund financial statements are found on pages 23-27 of this report. Fiduciary Funds Fiduciary funds are used to account for resources held for the benefit of parties outside the government. The City’s fiduciary funds include the Pension Trust Funds (general employees, police officers, and firefighters). Fiduciary funds are not reflected in the government-wide financial statements because the resources of those funds are not available to support the City of Fort Walton Beach’s own programs. The accounting used for fiduciary funds is much like that used for proprietary funds. The basic fiduciary fund financial statements are found on pages 28-29 of this report. NOTES TO THE FINANCIAL STATEMENTS The notes to the financial statements provide additional information that is essential to the full understanding of the data provided in the government-wide and fund financial statements. The notes to the financial statements begin on page 30 of this report. 6 OTHER INFORMATION In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information concerning the City of Fort Walton Beach’s progress in funding its obligation to provide pension benefits to its employees. The required supplementary information is found on pages 84-94 of this report. The combining statements referred to earlier in connection with non-major governmental immediately follow the required supplementary information on Pension funds and can be found beginning on page 95 of this report. GOVERNMENT-WIDE FINANCIAL ANALYSIS As noted earlier, net position may serve over time as a useful indicator of a government’s financial position. Assets and deferred outflows of resources of the City of Fort Walton Beach exceeded its liabilities and deferred inflows of resources by $54.2 million, as reported in Table 1. The government’s net position increased by $1.3 million for the fiscal year ended September 30, 2017. While governmental activities experienced a decrease, primarily related to changes in the net pension liability, business activities increased net position, attributable mainly to State Stormwater capital grants received. By far, the largest portion of the City’s net position, $41.2 million or 76.0%, reflects its investment in capital assets (e.g. land, infrastructure, buildings, machinery, and equipment) less any related debt still outstanding that was used to acquire those assets. The City uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the City of Fort Walton Beach reports investment in its capital assets net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since capital assets themselves cannot be used to liquidate these liabilities. An additional portion of the City’s net position, 5.0%, represents resources that are subject to external restrictions on how they may be used. The remaining balance of $10.3 million is unrestricted and may be used to meet the government’s ongoing obligations to citizens and creditors. Table 1 Statement of Net Position As of September 30 (In Thousands of Dollars) Governmental Business-Type Activities Total Activities 2017 2016 2017 2016 2017 2016 restated restated restated Current & Other $19,175 $18,400 $15,510 $14,155 $34,685 $32,555 Capital Assets 38,497 39,623 36,106 36,251 74,603 75,874 Total Assets 57,672 58,023 51,616 50,406 109,288 108,429 Deferred Outflow of Resources 10,035 6,005 1,781 1,171 11,816 7,716 Long‐Term Liabilities Outstanding 36,904 31,970 25,162 25,182 62,066 57,152 Other Liabilities 1,778 1,692 1,966 2,478 3,744 4,170 Total Liabilities 38,682 33,662 27,128 27,660 65,810 61,322 Deferred Inflow of Resources 1,032 1,172 109 219 1,141 1,391 Net Position Net Investment in Capital Assets 27,347 27,791 13,818 12,894 41,165 40,685 Restricted 2,094 2,161 610 562 2,704 2,723 Unrestricted (1,447) (758) 11,732 10,242 10,284 9,484 Total Net Position $27,994 $29,194 $26,160 $23,698 $54,153 $52,892 7 Reported in Table 2 are the key elements of the increase in net position for the current year. Table 2 Statement of Activities Governmental Activities Business-Type Activities Total Activities 2017 2016 2017 2016 2017 2016 Revenues Program Revenue: Charges for Services $3,517,477 $3,721,181 15,552,112 $14,602,206 19,069,589 18,323,387 Operating Grants & Contributions 825,624 908,595 - - 825,624 908,595 Capital Grants & Contributions 361,641 802,809 1,314,521 533,515 1,676,162 1,336,324 General Revenue: Property Taxes 5,807,598 5,617,998 - - 5,807,598 5,617,998 Other Taxes 6,755,699 8,841,512 - - 6,755,699 8,841,512 Tax Increments for Redevelopment 1,649,589 1,628,439 - - 1,649,589 1,628,439 Other Revenue 3,587,788 2,256,664 145,957 197,178 3,733,745 2,453,842 Total Revenues 22,505,416 23,777,198 17,012,590 15,332,899 39,518,006 39,110,097 Expenses Primary Government General Government 3,581,072 3,285,039 - - 3,581,072 3,285,039 Public Safety 11,507,059 10,172,215 - - 11,507,059 10,172,215 Physical Environment 543,287 430,490 - - 543,287 430,490 Transportation 1,536,979 1,494,178 - - 1,536,979 1,494,178 Economic Development 1,591,643 1,540,230 - - 1,597,643 1,540,230 Culture & Recreation 5,403,198 5,375,183 - - 5,403,198 5,375,183 Debt Service Interest 304,331 323,639 - - 304,331 323,639 Business‐Type Expenses Utilities - - 9,420,248 10,066,769 9,420,248 10,066,769 Sanitation - - 3,687,087 3,407,992 3,687,087 3,407,992 Other - - 681,541 611,351 681,541 611,351 Total Expenses 24,467,569 22,620,974 13,788,876 14,086,112 38,256,445 36,707,086 Increase/(Decrease) in Net Position (1,962,153) 1,156,224 3,223,714 1,246,787 1,261,561 2,403,011 before Transfers Transfers 761,739 755,846 (761,739) (755,846) - - Increase/(Decrease) in Net Position (1,200,414) 1,912,070 2,461,975 490,941 1,261,561 2,403,011 Net Position – Beginning 29,194,062 30,198,659 23,697,724 24,083,747 52,891,786 54,282,406 Restatement - (2,916,667) - (876,964) - (3,793,631) Net Position – Ending $27,993,648 $29,194,062 $26,159,699 $23,697,724 $54,153,347 $52,891,786 Current Year Impacts – Governmental Activities Governmental activities decreased the City’s net position by $1.2 million for the fiscal year ended September 30, 2017. Key elements of this change are as follows:  Total revenues decreased by $1.3 million which is primarily attributed to a decrease in capital grants and contributions of $441,168 due to the previous year’s receipt of an Assistance to Firefighters grant for a new station alert system and the sale of excess land for commercial development for $850,000 that was finalized in FYE 2016.  Public Safety expenses increased by $1.3 million due to the addition of two new Police Officers, pension related costs, and the implementation of the Collective Bargaining Unit Agreement for the Firefighters.  The City implemented GASB 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, which required a $2.9 million restatement of beginning net position for governmental activities.  Overall, expenses for governmental activities increased by $1.8 million, or 8.2%, while related revenue decreased $1.3 million, or 5.3%. 8  Chart 1 Expense and Revenue ‐ Governmental Activities (In millions) Debt Service Interest Culture and Recreation Economic Environment Transportation Physical Environment Public Safety General Government 0 2,000,000 4,000,000 6,000,000 8,000,000 10,000,000 12,000,000 Revenues Expenses Chart 2 Municipal Revenue Revenues by Source ‐ Governmental Activities Franchise Fees , Sharing , $981,613 $2,034,209 Other Revenue , Tax Increments for $571,966 Redevelopment , $1,649,589 Charges for Services , $3,517,477 Other Taxes , Operating Grants & $3,962,859 Contributions , $825,624 Capital Grants & Property Taxes , Contributions , Sales Tax , $2,792,840 $5,807,598 $361,641 Franchise Fees Other Revenue Charges for Services Operating Grants & Contributions Capital Grants & Contributions Property Taxes Sales Tax Other Taxes Tax Increments for Redevelopment Municipal Revenue Sharing Current Year Impacts – Business-Type Activities Business-type activities increased the City’s net position by $2.5 million for the fiscal year ended September 30, 2017. Key elements of this change are as follows:  An increase in capital grants and contributions in the amount of $781,006, or 146.4%, as the City took advantage of State authorized funding for stormwater improvements.  The City implemented GASB 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, which required an $875,000 restatement of beginning net position for business-type activities.  Overall, expenses for the business-type activities of the City decreased by $297,326, or 2.1%, primarily due to decreased waste water treatment flows. 9  Chart 3 Expenses and Program Revenue ‐ Business‐Type Activities (In millions) $12,000,000 $10,000,000 $8,000,000 $6,000,000 $4,000,000 $2,000,000 $‐ Utilities Sanitation Stormwater Expenses Revenues Chart 4 Capital Grants, Revenues by Source ‐ Business Type Activities Miscellaneous $1,314,521 Income, $145,957 Charges for Services, $15,552,112 Charges for Services Capital Grants Miscellaneous Income 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. 10 As of September 30, 2017, the City of Fort Walton Beach’s governmental funds have combined ending fund balances of $17.2 million, an increase of $779,734 in comparison with the prior year. Approximately 86.4% of this amount, or $14.9 million, is available for spending at the discretion of City Council. The remainder of fund balance is non-spendable or restricted. Details of the fund balance classifications can be found on page 17 of this report, as well as in Note 19. The General Fund is the chief operating fund of the City. At the end of this fiscal year, committed, assigned, and unassigned fund balance of the General Fund was $12.1 million, while total fund balance reached $12.5 million. As a measure of the General Fund’s liquidity, it may be useful to compare both committed, assigned, and unassigned fund balance and total fund balance to total expenditures. This amount represents 63.2% of the total General Fund expenditures, while total fund balance represents 65.0% of that same amount. During the 2017 fiscal year, the fund balance of the City’s General Fund increased by $510,071. This increase was primarily related to several personnel vacancies and operating expenditure savings. The Community Redevelopment Agency Fund’s fund balance increased by $115,121. This increase is a direct result of City Council’s strategic planning commitment to halt capital expenditures while the master planning process is taking place. Proprietary Funds The City of Fort Walton Beach’s proprietary funds provide the same type of information found in the government-wide financial statements, but in more detail. Unrestricted net position of the proprietary funds totaled $11.7 million at September 30, 2017, of which the Utilities Fund amounted to $8.8 million, the Sanitation Fund totaled $2.0 million, and the Stormwater Utility Fund was $1.0 million. The factors concerning the finances of these four funds have already been addressed in the discussion of the City of Fort Walton Beach’s business- type activities. Fiduciary Funds The General Employees’ Retirement Fund’s net position as a percentage of the total pension liability, an indicator of the sustainability of the Plan, was 83.5%, a decrease of 6.0% over the prior year. Employees contribute 5% of pay to the Plan and the City contributed $1.3 million, which was a decrease of $74,959 when compared to the previous fiscal year. The Firefighters’ Pension Trust Fund’s net position as a percentage of the total pension liability was 62.3%, which was decrease of 5.0% over the previous fiscal year. Employees contribute 8.0% of pay to the Plan and the City contributed $744,019, an increase of $71,650. The Police Officers’ Retirement Fund’s net position as a percentage of the total pension liability was 74.5%, a decrease of 2.8% over the previous fiscal year. Employees contribute 5% of pay to the Plan and the City contributed $577,564, a decrease of $51,411. Additional information on the pension plans can be found on pages 51-66 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 67 of this report. 11  GENERAL FUND BUDGETARY HIGHLIGHTS A statement showing the original budget, the final budget, the actual results and the variance from the final budget to the actual results is included on page 21 of the financial statements. The difference between the original budget and the final budget totaled approximately $1.2 million. Significant information related to this difference is summarized as follows:  The City received donations and added related expenditures in the amount of $100,289.  The City moved forward with a contract to evaluate possible facility renovations in the amount of $70,722.  The City incurred expenditures that were funded by excess unassigned/assigned fund balance in the amount of $180,420 for a lawsuit settlement, a Christmas tree, the workers compensation audit, and various recreation supplies and equipment.  The City Council approved additional expenditures for body and vehicle cameras and additional vehicles for the safety of its Police Officers in the amount of $277,309.  The City was the recipient of several grants during the fiscal year totaling $341,705 in the governmental funds. Actual results, when compared to the final budget, show a variance of $1.8 million for expenditures. This variance is primarily due to amending the budget for expenditures planned, but not yet completed. 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, 2017, was $41.2 million (net of accumulated depreciation and related debt). This represents a net increase of $0.5 million, or 1.2%. Highlights are summarized as follows:  Capital assets outdated, unserviceable, and no longer used are systematically disposed of on an annual basis.  The City placed into service its new recreation complex in the previous year and realized a full year of depreciation in FY 2017. Table 3 below highlights the overall changes in this category. Table 3 Total Capital Assets Net of Accumulated Depreciation Governmental Activities Business‐Type Activities Total Activities FY 2017 FY 2016 FY 2017 FY 2016 FY 2017 FY 2016 Land $11,048,479 $11,048,842 $709,678 $709,678 $11,758,157 $11,758,520 Buildings 12,779,478 13,459,321 106,653 115,202 12,886,131 13,574,523 Improvements other than Buildings 6,862,641 7,069,522 31,455,011 31,082,318 38,317,652 38,151,840 Infrastructure 3,642,015 3,744,853 - - 3,642,015 3,744,853 Intangible Assets (25,598) 12,427 - 54,486 (25,598) 66,913 Machinery & Equipment 4,050,540 4,123,994 3,657,253 3,755,041 7,707,793 7,879,035 Equipment under Capital Lease 66,701 77,440 - - 66,701 77,440 Easements - - 39,742 34,642 39,742 34,642 Construction in Progress 72,597 86,639 137,482 499,398 210,079 586,037 $38,496,853 $39,623,038 $36,105,819 $36,250,765 $74,602,672 $75,873,803 12  Additional information on the capital assets of the City of Fort Walton Beach can be found in Note 6 of this report on pages 48-50. Long-Term Debt As shown in the following table, as of September 30, 2017, the City had total revenue notes and capital leases outstanding of $33.5 million. All of the City’s debt represents notes secured solely by specified revenue sources (i.e. revenue notes) and capital leases. The City has no general obligation or special assessment debt. The State of Florida does not place a legal limit of debt on municipalities. For general obligation debts greater than one year, the City is required to conduct a voter referendum. The debt capacity of the City is contingent upon available resources and existing debt. The current outstanding debt requires a coverage ratio of 1.25 times earnings. The General Fund is at 7.08 and the Utilities Fund is at 6.27. The Sanitation and Stormwater Funds are debt-free. Table 4 Outstanding Debt Governmental Assets Business‐Type Activities Total Activities FY 2017 FY 2016 FY 2017 FY 2016 FY 2017 FY 2016 Revenue Notes 11,073,656 11,725,331 8,387,000 8,794,000 19,460,656 20,519,331 State Revolving Fund - - 13,988,885 14,656,929 13,988,885 14,656,929 Capital Leases 76,099 106,653 - - 76,099 106,653 $11,149,755 $11,831,984 $22,375,885 $23,450,929 $33,525,640 $35,282,913 Additional information on the City of Fort Walton Beach’s long-term debt can be found in Notes 14 and 15 of this report on pages 73-77. ECONOMIC FACTORS AND NEXT YEAR’S BUDGET AND RATES Economic indicators and factors that are useful for evaluating the framework within which the City operates are discussed below.  The Consumer Price Index (CPI) is 1.6% higher than a year ago for the southern region. This indicator is a widely used gauge of inflation and translates into a higher cost of providing services to residents.  The Municipal Cost Index is 1.9% higher than a year ago. This index is prepared by American City & County to show the effects of inflation on the cost of providing municipal services.  The Consumer Confidence Index, prepared by the Conference Board, is 2.9% higher than last year. This indicator measures economic conditions by gauging the future spending of consumers and is a solid indicator of economic recovery.  The Leading Economic Index, also prepared by the Conference Board, is designed to signal turning point patterns in economic data. This index has remained flat over the past year.  The military has a significant presence in our community. These installations are essential to the continued long-term economic vitality of this area. Combined, the military and defense-related industries have a $6.0 billion annual impact on Okaloosa County’s economy, with approximately 70% of our local economy supported by the military. 13  These financial policies, as well as other indicators, were taken into account when adopting the City’s budget for fiscal year 2018. The City’s budget for fiscal year 2018 totals $41.6 million, which is $2.9 million higher than the fiscal year 2017 approved budget, due to increased operating expenses, primarily related to pension costs. The 2018 budget allocates $22.3 million, an 11.3% increase as compared to the fiscal year 2017 budget, to the General fund, $15.9 million to the Enterprise funds, and $3.4 million to other funds. For the fiscal year 2018 budget, the ad valorem rate was maintained at 5.7697 mills. A 4.0% increase in water and sewer rates is included in the budget, and stormwater fees are scheduled to increase $0.25. No other significant changes to the City’s various rate and fees are included in the fiscal year 2018 budget. Personnel expenses account for approximately 51.4% of the City’s budget. The City’s fiscal year 2018 budget remains relatively stable in this category, at 299.53 full time equivalent positions, an increase of only 3.95 over last year. REQUESTS FOR INFORMATION This financial report is designed to provide citizens, taxpayers, customers, and creditors with a general overview of the City of Fort Walton Beach’s finances and to demonstrate the City’s accountability for the money it receives. Questions concerning any of the information provided in this report, or requests for additional information, should be addressed to the Finance Director, 107 Miracle Strip Parkway S.W., City of Fort Walton Beach, Florida, 32548. This document and other financial information are available on the City’s website at www.fwb.org. Inquiries may also be sent via email to the Finance Department at finance@fwb.org. 14  CITY OF FORT WALTON BEACH, FLORIDA STATEMENT OF NET POSITION SEPTEMBER 30, 2017 Primary Government Governmental Business-Type Activities Activities Total ASSETS Cash and cash equivalents $ 2,918,408 $ 2,379,525 $ 5,297,933 Investments 14,886,513 10,356,454 25,242,967 Receivables, net 539,464 927,884 1,467,348 Internal balances (360,253) 360,253 - Due from other governments 238,118 590,215 828,333 Inventory, at cost 245,181 17,055 262,236 Prepaid assets - 7,046 7,046 Restricted assets Cash and cash equivalents 21,156 865,902 887,058 Other assets Other receivables, net 686,537 5,947 692,484 Capital assets Non-depreciable/amortizable 11,121,076 886,902 12,007,978 Depreciable/amortizable, net 27,375,777 35,218,917 62,594,694 TOTAL ASSETS 57,671,977 51,616,100 109,288,077 DEFERRED OUTFLOWS OF RESOURCES 10,035,486 1,780,875 11,816,361 LIABILITIES Accounts payable 462,614 365,523 828,137 Accrued liabilities 342,383 160,658 503,041 Due to other governments 18,108 8,167 26,275 Unearned revenues 23,720 31,862 55,582 Payable from restricted assets Accrued interest 70,816 - 70,816 Customer deposits - 256,202 256,202 Non-current liabilities Due within one year Compensated absences 163,123 43,950 207,073 Leases payable 32,706 - 32,706 Revenue notes payable 664,711 419,000 1,083,711 State revolving loans payable - 680,796 680,796 Due in more than one year Compensated absences 503,631 131,850 635,481 Leases payable 43,393 - 43,393 Revenue notes payable 10,408,945 7,968,000 18,376,945 State revolving loans payable - 13,308,089 13,308,089 Other post-employment benefits 4,815,320 1,290,921 6,106,241 Net pension liability 21,132,246 2,462,833 23,595,079 TOTAL LIABILITIES 38,681,716 27,127,851 65,809,567 DEFERRED INFLOWS OF RESOURCES 1,032,099 109,425 1,141,524 NET POSITION Net investment in capital assets 27,347,098 13,818,340 41,165,438 Restricted Debt service 21,156 157,228 178,384 System improvements - 452,472 452,472 Improvement districts 1,552,484 - 1,552,484 Public safety 426,892 - 426,892 Other purposes 93,456 - 93,456 Unrestricted (deficit) (1,447,438) 11,731,659 10,284,221 TOTAL NET POSITION $ 27,993,648 $ 26,159,699 $ 54,153,347 See notes to the financial statements. 15  CITY OF FORT WALTON BEACH, FLORIDA STATEMENT OF ACTIVITIES FOR THE YEAR ENDED SEPTEMBER 30, 2017 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 $ 3,581,072 $ 448,911 $ 23,416 $ - $ (3,108,745) $ - $ (3,108,745) Public safety 11,507,059 570,556 439,033 358,941 (10,138,529) - (10,138,529) Physical environment 543,287 399,338 - - (143,949) - (143,949) Transportation 1,536,979 240,653 - - (1,296,326) - (1,296,326) Economic environment 1,591,643 12,000 246,261 - (1,333,382) - (1,333,382) Culture and recreation 5,403,198 1,846,019 116,914 2,700 (3,437,565) - (3,437,565) Debt service interest 304,331 - - - (304,331) - (304,331) Total governmental activities 24,467,569 3,517,477 825,624 361,641 (19,762,827) - (19,762,827) Business-type activities Utilities 9,420,248 10,970,823 - 67,463 - 1,618,038 1,618,038 Sanitation 3,687,087 3,663,445 - - - (23,642) (23,642) Stormwater 681,541 917,844 - 1,247,058 - 1,483,361 1,483,361 Total business-type activities 13,788,876 15,552,112 - 1,314,521 3,077,757 3,077,757 Total primary government $ 38,256,445 $ 19,069,589 $ 825,624 $ 1,676,162 (19,762,827) 3,077,757 (16,685,070) General revenues Taxes Property taxes 5,807,598 - 5,807,598 Sales taxes 2,792,840 - 2,792,840 Utility service taxes 3,962,859 - 3,962,859 Tax increments for redevelopment districts 1,649,589 - 1,649,589 Franchise fees 2,034,209 - 2,034,209 Intergovernmental, unrestricted 981,613 - 981,613 Gain on sale of assets - 32,663 32,663 Miscellaneous 157,806 27,727 185,533 Investment earnings 414,160 85,567 499,727 Transfers 761,739 (761,739) - Total general revenues and transfers 18,562,413 (615,782) 17,946,631 CHANGE IN NET POSITION (1,200,414) 2,461,975 1,261,561 NET POSITION AT BEGINNING OF YEAR - RESTATED 29,194,062 23,697,724 52,891,786 NET POSITION AT END OF YEAR $ 27,993,648 $ 26,159,699 $ 54,153,347 See notes to the financial statements. 16  CITY OF FORT WALTON BEACH, FLORIDA GOVERNMENTAL FUNDS BALANCE SHEET SEPTEMBER 30, 2017 Community Other Total Redevelopment Governmental Governmental General Agency Funds Funds ASSETS Cash and cash equivalents $ 2,116,586 $ 312,224 $ 489,598 $ 2,918,408 Investments 10,806,734 1,350,842 2,728,937 14,886,513 Receivables 893,146 332,855 - 1,226,001 Due from other funds 67,846 - - 67,846 Due from other governments 150,817 - 87,301 238,118 Inventory, at cost 245,181 - - 245,181 Restricted assets Cash and cash equivalents - - 21,156 21,156 TOTAL ASSETS $ 14,280,310 $ 1,995,921 $ 3,326,992 $ 19,603,223 LIABILITIES Accounts payable $ 299,647 $ 104,995 $ 57,972 $ 462,614 Accrued liabilities 316,614 6,647 19,122 342,383 Due to other funds - - 67,846 67,846 Due to other governments 18,108 - - 18,108 Advance from other funds 360,253 - - 360,253 Unearned revenue 23,720 - - 23,720 Total liabilities 1,018,342 111,642 144,940 1,274,924 DEFERRED INFLOW OF RESOURCES Unavailable revenue 782,633 331,795 - 1,114,428 FUND BALANCE Nonspendable 245,181 - - 245,181 Restricted 93,456 1,552,484 448,048 2,093,988 Committed 6,687,557 - 2,739,865 9,427,422 Assigned 1,891,555 - - 1,891,555 Unassigned 3,561,586 - (5,861) 3,555,725 Total fund balance 12,479,335 1,552,484 3,182,052 17,213,871 TOTAL LIABILITIES, DEFERRED INFLOW OF RESOURCES, AND FUND BALANCE $ 14,280,310 $ 1,995,921 $ 3,326,992 $ 19,603,223 See notes to the financial statements. 17  CITY OF FORT WALTON BEACH, FLORIDA GOVERNMENTAL FUNDS RECONCILIATION OF THE BALANCE SHEET TO THE STATEMENT OF NET POSITION SEPTEMBER 30, 2017 Fund balance, total governmental funds (page 17) $ 17,213,871 Amounts reported for governmental activities in the statement of net position are different because: Capital assets used in governmental activities are not financial resources and therefore are not reported in the funds. Governmental non-depreciable/amortizable assets 11,121,076 Governmental depreciable/amortizable assets 67,800,526 Less accumulated depreciation/amortization (40,424,749) 38,496,853 Unavailable revenues in governmental funds is susceptible to full accrual on the entity-wide statements. Special assessments 376,619 Receivable related to sale of capital asset 737,809 1,114,428 Deferred inflows of resources and deferred outflows of resources are not available/receivable or due/payable, respectively, in the current period and therefore are not reported in the governmental funds. Deferred outflows of resources – City pension contributions made subsequent to the measurement date 2,689,792 Deferred outflows of resources – net difference between projected and actual earnings on pension plan investments 2,211,907 Deferred outflows of resources - differences between expected and actual experience with regard to economic or demographic assumptions on pension plan investments 394,085 Deferred outflows of resources - changes in assumptions on pension plan investments 4,296,406 Deferred outflows of resources - changes in assumptions related to OPEB plan 443,296 Deferred inflows of resources – differences between expected and actual experience with regard to economic or demographic assumptions on pension plan investments (1,032,099) 9,003,387 Long-term liabilities are not due and payable in the current period and therefore are not reported in the governmental funds. Notes payable (11,073,656) Accrued interest (70,816) Capital leases (76,099) Compensated absences (666,754) Other post-employment benefits (4,815,320) Net pension liability (21,132,246) (37,834,891) Net position of governmental activities (page 15) $ 27,993,648 See notes to the financial statements. 18  CITY OF FORT WALTON BEACH, FLORIDA GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE FOR THE YEAR ENDED SEPTEMBER 30, 2017 Community Other Total Redevelopment Governmental Governmental General Agency Funds Funds REVENUES Taxes $ 11,183,941 $ 1,036,451 $ - $ 12,220,392 Permits and fees 2,081,095 23,163 409,920 2,514,178 Intergovernmental 3,386,955 613,138 266,332 4,266,425 Charges for services 2,488,384 - - 2,488,384 Fines 118,740 - 8,666 127,406 Miscellaneous 686,390 69,791 286,777 1,042,958 Total revenues 19,945,505 1,742,543 971,695 22,659,743 EXPENDITURES Current General governmental services 3,228,767 - - 3,228,767 Public safety 8,967,487 403,380 542,477 9,913,344 Physical environment 359,428 - 13,124 372,552 Transportation 890,762 - - 890,762 Economic environment - 1,214,268 254,125 1,468,393 Culture and recreation 4,170,787 - - 4,170,787 Capital outlay 1,579,541 9,774 8,970 1,598,285 Debt service Principal - - 682,229 682,229 Interest 8,155 - 308,474 316,629 Total expenditures 19,204,927 1,627,422 1,809,399 22,641,748 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES 740,578 115,121 (837,704) 17,995 OTHER FINANCING SOURCES (USES) Transfers in 781,956 - 1,012,463 1,794,419 Transfers out (1,012,463) - (20,217) (1,032,680) Total other financing sources (uses) (230,507) - 992,246 761,739 NET CHANGE IN FUND BALANCE 510,071 115,121 154,542 779,734 FUND BALANCE AT BEGINNING OF YEAR 11,969,264 1,437,363 3,027,510 16,434,137 FUND BALANCE AT END OF YEAR $ 12,479,335 $ 1,552,484 $ 3,182,052 $ 17,213,871 See notes to the financial statements. 