Fort Walton Beach — Comprehensive Annual Financial Report September 30, 2013

Comprehensive Annual Financial Report City of Fort Walton Beach, Florida With Compliance Matters and Responses Fiscal Year Ended September 30, 2013 City of Fort Walton Beach, Florida COMPREHENSIVE ANNUAL FINANCIAL REPORT for the Fiscal Year Ended September 30, 2013 Prepared by The Finance Department City of Fort Walton Beach 107 Miracle Strip Parkway Fort Walton Beach, Florida 32548 WWW.FWB.ORG (THIS PAGE INTENTIONALLY LEFT BLANK.)  CITY OF FORT WALTON BEACH, FL City Council Left to right (standing): Bobby Griggs (Seat 1), joyce gossom (Seat 2), Amy Jamieson (Seat 5), Bull Rigdon (Seat 6), and Dick Rynearson (Seat 7). Left to right (seated): John Mead (Seat 3), Mayor Mike Anderson, and Trey Goodwin (Seat 4). City Manager – Michael Beedie City Clerk – Helen Spencer City Attorney – Hayward Dykes, Jr. Finance Director – Brandy Ferris (THIS PAGE INTENTIONALLY LEFT BLANK.) I. INTRODUCTORY SECTION  TABLE OF CONTENTS  LETTER OF TRANSMITTAL  GOVERNMENT FINANCE OFFICERS CERTIFICATE OF ACHIEVEMENT FOR EXCELLENCE IN FINANCIAL REPORTING  ORGANIZATIONAL CHART  City of Fort Walton Beach, Florida COMPREHENSIVE ANNUAL FINANCIAL REPORT Year Ended September 30, 2013 Page Exhibit TITLE PAGE CITY OFFICIALS I. INTRODUCTORY SECTION Table of Contents i Letter of Transmittal City Manager and Finance Director iv GFOA Certificate of Achievement ix Organizational Chart x II. FINANCIAL SECTION Independent Auditor’s Report 1 A. MANAGEMENT’S DISCUSSION AND ANALYSIS 3 B. BASIC FINANCIAL STATEMENTS Government-Wide Financial Statements Statement of Net Position 14 I Statement of Activities 15 II Fund Financial Statements Governmental Funds Balance Sheet 16 IIIA Reconciliation of the Balance Sheet to the Statement of Net Position 17 IIIB Statement of Revenues, Expenditures and Changes in Fund Balance 18 IVA Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balance to the Statement of Activities 19 IVB Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual - General Fund 20 VA Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual – Community Redevelopment Agency 21 VB Proprietary Funds Statement of Net Position 22 VI Statement of Revenues, Expenses and Changes in Net Position 24 VII Statement of Cash Flows 25 VIII Fiduciary Funds Statement of Fiduciary Net Position 27 IX Statement of Changes in Fiduciary Net Position 28 X Notes to Financial Statements 29 i  City of Fort Walton Beach, Florida COMPREHENSIVE ANNUAL FINANCIAL REPORT Year Ended September 30, 2013 Statement/ Page Schedule II. FINANCIAL SECTION (CONTINUED) C. REQUIRED SUPPLEMENTARY INFORMATION Pension Schedules Schedule of Funding Progress 76 A-1 Schedule of Contributions from the Employer and Other Contributing Entities (unaudited) 77 A-2 Schedule of Other Post-Employment Obligations (unaudited) 78 A-3 D. COMBINING AND INDIVIDUAL FUND STATEMENTS AND SCHEDULES Non-Major Governmental Funds Combining Balance Sheet 79 B-1 Combining Statement of Revenues, Expenditures and Changes in Fund Balance 80 B-2 Schedules of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual Law Enforcement Trust Special Revenue Fund 81 C-1 Law Enforcement Trust Training Special Revenue Fund 82 C-2 Florida Building Code Special Revenue Fund 83 C-3 Community Development Block Grant Special Revenue Fund 84 C-4 Beal Memorial Cemetery Perpetual Care Special Revenue Fund 85 C-5 Debt Service Fund 86 C-6 Non-Major Fund – Enterprise Fund Statement of Net Position 87 D-1 Statement of Revenues, Expenses and Changes in Net Position 88 D-2 Statement of Cash Flows 89 D-3 III. STATISTICAL SECTION (UNAUDITED) Net Position by Component 90 1 Changes in Net Position 91 2 Fund Balances - Governmental Funds 93 3 Changes in Fund Balances - Governmental Funds 94 4 Revenues and Other Sources 95 5 Assessed Value of Taxable Property 96 6 Property Tax Rates Per $1,000 of Taxable Value - All Direct and Overlapping Governments 97 7 ii  City of Fort Walton Beach, Florida COMPREHENSIVE ANNUAL FINANCIAL REPORT Year Ended September 30, 2013 Statement/ Page Schedule III. STATISTICAL SECTION (UNAUDITED) Principal Taxpayers 98 8 Property Tax Levies and Collections 99 9 Ratios of Outstanding Debt by Type 100 10 Ratio of Net General Bonded Debt Outstanding 101 11 Pledged Revenue Coverage – Schedule of Revenue Bond Coverage 102 12 Direct and Overlapping Governmental Activities Debt – General Obligations 103 13 Major Employers 104 14 Miscellaneous Demographical Statistics 105 15 Full-Time Equivalent Employees by Function/Program 106 16 Permits, Licenses and Recreation Facilities 107 17 Elections - Okaloosa County Voter Registration 108 18 Special Assessment Billings and Collections 109 19 Major Revenue Sources 110 20 Water and Wastewater Service Rates 111 21 Sanitation and Recycling Service Rates 112 22 Operating Indicators by Function/Program 113 23 Capital Asset Statistics by Function/Program 114 24 Insurance Coverage 115 25 IV. COMPLIANCE SECTION Schedule of Expenditures of State Financial Assistance 119 Notes to Schedule of Expenditures of State Financial Assistance 120 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 121 Report on Compliance with Requirements Applicable to Each Major State Project and Internal Control Over Compliance in Accordance With Chapter 10.550, Rules of the Auditor General 123 Schedule of Findings and Questioned Costs 125 Management Letter 126 iii (THIS PAGE INTENTIONALLY LEFT BLANK.)  City of Fort Walton Beach America's Most Beautiful Beaches 107 Miracle Strip Parkway, SW * Fort Walton Beach, Fl 32548 (850) 833-9500 * Fax (850) 833-9640 * www.fwb.org March 3, 2014 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, 2013, 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, 2013, are free of material misstatement. The independent audit involved examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements; assessing the accounting principles used and significant estimates made by management; and evaluating the overall financial statement presentation. The independent auditor concluded, based upon the audit, that there was a reasonable basis for rendering an unmodified opinion that the City of Fort Walton Beach’s financial statements for the fiscal year ending September 30, 2013, 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 iv  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: 93.06 miles GEOGRAPHIC AREA: 7.41 square miles SIDEWALKS: 63.93 miles TAXABLE ASSESSED VALUE: $1,128,838,962 WATER & SEWER LINES: 237.39 miles CITY MILLAGE RATE: 5.7697 STORM DRAIN: 41.64 miles POPULATION: 20,194 POLICE STATIONS: 1 FIRE STATIONS: 2 EMPLOYEES: 344 positions, 291.02 FTE’s LIBRARIES: 1 MUSEUMS: 4 SWORN POLICE OFFICERS: 43 18-HOLE GOLF COURSES: 2 FIREFIGHTING PERSONNEL: 36 ACRES OF PARKS: 182.70 The City of Fort Walton Beach, Florida prides itself on being a small, family-oriented seaside community boasting a downtown area that was home to a significant prehistoric Native American community on the Gulf Coast of Northwest Florida. Situated at the junction of two major highways - US 98 (Miracle Strip Parkway) and SR 85 (Eglin Parkway) - Fort Walton Beach enjoys the benefits of its crossroads location along the coastal portion of the Northwest Florida regional transportation network. The City offers a full-service government providing police and fire protection; cultural and recreational activities including parks, a library, a museum, and two championship golf courses; planning and zoning; public works such as street, sidewalk, right-of- way, and cemetery maintenance; utilities service including water, sewer, and storm water; and garbage and recycling collection. 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 Santa Rosa Sound and shortly thereafter the first post office was built in 1906. The Montgomery, Alabama, Maxwell Field military base developed an airfield in Fort Walton in 1933 on 137 acres of land and used it as a bombing First Schoolhouse 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). v 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 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 thus capturing a greater share of the local and regional market. With the purchase of the Fort Walton Landing Park in 1986, which has become the City’s premier gathering place along Santa Rosa Sound, and 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 began construction of a new recreational complex, which promises to add to the attraction of the City. New Recreation Complex Brooks Bridge Park The financial reporting entity (the government) includes all the funds and account groups of the City of Fort Walton Beach, Florida, as well as component units. Component units are legally separate entities for which the primary government is financially accountable. Accordingly, the Fort Walton Beach Community Redevelopment Agency is reported as a blended component unit of the City of Fort Walton Beach. The annual budget serves as a foundation for the City of Fort Walton Beach’s financial planning and control. The City of Fort Walton Beach prepares a budget designed to meet the highest standards of performance in municipal budgeting. A Budget Policy Workshop is held with City Council in May to determine City Council’s priorities and position on issues critical to development of the operational and capital budgets. City Council’s decisions on the issues presented provide the framework under which the upcoming year’s budget is prepared to meet City Council’s programmatic objectives within available fiscal resources. Department Directors, with the assistance of their division managers, are responsible for identifying their staffing needs and operational funding needs within budget development parameters. In addition, they must conduct a comprehensive review of departmental objectives, accomplishments, and performance measures. A Budget Committee is formed comprised of the City Manager, Finance Director, and Financial Analyst. The Committee conducts comprehensive meetings with Department Directors and Division Managers to review their budget requests and a collaborative effort is undertaken to achieve City Council and department goals. The City Council is required by Florida State Statute and City Charter to hold public hearings on the proposed budget and adopt a final budget no later than September 30, the close of the City’s fiscal year. The appropriated budget is prepared by fund, department (e.g. financial services), and division (e.g. purchasing). Department Directors may request transfers of appropriations within a department and between divisions to transfer appropriations between line items, not to increase the total budget or to transfer resources between funds. Transfers of appropriations between funds require the approval of the City Council. The budget may be amended at any time by Resolution vi  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 Development Agency Fund, this comparison is presented on page 20 & 21 as part of the basic financial statements for the governmental funds. For governmental funds with appropriated annual budgets, other than those previously mentioned, this comparison is presented in the combining and individual fund statements and schedules, Section D of this report, which starts on page 79. FACTORS AFFECTING FINANCIAL CONDITION The information presented in the financial statements is best understood when it is considered from the broader perspective of the specific environment within which the City of Fort Walton Beach operates. Local Economy The City of Fort Walton Beach currently faces many of the same economic challenges that are affecting the global economy, however economic stabilization is evident. For fiscal year 2013-14, the State of Florida projects an increase for each of the City’s revenue sharing funds, which suggests an uptick in discretionary spending. After five years of declining values, the Okaloosa County Property Appraiser anticipates a 0.8% increase in taxable assessed value for the City. It appears the downward spiral in the real estate market has ended. However, civilian furloughs at Eglin AFB and Hurlburt Field, two of the area’s largest employers, could adversely affect the local economy in the short-term. Eglin Air Force Base is the world’s largest Department of Defense installation, spanning 724 square miles. Defense contractor companies are established throughout the Northwest Florida region. It is estimated that local military bases currently represent a $6.0 billion annual economic impact on the area, with approximately 73% of the local economy supported by the military. Being located on the Gulf of Mexico in Northwest Florida, tourism is a large part of the regional economy. Regional accolades continue to enhance the area’s image, promote visibility, and generate additional tourism and sales tax dollars. Local tourism has benefited from the national shift to vacation sites accessible by driving instead of flying. The Fort Walton Beach-Destin area is a popular drive destination in Florida, according to a survey of auto visitors by Visit Florida. Long-Term Financial Planning The City undertakes several processes to assist in future planning, such as:  A 5-year CIP (Capital Improvement Program) Plan is developed and approved by City Council each year during the annual budget process.  5-year replacement plans for capital equipment, including vehicles, machinery, and computer hardware and software, are also developed and approved by Management each year during the annual budget process Relevant Financial Policies The City has several financial policies that are utilized during daily operations, as well as during the budget and financial planning processes. The City utilizes fund balance reserves only for one- time non-recurring expenditures. In addition, the City maintains its fund balance level in the General Fund at 30% of fund expenditures – this policy helps to ensure that the City has sufficient funding in place for emergency and disaster relief. vii  Major Initiatives These indicators, as well as others, were taken into account when adopting the City’s budget for fiscal year 2014. The City’s total budget for fiscal year 2014 totals $34.7 million, which is $2.7 million higher than the fiscal year 2013 approved budget, due to efforts to return the City to financial stability and programmatic sustainability. The 2014 budget allocates $18.3 million, a 19.3% increase as compared to the fiscal year 2013 budget, to the General fund, $13.2 million to the Enterprise funds, and $3.2 million to other funds. For the fiscal year 2014 budget, the ad valorem rate increased to 5.7697 mills. A 3% increase in water and sewer rates is included in the budget; no other significant changes to the City’s various rate and fees are included in the fiscal year 2014 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, 2012. This was the twenty-seventh 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, 2013. This was the eighteenth consecutive year that the City received this prestigious award. In order to qualify for the Distinguished Budget Presentation Award, the City’s budget document was judged proficient in several categories, including as a policy document, a financial plan, an operations guide, and a communications device. Acknowledgments The preparation of this report would not have been possible without the efficient and dedicated services of the entire staff of the Finance Department. We would like to express our appreciation to all members of the Department who assisted and contributed to the preparation of this report. We would also like to thank the Mayor and City Council for their unfailing support for maintaining the highest standards of professionalism in the management of the City of Fort Walton Beach’s finances and for their attention in conducting the financial operations of the City in a responsible and progressive manner. Appreciation is also expressed to the accounting firm of Warren Averett, LLC for their continued assistance and professionalism. Respectfully submitted, Michael D. Beedie, PE Brandy L. Ferris, CPA City Manager Finance Director viii (THIS PAGE INTENTIONALLY LEFT BLANK.) ix (THIS PAGE INTENTIONALLY LEFT BLANK.) x (THIS PAGE INTENTIONALLY LEFT BLANK.) II. FINANCIAL SECTION  INDEPENDENT AUDITOR’S REPORT  MANAGEMENT’S DISCUSSION AND ANALYSIS  BASIC FINANCIAL STATEMENTS GOVERNMENT-WIDE FINANCIAL STATEMENTS FUND FINANCIAL STATEMENTS NOTES TO FINANCIAL STATEMENTS  REQUIRED SUPPLEMENTARY INFORMATION  COMBINING AND INDIVIDUAL FUND STATEMENTS AND SCHEDULES Honorable Mayor and City Council Members City of Fort Walton Beach, Florida INDEPENDENT AUDITOR'S REPORT Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Fort Walton Beach, Florida, as of and for the year ended September 30, 2013, 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. Auditor’s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. 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, 2013, 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. 1 Honorable Mayor and City Council Members City of Fort Walton Beach, Florida Independent Auditor's Report (Continued) Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that Management's Discussion and Analysis on pages 3-13, the Schedule of Funding Progress on page 76, the Schedule of Contributions from the Employer and Other Contributing Entities on page 77, and the Schedule of Other Post-Employment Obligations on page 78 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City of Fort Walton Beach, Florida's basic financial statements. The introductory section, combining and individual non-major fund financial statements, and statistical section, as listed in the table of contents, are presented for purposes of additional analysis and are not a required part of the basic financial statements. The Schedule of Expenditures of State Financial Assistance is presented for purposes of additional analysis as required by Chapter 10.550, Rules of the Auditor General, and is also not a required part of the basic financial statements. The combining and individual non-major fund financial statements 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 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 3, 2014, on our consideration of the City of Fort Walton Beach, Florida’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering City of Fort Walton Beach, Florida’s internal control over financial reporting and compliance. Fort Walton Beach, Florida March 3, 2014 2  MANAGEMENT’S DISCUSSION AND ANALYSIS As management of the City of Fort Walton Beach, Florida, we offer readers of the City of Fort Walton Beach’s financial statements this narrative overview and analysis of the financial activities of the City of Fort Walton Beach for the fiscal year ended September 30, 2013. We encourage readers to consider the information presented here in conjunction with additional information that we have furnished in our letter of transmittal, which can be found on pages iv-viii of this report. FINANCIAL HIGHLIGHTS  The assets of the City of Fort Walton Beach exceeded its liabilities by $65.4 million (net position). Of this amount, $15.2 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 $480,684, primarily attributable to an increase in capital contributions from a joint project with Okaloosa County which, accompanied by a decrease in general government expenses necessitated by declining revenues, was offset by an impairment loss in both the general fund and the utilities fund. In the General Fund, the demolition of an outdated recreation complex resulted in an impairment loss of $271,287. The impairment loss of $786,713 in the Utilities Fund was the result of the disposition of a re-use water filtration system that was no longer viable.  As of the close of the fiscal year, the City of Fort Walton Beach’s governmental funds reported combined ending fund balances of $22.1 million, an increase of $5.9 million in comparison with the prior year. Approximately 43.6% of this amount, or $9.6 million, is available for spending at the discretion of City Council.  At the end of the fiscal year, unrestricted fund balance for the General Fund was $7.6 million, or 38.0% of total General Fund expenditures.  The City of Fort Walton Beach’s total debt increased by $15.4 million, or 99.8%, during the fiscal year. The City issued an $8.5 million Capital Improvement Revenue Note to finance the construction of a new recreation complex and purchase golf equipment and a lift truck. In addition, the City’s Water Utility Fund began construction of a new pump station and force main project, which is being financed via a State Revolving Fund loan. 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. 