19  CITY OF FORT WALTON BEACH, FLORIDA GOVERNMENTAL FUNDS RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED SEPTEMBER 30, 2017 Net change in fund balance – governmental funds (page 19) $ 779,734 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 1,598,285 Less current year depreciation/amortization (2,644,581) (1,046,296) 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 (1,048,102) Accumulated depreciation/amortization associated with disposals 917,376 Transfers and adjustments of capital assets (88,497) Accumulated depreciation/amortization associated with disposals and transfers 139,334 (79,889) Special assessment revenue in the governmental funds is recognized when due; however, the revenue was recognized in the statement of activities when it was earned (when levied). Payments received from special assessments (25,807) Special assessment for interest and penalties 660 Payments received on receivable related to the sale of capital assets (49,291) (74,438) The issuance of long-term debt provides current financial resources to governmental funds, while the repayment of the principal of long-term debt consumes the current financial resources of governmental funds. Neither transaction, however, has any effect on net position. Also, governmental funds report the effect of issuance costs, premiums, discounts and similar items when debt is first issued, whereas these amounts are deferred and amortized in the statement of activities. In addition, long- term debt reassignments are reported as transfers on the statement of activities. Debt principal and capital lease payments 682,229 Change in accrued interest on long-term debt 4,145 686,374 Some expenses reported in the statement of activities do not require the use of current financial resources and therefore are not reported as expenditures in governmental funds: Change in net pension liability and related deferred inflows and deferred outflows of resources (1,106,772) Change in long-term compensated absences (32,611) Change in other post-employment benefits liability and related deferred outflows of resources (326,516) (1,465,899) Change in net position of governmental activities (page 16) $ (1,200,414) See notes to the financial statements. 20  CITY OF FORT WALTON BEACH, FLORIDA GENERAL FUND STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE – BUDGET AND ACTUAL FOR THE YEAR ENDED SEPTEMBER 30, 2017 Variance with Final Budget - Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Taxes $ 10,933,747 $ 10,933,747 $ 11,183,941 $ 250,194 Permits and fees 2,099,983 2,099,983 2,081,095 (18,888) Intergovernmental 3,015,734 3,720,541 3,386,955 (333,586) Charges for services 2,405,752 2,408,249 2,488,384 80,135 Fines 109,523 109,523 118,740 9,217 Miscellaneous 441,824 524,143 686,390 162,247 Total revenues 19,006,563 19,796,186 19,945,505 149,319 EXPENDITURES Current General governmental services 3,468,298 3,800,400 3,228,767 571,633 Public safety 9,141,573 9,193,867 8,967,487 226,380 Physical environment 321,122 322,122 359,428 (37,306) Transportation 1,045,139 1,076,834 890,762 186,072 Culture and recreation 4,317,091 4,470,232 4,170,787 299,445 Capital outlay 1,432,211 2,099,139 1,579,541 519,598 Debt service - - 8,155 (8,155) Total expenditures 19,725,434 20,962,594 19,204,927 1,757,667 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES (718,871) (1,166,408) 740,578 1,906,986 OTHER FINANCING SOURCES (USES) Transfers in 787,300 788,268 781,956 (6,312) Transfers out (1,069,164) (1,078,474) (1,012,463) 66,011 Total other financing sources (uses) (281,864) (290,206) (230,507) 59,699 NET CHANGE IN FUND BALANCE (1,000,735) (1,456,614) 510,071 1,966,685 FUND BALANCE AT BEGINNING OF YEAR 1,000,735 1,456,614 11,969,264 10,512,650 FUND BALANCE AT END OF YEAR $ - $ - $ 12,479,335 $ 12,479,335 See notes to the financial statements. 21  CITY OF FORT WALTON BEACH, FLORIDA COMMUNITY REDEVELOPMENT AGENCY STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE – BUDGET AND ACTUAL FOR THE YEAR ENDED SEPTEMBER 30, 2017 Variance with Final Budget - Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Taxes $ 1,036,451 $ 1,036,451 $ 1,036,451 $ - Permits and fees - - 23,163 23,163 Intergovernmental 616,298 616,298 613,138 (3,160) Miscellaneous 32,457 32,457 69,791 37,334 Total revenues 1,685,206 1,685,206 1,742,543 57,337 EXPENDITURES Current Public safety 412,853 412,853 403,380 9,473 Economic environment 1,058,035 1,718,120 1,214,268 503,852 Capital outlay 346,216 346,216 9,774 336,442 Total expenditures 1,817,104 2,477,189 1,627,422 849,767 CHANGE IN FUND BALANCE (131,898) (791,983) 115,121 907,104 FUND BALANCE AT BEGINNING OF YEAR 131,898 791,983 1,437,363 645,380 FUND BALANCE AT END OF YEAR $ - $ - $ 1,552,484 $ 1,552,484 See notes to the financial statements. 22  CITY OF FORT WALTON BEACH, FLORIDA PROPRIETARY FUNDS STATEMENT OF NET POSITION SEPTEMBER 30, 2017 Sanitation Stormwater Utilities Fund Fund Fund Total ASSETS Current assets Cash and cash equivalents $ 2,003,425 $ 262,523 $ 113,577 $ 2,379,525 Restricted assets – cash and cash equivalents 857,627 8,275 - 865,902 Investments 7,879,910 2,026,263 450,281 10,356,454 Receivables, net 664,418 209,503 53,963 927,884 Advance to other funds - 48,458 - 48,458 Due from other governments 4,069 - 586,146 590,215 Inventory – at cost 17,055 - - 17,055 Prepaid assets - - 7,046 7,046 Total current assets 11,426,504 2,555,022 1,211,013 15,192,539 Other assets Advance to other funds - 311,795 - 311,795 Other receivables, net 5,947 - - 5,947 Total other assets 5,947 311,795 - 317,742 Capital assets, net Non-depreciable/amortizable 827,682 - 59,220 886,902 Depreciable/amortization, net 30,967,313 1,232,502 3,019,102 35,218,917 Total capital assets 31,794,995 1,232,502 3,078,322 36,105,819 Total non-current assets 31,800,942 1,544,297 3,078,322 36,423,561 TOTAL ASSETS 43,227,446 4,099,319 4,289,335 51,616,100 DEFERRED OUTFLOWS OF RESOURCES 1,200,089 464,558 116,228 1,780,875 See notes to the financial statements. 23  CITY OF FORT WALTON BEACH, FLORIDA PROPRIETARY FUNDS STATEMENT OF NET POSITION – CONTINUED SEPTEMBER 30, 2017 Sanitation Stormwater Utilities Fund Fund Fund Total LIABILITIES Current liabilities Accounts payable 250,102 113,472 1,949 365,523 Accrued liabilities Compensated absences 25,528 14,216 4,206 43,950 Wages 37,904 20,787 4,810 63,501 Interest 94,449 - - 94,449 Other 872 1,587 249 2,708 Due to other governments - 8,167 - 8,167 Revenue note payable 419,000 - - 419,000 State revolving loan payable 680,796 - - 680,796 Payable from restricted assets Customer deposits 247,927 8,275 - 256,202 Unearned revenue 31,862 - - 31,862 Total current liabilities 1,788,440 166,504 11,214 1,966,158 Non-current liabilities Accrued liabilities Compensated absences 76,585 42,648 12,617 131,850 Revenue note payable 7,968,000 - - 7,968,000 State revolving loan payable 13,308,089 - - 13,308,089 Other post-employment benefits 669,433 445,853 175,635 1,290,921 Net pension liability 1,643,407 662,829 156,597 2,462,833 Total non-current liabilities 23,665,514 1,151,330 344,849 25,161,693 TOTAL LIABILITIES 25,453,954 1,317,834 356,063 27,127,851 DEFERRED INFLOWS OF RESOURCES 73,017 29,450 6,958 109,425 NET POSITION Net investment in capital assets 9,507,516 1,232,502 3,078,322 13,818,340 Restricted Debt service 157,228 - - 157,228 System improvements 452,472 - - 452,472 Unrestricted 8,783,348 1,984,091 964,220 11,731,659 TOTAL NET POSITION $ 18,900,564 $ 3,216,593 $ 4,042,542 $ 26,159,699 See notes to the financial statements. 24  CITY OF FORT WALTON BEACH, FLORIDA PROPRIETARY FUNDS STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION FOR THE YEAR ENDED SEPTEMBER 30, 2017 Sanitation Stormwater Utilities Fund Fund Fund Total OPERATING REVENUES Charges for services $ 10,952,375 $ 3,663,445 $ 917,844 $ 15,533,664 OPERATING EXPENSES Personal services 2,068,079 1,225,784 302,939 3,596,802 Operating 4,885,407 2,174,194 247,708 7,307,309 Depreciation/amortization expense 1,935,871 287,109 130,894 2,353,874 Total operating expenses 8,889,357 3,687,087 681,541 13,257,985 OPERATING INCOME (LOSS) 2,063,018 (23,642) 236,303 2,275,679 NON-OPERATING REVENUES (EXPENSES) Rental income 18,448 - - 18,448 Interest expense (524,780) - - (524,780) Amortization (5,613) - - (5,613) Gain on disposal of capital assets 9,464 21,344 1,855 32,663 Gain (loss) on investment (69,045) (17,754) (3,945) (90,744) Interest 128,101 40,939 7,271 176,311 Grants in aid (498) - - (498) Miscellaneous 5,935 20,811 981 27,727 Total non-operating revenues (expenses) (437,988) 65,340 6,162 (366,486) INCOME BEFORE CAPITAL CONTRIBUTIONS AND TRANSFERS 1,625,030 41,698 242,465 1,909,193 CAPITAL CONTRIBUTIONS AND TRANSFERS Capital contributions - - 1,247,058 1,247,058 Impact fees 67,463 - - 67,463 Transfers out (618,208) (143,531) - (761,739) Total capital contributions and transfers (550,745) (143,531) 1,247,058 552,782 CHANGE IN NET POSITION 1,074,285 (101,833) 1,489,523 2,461,975 NET POSITION AT BEGINNING OF YEAR YEAR, RESTATED 17,826,279 3,318,426 2,553,019 23,697,724 NET POSITION AT END OF YEAR $ 18,900,564 $ 3,216,593 $ 4,042,542 $ 26,159,699 See notes to the financial statements. 25  CITY OF FORT WALTON BEACH, FLORIDA PROPRIETARY FUNDS STATEMENT OF CASH FLOWS FOR THE YEAR ENDED SEPTEMBER 30, 2017 Sanitation Stormwater Utilities Fund Fund Fund Total CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers and users $ 10,941,192 $ 3,658,780 $ 1,416,738 $ 16,016,710 Payments to suppliers (5,336,282) (2,170,911) (366,774) (7,873,967) Payments to employees (1,948,594) (1,094,092) (194,274) (3,236,960) Miscellaneous income 24,383 20,811 981 46,175 Net cash provided by operating activities 3,680,699 414,588 856,671 4,951,958 CASH FLOWS FROM NON-CAPITAL FINANCING ACTIVITIES Change in intergovernmental balances (4,069) 180 - (3,889) Advance to other funds - 47,508 - 47,508 Grants and aids (498) - - (498) Transfers out (618,208) (143,531) - (761,739) Net cash used in non-capital financing activities (622,775) (95,843) - (718,618) CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Impact fess received 55,660 - - 55,660 Acquisitions of capital assets (478,704) (255,699) (1,475,522) (2,209,925) Proceeds from disposal of capital assets 2,261 21,344 1,855 25,460 Proceeds from capital grants and contributions - - 660,912 660,912 Principal paid on revenue note (407,000) - - (407,000) Principal paid on state revolving loan (668,044) - - (668,044) Interest paid on loans and notes payable (529,337) - - (529,337) Net cash used in capital and related financing activities (2,025,164) (234,355) (812,755) (3,072,274) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of investments (5,322,295) (1,453,295) (759,662) (7,535,252) Proceeds from sales and maturities of investments 5,414,140 1,392,207 309,379 7,115,726 Investment income, net 59,056 23,185 3,326 85,567 Net cash provided by (used in) capital and related financing activities 150,901 (37,903) (446,957) (333,959) NET DECREASE IN CASH AND CASH EQUIVALENTS 1,183,661 46,487 (403,041) 827,107 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,677,391 224,311 516,618 2,418,320 CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,861,052 $ 270,798 $ 113,577 $ 3,245,427 See notes to the financial statements. 26  CITY OF FORT WALTON BEACH, FLORIDA PROPRIETARY FUNDS STATEMENT OF CASH FLOWS - CONTINUED FOR THE YEAR ENDED SEPTEMBER 30, 2017 Sanitation Stormwater Utilities Fund Fund Fund Total CASH AND CASH EQUIVALENTS AT END OF YEAR CONSIST OF Current assets $ 2,003,425 $ 262,523 $ 113,577 $ 2,379,525 Restricted assets 857,627 8,275 - 865,902 Total cash and cash equivalents $ 2,861,052 $ 270,798 $ 113,577 $ 3,245,427 RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES Operating income $ 2,063,018 $ (23,642) $ 236,303 $ 2,275,679 Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation 1,935,871 287,109 130,894 2,353,874 Miscellaneous revenue 24,383 20,811 981 46,175 Decrease (increase) in assets: - Accounts receivable (34,481) (8,805) (5,394) (48,680) Inventory (4,634) - - (4,634) Increase in deferred outflows of resources (393,142) (174,751) (47,760) (615,653) Increase (decrease) in liabilities: Accounts payable (446,241) 3,283 (122,020) (564,978) Compensated absences payable (3,417) 2,570 4,005 3,158 Wages (112) 1,425 848 2,161 Other liabilities 668 1,338 224 2,230 Customer deposits 24,731 4,140 - 28,871 Other post-employment benefits (80,663) 60,666 94,541 74,544 Unearned revenue (1,433) - - (1,433) Net pension liability 669,168 269,893 63,764 1,002,825 Increase in deferred inflows of resources (73,017) (29,449) (6,957) (109,423) Net cash provided by operating activities $ 3,680,699 $ 414,588 $ 856,671 $ 4,951,958 SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITES Capital grants receivable $ - $ - $ 586,146 $ 586,146 SUPPLEMENTAL DISCLOSURES OF NONCASH TRANSACTIONS Amortization of bond discount $ 5,613 $ - $ - $ 5,613 See notes to the financial statements. 27  CITY OF FORT WALTON BEACH, FLORIDA FIDUCIARY FUNDS STATEMENT OF FIDUCIARY NET POSITION SEPTEMBER 30, 2017 Employee Retirement Funds ASSETS Cash and cash equivalents $ 1,909,482 Investments, at fair value U.S. Government and Agency obligations 12,730,007 Corporate obligations 6,745,407 Corporate equity 12,710,971 Mutual funds and exchange-traded funds 39,869,609 Commingled real estate investment funds 6,537,052 Total investments 78,593,046 Due from State of Florida 238 TOTAL ASSETS 80,502,766 LIABILITIES Accounts payable 77,311 NET POSITION RESTRICTED FOR PENSIONS $ 80,425,455 See notes to the financial statements. 28  CITY OF FORT WALTON BEACH, FLORIDA FIDUCIARY FUNDS STATEMENT OF CHANGES IN FIDUCIARY NET POSITION FOR THE YEAR ENDED SEPTEMBER 30, 2017 Employee Retirement Funds ADDITIONS Contributions Employer $ 2,617,456 Plan members 482,061 State of Florida 394,967 Total contributions 3,494,484 Investment income (loss) 8,761,941 Less investment expense (258,549) Net investment income (loss) 8,503,392 Miscellaneous revenue 38,066 TOTAL ADDITIONS 12,035,942 DEDUCTIONS Benefits and refunds paid Retirement payments 6,030,766 Disability payments 194,163 Refunds 70,587 Total benefits and refunds paid 6,295,516 Administrative expenses Legal 14,233 Contractual services 143,183 Other 68,455 Total administrative expenses 225,871 TOTAL DEDUCTIONS 6,521,387 CHANGE IN FIDUCIARY NET POSITION 5,514,555 NET POSITION RESTRICTED FOR PENSIONS Beginning of year 74,910,900 End of year $ 80,425,455 See notes to the financial statements. 29  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF THE CITY Description of the City The City of Fort Walton Beach, Florida, (the City) was originally chartered as a municipality under laws of the State of Florida Special Act of the Florida Legislature in 1937. The City Manager – Council form of government was established in 1953. As authorized by its charter, the City provides the following services: public safety (police, fire, and inspection), highways and streets, water and sewer, sanitation, stormwater, culture and recreation, public improvements, planning and zoning, and general administrative services. The financial statements of the City have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP), as applicable to governmental units and the Uniform Accounting System mandated by Chapter 218.33, Florida Statutes. The Governmental Accounting Standards Board (GASB) is the standard–setting body for governmental accounting and financial reporting. The following is a summary of the more significant accounting policies of the City: The Reporting Entity A seven member City Council and a Mayor govern the City, each elected at-large for four-year terms. The Council has no powers other than those expressly vested in it by State Statute and the City Charter, and their governmental powers cannot be delegated. As required by U.S. GAAP, these financial statements present the City of Fort Walton Beach (the primary government) and its blended component unit. In evaluating the City as a reporting entity, management has considered all potential component units for which the City may or may not be financially accountable and, as such, be included within the City's financial statements. Management utilized criteria set forth in GASB Statement No. 61 for determining financial accountability of potential component units in evaluating all potential component units. In accordance with GASB Statement No. 61, the City (primary government) is financially accountable if it appoints a voting majority of the potential component unit's governing board and 1) it is able to impose its will on the organization or 2) there is a potential for the organization to provide specific financial benefit to or impose specific financial burden on the City. In addition, component units can be other organizations for which the nature and significance of their relationship with the primary government are such that exclusion would cause the reporting entity's financial statements to be misleading or incomplete. As of September 30, 2017, the City had one component unit, as defined by GASB No. 61, which has been presented in the financial statements of the primary government using the blended presentation method, and is presented as a governmental fund type with a fiscal year end of September 30. The Fort Walton Beach Community Redevelopment Agency (the Agency) was formed to prepare a community redevelopment plan for a designated geographic area within the City of Fort Walton Beach, Florida. All of the City's council members serve as board members of the Agency. The Agency's governing body is the same as the governing body of the City. The Agency functions as a department of the City. City management have operational and fiscal responsibility for the Agency’s activities. 30  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF THE CITY – CONTINUED The Reporting Entity – Continued The Fort Walton Beach Housing Authority (the Authority) is considered a related organization to the City rather than a component unit. The City Council appoints the board members of the Authority. However, the Authority's board operates independently of the City Council and does not create a financial burden or benefit to the City. Government-Wide and Fund Financial Statements The basic financial statements include both government-wide (based on the City as a whole) and fund financial statements. The government-wide financial statements (i.e., the statement of net position and the statement of activities) report information on all of the non-fiduciary activities of the primary government and its component unit. For the most part, the effects of interfund activity has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely, to a significant extent, on fees and charges for support. The statement of activities demonstrates the degree to which the direct expenses of a given function or segment is offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues. Separate fund financial statements are provided for the governmental and proprietary funds. Major individual governmental funds and major enterprise funds are reported as separate columns in the fund financial statements. Separate fund financial statements for the fiduciary funds are disclosed within Note 8 of these financial statements. Measurement Focus and Basis of Accounting The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the proprietary fund and fiduciary fund financial statements. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Pension plans recognize revenue when contributions are due as there is a statutory requirement to make the contribution. Property taxes are recorded as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. 31  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF THE CITY – CONTINUED Measurement Focus and Basis of Accounting – Continued Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the City considers revenues to be available if they are collected within six 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, 2017 Levy Date November 1, 2017 Due Date November 1, 2017 Delinquent Date April 1, 2018 Discounts of 1% for each month taxes are paid prior to March 2018 are granted. Revenue recognition criteria for property taxes under GASB requires that property taxes expected to be collected within 60 days of the current period be accrued. No accrual has been made for 2017 ad valorem taxes because property taxes are not legally due until subsequent to the end of the fiscal year. Current year taxes, which are uncollected as of the end of the fiscal year, are generally immaterial in amount and highly susceptible to uncollectibility and, therefore, are not recorded as a receivable on the balance sheet date. 32  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF THE CITY – CONTINUED Basis of Presentation The financial transactions of the City are recorded in individual funds. Each fund is a separate accounting entity with a self-balancing set of accounts recording cash and other financial resources, together with all related liabilities and residual equities or balances, and changes therein, which are segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions or limitations. As a general rule, the effect of interfund activity has been eliminated from the government-wide financial statements. Exceptions to this general rule are other charges between the government's utility function and various other functions of the government. Elimination of these charges would distort the direct costs and program revenues reported for the various functions concerned. Amounts reported as program revenues include 1) charges to customers or applicants for goods, services, or privileges provided, 2) operating grants and contributions, and 3) capital grants and contributions, including special assessments. Internally dedicated resources are reported as general revenues rather than as program revenues. Likewise, general revenues include all taxes. Any portion of franchise fees that is not based on gross receipts are reported as a charge for service in the function or activity that generates the fee. During fiscal year 2017, franchise fees were all based on gross receipts and thus recorded as general revenues. Proprietary funds distinguish operating revenues and expenses from non-operating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund's principal ongoing operations. The principal operating revenues of the City's enterprise funds are charges to customers for sales and services. The City considers all impact fee revenue as capital contributions for the water and sewer system; therefore, no amount from the impact fees are included in operating revenue. Operating expenses for enterprise funds include the cost of sales and service, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses. The following three broad classifications are used to categorize the fund types used by the City: Governmental Governmental funds focus on the determination of financial position and changes in financial position (sources, uses, and balances of financial resources) and not net income. The City has the following major governmental funds: General Fund – This is the City's primary operating fund and is used to account for all financial resources except those required to be accounted for in another fund. Community Redevelopment Agency Fund – The Community Redevelopment Agency Fund is the operating fund of the Fort Walton Beach Community Redevelopment Agency (the "Agency"). It is used to account for the activities of the Agency. Revenue sources for this fund include tax increment financing proceeds from ad valorem taxes as well as investment income. 33  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF THE CITY – CONTINUED Basis of Presentation – Continued Proprietary Proprietary funds focus on the determination of net income, changes in net position, financial position, and cash flows. All of the City's proprietary funds are enterprise funds, as fees are charged to external users for services. The following is a description of the major proprietary funds of the City: Utilities Fund – Used to account for the operations of the City, which provides distribution of potable water, sales and service and sanitary wastewater collection, treatment and disposal. Sanitation Fund – Accounts for the operation of the City that provides for solid waste collection and disposal. Stormwater Fund – Used to account for the revenues and expenses associated with operating the City’s stormwater utility system. Fiduciary Fiduciary funds are used to account for the assets held on behalf of outside parties, including other governments, or on behalf of other funds within the City. The City has the following type of fiduciary fund: Pension Trust Funds – Used to report the resources that are required to be held in trust for the members and beneficiaries of the three defined benefit pension plans administered by the City: General Employees' Retirement Fund, Police Officers' Retirement Fund, and Firefighters' Retirement Fund. Assets, Liabilities, Deferred Inflows/Outflows of Resources, and Net Position or Equity Cash and Cash Equivalents The City defines cash and cash equivalents as cash held at a depository and cash on hand for operating purposes and those investments which are short term and highly liquid. Generally, those investments have original maturities of three (3) months or less from the date of acquisition. The City maintains an equity in pooled cash fund. The City’s cash deposits are held by banks that qualify as public depositories under the Florida Security for Public Deposits Act as required by Chapter 280, Florida Statutes. The City’s cash deposits are fully insured by the Public Deposits Trust Fund. Investments Investments for the City are reported at fair value (generally based on quoted market prices). Investments are pooled together for investment purposes while each individual funds and/or accounts are maintained on a daily transaction basis. Investment earnings are distributed in accordance with the participating funds’ relative equity. Allowable investments, with the appropriate minimum rating requirements, can consist of certificates of deposit, local government surplus trust fund, intergovernmental investment pool, SEC registered money market funds, United States government securities, repurchase agreements, banker’s acceptances, commercial paper, United States government agencies, federal instruments, securitized issues, corporate notes and state or local government taxable or tax exempt debt. 34  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF THE CITY – CONTINUED Assets, Liabilities, Deferred Inflows/Outflows of Resources, and Net Position or Equity – Continued Investments In addition the Beal Memorial Cemetery Perpetual Care special revenue fund and the pension trust funds maintain separate investment accounts that are governed by separate investment policies. The Beal Memorial Cemetery investment policy allows for investments in domestic equities, international equities, real estate investment trusts, inflation hedges, fixed income securities, and cash equivalents within allowable ranges, ratings, and consideration of target asset allocations by asset class. The pension trust funds’ investment policies allow for investments in domestic and international equities, fixed income securities, mutual funds, exchange-traded funds, commingled funds, money market funds, and value add real estate within allowable ranges, ratings, and considerations of target asset allocations by range; however allowable asset classes, targets, ranges, and benchmarks vary by each individual policy. These investments are also reported at fair value. Receivables and Payables Interfund transactions are reflected as loans, services provided, reimbursements, or transfers. Loans between funds outstanding at the end of the fiscal year are referred to as either "due to other funds" or "due from other funds" (i.e., the current portion of interfund loans) or "advances" (i.e., the non- current portion of interfund loans). Any residual balances outstanding between governmental activities and business-type activities are reported in the government-wide financial statements as "internal balances." Advances between funds, as reported in the fund financial statements, are offset by a nonspendable fund balance account in applicable governmental funds to indicate that they are not available for appropriation and are not expendable and available financial resources. Services provided, deemed to be at market, or near market rates, are treated as revenues and expenditures/expenses. Reimbursements occur when one fund incurs a cost, charges the appropriate benefiting fund, and reduces its related cost as a reimbursement. All other interfund transactions are treated as transfers. Transfers between governmental or proprietary funds are netted as part of the reconciliation to the government-wide columnar presentation. All proprietary fund receivables are shown net of an allowance for uncollectible accounts. The allowance is computed by considering 100% of receivables in excess of 90 days, past trends on collections of accounts, and current year account write–offs. Inventory Inventory is valued at cost (first-in, first-out). The consumption method is used to account for inventory. Under the consumption method, inventory items are recorded as expenditures during the period the inventory is used. The General Fund inventory balance is considered nonspendable in the fund financial statements to indicate that it is not available for appropriation. 