3  The statement of net position presents information on all of the City of Fort Walton Beach’s assets and liabilities, with the difference between the two reported as net position. This statement combines and consolidates the governmental funds’ current financial resources (short-term available resources) with capital assets and long-term obligations. Over time, increases or decreases in net position may serve as a useful indicator of the financial position of the City of Fort Walton Beach. The statement of activities presents information showing how the government’s net position changed during the most recent fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flow in future fiscal periods. Both of the government-wide financial statements distinguish functions of the City of Fort Walton Beach that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business-type activities). The governmental activities of the City of Fort Walton Beach include general government (city clerk, city council, city manager, human resources, finance, purchasing, fleet maintenance, service maintenance, and non-departmental expenses), public safety (police, fire, building, and code enforcement services), physical environment (cemetery), transportation (engineering, streets, public works, and right-of-way), economic development (Community Development Block Grant Program, and community redevelopment agency), culture and recreation (parks, library, and museum), and debt service interest. The business-type activities of the City of Fort Walton Beach include utilities (water, sewer, and storm water), sanitation, and golf. The government-wide financial statements include not only the City of Fort Walton Beach itself (known as the primary government), but a component unit, the Community Redevelopment Agency (CRA), which is a legally separate entity for which the City of Fort Walton Beach is financially accountable. The CRA is considered a blended component unit of the City of Fort Walton Beach, Florida and is presented as a special revenue fund as part of the primary government. The government-wide financial statements are found on pages 14-15 of this report. Fund Financial Statements A fund is a grouping of related accounts used to maintain control over resources that have been segregated for specific activities or objectives. The City of Fort Walton Beach, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the City of Fort Walton Beach can be divided into three categories: governmental funds, proprietary funds, and fiduciary funds. FUNDS Governmental Funds Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements are reported using an accounting method called modified accrual accounting, the focus of which is on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government’s near-term financial requirements. The basic governmental fund financial statements are on pages 16-21 of this report. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government’s near-term financing 4  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 City of Fort Walton Beach adopts an annual appropriated budget for its General Fund, as well as each of the other governmental funds. A budgetary comparison statement is provided for the General Fund on page 20 and the Community Redevelopment Agency 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), sanitation operations (garbage), and golf club operations. Proprietary funds provide the same type of information as the government-wide financial statements, only in more detail. The proprietary fund financial statements provide separate information on utilities operations, sanitation operations, stormwater operations, and golf club operations, all of which are considered major funds of the City of Fort Walton Beach except for stormwater, which is considered non- major. The basic proprietary fund financial statements are found on pages 22-26 of this report. Fiduciary Funds Fiduciary funds are used to account for resources held for the benefit of parties outside the government. The City’s fiduciary funds include the Pension Trust Funds (general employees, police officers, and firefighters). Fiduciary funds are not reflected in the government-wide financial statements because the resources of those funds are not available to support the City of Fort Walton Beach’s own programs. The accounting used for fiduciary funds is much like that used for proprietary funds. The basic fiduciary fund financial statements are found on pages 27-28 of this report. NOTES TO THE FINANCIAL STATEMENTS The notes to the financial statements provide additional information that is essential to the full understanding of the data provided in the government-wide and fund financial statements. The notes to the financial statements begin on page 29 of this report. OTHER INFORMATION In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information concerning the City of Fort Walton Beach’s progress in funding its obligation to provide pension benefits to its employees. The required supplementary information is found on pages 76-78 of this report. 5  The combining statements referred to earlier in connection with non-major governmental funds immediately follow the required supplementary information on Pension funds and can be found beginning on page 79 of this report. GOVERNMENT-WIDE FINANCIAL ANALYSIS As noted earlier, net position may serve over time as a useful indicator of a government’s financial position. In the case of the City of Fort Walton Beach, assets exceeded liabilities by $65.4 million (net position), as reported in Table 1. The government’s net position increased by $480,684 for the fiscal year ended September 30, 2013. By far, the largest portion of the City’s assets, $44.3 million or 67.7%, reflects its investment in capital assets (e.g. land, infrastructure, buildings, machinery, and equipment) less any related debt still outstanding that was used to acquire those assets. The City uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the City of Fort Walton Beach reports investment in its capital assets net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since capital assets themselves cannot be used to liquidate these liabilities. An additional portion of the City’s assets, 9.0%, represents resources that are subject to external restrictions on how they may be used. The remaining balance of $15.2 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 Activities Business-Type Activities Total 2013 2012 2013 2012 2013 2012 Current and Other $23,855 $18,004 $10,916 $ 11,127 $34,771 $ 29,131 Capital Assets 29,478 30,469 37,834 24,900 67,312 55,369 Total Assets 53,333 48,473 48,750 36,027 102,083 84,500 Long-Term Liabilities Outstanding 14,159 5,900 17,193 10,292 31,352 16,192 Other Liabilities 1,819 1,400 3,478 1,955 5,297 3,355 Total Liabilities 15,978 7,300 20,671 12,247 36,649 19,547 Net position Invested in Capital Net of Related Debt 23,532 25,379 20,767 14,930 44,299 40,309 Restricted 4,494 4,306 1,393 298 5,887 4,604 Unrestricted 9,329 11,488 5,919 8,552 15,248 20,040 Total Net Position $37,355 $41,173 $28,079 $23,780 $65,434 $ 64,953 The overall increase in the City’s net position was $480,684 during the fiscal year. The governmental activities experienced a decrease, primarily related to the forgiveness of an advance made to the golf fund, an increase in the other post-employment benefits (OPEB) liability, and an impairment loss on the disposal of a recreation center due to the construction of a new, consolidated complex. The business activities experienced an increase primarily related to the forgiveness of an advance made to the golf fund by the general fund, coupled with an increase in capital contributions and grants due to a joint project with Okaloosa County and reduction in expenses due to budgetary constraints. This increase was partially offset by an impairment loss of $786,713, due to the disposition of a re-use water filtration 6 system that was no longer viable. The details related to this increase are analyzed further in the Financial Impacts section of this discussion. Reported in Table 2 are the key elements of the increase in net position for the current year. Table 2 Governmental Activities Business-Type Activities Total Activities 2013 2012 2013 2012 2013 2012 Revenues Program Revenue: Charges for Services $ 1,985,972 $ 1,820,410 $ 14,472,546 $ 13,642,515 $ 16,458,518 $ 15,462,925 Operating Grants & 786,652 589,253 1,071 - 787,723 589,253 Contributions Capital Grants & Contributions 80,936 156,794 1,871,295 331,609 1,952,231 488,403 General Revenue: Property Taxes 4,175,136 4,295,068 - - 4,175,136 4,295,068 Other Taxes 6,002,679 5,937,581 - - 6,002,679 5,937,581 Tax Increments for 1,311,101 1,386,521 - - 1,311,101 1,386,521 Redevelopment Other Revenue 2,789,436 3,071,232 38,273 153,283 2,827,709 3,170,515 Total Revenues 17,131,912 17,202,859 16,383,185 14,127,407 33,515,097 31,330,266 Expenses Primary Government General Government 2,262,406 4,314,050 - - 2,262,406 4,314,050 Public Safety 9,729,228 9,805,368 - - 9,729,228 9,805,368 Physical Environment 379,681 383,970 - - 379,681 383,970 Transportation 1,631,665 1,592,150 - - 1,631,665 1,592,150 Economic Development 1,090,025 707,603 - - 1,090,025 707,603 Culture & Recreation 2,715,977 2,880,815 - - 2,715,977 2,880,815 Debt Service Interest 324,405 254,516 - - 324,405 254,516 Business-Type Activities Utilities - - 7,644,240 7,017,160 7,644,240 7,017,160 Sanitation - - 3,163,638 2,741,266 3,163,638 2,741,266 Golf - - 2,023,186 2,012,165 2,023,186 2,012,165 Other - - 611,962 497,211 611,962 497,211 Total Expenses 18,533,387 19,938,472 13,443,026 12,267,802 31,976,413 32,206,274 Increase/(Decrease) in Net Position (1,401,475) (2,735,613) 2,940,159 1,859,605 1,538,684 (876,008) before Transfers Transfers (2,145,441) 1,656,032 2,145,441 (1,656,032) - - Special Item – Impairment Loss (271,287) - (786,713) (588,652) (1,058,000) (588,652) Increase/(Decrease) in Net (3,818,203) (1,079,581) 4,298,887 (385,079) 480,684 (1,464,660) Position Nets Position – 10/1/2012 41,173,477 42,253,058 23,779,613 24,164,692 64,953,090 66,417,750 Net Position – 9/30/2013 $ 37,355,274 $ 41,173,477 $ 28,078,500 $ 23,779,613 $ 65,433,774 $ 64,953,090 Current Year Impacts – Governmental Activities Governmental activities decreased the City’s net position by $3.8 million for the fiscal year ended September 30, 2013. Key elements of this change are as follows:  Operating grants increased $197,399, or 33.5% due to an additional funding received through the Assistance to Firefighters and the Local Agency Program grants.  Capital grants for governmental activities decreased $75,858, or 37.5% as a result of the prior year’s receipt of an infrastructure grant, the loss of which was offset by an increase in the Florida Department of Transportation local agency grant.  Other revenue decreased $281,763, or 9.2%, attributable primarily to lower investment earnings and decreased franchise fees due to the final piece of the correction in the method of allocation by one of the primary revenue sources. 7  Other post-employment benefits (OPEB) liability and an impairment loss related to the demolition of an outdated recreation complex resulted in a decrease in net position of $371,683.  Overall, expenses for governmental activities decreased from prior year by $1.4 million, or 7.0%. This decrease was offset by a related revenue decrease due to the reclassification of the expense reimbursements related to the cost allocation plan from transfers to expense reductions.  Expenses for economic development increased by $382,422, or 54.0%, attributable to economic incentive grants provided through the Community Redevelopment Agency.  The general fund forgave an advance made to the golf fund, which resulted in a decrease of $2.6 million. Chart 1 Expense and Program Revenue – Governmental Activities $10,000,000 $8,000,000 $6,000,000 Expenses $4,000,000 Revenues $2,000,000 $‐ Chart 2 Revenues by Source – Governmental Activities Other Revenue, Charges for Services, Operating Grants & Franchise Fees, $206,664 , 1.2% $1,985,972 , 11.6% Contributions, $1,764,733 , 10.3% $786,652 , 4.6% Municipal Revenue Sharing, $818,039 , Capital Grants & 4.8% Contributions, $80,936 , 0.5% Tax Increments for Redevelopment, Property Taxes, $1,311,101 , 7.7% $4,175,136 , 24.4% Other Taxes, Sales Tax, $3,761,437 , 22.0% $2,241,242 , 13.1% 8 Current Year Impacts – Business-Type Activities Business-type activities increased the City’s net position by $4.3 million for the fiscal year ended September 30, 2013. Key elements of this change are as follows:  Capital Grants and Contributions increased $1.5 million, or 464.3% due to funding received for a joint project with Okaloosa County.  Other Revenue decreased by $115,010, or 75.0%, the majority of which is related to a decline in investment earnings.  Expenses throughout the enterprise funds increased by $1.2 million, or 9.6%. This increase was primarily due to the reclassification of the expense reimbursements related to the cost allocation plan from transfers out to expenses; transfers saw a related increase, a portion of which is attributable to the forgiveness of an advance made to the Golf Fund.  The Utilities Fund recognized an impairment loss of $786,713, due to the disposition of a re-use water filtration system that was no longer viable. Chart 3 Expenses and Program Revenue – Business-Type Activities $10,000,000 $8,000,000 Expenses $6,000,000 Revenues $4,000,000 $2,000,000 $‐ Utilities Sanitation Golf Stormwater 9  Chart 4 Revenues by Source – Business-Type Activities Miscellaneous Income, $38,273 , 0.2% Operating Grants & Contributions, $1,071 , 0.0% Charges for Services, $14,472,546 , 88.3% Capital Grants & Contributions, $1,871,295 , 11.4% FINANCIAL ANALYSIS OF THE CITY’S FUNDS As noted earlier, the City of Fort Walton Beach uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. Governmental Funds The focus of the City’s governmental funds is to provide information on near-term inflows, outflows, and balances of available resources. Such information is useful in assessing the City’s financing requirements. In particular, unrestricted fund balance may serve as a useful measure of a government’s net resources available for spending at the end of the fiscal year. As of September 30, 2013, the City of Fort Walton Beach’s governmental funds have combined ending fund balances of $22.1 million, an increase of $5.9 million in comparison with the prior year. Approximately 43.6% of this amount, or $9.6 million, is available for spending at the discretion of City Council. The remainder of fund balance is non-spendable or restricted. Details of the fund balance classifications can be found on page 16 of this report, as well as in Note 18. The General Fund is the chief operating fund of the City. At the end of this fiscal year, unrestricted fund balance of the General Fund was $7.6 million, while total fund balance reached $15.7 million. As a measure of the General Fund’s liquidity, it may be useful to compare both unrestricted fund balance and total fund balance to total expenditures. Unrestricted fund balance represents 38.0% of the total General Fund expenditures, while total fund balance represents 78.6% of that same amount. During the 2013 fiscal year, the fund balance of the City’s General Fund increased by $5.7 million. This increase was primarily related to the issuance of an $8.5 million Capital Improvement Revenue Note to 10  finance the construction of a new recreation complex and purchase golf equipment and a lift truck. This increase was offset by the forgiveness of an advance to the City’s golf fund. The Community Redevelopment Agency Fund increased by $97,330. This increase is due to lower than anticipated spending levels. Proprietary Funds The City of Fort Walton Beach’s proprietary funds provide the same type of information found in the government-wide financial statements, but in more detail. Unrestricted net position of the proprietary funds totaled $5.9 million at September 30, 2013, of which the Utilities Fund amounted to $3.6 million, the Sanitation Fund totaled $2.1 million, and the Stormwater Utility Fund was $511,359. The Golf Fund had negative unrestricted net position of $316,714 as a result of an improper chemical application that substantially impacted course play. In total, net position of the proprietary funds increased $4.3 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. GENERAL FUND BUDGETARY HIGHLIGHTS A schedule comparing the original to the final budget and the variance from the final budget to the actual results is included on page 20 of the financial statements. Differences between the original budget and the final amended budget were $12.7 million. Significant information related to this difference is summarized as follows:  The City issued the 2013A Capital Improvement Revenue Note to finance the construction of a new recreation complex in an amount of $8.5 million.  The City refunded its 2001 Capital Improvement Revenue Bond with the $4.4 million proceeds from the issuance of the 2013 Capital Improvement Revenue Note. Actual results, when compared to the final budget, show a variance of $9.0 million for expenditures. This variance is primarily due to amending the budget for grant revenue received and capital debt issued, but not yet expended. CAPITAL ASSET AND DEBT ADMINISTRATION Capital Assets The City’s investment in capital assets for its governmental and business-type activities, as of September 30, 2013, was $44.3 million (net of accumulated depreciation and related debt). This represents a net increase of $4.0 million, or 9.9%. Highlights are summarized as follows:  Fewer assets were purchased that were over the GASB 34 threshold.  Capital assets outdated, unserviceable, and no longer used are systematically disposed of on an annual basis.  An impairment loss of $271,287 and $786,713, due to the demolition of an outdated recreation complex and the disposition of a re-use water filtration system that was no longer viable were recorded.  The City began construction of a new force main and pump station. Of the $16.0 million project, $14.2 million was expended during the fiscal year and added to Construction in Progress, a portion of which was financed through existing reserves and a contribution from Okaloosa County. 11  Table 3 Total Capital Assets Net of Accumulated Depreciation Governmental Activities Business-Type Activities Total Activities FY 2013 FY 2012 FY 2013 FY 2012 FY 2013 FY 2012 Land $ 9,961,261 $ 9,961,261 $ 765,078 $ 765,078 $ 10,726,339 $ 10,726,339 Buildings 6,434,774 7,057,626 1,926,888 2,052,313 8,361,662 9,109,939 Improvements Other Than Buildings 5,926,341 6,110,056 17,212,291 16,783,482 23,138,632 22,893,538 Infrastructure 4,121,764 4,431,266 - - 4,121,764 4,431,266 Intangible Assets 281,928 393,935 18,277 23,253 300,205 417,188 Machinery & Equipment 1,713,565 2,026,331 2,455,379 2,618,635 4,161,944 4,644,966 Equipment under Capital Lease 58,565 397 - 12,429 58,565 12,826 Easements - - 34,642 28,532 34,642 28,532 Construction in Progress 979,617 488,118 15,421,355 2,616,944 16,400,972 3,105,062 $ 29,477,815 $ 30,468,990 $ 37,833,910 $ 24,900,666 $ 67,311,725 $ 55,369,656 Additional information on the capital assets of the City of Fort Walton Beach can be found in Note 5 of this report on page 48. Long-Term Debt As shown in the following table, as of September 30, 2013, the City had total bonded debt, revenue notes, and capital leases outstanding of $30.7 million. All of the City’s debt represents bonds and notes secured solely by specified revenue sources (i.e. revenue bonds/notes) and capital leases. The City has no general obligation or special assessment debt. The State of Florida does not place a legal limit of debt on municipalities. For general obligation debts greater than one year, the City is required to conduct a voter referendum. Table 4 Outstanding Debt Governmental Activities Business-Type Activities Total Activities FY 2013 FY 2012 FY 2013 FY 2012 FY 2013 FY 2012 Revenue Bonds $ - $ 4,428,144 $ 9,925,055 $ 10,199,963 $ 9,925,055 $ 14,628,107 Revenue Notes 13,535,936 661,796 73,533 61,221 13,609,469 723,017 State Revolving Fund - - 7,068,522 - 7,068,522 - Capital Leases 101,696 - - 13,458 101,696 13,458 $ 13,637,632 $ 5,089,940 $ 17,067,110 $ 10,274,642 $ 30,704,742 $ 15,364,582 Additional information on the City of Fort Walton Beach’s long-term debt can be found in Note 13 and 14 of this report on pages 63-68. ECONOMIC FACTORS AND NEXT YEAR’S 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 1.3% higher than a year ago. This indicator 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 to show the effects of inflation on the cost of providing municipal services.  The Consumer Confidence Index is at its highest level since 2008. This indicator measures economic conditions by gauging the future spending of consumers. 12   The Leading Economic Index has grown steadily over the last year and is designed to signal turning point patterns in economic data.  