35  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF THE CITY – CONTINUED Assets, Liabilities, Deferred Inflows/Outflows of Resources, and Net Position or Equity – Continued Restricted Assets Certain resources in the following funds are restricted for specific purposes: in the Debt Service Fund for the repayment of Capital Improvement Note, Series 2011; customer utility deposits, impact fees, and debt repayments received are restricted in the Utilities Fund and Sanitation Fund. Capital Assets Capital assets, which include property, plant, equipment, and infrastructure assets (roads, bridges, curbs and sidewalks, drainage systems, lighting systems and similar items) are reported in the applicable governmental or business-type activities columns in the government–wide financial statements. Capital assets are defined by the City as assets with an initial cost more than the following: Land All Buildings and improvements $ 10,000 Infrastructure $ 10,000 Improvements – other $ 10,000 Equipment, vehicles, computers $ 1,000 Library books All In the case of the initial capitalization of general infrastructure assets (i.e. those reported by governmental activities) the government chose to include all such items regardless of their acquisition date or amount. The government was able to estimate the historical cost for the initial reporting of these assets through various allowable estimating techniques. As the government constructs or acquires additional capital assets each period, including infrastructure assets, they are capitalized and reported at historical cost. The reported value excludes normal maintenance and repairs which are essentially amounts spent in relation to capital assets that do not increase the capacity or efficiency of the item or extend its useful life beyond the original estimate. Donated capital assets are recorded at their acquisition value on the date of donation. Major outlays for capital assets and improvements are capitalized in proprietary funds as projects are constructed. The amount of interest to be capitalized is calculated by offsetting interest expense incurred from the date of the borrowing until the completion of the project with interest earned on the invested proceeds over the same period. 36  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF THE CITY – CONTINUED Assets, Liabilities, Deferred Inflows/Outflows of Resources, and Net Position or Equity – Continued Capital Assets – Continued Property, plant, and equipment of the primary government are depreciated using the straight-line method over the following estimated useful lives: Assets Years Buildings 20-50 Years Improvements other than buildings 7-40 Years System infrastructure 20-40 Years Machinery and equipment 3-10 Years Deferred Inflows/Outflows of Resources In addition to assets, the statement of financial position will report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period(s) and so will not be recognized as an outflow of resources (expense/expenditure) until then. See Note 7 for additional information on the City’s deferred outflows of resources. In addition to liabilities, the statement of financial position will report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of fund balance that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until that time. See Note 7 for additional information on the City’s deferred inflows of resources. Compensated Absences It is the City's policy to permit employees to accumulate earned but unused vacation and sick leave based on the length of service to the City. All vacation leave is accrued when incurred in the government-wide and proprietary fund financial statements. Sick leave is accrued in the government-wide and proprietary fund financial statements based on a ratio of the sum of sick leave paid over the last several years to the total balance of sick leave at the end of each fiscal year. A liability for the amounts of vacation and sick leave is reported in the governmental fund financial statements only if they have matured, for example, as a result of employee resignations and retirements. Compensated absences of the governmental activities are primarily paid from the General Fund. Long-Term Obligations In the government-wide financial statements and proprietary fund types in the fund financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities, business-type activities, or proprietary fund type statement of net position. Bond premiums and discounts are deferred and amortized over the life of the bonds using the effective and straight-line interest methods. Bond issuance costs are expensed as they are incurred. Bonds payable are reported net of the applicable bond premium or discount. 37  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF THE CITY – CONTINUED Assets, Liabilities, Deferred Inflows/Outflows of Resources, and Net Position or Equity – Continued Long-Term Obligations – Continued In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. Net Other Postemployment Benefits (OPEB) Liability For the purposes of measuring the net OPEB Liability, deferred outflows of resources and deferred inflows of resources related to OPEB, and OPEB expense, information about the fiduciary net position of the Fort Walton Beach's Retiree Health Care Plan and additions to/deductions from the plan's fiduciary net position have been determined on the same basis as they are reported by the plan. For this purpose, the plan recognizes benefit payments when due and payable in accordance with the benefit terms. The City elected to implement GASB Statement No. 75, Accounting and Reporting for Postemployment Benefits Other Than Pensions, as of October 1, 2016, resulting in a restatement of the City’s beginning net position. See note 11 for additional information about the City’s other postemployment benefit plan. Net Pension Liability For purposes of measuring the net pension liability, deferred outflows and inflows of resources related to pensions, and pension expense, information about the fiduciary net position of each plan, and additions to/deductions from the fiduciary net position of each plan have been determined on the same basis as they are reported by the Plans. For this purpose, benefit payments (including refunds of employee contributions, if any) are recognized when currently due and payable in accordance with the benefit terms. Investments are reported at fair value. Administrative costs are financed from each respective fund’s investment earnings. Typically, pension liabilities in the governmental fund types have been liquidated by the fund that incurred the expenditures for pensionable wages. GASB Statement No. 68 requires that the reported results must pertain to liability and asset information within certain defined timeframes. For this report, the following timeframes are used: Valuation Date (VD) October 1, 2015 Measurement Date (MD) September 30, 2016 Measurement Period (MP) October 1, 2015 to September 30, 2016 38  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF THE CITY – CONTINUED Assets, Liabilities, Deferred Inflows/Outflows of Resources, and Net Position or Equity – Continued Classification of Fund Balance GASB Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions, establishes fund balance classifications that comprise a hierarchy based primarily on the extent to which a government is bound to observe constraints imposed upon the use of the resources reported in governmental funds. Fund balance classifications, under GASB Statement No. 54, are comprised of the following: Nonspendable – Includes amounts that are (a) not in spendable form, or (b) legally or contractually required to be maintained intact. The "not in spendable form" criterion includes items that are not expected to be converted to cash, for example: inventories, deposits, prepaid items, and advances from other funds. Restricted – Includes amounts that can be spent only for the specific purposes stipulated by external resource providers, constitutionally or through enabling legislation. Restrictions may effectively be changed or lifted only with the consent of resource providers. Committed – Includes fund balance amounts that can be used only for the specific purposes that are internally imposed by a formal action (a Resolution) of the government’s highest level of decision making authority, the City Council. Commitments may be changed or lifted only by the City taking the same formal action (a Resolution) that imposed the constraint initially. Contractual obligations are included to the extent that existing resources in the fund have been specifically committed for use in satisfying those contractual obligations. Assigned – Includes spendable fund balance amounts that are intended to be used for specific purposes that are neither considered restricted or committed. Intent is expressed by (a) the City Council or (b) a body (for example: a budget or finance committee) or official to which the City Council has delegated the authority to assign amounts to be used for specific purposes. This indicates that resources in these funds are, at a minimum, intended to be used for the purposes of that fund. The City Council has delegated authority to the City Manager and Finance Director in accordance with the City's fund balance policy. Unassigned – Includes residual positive fund balance within the General Fund which has not been classified within the other above mentioned categories. Unassigned fund balance may also include negative balances for any governmental fund if expenditures exceed amounts restricted, committed, or assigned for those specific purposes. These classifications reflect not only the nature of funds, but also provide clarity to the level of restriction placed upon fund balance. Fund balance can have different levels of restraint, such as external versus internal compliance requirements. Unassigned fund balance is a residual classification within the General Fund. The General Fund should be the only fund that reports a positive unassigned balance. In all other funds, unassigned is limited to negative residual fund balance. The City's formal fund balance policy establishes a targeted minimum reserve balance in the General Fund for committed fund balance equal to 30% of annual budgeted expenditures, which constitutes the City’s minimum fund balance policy. 39  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF THE CITY – CONTINUED Assets, Liabilities, Deferred Inflows/Outflows of Resources, and Net Position or Equity – Continued Classification of Fund Balance – Continued In circumstances when an expenditure is made for a purpose for which amounts are available in multiple fund balance classifications, fund balance is generally depleted in the order of restricted, committed, assigned, and unassigned. Net Position When both restricted and unrestricted resources are available for use, it is the government's policy to use restricted resources first and then unrestricted resources, as they are needed. Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 2. STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY Budgets Budgets are adopted on a basis consistent with U.S. generally accepted accounting principles. Annual appropriated budgets are adopted by resolution for all governmental and proprietary funds. However, budgets for proprietary funds are not legally required to be reported on and are not included in these financial statements. All appropriations lapse at fiscal year-end except for appropriations related to multi-year capital projects. Budgetary data reflected in the financial statements are established by the following procedures: Prior to September 1 of each year, proposed budgets are received by the City Council from the City Manager. These proposed expenditures, along with all estimated receipts, taxes to be levied, and balances expected to be brought forward are considered by the City Council. The City Council requires such changes as deemed necessary, sets proposed mileages, and establishes dates for tentative and final public budget hearings as prescribed by Florida Statutes. Proposed budgets are advertised in a newspaper of general circulation in the City. Public hearings are conducted for the purposes of receiving input, responding to complaints, and providing reasons and explanations for intended actions to all citizens participating. Prior to October 1, the budget for all governmental and proprietary funds of the City is legally enacted through passage of a resolution. Budget amendments are periodically passed via resolutions throughout the fiscal year. Budgeted beginning fund balance in the accompanying financial statements reflects planned utilization of prior years' unassigned fund balance to the level required to accomplish current year objectives. 40  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 2. STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY – CONTINUED Budgets – Continued The level of budgetary control (that is the level at which expenditures cannot legally exceed appropriations) has been established at the fund level. The City Manager and Finance Director are authorized to transfer budgeted amounts within departments of a fund and between departments of a fund; however, any revisions that alter the total expenditures of any fund must be approved by the City Council. Budget amounts reflected in the financial statements are originally adopted amounts as amended by action of the City Council by revision of fund totals. All amendments to originally adopted amounts were made in a legally permissible manner. 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 at year-end 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 fund (with the exception of the Community Development Block Grant Special Revenue Fund and the pension trust funds) participates on a dollar equivalent and daily transaction basis. The City's cash and investment management pool includes pooled cash maintained in interest-bearing demand deposit accounts, and pooled investments managed by a financial institution. Interest income (which includes unrealized gains and losses) is distributed monthly based on the average balances. Deposits Custodial Credit Risk – It is the City's policy to maintain its deposits only with "Qualified Public Depositories" as defined in Chapter 280, Florida Statutes. The provisions of this statute allow qualified public depositories to participate in a multiple financial institution collateral pool to ensure the security for public deposits. All qualified public depositories must place with (or in the name of) the Chief Financial Officer of the State of Florida, collateral in the amount of the average daily balance of public deposits multiplied by the average monthly balance of public deposits or 125 percent of the average daily balance of public deposits greater than capital. In the event of default by a qualified public depository, excess losses over insurance and collateral will be recovered through assessments to all qualified public depositories of the same type as the depository in default. Under this method, all City deposits, including certificates of deposit, are considered fully insured. As of September 30, 2017, the value of the City's deposits was $6,579,480, all of which was held by qualified public depositories or permitted investments under Chapter 280, Florida Statutes. 41  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 3. DEPOSITS AND INVESTMENTS – CONTINUED Investments As of September 30, 2017, 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. As of September 30, 2017, 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 $ 16,033,139 $ 190,213 $ 13,343,930 $ 2,498,996 $ - $ - $ - $ - $ - Municipal debt 301,500 - 301,500 - - - - - - Commercial paper 1,747,163 1,747,163 - - - - - - - U.S. Treasury 10,968,537 - 6,697,262 - - - 1,195,347 3,075,928 - U.S. Government Agencies 6,989,699 1,300,486 4,933,608 755,605 - - - - - U.S. Government Agency Pools 3,250,887 99,345 147,166 2,052,228 429,117 419,346 103,685 - - 39,290,925 $ 3,337,207 $ 25,423,466 $ 5,306,829 $ 429,117 $ 419,346 $1,299,032 $ 3,075,928 $ - Investments not subject to interest rate risk Money market funds 2,705,164 Corporate equities 19,248,023 Mutual and exchange- traded funds 42,591,901 Total $103,836,013 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. 42  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 3. DEPOSITS AND INVESTMENTS – CONTINUED Investments – Continued Credit Rate Risk – State law limits investments of surplus public funds to those investments described on the previous page. The table below outlines the authorized investments of the pension trust funds. General Police Employees' Officers' Firefighters' Retirement Retirement Retirement Investment Type Fund Fund Fund Minimum rating of Limited to obligations Minimum rating of Money Market or short-term A1 by S&P or backed by full faith & A1 by S&P or investment fund (STIF) options P1 by Moody's credit of US government P1 by Moody's Minimum rating in one Mininum rating of Minimum rating in one of Fixed-income securities of the four highest "investment grade" or the four highest classifications by a higher by a major rating classifications by a major 1 major rating service service rating service (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, 2017. The Moody's rating ranges of the different investment classes held by each respective plan at September 30, 2017, are as follows: General Pension Police Pension Plan Plan Fire Pension Plan Money market funds N/A N/A N/A Corporate debt Aa1-A3 Aa1-A3 Aa1-A3 U.S. Treasury Aaa Aaa Aaa U.S. government agencies Aaa Aaa Aaa U.S. government pools N/A N/A N/A The Beal Memorial Cemetery investment policy does not limit investments to those with specific credit ratings for domestic or international equities. The overall rating of fixed income investments shall be at least investment grade based on the rating of two of the three Nationally Recognized Statistical Rating Organizations (NRSRO). 43  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 3. DEPOSITS AND INVESTMENTS – CONTINUED Investments – Continued Concentration of Credit Risk – The City limits the amount that may be invested in any one issuer based on the type of investment. Investments issued by or explicitly guaranteed by the U.S. Government and investments in mutual funds, external investment pools, and other pooled investments are exempt from concentration of credit risk disclosures. The General Employees’ Retirement Fund and the Firefighters’ Retirement Fund investment policies limit investment concentration as follows:  Equities – No more than 5% of the Plan’s assets, at the time of purchase, shall be invested in the common stock, capital stock, or convertible stock of any one issuing company, nor shall the aggregate investment in any one issuing company exceed 5% of the outstanding capital stock of the company.  Fixed Income – The value of bonds issued by any single corporation shall not exceed 10% of the Plan’s total market value.  Other Limitations – Investments in corporate common stock and convertible bonds shall not exceed 75% of the Plan’s assets at market value, and foreign securities shall not exceed 25% of the Plan’s market value. The Police Officers’ Retirement Fund investment policy limits investment concentration as follows:  Equities – No more than 5% of the Plan’s assets, at the time of purchase, shall be invested in the common stock, capital stock, or convertible stock of any one issuing company, nor shall the aggregate investment in any one issuing company exceed 5% of the outstanding capital stock of the company.  Fixed Income – The value of bonds issued by any single corporation shall not exceed 3% of the Plan’s total market value.  Other Limitations – Investments in corporate common stock and convertible bonds shall not exceed 70% of the Plan’s assets at market value, and foreign securities shall not exceed 25% of the Plan’s market value. All pension trust fund plans were in compliance with respective investment policies regarding concentration of credit risk as of September 30, 2017. 44  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 3. DEPOSITS AND INVESTMENTS – CONTINUED Investments – Continued Concentration of Credit Risk – Continued The Beal Memorial Cemetery investment policy limits investment concentrations as follows:  Domestic Equities – No more than 5% of the 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. Investments in Entities That Calculate Net Asset Value (NAV) per Share The fair values of investments in real estate funds held by the pension trust funds are based on the investments’ NAV per share, as provided by the investee. Unfunded Redemption Redemption Fair Value Commitments Frequency Notice Period Real Estate Funds $ 6,537,052 None Quarterly 0 - 90 days The real estate funds consist of two open-ended commingled funds that invest in office, industrial, retail, and multi-family real estate assets throughout the United States. Although the funds are private investments, they can be redeemed on a quarterly basis, subject to available liquidity. 4. FAIR VALUE OF INVESTMENTS The City measures and records its investments using fair value measurements guidelines established by generally accepted accounting principles. These guidelines recognize a three-tiered fair value hierarchy, as follow:  Level 1 – Quoted prices (unadjusted) for identical assets in active markets that a government can access at the measurement date.  Level 2 – Inputs other than quoted prices included within Level 1 that are observable for an asset, either directly or indirectly.  Level 3 – Unobservable inputs for an asset. 45  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 4. FAIR VALUE MEASUREMENTS – CONTINUED The following table presents the investments carried at fair value on September 30, 2017: Fair Value Level 1 Level 2 Level 3 Money market funds $ 2,705,164 $ - $ 2,705,164 $ - Debt securities U.S. Treasury bonds 10,968,537 10,968,537 - - U.S. Government Agency obligations 6,989,699 - 6,989,699 - U.S. Government Agency collateralized mortgage obligations (CMO's) 3,250,887 - 3,250,887 - Commercial paper 1,747,163 - 1,747,163 - Corporate bonds 16,033,139 - 16,033,139 - Municipal bonds 301,500 - 301,500 - Total debt securities 39,290,925 10,968,537 28,322,388 - Equity securities and commingled funds Domestic common stock 12,603,982 12,603,982 - - Foreign common stock 106,989 106,989 - - Mutual funds 42,591,901 - 42,591,901 - * Commingled real estate investment funds 6,537,052 - - - Total equity securities and commingled funds 61,839,924 12,710,971 42,591,901 - Total investments measured at fair value $ 103,836,013 $ 23,679,508 $ 73,619,453 $ - * In accordance with GASB 72, certain investments that were measured at NAV per share (or its equivalent) have not been classified in the fair value hierarchy. 5. RECEIVABLES Receivables at September 30, 2017, were as follows: Governmental Activities Business-Type Activities Community Redevelopment General Fund Utilities Sanitation Stormwater Total Taxes $ 20,223 $ - $ - $ - $ - $ 20,223 Accounts 90,290 1,060 710,031 217,437 57,258 1,076,076 Less allowance for doubtful accounts - - (46,699) (7,934) (3,295) (57,928) Assessments 44,824 331,795 1,086 - - 377,705 Other 737,809 - 5,947 - - 743,756 Total receivables, net $ 893,146 $ 332,855 $ 670,365 $ 209,503 $ 53,963 $ 2,159,832 46  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 5. RECEIVABLES – CONTINUED During fiscal year 2015, the City sold a building for $462,000 and will receive $442,000 of the proceeds over twelve years ($2,917 monthly payments started November 2014). This note receivable bears interest at 5% per year and includes a balloon payment of $232,362 due to the City in October 2026. The balance of this note receivable is $402,809 as of September 30, 2017. During fiscal year 2014, the City sold a recreational center for $425,000 and will receive the proceeds over twelve years ($3,000 monthly principal only payments started October 2015). The City has calculated imputed interest on the receivable, but it has not been recorded as the imputed amount was deemed to be immaterial to the financial statements. The balance of this note receivable is $335,000 as of September 30, 2017. Due from Other Governments The City's receivables from other governments for governmental activities as of September 30, 2017, are $238,118. Due from other governments in the governmental activities consists primarily of state proceeds related to the Florida Department of Education grant as well as federal proceeds related to the Department of Housing and Urban Development grants. The City's receivables from other governments for business-type as of September 30, 2017, are $590,215 which consists of primarily of state proceeds related to stormwater system improvement grants. 