The military has a significant presence in our community. These installations are essential to the continued long-term economic vitality of this area. Combined, the military and defense-related industries have a $6.0 billion annual impact on Okaloosa County’s economy, with approximately 73% of our local economy supported by the military. These indicators, as well as others, were taken into account when adopting the City’s budget for fiscal year 2014. The City’s budget for fiscal year 2014 totals $34.7 million, which is $2.7 million higher than the fiscal year 2013 approved budget, due to efforts to return the City to financial stability and programmatic sustainability. The 2014 budget allocates $18.3 million, a 19.3% increase as compared to the fiscal year 2013 budget, to the General fund, $13.2 million to the Enterprise funds, and $3.2 million to other funds. For the fiscal year 2014 budget, the ad valorem rate increased to 5.7697 mills. A 3% increase in water and sewer rates is included in the budget; no other significant changes to the City’s various rate and fees are included in the fiscal year 2014 budget. Personnel expenses account for approximately 50.0% of the City’s budget. The City’s fiscal year 2014 budget remains relatively stable in this category, at 291.02 full time equivalent positions. REQUESTS FOR INFORMATION This financial report is designed to provide citizens, taxpayers, customers, and creditors with a general overview of the City of Fort Walton Beach’s finances and to demonstrate the City’s accountability for the money it receives. Questions concerning any of the information provided in this report, or requests for additional information, should be addressed to the Finance Director, 107 Miracle Strip Parkway S.W., City of Fort Walton Beach, Florida, 32548. This document and other financial information are available on the City’s website at www.fwb.org. Inquiries may also be sent via email to the Finance Department at finance@fwb.org. 13 (THIS PAGE INTENTIONALLY LEFT BLANK.)  EXHIBIT I City of Fort Walton Beach, Florida STATEMENT OF NET POSITION September 30, 2013 Primary Government Governmental Business-Type Activities Activities Total ASSETS Cash and cash equivalents $ 12,769,564 $ 8,468,736 $ 21,238,300 Investments 2,005,963 - 2,005,963 Receivables, net 225,017 795,954 1,020,971 Internal balances 157,846 (157,846) - Due from other governments 97,007 - 97,007 Inventory, at cost 254,229 58,157 312,386 Restricted assets Cash and cash equivalents 7,712,549 1,552,512 9,265,061 Capital assets Non-depreciable/amortizable 10,940,878 16,221,075 27,161,953 Depreciable/amortizable, net 18,536,937 21,612,835 40,149,772 Other assets Bond issue costs, net 26,879 182,649 209,528 Net pension asset 606,629 - 606,629 Other receivables, net - 15,917 15,917 TOTAL ASSETS 53,333,498 48,749,989 102,083,487 LIABILITIES Accounts payable 463,363 2,262,918 2,726,281 Accrued liabilities 585,242 184,071 769,313 Due to other governments - 338,525 338,525 Unearned revenue - 55,708 55,708 Payable from restricted assets Accrued interest 3,783 108,672 112,455 Customer deposits - 164,599 164,599 Non-current liabilities Due within one year Compensated absences 172,537 55,236 227,773 Leases payable 12,042 - 12,042 Notes payable 582,311 18,643 600,954 Revenues bonds payable - 290,000 290,000 Due in more than one year Compensated absences 517,612 165,701 683,313 Leases payable 89,654 - 89,654 Notes payable 12,953,625 54,890 13,008,515 Revenue bonds payable - 9,635,055 9,635,055 State revolving loan payable - 7,068,522 7,068,522 Other post-employment benefits 598,055 268,949 867,004 TOTAL LIABILITIES 15,978,224 20,671,489 36,649,713 NET POSITION Invested in capital assets, net of related debt 23,531,576 20,766,800 44,298,376 Restricted Debt service 21,156 1,087,405 1,108,561 System improvements - 305,508 305,508 Improvement districts 3,833,430 - 3,833,430 Public safety 462,375 - 462,375 Other purposes 177,129 - 177,129 Unrestricted 9,329,608 5,918,787 15,248,395 TOTAL NET POSITION $ 37,355,274 $ 28,078,500 $ 65,433,774 The accompanying notes are an integral part of these financial statements. 14  EXHIBIT II City of Fort Walton Beach, Florida STATEMENT OF ACTIVITIES Year Ended September 30, 2013 Program Revenues Net (Expense) Revenue and Changes in Net Position Primary Government Charges for Operating Grants Capital Grants and Governmental Business-Type Expenses Services and Contributions Contributions Activities Activities Total Function/Program Activities Government activities General government $ 2,662,406 $ 409,983 $ 1,500 $ - $ (2,250,923) $ - $ (2,250,923) Public safety 9,729,228 640,271 410,609 8,427 (8,669,921) - (8,669,921) Physical environment 379,681 404,429 216,930 - 241,678 - 241,678 Transportation 1,631,665 122,275 - 72,509 (1,436,881) - (1,436,881) Economic environment 1,090,025 34,652 55,411 - (999,962) - (999,962) Culture and recreation 2,715,977 374,362 102,202 - (2,239,413) - (2,239,413) Debt service interest 324,405 - - - (324,405) - (324,405) Total government activities 18,533,387 1,985,972 786,652 80,936 (15,679,827) - (15,679,827) Business-type activities Utilities 7,644,240 8,623,082 - 1,871,295 - 2,850,137 2,850,137 Sanitation 3,163,638 3,499,559 1,071 - - 336,992 336,992 Golf 2,023,186 1,758,709 - - - (264,477) (264,477) Stormwater 611,962 591,196 - - - (20,766) (20,766) Total business-type activities 13,443,026 14,472,546 1,071 1,871,295 - 2,901,886 2,901,886 Total primary government $ 31,976,413 $ 16,458,518 $ 787,723 $ 1,952,231 $ (15,679,827) $ 2,901,886 $ (12,777,941) General Revenues Taxes Property taxes $ 4,175,136 $ - $ 4,175,136 Sales taxes 2,241,242 - 2,241,242 Utility service taxes 3,761,437 - 3,761,437 Tax increments for redevelopment district 1,311,101 - 1,311,101 Franchise fees 1,764,733 - 1,764,733 Intergovernmental, unrestricted 818,039 - 818,039 Gain on sale of assets 37,833 20,662 58,495 Miscellaneous 106,546 6,504 113,050 Investment earnings 62,285 11,107 73,392 Special item: loss on impairment of capital asset (271,287) (786,713) (1,058,000) Transfers (2,145,441) 2,145,441 - Total general revenues, transfers and special item 11,861,624 1,397,001 13,258,625 Change in net position (3,818,203) 4,298,887 480,684 Net position - beginning of year 41,173,477 23,779,613 64,953,090 Net position - end of year $ 37,355,274 $ 28,078,500 $ 65,433,774 The accompanying notes are an integral part of these financial statements. 15  EXHIBIT IIIA City of Fort Walton Beach, Florida GOVERNMENTAL FUNDS BALANCE SHEET September 30, 2013 Community Other Total Redevelopment Governmental Governmental General Fund Agency Funds Funds ASSETS Cash and cash equivalents $ 8,391,042 $ 3,871,136 $ 507,386 $ 12,769,564 Investments - - 2,005,963 2,005,963 Receivables 224,872 36 109 225,017 Due from other funds 165,600 - - 165,600 Due from other governments 76,336 - 20,671 97,007 Inventory, at cost 254,229 - - 254,229 Restricted assets Cash and cash equivalents 7,691,393 - 21,156 7,712,549 TOTAL ASSETS $ 16,803,472 $ 3,871,172 $ 2,555,285 $ 23,229,929 LIABILITIES AND FUND BALANCE Liabilities Accounts payable $ 426,158 $ 21,767 $ 15,438 $ 463,363 Accrued liabilities 553,185 15,975 16,082 585,242 Due to other funds - - 7,754 7,754 Deferred revenue 110,564 - - 110,564 Total liabilities 1,089,907 37,742 39,274 1,166,923 Fund balance Nonspendable 254,229 - - 254,229 Restricted 7,868,522 3,833,430 483,531 12,185,483 Committed 5,501,353 - 2,035,225 7,536,578 Assigned 1,301,385 - - 1,301,385 Unassigned 788,076 - (2,745) 785,331 Total fund balance 15,713,565 3,833,430 2,516,011 22,063,006 TOTAL LIABILITIES AND FUND BALANCE $ 16,803,472 $ 3,871,172 $ 2,555,285 $ 23,229,929 The accompanying notes are an integral part of these financial statements. 16  EXHIBIT IIIB City of Fort Walton Beach, Florida GOVERNMENTAL FUNDS RECONCILIATION OF THE BALANCE SHEET TO THE STATEMENT OF NET POSITION September 30, 2013 Fund balance - total governmental funds (page 16) $ 22,063,006 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 10,940,878 Governmental depreciable/amortizable assets 45,918,558 Less accumulated depreciation/amortization (27,381,621) 29,477,815 Other assets used in governmental activities are not current financial resources and therefore are not reported in the governmental funds. Net pension asset 606,629 Bond issuance costs 239,956 Less related accumulated amortization (213,077) 633,508 Deferred revenue in governmental funds is susceptible to full accrual on the entity-wide statements. Special assessment for street resurfacing 110,564 Long-term liabilities are not due and payable in the current period and therefore are not reported in the governmental funds. Notes payable (13,535,936) Accrued interest (3,783) Capital leases (101,696) Compensated absences (690,149) Other post-employment benefits (598,055) (14,929,619) Net position of governmental activities (page 14) $ 37,355,274 The accompanying notes are an integral part of these financial statements. 17  EXHIBIT IVA City of Fort Walton Beach, Florida GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE Year Ended September 30, 2013 Community Other Total Redevelopment Governmental Governmental General Agency Funds Funds REVENUES Taxes $ 9,141,063 $ 760,094 $ - $ 9,901,157 Permits and fees 1,810,136 - 411,270 2,221,406 Intergovernmental 2,563,283 766,007 71,586 3,400,876 Charges for services 882,824 182,492 - 1,065,316 Fines and forfeits 201,691 - 40,232 241,923 Miscellaneous 371,729 9,840 50,056 431,625 TOTAL REVENUES 14,970,726 1,718,433 573,144 17,262,303 EXPENDITURES Current General governmental services 2,514,734 - - 2,514,734 Public safety 8,339,581 464,149 262,516 9,066,246 Physical environment 303,042 - 8,642 311,684 Transportation 1,010,687 1,700 - 1,012,387 Economic environment - 976,508 56,151 1,032,659 Culture and recreation 2,267,141 - - 2,267,141 Capital outlay 1,094,998 178,746 8,398 1,282,142 Debt service Principal 4,470,000 - 70,488 4,540,488 Interest - - 202,719 202,719 Other debt service costs - - 628 628 TOTAL EXPENDITURES 20,000,183 1,621,103 609,542 22,230,828 EXCESS OF REVENUES OVER (UNDER) EXPENDITURES (5,029,457) 97,330 (36,398) (4,968,525) OTHER FINANCING SOURCES (USES) Issuance of debt 13,046,323 - - 13,046,323 Transfers in 453,826 - 220,010 673,836 Transfers out (2,815,987) - (3,290) (2,819,277) TOTAL OTHER FINANCING SOURCES (USES) 10,684,162 - 216,720 10,900,882 NET CHANGE IN FUND BALANCE 5,654,705 97,330 180,322 5,932,357 FUND BALANCE - BEGINNING OF YEAR 10,058,860 3,736,100 2,335,689 16,130,649 FUND BALANCE - END OF YEAR $ 15,713,565 $ 3,833,430 $ 2,516,011 $ 22,063,006 The accompanying notes are an integral part of these financial statements. 18  EXHIBIT IVB City of Fort Walton Beach, Florida GOVERNMENTAL FUNDS RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE TO THE STATEMENT OF ACTIVITIES Year Ended September 30, 2013 Net change in fund balances - total governmental funds (page 18) $ 5,932,357 Amounts reported for governmental activities in the statement of activities are different because: Governmental funds do not report capital assets on the balance sheet; however, they are reported in the government-wide financial statements. Governmental funds report capital outlays as expenditures; however, in the statement of activities, the cost of those assets is depreciated over the estimated useful lives of the assets. Expenditures for capital assets 1,222,017 Less current year depreciation/amortization (1,962,126) (740,109) Governmental funds do not report capital assets on the balance sheet; however, they are reported in the government-wide financial statements. Accordingly, proceeds received for disposals of capital assets are shown as income in the governmental financial statements and a gain or loss is reported in the statement of activities. Disposals of capital assets and adjustments (1,219,967) Accumulated depreciation associated with disposals and adjustments 968,900 (251,067) Transfer of capital assets to stormwater fund (13,975) Accumulated depreciation associated with transfers 13,975 - Special assessment revenue in the governmental funds is recognized when due; however, the revenue was recognized in the Statement of Activities when it was earned (when levied). Special assessment for street resurfacing (4,715) Special assessment for affordable housing (147,840) Special assessment interest and penalties 1,942 (150,613) 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. Note proceeds (13,046,323) Debt principal payments 4,540,488 Amortization of current year bond discount (41,857) Amortization of bond and note issue costs (134,488) Change in accrued interest on long-term debt 55,287 (8,626,893) Some expenses reported in the Statement of Activities do not require the use of current financial resources and therefore are not reported as expenditures in governmental funds. Net pension asset 101,226 Change in long-term compensated absences 17,292 Change in other post-employment benefits (100,396) 18,122 Change in net position of governmental activities (page 15) $ (3,818,203) The accompanying notes are an integral part of these financial statements. 19  EXHIBIT VA City of Fort Walton Beach, Florida GENERAL FUND STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL Year Ended September 30, 2013 Budgeted Amounts Variance with Final Budget - Positive Original Final Actual (Negative) REVENUES Taxes $ 8,906,921 $ 8,906,921 $ 9,141,063 $ 234,142 Permits and fees 2,077,249 2,077,249 1,810,136 (267,113) Intergovernmental 2,471,016 3,203,908 2,563,283 (640,625) Charges for services 915,081 919,185 882,824 (36,361) Fines and forfeits 103,700 103,700 201,691 97,991 Miscellaneous 376,472 425,117 371,729 (53,388) TOTAL REVENUES 14,850,439 15,636,080 14,970,726 (665,354) EXPENDITURES Current General government services 4,103,468 2,997,149 2,514,734 482,415 Public safety 8,079,102 8,228,146 8,339,581 (111,435) Physical environment 287,085 304,641 303,042 1,599 Transportation 1,139,634 1,141,107 1,010,687 130,420 Culture and recreation 2,388,130 2,432,494 2,267,141 165,353 Capital outlay 294,302 9,408,563 1,094,998 8,313,565 Debt service - 4,470,000 4,470,000 - TOTAL EXPENDITURES 16,291,721 28,982,100 20,000,183 8,981,917 EXCESS OF REVENUES OVER (UNDER) EXPENDITURES (1,441,282) (13,346,020) (5,029,457) 8,316,563 OTHER FINANCING SOURCES (USES) Debt proceeds - 13,045,712 13,046,323 611 Transfers in 1,886,863 454,871 453,826 (1,045) Transfers out (510,229) (426,158) (2,815,987) (2,389,829) TOTAL OTHER FINANCING SOURCES (USES) 1,376,634 13,074,425 10,684,162 (2,390,263) NET CHANGE IN FUND BALANCE (64,648) (271,595) 5,654,705 5,926,300 FUND BALANCE - BEGINNING OF YEAR 64,648 271,595 10,058,860 9,787,265 FUND BALANCE - END OF YEAR $ - $ - $ 15,713,565 $ 15,713,565 The accompanying notes are an integral part of these financial statements. 20  EXHIBIT VB City of Fort Walton Beach, Florida COMMUNITY REDEVELOPMENT AGENCY STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL Year Ended September 30, 2013 Budgeted Amounts Variance with Final Budget - Positive Original Final Actual (Negative) REVENUES Taxes $ 760,094 $ 760,094 $ 760,094 $ - Intergovernmental 551,007 602,252 766,007 163,755 Charges for services - - 182,492 182,492 Miscellaneous 15,000 15,000 9,840 (5,160) TOTAL REVENUES 1,326,101 1,377,346 1,718,433 341,087 EXPENDITURES Current Public safety 414,838 470,507 464,149 6,358 Transportation - 1,700 1,700 - Economic environment 694,420 1,733,675 976,508 757,167 Capital outlay 85,000 354,162 178,746 175,416 TOTAL EXPENDITURES 1,194,258 2,560,044 1,621,103 938,941 EXCESS OF REVENUES OVER (UNDER) EXPENDITURES 131,843 (1,182,698) 97,330 1,280,028 OTHER FINANCING SOURCES (USES) Transfers out (131,843) (43) - 43 NET CHANGE IN FUND BALANCE - (1,182,741) 97,330 1,280,071 FUND BALANCE - BEGINNING OF YEAR - 1,182,741 3,736,100 2,553,359 FUND BALANCE - END OF YEAR $ - $ - $ 3,833,430 $ 3,833,430 The accompanying notes are an integral part of these financial statements. 21  EXHIBIT VI City of Fort Walton Beach, Florida PROPRIETARY FUNDS STATEMENT OF NET POSITION September 30, 2013 Other Sanitation Enterprise Utilities Fund Fund Golf Fund Funds Total ASSETS Current assets Cash and cash equivalents $ 5,757,274 $ 2,175,998 $ - $ 535,464 $ 8,468,736 Restricted assets - cash and cash equivalents 1,547,479 740 4,293 - 1,552,512 Receivables, net 546,997 213,068 182 35,707 795,954 Inventory - at cost 26,497 - 31,660 - 58,157 Total current assets 7,878,247 2,389,806 36,135 571,171 10,875,359 Capital assets, net Non-depreciable/amortizable 16,137,143 - 55,400 28,532 16,221,075 Depreciable/amortizable, net 16,781,547 1,396,235 2,563,974 871,079 21,612,835 Total capital assets 32,918,690 1,396,235 2,619,374 899,611 37,833,910 Other assets Bond issue costs, net 180,434 - 2,215 - 182,649 Other receivables, net 15,917 - - - 15,917 Total other assets 196,351 - 2,215 - 198,566 Total non-current assets 33,115,041 1,396,235 2,621,589 899,611 38,032,476 TOTAL ASSETS $ 40,993,288 $ 3,786,041 $ 2,657,724 $ 1,470,782 $ 48,907,835 Continued... The accompanying notes are an integral part of these financial statements. 22  EXHIBIT VI City of Fort Walton Beach, Florida PROPRIETARY FUNDS STATEMENT OF NET POSITION September 30, 2013 Other Sanitation Enterprise Utilities Fund Fund Golf Fund Funds Total LIABILITIES Current liabilities Accounts payable $ 2,114,152 $ 109,198 $ 33,184 $ 6,384 $ 2,262,918 Accrued liabilities Compensated absences 29,884 13,702 8,838 2,812 55,236 Wages 81,157 39,713 39,225 18,172 178,267 Other 1,539 1,102 386 2,777 5,804 Due to other governments 323,582 7,806 7,137 - 338,525 Due to other funds - - 157,846 - 157,846 Revenue bonds payable 290,000 - - - 290,000 Revenue note payable - - 18,643 - 18,643 Payable from restricted assets Accrued interest 108,190 - 482 - 108,672 Customer deposits 163,859 740 - - 164,599 Unearned revenue 31,630 - 24,078 - 55,708 Total current liabilities 3,143,993 172,261 289,819 30,145 3,636,218 Non-current liabilities Accrued liabilities Compensated absences 89,650 41,104 26,513 8,434 165,701 Revenue bonds payable 9,635,055 - - - 9,635,055 Revenue note payable - - 54,890 - 54,890 State revolving loan payable 7,068,522 - - - 7,068,522 Other post-employment benefits 127,397 67,237 53,082 21,233 268,949 Total non-current liabilities 16,920,624 108,341 134,485 29,667 17,193,117 TOTAL LIABILITIES 20,064,617 280,602 424,304 59,812 20,829,335 NET POSITION Invested in capital assets, net of related debt 15,925,113 1,396,235 2,545,841 899,611 20,766,800 Restricted Debt service 1,083,112 - 4,293 - 1,087,405 System improvements 305,508 - - - 305,508 Unrestricted 3,614,938 2,109,204 (316,714) 511,359 5,918,787 TOTAL NET POSITION $ 20,928,671 $ 3,505,439 $ 2,233,420 $ 1,410,970 $ 28,078,500 The accompanying notes are an integral part of these financial statements. 23  EXHIBIT VII City of Fort Walton Beach, Florida PROPRIETARY FUNDS STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION Year Ended September 30, 2013 Other Sanitation Enterprise Utilities Fund Fund Golf Fund Funds Total OPERATING REVENUES Charges for services $ 8,606,702 $ 3,499,559 $ 1,661,260 $ 591,196 $ 14,358,717 OPERATING EXPENSES Personal services 1,792,104 970,497 997,780 286,977 4,047,358 Operating 4,374,686 1,948,071 763,272 258,553 7,344,582 Depreciation/amortization expense 1,293,383 245,070 239,887 66,432 1,844,772 TOTAL OPERATING EXPENSES 7,460,173 3,163,638 2,000,939 611,962 13,236,712 OPERATING INCOME (LOSS) 1,146,529 335,921 (339,679) (20,766) 1,122,005 NON-OPERATING REVENUES (EXPENSES) Rental income 16,380 - 97,449 - 113,829 Interest expense (170,222) - (21,482) - (191,704) Amortization (13,447) - (765) - (14,212) Gain (loss) on disposal of capital assets (7,243) 26,729 - 1,176 20,662 Unrealized gain (loss) on investment (11,948) (4,343) - (1,022) (17,313) Realized gain (loss) on investment (18,159) (6,601) - (1,553) (26,313) Interest 37,762 13,877 - 3,094 54,733 Grants in aid (398) - - - (398) Miscellaneous 1,228 4,106 1,265 976 7,575 TOTAL NON-OPERATING REVENUES (EXPENSES) (166,047) 33,768 76,467 2,671 (53,141) INCOME (LOSS) BEFORE CONTRIBUTIONS, SPECIAL ITEM AND OPERATING TRANSFERS 980,482 369,689 (263,212) (18,095) 1,068,864 CONTRIBUTIONS, SPECIAL ITEM AND TRANSFERS Capital grants and contributions 1,871,295 - - - 1,871,295 Special item: impairment loss on capital asset (786,713) - - - (786,713) Transfers in - - 2,595,977 - 2,595,977 Transfers out (320,536) (130,000) - - (450,536) TOTAL CONTRIBUTIONS, SPECIAL ITEM AND TRANSFERS 764,046 (130,000) 2,595,977 - 3,230,023 CHANGE IN NET POSITION 1,744,528 239,689 2,332,765 (18,095) 4,298,887 NET POSITION - BEGINNING OF YEAR 19,184,143 3,265,750 (99,345) 1,429,065 23,779,613 NET POSITION - END OF YEAR $ 20,928,671 $ 3,505,439 $ 2,233,420 $ 1,410,970 $ 28,078,500 The accompanying notes are an integral part of these financial statements. 