47  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 6. CHANGES IN CAPITAL ASSETS Capital asset activity for the year ended September 30, 2017, was as follows: Beginning Adjustments/ Ending Balance Increases Decreases Transfers Balance Governmental activities Capital assets not being depreciated/amortized Land $ 11,048,842 $ - $ - $ (363) $ 11,048,479 Construction in progress 86,639 65,833 - (79,875) 72,597 Total capital assets not being depreciated/amortized 11,135,481 65,833 - (80,238) 11,121,076 Capital assets being depreciated/amortized Buildings 23,698,408 17,717 - - 23,716,125 Improvements other than buildings 17,898,446 505,523 (66,838) 31,126 18,368,257 Infrastructure 12,935,865 213,533 - - 13,149,398 Software 521,191 - (1,087) 1,772 521,876 Machinery and equipment 12,143,361 795,679 (980,177) (43,973) 11,914,890 Equipment under capital lease 127,164 - - 2,816 129,980 Total capital assets being depreciated/amortized 67,324,435 1,532,452 (1,048,102) (8,259) 67,800,526 Less accumulated depreciation/amortization Buildings (10,239,087) (697,560) - - (10,936,647) Improvements other than buildings (10,828,924) (766,657) 41,216 48,749 (11,505,616) Infrastructure (9,191,012) (316,371) - - (9,507,383) Software (508,764) (13,362) 1,087 (26,435) (547,474) Machinery and equipment (8,019,367) (837,076) 875,073 117,020 (7,864,350) Equipment under capital lease (49,724) (13,555) - - (63,279) Total accumulated depreciation/amortization (38,836,878) (2,644,581) 917,376 139,334 (40,424,749) Total capital assets being depreciated/amortized, net 28,487,557 (1,112,129) (130,726) 131,075 27,375,777 Governmental activities, net $ 39,623,038 $(1,046,296) $ (130,726) $ 50,837 $ 38,496,853 48  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 6. CHANGES IN CAPITAL ASSETS – CONTINUED Beginning Adjustments/ Ending Balance Increases Decreases Transfers Balance Business-type activities Capital assets not being depreciated/amortized Land $ 709,678 $ - $ - $ - $ 709,678 Construction in progress 499,398 1,364,870 - (1,726,786) 137,482 Easements 34,642 5,100 - - 39,742 Total capital assets not being depreciated/amortized 1,243,718 1,369,970 - (1,726,786) 886,902 Capital assets being depreciated/amortized Buildings 411,900 - - - 411,900 Improvements other than buildings 46,610,516 247,764 - 1,706,274 48,564,554 Software 111,215 - - - 111,215 Machinery and equipment 10,224,375 592,194 (331,935) 27,711 10,512,345 Total capital assets being depreciated/amortized 57,358,006 839,958 (331,935) 1,733,985 59,600,014 Less accumulated depreciation/amortization Buildings (296,697) (8,550) - (305,247) Improvements other than buildings (15,528,198) (1,581,345) - (17,109,543) Software (56,730) - - (54,485) (111,215) Machinery and equipment (6,469,334) (763,979) 331,935 46,286 (6,855,092) Total accumulated depreciation/amortization (22,350,959) (2,353,874) 331,935 (8,199) (24,381,097) Total capital assets being depreciated/amortized, net 35,007,047 (1,513,916) - 1,725,786 35,218,917 Business-type activities, net $ 36,250,765 $ (143,946) $ - $ (1,000) $ 36,105,819 49  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 6. 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 $ 155,176 Public safety 622,991 Physical environment 83,756 Transportation 631,478 Economic environment 121,852 Culture and recreation 1,029,328 Total depreciation/amortization expense – governmental activities $ 2,644,581 Business-type activities Utilities fund $ 1,935,871 Sanitation fund 287,109 Stormwater fund 130,894 Total depreciation/amortization expense – business-type activities $ 2,353,874 Construction Commitments During fiscal year 2017 multiple projects to improve the City’s recreational facilities were conducted. These projects included construction of sand volleyball courts and installation of field netting at the recreation complex, and upgrading the lighting at Jet Stadium. These projects were funded with contingency funds and General Fund reserves. The barrier net installation and Jet Stadium lighting upgrades were completed in 2017. The upgrades to the sand volleyball courts at the recreation complex began in fiscal year 2016. At September 30, 2017, the remaining project costs are approximately $90,000, and the project is expected to be completed in 2018. 50  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 7. DEFERRED OUTFLOWS OF RESOURCES AND DEFERRED INFLOWS OF RESOURCES As of September 30, 2017, the City had various components of deferred outflows of resources and deferred inflows of resources as follows: Governmental activities: Community General Redevelopment Governmental Fund Fund Activities Deferred outflows City pension contributions made subsequent to the measurement date $ - $ - $ 2,689,792 Net difference between projected and actual earnings on pension plan investments - - 2,211,907 Differences between expected and actual experience with regard to economic or demographic assumptions - - 394,085 Changes in assumptions on pension plan investments - - 4,296,406 Changes in assumptions related to OPEB plan - - 443,296 Total deferred outflows $ - $ - $ 10,035,486 Deferred inflows Differences between expected and actual experience with regard to economic or demographic assumptions $ - $ - $ 1,032,099 Unavailable revenue – special assessments 44,824 331,795 - Unavailable revenue – long-term receivable from sale of buildings 737,809 - - Total deferred inflows $ 782,633 $ 331,795 $ 1,032,099 Business-type activities: Utilities Sanitation Stormwater Business-Type Fund Fund Fund Activities Deferred outflows City pension contributions made subsequent to the measurement date $ 215,286 $ 86,830 $ 20,515 $ 322,631 Deferred loss on refunding 88,406 - - 88,406 Net difference between projected and actual earnings on pension plan investments 170,597 68,806 16,257 255,660 Differences between expected and actual experience with regard to economic or demographic assumptions 54,407 21,943 5,184 81,534 Changes in assumptions on pension plan investments 609,765 245,934 58,103 913,802 Changes in assumptions related to OPEB plan 61,628 41,045 16,169 118,842 Total deferred outflows $ 1,200,089 $ 464,558 $ 116,228 $ 1,780,875 Deferred inflows Differences between expected and actual experience with regard to economic or demographic assumptions $ 73,017 $ 29,450 $ 6,958 $ 109,425 51  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 8. DEFINED BENEFIT PENSION PLANS The City of Fort Walton Beach, Florida sponsors three single–employer defined benefit pension plans: the General Employees' Retirement Fund (GERF), Police Officers' Retirement Fund (PORF) and the Firefighters' Retirement Fund (FRF). These plans provide benefits for all qualifying employees of the City. The financial activity of each plan is reported as a Pension Trust Fund in the City of Fort Walton Beach, Florida's internal combined financial statements and can be found under subheading “Fund Financial Statements” of this note. There is no separate report available for the individual pension plans. Plan Description – General Employees’ Retirement Fund (GERF) Plan Administration The authority and responsibility for the establishment, amendment and administration of this Plan is vested in the City Council, and the Members thereof shall be designated as trustees of the fund. The trustees are authorized to adopt reasonable rules and regulations for the administration of the fund created by this Plan. The Plan is a single-employer defined benefit pension plan administered by the City’s Finance Director. The Finance Director shall administer this Plan for the trustees and participants, subject at all times to the limitations and conditions specified in or imposed by provisions of this Plan and the rules and regulations adopted by the City Council. The trustees and the plan administrator shall serve without additional compensation beyond that already provided by the City for their respective duties. All full-time City employees including the City Manager, Finance Director, and the Chief of Police, if they elect to participate, but not including City Council Members, police officers other than the Chief of Police, and firefighters. Effective January 1, 2010, the plan is closed to new entrants. Plan Membership as of October 1, 2016: Inactive Plan Members or Beneficiaries Current Receiving Benefits 155 Inactive Plan Members Entitled to But Not Yet Receiving Benefits 44 Active Plan Members 85 284 Benefits Provided The plan provides retirement, termination, disability and death benefits. A member may retire at age 52 with 10 years of credited service (early retirement) or at age 62 and 10 years of credited service (normal retirement). Benefits become 100% vested upon completion of 10 years of credited service. For the City Manager, Finance Director, or Department Heads, including the Chief of Police, the Member becomes vested at 20% per year, except that credited service other than that as a Charter Officer or Department Head will accrue at a rate of 10% per year. Retirement benefits are a percentage (2.75% or 2.50%) of final average earnings times the years of credited service with maximum of 75% or 100% of current compensation depending on vested status at April 5, 1999. Benefits are reduced by 3% for each year by which the early retirement date precedes the age of 62. Varied benefits exist for service and non-service connected disabilities as well as death in the line of duty or other pre-retirement death. In accordance with the annual increase in CPI-U as measured in December, all retirees are entitled to an adjustment payable each April 1, subject to a minimum of 0% and a maximum of 3%. The adjustment does not apply to members who retire following a vested terminated status or disability retirees. 52  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 8. DEFINED BENEFIT PENSION PLANS – CONTINUED Plan Description – GERF – Continued Funding Policy and Contributions Both the City and the employees (at a rate of 5.0% of payroll) make contributions to the Plan. For fiscal year 2017, employees contributed $171,869 to the Plan. The City is required to contribute at an actuarially determined rate: the contribution rate for 2017 was 32.6% of payroll. The annual required contributions for the current fiscal year was determined as part of the October 1, 2015 actuarial valuation updated to September 30, 2016 using the entry age normal actuarial cost method. Net Pension Liability – GERF Actuarial Assumptions The total pension liability was determined by an actuarial valuation as of October 1, 2015 updated to September 30, 2016 using the following actuarial assumptions: Inflation 3.00% Salary Increases 3.50% - 6.50% Discount Rate 7.90% Investment Rate of Return 7.90% Mortality rates for healthy lives were obtained from the RP-2000 Fully Generational with Scale BB mortality table, with collar and annuitant adjustments as follows: Males – 50% Annuitant White Collar, 50% Annuitant Blue Collar. Females – 100% Annuitant White Collar. Mortality rates for disable lives were obtained from the RP-2000 mortality table without projection, with the following adjustments: Males – 100% Disabled Male with four year setback Females – 100% Disabled Female with two year set forward. The long-term expected rate of return on pension plan investments was determined using a building- block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expenses and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. For 2016, the inflation rate assumption of the investment advisor was 2.50% 53  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 8. DEFINED BENEFIT PENSION PLANS – CONTINUED Net Pension Liability – GERF – Continued Actuarial Assumptions – Continued 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, 2016 are summarized in the following table: Long Term Expected Asset Class Target Allocation Real Rate of Return Domestic Equity 55.00% 7.50% International Equity 10.00% 8.50% Broad Market Fixed Income 25.00% 2.50% Real Estate 10.00% 4.50% Total 100.00% Discount Rate The discount rate used to measure the total pension liability was 7.90%. The projection of cash flows used to determine the discount rate assumed that Plan Member contributions will be made at the current contribution rate and that Sponsor contributions will be made at rates equal to the difference between actuarially determined contribution rates and the Member rate. Based on those assumptions, the pension plan's fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. 54  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 8. DEFINED BENEFIT PENSION PLANS – CONTINUED Change in Net Pension Liability – GERF Increase (Decrease) Total Pension Plan Fiduciary Net Pension Liability Net Position Liability (Asset) (a) (b) (a) – (b) Balances at September 30, 2016 (Valuation Date of 10/01/2015) $ 42,864,631 $ 38,086,889 $ 4,777,742 Changes: Service cost 557,163 - 557,163 Interest 3,317,396 - 3,317,396 Differences between Expected and Actual experience 400,221 - 400,221 Changes of assumptions 4,485,495 - 4,485,495 Contributions – employer - 1,280,082 (1,280,082) Contributions – employee - 202,268 (202,268) Net investment income - 4,031,981 (4,031,981) Benefit payments, including refunds of employee contributions (2,858,889) (2,858,889) - Administrative expenses - (35,704) 35,704 Net changes during 2015-16 5,901,386 2,619,738 3,281,648 Balances at September 30, 2017 (Measurement Date of 9/30/2016) $ 48,766,017 $ 40,706,627 $ 8,059,390 Sensitivity of the Net Pension Liability to changes in the Discount Rate: Current Discount 1% Decrease Rate 1% Increase 6.90% 7.90% 8.90% Sponsor's Net Pension Liability $ 13,487,315 $ 8,059,390 $ 3,490,193 Pension Plan Fiduciary Net Position Detailed information about the pension Plan's fiduciary net position is available in a separately issued Plan financial report. A separate audited financial report of the Plan is not available. 55  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 8. DEFINED BENEFIT PENSION PLANS – CONTINUED Pension Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions – GERF For the year ended September 30, 2017, the City recognized pension expense of $1,099,490. On September 30, 2017, the City reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Deferred Outflows of Inflows of Resources Resources City contributions subsequent to measurement date $ 1,254,097 $ - Net difference between Projected and Actual earnings on pension Plan investments 836,619 - Changes of assumptions 2,990,330 - Differences between Expected and Actual experience 266,814 358,081 Total $ 5,347,860 $ 358,081 Deferred outflows of resources related to pensions of $1,254,097 resulting from the City’s contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability for the year ending September 30, 2017. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense as follows: Year ended September 30: 2018 $ 1,598,674 2019 1,956,755 2020 396,033 2021 (215,780) $ 3,735,682 Plan Description – Police Officers’ Retirement Fund (PORF) Plan Administration The Police Officers’ Retirement Board of Trustees (Police Board) is designated as the plan administrator. The Police Board shall consist of five Trustees, two of whom, unless otherwise prohibited by law, shall be legal residents of the City, who shall be appointed by the City Council, and two of whom shall be Members of the System, who shall be elected by a majority of the Police Officers who are Members of the System. The fifth Trustee shall be chosen by a majority of the previous four Trustees as provided for herein, and such person's name shall be submitted to the City Council who shall, as a ministerial duty, appoint such person to the Police Board as its fifth Trustee. 56  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 8. DEFINED BENEFIT PENSION PLANS – CONTINUED Plan Description – PORF – Continued Each person employed by the City’s police department as a full-time police officer becomes a member of the Plan as a condition of his employment. All police officers are therefore eligible for plan benefits as provided for in the plan document and by applicable law. Plan Membership as of October 1, 2016: Inactive Plan Members or Beneficiaries Currently Receiving Benefits 48 Inactive Plan Members Entitled to But Not Yet Receiving Benefits 15 Active Plan Members 38 101 Benefits Provided The plan provides retirement, termination, disability and death benefits. A member may retire at age 50 with 10 years of credited service or completion of 25 years of credited service (early retirement) or at age 55 or the completion of 30 years of credited service (normal retirement). Members hired between ages 45 and 50 must work 10 years. Benefits become 100% vested upon completion of 10 years of credited service. The plan provides retirement benefits in the amount of 2.75% of average final compensation times credited service. Benefits are reduced 6% for each year prior to the age of 55. Varied benefits exist for disability and pre-retirement death. Each April 1 the benefit paid to service retires is adjusted in accordance with the CPI increase during the previous year not to exceed 3%. Contributions The City, the State of Florida, and employees (at 5.0% of payroll until a 75% maximum accrual is attained and then 0.5% thereafter) make contributions to the Plan. For fiscal year 2017, employees contributed $104,557 to the Plan. The State of Florida makes contributions based on tax premiums assessed on property insurance of 0.85%. For fiscal year 2017, the State contributed $190,399 to the Plan. The City is required to contribute at an actuarially determined rate: the contribution rate for 2017 was 22.0% of payroll. The annual required contribution for the current fiscal year was determined as part of the October 1, 2015 actuarial valuation updated to September 30, 2016 using the entry age normal actuarial cost method. Net Pension Liability – PORF The City’s net pension liability was measured as of September 30, 2016, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation. Actuarial Assumptions The total pension liability was determined by an actuarial valuation as of October 1, 2015 updated to September 30, 2016 using the following actuarial assumptions: Inflation 3.00% Salary increases 3.00% – 10.00% Discount rate 8.00% Investment rate of return 8.00% 57  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 8. DEFINED BENEFIT PENSION PLANS – CONTINUED Net Pension Liability – PORF – Continued Actuarial Assumptions – Continued Mortality rates for healthy lives were obtained from the RP-2000 Fully Generational with Scale BB mortality table, with collar and annuitant adjustments as follows: Males – 10% Annuitant White Collar, 90% Annuitant Blue Collar. Females – 100% Annuitant White Collar. Mortality rates for disable lives were obtained from the RP-2000 mortality table without projection, with the following adjustments: Males – 60% Disabled Male with four year setback, 40% Annuitant White Collar with no setback. Females – 60% Disabled Female set forward two years, 40% Annuitant White Collar with no setback. The other significant actuarial assumptions used in the October 1, 2015 valuation were based on the results of an actuarial experience study for the period 1991-2012. The long-term expected rate of return on pension plan investments was determined using a building-block method in which best- estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expenses and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. For 2016, the inflation rate assumption of the investment advisor was 2.50%. Best estimates of arithmetic real rates of return for each major asset class included in the Pension Plan's target asset allocation as of September 30, 2016 are summarized in the following table: Long Term Expected Asset Class Target Allocation Real Rate of Return Domestic equity 45.00% 7.50% International equity 15.00% 8.50% Broad market fixed income 40.00% 2.50% Total 100.00% Discount Rate The discount rate used to measure the total pension liability was 8.00%. 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. 58  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 8. DEFINED BENEFIT PENSION PLANS – CONTINUED Changes in Net Pension Liability – PORF Increase (Decrease) Total Pension Plan Fiduciary Net Pension Liability Net Position Liability (Asset) (a) (b) (a) – (b) Balances at September 30, 2016 (Valuation Date of 10/01/2015) $ 24,982,724 $ 19,150,987 $ 5,831,737 Changes: Service cost 344,958 - 344,958 Interest 1,948,181 - 1,948,181 Contributions – employer - 577,564 (577,564) Contributions – state - 181,303 (181,303) Contributions – employee - 102,214 (102,214) Net investment income - 1,698,093 (1,698,093) Changes of assumptions 1,633,122 - 1,633,122 Differences between Expected and Actual experience (425,107) - (425,107) Changes of assumptions - Benefit payments, including Refunds of employee contributions (1,744,710) (1,744,710) - Administrative expenses - (44,882) 44,882 Net changes during 2015-16 1,756,444 769,582 986,862 Balances at September 30, 2017 (Measurement Date of 9/30/2016) $ 26,739,168 $ 19,920,569 $ 6,818,599 Sensitivity of the Net Pension Liability to changes in the Discount Rate: Current Discount 1% Decrease Rate 1% Increase 7.00% 8.00% 9.00% Sponsor's Net Pension Liability (Asset) $ 9,993,143 $ 6,818,599 $ 4,178,210 Pension Plan Fiduciary Net Position Detailed information about the pension Plan's fiduciary net position is available in a separately issued Plan financial report. A separate audited financial report of the Plan is not available. 59  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 8. DEFINED BENEFIT PENSION PLANS – CONTINUED Pension Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions – PORF For the year ended September 30, 2017, the City recognized pension expense of $435,413. On September 30, 2017, the City reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Deferred Outflows of Inflows of Resources Resources City and State contributions subsequent to measurement date $ 759,614 $ - Net difference between Projected and Actual earnings on pension Plan investments 978,590 - Changes of assumptions 1,224,842 - Differences between Expected and Actual experience - 648,815 Total $ 2,963,046 $ 648,815 Deferred outflows of resources related to pensions of $759,614 resulting from the City’s and State’s contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ending September 30, 2017. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense as follows: Year ended September 30: 2018 $ 452,888 2019 452,888 2020 689,726 2021 (40,885) $ 1,554,617 Plan Description – Firefighters’ Retirement Fund (FRF) Plan Administration The Plan is administered by the Firefighters’ Retirement Board of Trustees (Fire Board) comprised of: a. Two members of the fund elected by a majority of the membership, b. Two City residents appointed by the City Council, c. Fifth member elected by other four and appointed by City Council as a ministerial duty. Each person employed by the City’s fire department as a full-time firefighter becomes a member of the plan as a condition of this employment. All firefighters are therefore eligible for plan benefits as provided for in the plan document and by applicable law. 60  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 8. DEFINED BENEFIT PENSION PLANS – CONTINUED Plan Description – FRF – Continued Plan Membership as of October 1, 2016: Inactive Plan Members or Beneficiaries Currently Receiving Benefits 26 Inactive Plan Members Entitled to But Not Yet Receiving Benefits 5 Active Plan Members 34 65 Benefits Provided The plan provides retirement, disability and death benefits. A member may retire at age 45 with 10 years of credited service (early retirement) or at age 55 and 10 years of credited service or 25 years of credited service regardless of age (normal retirement). Benefits become 100% vested upon completion of 10 years of credit service. The plan provides a retirement benefit which is 3.25% of average final compensation times credited service with maximum of 100% of current compensation. Benefits are reduced 0.25% for each month prior to the normal retirement date. Varied benefits exist for disability and pre-retirement death. Benefits for service retirees are adjusted for a 3% cost of living increase on the January 1 following the later of age 58 or the date of retirement. Contributions The City, the State of Florida, and employees (at 8.0% of salary) make contributions to the Plan. For fiscal year 2017, employees contributed $205,635 to the Plan. The State of Florida makes contributions based on tax premiums assessed on property insurance of 1.85%. For fiscal year 2017, the State contributed $204,568 to the Plan. The City is required to contribute at an actuarially determined rate: the contribution rate for 2016 was 31.9% of payroll. The annual required contribution for the current fiscal year was determined as part of the October 1, 2015 actuarial valuation updated to September 30, 2016 using the entry age normal actuarial cost method. Net Pension Liability – FRF The City’s net pension liability was measured as of September 30, 2016, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation. Actuarial Assumptions The total pension liability was determined by an actuarial valuation as of October 1, 2015 updated to September 30, 2016 using the following actuarial assumptions: Inflation 2.50% Salary increases 6.50% Discount rate 8.00% Investment rate of return 8.00% 61  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 8. DEFINED BENEFIT PENSION PLANS – CONTINUED Net Pension Liability – FRF – Continued Actuarial Assumptions – Continued Mortality rates for healthy lives were obtained from the RP-2000 Fully Generational with Scale BB mortality table, with collar and annuitant adjustments as follows: Males – 10% Annuitant White Collar, 90% Annuitant Blue Collar. Females – 100% Annuitant White Collar. Mortality rates for disable lives were obtained from the RP-2000 mortality table without projection, with the following adjustments: Males – 60% Disabled Male with four year setback, 40% Annuitant White Collar with no setback. Females – 60% Disabled Female set forward two years, 40% Annuitant White Collar with no setback. The date of the most recent experience study for which significant assumptions are based upon is not available. The long-term expected rate of return on pension plan investments was determined using a building- block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expenses and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. For 2016, the inflation rate assumption of the investment advisor was 2.50%. Best estimates of arithmetic real rates of return for each major asset class included in the Pension Plan's target asset allocation as of September 30, 2016 are summarized in the following table: Long Term Expected Asset Class Target Allocation Real Rate of Return Domestic equity 45.00% 7.50% International equity 15.00% 8.50% Broad market fixed income 30.00% 2.50% Real estate 10.00% 4.50% Total 100.00% Discount Rate The discount rate used to measure the total pension liability was 8.00%. 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. 62  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 8. DEFINED BENEFIT PENSION PLANS – CONTINUED Changes in Net Pension Liability – FRF Increase (Decrease) Total Pension Plan Fiduciary Net Pension Liability Net Position Liability (Asset) (a) (b) (a) – (b) Balances at September 30, 2016 (Valuation Date of 10/01/2015) $ 20,739,618 $ 13,590,508 $ 7,149,110 Changes: Service cost 453,506 - 453,506 Interest 1,645,954 - 1,645,954 Contributions – employer - 744,019 (744,019) Contributions – state - 201,904 (201,904) Contributions – employee - 164,876 (164,876) Net investment income - 969,107 (969,107) Changes of assumptions 1,243,794 - 1,243,794 Differences between Expected and Actual experience 261,007 - 261,007 Benefit payments, including refunds of employee contributions (1,237,389) (1,237,389) - Administrative expenses - (43,625) 43,625 Net changes during 2015-16 2,366,872 798,892 1,567,980 Balances at September 30, 2017 (Measurement Date of 9/30/2016) $ 23,106,490 $ 14,389,400 $ 8,717,090 Sensitivity of the Net Pension Liability to changes in the Discount Rate: Current Discount 1% Decrease Rate 1% Increase 7.00% 8.00% 9.00% Sponsor's Net Pension Liability $ 11,641,297 $ 8,717,090 $ 6,309,000 Pension Plan Fiduciary Net Position Detailed information about the pension Plan's fiduciary net position is available in a separately issued Plan financial report. A separate audited financial report of the Plan is not available. 63  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 8. DEFINED BENEFIT PENSION PLANS – CONTINUED Pension Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions – FRF For the year ended September 30, 2017, the City recognized a pension expense of $351,668. On September 30, 2017, the City reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Deferred Outflows of Inflows of Resources Resources City and State contributions subsequent to measurement date $ 998,712 $ - Net difference between Projected and Actual earnings on pension Plan investments 652,358 - Changes of assumptions 995,036 - Differences between Expected and Actual experience 208,805 134,628 Total $ 2,854,911 $ 134,628 Deferred outflows of resources related to pensions of $998,712 resulting from the City’s and State’s contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ending September 30, 2017. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense as follows: Year ended September 30: 2018 $ 452,606 2019 452,605 2020 493,135 2021 323,225 $ 1,721,571 64  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 8. DEFINED BENEFIT PENSION PLANS – CONTINUED Fund Financial Statements The following are the financial statements for the individual pension trust funds (GERF, PORF and FRF) for the year ended September 30, 2017: COMBINING STATEMENT OF PLAN NET POSITION Employee Retirement Funds Total General Police Employee Employees' Officers' Firefighters' Retirement Retirement Retirement Retirement Funds ASSETS Cash and cash equivalents $ 1,181,483 $ 500,939 $ 227,060 $ 1,909,482 Accounts receivable 1,945 2,054 (3,999) - Due from State of Florida - - 238 238 Investments, at market U.S. Government and Agency obligations 5,342,842 4,722,197 2,664,968 12,730,007 Corporate obligations 2,738,795 2,542,854 1,463,758 6,745,407 Corporate equity 10,982,853 - 1,728,118 12,710,971 Mutual and exchange-traded funds 18,798,846 13,199,893 7,870,870 39,869,609 Commingled real estate investment funds 4,955,917 - 1,581,135 6,537,052 Total investments, at market 42,819,253 20,464,944 15,308,849 78,593,046 TOTAL ASSETS 44,002,681 20,967,937 15,532,148 80,502,766 LIABILITIES Accounts payable 35,927 31,734 9,650 77,311 NET POSITION RESTRICTED FOR PENSIONS $ 43,966,754 $ 20,936,203 $ 15,522,498 $ 80,425,455 65  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 8. DEFINED BENEFIT PENSION PLANS – CONTINUED Fund Financial Statements – Continued COMBINING STATEMENT OF CHANGES IN PLAN NET POSITION Employee Retirement Funds Total General Police Employee Employees' Officers' Firefighters' Retirement Retirement Retirement Retirement Funds ADDITIONS Contributions Employer $ 1,254,097 $ 569,215 $ 794,144 $ 2,617,456 Plan members 171,869 104,557 205,635 482,061 State of Florida - 190,399 204,568 394,967 Total contributions 1,425,966 864,171 1,204,347 3,494,484 Investment income (loss) 5,231,810 2,060,509 1,469,622 8,761,941 Less investment expense (203,647) (18,216) (36,686) (258,549) Net investment income (loss) 5,028,163 2,042,293 1,432,936 8,503,392 Miscellaneous revenue 5,179 32,050 837 38,066 TOTAL ADDITIONS 6,459,308 2,938,514 2,638,120 12,035,942 DEDUCTIONS Benefits and refunds paid Retirement payments 2,982,337 1,660,690 1,387,739 6,030,766 Disability payments 46,851 141,418 5,894 194,163 Other 26,357 19,618 24,612 70,587 Total benefits and refunds paid 3,055,545 1,821,726 1,418,245 6,295,516 Administrative expenses Legal 2,408 7,550 4,275 14,233 Contractual 67,148 41,338 34,697 143,183 Other 31,720 18,342 18,393 68,455 Total administrative expenses 101,276 67,230 57,365 225,871 TOTAL DEDUCTIONS 3,156,821 1,888,956 1,475,610 6,521,387 INCREASE IN PLAN NET POSITION 3,302,487 1,049,558 1,162,510 5,514,555 NET POSITION RESTRICED FOR PENSIONS Beginning of year 40,664,267 19,886,645 14,359,988 74,910,900 End of year $ 43,966,754 $ 20,936,203 $ 15,522,498 $ 80,425,455 66  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 9. DEFINED CONTRIBUTION PENSION PLAN City of Fort Walton Beach Defined Contribution Plan In December 2009, City Council closed the General Employees’ Defined Benefit Pension Plan. All general, full-time employees hired on or after January 1, 2010, are members of the Defined Contribution Retirement Plan (Plan). The Plan is a money purchase defined contribution retirement plan administered by ICMA Retirement Corporation, with the City serving as trustee. All funds are held in the ICMA Retirement Corporation Governmental Money Purchase Plan & Trust in the name of each participant. The City finance director serves as the coordinator for the Plan. The Plan requires a 5% payroll contribution by the employee with a 5% employer (City) match. Employees can increase their contribution; however, only an additional 2½% is eligible for City match. Members of the General Employees’ Defined Benefit Pension Plan, who were not fully or partially vested at the time the Plan was opened, were permitted to transfer their contributions to the Plan as a one–time, irrevocable election. The Plan participants individually select and make changes in funding options, which are made available by the independent plan administrator. Since participants select the investment fund or funds in which their deferred compensation accounts are invested, the City has no liability for investment losses. The authority for establishing and amending the Plan's provisions lies with the City Council. The City Council also has the authority for amending contribution requirements. Contributions made to the Plan by the employees and by the City were $189,085 and $189,085, respectively, for the year ending September 30, 2017. The City’s contributions vest 20% each year beginning after one year of employment. Participants are fully vested after 5 years of service. 10. DEFERRED COMPENSATION PLAN The City offers employees a deferred compensation plan created in accordance with Internal Revenue Code Section 457 (Plan). The Plan is a tax–deferred supplemental retirement program that allows City employees to contribute a portion of their salary, before federal income taxes, to a retirement account. The assets are held in trust for the employees’ benefit. The Plan participants individually select and make changes in funding options, which are made available by the independent plan administrator. Since participants select the investment fund or funds in which their deferred compensation accounts are invested, the City has no liability for investment losses. The City’s fiduciary responsibility is to administer the Plan properly and to assure the investment alternatives made available are reasonable. Assets of the plan have a fair value of $2,387,457 at September 30, 2017. Contributions made by plan members during the year ended September 30, 2017, were $84,092. 67  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 11. OTHER POST EMPLOYMENT BENEFITS (OPEB) Plan Description The Fort Walton Beach’s Retiree Health Care Plan (the Plan) is a single-employer defined benefit postemployment health care plan that covers eligible retired employees of the City. The Plan, which is administered by the City, allows employees who retire and meet retirement eligibility requirements under one of the City’s retirement plans to continue medical, dental, and life insurance coverage as a participant in the City’s plan. Plan Membership as of October 1, 2016: Inactive Plan Members or Beneficiaries Current Receiving Benefits 172 Inactive Plan Members Entitled to But Not Yet Receiving Benefits - Active Plan Members 157 329 Benefits Provided The benefits provided are the same as those provided for active employees. Spouses and dependents of eligible retirees are also eligible for medical coverage. All employees of the City are eligible to receive postemployment health care benefits. Contributions Retirees participating in the group insurance plans offered by the City are required to contribute 100% of the active premiums. In future years, contributions are assumed to increase at the same rate as premiums. Net OPEB Liability The City’s net OPEB liability was measured as of September 30, 2016. The total OPEB liability used to calculate the net OPEB liability was determined as of that date. The total OPEB liability was “rolled- back” from September 30, 2016, using a discount rate of 3.71%, thus producing no experience gain or loss from the period ending September 30, 2016. Actuarial Assumptions The Total OPEB Liability was determined by an actuarial valuation as of October 1, 2016, using the following actuarial assumptions: Inflation 3.00% Salary Increases See Assumptions and Methods Discount Rate 3.06% Investment Rate of Return 0.00% For general employees, mortality rates were based on the RP-2000 mortality tables. For female lives, 100% of the white collar table was used. For male lives, a 50% white collar table, 50% blue collar table blend was used. All tables include fully generational adjustments for mortality improvements using improvement scale BB. For disabled lives, mortality rates were based on the RP-2000 sex- distinct disabled mortality tables with female lives set forward two years, male lives set back four years. Disabled mortality has not been adjusted for mortality improvements. 68  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 11. OTHER POST EMPLOYMENT BENEFITS (OPEB) – CONTINUED Net OPEB Liability – Continued For police and fire employees, mortality rates were also based on various RP-2000 mortality tables. For female lives, 100% of the white collar table was used. For male lives, a 10% white collar table, 90% blue collar table blend was used. All tables include fully generational adjustments for mortality improvements using improvement scale BB. For disabled female lives, a blend of 60% of the RP- 2000 disabled female mortality table set forward two years and 40% of the white collar table with no setback was used. For disabled male lives, a blend of 60% of the RP-2000 disabled male mortality table set back four year and 40% of the white collar table with no setback was used. Disabled mortality has not been adjusted for mortality improvements. Discount Rate Given the City’s decision not to fund the program, all future benefit payments were discounted using a high quality municipal bond rate of 3.06%. The high quality municipal bond rate was based on the week closest but not later than the measurement date of the Bond Buyer 20-Bond Index as published by the Federal Reserve. The 20-Bond Index consists of 20 general obligation bonds that mature in 20 years. The average rating of the 20 bonds is roughly equivalent to Moody's “Aa2” rating and S&P's “AA” rating. Change in Net OPEB Liability Increase (Decrease) Total OPEB Plan Fiduciary Net OPEB Liability Net Position Liability (a) (b) (a) – (b) Balances at September 30, 2016 $ 5,261,882 $ - $ 5,261,882 Changes for the year: Service cost 85,100 - 85,100 Interest 195,814 - 195,814 Changes of assumptions 702,672 - 702,672 Contributions – employer - 141,727 (141,727) Benefit payments (139,227) (139,227) - Administrative expense - (2,500) 2,500 Net changes 844,359 - 844,359 Reporting period ending September 30, 2017 $ 6,106,241 $ - $ 6,106,241 Sensitivity of the Net OPEB Liability to Changes in the Discount Rate: Current 1% Decrease Discount Rate 1% Increase 2.06% 3.06% 4.06% Net OPEB liability $ 7,464,541 $ 6,106,241 $ 5,072,539 69  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 11. OTHER POST EMPLOYMENT BENEFITS (OPEB) – CONTINUED Sensitivity of the Net OPEB Liability to Changes in the Healthcare Trend Rates: Healthcare Cost 1% Decrease Trend Rates 1% Increase 3.00%-7.75% 4.00%-8.75% 5.00%-9.75% Net OPEB liability $ 5,208,317 $ 6,106,241 $ 7,277,281 OPEB Plan Fiduciary Net Position The plan is unfunded, so the OPEB plan’s fiduciary net position is $0. OPEB Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to OPEB For the year ended September 30, 2017, the City will recognize OPEB expense of $423,948. On September 30, 2017, the City reported deferred outflows of resources and deferred inflows of resources related to OPEB from the following sources: Deferred Deferred Outflows of Inflows of Resources Resources Differences between Expected and Actual experience - - Changes of assumptions 562,138 - Total $ 562,138 $ - Amounts reported as deferred outflows of resources and deferred inflows of resources related to OPEB will be recognized in OPEB expense as follows: Year ended September 30: 2018 $ 140,534 2019 140,534 2020 140,534 2021 140,536 $ 562,138 12. RISK MANAGEMENT The City is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; employee medical benefits and natural disasters. The City purchases insurance through commercial carriers. Insurance coverage for workers’ compensation, liability, casualty, inland marine, flood, police accidental death, public officials’ bonds, fiduciary and fuel tanks were purchased from several commercial carriers during the year ended September 30, 2017. 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. 70  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 13. OPERATING LEASES Lessor The City receives rental income from leasing various parcels of land under cancelable operating agreements. The lease periods vary from one to forty years. Income for the year ended September 30, 2017, was $308,795 in the General Fund, $12,000 in the Community Redevelopment Agency Fund, and $18,448 in the Utilities Fund. Future minimum lease payments are as follows: Governmental Business-Type Year Ending September 30 Activities Activities 2018 $ 258,317 $ 19,001 2019 299,706 19,571 2020 305,113 20,157 2021 310,907 20,750 2022 291,608 21,373 Total minimum lease payments $ 1,465,651 $ 100,852 Lessee The City leases golf carts in the General Fund through an operating lease with Yamaha. The original lease term began on January 1, 2013 and was terminated on June 30, 2016. A new four-year lease was signed in August 2016 that expires on July 31, 2020. Under the new lease, monthly lease payments are $6,323 plus property tax paid by the lessor. In addition, the City signed another lease with Yamaha in April 2017 for one golf car. The lease calls for monthly payments of $152 and expires on July 31, 2020. Rent expense for the fiscal year ending September 30, 2017 was $76,016. Future minimum lease payments are as follows: Governmental Year Ending September 30 Activities 2018 $ 77,688 2019 77,688 2020 64,740 Total minimum lease payments $ 220,116 The City leases golf course and parks grounds maintenance equipment and utility carts in the General Fund through operating leases with DLL Finance. The grounds maintenance equipment lease is a five-year lease that began on January 1, 2016 and expires on December 31, 2020. The utility cart lease is a four-year lease that began on September 1, 2016 and expires on August 31, 2020. Monthly rent payments under the lease agreements are $2,104 plus property taxes paid by the lessor. Rent expense for the fiscal year ending September 30, 2017 was $16,074. 71  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 13. OPERATING LEASES – CONTINUED Lessee – Continued Future minimum lease payments are as follows: Governmental Year Ending September 30 Activities 2018 $ 25,256 2019 25,256 2020 24,421 2021 3,808 Total minimum lease payments $ 78,741 The City leases copiers in the General, Utilities, and Sanitation Funds through Great American Financial Services. The lease term began October 1, 2015 and expires on September 30, 2019. Monthly lease payments in each fund are as follows: General Fund: $1,500; Utilities Fund: $80; and Sanitation Fund: $41. Rent expense for each fund for the year ending September 30, 2017 was as follows: General Fund: $17,707; Utilities Fund: $935; and Sanitation Fund: $486. Future minimum lease payments are as follows: Business-Type Activities Governmental Year Ending September 30 Activities Utilities Sanitation 2018 $ 17,995 $ 963 $ 494 2019 17,995 963 494 Total minimum lease payments $ 35,990 $ 1,926 $ 988 The City leases a postage machine in the General Fund through an operating lease with MailFinance. The lease term began on March 12, 2015 and expires on June 11, 2020. Quarterly rent payments are $687, and rent expense for the fiscal year ending September 30, 2017 was $2,748. Future minimum lease payments are as follows: Governmental Year Ending September 30 Activities 2018 $ 2,748 2019 2,748 2020 1,374 Total minimum lease payments $ 6,870 72  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 14. CAPITAL LEASES The City has entered into a lease agreement for financing the acquisition of a telephone system and fitness equipment for its recreation complex. The lease agreements qualify as capital leases for accounting purposes as a result of the transfer of title or bargain purchase option and therefore have been recorded at the present value of the future minimum lease payments as of the inception date in the General Fund. The assets acquired through capital leases are as follows: Governmental Assets Activities Telephone system $ 103,784 Fitness equipment 67,774 Accumulated depreciation (63,279) Assets acquired by lease, net $ 108,279 The future minimum lease obligations and the net present value of these minimum lease payments as of September 30, 2017, are as follows: Governmental Year Ending September 30 Activities 2018 $ 39,993 2019 37,905 2020 6,778 Total minimum lease payments 84,676 Less amount representing interest (8,577) Present value of minimum lease payments $ 76,099 73  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 15. LONG-TERM DEBT Changes in Long-Term Debt Liabilities The following is a summary of changes in long-term debt liabilities of the City for the year ended September 30, 2017: Beginning Ending Due Within Balance Additions Reductions Balance One Year Governmental activities Revenue notes payable $ 11,725,331 $ - $ (651,675) $ 11,073,656 $ 664,711 Capital leases 106,653 - (30,554) 76,099 32,706 Compensated absences 634,145 729,563 (696,954) 666,754 163,123 Total governmental activities $ 12,466,129 $ 729,563 $ (1,379,183) $ 11,816,509 $ 860,540 Beginning Ending Due Within Balance Additions Reductions Balance One Year Business-type activities Revenue notes payable $ 8,794,000 $ - $ (407,000) $ 8,387,000 $ 419,000 State revolving loans 14,656,929 - (668,044) 13,988,885 680,796 Compensated absences 172,642 178,553 (175,395) 175,800 43,950 Total business-type activities $ 23,623,571 $ 178,553 $ (1,250,439) $ 22,551,685 $ 1,143,746 74  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 15. LONG-TERM DEBT – CONTINUED Description of Long-Term Debt Outstanding Current Long-Term Total GOVERNMENTAL ACTIVITIES Revenue Notes $8,500,000 City of Fort Walton Beach, Florida, Capital Improvement Revenue Note, Series 2013A, 2.69% interest due semi annually and principal due annually ranging from $326,969 to $464,334 through 2027 with a balloon payment of $3,000,000 due in 2028. Budgeted and appropriated half cent sales tax is pledged for payment of the note. Proceeds used to finance the construction of the City's new recreational complex along with the purchase of a bucket truck and a grounds sweeper for City's municipal golf course. $ 365,660 $ 6,766,866 $ 7,132,526 $4,470,610 City of Fort Walton Beach, Florida, Capital Improvement Refunding Revenue Note, Series 2013, 2.30% interest due semi annually and principal due annually ranging from $187,659 to $299,010 through 2031. Available non ad valorem revenues are pledged for payment of the note. Proceeds used for refunding Series 2001 revenue bonds for construction of certain capital improvements. 221,381 3,418,021 3,639,402 $819,000 City of Fort Walton Beach, Florida, Capital Improvement Revenue Note, Series 2011, due in quarterly installments of $24,449 through April 2016 then $21,156 from June 2016 through April 2021; interest at 2.55%. Available non ad valorem revenues are pledged for payment of the note. Proceeds used for purchase of a fire truck and golf equipment. 77,670 224,058 301,728 Total revenue notes 664,711 10,408,945 11,073,656 Leases $103,784 capital lease payable, 2013, due in monthly installments of $2,088 through August 2019, collateralized by a the City's phone system. 20,613 21,490 42,104 $67,774 capital lease payable, 2015, due in quarterly installments of $3,734 through December 2019, collateralized by fitness equipment at the City's Recreation Complex. 12,093 21,902 33,995 Total leases 32,706 43,392 76,099 Accrued Compensated Absences Total long-term portion of accumulated, vested annual and sick leave for governmental fund types 163,123 503,631 666,754 TOTAL GOVERNMENTAL ACTIVITIES $ 860,540 $ 10,955,968 $ 11,816,509 75  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 15. LONG-TERM DEBT – CONTINUED Description of Long-Term Debt Outstanding – Continued Current Long-Term Total BUSINESS-TYPE ACTIVITIES Revenue Notes $8,794,000 Utility System Revenue Refunding Note, Series 2015, due in annual installments of $407,000 to $645,000 beginning July 2017 through July 2033, with interest only semi-annual payments from January 2016 through January 2017; stated interest at 2.92%. Net revenues derived by the City from the utility operations are pledged for the payment of the note. Proceeds used to refinance and refund the Utility System Revenue Bonds, Series 2005, which was for water system and wastewater system improvements. $ 419,000 $ 7,968,000 $ 8,387,000 State Revolving Loans $15,637,939 State of Florida Department of Environmental Protection Revolving Loan Fund; semi annual payments of $471,683 including interest at 1.90% beginning August 2015, through February 2035. Proceeds used for force main replacement, storage tank construction and pump station upgrades. 680,796 13,308,089 13,988,885 Accrued Compensated Absences Accumulated, vested annual compensation for Enterprise Funds 43,950 131,850 175,800 TOTAL BUSINESS-TYPE ACTIVITIES $ 1,143,746 $ 21,407,939 $ 22,551,685 GRAND TOTAL LONG-TERM DEBT $ 34,368,194 For the governmental activities, compensated absences are generally liquidated by the General Fund. 76  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 15. LONG-TERM DEBT – CONTINUED Annual Requirements to Amortize Debt Outstanding The annual requirements to amortize all debt outstanding except accrued and annual leave and advances from other funds as of September 30, 2017, are as follows: Governmental Activities Leases Revenue Notes Year Ending September 30 Principal Interest Principal Interest 2018 $ 32,706 $ 6,112 $ 664,711 $ 282,526 2019 36,712 2,369 682,573 265,599 2020 6,681 96 700,401 248,217 2021 - - 697,037 230,379 2022 - - 3,425,805 897,254 2023-2027 - - 4,903,129 274,531 Total $ 76,099 $ 8,577 $ 11,073,656 $ 2,198,506 Business-Type Activities Revenue Note State Revolving Loan Year Ending September 30 Principal Interest Principal Interest 2018 $ 419,000 $ 244,900 $ 680,796 $ 262,570 2019 431,000 232,666 693,793 249,574 2020 444,000 220,080 707,038 236,329 2021 456,000 207,116 720,535 222,832 2022 2,491,000 827,674 3,814,332 902,502 2023-2027 2,875,000 442,292 4,192,583 524,251 2028-2032 1,271,000 55,947 3,179,808 121,975 Total $ 8,387,000 $ 2,230,675 $ 13,988,885 $ 2,520,033 77  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 16. COMMENTS REQUIRED BY THE BOND AND ORDINANCES Capital Improvement Revenue Note, Series 2011 1. The balance sheet and statement of revenues, expenditures, and changes in fund balance of the Debt Service Fund are shown in the financial section of the report. 2. The City is required to establish sinking fund amounts sufficient to pay all principal and interest becoming due on the bonds on the next quarter payment date. Sinking Fund Requirement at Principal/Interest September 30, Payments Due 2017 Principal due at October 1, 2017 $ 18,750 $ 18,750 Interest due at October 1, 2017 2,406 2,406 1 Total $ 21,156 $ 21,156 (1) Amounts are included in restricted cash amounts on the balance sheet of the Debt Service Fund The City is not aware of any instances of noncompliance with the bond ordinances. Capital Improvement Refunding Revenue Note, Series 2013 1. The balance sheet and statement of revenues, expenditures, and changes in fund balance of the Debt Service Fund are shown in the financial section of the report. 2. The City is required to establish sinking fund amounts sufficient to pay all principal and interest becoming due on the notes on the next semi-annual payment date. The sinking fund was not required to be funded at September 30, 2017. 3. The City is not aware of any instances of noncompliance with the debt covenants. Capital Improvement Revenue Note, Series 2013A 1. The balance sheet and statement of revenues, expenditures, and changes in fund balance of the Debt Service Fund are shown in the financial section of the report. 2. The City is required to establish sinking fund amounts sufficient to pay all principal and interest becoming due on the notes on the next semi-annual payment date. The sinking fund was not required to be funded at September 30, 2017. 3. The City is not aware of any instances of noncompliance with the debt covenants. 78  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 16. COMMENTS REQUIRED BY THE BOND AND ORDINANCES – CONTINUED Utility System Revenue Refunding Note, Series 2015 1. The balance sheet and statement of revenues, expenses, and changes in fund balance of the Utility Fund are shown in the financial section of the report. 2. Net revenues pledged consist of gross revenues less costs of operation and maintenance. The net revenues pledged in fiscal year 2017 were approximately $3,999,000. 3. The debt issued refunded Series 2005 bond used for system improvements. 4. The term of the pledge commitment ends in January 2033. 5. The pledged revenues needed to meet the rate covenants in fiscal year 2017 were $829,731. The covenant is based upon 125% of the annual debt service requirement. 6. The pledged revenues exceeded the debt service requirements by $3,169,158 in fiscal year 2017. 7. The City is not aware of any instances of noncompliance with the debt covenants. 17. INTERFUND RECEIVABLES, PAYABLES AND TRANSFERS The composition of interfund balances as of September 30, 2017, is as follows: Due to/from Other Funds Receivable Fund Payable Fund Amount General Community Development Block Grant $ 67,846 Advance to/from Other Funds Receivable Fund Payable Fund Amount Sanitation General $ 360,253 General Fund receivables from the Community Development Block Grant Fund in the amount of $67,846 are the result of eliminating a temporary deficit cash balance. On September 30, 2014, the City’s Sanitation Fund loaned the General Fund $500,000 to purchase a Fire Engine. The loan from the Sanitation Fund will be paid back over a 10-year period at an interest rate of 2.00%. The balance of the advance as of September 30, 2017 is $360,253. 79  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 17. INTERFUND RECEIVABLES, PAYABLES AND TRANSFERS – CONTINUED Transfers In Other Governmental Transfers Out General Fund Funds Total General Fund $ - $ 1,012,463 $ 1,012,463 Other Governmental Funds 20,217 - 20,217 Utilities Fund 618,208 - 618,208 Sanitation Fund 143,531 - 143,531 $ 781,956 $ 1,012,463 $ 1,794,419 The transfers out of the General Fund are $1,012,463. These transfers consist of a $990,703 transfer to the Debt Service Fund (Other Governmental Funds) for principal and interest payments on debt, and a $21,760 transfer to the Cemetery Perpetual Care Fund (Other Governmental Funds) for maintenance. Transfers in to the General Fund of $781,956 consist of a $20,217 transfer from the Cemetery Perpetual Care Fund (Other Governmental Funds) for the purchase of a niche wall and mower, franchise fees from the Utilities Fund of $618,208, and compensation from the Sanitation Fund for additional roadway wear & tear caused by the heavy trucks in the amount of $143,531. 18. ENCUMBRANCES The amount of encumbrances outstanding as of September 30, 2017, were as follows: Governmental Funds – General Fund $ 720,525 Other Governmental Funds 211,730 $ 932,255 Encumbrances at year end do not constitute expenditures or liabilities; therefore, they are not reflected in the financial statements. 