24  EXHIBIT VIII City of Fort Walton Beach, Florida PROPRIETARY FUNDS STATEMENT OF CASH FLOWS Year Ended September 30, 2013 Other Sanitation Enterprise Utilities Fund Fund Golf Fund Funds Total CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers and users $ 8,639,973 $ 3,481,869 $ 1,665,710 $ 619,417 $ 14,406,969 Payments to suppliers (3,233,670) (1,948,961) (747,233) (281,268) (6,211,132) Payments to employees (1,758,836) (943,292) (953,625) (263,404) (3,919,157) Miscellaneous income 17,608 4,106 98,714 976 121,404 Net cash provided by operating activities 3,665,075 593,722 63,566 75,721 4,398,084 CASH FLOWS FROM NON-CAPITAL FINANCING ACTIVITIES Borrowings (repayments) Change in intergovernmental balances 628,706 105 595 - 629,406 Due to other funds - - 127,785 - 127,785 Grants and aids (398) - - - (398) Transfers out (320,536) (130,000) - - (450,536) Net cash used by non-capital financing activities 307,772 (129,895) 128,380 - 306,257 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Acquisitions of capital assets (15,196,541) (284,308) (104,441) (21,500) (15,606,790) Proceeds from disposal of capital assets 29,068 33,216 - 439 62,723 Capital grants and contributions 1,871,295 - - - 1,871,295 Principal paid on advance from other fund - - (64,708) - (64,708) Principal paid on leases payable - - (13,458) - (13,458) Proceeds from note payable - - 28,071 - 28,071 Proceeds from state revolving loan 7,068,523 - - - 7,068,523 Principal paid on bonds and notes payable (280,000) - (15,759) - (295,759) Interest paid on bond, loan, lease and advance payables (172,672) - (21,651) - (194,323) Net cash used by capital and related financing activities (6,680,327) (251,092) (191,946) (21,061) (7,144,426) NET CASH FLOWS FROM INVESTING ACTIVITIES Interest income 7,655 2,933 - 519 11,107 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,699,825) 215,668 - 55,179 (2,428,978) CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 10,004,578 1,961,070 4,293 480,285 12,450,226 CASH AND CASH EQUIVALENTS - END OF YEAR $ 7,304,753 $ 2,176,738 $ 4,293 $ 535,464 $ 10,021,248 Continued... The accompanying notes are an integral part of these financial statements. 25  EXHIBIT VIII City of Fort Walton Beach, Florida PROPRIETARY FUNDS STATEMENT OF CASH FLOWS Year Ended September 30, 2013 Other Sanitation Golf Enterprise Utilities Fund Fund Fund Funds Total CASH AND CASH EQUIVALENTS AT END OF YEAR CONSIST OF Current assets $ 5,757,274 $ 2,175,998 $ - $ 535,464 $ 8,468,736 Restricted assets, current 1,547,479 740 4,293 1,552,512 Total cash and cash equivalents $ 7,304,753 $ 2,176,738 $ 4,293 $ 535,464 $ 10,021,248 RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES Operating income (loss) $ 1,146,529 $ 335,921 $ (339,679) $ (20,766) $ 1,122,005 Adjustments to reconcile operating income (loss) to net cash provided by operating activities Depreciation 1,293,383 245,070 239,887 66,432 1,844,772 Miscellaneous revenue 17,608 4,106 98,714 976 121,404 Decrease (increase) in assets Accounts receivable 3,004 (17,175) 722 28,221 14,772 Inventory (13,290) - (976) - (14,266) Increase (decrease) in liabilities Accounts payable 1,155,626 (608) 17,205 (22,449) 1,149,774 Compensated absences payable 268 4,597 (4,045) (1,005) (185) Wages 11,313 2,882 601 5,805 20,601 Other liabilities (1,320) (282) (190) (266) (2,058) Customer deposits 16,490 (515) - - 15,975 Other post-employment benefits 21,687 19,726 47,599 18,773 107,785 Deferred revenue 13,777 - 3,728 - 17,505 Net cash provided by operating activities $ 3,665,075 $ 593,722 $ 63,566 $ 75,721 $ 4,398,084 SUPPLEMENTAL DISCLOSURES OF NONCASH TRANSACTIONS Amortization of bond and note issue costs $ 8,356 $ - $ 765 $ - $ - Amortization of discounts and deferred loss on refunding $ 5,091 $ - $ - $ - $ - Forgiveness of advance from other fund $ - $ - $ 2,595,977 $ - $ - The accompanying notes are an integral part of these financial statements. 26  EXHIBIT IX City of Fort Walton Beach, Florida FIDUCIARY FUNDS STATEMENT OF FIDUCIARY NET POSITION September 30, 2013 Employee Retirement Funds ASSETS Cash and cash equivalents $ 2,992,932 Investments, at market U.S. Government and Agency obligations 9,635,255 Corporate obligations 8,515,594 Corporate equity 33,592,964 Mutual funds 14,025,140 Total investments 65,768,953 Due from State of Florida 18,571 TOTAL ASSETS $ 68,780,456 NET POSITION Held in trust for pension and employee retirement benefits $ 68,780,456 The accompanying notes are an integral part of these financial statements. 27  EXHIBIT X City of Fort Walton Beach, Florida FIDUCIARY FUNDS STATEMENT OF CHANGES IN FIDUCIARY NET POSITION Year Ended September 30, 2013 Employee Retirement Funds ADDITIONS Contributions Employer $ 2,777,112 Plan members 456,677 State of Florida 375,111 Total contributions 3,608,900 Investment income (loss) 7,729,489 Less investment expense (269,105) Net investment income (loss) 7,460,384 Miscellaneous revenue 109,598 TOTAL ADDITIONS 11,178,882 DEDUCTIONS Benefits and refunds paid Retirement payments 4,881,143 Disability payments 156,257 Refunds 80,170 Total benefits and refunds paid 5,117,570 Administrative expenses Legal 11,360 Contractual services 115,844 Other 26,105 Total administrative expenses 153,309 TOTAL DEDUCTIONS 5,270,879 NET INCREASE (DECREASE) 5,908,003 NET POSITION HELD IN TRUST FOR PENSION BENEFITS BEGINNING OF YEAR 62,872,453 END OF YEAR $ 68,780,456 The accompanying notes are an integral part of these financial statements. 28 (THIS PAGE INTENTIONALLY LEFT BLANK.)  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2013 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The City of Fort Walton Beach, Florida, (the City) was originally chartered as a municipality under laws of the State of Florida Special Act of the Florida Legislature in 1937. The City Manager-Council form of government was established in 1953. As authorized by its charter, the City provides the following services: public safety (police, fire, and inspection), highways and streets, water and sewer, sanitation, stormwater, culture and recreation, public improvements, planning and zoning, and general administrative services. The financial statements of the City have been prepared in accordance with accounting principles generally accepted (GAAP) in the United States of America applicable to governmental units and the Uniform Accounting System mandated by Chapter 218.33, Florida Statutes. The Governmental Accounting Standards Board (GASB) is the standard- setting body for governmental accounting and financial reporting. The following is a summary of the more significant accounting policies of the City: A. The Reporting Entity A seven member City Council and a Mayor govern the City, each elected at-large for four-year terms. The Council has no powers other than those expressly vested in it by State Statute and the City Charter, and their governmental powers cannot be delegated. As required by accounting principles generally accepted in the United States of America, these financial statements present the City of Fort Walton Beach (the primary government) and its component unit. In evaluating the City as a reporting entity, management has considered all potential component units for which the City may or may not be financially accountable and, as such, be included within the City's financial statements. Management utilized criteria set forth in GASB No. 61 for determining financial accountability of potential component units in evaluating all potential component units. In accordance with GASB No. 61, the City (primary government) is financially accountable if it appoints a voting majority of the potential component unit's governing board and 1) it is able to impose its will on the organization or 2) there is a potential for the organization to provide specific financial benefit to or impose specific financial burden on the City. In addition, component units can be other organizations for which the nature and significance of their relationship with the primary government are such that exclusion would cause the reporting entity's financial statements to be misleading or incomplete. 29  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2013 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) A. The Reporting Entity (Continued) As of September 30, 2013, the City of Fort Walton Beach had one component unit, as defined by GASB 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 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. The Fort Walton Beach Housing Authority (the Authority) is considered a related organization to the City rather than a component unit. The City Council of Fort Walton Beach, Florida appoints the board members of the Authority. However, the Authority's board operates independently of the City Council and does not create a financial burden or benefit to the City. B. Government-Wide and Fund Financial Statements The basic financial statements include both government-wide (based on the City as a whole) and fund financial statements. The government-wide financial statements (i.e., the statement of position and the statement of activities) report information on all of the nonfiduciary activities of the primary government and its component unit. For the most part, the effect of interfund activity has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely, to a significant extent, on fees and charges for support. 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. 30  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2013 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) B. Government-Wide and Fund Financial Statements (Continued) Separate fund financial statements are provided for governmental funds, proprietary funds, and fiduciary funds, even though fiduciary funds are excluded from the government-wide financial statements. Major individual governmental funds and major enterprise funds are reported as separate columns in the fund financial statements. C. Measurement Focus and Basis of Accounting The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the proprietary fund and fiduciary fund financial statements. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Pension plans recognize revenue when contributions are due as there is a statutory requirement to make the contribution. Property taxes are recorded as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the City considers revenues to be available if they are collected within 6 months of the end of the current fiscal period, except for property taxes, for which the period is 60 days. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due. Franchise 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 receivable within the current fiscal period is considered to be susceptible to accrual as revenue of the current period. Sales taxes, gasoline taxes, and other intergovernmental revenues collected and held by the state at year-end on behalf of the City, are also recognized as revenue. All other revenue items are considered to be measurable and available only when cash is received by the government. 31  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2013 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) C. Measurement Focus and Basis of Accounting (Continued) The Okaloosa County Tax Collector bills and collects property taxes for the City in accordance with the laws of the State of Florida. Property taxes attach as an enforceable lien on property as of the date of assessment and remain in effect until discharge by payment. Taxes are payable when levied (on November 1, or as soon thereafter as the assessment roll becomes available to the Tax Collector). The following is the current property tax calendar: Lien Date January 1, 2013 Levy Date November 1, 2013 Due Date November 1, 2013 Delinquent Date April 1, 2014 Discounts of 1% for each month taxes are paid prior to March 2014 are granted. Revenue recognition criteria for property taxes under the GASB requires that property taxes expected to be collected within 60 days of the current period be accrued. No accrual has been made for 2013 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. D. Basis of Presentation The financial transactions of the City are recorded in individual funds. Each fund is a separate accounting entity with a self-balancing set of accounts recording cash and other financial resources, together with all related liabilities and residual equities or balances, and changes therein, which are segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions or limitations. As a general rule, the effect of interfund activity has been eliminated from the government-wide financial statements. Exceptions to this general rule are other charges between the government's utility function and various other functions of the government. Elimination of these charges would distort the direct costs and program revenues reported for the various functions concerned. Amounts reported as program revenues include 1) charges to customers or applicants for goods, services, or privileges provided, 2) operating grants and contributions, and 3) capital grants and contributions, including special assessments. Internally dedicated resources are reported as general revenues rather than as program revenues. Likewise, general revenues include all taxes. 32  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2013 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) D. Basis of Presentation (Continued) Proprietary funds distinguish operating revenues and expenses from non-operating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund's principal ongoing operations. The principal operating revenues of the City's enterprise funds are charges to customers for sales and services. The City considers all impact fee revenue as capital contributions for the water and sewer system; therefore, no amount from the impact fee is included in operating revenue. Operating expenses for enterprise funds include the cost of sales and service, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses. The following three broad classifications are used to categorize the fund types used by the City: Governmental Governmental funds focus on the determination of financial position and changes in financial position (sources, uses, and balances of financial resources) and not net income. The City has the following major governmental funds: General Fund - This is the City's primary operating fund and is used to account for all financial resources except those required to be accounted for in another fund. Community Redevelopment Fund - The community redevelopment fund is the operating fund of the Fort Walton Beach Community Redevelopment Agency (the "Agency"). It is used to account for the activities of the Agency. Proprietary Proprietary funds focus on the determination of net income, changes in net position, financial position, and cash flows. All of the City's proprietary funds are enterprise funds, as fees are charged to external users for services. The following is a description of the major proprietary funds of the City: Utilities Fund - Used to account for the operations of the City, which provides distribution of potable water, sales and service and sanitary wastewater collection, treatment and disposal. Sanitation Fund - Accounts for the operation of the City that provides for solid waste collection and disposal. Golf Fund - Accounts for the operations and maintenance of the City-owned golf courses. 33  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2013 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) D. Basis of Presentation (Continued) Fiduciary Fiduciary funds are used to account for the assets held on behalf of outside parties, including other governments, or on behalf of other funds within the City. The City has the following type of Fiduciary funds: Pension Trust Funds - Used to report the resources that are required to be held in trust for the members and beneficiaries of the three defined benefit pension plans administered by the City: General Employees' Retirement Fund, Police Officers' Retirement Fund, and Firefighters' Retirement Fund. E. Assets, Liabilities, and Net Position or Equity Cash and Cash Equivalents The City considers all highly liquid investments (including restricted assets) with a maturity of 90 days or less when purchased, and investments with the State Board of Administration (SBA), to be cash equivalents. Additionally, each fund's equity in the City's investment pool (see Note 3) is considered to be cash equivalent since the funds can deposit or effectively withdraw cash at any time without prior notice or penalty. Deposits and Investments Section 218.415, Florida Statutes, requires the investment of surplus public funds and prescribes the instruments in which those investments are authorized, specifically the State of Florida Local Government Surplus Funds Trust Fund, direct obligations of the United States Government or other obligations unconditionally guaranteed by the United States Government, collateralized interest-bearing time deposits or savings accounts in state or federal banks or savings and loan associations, debt securities of the Federal Farm Credit Banks, the Federal Home Loan Mortgage Corporation, the Federal Home Loan Bank, the Government National Mortgage Association, the Federal National Mortgage Association, and securities of or other interest in certain investment companies or investment trusts, the portfolio of which is limited to United States Government obligations or repurchase agreements fully collateralized by such obligations. The City adheres strictly to the provisions of those cited Statutes, as well as with Chapter 280, Florida Statutes, which requires the City to maintain deposits only with "Qualified Public Depositories." The City maintains a cash and investment pool available for use by all funds. Earnings from such investments are allocated to the respective funds based on applicable cash participation by each fund. 34  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2013 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) E. Assets, Liabilities, and Net Position or Equity (Continued) Deposits and Investments (Continued) In addition, restricted cash accounts, certificates of deposit, and other investments are separately maintained by a few City funds in accordance with bond ordinances, retirement fund plan documents and other contractual agreements. The Beal Memorial Cemetery Perpetual Care Special Revenue Fund also invests excess cash in allowable debt and equity investments to maximize return on investment. Investments are stated at fair value, based on quoted market prices. The City's cash and investment pool and certain individual funds participate in the Local Government Surplus Trust Fund - Florida PRIME and Fund B, operated by Florida's State Board of Administration (SBA). The SBA is governed by Chapter 19-1 of the Florida Administrative Code (FAC). The FAC provides guidance and establishes the general operating procedures for the administration of the Local Government Surplus Trust Funds. Additionally, the Florida Auditor General performs an operational audit of activities and investments of the SBA. GASB Statement No. 31, titled Accounting and Financial Reporting for Certain Investments and for External Investment Pools, applies to the Florida PRIME and Fund B. GASB 31 outlines the two options for accounting and reporting for money market investment pools as either "2a-7 like" or fluctuating net asset value (NAV). GASB 31 describes a "2a-7 like" pool as an external investment pool that is not registered with the Securities and Exchange Commission (SEC) as an investment company, but nevertheless has a policy that it will, and does, operate in a manner consistent with Rule 2a-7 under the Investment Company Act of 1940 (the 1940 Act). Rule 2a-7 is the rule that permits money market funds to use amortized cost to maintain a constant NAV of $1.00 per share, provided that such funds meet certain conditions. City investments with the SBA may be made or liquidated by wire on a same day basis, subject to limitations described in Note 3. The Florida PRIME is considered a SEC "2a-7 like" fund, thus the account balance is also considered the fair value of the City's investment. The Fund B is accounted for as a fluctuating NAV pool. The Fair Value factor for September 30, 2013, was 1.13262284 percent. The account balance was multiplied by the factor in order to report the fair value of the City's investment in Fund B. 35  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2013 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) E. Assets, Liabilities, and Net Position or Equity (Continued) Deposits and Investments (Continued) Pension Trust Funds may invest in direct obligations of the United States Government or other obligations unconditionally guaranteed by the United States Government, collateralized interest-bearing time deposits or savings accounts in state or federal banks or savings and loan associations, bonds or indebtedness of United States corporations rated BAA or better, stocks of U.S. corporations which are listed on the national stock exchanges (limited to 50% of the assets of the fund) and investment accounts maintained by major national banks and insurance companies given the top rating by Best. In addition to the above investment options, the Firefighters' Retirement Pension Trust Fund may invest up to 20% of its assets at cost in real estate. The Beal Memorial Cemetery Special Revenue Fund may invest in domestic equities, international equities, real estate investment trusts, Treasury Inflation Protected Securities ("TIPS"), fixed income investments and Rule 2(a)-7 like cash equivalents. Bond Sinking Fund Investments are limited by bond ordinances to investments in direct obligations of the United States government or other marketable securities eligible as security of trust funds under regulations of the Board of Governors of the Federal Reserve System. The maturity date on Sinking Fund Investments is limited by the individual bond ordinances to correspond to the related debt service payments. Receivables and Payables Interfund transactions are reflected as loans, services provided, reimbursements, or transfers. Loans between funds outstanding at the end of the fiscal year are referred to as either "due to other funds" or "due from other funds" (i.e., the current portion of interfund loans) or "advances" (i.e., the non-current portion of interfund loans). Any residual balances outstanding between governmental activities and business-type activities are reported in the government-wide financial statements as "internal balances." Advances between funds, as reported in the fund financial statements, are offset by a fund balance nonspendable account in applicable governmental funds to indicate that they are not available for appropriation and are not expendable available financial resources. 36  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2013 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) E. Assets, Liabilities, and Net Position or Equity (Continued) Receivables and Payables (Continued) Services provided, deemed to be at market, or near market rates, are treated as revenues and expenditures/expenses. Reimbursements occur when one fund incurs a cost, charges the appropriate benefiting fund, and reduces its related cost as a reimbursement. All other interfund transactions are treated as transfers. Transfers between governmental or proprietary funds are netted as part of the reconciliation to the government-wide columnar presentation. All proprietary fund receivables are shown net of an allowance for uncollectibles. The allowance is computed by considering 100% of receivables in excess of 90 days, past trends on collections of accounts, and current year account write-offs. Inventory Inventory is valued at cost (first-in, first-out). The consumption method is used to account for inventory. Under the consumption method, inventory items are recorded as expenditures during the period inventory is used. The General Fund inventory balance is considered nonspendable in the fund financial statements to indicate that it is not available for appropriation. Restricted Assets Certain resources in the following funds are restricted for specific purposes: in the Debt Service Fund, for the repayment Capital Improvement Note, Series 2011; in the Utility Fund, for the repayment of the Utility System Revenue Bonds, Series 2005; in the Golf Fund, for the repayment of the Capital Improvement Note, Series 2011; and, customer utility deposits and impact fees received are restricted in the Utilities Fund and Sanitation Fund. Capital Assets Capital assets, which include property, plant, equipment, and infrastructure assets (roads, bridges, curbs and sidewalks, drainage systems, lighting systems and similar items), are reported in the applicable governmental or business-type activities columns in the government-wide financial statements. Capital assets are defined by the City as assets with an initial cost more than the following: Land All Buildings and improvements $ 10,000 Infrastructure $ 10,000 Improvements - other $ 10,000 Equipment, vehicles, computers $ 1,000 Library books All 37  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2013 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) E. Assets, Liabilities, and Net Position or Equity (Continued) Capital Assets (Continued) In the case of the initial capitalization of general infrastructure assets (i.e. those reported by governmental activities) the government chose to include all such items regardless of their acquisition date or amount. The government was able to estimate the historical cost for the initial reporting of these assets through various allowable estimating techniques. As the government constructs or acquires additional capital assets each period, including infrastructure assets, they are capitalized and reported at historical cost. The reported value excludes normal maintenance and repairs which are essentially amounts spent in relation to capital assets that do not increase the capacity or efficiency of the item or extend its useful life beyond the original estimate. Donated capital assets are recorded at estimated fair market value at the date of donation. Major outlays for capital assets and improvements are capitalized in proprietary funds as projects are constructed. The amount of interest to be capitalized is calculated by offsetting interest expense incurred from the date of the borrowing until the completion of the project with interest earned on the invested proceeds over the same period. Property, plant, and equipment of the primary government are depreciated using the straight-line method over the following estimated useful lives: Assets Years Buildings 20-50 Years Improvements other than buildings 7-40 Years System infrastructure 20-40 Years Machinery and equipment 3-10 Years 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. 38  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2013 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) E. Assets, Liabilities, and Net Position or Equity (Continued) Long-Term Obligations In the government-wide financial statements, and proprietary fund types in the fund financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities, business-type activities, or proprietary fund type statement of net position. Bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds using the effective and straight-line interest methods. Bonds payable are reported net of the applicable bond premium or discount. Bond issuance costs are reported as deferred charges and amortized over the term of the related debt. In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. Classification of Fund Balance GASB Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions, establishes fund balance classifications that comprise a hierarchy based primarily on the extent to which a government is bound to observe constraints imposed upon the use of the resources reported in governmental funds. Fund balance classifications, under GASB 54, are comprised of the following:  Nonspendable – includes amounts that are (a) not in spendable form, or (b) legally or contractually required to be maintained intact. The "not in spendable form" criterion includes items that are not expected to be converted to cash, for example: inventories, deposits, prepaid items, and advances to other funds.  Restricted – includes amounts that can be spent only for the specific purposes stipulated by external resource providers, constitutionally or through enabling legislation. Restrictions may effectively be changed or lifted only with the consent of resource providers. 39  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2013 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) E. Assets, Liabilities, and Net Position or Equity (Continued) Classification of Fund Balance (Continued)  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 with the General Fund. The General Fund should be the only fund that reports a positive unassigned balance. In all other funds, unassigned is limited to negative residual fund balance. The City's General Fund formal fund balance policy establishes a targeted minimum reserve balance in its Committed Fund Balance equal to 30% of annual budgeted expenditures. 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. 40  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2013 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) E. Assets, Liabilities, and Net Position or Equity (Continued) Net Positions When both restricted and unrestricted resources are available for use, it is the government's policy to use restricted resources first and then unrestricted resources, as they are needed. F. Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. NOTE 2 - STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY A. Budgets Budgets are adopted on a basis consistent with generally accepted accounting principles. Annual appropriated budgets are adopted by 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 millages, and establishes dates for tentative and final public budget hearings as prescribed by Florida Statutes. Proposed budgets are advertised in a newspaper of general circulation in the City. Public hearings are conducted for the purposes of receiving input, responding to complaints, and providing reasons and explanations for intended actions to all citizens participating. 41  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2013 NOTE 2 - STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY (CONTINUED) A. Budgets (Continued) Prior to October 1, the budget for all governmental and proprietary funds of the City is legally enacted through passage of a resolution. Budget amendments are periodically passed via resolutions during the fiscal year. Appropriations lapse at year-end except for appropriations related to multi-year capital projects. Budgeted beginning fund balance in the accompanying financial statements reflects planned utilization of prior years' unreserved/undesignated fund balance to the level required to accomplish current year objectives. The level of budgetary control (that is the level at which expenditures cannot legally exceed appropriations) has been established at the fund level. The City Manager and Finance Director are authorized to transfer budgeted amounts within departments of a fund and between departments of a fund; however, any revisions that alter the total expenditures of any fund must be approved by the City Council. Budget amounts reflected in the financial statements are originally adopted amounts as amended by action of the City Council by revision of fund totals. All amendments to originally adopted amounts were made in a legally permissible manner. B. Encumbrances Encumbrances represent commitments related to unperformed contracts for goods or services. Encumbrance accounting, under which purchase orders, contracts, and other commitments for the expenditure of resources are recorded in order to reserve that portion of the applicable appropriation, is employed in the governmental funds. Encumbrances outstanding at year-end are reported as reservations of fund balances and do not constitute expenditures or liabilities because the commitments will be reappropriated and honored during the subsequent year. NOTE 3 - DEPOSITS AND INVESTMENTS The City maintains a cash and investment management pool in which each fund (except Pension Trust Funds) participates on a dollar equivalent and daily transaction basis. The City's cash and investment management pool includes pooled cash maintained in interest- bearing demand deposit accounts, certificates of deposit, and pooled investments of the Local Government Surplus Trust Fund. Interest income (which includes unrealized gains and losses) is distributed monthly based on balance at date of distribution. 42  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2013 NOTE 3 - DEPOSITS AND INVESTMENTS (CONTINUED) The City's cash and investment management pool is considered to be cash equivalent for reporting purposes because it is an internally managed fund, which allows individual funds to, at any time, deposit additional cash or make withdrawals without prior notice or penalty. The Local Government Surplus Trust Fund - Fund B does not meet the requirements of a SEC 2a7-like fund defined by GASB No. 31 and is considered an investment; however, the City has chosen not to reclass Fund B from cash equivalent to investment for reporting purposes due to its immaterial balance of approximately $119,000 at September 30, 2013 in comparison to the City's pooled cash of approximately $31 million. As of September 30, 2013, Fund B recorded an unrealized gain on investment in the amount of $25,665. Deposits Custodial Credit Risk - It is the City's policy to maintain its deposits only with "Qualified Public Depositories" as defined in Chapter 280, Florida Statutes. The provisions of this statute allow "Qualified Public Depositories" to participate in a multiple financial institution collateral pool to ensure the security for public deposits. All qualified public depositories must place with or in the name of the Chief Financial Officer of the State of Florida, collateral in the amount of the average daily balance of public deposits multiplied by the average monthly balance of public deposits or 125 percent of the average daily balance of public deposits greater than capital. In the event of default by a qualified public depository, excess losses over insurance and collateral will be recovered through assessments to all qualified public depositories of the same type as the depository in default. Under this method, all City deposits, including certificates of deposit, are considered fully insured. At year-end, the value of the City's deposits was $30,516,802, all of which was held by qualified public depositories or permitted investments under Chapter 280, Florida Statutes. Investments As of September 30, 2013, the City's investments consist of those held in the various pension trust funds and the Beal Memorial Cemetery Perpetual Care Special Revenue Fund. The types of investments, which can be made by the City, are restricted by state statutes, retirement fund plan documents, and other contractual agreements. A description of the requirements and the types of investments allowed can be found in Note 1-E. 43  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2013 NOTE 3 - DEPOSITS AND INVESTMENTS (CONTINUED) Investments (Continued) As of September 30, 2013, 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 $ 8,515,594 $ 323,433 $ 1,312,290 $ 6,785,878 $ - $ 50,681 $ 5,594 $ 37,718 $ - Corporate CMOs 106,753 - - - - 41,381 33,564 - 31,808 U.S. Treasury 5,417,688 505,493 2,641,523 714,138 - 130,259 144,454 1,281,821 - U.S. Government Agencies 1,437,360 - 1,318,161 119,199 - - - - - U.S. Government Agency Pools 3,439,377 - - 1,603,978 1,648,826 31,890 101,817 52,866 - $ 18,916,772 $ 828,926 $ 5,271,974 $ 9,223,193 $ 1,648,826 $ 254,211 $ 285,429 $ 1,372,405 $ 31,808 Investments not subject to interest rate risk Money market funds $ 171,440 Corporate equities 34,661,564 Mutual funds 14,025,140 48,858,144 Total $ 67,774,916 Interest Rate Risk - The City's investment policy does not limit its investment maturities as a means of managing its exposure to fair value losses arising from changes in interest rates. The City's policy encourages shorter-term investments for operating funds in order to meet the anticipated cash flows requirements. The investment policies for the pension plans do not specifically address interest rate risk. Credit Rate Risk - State law limits investments of surplus public funds to those investments described above. According to the City's General Employees' Pension Plan investment policy, investment in all domestic corporate fixed income securities is limited to those securities rated "A" or higher by Moody, S&P, or Fitch, except that up to 10% of the fixed income securities may have a rating below "A" but not less than "Baa". As of September 30, 2013, the General Employees' Pension Plan held no investments whose rating was below Baa; the Plan's intent, in compliance with Florida Statutes 112.661(5)(b), is to sell any investment, whose rating falls below the policy threshold, as soon as it is economically feasible. Investments in the General Employees' Pension Plan whose rating was less than "A" at September 30, 2013, comprised 9.05% of the total cost of fixed income securities in the Plan. The Police Officers' Pension Fund limits investment in fixed income securities to those rated "Baa/BBB" or higher by a major rating service. The Firefighters' Pension Fund limits investment in fixed income securities to those securities rated "Baa/BBB" or higher by a major rating service. All Pension Plans were in compliance with its respective investment policy regarding credit rate risk as of September 30, 2013. 44  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2013 NOTE 3 - DEPOSITS AND INVESTMENTS (CONTINUED) Investments (Continued) Credit Rate Risk (Continued) The Moody's rating ranges of the different investment classes held by each respective plan at September 30, 2013, are as follows: General Pension Police Pension Plan Plan Fire Pension Plan Money market funds Aaa-A Aaa-A Aaa-A Corporate CMOs Aaa-Aa1 N/A N/A Corporate debt Aaa-Baa3 Aa2-A3 Aa2-Baa2 U.S. Treasury Aaa Aaa Aaa U.S. government agencies Aaa-A2 Aaa Aaa U.S. government pools A1 N/A N/A The Beal Memorial Cemetery investment policy does not limit investments to those with specific credit ratings for domestic or international equities. The overall rating of fixed income investments shall be at least investment grade based on the rating of two of the three Nationally Recognized Statistical Rating Organizations (NRSRO). Concentration Credit Risk - The City places no limit on the amount that may be invested in any one issuer, in regards to its general operations investments. The City encourages portfolio diversification to minimize each of the types of risk related to investments. The General Employees' Pension Fund limits investment of fixed income securities of any single issuer to no more than 5% of the cost of all fixed income securities. Investments in collateralized mortgage obligations are limited to 15% of the market value of the total fixed income portfolio and must be backed by mortgage securities rated "Aaa" by Moody's or "AAA" by Standard & Poor's and Fitch rating services. As of September 30, 2013, the largest investment in a single corporate issuer of debt was below 1% of the cost of all fixed income securities. Total investments in collateralized mortgage obligations (CMOs) were 1.12% of the total market value of the total fixed income portfolio. No more than 5% of the market value of the total fixed income portfolio in the Police Officers' Pension Fund may be invested in the securities of any single corporate issuer. Investments in collateralized mortgage obligations are not specifically permitted by the policy. As of September 30, 2013, the largest investment in a single corporate issuer of debt was 1.39% of the value of all corporate fixed income securities. The Police Officers' Pension Fund did not hold any investments in collateralized mortgage obligations as of September 30, 2013. 45  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2013 NOTE 3 - DEPOSITS AND INVESTMENTS (CONTINUED) Investments (Continued) Concentration Credit Risk (Continued) No more than 5% of the market value of the total fixed income investments may be held in the Firefighters' Pension Fund may be held in any single corporate issuer. Investments in collateralized mortgage obligations are limited to 15% of the market value of the total fixed income portfolio and are restricted to issues backed by securities issued by the Government National Mortgage Association (GNMA), the Federal Home Loan Mortgage Corporation (FHLMC), or the Federal National Mortgage Association (FNMA), or that are rated "Aaa" by Moody's or "AAA" by Standard & Poor's rating services. As of September 30, 2013, the largest investment in a single corporate issuer of debt was 6.97% of the market value of all fixed income securities; the Plan's intent, in compliance with Florida Statutes 112.661(5)(b), is to sell any investments that exceed the policy threshold when it is economically feasible. Total investments in collateralized mortgage obligations were 7% of the total market value of the total fixed income portfolio. The Beal Memorial Cemetery investment policy limits investment concentrations as follows:  Domestic Equities - no more than 5% of the total equity portfolio valued at market may be invested in the equity of any one corporation; ownership of the shares of one company shall not exceed 2% of those outstanding and not more than 25% of equity valued at market may be held in any one sector.  International Equities - no more than 5% of the total equity portfolio valued at market may be invested in the common equity of any one corporation; ownership of the shares of one company shall not exceed 2% of those outstanding and not more than 25% of equity valued at market may be held in any one sector.  Fixed Income Investments - securities of any one issuer shall not exceed 5% of a total bond portfolio at time of purchase. 