80  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 19. GOVERNMENTAL FUND BALANCES At September 30, 2017, the City's governmental fund balances were classified as follows: Community Other Total Redevelopment Governmental Governmental General Fund Agency Funds Funds Nonspendable Inventory $ 245,181 $ - $ - $ 245,181 Restricted for Improvement districts - 1,552,484 - 1,552,484 Library 87,465 - - 87,465 Public safety - - 426,892 426,892 Debt service - - 21,156 21,156 Other purposes 5,991 - - 5,991 Total restricted 93,456 1,552,484 448,048 2,093,988 Committed Cemetery maintenance - - 2,739,865 2,739,865 Natural disaster recovery 6,687,557 - - 6,687,557 Total committed 6,687,557 - 2,739,865 9,427,422 Assigned to Capital projects 753,061 - - 753,061 Citizen police academy 2,232 - - 2,232 Long-term debt 850,000 - - 850,000 Other purposes 286,262 - - 286,262 Total assigned 1,891,555 - - 1,891,555 Unassigned 3,561,586 - (5,861) 3,555,725 $ 12,479,335 $ 1,552,484 $ 3,182,052 $ 17,213,871 81  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 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. Wastewater Service Interlocal Agreement with Okaloosa County On August 11, 2009, the City adopted the Wastewater Service Interlocal Agreement with Okaloosa County (Agreement). The Agreement outlines a long–term association with Okaloosa County Water & Sewer for the treatment of the City’s influent wastewater flow at a set percentage of the County’s base sewer rate plus a locked-in annual rate escalator. The agreement provides other ancillary benefits to the City such as the provision of “no cost” tertiary treated effluent for use as irrigation water at the City’s’ 36–hole municipal Golf Club. The Agreement is effective for 30 years and can be automatically extended for up to two additional terms for a period of ten years for each extension term. On a monthly basis, the County will bill the City at a rate equal to $2.77 per each 1,000 gallons of wastewater flow. Additionally, the City will pay to the County the Sewer Readiness to Serve Fee, which is equal to $4,347 per month. Each year in March, the Readiness to Serve Fee will increase by 3%. The minimum commitment by the City under the Agreement is as follows: Fiscal Year Ending September 30 2018 $ 56,313 2019 58,002 2020 59,742 2021 61,534 2022 63,380 2023 through 2027 346,584 2028 through 2032 401,783 2033 through 2037 465,776 2038 through 2039 206,459 Total $ 1,719,573 Fees paid for wastewater treatment to Okaloosa County, Florida during the year ended September 30, 2017, were $2,513,276. 82  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 21. CHANGE IN ACCOUNTING PRINCIPLE – RESTATEMENT OF NET POSITION The GASB issued Statement No. 75, Accounting and Reporting for Postemployment Benefits Other Than Pensions, effective for fiscal years beginning after June 15, 2017. The scope of this statement addresses accounting and financial reporting for OPEB that is provided to the employees of state and local government employers. This statement establishes standards for recognizing and measuring liabilities, deferred outflows of resources, deferred inflows of resources, and expense/expenditures. The City has elected to implement GASB 75 during the year ended September 30, 2017. The impact of the City’s adoption of GASB 75 during the current fiscal year requires it to restate the beginning net position for both the governmental activities and business-type activities in the City’s government- wide financial statements. In addition, the City will also restate its beginning net position in the proprietary funds statement of revenue, expenses, and changes in net position. The table below summarizes the components of the restatement of net position as of October 1, 2016. Business-Type Activities Governmental Primary Activities Utilities Sanitation Stormwater Total Government Net position, as previously reported $ 32,110,729 $18,367,071 $ 3,596,132 $ 2,611,485 $ 24,574,688 $ 56,685,417 Effect of restatement (2,916,667) (540,792) (277,706) (58,466) (876,964) (3,793,631) Net position, restated $ 29,194,062 $17,826,279 $ 3,318,426 $ 2,553,019 $ 23,697,724 $ 52,891,786 83 THIS PAGE IS LEFT INTENTIONALLY BLANK  CITY OF FORT WALTON BEACH, FLORIDA REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF CHANGES IN NET PENSION LIABILITY AND RELATED RATIOS (UNAUDITED) GENERAL EMPLOYEES RETIREMENT FUND Measurement Date 2016 2015 2014 Total Pension Liability Service cost $ 557,163 $ 569,712 $ 622,382 Interest 3,317,396 3,314,990 3,222,809 Differences between expected and actual experience 400,221 (1,074,244) - 1 Changes of assumptions 4,485,495 - - Benefit payments, including refunds of employee contributions (2,858,889) (2,676,038) (2,575,304) Net change in total pension liability 5,901,386 134,420 1,269,887 Total pension liability – beginning 42,864,631 42,730,211 41,460,324 Total pension liability – ending (a) $ 48,766,017 $ 42,864,631 $ 42,730,211 Plan Fiduciary Net Position Contributions – employer $ 1,280,082 $ 1,355,041 $ 1,296,450 Contributions – member 202,268 209,567 212,790 Net investment income 4,031,981 (4,390) 3,228,153 Benefit payments, including refunds of employee contributions (2,858,889) (2,676,038) (2,575,304) Administrative expenses (35,704) (39,535) (42,483) Net change in plan fiduciary net position 2,619,738 (1,155,355) 2,119,606 Plan fiduciary net position – beginning 38,086,889 39,242,244 37,122,638 Plan fiduciary net position – ending (b) $ 40,706,627 $ 38,086,889 $ 39,242,244 Net pension liability – ending (a) – (b) $ 8,059,390 $ 4,777,742 $ 3,487,967 Plan fiduciary net position as a percentage of the total pension liability 83.47% 88.85% 91.84% Covered employee payroll $ 4,045,350 $ 4,191,304 $ 4,255,801 Net pension liability as a percentage of covered employee payroll 199.23% 113.99% 81.96% Notes to schedule: 1 As a result of Chapter 2015-157, Laws of Florida, the assumed rates of mortality were changed to the assumptions used by the Florida Retirement System. 84  CITY OF FORT WALTON BEACH, FLORIDA REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF CHANGES IN NET PENSION LIABILITY AND RELATED RATIOS (UNAUDITED) POLICE OFFICERS’ RETIREMENT FUND Measurement Date 2016 2015 2014 Total Pension Liability Service cost $ 344,958 $ 336,234 $ 322,118 Interest 1,948,181 1,953,123 1,905,286 Differences between expected and actual experiences (425,107) (659,966) - 2 Changes of assumptions 1,633,122 - - Benefit payments, including refunds of employee contributions (1,744,710) (1,655,069) (1,632,053) Net change in total pension liability 1,756,444 (25,678) 595,351 Total pension liability – beginning 24,982,724 25,008,402 24,413,051 Total pension liability – ending (a) $ 26,739,168 $ 24,982,724 $ 25,008,402 Plan Fiduciary Net Position 1 Contributions – employer $ 577,564 $ 628,975 $ 836,053 Contributions – state 181,303 175,025 175,703 Contributions – member 102,214 101,886 96,591 Net investment income 1,698,093 (538,198) 1,869,244 Benefit payments, including refunds of employee contributions (1,744,710) (1,655,069) (1,632,053) Administrative expenses (44,882) (25,084) (38,242) Net change in plan fiduciary net position 769,582 (1,312,465) 1,307,296 Plan fiduciary net position – beginning 19,150,987 20,463,452 19,156,156 Plan fiduciary net position – ending (b) $ 19,920,569 $ 19,150,987 $ 20,463,452 Net pension liability – ending (a) – (b) $ 6,818,599 $ 5,831,737 $ 4,544,950 Plan fiduciary net position as a percentage of the total pension liability 74.50% 76.66% 81.83% Covered employee payroll $ 2,073,208 $ 2,037,716 $ 1,975,478 Net pension liability as a percentage of covered employee payroll 328.89% 286.19% 230.07% Notes to schedule: 1 Adjusted for actual contributions made 2 As a result of Chapter 2015-157, Laws of Florida, the assumed rates of mortality were changed to the assumptions used by the Florida Retirement System for special risk employees. 85  CITY OF FORT WALTON BEACH, FLORIDA REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF CHANGES IN NET PENSION LIABILITY AND RELATED RATIOS (UNAUDITED) FIREFIGHTERS’ RETIREMENT FUND Measurement Date 2016 2015 2014 2013 Total Pension Liability Service cost $ 453,506 $ 478,365 $ 414,836 $ 384,107 Interest 1,645,954 1,554,072 1,425,875 1,367,809 Change in excess state money - - 89,886 Changes of benefit terms - 804,097 - - Differences between expected and actual experiences 261,007 (224,382) - - Contributions – buy back - 72,413 - - 1 Changes of assumptions 1,243,794 - - - Benefit payments, including refunds of employee contributions (1,237,389) (1,140,432) (1,071,302) (1,042,333) Net change in total pension liability 2,366,872 1,544,133 859,295 709,583 Total pension liability – beginning 20,739,618 19,195,485 18,336,190 17,626,607 Total pension liability – ending (a) $ 23,106,490 $ 20,739,618 $ 19,195,485 $ 18,336,190 Plan Fiduciary Net Position Contributions – employer $ 744,019 $ 672,369 $ 715,439 $ 703,618 Contributions – state 201,904 205,007 214,272 204,226 Contributions – member 164,876 150,357 135,622 133,633 Contributions – buy back - 72,413 - - Net investment income 969,107 15,563 1,201,162 1,099,298 Benefit payments, including refunds of employee contributions (1,237,389) (1,140,432) (1,071,302) (1,042,333) Administrative expenses (43,625) (47,088) (34,537) (33,706) Net change in plan fiduciary net position 798,892 (71,811) 1,160,656 1,064,736 Plan fiduciary net position – beginning 13,590,508 13,662,319 12,501,663 11,436,927 Plan fiduciary net position – ending (b) $ 14,389,400 $ 13,590,508 $ 13,662,319 $ 12,501,663 Net pension liability – ending (a) – (b) $ 8,717,090 $ 7,149,110 $ 5,533,166 $ 5,834,527 Plan fiduciary net position as a percentage of the total pension liability 62.27% 65.53% 71.17% 68.18% Covered employee payroll $ 2,060,954 $ 2,072,260 $ 2,054,879 $ 2,054,879 Net pension liability as a percentage of covered employee payroll 422.96% 344.99% 269.27% 283.94% Notes to schedule: 1 As a result of Chapter 2015-157, Laws of Florida, the assumed rates of mortality were changed to the assumptions used by the Florida Retirement System for special risk employees. The inflation assumption rate was lowered from 3.00% to 2.50%, matching the long-term inflation assumption utilized by the plan's investment consultant. 86  CITY OF FORT WALTON BEACH, FLORIDA REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF CHANGES IN NET OPEB LIABILITY AND RELATED RATIOS (UNAUDITED) FORT WALTON BEACH RETIREE HEALTH CARE PLAN Measurement Date 2016 Total OPEB Liability Service cost $ 85,100 Interest 195,814 Changes of assumptions 1 702,672 Benefit payments (139,227) Net change in total OPEB liability 844,359 Total OPEB liability - beginning 5,261,882 Total OPEB liability - ending (a) 6,106,241 Plan Fiduciary Net Position Contributions - employer 141,727 Benefit payments (139,227) Administrative expenses (2,500) Net change in plan fiduciary net position - Plan fiduciary net position - beginning - Plan fiduciary net position - ending (b) - Sponsor's net OPEB liability - ending (a) - (b) $ 6,106,241 Plan fiduciary net position as a percentage of total OPEB liability 0.00% Covered employee payroll $ 7,520,263 City's net OPEB liability as a percentage of covered employee payroll 81.20% Notes to schedule: 1 As a result of Chapter 2015-157, Laws of Florida, the assumed rates of mortality were changed to the assumptions used by the Florida Retirement System to match the pension plan assumptions. * This schedule is not available for earlier years. 87  CITY OF FORT WALTON BEACH, FLORIDA REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF PENSION CONTRIBUTIONS (UNAUDITED) LAST TEN FISCAL YEARS 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 General Employees' Retirement Fund Actuarially determined contribution $ 1,197,424 $ 1,286,744 $ 1,187,794 $ 1,268,253 $ 1,258,659 $ 1,091,338 $ 1,477,933 $ 1,268,428 $ 1,268,019 $ 1,231,003 Contributions in relation to the actuarially determined contributions 1,280,082 1,355,041 1,296,450 1,318,790 1,306,268 1,159,438 1,477,777 1,268,260 1,267,864 1,231,003 Contribution deficiency (excess) $ (82,658) $ (68,297) $ (108,656) $ (50,537) $ (47,609) $ (68,100) $ 156 $ 168 $ 155 $ - Covered employee payroll1 $ 4,045,350 $ 4,191,304 $ 4,255,801 $ 4,259,070 $ 4,542,537 $ 5,004,486 $ 5,595,076 $ 7,252,396 $ 7,521,520 $ 8,199,930 Contributions as a percentage of covered employee payroll 31.64% 32.33% 30.46% 30.96% 28.76% 23.17% 26.41% 17.49% 16.86% 15.01% Police Officers' Retirement Fund Actuarially determined contribution $ 709,037 $ 772,294 $ 932,426 $ 881,697 $ 875,055 $ 682,860 $ 665,220 $ 578,670 $ 488,381 $ 516,528 Contributions in relation to the actuarially determined contributions 790,573 772,294 1,011,756 925,589 968,003 682,860 665,220 578,670 488,381 516,528 Contribution deficiency (excess) $ (81,536) $ - $ (79,330) $ (43,892) $ (92,948) $ - $ - $ - $ - $ - Covered employee payroll1 $ 2,073,208 $ 2,037,716 $ 1,975,478 $ 2,038,886 $ 2,178,847 $ 2,239,545 $ 2,195,529 $ 2,557,811 $ 5,230,182 $ 2,602,616 Contributions as a percentage of covered employee payroll 38.13% 37.90% 51.22% 45.40% 44.43% 30.49% 30.30% 22.62% 9.34% 19.85% Firefighters' Retirement Fund Actuarially determined contribution $ 816,138 $ 748,086 $ 824,007 $ 817,997 $ 700,045 $ 675,386 $ 708,063 $ 555,720 $ 326,864 $ 299,027 Contributions in relation to the actuarially determined contributions 945,923 877,376 839,825 829,245 784,705 675,386 708,063 555,720 358,840 299,027 Contribution deficiency (excess) $ (129,785) $ (129,290) $ (15,818) $ (11,248) $ (84,660) $ - $ - $ - $ (31,976) $ - Covered employee payroll1 $ 2,060,954 $ 2,072,260 $ 2,121,613 $ 2,153,568 $ 1,946,811 $ 1,961,080 $ 2,116,516 $ 1,988,762 $ 1,632,275 $ 1,409,038 Contributions as a percentage of covered employee payroll 45.90% 42.34% 39.58% 38.51% 40.31% 34.44% 33.45% 27.94% 21.98% 21.22% ¹ As of 2014, the Covered employee payroll numbers shown are in compliance with GASB Statement No. 82. See notes to the schedule of contributions. 88  CITY OF FORT WALTON BEACH, FLORIDA REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF INVESTMENT RETURNS SEPTEMBER 30, 2017 9/30/2016 9/30/2015 9/30/2014 General Employees' Retirement Fund Annual Money-Weighted Rate of Return Net of Investment Expense 10.78% -0.01% 8.82% Police Officers' Retirement Fund Annual Money-Weighted Rate of Return Net of Investment Expense 9.12% -2.69% 9.96% Firefighters' Retirement Fund Annual Money-Weighted Rate of Return Net of Investment Expense 7.25% 0.12% 9.72% Note: This information is not available for previous years. See notes to the schedule of contributions. 89  CITY OF FORT WALTON BEACH, FLORIDA REQUIRED SUPPLEMENTARY INFORMATION NOTES TO THE SCHEDULE OF PENSION CONTRIBUTIONS (UNAUDITED) GENERAL EMPLOYEES’ RETIREMENT FUND Valuation Date: October 1, 2015 Notes: Actuarially determined contribution rates are calculated as of October 1, which is two years prior to the end of the fiscal year in which contributions are reported. Methods and Assumptions Used to Determine Contribution Rates: Funding method: Entry-Age Actuarial Cost Method Mortality rates: Non-disabled lives: RP-2000 Sex-Distinct Healthy Mortality Table, without projection Disabled lives: Social Security Study #74 Mortality Table, without projection Interest rate: 7.9% per year, compounded annually, net of investment related expenses Termination rates: Age-based rates. Sample rates as follows: Sample Ages Probability 25 7.724% 30 7.397% 35 6.858% 40 6.113% 45 5.163% 50 4.316% 55 4.371% 60 5.631% Disability rates: Age-based rates. Sample rates as follows: Sample Ages Probability 20 0.07% 30 0.11% 40 0.19% 50 0.51% 60 1.66% Salary increases: Age-based increase table, as follows: Age Increase* Under 25 6.5% 25-34 5.5% 35-44 4.5% 45+ 3.5% *Increase shown is inclusive of a 3% wage inflationary assumption. 90  CITY OF FORT WALTON BEACH, FLORIDA REQUIRED SUPPLEMENTARY INFORMATION NOTES TO THE SCHEDULE OF PENSION CONTRIBUTIONS (UNAUDITED) – CONTINUED GENERAL EMPLOYEES’ RETIREMENT FUND Retirement age: 100% probability of retirement upon attaining age 62 and ten years of service, along with probabilities of retiring with a subsidized benefit prior to age 62 at the following rates: Age Probability 52 4.218% 53 4.249% 54 4.293% 55 4.371% 56 4.500% 57 4.688% 58 4.941% 59 5.258% 60 5.631% 61 6.053% Payroll growth: None (closed plan) for purposes of amortizing the Unfunded Actuarial Accrued Liability. Actuarial asset All assets are valued at market value with an adjustment made to uniformly spread method: actuarial investment gains and losses (as measured by actual market value investment return against expected market value investment return) over a five-year period. 91  CITY OF FORT WALTON BEACH, FLORIDA REQUIRED SUPPLEMENTARY INFORMATION NOTES TO THE SCHEDULE OF PENSION CONTRIBUTIONS (UNAUDITED) POLICE OFFICERS’ RETIREMENT FUND Valuation Date: October 1, 2015 Notes: Actuarially determined contribution rates are calculated as of October 1, which is two years prior to the end of the fiscal year in which contributions are reported. Methods and Assumptions Used to Determine Contribution Rates: Funding method: Entry-Age Normal Actuarial Cost Method Amortization method: Level percentage of pay, closed Remaining amortization period: 30 years Mortality: RP-2000 Sex-Distinct Combined Healthy Table with a five year set forward for disabled lives. Based on a study of over 650 public safety funds, this table reflects a 10% margin for future mortality improvements. Interest rate: 8.00% per year, compounded annually, net of investment related expenses Retirement age: Member Age Retirement Probability 55 10.0% 56 10.0% 57 25.0% 58 20.0% 59 33.3% 60+ 100.0% In addition to the above table, 100% retirement is assumed upon completion of 30 years of service. Early retirement: Earlier of 1) Age 50 and ten years of service, or 2) 25 years of service, regardless of age, Members are assumed to retire with an immediate subsidized benefit at the rate of 4% per year. Salary increases: Member Age Assumption 30 or less 10.0% 31-35 8.5% 36-40 7.0% 41-45 6.0% 45-50 4.5% 51-55 4.0% 56+ 3.0% In addition to the above table, projected salary at retirement is increased 20% to account for non-regular compensation. Valuations prior to October 1, 2013: 7.5% per year until the assumed retirement age. 92  CITY OF FORT WALTON BEACH, FLORIDA REQUIRED SUPPLEMENTARY INFORMATION NOTES TO THE SCHEDULE OF PENSION CONTRIBUTIONS (UNAUDITED) – CONTINUED POLICE OFFICERS’ RETIREMENT FUND Cost-of-living increase: 3.00% per year beginning at retirement Payroll growth: None Actuarial asset Each year, the prior Actuarial Value of Assets is brought forward utilizing the method: historical geometric four-year average market value return. It is possible that over time this technique will produce an insignificant bias above or below market value. Termination and disability rate table: % Becoming Disabled During the % Terminating Age Year During the Year 20 0.14% 10.6% 30 0.18% 9.6% 40 0.30% 6.9% 50 1.00% 3.4% 93  CITY OF FORT WALTON BEACH, FLORIDA REQUIRED SUPPLEMENTARY INFORMATION NOTES TO THE SCHEDULE OF PENSION CONTRIBUTIONS (UNAUDITED) FIREFIGHTERS’ RETIREMENT FUND Valuation Date: October 1, 2015 Notes: Actuarially determined contribution rates are calculated as of October 1, which is two years prior to the end of the fiscal year in which contributions are reported. Methods and Assumptions Used to Determine Contribution Rates: Actuarial cost method: Entry Age Normal Actuarial Cost Method Amortization method: Level percentage of pay, closed Remaining amortization period: 30 years Mortality: RP-2000 Combined Healthy Table with a five year set forward for disabled lives. Based on a study of over 650 public safety funds, this table reflects a 10% margin for future mortality improvements. Interest rate: 8.00% per year compounded annually, net of investment related expenses Retirement age: Earlier of Age 55 and ten years of service or 25 years of service, regardless of age. Also, any Member who has reached Normal Retirement is assumed to continue employment for one additional year Early retirement: Commencing with the earliest early retirement age (45), Members are assumed to retire with an immediate subsidized benefit at the rate of 3.00% per year. Disability rate: See table below; it is assumed that 75% of disablements and active Member deaths are service related. Salary increases: 6.50% per year until the assumed retirement age Cost-of-living increase: 3.00% per year beginning at age 58 Payroll increase: 3.00% per year Actuarial asset Each year, the prior Actuarial Value of Assets is brought forward utilizing the method: historical geometric four-year average market value return. It is possible that over time Termination and disability rate table: % Becoming Disabled During % Terminating Age the Year During the Year 20 0.14% 7.9% 30 0.18% 7.2% 40 0.30% 5.2% 50 1.00% 2.6% 94 THIS PAGE IS LEFT INTENTIONALLY BLANK  CITY OF FORT WALTON BEACH, FLORIDA NON-MAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEET SEPTEMBER 30, 2017 Special Revenue Funds Beal Law Memorial Total Law Enforcement Florida Community Cemetery Nonmajor Enforcement Trust Building Development Perpetual Governmental Trust Training Code Block Grant Care Debt Service Funds ASSETS Cash and cash equivalents $ 160,660 $ 577 $ 315,099 $ - $ 13,262 $ - $ 489,598 Investments - - - - 2,728,937 - 2,728,937 Due from other governments 17,376 - - 69,925 - - 87,301 Cash and cash equivalents - restricted - - - - - 21,156 21,156 TOTAL ASSETS $ 178,036 $ 577 $ 315,099 $ 69,925 $ 2,742,199 $ 21,156 $ 3,326,992 LIABILITIES Accounts payable $ 45,302 $ - $ 2,396 $ 7,940 $ 2,334 $ - $ 57,972 Accrued liabilities 12,470 - 6,652 - - - 19,122 Due to other funds - - - 67,846 - - 67,846 Total liabilities 57,772 - 9,048 75,786 2,334 - 144,940 FUND BALANCE Restricted 120,264 577 306,051 - - 21,156 448,048 Committed - - - - 2,739,865 - 2,739,865 Unassigned - - - (5,861) - - (5,861) Total fund balance 120,264 577 306,051 (5,861) 2,739,865 21,156 3,182,052 TOTAL LIABILITIES AND FUND BALANCE $ 178,036 $ 577 $ 315,099 $ 69,925 $ 2,742,199 $ 21,156 $ 3,326,992 95  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, 2017 Special Revenue Funds Beal Law Memorial Law Enforcement Florida Community Cemetery Total Nonmajor Enforcement Trust Building Development Perpetual Debt Governmental Trust Training Code Block Grant Care Service Funds REVENUES Permits and fees $ - $ - $ 409,920 $ - $ - $ - $ 409,920 Intergovernmental 20,146 - - 246,186 - - 266,332 Fines 3,748 4,918 - - - - 8,666 Miscellaneous 1,261 - 1,898 - 283,618 - 286,777 Total revenues 25,155 4,918 411,818 246,186 283,618 - 971,695 EXPENDITURES Current Public safety 121,365 4,429 416,683 - - - 542,477 Physical environment - - - - 13,124 - 13,124 Economic environment - - - 254,125 - - 254,125 Capital outlay 8,970 - - - - - 8,970 Debt service Principal - - - - - 682,229 682,229 Interest - - - - - 308,474 308,474 Total expenditures 130,335 4,429 416,683 254,125 13,124 990,703 1,809,399 EXCESS OF REVENUES OVER (UNDER) EXPENDITURES (105,180) 489 (4,865) (7,939) 270,494 (990,703) (837,704) OTHER FINANCING SOURCES (USES) Transfers in - - - - 21,760 990,703 1,012,463 Transfers out - - - - (20,217) - (20,217) Total other financing sources (uses) - - - - 1,543 990,703 992,246 NET CHANGE IN FUND BALANCE (105,180) 489 (4,865) (7,939) 272,037 - 154,542 FUND BALANCE AT BEGINNING OF YEAR 225,444 88 310,916 2,078 2,467,828 21,156 3,027,510 FUND BALANCE (DEFICIT) AT END OF YEAR $ 120,264 $ 577 $ 306,051 $ (5,861) $ 2,739,865 $ 21,156 $ 3,182,052 96  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, 2017 Variance with Final Budget - Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Intergovernmental $ - $ 28,324 $ 20,146 $ (8,178) Fines - - 3,748 3,748 Miscellaneous 2,309 2,309 1,261 (1,048) Total revenues 2,309 30,633 25,155 (5,478) EXPENDITURES Current Public safety 2,309 75,998 121,365 (45,367) Capital outlay - 65,464 8,970 56,494 Total expenditures 2,309 141,462 130,335 11,127 NET CHANGE IN FUND BALANCE - (110,829) (105,180) 5,649 FUND BALANCE AT BEGINNING OF YEAR - 110,829 225,444 114,615 FUND BALANCE AT END OF YEAR $ - $ - $ 120,264 $ 120,264 97  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, 2017 Variance with Final Budget - Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Fines $ 7,100 $ 7,100 $ 4,918 $ (2,182) Miscellaneous 97 97 - (97) Total revenues 7,197 7,197 4,918 (2,279) EXPENDITURES Current Public safety 7,197 7,197 4,429 2,768 NET CHANGE IN FUND BALANCE - - 489 489 FUND BALANCE AT BEGINNING OF YEAR - - 88 88 FUND BALANCE AT END OF YEAR $ - $ - $ 577 $ 577 98  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, 2017 Variance with Final Budget - Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Permits and fees $ 329,444 $ 329,444 $ 409,920 $ 80,476 Miscellaneous 3,973 13,547 1,898 (11,649) Total revenues 333,417 342,991 411,818 68,827 EXPENDITURES Current Public safety 432,964 432,964 416,683 16,281 Capital outlay 700 700 - 700 Total expenditures 433,664 433,664 416,683 16,981 NET CHANGE IN FUND BALANCE (100,247) (90,673) (4,865) 85,808 FUND BALANCE AT BEGINNING OF YEAR 100,247 90,673 310,916 220,243 FUND BALANCE AT END OF YEAR $ - $ - $ 306,051 $ 306,051 99  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, 2017 Variance with Final Budget - Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Intergovernmental $ 112,646 $ 358,833 $ 246,186 $ (112,647) EXPENDITURES Current Economic environment 216,212 462,399 254,125 208,274 Capital outlay 149,011 149,011 - 149,011 Total expenditures 365,223 611,410 254,125 357,285 NET CHANGE IN FUND BALANCE (252,577) (252,577) (7,939) 244,638 FUND BALANCE AT BEGINNING OF YEAR 252,577 252,577 2,078 (250,499) FUND BALANCE (DEFICIT) AT END OF YEAR $ - $ - $ (5,861) $ (5,861) 100  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, 2017 Variance with Final Budget - Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Miscellaneous $ 26,500 $ 26,500 $ 283,618 $ 257,118 EXPENDITURES Current Physical environment 12,200 12,643 13,124 (481) DEFICIENCY OF REVENUES OVER (UNDER) EXPENDITURES 14,300 13,857 270,494 256,637 OTHER FINANCING SOURCES (USES) Transfers in 35,000 35,000 21,760 (13,240) Transfers out (22,350) (23,318) (20,217) 3,101 Total other financing sources (uses) 12,650 11,682 1,543 (10,139) NET CHANGE IN FUND BALANCE 26,950 25,539 272,037 246,498 FUND BALANCE AT BEGINNING OF YEAR - - 2,467,828 2,467,828 FUND BALANCE AT END OF YEAR $ 26,950 $ 25,539 $ 2,739,865 $ 2,714,326 101  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, 2017 Variance with Final Budget - Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Miscellaneous $ - $ - $ - $ - Total revenues - - - - EXPENDITURES Debt service Principal 729,739 729,739 682,229 47,510 Interest 316,705 316,705 308,474 8,231 Total expenditures 1,046,444 1,046,444 990,703 55,741 DEFICIENCY OF REVENUES OVER (UNDER) EXPENDITURES (1,046,444) (1,046,444) (990,703) 55,741 OTHER FINANCING SOURCES (USES) Transfers in 1,046,444 1,046,444 990,703 (55,741) NET CHANGE IN FUND BALANCE - - - - FUND BALANCE AT BEGINNING OF YEAR - - 21,156 21,156 FUND BALANCE AT END OF YEAR $ - $ - $ 21,156 $ 21,156 102  City of Fort Walton Beach, Florida SCHEDULE 1 NET POSITION BY COMPONENT Last Ten Fiscal Years (full accrual basis of accounting) 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Governmental Activities Net investment in capital assets $ 21,095,355 $ 20,563,790 $ 20,605,683 $ 24,756,705 $ 25,379,050 $ 23,531,576 $ 24,866,399 $ 27,443,877 $ 27,791,054 $ 27,347,098 Restricted Debt service 91,713 91,713 92,880 113,816 113,507 21,156 25,449 25,449 21,156 21,156 System improvements - - - - - - - Capital projects - - - - - - - - - - Improvement Districts - - - 4,212,984 3,736,100 3,833,430 4,073,364 1,874,265 1,437,363 1,552,484 Public safety 307,983 254,409 269,600 268,820 262,648 462,375 565,946 507,625 536,448 426,892 Perpetual care - expendable 1,877,086 1,869,558 1,898,445 - - - - - - - Other purposes 473,655 463,168 477,194 234,568 194,193 177,129 172,630 187,575 165,895 93,456 Unrestricted 9,821,155 9,347,576 8,975,046 12,666,165 11,487,979 9,329,608 10,700,661 159,868 2,158,813 (1,447,438) Total governmental activities net position $ 33,666,947 $ 32,590,214 $ 32,318,848 $ 42,253,058 $ 41,173,477 $ 37,355,274 $ 40,404,449 $ 30,198,659 $ 32,110,729 $ 27,993,648 Business-Type Activities Net investment in capital assets $ 21,043,965 $ 17,577,019 $ 18,928,438 $ 17,037,456 $ 14,929,648 $ 17,305,881 $ 13,779,184 $ 12,886,793 $ 12,893,855 $ 13,818,340 Restricted Debt service 316,153 471,441 481,023 184,711 184,933 1,087,405 1,082,935 157,228 157,228 157,228 System improvements 60,709 98,292 61,559 82,573 112,863 305,508 367,263 382,734 404,761 452,472 Unrestricted 8,301,545 8,276,703 6,791,840 6,859,952 8,552,169 9,379,587 9,658,709 10,656,992 11,118,844 11,731,659 Total business-type activities net