46  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2013 NOTE 3 - DEPOSITS AND INVESTMENTS (CONTINUED) Deposits Held in Florida State Board of Administration's Local Government Investment Pool In addition to the investments subject to credit risk, listed above, the City maintains investments in the Florida State Board of Administration's (SBA) Local Government Surplus Funds Trust Pools, and these deposits are included in the City's pooled cash accounts. At September 30, 2013, the City maintained $105,145 invested in the State Board of Administration’s Local Government Surplus Funds Trust Fund Investment Pool B (Fund B) with a fair value of $119,090. Fund B consists of assets that have defaulted on payment, paid more slowly than expected, and/or were assessed as having significant credit and liquidity risk. Fund B has been "frozen" by the SBA since December 2007, but has distributed portions of the pool to participants since that date. Since December 2007, the City has received $1,652,010 in distributions from Fund B, including $124,530 received during the year ended September 30, 2013. Fund B will continue to distribute funds to all participants as the assets within the Fund are able to be liquidated. The primary goal of the Fund is to make members "whole" and not realize a loss on the investment. Fund B has not received a credit rating by any of the nationally-recognized rating agencies as of September 30, 2013. The City believes that it will not incur a loss on the realizable value of the remaining investments held in the Fund. Due to the nature of securities in Fund B, the interest rate risk information required by GASB 40 is not available. However, an estimate of weighted average life (WAL) is available. In the calculation of WAL, the time at which an expected principal amount is to be received (measured in years) is weighted by the principal amount received at that time divided by the sum of all expected principal payments. The principal amounts used in the WAL calculation are not discounted to present value as they would be in a weighted average duration calculation. The WAL (based on expected future cash flows) of Fund B at September 30, 2013, is estimated at 4.04 years. However, because Fund B consists of restructured or defaulted securities there is considerable uncertainty regarding the weighted average life. The City also maintains $10,417 invested in the SBA's Florida PRIME. The Florida PRIME current credit rating is AAAm by Standard and Poor's. The weighted average to maturity (WAM) of the Florida PRIME at September 30, 2013, is 44 days. Next interest rate reset dates for floating rate securities are used in the calculation of the WAM. 47  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2013 NOTE 4 - RECEIVABLES Receivables at September 30, 2013, were as follows: Governmental Activities Community Other Redevelopment Governmental General Fund Funds Total Taxes $ 17,322 $ - $ - $ 17,322 Accounts 96,986 36 109 97,131 Assessments 110,564 - - 110,564 Total receivables $ 224,872 $ 36 $ 109 $ 225,017 Business-Type Activities Other Proprietary Utilities Sanitation Golf Funds Total Accounts $ 588,817 $ 222,476 $ 182 $ 38,399 $ 849,874 Less allowance for doubtful accounts (44,333) (9,408) - (2,692) (56,433) Assessments 18,430 - - - 18,430 Total receivables, net $ 562,914 $ 213,068 $ 182 $ 35,707 $ 811,871 Due from Other Governments The City's receivables from other governments for governmental activities as of September 30, 2013, are $97,007. Due from other governments consist of $93,681 due from the federal government. All receivables from the federal government are related to grant revenues, primarily for public safety, transportation, and community development. The remainder of the balance, $3,326, is receivable from the City’s Police Officers’ Pension Fund for reimbursement for payment of the Pension Plan’s fiduciary insurance premium. NOTE 5 - CHANGES IN CAPITAL ASSETS Capital asset activity for the year ended September 30, 2013, was as follows: Beginning Decreases/ Ending Balance Increases Transfers Balance Governmental Activities Capital assets not being depreciated/amortized Land $ 9,961,261 $ - $ - $ 9,961,261 Construction in progress 488,118 811,651 (320,152) 979,617 Total capital assets not being depreciated/amortized 10,449,379 811,651 (320,152) 10,940,878 48  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2013 NOTE 5 - CHANGES IN CAPITAL ASSETS (CONTINUED) Beginning Decreases/ Ending Balance Increases Transfers Balance Governmental Activities (Continued) Capital assets being depreciated/amortized Buildings 14,389,863 3,862 (830,880) 13,562,845 Improvements other than buildings 11,229,824 130,536 98,437 11,458,797 Infrastructure 12,432,298 10,920 - 12,443,218 Software 499,248 - - 499,248 Machinery and equipment 7,856,469 205,658 (167,067) 7,895,060 Equipment under capital lease 14,280 59,390 (14,280) 59,390 Total capital assets being depreciated/amortized 46,421,982 410,366 (913,790) 45,918,558 Less accumulated depreciation/amortization Buildings (7,332,237) (355,428) 559,593 (7,128,072) Improvements other than buildings (5,119,768) (631,536) 218,849 (5,532,455) Infrastructure (8,001,032) (320,422) - (8,321,454) Software (105,313) (112,007) - (217,320) Machinery and equipment (5,830,138) (541,511) 190,154 (6,181,495) Equipment under capital lease (13,883) (1,222) 14,280 (825) Total accumulated depreciation/amortization (26,402,371) (1,962,126) 982,876 (27,381,621) Total capital assets being depreciated/amortized, net 20,019,611 (1,551,760) 69,086 18,536,937 Governmental Activities, Net $ 30,468,990 $ (740,109) $ (251,066) $ 29,477,815 Business-Type Activities Capital assets not being depreciated/amortized Land $ 765,078 $ - $ - $ 765,078 Construction in progress 2,616,944 14,820,580 (2,016,169) 15,421,355 Easements 28,532 6,110 - 34,642 Total capital assets not being depreciated/amortized 3,410,554 14,826,690 (2,016,169) 16,221,075 Capital assets being depreciated/amortized Buildings 3,642,155 - (16,265) 3,625,890 Improvements other than buildings 37,911,833 240,968 (1,685,094) 36,467,707 Software 32,644 6,686 - 39,330 Machinery and equipment 10,755,653 532,446 (2,660,496) 8,627,603 Equipment under capital lease 248,589 - (248,589) - Total capital assets being depreciated/amortized 52,590,874 780,100 (4,610,444) 48,760,530 49  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2013 NOTE 5 - CHANGES IN CAPITAL ASSETS (CONTINUED) Beginning Decreases/ Ending Balance Increases Transfers Balance Business-Type Activities (Continued) Less accumulated depreciation/amortization Buildings (1,589,842) (119,326) 10,166 (1,699,002) Improvements other than buildings (21,128,351) (1,059,132) 2,932,066 (19,255,417) Software (9,391) (11,661) - (21,052) Machinery and equipment (8,137,018) (642,224) 2,607,018 (6,172,224) Equipment under capital lease (236,160) (12,429) 248,589 - Total accumulated depreciation/amortization (31,100,762) (1,844,772) 5,797,839 (27,147,695) Total capital assets being depreciated/amortized, net 21,490,112 (1,064,672) 1,187,395 21,612,835 Business-Type Activities, Net $ 24,900,666 $13,762,018 $ (828,774) $ 37,833,910 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 $ 155,958 Public safety 648,365 Physical environment 65,855 Transportation 610,149 Economic environment 54,177 Culture and recreation 427,622 Total depreciation/amortization expense - governmental activities $ 1,962,126 Business-Type Activities Utilities Fund $ 1,293,383 Sanitation Fund 245,070 Golf Fund 239,887 Other Proprietary Funds 66,432 Total depreciation/amortization expense - business-type activities $ 1,844,772 50  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2013 NOTE 5 - CHANGES IN CAPITAL ASSETS (CONTINUED) Construction Commitments In fiscal year 2013, the City began replacing a thirty inch pre-stressed concrete cylinder pressure (PCCP) force main, construction of a four million gallon wet weather storage tank, and upgrades to Pump Station #1. The City spent $14,211,922 during the fiscal year, and has expended $15,178,680 to date on these projects which are expected to be completed in fiscal year 2014. The estimated total cost for these projects is $16 million and is being funded with a State Revolving Fund (SRF) loan from the Florida Department of Environmental Protection (FDEP), available proceeds from the 2005 Utility Improvement Bond, and cost sharing with Okaloosa County for the common portion of the force main. In 2011, the City began the next phase of streetscape and pedestrian crosswalk improvements in the downtown area. To date $18,550 has been spent. These projects are funded by the Community Redevelopment Agency. The Department of Transportation’s (DOT) approval of the plans was received in early fiscal year 2014. Construction is projected to begin in 2014, with completion in either late fiscal year 2014 or early 2015. In fiscal year 2012, the City began a project to consolidate four recreation centers into a new recreation complex. Construction began in late 2013, and $735,909 was expended in fiscal year 2013. To date $859,888 has been spent on the complex with an estimated total cost of $8.1 million dollars. The City is funding the construction with a Capital Improvement Revenue Note and intends to obtain additional funding by applying for grants, obtaining private sponsors, and evaluating current City properties for lease or sale opportunities. In fiscal year 2010, the City accepted grant funds from the Federal Highway Administration (FHWA) and the Florida Department of Transpiration (FDOT) to construct sidewalks on both sides of Wright Parkway between Miracle Strip Parkway and Mary Esther Cutoff. Sidewalk design was completed in fiscal year 2012 and construction began in fiscal year 2013. To date $88,878 has been spent with an estimated total cost of $235,366. Construction is projected to be completed in early 2014. NOTE 6 - SPECIAL ITEMS - LOSS ON IMPAIRMENTS OF CAPITAL ASSETS In fiscal year 2013, the City began construction of a new recreation complex. The existing recreation complex was demolished to allow construction on the current site. The original recreation complex was placed in service in 1987 with an expected life of thirty years. The demolition of the recreation complex resulted in an impairment loss in the governmental activities of $271,287 for the year ended September 30, 2013. 51  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2013 NOTE 6 - SPECIAL ITEMS - LOSS ON IMPAIRMENTS OF CAPITAL ASSET (CONTINUED) As part of the decommissioning of the Waste Water Treatment Plant (WWTP) in fiscal year 2011, the City determined that the re-use water filtration system located at the WWTP should be maintained in the event re-use water could not be supplied by Okaloosa County. At that time, the City reduced the remaining life of the re-use water filtration system from thirty two years to seventeen years. In fiscal year 2013, it was determined that the re-use water filtration system was no longer viable and it was disposed. The disposal of the re-use water filtration system resulted in an impairment loss in the Utilities Fund of $786,713 for the year ended September 30, 2013. NOTE 7 - DEFINED BENEFIT PENSION PLANS The City of Fort Walton Beach, Florida sponsors three single-employer defined benefit pension plans: the General Employees' Retirement Fund (GERF), Police Officers' Retirement Fund (PORF) and the Firefighters' Retirement Fund (FRF). These plans provide benefits for all qualifying employees of the City. The financial activity of each plan is reported as a Pension Trust Fund in the City of Fort Walton Beach, Florida's internal combined financial statements and can also be found in Section E of this note. There is no separate report available for the individual pension plans. A. Basis of Accounting and Method Used to Value Investments Each plan's financial statements are prepared using the accrual basis of accounting. Plan member contributions are recognized in the period in which the contributions are due. Employer contributions to the plan are recognized when due and the employer has made a formal commitment to provide the contributions. Benefits and refunds are recognized when due and payable in accordance with the terms of the plan. Investments are reported at fair value. Securities traded on a national or international exchange are valued at the last reported sales price at current exchange rates. Administrative costs are financed from each respective fund's investment earnings. 52  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2013 NOTE 7 - DEFINED BENEFIT PENSION PLANS (CONTINUED) B. Plan Descriptions Membership of each plan consisted of the following as of October 1, 2013, the date of the latest actuarial valuation: GERF PORF FRF Retirees and beneficiaries receiving benefits 130 39 24 Terminated plan members entitled to but not yet receiving benefits 13 11 1 Disabled participants 4 6 - Active plan members 121 39 36 Total 268 95 61 General Employees' Retirement Fund (GERF) - Plan Description Plan Description - The GERF provides retirement, disability, and death benefits to plan members and beneficiaries. Participation in the plan is mandatory for all full- time general municipal employees hired after May 14, 1996 through December 31, 2009. Employees hired after this date are not eligible to participate. Cost-of-living increases of up to 3% are provided to retirees and beneficiaries every year. City ordinance assigns the authority to establish and amend benefit provisions to the City. Police Officers' Retirement Fund (PORF) - Plan Description Plan Description - The PORF is administered by the Police Officers' Pension Fund Board of Trustees. The PORF provides retirement, disability, and death benefits to plan members and beneficiaries. Participation in the plan is mandatory for all certified police officers. Cost-of-living increases of up to 3% are provided to retirees and beneficiaries every year. City ordinance assigns the authority to establish and amend benefit provisions to the Board of Trustees, with final approval resting with City Council. Firefighters' Retirement Fund (FRF) - Plan Description Plan Description - The FRF is administered by the Firefighters' Pension Fund Board of Trustees. The FRF provides retirement, disability, and death benefits to plan members and beneficiaries. Participation in the plan is mandatory for all firefighters. Cost-of-living increases of up to 3% are provided to retirees and beneficiaries every year. City ordinance assigns the authority to establish and amend benefit provisions to the Board of Trustees, with final approval resting with City Council. 53  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2013 NOTE 7 - DEFINED BENEFIT PENSION PLANS (CONTINUED) C. Contributions, Funding Policy and Annual Pension Cost The contribution requirements of plan members and the City are established annually and amended by City ordinance. Plan members are required to contribute at a set percentage of their annual covered salaries. The City is required to contribute at an actuarially determined rate. The State of Florida also contributes to the Police Officers' Retirement Fund (PORF) and the Firefighters' Retirement Fund (FRF). Contributions from the State for the PORF of $170,885 and $204,226 for the FRF are included in the governmental activities revenue and expenses for the year ending September 30, 2013. None of the three Plans addresses maximum contribution rates. The City's annual pension cost as of the most recent actuarial date and related information for each plan is as follows: GERF PORF FRF Contribution rates (percentage of covered payroll) City and State 27.91 % (1) 44.0 % 40.4 % Plan members 5.0 % 5.0 % (2) 6.6 % Annual pension cost $ 1,278,925 $ 880,475 * $ 812,997 * Contributions made Employer $ 1,318,790 $ 754,704 $ 703,618 State of Florida $ - $ 170,885 $ 204,226 Net pension obligation (asset) $ (152,674) $ (174,368) $ (279,588) Actuarial valuation date for disclosure 10/01/2013 10/01/2013 10/01/2013 Actuarial cost method Individual Entry Age Entry Age Normal Entry Age Normal Amortization method Normal Cost, closed Level percentage of Level percentage of pay, closed pay, closed Remaining amortization period 15 years 30 years 30 Years Asset valuation method 5-year smoothed 4-year smoothed 4-year smoothed market market market Actuarial assumptions Invested rate of return 7.9 % 8.0 % 8.0 % Projected salary increases** 0.0-6.5% 7.5 % 6.5 % ** Includes inflation at 3.0 % 3.0 % 3.0 % Post retirement COLA Up to 3% 3.0 % 3.0 % (3) *Beginning 9/30/2012, this includes both City and State contributions (1) GERF does not include State (2) Until 75% maximum accrued is a attained, and .5% thereafter (3) Starting at age 58 54  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2013 NOTE 7 - DEFINED BENEFIT PENSION PLANS (CONTINUED) C. Contributions, Funding Policy and Annual Pension Cost (Continued) GERF PORF FRF Three-Year Trend Information Actuarially Determined Percentage Net Pension Year Ending Contribution Contribution Obligation (Asset) GERF October 1, 2011 $ 1,091,338 106 % $ (70,081) October 1, 2012 1,258,659 104 % (112,809) October 1, 2013 1,268,253 104 % (152,674) PORF October 1, 2011 521,425 100 % (36,146) October 1, 2012 875,055 * 111 % (129,254) October 1, 2013 881,697 * 105 % (174,368) FRF October 1, 2011 514,872 100 % (175,351) October 1, 2012 700,045 * 112 % (263,340) October 1, 2013 817,997 * 101 % (279,588) *Beginning 9/30/2012, this includes both City and State contributions The components of net pension cost, the increase in Net Pension Asset, and the Net Pension Asset for the year ended September 30, 2013, most recent actuarial date, for the General Employees', Police Officers' and Firefighters' Retirement Funds are as follows: General Police Employees' Officers' Firefighters' Actuarially determined contribution $ 1,268,253 $ 881,697 * $ 817,997 * Interest on net pension asset (8,912) (10,340) (21,067) Adjustment to actuarially determined annual pension cost 19,584 9,118 16,067 Annual pension cost 1,278,925 880,475 812,997 Contribution made 1,318,790 925,589 * 829,245 * Change in net pension asset 39,865 45,114 16,248 Net pension asset - beginning of year 112,809 129,254 263,340 Net pension asset - end of year $ 152,674 $ 174,368 $ 279,588 *Beginning 9/30/2012, this includes both City and State contributions 55  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2013 NOTE 7 - DEFINED BENEFIT PENSION PLANS (CONTINUED) C. Contributions, Funding Policy and Annual Pension Cost (Continued) The funded status of each plan as of October 1, 2013, the most recent actuarial valuation date, is as follows: Actuarial Accrued Liability Annual Actuarial Value (AAL) Entry Age Unfunded AAL Funded Covered UAAL as % of Assets (a) (b) (UAAL) (b-a) Ratio (a/b) Payroll (c) of Payroll GERF $ 37,122,638 $ 42,285,695 $ 5,163,057 87.79 % $ 4,259,070 121.22 % PORF 19,091,795 25,634,521 6,542,726 74.48 % 2,038,886 320.90 % FRF 11,979,697 18,477,592 6,497,895 64.83 % 2,153,568 301.73 % D. Required Supplementary Information The schedule of funding progress immediately following the notes to the financial statements presents multi-year trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits over time. The schedule of employer contributions can also be found in the supplemental information of this comprehensive annual report. E. Fund Financial Statements The following are the financial statements for the individual pension trust funds (GERF, PORF and FRF) for the year ended September 30, 2013: 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 $ 1,641,053 $ 832,663 $ 519,216 $ 2,992,932 Due from State of Florida - - 18,571 18,571 Investments, at market U.S. Government and Agency obligations 5,420,607 2,889,854 1,324,794 9,635,255 Corporate obligations 4,035,043 2,501,784 1,978,767 8,515,594 Corporate equity 17,692,322 8,972,261 6,928,381 33,592,964 Mutual funds 8,333,613 3,959,594 1,731,933 14,025,140 Total investments, at market 35,481,585 18,323,493 11,963,875 65,768,953 TOTAL ASSETS $ 37,122,638 $ 19,156,156 $ 12,501,662 $ 68,780,456 NET POSITION HELD IN TRUST FOR PENSION BENEFITS AND OTHER PURPOSES $ 37,122,638 $ 19,156,156 $ 12,501,662 $ 68,780,456 56  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2013 NOTE 7 - DEFINED BENEFIT PENSION PLANS (CONTINUED) E. 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 $ 1,318,790 $ 754,704 $ 703,618 $ 2,777,112 Plan members 227,204 95,840 133,633 456,677 State of Florida - 170,885 204,226 375,111 Total contributions 1,545,994 1,021,429 1,041,477 3,608,900 Investment income (loss) 4,890,131 1,670,230 1,169,128 7,729,489 Less investment expense (154,599) (61,974) (52,532) (269,105) Net investment income (loss) 4,735,532 1,608,256 1,116,596 7,460,384 Miscellaneous revenue 69,579 39,817 202 109,598 TOTAL ADDITIONS 6,351,105 2,669,502 2,158,275 11,178,882 DEDUCTIONS Benefits and refunds paid Retirement payments 2,364,007 1,487,713 1,029,423 4,881,143 Disability payments 48,340 102,023 5,894 156,257 Other 60,277 12,877 7,016 80,170 Total benefits and refunds paid 2,472,624 1,602,613 1,042,333 5,117,570 Administrative expenses Legal 778 5,043 5,539 11,360 Contractual services 43,483 43,345 29,016 115,844 Other 9,678 (225) 16,652 26,105 Total administrative expenses 53,939 48,163 51,207 153,309 TOTAL DEDUCTIONS 2,526,563 1,650,776 1,093,540 5,270,879 NET INCREASE (DECREASE) 3,824,542 1,018,726 1,064,735 5,908,003 BEGINNING OF YEAR 33,298,096 18,137,430 11,436,927 62,872,453 END OF YEAR $ 37,122,638 $ 19,156,156 $ 12,501,662 $ 68,780,456 57  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2013 NOTE 8 - DEFINED CONTRIBUTION PENSION PLAN City of Fort Walton Beach Defined Contribution Plan In December 2009, City Council closed the General Employees’ Defined Benefit Plan. All general, full-time employees hired on or after January 1, 2010, are members of the Defined Contribution Retirement Plan (Plan). The Plan is a money purchase defined contribution retirement plan administered by ICMA Retirement Corporation, with the City serving as trustee. All funds are held in the ICMA Retirement Corporation Governmental Money Purchase Plan & Trust. 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 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 $80,841 and $80,841, respectively, for the year ending September 30, 2013. NOTE 9 - DEFERRED COMPENSATION PLAN The City offers employees a deferred compensation plan created in accordance with Internal Revenue Code Section 457 (Plan). The Plan is a tax-deferred supplemental retirement program that allows City employees to contribute a portion of their salary, before federal income taxes, to a retirement account. The assets are held in trust for the employees’ benefit. The Plan participants individually select and make changes in funding options, which are made available by the independent plan administrator. Since participants select the investment fund or funds in which their deferred compensation accounts are invested, the City has no liability for investment losses. The City’s fiduciary responsibility is to administer the Plan properly and to assure the investment alternatives made available are reasonable. In accordance with GASB Statement No. 32, the assets and liabilities of the Plan are not reflected in the City’s financial statements since the City has no fiduciary responsibilities, other than administrative, in connection with the Plan. Assets of the plan have a fair value of $2,793,835 at September 30, 2013. Contributions made by plan members during the year ended September 30, 2013, were $84,245. 58  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2013 NOTE 10 - OTHER POST EMPLOYMENT BENEFITS (OPEB) The following disclosures are represented as of September 30, 2013, the date of the latest actuarial valuation (except for the plan funded status, which is represented as of October 1, 2012): A. Plan Description Pursuant to Section 112.0801, Florida Statutes, the City is mandated to permit eligible retirees (as defined in the City's pension plans) and their eligible dependents to participate in the health insurance program at a cost to the retiree that is no greater than the cost at which coverage is available for active employees. Retirees pay 100% of the blended (active and retiree combined) equivalent premium rates. The blended rates provide an implicit subsidy for retirees because, on an actuarial basis, their current and future claims are expected to result in higher costs to the plan on average than those of active employees. The City provides this benefit to its employees through a single- employer defined benefit plan. The plan does not issue a separate report. B. Funding Policy The City is financing the post employee benefits on a "pay-as-you-go" basis. For fiscal year 2013, 136 retirees and/or dependents received health care benefits. Annual required contributions were $483,101 for the current fiscal year, towards which the City made a contribution of $275,934. Retiree contributions totaled $325,621 for the fiscal year ended September 30, 2013. At September 30, 2013, the City recorded a net OPEB obligation of $598,055 for governmental activities and $268,949 for business- type activities in its government-wide statement of net position. The OPEB obligation is a function of the annual required contribution, interest, adjustments to the annual required contribution, annual pension costs, and actual employers' contributions made to the plan. C. Membership At September 30, 2013, membership consisted of: Retirees and beneficiaries currently receiving benefits 87 Terminated employees entitled to benefits but not receiving them - Active employees 224 Total 311 Participating employers 1 59  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2013 NOTE 10 - OTHER POST EMPLOYMENT BENEFITS (OPEB) (CONTINUED) D. Annual OPEB Cost and Net OPEB Obligation The City's annual other post employment benefit (OPEB) cost (expense) is calculated based on the annual required contribution (ARC) of the employer, an amount actuarially determined in accordance with the parameters of GASB 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal costs each year and amortize any unfunded actuarial liabilities (or funding excess) over a closed period not to exceed thirty years. The following table shows the components of the City's annual OPEB cost for the fiscal year ended September 30, 2013, the amount actually contributed to the plan, and changes in the City's net OPEB obligation to the retiree health plan: Annual required contribution $ 483,101 Interest on net OPEB obligation 26,353 Adjustment to annual required contribution (25,339) Annual OPEB cost (expense) total 484,115 Employer contributions (275,934) Increase in net OPEB obligation 208,181 Net OPEB obligation - beginning of year 658,823 Net OPEB obligation - end of year $ 867,004 For the governmental activities, the net other postemployment benefit obligation is generally liquidated by the general fund. The City's annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for the past three years, were as follows: Three-Year Trend Information Net OPEB Annual OPEB City* Percentage Obligation Cost Contributions Contributed (Asset) October 01, 2011 469,170 262,096 55.86 % 446,202 October 01, 2012 490,753 278,132 56.67 % 658,823 October 01, 2013 484,115 275,935 57.00 % 867,004 *Limited to the difference between age-adjusted and composite premiums paid for retirees during the year. 60  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2013 NOTE 10 - OTHER POST EMPLOYMENT BENEFITS (OPEB) (CONTINUED) E. Funded Status and Funding Progress As of October 1, 2012, the most recent actuarial valuation date, the plan funded status was as follows: Actuarial Accrued Annual Actuarial Value of Liability (AAL) Unfunded AAL Funded Ratio Covered UAAL as % Assets (a) Entry Age (b) (UAAL) (b-a) (a/b) Payroll (c) of Payroll $ - $ 5,651,699 $ 5,651,699 - % $ 7,300,258 77.42 % F. Required Supplementary Information The schedule of funding progress immediately following the notes to the financial statements presents multi-year trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits. The schedule of employer contributions can also be found in the supplemental information of this comprehensive annual report. The projection of future benefit payments for an ongoing plan involves estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multi-year trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits. G. Actuarial Methods and Assumptions Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. Actuarial valuations involve estimates of the value of reported amounts and assumptions about the probability of events far into the future. Actuarially determined amounts are subject to continual revision as results are compared to past expectations and new estimates are made about the future. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long- term perspective of the calculations. 61  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2013 NOTE 10 - OTHER POST EMPLOYMENT BENEFITS (OPEB) (CONTINUED) G. Actuarial Methods and Assumptions (Continued) In the latest actuarial valuation as of October 1, 2013, the Individual Entry Age Normal Cost Method (with an increasing Normal Cost pattern consistent with the salary increase assumptions) was used. The actuarial assumptions included a 4% investment rate of return and an annual healthcare costs trend rate of 1.3%, which will be increased to an ultimate rate of 5.42% beginning in fiscal year ending September 30, 2032. The investment rate of return included a 3% inflation assumption. The unfunded actuarial accrued liability is being amortized in a closed amortization, calculated as a level percent of payroll over a twenty-six year period. NOTE 11 - RISK MANAGEMENT The City is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; employee medical benefits and natural disasters. The City purchases insurance through commercial carriers. Insurance coverage for workers' compensation, liability, casualty, inland marine, flood, police accidental death, public officials' bonds, fiduciary and fuel tanks were purchased from several commercial carriers during the year ended September 30, 2013. 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. NOTE 12 - OPERATING LEASES Lessor The City receives rental income from leasing various parcels of land under cancelable operating agreements. The lease periods vary from one to forty years. Income for the year ended September 30, 2013, was $232,280 in the General Fund, $16,380 in the Utilities Funds and $24,600 in the Golf Fund. In addition, the City also leases a portion of its Golf Clubhouse for retail and food service operations. The rent received for this lease for the fiscal year ended September 30, 2013, totaled $72,849. 62  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2013 NOTE 12 - OPERATING LEASES (CONTINUED) Lessor (Continued) Future minimum lease payments are as follows: Governmental Business-Type Activities Year Ending September 30 Activities Utilities Golf 2014 $ 226,947 $ 16,871 $ 97,620 2015 202,999 17,377 97,620 2016 202,404 17,898 97,784 2017 197,533 18,435 101,034 2018 165,226 18,988 105,516 Total minimum lease payments $ 995,109 $ 89,569 $ 499,574 Lessee The City leases golf course equipment and golf carts in the Golf Fund through operating leases with two finance companies. The original lease term began July 1, 2009 and terminated January 1, 2013. During 2011, a new operating lease was signed for additional equipment. The new lease term began April 1, 2011 and terminates March 31, 2015. A new lease for golf carts and utility vehicles began January 1, 2013 and terminates June 30, 2016. In fiscal year 2014, Golf operations were moved from the Golf Fund to the General Fund. Monthly lease payments are $9,128. Lease expense for the fiscal year ending September 30, 2013 was $111,370. Future minimum lease payments are as follows: Business-Type Activities Year Ending September 30 Golf 2014 $ 109,534 2015 108,653 2016 80,829 Total minimum lease payments $ 299,016 NOTE 13 - CAPITAL LEASES The City has entered into a lease agreement as lessee for financing the acquisition of a telephone system. The lease agreement qualifies as a capital lease for accounting purposes as a result of the transfer of title or bargain purchase option and therefore has been recorded at the present value of the future minimum lease payments as of the inception date in the General Fund. 63  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2013 NOTE 13 - CAPITAL LEASES (CONTINUED) The assets acquired through capital leases are as follows: Governmental Assets Activities Telephone system $ 103,784 Accumulated depreciation (825) Assets acquired by lease, net $ 102,959 The future minimum lease obligations and net present value of these minimum lease payments as of September 30, 2013, are as follows: Governmental Year Ending September 30 Activities 2014 $ 25,058 2015 25,058 2016 25,058 2017 25,058 2018 25,058 2019 22,970 Total minimum lease payments 148,260 Less amount representing interest (46,564) Present value of minimum lease payments $ 101,696 NOTE 14 - LONG-TERM DEBT Changes in Long-Term Debt Liabilities The following is a summary of changes in long-term debt liabilities of the City for the year ended September 30, 2013: Beginning Ending Due Within Balance Additions Reductions Balance One Year Governmental Activities Revenue bonds payable $ 4,470,000 $ - $(4,470,000) $ - $ - Less deferred amounts for issuance discount (41,856) - 41,856 - - Revenue notes payable 661,796 12,942,539 (68,399) 13,535,936 582,311 Capital leases - 103,784 (2,088) 101,696 12,042 Compensated absences 707,441 500,602 (517,894) 690,149 172,537 Total Governmental Activities $ 5,797,381 $ 13,546,925 $(5,016,525) $ 14,327,781 $ 766,890 64  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2013 NOTE 14 - LONG-TERM DEBT (CONTINUED) Changes in Long-Term Debt Liabilities (Continued) Beginning Ending Due Within Balance Additions Reductions Balance One Year Business-Type Activities Revenue bonds payable $ 10,315,000 $ - $ (280,000) $ 10,035,000 $ 290,000 Less deferred amounts for issuance discounts (115,037) - 5,092 (109,945) - Revenue notes payable 61,221 28,071 (15,759) 73,533 18,643 State revolving loans - 7,068,522 - 7,068,522 - Compensated absences 221,122 185,408 (185,593) 220,937 55,236 Capital leases 13,458 - (13,458) - - Total Business-Type Activities $ 10,495,764 $ 7,282,001 $ (489,718) $ 17,288,047 $ 363,879 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, $8,471,929 representing governmental activities portion, 2.69% interest due semi-annually and principal due annually ranging from $324,491 to $464,334 through 2027 with a balloon payment of $3,000,000 due in 2028. Budgeted and appropriated half-cent sales tax is pledged for payment of the bonds. Governmental activities portion of proceeds used to finance the construction of the City's new recreational complex and to purchase a bucket truck. $ 324,491 $ 8,147,438 $ 8,471,929 $4,470,610 City of Fort Walton Beach, Florida, Capital Improvement Refunding Revenue Note, Series 2013, 2.30% interest due semi-annually and principal due annually ranging from $187,659 to $299,010 through 2031. Available non-ad valorem revenues are pledged for payment of the bonds. Proceeds used for refunding Series 2001 revenue bonds for construction of certain capital improvements. 187,659 4,282,951 4,470,610 $739,805 City of Fort Walton Beach, Florida, Capital Improvement Revenue Note, Series 2011, due in quarterly installments of $21,156 through 2021; interest at 2.55%. Available non-ad valorem revenues are pledged for payment of the bonds. Proceeds used for purchase of a fire truck. 70,161 523,236 593,397 Total revenue notes 582,311 12,953,625 13,535,936 65  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2013 NOTE 14 - LONG-TERM DEBT (CONTINUED) Description of Long-Term Debt Outstanding (Continued) Current Long-Term Total GOVERNMENTAL ACTIVITIES (CONTINUED) 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. 12,042 89,654 101,696 Accrued Compensated Absences Total long-term portion of accumulated, vested annual and sick leave for governmental fund types. 172,537 517,612 690,149 TOTAL GOVERNMENTAL ACTIVITIES $ 766,890 $ 13,560,891 $ 14,327,781 BUSINESS-TYPE ACTIVITIES Revenue Bonds $10,910,000 Utility System Revenue Bonds, Series 2005, due in annual installments of $160,000 to $690,000 beginning 2010 through 2035, with interest- only payments from 2005 through 2009; interest at 3.1% to 4.6%. Net revenues derived by the City from the utility operations are pledged for the payment of the bonds. Proceeds used for water system and wastewater system improvements. $ 290,000 $ 9,745,000 $ 10,035,000 Less unamortized bond discount - (109,945) (109,945) Total revenue bonds 290,000 9,635,055 9,925,055 Revenue Notes $8,500,000 City of Fort Walton Beach, Florida, Capital Improvement Revenue Note, Series 2013A, $28,071 representing business-type activities portion, 2.69% interest due semi-annually and principal due annually ranging from $2,478 to $3,155 through 2023. Budgeted and appropriated half-cent sales tax is pledged for payment of the bonds. Business-type activities portion of proceeds used to purchase a grounds sweeper for City's municipal golf course. 2,478 25,593 28,071 $79,195 City of Fort Walton Beach, Florida, Capital Improvement Revenue Note, Series 2011, due in quarterly installments of $4,293 through 2016; interest at 2.55%. Available non-ad valorem revenues are pledged for payment of the bonds. Proceeds used for purchase of certain equipment for City's municipal golf course. 16,165 29,297 45,462 Total revenue notes 18,643 54,890 73,533 66  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2013 NOTE 14 - LONG-TERM DEBT (CONTINUED) Description of Long-Term Debt Outstanding (Continued) Current Long-Term Total BUSINESS-TYPE ACTIVITIES (CONTINUED) State revolving loans $19,504,447 State of Florida Department of Environmental Protection Revolving Loan Fund; semi- annual payments of $594,037 including interest at 1.90% beginning November 15, 2014, through May 15, 2034 if fully drawn. As of September 30, 2013, $7,068,522 has been drawn on the loan. Proceeds used for force main replacement, storage tank construction and pump station upgrades as disclosed in Note 5. - 7,068,522 7,068,522 Accrued Compensated Absences Accumulated, vested annual compensation for Enterprise Funds. 55,236 165,701 220,937 TOTAL BUSINESS-TYPE ACTIVITIES $ 363,879 $ 16,924,168 $ 17,288,047 GRAND TOTAL LONG-TERM DEBT $ 31,615,828 For the governmental activities, compensated absences are generally liquidated by the General Fund. 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, 2013, are as follows: Governmental Activities Leases Revenue Note Year Ending September 30 Principal Interest Principal Interest 2014 $ 12,042 $ 13,016 $ 582,311 $ 362,792 2015 13,774 11,284 617,795 330,332 2016 15,755 9,303 630,920 314,618 2017 18,021 7,036 648,985 298,562 2018 20,613 4,444 661,948 282,049 2019-2023 21,491 1,477 3,385,263 1,153,318 2024-2028 - - 6,127,340 720,645 2029-2033 - - 881,374 40,788 Total $ 101,696 $ 46,560 $ 13,535,936 $ 3,503,104 67  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2013 NOTE 14 - LONG-TERM DEBT (CONTINUED) Annual Requirements to Amortize Debt Outstanding (Continued) Business-Type Activities Municipal Loan/Revenue Bonds Revenue Note State Revolving Loan Year Ending September 30 Principal Interest Principal Interest Principal Interest 2014 $ 290,000 $ 432,459 $ 18,643 $ 2,753 $ - $ - 2015 300,000 422,246 19,132 2,250 972,932 215,142 2016 310,000 410,996 15,336 1,755 1,077,351 110,723 2017 320,000 399,371 2,690 1,522 1,097,918 90,156 2018 335,000 386,571 2,763 1,450 1,118,877 69,197 2019-2023 1,900,000 1,716,748 14,969 6,092 2,801,444 78,649 2024-2028 2,325,000 1,279,188 - - - - 2029-2033 2,905,000 707,950 - - - - 2034-2039 1,350,000 91,800 - - - - Total $ 10,035,000 $ 5,847,329 $ 73,533 $ 15,822 $ 7,068,522 $ 563,867 Refunding On May 6, 2013, the City issued $4,470,610 of Capital Improvement Refunding Revenue Notes, Series 2013, with a fixed interest rate of 2.69% for the purpose of current refunding the remaining outstanding principal on its Capital Improvement Bonds, Series 2001, which bore interest ranging from 2.50% to 5.00%. The refunding was undertaken to take advantage of favorable interest rates. The cash flow requirements of the refunded 2001 bonds, prior to the refunding, was $6,898,278 from July 1, 2013 to July 1, 2031. The cash flow requirements of the 2013 refunding notes are $5,529,544. The current refunding resulted in an economic gain (difference between the present value of the debt service payments on the old and new debt) of approximately $1,200,000. NOTE 15 - COMMENTS REQUIRED BY THE BOND AND NOTE ORDINANCES Utility System Revenue Bonds, Series 2005 1. The Balance Sheet and Statement of Revenues, Expenses, and Changes in Fund Balance of the Utility Fund are shown in the financial section of the report. 68  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2013 NOTE 15 - COMMENTS REQUIRED BY THE BOND AND NOTE ORDINANCES (CONTINUED) Utility System Revenue Bonds, Series 2005 (Continued) 2. The City is required to establish Sinking Fund amounts sufficient to pay 1/6 of all interest becoming due on the Bonds on the next semi-annual interest payment date and 1/12 of all principal maturing on the Bonds in the current Bond Year. Sinking Fund Principal/Interest Requirement at Payments Due September 30, 2013 Principal due at July 1, 2014 $ 290,000 $ 72,500 Interest due at January 1, 2014 216,379 108,190 Total $ 506,379 $ 180,690 (1) (1) Amounts are included in restricted cash amounts on the Balance Sheet of the Utility Fund. 3. The City is required to establish a reserve in the amount of the Reserve Requirement established by the ordinance authorizing the issuance of the 2005 Bonds. The Reserve Requirement is the maximum bond service amount in the current or any subsequent year. The City satisfied the Reserve Requirement by establishing a reserve of $902,422 at September 30, 2013. 4. The City is not aware of any noncompliance with the bond ordinances. Capital Improvement Revenue Note, Series 2011 1. The Balance Sheet and Statement of Revenues, Expenses, Expenditures, and Changes in Fund Balance of the Debt Service Fund and Golf 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. Governmental Activities Business-Type Activities Sinking Fund Sinking Fund Requirement at Requirement at Principal/Interest September 30, Principal/Interest September 30, Payments Due 2013 Payments Due 2013 Principal due at October 1, 2013 $ 17,373 $ 17,373 $ 4,003 $ 4,003 Interest due at October 1, 2013 3,783 3,783 290 290 Total $ 21,156 $ 21,156 (1) $ 4,293 $ 4,293 (2) (1) Amounts are included in restricted cash amounts on the Balance Sheet of the Debt Service Fund. (2) Amounts are included in restricted cash amounts on the Balance Sheet of the Golf Fund. 3. The City is not aware of any noncompliance with the bond ordinances. 