position $ 29,722,372 $ 26,423,455 $ 26,262,860 $ 24,164,692 $ 23,779,613 $ 28,078,381 $ 24,888,091 $ 24,083,747 $ 24,574,688 $ 26,159,699 Primary Government Net investment in capital assets $ 42,139,320 $ 38,140,809 $ 38,728,907 $ 41,794,161 $ 40,308,698 $ 40,837,576 $ 38,645,583 $ 40,330,670 $ 40,684,909 $ 41,165,438 Restricted 3,127,299 3,257,332 3,297,029 5,097,472 4,604,244 5,887,003 6,287,587 3,134,876 2,722,851 2,703,688 Unrestricted 18,122,700 17,624,279 16,805,772 19,526,117 20,040,148 18,709,195 20,359,370 10,816,860 13,277,657 10,284,221 Total primary government net position $ 63,389,319 $ 59,022,420 $ 58,831,708 $ 66,417,750 $ 64,953,090 $ 65,433,774 $ 65,292,540 $ 54,282,406 $ 56,685,417 $ 54,153,347 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 103  City of Fort Walton Beach, Florida SCHEDULE 2 CHANGES IN NET POSITION Last Ten Fiscal Years (full accrual basis of accounting) 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Expenses Governmental activities General government $ 5,494,094 $ 4,625,871 $ 5,306,003 $ 3,765,536 $ 4,314,050 $ 2,662,406 $ 3,179,768 $ 2,735,875 $ 3,285,039 $ 3,581,072 Public safety 10,048,884 9,908,644 9,231,632 9,206,784 9,805,368 9,729,228 9,685,621 9,562,140 10,172,215 11,507,059 Physical environment 343,411 350,374 304,907 393,752 383,970 379,681 392,255 379,334 430,490 543,287 Transportation 2,135,639 1,672,741 1,543,310 1,570,038 1,592,150 1,631,665 1,495,374 1,474,209 1,494,178 1,536,979 Economic environment 127,355 266,132 98,996 545,242 707,603 1,090,025 803,175 1,813,782 1,540,230 1,591,643 Culture and recreation 3,097,289 3,028,285 2,944,221 2,677,051 2,880,815 2,715,977 4,829,004 4,601,503 5,375,183 5,403,198 Debt service interest 302,948 247,703 240,940 214,470 254,516 324,405 483,301 340,497 323,639 304,331 Total government activities 21,549,620 20,099,750 19,670,009 18,372,873 19,938,472 18,533,387 20,868,498 20,907,340 22,620,974 24,467,569 Business-type activities Utilities 5,809,192 5,474,550 6,725,349 9,162,926 7,017,160 7,644,240 9,185,338 9,205,259 10,066,769 9,420,248 Sanitation 2,609,129 2,493,357 2,466,881 2,524,994 2,741,266 3,163,638 3,393,269 3,319,760 3,407,992 3,687,087 Golf 2,547,992 2,479,804 2,203,739 2,199,453 2,012,165 2,023,186 2,215 - - - Stormwater - 469,421 374,951 339,543 497,211 611,962 439,191 460,314 611,351 681,541 Total business-type activities 10,966,313 10,917,132 11,770,920 14,226,916 12,267,802 13,443,026 13,020,013 12,985,333 14,086,112 13,788,876 Total primary government expenses $ 32,515,933 $ 31,016,882 $ 31,440,929 $ 32,599,789 $ 32,206,274 $ 31,976,413 $ 33,888,511 $ 33,892,673 $ 36,707,086 $ 38,256,445 Program Revenues Governmental activities Charges for services General government $ 2,752,330 $ 2,921,887 $ 2,759,080 $ 2,556,270 $ 430,718 $ 409,983 $ 476,824 $ 421,987 $ 421,503 $ 448,911 Public safety 641,941 642,364 467,835 430,017 373,855 640,271 495,111 490,379 523,163 570,556 Physical environment 348,838 286,623 289,654 394,513 439,555 404,429 376,998 409,253 371,205 399,338 Transportation 93,987 87,654 83,586 104,776 118,067 122,275 140,038 140,809 207,860 240,653 Economic environment - - - 16,400 58,000 34,652 10 5,000 392,118 12,000 Culture and recreation 417,253 426,110 408,351 404,047 400,215 374,362 1,853,087 1,930,131 1,805,332 1,846,019 Operating grants and contributions 903,079 1,119,033 639,370 761,643 589,253 786,652 682,200 909,461 908,595 825,624 Capital grants and contributions 50,687 88,941 731,275 351,006 156,794 80,936 109,629 525,320 802,809 361,641 Total governmental activities program revenues 5,208,115 5,572,612 5,379,151 5,018,672 2,566,457 2,853,560 4,133,897 4,832,340 5,432,585 4,704,742 Business-type activities Charges for services Utilities 6,505,297 6,403,262 6,761,654 7,608,355 7,974,601 8,623,082 8,586,045 9,233,820 10,141,724 10,970,823 Sanitation 3,446,397 3,384,375 3,345,127 3,311,744 3,313,559 3,499,559 3,571,037 3,582,005 3,599,838 3,663,445 Golf 2,380,448 2,181,988 1,934,392 2,052,501 1,776,649 1,758,709 - - - - Stormwater - 654,346 626,903 481,854 577,706 591,196 596,133 694,581 860,644 917,844 Operating grants and contributions 39,403 - - 118,226 - 1,071 - - - - Capital grants and contributions 92,872 555,698 173,370 65,496 331,609 1,871,295 (157,294) 87,797 533,515 1,314,521 Total business-type activities program revenues 12,464,417 13,179,669 12,841,446 13,638,176 13,974,124 16,344,912 12,595,921 13,598,203 15,135,721 16,866,633 Total primary government program revenues $ 17,672,532 $ 18,752,281 $ 18,220,597 $ 18,656,848 $ 16,540,581 $ 19,198,472 $ 16,729,818 $ 18,430,543 $ 20,568,306 $ 21,571,375 Continued… Continued… 104  City of Fort Walton Beach, Florida SCHEDULE 2 CHANGES IN NET POSITION Last Ten Fiscal Years (full accrual basis of accounting) 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Net (Expense)/Revenue Governmental activities $ (16,341,505) $ (14,527,138) $ (14,290,859) $ (13,354,201) $ (17,372,015) $ (15,679,827) $ (16,734,601) $ (16,075,000) $ (17,188,389) $ (19,762,827) Business-type activities 1,498,104 2,262,537 1,070,526 (588,740) 1,706,322 2,901,886 (424,092) 612,870 1,049,609 3,077,757 Total primary government $ (14,843,401) $ (12,264,601) $ (13,220,333) $ (13,942,941) $ (15,665,693) $ (12,777,941) $ (17,158,693) $ (15,462,130) $ (16,138,780) $ (16,685,070) General Revenues and Other Changes in Net Position Governmental activities Taxes Property taxes $ 5,052,903 $ 4,631,028 $ 4,380,221 $ 4,482,819 $ 4,295,068 $ 4,175,136 $ 5,385,235 $ 5,473,438 $ 5,617,998 $ 5,807,598 Sales taxes 2,214,232 1,977,959 1,943,337 2,066,834 2,198,270 2,241,242 2,362,190 2,557,062 2,707,153 2,792,840 Utility service taxes 5,094,918 3,454,691 3,914,362 3,926,930 3,739,311 3,761,437 3,889,976 4,036,009 3,931,939 3,962,859 Tax Increments for Redevelopment district - - - 1,547,609 1,386,521 1,311,101 1,501,208 1,552,560 1,628,439 1,649,589 Franchise Fees - - - - 1,876,575 1,764,733 2,004,101 2,162,617 2,202,420 2,034,209 Intergovernmental, unrestricted 740,554 709,550 712,776 825,591 809,756 818,039 819,556 896,837 910,615 981,613 Gain on sale of assets 2,592 2,950 795,860 16,865 16,440 37,833 520,152 524,720 873,101 - Miscellaneous 61,199 54,223 492,052 96,105 154,996 106,546 103,986 199,776 27,976 157,806 Investment earnings 444,488 269,896 152,884 133,419 159,465 62,285 345,734 272,076 444,972 414,160 Insurance Recoveries - - - - - - - - - - Special item: Impairment loss - - - - - (271,287) - - - - Transfers 2,917,310 2,310,464 1,667,644 1,682,717 1,656,032 (2,145,441) 2,851,638 657,558 755,846 761,739 Total governmental activities 16,528,196 13,410,761 14,059,136 14,778,889 16,292,434 11,861,624 19,783,776 18,332,653 19,100,459 18,562,413 Business-type activities Taxes Utility service taxes 5,930 4,597 - - - - - - - - Gain on sale of assets 482 98,907 56,795 75,904 35,111 20,662 22,813 716 26,093 32,663 Miscellaneous 129,678 141,406 177,657 31,424 48,550 6,504 6,839 9,222 5,502 27,727 Investment earnings 579,578 340,155 202,071 65,961 69,622 11,107 55,669 159,761 165,583 85,567 Special item: Impairment loss - (3,836,055) - - (588,652) (786,713) - - - - Transfers (2,917,310) (2,310,464) (1,667,644) (1,682,717) (1,656,032) 2,145,441 (2,851,638) (657,558) (755,846) (761,739) Total business-type activities 715,668 (3,250,990) 436,523 173,289 (435,369) 1,397,001 (2,766,317) (487,859) (558,668) (615,782) Total primary government $ 17,243,864 $ 10,159,771 $ 14,495,659 $ 14,952,178 $ 15,857,065 $ 13,258,625 $ 17,017,459 $ 17,844,794 $ 18,541,791 $ 17,946,631 Change in Net Position Governmental activities $ 186,691 $ (1,116,377) $ (231,722) $ 1,424,688 $ (1,079,581) $ (3,818,203) $ 3,049,175 $ 2,257,653 $ 1,912,070 $ (1,200,414) Business-type activities (703,538) (3,298,917) (160,595) (2,098,168) (385,079) 4,298,887 (3,190,409) 125,011 490,941 2,461,975 Total primary government $ (516,847) $ (4,415,294) $ (392,317) $ (673,480) $ (1,464,660) $ 480,684 $ (141,234) $ 2,382,664 $ 2,403,011 $ 1,261,561 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. 105  City of Fort Walton Beach, Florida SCHEDULE 3 FUND BALANCES - GOVERNMENTAL FUNDS Last Ten Fiscal Years (modified accrual basis of accounting) 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 General Fund Reserved $ 509,080 $ 482,179 $ 499,384 $ - $ - $ - $ - $ - $ - $ - Unreserved 9,367,864 9,709,202 9,314,142 - - - - - - - Nonspendable - - - 3,032,726 2,857,963 254,229 262,964 249,732 240,865 245,181 Restricted - - - 234,768 194,193 7,868,522 4,083,267 183,512 163,817 93,456 Committed - - - 5,219,706 5,040,585 5,501,353 5,589,056 5,761,221 6,009,523 6,687,557 Assigned - - - 1,537,572 354,999 1,301,385 1,584,887 1,396,207 1,198,378 1,891,555 Unassigned - - - 1,189,562 1,611,120 788,076 1,300,881 2,225,633 4,356,681 3,561,586 Total general fund $ 9,876,944 $ 10,191,381 $ 9,813,526 $ 11,214,334 $ 10,058,860 $ 15,713,565 $ 12,821,055 $ 9,816,305 $ 11,969,264 $ 12,479,335 All Other Governmental Funds Reserved $ - $ 50,117 $ 12,783 $ - $ - $ - $ - $ - $ - $ - Unreserved, reported in Capital projects 8,751 - - - - - - - - Debt service 91,713 91,713 92,880 - - - - - - - Special revenue funds 2,153,440 2,073,850 2,158,878 - - - - - - - Nonspendable - - - - - - 798 848 1,762 - Restricted - - - 4,595,420 4,112,255 4,316,961 4,663,961 2,410,554 1,995,283 2,000,532 Committed - - - 1,929,448 1,959,836 2,035,225 2,249,720 2,259,756 2,467,828 2,739,865 Assigned - - - - - - - - - - Unassigned - - - (306) (302) (2,745) (6,231) - - (5,861) Total all other governmental funds $ 2,245,153 $ 2,224,431 $ 2,264,541 $ 6,524,562 $ 6,071,789 $ 6,349,441 $ 6,908,248 $ 4,671,158 $ 4,464,873 $ 4,734,536 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 106  City of Fort Walton Beach, Florida SCHEDULE 4 CHANGES IN FUND BALANCES - GOVERNMENTAL FUNDS Last Ten Fiscal Years (modified accrual basis of accounting) 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Revenues Taxes $ 9,039,398 $ 9,160,133 $ 9,414,513 $ 10,438,481 $ 10,065,983 $ 9,901,157 $ 11,537,812 $ 11,837,177 $ 11,941,311 $ 12,220,392 Licenses, permits, and fees 2,225,224 2,320,683 2,406,916 2,428,621 2,142,995 2,221,406 2,392,487 2,564,079 2,623,810 2,514,178 Intergovernmental 2,914,162 2,950,179 3,502,904 3,358,615 3,291,693 3,400,876 3,376,079 3,951,367 4,322,696 4,266,425 Charges for services 1,216,687 1,132,681 907,476 911,405 969,560 1,065,316 2,373,486 2,499,107 2,402,801 2,488,384 Fines and forfeits 268,415 387,449 204,849 151,616 142,936 241,923 133,645 131,020 121,513 127,406 Miscellaneous 1,211,662 1,020,342 1,370,077 817,975 537,975 431,625 827,526 1,142,936 935,821 1,042,958 Total Revenues 16,875,548 16,971,467 17,806,735 18,106,713 17,151,142 17,262,303 20,641,035 22,125,686 22,347,952 22,659,743 Expenditures General governmental services 5,306,276 4,419,077 5,095,790 3,699,506 3,899,740 2,514,734 2,891,275 2,813,835 3,017,374 3,228,767 Public safety 9,614,744 9,379,319 8,872,424 8,676,620 9,154,002 9,066,246 9,082,876 9,080,984 9,053,178 9,913,344 Physical environment 278,273 283,460 250,691 306,365 295,459 311,684 325,864 339,596 337,831 372,552 Transportation 1,750,680 1,316,954 1,207,449 994,272 966,050 1,012,387 867,730 862,712 852,602 890,762 Economic environment 127,355 266,132 98,996 493,526 652,086 1,032,659 745,586 1,730,631 1,432,788 1,468,393 Culture and recreation 2,698,993 2,582,642 2,535,682 2,233,104 2,383,239 2,267,141 3,744,452 4,122,310 4,196,979 4,170,787 Capital outlay 652,734 520,722 1,335,369 1,561,057 2,609,203 1,282,142 4,721,096 8,128,139 2,105,686 1,598,285 Debt service Principal 2,052,797 168,949 175,629 198,699 211,683 4,540,488 612,996 660,107 673,851 682,229 Interest and other costs 297,335 246,774 240,093 236,268 243,959 203,347 377,574 354,544 336,835 316,629 Total expenditures 22,779,187 19,184,029 19,812,123 18,399,417 20,415,421 22,230,828 23,369,449 28,092,858 22,007,124 22,641,748 Excess of revenue over (under) expenditures (5,903,639) (2,212,562) (2,005,388) (292,704) (3,264,279) (4,968,525) (2,728,414) (5,967,172) 340,828 17,995 Other Financing Sources (Uses) Capital lease proceeds - - - - - 103,784 - 67,774 - Transfers in 5,367,633 3,191,822 2,342,226 2,296,944 2,284,416 673,836 1,636,165 1,721,632 1,798,184 1,794,419 Transfers out (2,450,323) (685,545) (674,583) (614,227) (628,384) (2,819,277) (1,241,454) (1,064,074) (1,042,338) (1,032,680) Sale of general capital assets - - - - - - - - 850,000 - Debt issuance - - - 739,805 - 12,942,539 - - - - Total other financing sources (uses) 2,917,310 2,506,277 1,667,643 2,422,522 1,656,032 10,900,882 394,711 725,332 1,605,846 761,739 Net change in fund balance $ (2,986,329) $ 293,715 $ (337,745) $ 2,129,818 $ (1,608,247) $ 5,932,357 $ (2,333,703) $ (5,241,840) $ 1,946,674 $ 779,734 Debt service as a percentage of noncapital expenditures 10.62% 2.23% 2.25% 2.58% 2.56% 22.65% 5.31% 5.08% 5.08% 4.75% 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. 107  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 2017 $12,220,392 $2,514,178 $4,266,425 $2,488,384 $127,406 $1,042,958 $1,794,419 $24,454,162 2016 $11,941,311 $2,623,810 $4,322,696 $2,402,801 $121,513 $935,821 $2,648,184 $24,996,136 2015 $11,837,177 $2,564,079 $3,951,367 $2,499,107 $131,020 $1,142,936 $1,789,406 $23,915,092 2014 11,537,812 2,392,487 3,376,079 2,373,486 133,645 827,526 1,636,165 22,277,200 2013 9,901,157 2,221,406 3,400,876 1,065,316 241,923 431,625 13,720,159 30,982,462 2012 3,376,079 2,373,486 133,645 827,526 0 20,641,035 0 27,351,771 2011 3,400,876 2,428,621 3,358,615 911,405 151,616 817,975 2,296,944 13,366,052 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 (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. 108  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 2017 $ 1,622,927,933 $ 117,555,021 $ 1,740,482,954 $ 462,721,193 $ 1,277,761,761 5.7697 2016 $ 1,569,650,612 $ 113,113,590 $ 1,682,764,202 $ 458,344,109 $ 1,224,420,093 5.7697 2015 $ 1,521,529,660 $ 112,451,954 $ 1,633,981,614 $ 448,170,536 $ 1,185,811,078 5.7697 2014 1,475,665,054 108,533,120 1,584,198,174 434,639,300 1,149,558,874 5.7697 2013 1,451,775,552 118,155,863 1,569,931,415 442,204,485 1,127,726,930 5.7697 2012 1,445,327,759 120,653,616 1,565,981,375 446,565,401 1,119,415,974 4.5383 2011 1,478,072,570 126,412,302 1,604,484,872 452,378,818 1,152,106,054 4.5383 2010 1,550,325,157 129,348,680 1,679,673,837 469,933,333 1,209,740,504 4.5383 2009 1,864,657,624 148,104,763 2,012,762,387 476,888,476 1,309,056,015 4.1986 2008 2,046,319,844 147,625,998 2,193,945,842 816,366,365 1,377,579,477 4.1986 (1) Florida State Law requires all property to be assessed at current fair market. The January 2017 assessment is the basis for Fiscal Year 2017-18 tax revenues. Source: Okaloosa County Property Appraiser 109  City of Fort Walton Beach, Florida SCHEDULE 7 PROPERTY TAX RATES PER $1,000 OF TAXABLE VALUE - ALL DIRECT AND OVERLAPPING GOVERNMENTS (1) Last Ten Fiscal Years Unaudited City of Fort Walton Beach Direct Rate Overlapping Rates* Okaloosa Northwest Total Fiscal Total Direct Okaloosa County School Florida Water Overlapping Year Basic Rate Rate County Board Management Rates 2017 5.7697 5.7697 3.8308 6.5880 0.0353 10.4536 2016 5.7697 5.7697 3.4308 6.9070 0.0366 10.3744 2015 5.7697 5.7697 3.4308 7.2790 0.0378 10.7476 2014 5.7697 5.7697 3.4308 7.4410 0.0390 10.9108 2013 5.7697 5.7697 3.4308 7.5510 0.0400 11.0218 2012 4.5383 4.5383 3.2899 7.4760 0.0400 10.8059 2011 4.5383 4.5383 3.2899 7.7690 0.0400 11.0989 2010 4.5383 4.5383 3.2899 7.5340 0.0450 10.8689 2009 4.1986 4.1986 3.2899 7.6390 0.0450 10.9739 2008 4.1986 4.1986 3.2995 7.6240 0.0450 10.9685 (1) As of levy date, November 1 of each year listed. The 2017 millage rate is the basis for Fiscal Year 2017-18 tax revenues. * Overlapping rates are those of local and county governments that apply to property owners within the City of Fort Walton Beach Source: Okaloosa County Tax Collector 110  City of Fort Walton Beach, Florida SCHEDULE 8 PRINCIPAL TAXPAYERS Unaudited 2017 2008 Total Total Assessed Assessed Taxpayer Value Percentage Rank Value Percentage Rank Gulf Power Co. $ 21,096,424 1.65% 1 Suso 2 Uptown, LP 14,865,578 1.16% 2 Cox Communications Gulf Coast, LLC 7,553,701 0.59% 3 DRS Training & Control 6,935,183 0.54% 4 99 Eglin LTD 6,218,436 0.49% 5 Fort Walton Machining, Inc. 6,167,468 0.48% 6 Pacifica Walton Beach LLC 5,477,074 0.43% 7 FNBT.COM Bank 5,180,086 0.41% 8 PSH Of Okaloosa LLC 5,175,705 0.41% 9 Embarq Corp. 5,043,817 0.39% 10 Sprint Florida, Inc. $ 14,813,025 1.08% 1 Metric Systems 7,602,289 0.55% 4 Dakota Group, LLC 5,569,008 0.40% 10 BLC Westwood, LLC 9,355,932 0.68% 2 Presidio Developers, LLC 8,300,000 0.60% 3 DDRM Shoppes at Paradise 6,809,850 0.49% 5 Choctaw Plaza LTD 6,342,210 0.46% 6 EHC II - Captain's Quarters, LLC 6,273,968 0.46% 7 DEAS J JR ET AL 5,736,000 0.42% 8 Mariner Plaza Realty Assoc. 5,729,938 0.42% 9 Total Taxable Assessed Value of Principal Taxpayers 83,713,472 6.55% 76,532,220 5.56% Total Taxable Assessed Value of Other Taxpayers 1,194,048,289 93.45% 1,301,047,257 94.44% Total Taxable Assessed Value $ 1,277,761,761 100.00% $ 1,377,579,477 100.00% (1) The 2017 tax roll is the basis for Fiscal Year 2017-18 tax revenues. Source: Okaloosa County Property Appraiser 111  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 2017 The 2017 tax levy is the basis for Fiscal Year 2017-18 tax revenues. 2016 $ 7,080,530 $ 6,826,718 96.4% $ 18,798 $ 6,845,517 96.7% $ 9,696 0.1% 2015 $ 6,858,983 $ 6,606,940 96.3% $ 30,392 $ 6,637,332 96.8% $ 8,058 0.1% 2014 6,656,342 6,414,562 96.4% 31,452 6,446,014 96.8% 3,604 0.1% 2013 6,528,146 6,269,683 96.0% 76,388 6,346,071 97.2% 11,388 0.2% 2012 5,096,206 4,880,002 95.8% 50,880 4,930,882 96.8% 10,265 0.2% 2011 5,251,483 5,050,661 96.2% 38,067 5,088,728 96.9% 19,826 0.4% 2010 5,519,832 5,309,040 96.2% 78,863 5,387,903 97.6% 11,576 0.2% 2009 5,523,136 5,280,090 95.6% 45,233 5,325,323 96.4% 59,371 1.1% 2008 5,814,307 5,606,480 96.4% 25,515 5,631,996 96.9% 22,112 0.4% (1) Includes discount taken for early payment of taxes (maximum of 4%). Source: Okaloosa County Tax Collector 112  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) 2017 $ - $ 76,099 $ 11,073,656 $ - $ - $ - $ 8,387,000 $ 13,988,885 $ - $ 33,525,640 0.36% 1,578.57 2016 - 106,653 11,725,331 - - - 8,794,000 14,656,929 - 35,282,913 0.40% 1,617.22 2015 - 134,249 12,371,587 - - - 8,794,000 15,312,458 - 36,612,294 0.42% 1,754.39 2014 - 89,654 13,008,515 - - - - 14,004,706 9,640,146 36,743,021 0.42% 1,773.40 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 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. 113  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) 2017 $ - 0.00% $ - 2016 - 0.00% - 2015 - 0.00% - 2014 - 0.00% - 2013 - 0.00% - 2012 - 0.00% - 2011 - 0.00% - 2010 - 0.00% - 2009 - 0.00% - 2008 - 0.00% - 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. 114  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 2017 $ 28,277,131 $ 28,292,306 $ 1,726,719 831,220 $ 2,557,939 11.06 2016 28,307,481 28,537,163 1,301,785 860,023 2,161,808 13.20 2015 28,766,844 27,552,810 962,155 940,698 1,902,853 14.48 2014 26,593,384 26,466,080 890,954 797,317 1,688,271 15.68 2013 26,338,776 25,803,342 364,156 460,197 824,353 31.30 2012 25,267,908 25,556,504 497,049 697,060 1,194,109 21.40 2011 25,845,100 26,274,792 468,935 695,713 1,164,648 22.56 2010 26,704,483 26,355,374 510,000 874,423 1,384,423 19.04 2009 26,006,265 28,208,317 340,000 889,985 1,229,985 22.93 2008 30,410,368 31,235,238 325,000 904,730 1,229,730 25.40 (1) Non-Ad Valorem Revenues of General Fund, Capital Projects Fund, other governmental funds, and proprietary funds. (2) Combined Debt Service requirements for Capital Improvement Revenue Note Series 2013 & 2013A, Utility System Revenue Note 2015, SRF Loan and 2011 Revenue Notes. See Financial Statement Notes for detail. Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. The City implemented GASB Statement 34 in 2002; schedules presenting government-wide information include information beginning in that year. 115  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 $ 63,899,514 10.85% (2) $ 6,931,112 Okaloosa County School District Certificates of Participation $ 45,612,000 31.11% (1) $ 14,190,400 Subtotal: Overlapping Debt $ 109,511,514 $ 21,121,512 Direct Debt City of Fort Walton Beach Revenue Notes $ 11,073,656 100.00% $ 11,073,656 City of Fort Walton Beach Lease Payable $ 76,099 100.00% $ 76,099 Subtotal: Direct Debt $ 11,149,755 $ 11,149,755 Total Direct and Overlapping Debt $ 120,661,269 $ 32,271,267 Source: Okaloosa County, Okaloosa County School Board (1) Calculation based on total schools in Okaloosa County School District versus schools in Fort Walton Beach. (2) Calculation based on total population in Okaloosa County versus population in Fort Walton Beach. 116  City of Fort Walton Beach, Florida SCHEDULE 14 MAJOR EMPLOYERS Unaudited 2017 2008 Percentage Percentage of Total of Total Employer Product Employees Employment Ranking Employees Employment Ranking (1) USAF - Eglin Air Force Development Test Center 19,413 19.78% 1 14,880 15.74% 1 (2) USAF - Hurlburt Air Force Special Ops Command 10,729 10.93% 2 7,642 8.08% 2 Okaloosa County School District Education Services 3,349 3.41% 3 3,430 3.63% 3 (3) Okaloosa County Local Government Services 1,619 1.65% 4 650 0.69% 8 (4) Fort Walton Beach Medical Center Medical Services 1,065 1.09% 5 750 0.79% 7 (4) Lockheed Martin Corporation Military Technical Support 926 0.94% 6 Reliance Test & Technology Military Technical Support 800 0.82% 7 North Okaloosa Medical Center Medical Services 643 0.66% 8 CenturyLink Communications 600 0.62% 9 Walmart (Okaloosa Combined) Consumer Products 600 0.61% 10 Marconi Services Technical Support for Military 0.00% 1,250 1.32% 4 State of Florida State Government Services 0.00% 966 1.02% 5 ResortQuest Vacation Home Realty Services 0.00% 800 0.85% 6 DRS Training and Control Systems Radar Systems, Digital Computers 0.00% 600 0.63% 9 Tybrin Corporation Military Technical Support 0.00% 450 0.48% 10 39,744 34.78% 31,418 24.37% (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 FY16. Source: Personnel Department of each employer 117  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 2017 21,238 195,798 10.85% $ 9,422,078 $ 46,836 3.0% 2016 21,817 198,664 10.98% 8,803,001 44,923 4.9% 2015 20,869 190,550 10.95% 8,783,041 44,695 4.4% 2014 20,719 189,307 10.94% 8,775,211 45,277 4.6% 2013 20,256 186,887 10.84% 8,546,210 44,960 4.7% 2012 20,194 185,803 10.87% 7,913,960 43,132 6.0% 2011 19,534 180,280 10.84% 7,497,082 42,007 7.3% 2010 20,355 195,346 10.42% 7,369,683 41,050 8.0% 2009 20,675 196,237 10.54% 7,090,979 39,158 7.2% 2008 20,918 197,597 10.59% 6,861,716 37,497 4.8% OKALOOSA COUNTY EDUCATION FY 2017 FY 2016 FY 2015 Schools: Grades K-5 19 18 18 Grades 6-8 8 7 7 Grades 9-12 5 4 4 PK-12 / Charter / Alternate 2 / 5 / 10 2 / 5 / 10 2 / 5 / 10 Grades K-8 1 1 1 Vocational / Technical 1 1 1 Exceptional Children 2 2 2 Students: Grades K-5 16,583 15,200 15,046 Grades 6-8 7,754 7,046 7,034 Grades 9-12 9,919 8,801 8,701 Adult Students 508 225 237 Exceptional Children 7,001 5,105 5,316 Personnel: Instructional (Classroom) 1,794 1,900 1,889 Non-Instructional 624 1,098 1,181 Source: Office of Economic & Demographic Research, FL Research & Economic Information Database, Okaloosa County School Board 118  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 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 General Government City Manager 3.00 3.00 3.00 2.00 2.00 2.00 2.00 2.00 2.00 3.00 Administrative Services 4.70 3.60 3.00 3.00 3.00 3.00 3.00 4.00 4.00 4.00 Risk Management - - - - - - - 1.00 1.00 - Information Technology 3.80 2.00 2.00 2.00 2.00 2.00 2.00 2.75 2.75 3.00 City Clerk 2.40 2.50 2.50 2.50 2.50 2.50 2.50 3.00 3.00 3.00 Finance 6.00 6.00 6.00 7.00 7.00 7.00 7.00 7.00 7.00 7.00 Purchasing 3.00 3.00 2.75 2.75 2.50 2.50 2.50 2.50 2.00 5.00 Public Safety Police 65.90 61.90 61.38 60.99 59.99 70.99 67.99 67.59 68.05 74.05 Fire 37.00 37.00 38.00 37.00 37.00 37.00 37.00 38.00 38.00 39.00 Recreation & Cultural Services Administration 11.50 12.90 12.64 12.32 13.45 13.67 13.81 15.93 17.19 32.09 Parks Maintenance 10.25 10.00 10.00 10.00 10.00 11.00 11.00 11.00 11.90 - Right-of-Way Maintenance 2.00 1.00 1.00 1.00 1.00 1.00 1.00 7.00 8.00 9.00 Senior Citizens Center - - - 1.85 1.85 1.85 1.85 1.85 1.85 2.38 Golf Club 13.81 14.26 13.93 14.26 - - - - - - Golf Grounds Maintenance 15.75 15.75 15.75 15.75 - - - - - - Library 8.72 8.02 8.02 8.02 8.02 8.02 8.10 9.90 9.90 10.60 Museum 4.00 4.60 4.10 3.60 3.60 3.60 2.60 3.85 4.98 5.18 Cemetery 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.50 3.50 Engineering Services Administration 3.00 3.00 4.00 4.00 5.00 5.00 5.00 6.00 6.00 7.00 Planning & Zoning 4.00 3.00 2.00 2.00 1.00 1.00 1.00 1.00 - 4.00 Building & Permitting 4.00 4.00 4.00 4.00 4.00 3.70 3.00 3.00 3.00 6.00 Code Enforcement 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 - Fleet Maintenance 9.00 9.00 9.00 9.00 9.00 8.75 8.75 10.00 11.00 12.00 Facilities Maintenance 7.00 7.00 7.00 7.00 8.00 8.00 8.00 11.00 11.00 10.00 Streets Maintenance 5.00 6.00 6.00 6.00 5.50 5.50 5.50 6.50 6.50 14.50 Community Development Block Grant - - 0.48 0.48 0.48 0.48 0.48 0.48 0.48 0.48 Community Redevelopment Agency 5.00 3.00 3.00 3.00 3.00 3.00 3.00 1.00 1.00 1.00 Utility (Water/Sewer) Enterprise Administration 5.00 8.00 8.00 8.00 7.00 7.00 6.75 1.00 2.00 6.00 Customer Service 5.50 5.50 5.50 5.50 5.50 5.50 5.50 7.50 7.50 8.00 GIS 3.00 - - - - - - - - - Water Operations 9.00 9.00 10.00 9.00 9.00 9.00 10.00 7.00 7.00 7.00 Sewer Operations - - - - - - - 2.00 11.00 11.00 Water Distribution 5.00 5.00 5.00 5.00 5.00 5.00 5.00 6.00 6.00 6.00 Sewer Collections 13.00 13.00 13.00 13.00 13.00 12.00 12.00 11.00 11.00 11.00 Sanitation Enterprise Solid Waste 19.00 19.00 19.00 19.00 19.00 19.00 18.75 19.62 19.87 21.00 Recycling 1.00 1.00 1.00 1.00 - - - - - - Golf Enterprise Golf Club - - - - 14.26 14.26 14.26 14.26 31.01 36.51 Golf Grounds Maintenance - - - - 15.75 15.75 15.75 15.75 - - Stormwater Enterprise Stormwater 6.00 6.00 6.00 6.00 6.00 6.00 6.00 7.00 8.00 - Total 300.33 292.03 292.05 291.02 289.40 300.07 296.09 312.48 329.48 362.29 Source: City of Fort Walton Beach Adopted Budget for the relevant year. Note: Golf Enterprise Fund moved to the General Fund in FY14. 119  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 2017 260 368 169 213 45 2016 200 216 144 92 81 2015 153 216 116 75 34 2014 247 379 136 194 27 2013 148 188 121 82 26 2012 148 168 102 100 39 2011 249 255 74 159 18 2010 212 290 87 154 27 2009 142 285 52 158 16 2008 168 298 97 178 20 BUSINESS TAX RECEIPTS ISSUED (formerly referred to as occupational licenses) Year Number Sold 2017 2,595 2016 2,115 2015 2,259 2014 2,402 2013 2,087 2012 1,947 2011 2,269 2010 2,311 2009 2,364 2008 2,426 MUNICIPAL RECREATIONAL FACILITIES 2 18-hole Golf Courses 1 Library 1 18-hole Disc Golf Course 4 Museums 1 Auditorium 23 Playgrounds 12 Baseball-Softball Facilities 2 Racquetball Court Facility 1 BMX/Skateboard Facility 1 Recreation Center 5 Boat Ramps 2 Soccer Field Facility 6 Exercise/Walking Tracks 4 Tennis Court Facilities 1 Fairgrounds 7 Undeveloped Parks 1 Football Stadium 4 Waterfront Parks Sources: City of Fort Walton Beach Customer Service, Building & Permitting, and Recreation departments. Note: Change in facility and athletic field totals due to the construction of the new Recreation Center, which was complete in FY 2015. 120  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 2,217 311 1,610 292 4 02 BLACKMON 616 111 433 72 0 03 MILLIGAN 1,212 201 807 199 5 04 HOLT 1,218 202 804 207 5 05 LAUREL HILL 1,012 208 627 172 5 06 GARDEN CITY 3,243 535 2,112 577 19 07 DORCAS 1,518 273 924 319 2 08 HONEY CREEK 3,994 849 2,333 786 26 09 YELLOW RIVER 3,766 724 2,261 758 23 10 WEST WRIGHT 5,755 1,297 2,922 1,489 47 11 EAST CRESTVIEW 8,043 1,676 4,134 2,142 91 12 WEST CRESTVIEW 856 478 199 178 1 13 NORTH CRESTVIEW 3,587 709 2,127 723 28 14 WEST NICEVILLE 2,732 507 1,572 629 24 15 VALPARAISO 2,806 523 1,625 641 17 16 SHALIMAR 2,691 550 1,514 610 17 17 CENTRAL WRIGHT 3,100 808 1,431 833 28 18 OCEAN CITY 2,279 530 1,159 576 14 19* EAST FWB 1,623 486 667 460 10 20 WEST DESTIN 2,375 409 1,445 509 12 21 MARY ESTHER 2,496 518 1,433 528 17 22* S CENTRAL FWB 2,016 551 996 458 11 23 EGLIN AFB 561 94 242 218 7 24* WEST FWB 2,760 754 1,295 692 19 25 N CENTRAL NICEVILLE 1,769 322 1,060 372 15 26 SEMINOLE 2,541 324 1,734 462 21 27 CINCO BAYOU 278 56 136 80 6 28* GARNIERS 314 59 196 54 5 29* GOLF COURSE 2,016 315 1,326 366 9 30 OKALOOSA ISLAND 1,468 232 841 387 8 31 LONGWOOD 1,956 319 1,327 297 13 32* FERRY PARK 2,347 428 1,444 455 20 33 ROCKY BAYOU 4,449 484 3,220 726 19 34 FLOROSA 3,377 753 1,684 913 27 35 NORTH DESTIN 3,063 395 1,969 684 15 36 SOUTH NICEVILLE 2,518 320 1,713 465 20 37 LAKE LORRAINE 2,683 348 1,818 498 19 38 NORTHGATE 2,147 455 1,190 485 17 39 EAST WRIGHT 2,208 537 1,115 540 16 40 SOUTH BLUEWATER 2,854 328 1,998 523 5 41* N CENTRAL FWB 1,348 243 855 243 7 42* NEW HEIGHTS 2,193 665 966 552 10 43 S CENTRAL NICEVILLE 2,148 379 1,273 480 16 44 CENTRAL DESTIN 1,746 313 925 496 12 45 SOUTH CRESTVIEW 4,330 957 2,264 1,087 22 46 NORTH BLUEWATER 4,322 564 2,863 868 27 47 WYNNEHAVEN BEACH 1,851 358 932 539 22 48* WESTWOOD RETIREMENT 104 24 68 12 0 49 EAST DESTIN 3,086 383 2,105 576 22 50 SOUTH DESTIN 3,043 359 2,026 646 12 51 AIRPORT ROAD 1,783 277 1,137 357 12 52 LIVE OAK 3,452 670 1,998 758 26 Countywide Total 113,149 20,646 67,042 24,697 764 *City Precinct City Total 14,721 3,525 7,813 3,292 91 Source: Okaloosa County Supervisor of Elections 121  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 2017 $ 370,885 $ 29,831 8.04% $747,293 2016 380,118 28,081 7.39% 406,239 2015 - 61,898 - 54,202 2014 - 3,604 - 116,100 2013 - 5,302 - 119,704 2012 - 12,779 - 125,006 2011 - 5,986 - 137,785 2010 - 19,801 - - 2009 - 6,528 - - 2008 - 7,511 - - (1) Assessments are payable over a 15-20 year period. Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. 122  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 2017 $ 7,457,189 20.9% $ 7,015,584 19.7% $ 6,668,790 18.7% $ 3,663,445 10.3% $ 3,906,282 11.0% $ 1,317,803 3.7% 2016 7,271,903 20.4% 7,124,985 20.0% 6,310,574 17.7% 3,589,419 10.1% 3,769,366 10.6% 1,378,730 3.9% 2015 7,025,998 19.7% 7,171,032 20.1% 5,748,749 16.1% 3,581,264 10.1% 3,425,909 9.6% 1,399,101 3.9% 2014 6,886,443 20.6% 6,807,274 20.4% 5,177,966 15.5% 3,562,694 10.7% 3,238,894 9.7% 1,365,764 4.1% 2013 5,486,237 17.3% 6,355,549 20.1% 4,949,525 15.7% 3,499,459 11.1% 3,078,174 9.7% 1,591,423 5.0% 2012 5,681,589 18.5% 6,482,596 21.1% 4,839,764 15.8% 3,313,559 10.8% 3,052,071 9.9% 1,656,721 5.4% 2011 6,030,428 19.2% 6,673,824 21.2% 4,631,992 14.7% 3,307,993 10.5% 2,753,590 8.8% 1,954,589 6.2% 2010 5,332,480 17.5% 6,645,189 21.8% 4,154,795 13.6% 3,335,342 10.9% 2,379,913 7.8% 1,914,053 6.3% 2009 5,629,812 19.0% 6,425,482 21.7% 3,943,722 13.3% 3,363,185 11.4% 2,245,512 7.6% 2,164,174 7.4% 2008 6,021,743 20.6% 5,706,534 19.5% 3,984,282 13.6% 3,441,588 11.8% 2,271,327 7.8% 2,365,739 8.1% 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. 123  City of Fort Walton Beach, Florida SCHEDULE 21 WATER AND WASTEWATER SERVICE RATES Unaudited Monthly Water Rates (1,2) Residential Commercial Number of Inside Outside(3) Inside Outside(3) Meters Lifeline Rate(4) $10.67 $13.34 $10.67 $13.34 Monthly Base Charge(5), Meter Size: 3/4" $10.67 $13.34 $10.67 $13.34 9,023 1.0" $10.67 $13.34 $10.67 $13.34 333 1.5" $14.50 $18.13 $14.50 $18.13 110 2.0" $24.64 $30.80 $24.64 $30.80 223 3.0" $37.55 $46.94 $37.55 $46.94 14 4.0" $46.93 $58.66 $46.93 $58.66 20 6.0" $74.65 $93.31 $74.65 $93.31 0 8.0" or 10.0" $111.87 $139.84 $111.87 $139.84 1 Multi-Residential, Addt'l per Unit $7.90 $9.88 $7.90 $9.88 9,724 Residential Customers (6) 8,501 Commercial Customers (6) 1,119 Total Customers 9,620 Gallonage Rate (per 1,000 gallons per unit) Inside Outside Block 1 (0 - 2,000) Included in monthly base charge Block 2 (2,001 - 4,000) $3.18 $3.98 Block 3 (4,001 - 8,000) $3.89 $4.86 Block 4 (8,001 +) $5.83 $7.29 Monthly Wastewater Rates (2) Residential Commercial Lifeline Rate(4) $23.77 $28.45 Monthly Base Charge $23.77 $28.45 Gallonage Rate (per 1,000 gallons per unit) (5) Block 1 (0 - 2,000) Included in monthly base charge Block 2 (2,001 +) $7.73 $9.20 (1) Irrigation customers subject to water rates as outlined herein (2) Monthly Base Charge is per Unit. Residential Single Family and Commercial count as 1 unit Multi-Family and Multi-Commercial are billed according to meter size and unit count (3) Outside City surcharge of 25% for water (4) Single family residence with less than 2,000 gallons per month (5) Residential service capped at 16,000 gallons per unit (6) Billed in September Source: City of Fort Walton Beach Comprehensive Fee Schedule 124  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 32.45 52.45 6 CY 20.00 58.35 78.35 8CY 20.00 90.70 110.70 Source: City of Fort Walton Beach Comprehensive Fee Schedule 125  City of Fort Walton Beach, Florida SCHEDULE 23 OPERATING INDICATORS BY FUNCTION/PROGRAM Last Ten Fiscal Years Unaudited Function Fiscal Year 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 Engineering Services Building permits issued 332 n/a n/a n/a n/a n/a n/a n/a 1,429 1,582 Residential building permits issued 483 23 1,214 1,220 1,095 697 588 630 n/a n/a Commercial building permits issued 178 5 402 310 457 164 284 380 n/a n/a Value of permits (in millions) $2.70 n/a n/a n/a n/a n/a n/a n/a $46.20 $37.40 Value of residential permits (in millions) $ 12 $ 4 $ 16 $ 16 $ 15 $ 9 $ 10 $ 7 n/a n/a Value of commercial permits (in millions) $ 15 $ 1 $ 832 $ 27 $ 23 $ 9 $ 7 $ 7 n/a n/a Business Tax Receipts Sold 1,769 2,115 2,259 2,402 2,087 1,947 2,269 2,311 2,364 2,426 Street resurfacing (lane miles) 0 1.01 0.64 0.16 - 1.70 2.25 5.71 1.53 0.78 Pot holes (hours spent repairing) 213 163 770 528 813 989 1,014 617 1,257 1,476 Sanitation Refuse collected (tons) 26,151 25,203 24,467 26,102 24,059 25,374 25,332 25,676 25,485 27,873 Recyclables collected (tons) 1,811 1,507 1,191 754 615 375 251 161 150 112 Culture and Recreation Parks and Recreation (3) Recreation program participants 102 154 n/a n/a n/a 92,267 106,486 103,121 116,565 118,890 Recreation program registrations (5) n/a n/a 650 651 571 n/a n/a n/a n/a n/a Adult athletic participants (3) 530 n/a n/a n/a n/a 6,728 9,003 10,009 11,406 14,591 Adult athletic registrations n/a 621 424 426 467 n/a n/a n/a n/a n/a Youth athletic participants (3) 2,394 n/a n/a n/a n/a 14,548 13,038 12,525 14,211 15,570 Youth athletic registrations n/a 2,086 1,978 1,347 1,253 n/a n/a n/a n/a n/a Skate/tennis park participants (4) n/a n/a n/a n/a n/a 13,114 18,291 15,297 18,480 24,100 Library Circulation volume 139,980 144,474 137,363 145,684 142,888 139,196 126,146 135,314 142,148 137,002 Museum (1) Number of visitors/participants 24,522 22,437 22,683 19,461 22,901 21,480 28,200 39,935 47,700 45,168 Water System New connections 45 81 34 27 26 39 18 27 16 20 Water customers 9,620 9,618 9,537 9,480 9,279 8,846 8,804 8,795 8,741 8,927 Water produced (million gallons) 866 883 891 884 855 868 899 897 943 963 Wastewater System (2) Wastewater treated (million gallons) - - - - - - - 381 769 916 (1) Decline in 2011 primarily in outreach numbers; reducing outreach to be more in line with in-house service numbers at the suggestion of City Council (2) Wastewater treatment transferred to County in March 2010 (3) FY 2013 total participants was changed to total registrations; changed back to participants in FY 2016 (4) FY 2012-2013 numbers were not required to be collected for the BMX Park or the Tennis Center (5) FY 2016 registrations were changed to participants so that each person was counted once Source: City of Fort Walton Beach Performance Measures. 126  City of Fort Walton Beach, Florida SCHEDULE 24 CAPITAL ASSET STATISTICS BY FUNCTION/PROGRAM Last Ten Fiscal Years Unaudited Function/Program Fiscal Year 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 Public Safety Police Stations 1 1 1 1 1 1 1 1 1 1 Sworn Officers 45 39 43 43 43 51 48 49 49 55 Engineering Services Miles of roads 93.12 93.12 93.12 93.12 93.12 93.06 92.65 (2) 112.76 112.76 (1) 99.35 Miles of sidewalks 63.67 64.73 63.67 64.73 64.05 63.93 62.80 62.11 61.35 61.32 Signs fabricated and installed 614 854 1,133 918 785 935 976 910 1,110 1,223 Culture and Recreation Parks and Recreation Recreational Amenities 129 129 129 116 (7) 117 (4) 122 122 122 (3) 91 90 Parks (acres) 206.00 206.00 196.56 180.26 180.26 180.26 180.26 180.26 180.26 180.26 Library Inventoried collection 67,881 70,353 72,313 72,729 74,649 74,448 72,873 74,317 73,641 71,006 Water and Sewer System Potable water lines (miles) 146.10 144.91 144.77 146.25 145.9 (5) 118.63 118.57 118.52 118.10 118.09 Sanitary sewer lines (miles) 129.62 129.51 110.45 130.32(5) 118.76 118.76 118.76 118.77 118.77 118.77 Reuse water lines (miles) 7.10 7.10 7.10 7.10 7.14 3.82 3.82 3.82 4.14 4.14 Potable Water Elevated Storage Tank Capacity: 1 (6) tank 200,000 gal; 1 tank 750,000 gal; 2 tanks 500,000 gal Potable Water Ground Storage Tank Capacity: 1 tank 135,000 gal; 1 tank 250,000 gal; 1 tank 1,000,000 gal; 1 tank 25,000 gal Pumping Capacity of Potable Water Wells: 9.231 million gallons per day Sanitary Sewer Ground Storage Tank Capacity: 4,000,000 gal Reuse Water Elevated Storage Tank Capacity: 1 tank 200,000 gal Reuse Water Ground Storage Tank Capacity: 1 tank 1,000,000 gal Stormwater System Storm drains (miles) 43.18 42.10 42.03 42.05 42.01 41.64 41.64 45.70 45.66 34.73 (1) FY 2009 Increase due to better data with GIS system and methodology change for calculation. (2) FY 2011 Adjustment to only include City-maintained roads and stormwater pipe (collector, culvert, french drain). (3) FY 2010 Adjustment due to re-evaluation of how amenities are counted. (4) Decrease due to demolition of the Rec Center and fields. (5) Increase due to better data output from GIS system. (6) One elevated tank with 200,000 gallon capacity was converted to reuse water. (7) Decrease due to sale of Senior Center. New Recreation Center will be open mid FY 2015. N/A: Not available. Source: City of Fort Walton Beach Performance Measures. 127  City of Fort Walton Beach, Florida SCHEDULE 25 INSURANCE COVERAGE Unaudited Agent, Broker, or Effective Dates Company Policy Number Company Rep. Type Amount Location 10/12/16 to 10/12/17 Wright National 1151291251 Fisher-Brown Agency Flood $ 450,000 B 14 Robinwood Drive SW $ 100,000 C Sanitation Building 10/12/16 to 10/12/17 Wright National 1151306332 Fisher-Brown Agency Flood $ 500,000 B #7 Hollywood Boulevard $ 500,000 C Police Department 10/12/16 to 10/12/17 Wright National 1151291263 Fisher-Brown Agency Flood $ 500,000 B #5 Hollywood Boulevard $ 300,000 C Fire Department 10/12/16 to 10/12/17 Wright National 1151292103 Fisher-Brown Agency Flood $ 402,700 B 107 Miracle Strip Parkway $ 128,200 C Auditorium 10/12/16 to 10/12/17 Wright National 1151291796 Fisher-Brown Agency Flood $ 402,700 B 107 Miracle Strip Parkway $ 382,900 C City Hall 10/12/16 to 10/12/17 Wright National 1151292114 Fisher-Brown Agency Flood $ 177,300 B 107 Miracle Strip Parkway $ 16,300 C Council Chamber 10/12/16 to 10/12/17 Wright National 1151292125 Fisher-Brown Agency Flood $ 402,700 B 107 Miracle Strip Parkway $ 382,900 C Annex Building 10/12/16 to 10/12/17 Wright National 1151292120 Fisher-Brown Agency Flood $ 389,700 B 107 Miracle Strip Parkway $ 16,300 C Utility Building 10/12/16 to 10/12/17 Wright National 1151291389 Fisher-Brown Agency Flood $ 450,000 B 141 Miracle Strip Parkway $ 100,000 C City Museum 10/12/16 to 10/12/17 Wright National 1151291280 Fisher-Brown Agency Flood $ 350,000 B 22 McGriff Street 50,000 C Child Care Facility 10/12/16 to 10/12/17 Wright National 1150164378 Fisher-Brown Agency Flood $ 38,500 B 338 Miracle Strip Parkway Restroom, East of Pavillion Liza Jackson Park 10/12/16 to 10/12/17 Wright National 1150164379 Fisher-Brown Agency Flood $ 38,500 B 338 Miracle Strip Parkway Restroom Near Ditch 128  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 05/17/16 to 05/17/17 Wright National 1150342974 Fisher-Brown Agency Flood $ 98,300 B 55 Ferry Road Boy Scout Hut 07/23/16 to 07/23/17 Wright National 1151270502 Fisher-Brown Agency Flood $ 300,000 B 18 Robinwood Drive $ 50,000 C Pump Station #1 06/23/16 to 06/23/17 Wright National 1150458831 Fisher-Brown Agency Flood $ 55,000 B 168 Coral Drive SW City Hall Ball Field Restrooms 10/01/16 to 10/10/17 AIG Environmental Tank Guard 12896318 Public Risk Insurance Agency Petroleum $ 1,000,000/inc Golf Course, Police, City Yard, Fuel Station Liability $ 1,000,000/agg Pump Station - Fire 10/01/16 to 10/10/17 PGIT PKFL1046200315-11 Public Risk Insurance Agency Inland $ 504,644 Fine Arts Marine $ 250,000 Rented, Borrowed, Leased Equipment $ 770,377 Contractor's Mobile Equipment $ 291,748 EDP/Minicomputer/Word Processor $ 250,000 Valuable Papers $ 39,265 Other Inland Marine $ 38,665 Emergency Svcs Portable Equipment $ 255,211 Communication Equipment 9/16/17 to 9/16/18 Hartford 21BSBDB7459 Fisher-Brown Agency Public Official $ 50,000 Finance Director Bond 02/09/17 to 02/09/18 Hartford 21BSBDB7454 Fisher-Brown Agency Public Official $ 50,000 Customer Service Administrator, Finance Bond Department 10/01/16 to 10/10/17 PGIT PKFL1046200316-12 Public Risk Insurance Agency Auto $ 100,000 Uninsured Motorist $ 1,000,000 CSL Liability 10/01/16 to 10/10/17 PGIT PKFL1046200316-12 Public Risk Insurance Agency Forgery $ 250,000 Alteration 10/01/16 to 10/10/17 PGIT PKFL1046200315-11 Public Risk Insurance Agency Money & $ 10,000 129  City of Fort Walton Beach, Florida SCHEDULE 25 INSURANCE COVERAGE Unaudited Agent, Broker, or Effective Dates Company Policy Number Company Rep. Type Amount Location Securities 10/01/16 to 10/10/17 Hartford 21BSBDB7454 Fisher-Brown Agency Public Official $ 50,000 City Clerk Bond 10/01/16 to 10/10/17 PGIT PKFL1046200316-12 Public Risk Insurance Agency Crime $ 250,000 Public Employees Blanket Fidelity Bond 10/01/16 to 10/10/17 PGIT PKFL1046200316-07 Public Risk Insurance Agency General $ 1,000,000 Occurance Liability 10/01/16 to 10/10/17 PGIT PKFL1046200316-12 Public Risk Insurance Agency Property $ 45,883,959 Blank Real & Personal Property 9/16/17 to 9/16/18 PGIT PKFL1046200316-12 Public Risk Insurance Agency Property $ 100,000 Business Income 500,000 Additional Expense 02/09/17 to 02/09/18 PGIT WC-FL1046200316-07 Public Risk Insurance Agency Worker's $ 1,000,000 Accident Comp $ 1,000,000 Disease 10/01/16 to 10/10/17 PGIT PKFL1046200316-12 Public Risk Insurance Agency Public Officials $ 5,000,000 Empl. Practice 5,000,000 10/01/16 to 10/10/17 Federal Insurance 9906-62-32 Federal Insurance Co. AD&D $ 65,000 Occupational Death ACHUBB Co. $ 65,000 Response to Emergency $ 190,000 Unlawful/Unintentional 10/01/16 to 10/10/17 PGIT PKFL1046200315-11 Public Risk Insurance Agency Boiler & $ 45,883,959 Machinery 5/01/17 to 5/01/18 Travelers 105927344 Fisher-Brown Agency Fiduciary $ 2,000,000 Retirement Fund for General Liability Employees and Fire Source: City of Fort Walton Beach Risk Management Department 130  CITY OF FORT WALTON BEACH, FLORIDA OTHER SUPPLEMENTARY INFORMATION SCHEDULE OF RECEIPTS AND EXPENDITURES OF FUNDS RELATED TO THE DEEPWATER HORIZON OIL SPILL FOR THE YEAR ENDED SEPTEMBER 30, 2017 Amounts Amounts Received in Expended in the 2016-2017 the 2016-2017 Source Fiscal Year Fiscal Year Florida Coastal Protection Trust Fund 1 Stormwater projects (MOEX) Deepwater Horizon oil spill $ - $ - 1 Information for this grant is included in the schedule of expenditures of state financial assistance on page 133. 131 THIS PAGE IS LEFT INTENTIONALLY BLANK  INDEPENDENT AUDITORS’ REPORT ON THE SCHEDULE OF RECEIPTS AND EXPENDITURES OF FUNDS RELATED TO THE DEEPWATER HORIZON OIL SPILL To the Honorable Mayor and City Council Members City of Fort Walton Beach, Florida We have audited the financial statements of the City of Fort Walton Beach, Florida (the City) as of and for the year ended September 30, 2017, and have issued our report thereon dated March 19, 2018, which contained an unmodified opinion on those financial statements. Our audit was performed for the purpose of forming an opinion on the financial statements as a whole. The Schedule of Receipts and Expenditures of Funds related to the Deepwater Horizon Oil Spill on page 131 is presented for the purpose of additional analysis as required by Chapter 288.8018, Florida Statutes, and the Rules of the Auditor General Chapter 10.557(3)(f), and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole. Fort Walton Beach, Florida March 19, 2018 132  CITY OF FORT WALTON BEACH, FLORIDA SCHEDULE OF EXPENDITURES OF STATE FINANCIAL ASSISTANCE FOR THE YEAR ENDED SEPTEMBER 30, 2017 State Agency Pass-Through Entity CSFA Contract/Grant State Project Number Number Expenditures Florida Department of Environmental Protection Direct projects Surface Water Restoration and Wastewater Projects 37.039 S0841 $ 586,146 Stormwater Projects (MOEX) / Deepwater Horizon Oil Spill 37.082 S0693 736,428 1,322,574 Florida Department of Economic Opportunity Direct project Division of Community Development 40.038 HL050 200,000 Florida Department of Education Direct project Fixed Capital Outlay - Fort Walton Firefighters 48.126 468-98111-7Q001 143,481 Florida Fish and Wildlife Conservation Commission Direct project Florida Boating Improvement Program 77.006 11134 526 TOTAL EXPENDITURES OF STATE FINANCIAL ASSISTANCE $ 1,666,581 133  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE SCHEDULE OF EXPENDITURES OF STATE FINANCIAL ASSISTANCE FOR THE YEAR ENDED SEPTEMBER 30, 2017 1. BASIS OF PRESENTATION The accompanying schedule of expenditures of state financial assistance (the Schedule) includes the state award activity of the City of Fort Walton Beach, Florida (the City), under programs of the State of Florida for the year ended September 30, 2017. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Expenditures reported on the Schedule are reported on the accrual basis of accounting in accordance with the requirements described in Chapter 10.550, Rules of the Auditor General. Therefore, some amounts presented in the Schedule may differ from amounts presented in, or used in the preparation of, the basic financial statements. 134  INDEPENDENT AUDITORS’ REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS To the Honorable Mayor and City Council Members City of Fort Walton Beach, Florida We have audited, in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, the financial statements of governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Fort Walton Beach, Florida (the City), as of and for the year ended September 30, 2017, and the related notes to the financial statements, which collectively comprise the City's basic financial statements and have issued our report thereon dated March 19, 2018. Internal Control over Financial Reporting In planning and performing our audit, we considered the City's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City's internal control. Accordingly, we do not express an opinion on the effectiveness of the City's internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit, we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. 135 Compliance and Other Matters As part of obtaining reasonable assurance about whether the City's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Fort Walton Beach, Florida March 19, 2018 136  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 the City of Fort Walton Beach, Florida’s (the City) compliance with the types of compliance requirements described in the Department of Financial Services’ State Projects Compliance Supplement that could have a direct and material effect on each of the City’s major state projects for the year ended September 30, 2017. The City’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 state statutes, regulations, and the terms and conditions of its state financial assistance applicable to its state projects. Auditors’ Responsibility Our responsibility is to express an opinion on compliance for each of the City’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, Rules of the Auditor General, require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major state project occurred. An audit includes examining, on a test basis, evidence about the City’s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major state project. However, our audit does not provide a legal determination of the City’s compliance. Opinion on Each Major State Project In our opinion, the City has complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major state projects for the year ended September 30, 2017. 137 Report on Internal Control over Compliance Management of the City is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the City’s internal control over compliance with the types of requirements that could have a direct and material effect on each major 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, Rules of the Auditor General, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a 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, Rules of the Auditor General. Accordingly, this report is not suitable for any other purpose. Fort Walton Beach, Florida March 19, 2018 138  CITY OF FORT WALTON BEACH, FLORIDA SCHEDULE OF FINDINGS AND QUESTIONED COSTS – STATE PROJECTS FOR THE YEAR ENDED SEPTEMBER 30, 2017 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 Projects 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 projects: Unmodified • Any audit findings disclosed that are required to be reported in accordance with Chapter 10.557, Rules of the Auditor General? Yes X No Identification of major programs: State CSFA Number Name of State Project 37.039 Surface Water Restoration and Wastewater Projects 37.082 Stormwater Projects (MOEX) / Deepwater Horizon Oil Spill Dollar threshold used to distinguish between type A and type B programs: $ 300,000 II. FINANCIAL STATEMENT FINDINGS The results of our audit of the City did not disclose any findings required to be reported under Section 10.557, Rules of the Auditor General. 139  INDEPENDENT ACCOUNTANTS’ REPORT ON AN EXAMINATION OF COMPLIANCE REQUIREMENTS IN ACCORDANCE WITH CHAPTER 10.550, RULES OF THE AUDITOR GENERAL To the Honorable Mayor and City Council Members City of Fort Walton Beach, Florida We have examined the City of Fort Walton Beach, Florida’s (the City’s) compliance with the following requirements for the year ended September 30, 2017: 1) Chapter 218.415, Florida Statutes, in regards to the investments. 2) Chapter 218. 8018, Florida Statutes, in regards to the Deepwater Horizon Oil Spill receipts and expenditures. Management is responsible for the City’s compliance with those requirements. Our responsibility is to express an opinion on the City’s compliance based on our examination. Our examination was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants and, accordingly, included examining, on a test basis, evidence about the City’s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our examination provides a reasonable basis for our opinion. Our examination does not provide a legal determination on the City’s compliance with specified requirements. In our opinion, the City complied, in all material respects, with the aforementioned requirements for the year ended September 30, 2017. Fort Walton Beach, Florida March 19, 2018 140  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, 2017, and have issued our report thereon dated March 19, 2018. Auditors’ Responsibility We conducted our audit in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, and Chapter 10.550, Rules of the Auditor General. Other Reporting Requirements 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 Auditors’ Report on Compliance for Each Major State Project and Report on Internal Control over Compliance; Schedule of Findings and Questioned Costs; and Independent Accountant’s Report on an examination conducted in accordance with AICPA Professional Standards, AT-C Section 315, regarding compliance requirements in accordance with Chapter 10.550, Rules of the Auditor General. Disclosures in those reports, which are dated March 19, 2018, should be considered in conjunction with this management letter. Prior Audit Findings Section 10.554(1)(i)1., Rules of the Auditor General, requires that we determine whether or not corrective actions have been taken to address findings and recommendations made in the preceding annual financial report. There were no findings identified in the preceding annual final report. Official Title and Legal Authority Section 10.554(1)(i)4., Rules of Auditor General, requires that the name or official title and legal authority for the primary government and each component unit of the reporting entity be disclosed in this management letter, unless disclosed in the notes to the financial statements. The City of Fort Walton Beach, Florida, was established as a municipality by a Special Act of the Florida Legislature in 1937. The City's original charter was enacted as Chapter 18539, Laws of Florida. 141 Official Title and Legal Authority – Continued The present charter was enacted in 1953 as Chapter 29093, Laws of Florida. The City had one component unit within its reporting entity. The Fort Walton Beach Community Redevelopment Agency was created pursuant to provisions of Chapter 163, Part III, Florida Statutes. This action, adopted by Resolution Number 77–38, also outlines the rights, powers, duties, privileges, and immunities invested in the governing body. City ordinance 1262, adopted on September 27, 1994, gave the City Council the authority to appoint an independent Board of Commissioners in place of the City Council effective January 1, 1995. During 1992, the Florida Department of Community Affairs determined that the Fort Walton Beach Housing Authority was a dependent special district of the City. Utilizing the standards set forth in GASB Statement No. 61, the Fort Walton Beach Housing Authority was not considered as having met sufficient criteria for inclusion within the City's audited financial statements for the year ended September 30, 2017. 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 and Management Section 10.554(1)(i)5,.a. and 10.556(7), Rules of the Auditor General, requires that we apply appropriate procedures and report the results of our determination as to whether or not the City has met one or more of the conditions described in Section 218.503(1), Florida Statutes, and identification of the specific condition(s) met. In connection with our audit, we determined that the City did not meet any of the conditions described in Section 218.503(1), Florida Statutes. Pursuant to Sections 10.554(1)(i)5.c., and 10.556(8), Rules of the Auditor General, we applied financial condition assessment procedures. It is management's responsibility to monitor the City's financial condition, and our financial condition assessment was based in part on representations made by management and the review of financial information provided by same. Section 10.554(1)(i)2., Rules of the Auditor General, requires that we communicate any recommendations to improve financial management. In connection with our audit, we did not have any such recommendations. Annual Financial Report Sections 10.554(1)(i)5.b. and 10.556(7), Rules of the Auditor General, require that we apply appropriate procedures and report the results of our determination as to whether the annual financial report for the City, for the fiscal year ended September 30, 2017, 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, 2017. In connection with our audit, we determined that these two reports were in agreement. 142 Special District Component Units Section 10.554(1)(i)5.d., Rules of the Auditor General, requires that we communicate the failure of a special district that is a component unit of the City, to provide the financial information necessary for proper reporting of the component unit within the audited financial statements of the City 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. Additional Matters 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 has occurred, or is likely to have occurred, that has 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 March 19, 2018 143