69  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2013 NOTE 15 - COMMENTS REQUIRED BY THE BOND AND NOTE ORDINANCES (CONTINUED) 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, 2013. 3. The City is not aware of any noncompliance with the note covenants. Capital Improvement Revenue Note, Series 2013A 1. The Balance Sheet and Statement of Revenues, Expenses, Expenditures, and Changes in Fund Balance of the Debt Service Fund and Golf 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, 2013. 3. The City is not aware of any noncompliance with the note covenants. NOTE 16 - DEFERRED AND UNEARNED REVENUE Governmental funds report deferred revenue in connection with receivables that are not considered to be available to liquidate liabilities of the current period. Governmental and proprietary funds also defer revenue recognition in connection with resources received, but not yet earned. At September 30, 2013, the various components of deferred and unearned revenue were as follows: Unavailable Unearned Total Governmental Funds Special assessment for street resurfacing not yet due $ 110,564 $ - $ 110,564 Utilities Fund Prepaid utility bills - 31,630 31,630 Golf Fund Prepaid lease revenue - 4,339 4,339 Gift and prepaid cards - 19,739 19,739 Total Golf Fund - 24,078 24,078 Total $ 110,564 $ 55,708 $ 166,272 70  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2013 NOTE 17 - INTERFUND RECEIVABLES, PAYABLES AND TRANSFERS The composition of interfund balances as of September 30, 2013, is as follows: Due to/from Other Funds Receivable Fund Payable Fund Amount General Golf $ 157,846 General Community Development Block Grant 7,754 $ 165,600 General Fund receivables from the Golf Fund and Community Development Block Grant Fund in the amount of $165,600 are the result of eliminating temporary deficit cash balances. Transfers In Nonmajor Govern- Transfers Out General Fund mental Fund Golf Fund Total General $ - $ 220,010 $ 2,595,977 $ 2,815,987 Nonmajor governmental 3,290 - - 3,290 Utilities 320,536 - - 320,536 Sanitation 130,000 - - 130,000 $ 453,826 $ 220,010 $ 2,595,977 $ 3,269,813 The transfers out of the General Fund are $2,815,987. This transfer consist of an $181,484 transfer to the Debt Service Fund (Nonmajor Governmental Fund) for principal and interest payments on debt, and a $38,526 transfer to the Cemetery Perpetual Care Fund (Nonmajor Governmental Fund) for maintenance. In addition, City Council voted to terminate the golf enterprise fund and collapse operations into the City’s general fund during the fiscal year 2013-14 budget process. In doing so, City Council forgave a $2.9 million interfund loan that was originally made from the general fund to the golf enterprise fund in fiscal year 2010 in order to provide for the defeasance of the then outstanding 1999 Capital Improvement Revenue Bonds, Series A and B. The outstanding balance of the loan, $2,595,977, makes up the remaining balance of the transfers out of the General Fund. Transfers in to the General Fund of $453,826 consist of a $3,290 transfer from the Beal Cemetery Perpetual Care Fund (Nonmajor Governmental Fund) to cover improvements made to the Beal Memorial Cemetery, franchise fees from the Utility Fund of $320,536 and compensation from the Sanitation fund for additional wear & tear caused by the heavy trucks in the amount of $130,000. 71  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2013 NOTE 18 - GOVERNMENTAL FUND BALANCES At September 30, 2013, the City's governmental fund balances were classified as follows: Community Other Total Redevelopment Governmental Governmental General Fund Agency Funds Funds Nonspendable Inventory $ 254,229 $ - $ - $ 254,229 Restricted for Improvement districts - 3,833,430 - 3,833,430 Capital projects 7,691,393 - - 7,691,393 Library 175,765 - - 175,765 Public safety - - 462,375 462,375 Debt service - - 21,156 21,156 Other purposes 1,364 - - 1,364 Total restricted 7,868,522 3,833,430 483,531 12,185,483 Committed Cemetery maintenance - - 2,035,225 2,035,225 Natural disaster recovery 5,501,353 - - 5,501,353 Total committed 5,501,353 - 2,035,225 7,536,578 Assigned to Capital projects 1,065,883 - - 1,065,883 Self-insurance dental program refund 52,536 - - 52,536 Citizen police academy 3,052 - - 3,052 Main Street 5,504 - - 5,504 Other 1,328 - - 1,328 FY 2014 budget appropriation 173,082 - - 173,082 Assigned 1,301,385 - - 1,301,385 Unassigned 788,076 - (2,745) 785,331 TOTAL FUND BALANCE $ 15,713,565 $ 3,833,430 $ 2,516,011 $ 22,063,006 NOTE 19 - ENCUMBRANCES The amount of encumbrances outstanding as of September 30, 2013, is as follows: Governmental Funds - General Fund $ 543,248 Community Redevelopment Agency 81,362 Total $ 624,610 Encumbrances at year end do not constitute expenditures or liabilities; therefore, they are not reflected in the financial statements. 72  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2013 NOTE 20 - COMMITMENTS AND CONTINGENCIES Grants Amounts received or receivable from grant agencies are subject to audit and adjustment by grantor agencies, principally the federal government. Any disallowed claims, including amounts already collected, may constitute a liability of the applicable funds. The amount, if any, of expenditures which may be disallowed by the grantor cannot be determined at this time, although the City expects such amount, if any, to be immaterial. Soundside Apartments Planned Unit Development In June 2010, the City entered into a Memorandum of Understanding with the City of Fort Walton Beach Community Redevelopment Agency, the Fort Walton Beach Housing Authority, and Soundside Apartments, LLC for the Soundside Apartments planned unit development (PUD). According to the Memorandum, Germany Terrace, a 50-unit public housing development, will be redeveloped into a 200-unit affordable housing complex. The City also entered into an amended Interlocal Agreement whereby the City approved the use of up to $700K in Community Redevelopment Agency Special Revenue Trust Fund for site demolition, infrastructure improvements, site restoration and other costs for the project. The total amount will be eventually repaid by the property owner, Soundside LLC, to the City’s Community Redevelopment Agency, at no more the $52,142 per year at 1.5% interest, and shall become payable no sooner than three (3) years after the closing date, payable over a 40-year period. The total amount provided from the Community Redevelopment Agency of the City, which remains unpaid as of September 30, 2013, is $294,365. Wastewater Service Interlocal Agreement with Okaloosa County On August 11, 2009, the City adopted the Wastewater Service Interlocal Agreement with Okaloosa County (Agreement). The Agreement outlines a long-term association with Okaloosa County Water & Sewer for the treatment of the City’s influent wastewater flow at a set percentage of the County’s base sewer rate plus a locked-in annual rate escalator. The agreement provides other ancillary benefits to the City such as the provision of “no cost” tertiary treated effluent for use as irrigation water at the City’s’ 36-hole municipal Golf Club. The Agreement is effective for 30 years and can be automatically extended for up to two additional terms for a period of ten years for each extension term. On a monthly basis, the County will bill the City at a rate equal to $2.46 per each 1,000 gallons of wastewater flow. Additionally, the City will pay to the County the Sewer Readiness to Serve Fee, which is equal to $4,098 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: 73  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2013 NOTE 20 - COMMITMENTS AND CONTINGENCIES (CONTINUED) Wastewater Service Interlocal Agreement with Okaloosa County (Continued) Fiscal Year Ending September 30 2014 50,033 2015 51,534 2016 53,080 2017 54,673 2018 56,313 2019 through 2023 307,942 2024 through 2028 356,989 2029 through 2033 413,848 2034 through 2038 479,764 2039 104,758 Total $ 1,928,934 Fees paid for wastewater treatment to Okaloosa County, Florida during the year ended September 30, 2013, were $2,331,977. Interlocal Agreement with Okaloosa County on Force Main Project The City and Okaloosa County entered into an interlocal agreement for the replacement of a thirty inch pre-stressed concrete cylinder pressure force main. According to the agreement, Okaloosa County is to provide funding to the City via a capital contribution for 50% of the common portion of the force main replacement. The asset will be owned and operated by the City's Utility Fund for twenty-years and then possession of the asset will transfer to Okaloosa County. During the year ended September 30, 2013, capital contributions from Okaloosa County to the City related to this project totaled $1,676,418. NOTE 21 - GASB PRONOUNCEMENTS ISSUED BUT NOT YET ADOPTED In June 2012, the GASB issued GASB Statement No. 67, Financial Reporting for Pension Plans - an amendment to Statement No. 25. This Statement enhances the financial reporting by state and local governmental pension plans. This Statement replaces the requirement of Statement No. 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans and No. 50, Pension Disclosures, as they relate to pension plans that are administered through trusts or equivalent arrangements that meet certain criteria. This statement enhances note disclosures and required supplemental information (RSI) for both defined benefit and defined contribution pension plans. It also requires the presentation of new information about annual money-weighted rates of return in the notes to the financial statements and in 10 year RSI schedules. The provisions of this Statement are effective for financial statements for periods beginning after June 15, 2013, which requires the City to implement this statement in FY 2013-2014. 74  City of Fort Walton Beach, Florida NOTES TO FINANCIAL STATEMENTS September 30, 2013 NOTE 21 - GASB PRONOUNCEMENTS ISSUED BUT NOT YET ADOPTED (CONTINUED) In June 2012, the GASB issued GASB Statement No. 68, Accounting and Financial Reporting for Pensions - an amendment to Statement No. 27. This Statement enhances the financial reporting by state and local governments for pensions. It also improves information provided by state and local governmental employers about financial support for pensions that is provided by other entities. This statement requires governments providing defined benefit pensions to recognize their long-term obligation for pension benefits as a liability for the first time, and to more comprehensively and comparably measure the annual costs of pension benefits. It also enhances accountability and transparency through revised and new note disclosures and required supplementary information. Management believes GASB Statement No. 68 will have a significant impact on the financial position and changes in net position of the City; however, the amounts are not quantifiable as of the date of this report. The provisions of this Statement are effective for financial statements for periods beginning after June 15, 2014, which requires the City to implement this statement in FY 2014-2015. NOTE 22 - SUBSEQUENT EVENTS Landmark Development Agreement The City approved a development agreement for the Landmark Center. The development calls for a parking garage to support the hotel and shopping complex and the agreement requires the City to transfer ownership of a portion of five (5) parcels of property, with a current book value of $293,166. The developer is permitted to participate in various economic incentive programs currently active in the Community Redevelopment Agency. Golf Enterprise Fund Transfer of Operations During the fiscal year 2013-14 budget development, City Council voted to terminate the golf enterprise fund and collapse operations into the City’s general fund. This will take place effective October 1, 2013. International Association of Firefighters’ Union Contract The City’s three-year contract with the International Association of Firefighters’ (both for its firefighters’ and its battalion chiefs) expired September 30, 2013. A Memorandum of Understanding between the parties extended the contracts until negotiations were completed, which occurred in December 2013. The contract was finalized and accepted by City Council for a three-year term in January 2014. The contract term is retroactive to October 1, 2013 and expires September 30, 2016, although all terms continue so long as active negotiations for the new contract continue. 75 (THIS PAGE INTENTIONALLY LEFT BLANK.) REQUIRED SUPPLEMENTARY INFORMATION  Schedule A-1 City of Fort Walton Beach, Florida REQUIRED SUPPLEMENTAL INFORMATION SCHEDULE OF FUNDING PROGRESS Unaudited Actuarial Accrued Actuarial Liability Unfunded Funded Annual UAAL as Actuarial Valuation Value of (AAL) Entry AAL (UAAL) Ratio Covered % of Date Assets (a) Age (b) (b-a) (a/b) Payroll (c) Payroll General Employees' Retirement Fund September 30, 2013 $ 37,122,638 $ 42,285,695 $ 5,163,057 87.79 % $ 4,259,070 121.22 % September 30, 2012 32,776,563 41,280,063 8,503,500 79.40 % 4,542,537 187.20 % September 30, 2011 33,678,210 40,196,872 6,518,662 83.78 % 5,004,486 130.26 % September 30, 2010 34,352,072 40,510,991 6,158,919 84.80 % 5,595,076 110.08 % September 30, 2009 33,336,278 38,412,778 5,076,500 86.78 % 7,252,396 70.00 % September 30, 2008 33,388,423 37,349,742 3,961,319 89.39 % 7,521,520 52.67 % September 30, 2007 32,271,940 34,783,263 2,511,323 92.78 % 8,199,930 30.63 % September 30, 2006 29,449,082 33,885,353 4,436,271 86.91 % 7,715,643 57.50 % September 30, 2005 27,938,158 31,397,476 3,459,318 88.98 % 7,190,199 48.11 % September 30, 2004 27,560,774 27,815,278 254,504 99.09 % 7,064,964 3.60 % Police Officers' Retirement Fund* September 30, 2013 $ 19,091,795 $ 25,634,521 $ 6,542,726 74.48 % $ 2,038,886 320.90 % September 30, 2012 18,379,668 25,755,221 7,375,553 71.36 % 2,178,847 338.51 % September 30, 2011 17,912,258 25,394,666 7,482,408 70.54 % 2,239,545 334.10 % September 30, 2010 18,874,149 24,702,783 5,828,634 76.40 % 2,195,529 265.48 % September 30, 2009 18,858,173 23,738,682 4,880,509 79.44 % 2,557,811 190.81 % September 30, 2008 18,832,627 22,743,407 3,910,780 82.80 % 2,530,182 154.57 % September 30, 2007 18,586,034 21,595,595 3,009,561 86.06 % 2,602,616 115.64 % September 30, 2006 17,266,489 19,896,104 2,629,615 86.78 % 2,257,286 116.49 % September 30, 2005 16,143,601 18,672,706 2,529,105 86.46 % 2,426,479 104.23 % September 30, 2004 15,294,319 16,603,462 1,309,143 92.12 % 2,245,042 58.31 % Firefighters' Retirement Fund September 30, 2013 $ 11,979,697 $ 18,477,592 $ 6,497,895 64.83 % $ 2,153,568 301.73 % September 30, 2012 10,927,529 18,139,496 7,211,967 60.24 % 1,946,811 370.45 % September 30, 2011 10,314,290 17,609,820 7,295,530 58.57 % 1,961,080 372.02 % September 30, 2010 10,591,930 17,167,805 6,575,875 61.70 % 2,116,516 310.69 % September 30, 2009 10,492,503 15,950,522 5,458,019 65.78 % 1,988,762 274.44 % September 30, 2008 10,537,442 14,539,341 4,001,899 72.48 % 1,632,275 245.17 % September 30, 2007 10,264,599 13,579,972 3,315,373 75.59 % 1,409,038 235.29 % September 30, 2006 9,499,462 11,757,764 2,258,302 80.79 % 1,807,962 124.91 % September 30, 2005 8,907,687 10,992,666 2,084,979 81.03 % 1,455,105 143.29 % September 30, 2004 8,602,487 9,919,601 1,317,114 86.72 % 1,293,587 101.82 % *The aggregate method of valuation used for the Police Officers' Retirement Fund does not identify or separately amortize the unfunded actuarial liabilities. Note: The information presented in this schedule was determined as part of the actuarial valuations at the dates indicated. Additional information as of the latest actuarial valuation can be found in Note 7 to the financial statements. 76  Schedule A-2 City of Fort Walton Beach, Florida REQUIRED SUPPLEMENTAL INFORMATION SCHEDULE OF CONTRIBUTIONS FROM THE EMPLOYER AND OTHER CONTRIBUTING ENTITIES Unaudited Annual Required Employer Other Entity Percentage Contribution Contribution Contribution Contributed General Employees' Retirement Fund September 30, 2013 $ 1,268,253 $ 1,318,790 $ - 103.98 % September 30, 2012 1,258,659 1,306,268 - 103.78 % September 30, 2011 1,091,338 1,159,438 - 106.24 % September 30, 2010 1,477,933 1,477,777 - 100.00 % September 30, 2009 1,268,428 1,268,260 - 100.00 % September 30, 2008 1,268,019 1,267,864 - 100.00 % September 30, 2007 1,231,003 1,231,004 - 100.00 % September 30, 2006 1,070,599 1,071,742 - 100.11 % September 30, 2005 678,947 680,552 - 100.24 % September 30, 2004 491,258 491,258 - 100.00 % Police Officers' Retirement Fund September 30, 2013 $ 881,697 $ 754,704 $ 170,885 104.98 % September 30, 2012 875,055 799,961 168,042 110.62 % September 30, 2011 682,860 521,425 161,435 100.00 % September 30, 2010 665,220 500,007 165,213 100.00 % September 30, 2009 578,670 407,159 171,511 100.00 % September 30, 2008 488,381 306,805 181,576 * 100.00 % September 30, 2007 516,528 334,952 181,576 * 100.00 % September 30, 2006 433,829 252,252 181,576 * 100.00 % September 30, 2005 460,501 278,925 181,576 * 100.00 % September 30, 2004 360,576 179,000 181,576 100.00 % *"Frozen" at $181,576 per Chapter 185, as amended, though actual contribution has been higher. Firefighters' Retirement Fund September 30, 2013 $ 817,997 $ 703,618 $ 125,627 * 101.38 % September 30, 2012 700,045 669,871 114,834 * 112.09 % September 30, 2011 675,386 514,872 160,514 * 100.00 % September 30, 2010 708,063 574,278 133,785 * 100.00 % September 30, 2009 555,720 421,935 133,785 * 100.00 % September 30, 2008 326,864 225,055 133,785 * 109.78 % September 30, 2007 299,027 169,381 129,646 * 100.00 % September 30, 2006 240,332 110,686 129,646 * 100.00 % September 30, 2005 200,627 77,963 122,664 * 100.00 % September 30, 2004 174,346 51,682 122,664 100.00 % *"Frozen" per Chapter 175, as amended, though actual contribution has been higher. Additional information as of the latest actuarial valuation can be found in Note 7 to the financial statements. 77  Schedule A-3 City of Fort Walton Beach, Florida REQUIRED SUPPLEMENTAL INFORMATION SCHEDULE OF OTHER POST-EMPLOYMENT OBLIGATIONS Unaudited Actuarial Accrued Annual UAAL as Actuarial Valuation Liability Actuarial Value Unfunded Percentage Covered % of Date (AAL) of Assets AAL (UAAL) Funded Payroll Payroll October 1, 2012* $ 5,651,699 $ - $ 5,651,699 - % $ 7,300,258 77.42 % October 1, 2010* 6,312,795 - 6,312,795 - % 6,578,002 95.97 % September 30, 2010** 4,768,818 - 4,768,818 - % 8,291,828 57.51 % September 30, 2009 6,496,763 - 6,496,763 - % 9,000,120 72.19 % *Determined using the Projected Unit Credit Method. **Determined using the Entry Age Normal Method, payroll shown accounts only for employees with medical coverage. 78 (THIS PAGE INTENTIONALLY LEFT BLANK.)  CITY OF FORT WALTON BEACH, FLORIDA Combining and Individual Fund Statements and Schedules These financial statements provide a more detailed view of the “Basic Financial Statements” presented in the preceding subsection. Combining statements are presented when there is more than one fund of a given fund type. Individual fund statements are necessary to present budgetary comparisons.  NON-MAJOR GOVERNMENTAL FUNDS SPECIAL REVENUE FUNDS The Special Revenue Funds are used to account for the proceeds of specific revenue sources (other than special assessments, expendable trusts, or for major capital projects) that are legally restricted to expenditure for specified purposes. Law Enforcement Trust Special Revenue Fund To account for funds received from the sale of confiscated property to be utilized for drug enforcement. Law Enforcement Trust Training Special Revenue Fund To account for funds received from court fines to be used for additional police department training. Florida Building Code Fund To account for funds received from building permits and inspections to be utilized for enforcing the Florida Building Code per State Statute. Community Development Block Grant Special Revenue Fund To account for funds received under the Community Development Block Grant and expenditures of such funds in accordance with federal guidelines. Beal Memorial Cemetery Perpetual Care Special Revenue Fund To accumulate funds to meet the requirements of maintaining the City owned cemetery. DEBT SERVICE FUND The Debt Service Fund is used to account for the accumulation of resources for, and the payment of, general long-term debt principal and interest in accordance with bond ordinances.  Statement B-1 City of Fort Walton Beach, Florida NON-MAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEET September 30, 2013 Special Revenue Funds Beal Total Law Law Community Memorial Nonmajor Enforcement Enforcement Florida Development Cemetery Governmental Trust Trust Training Building Code Block Grant Perpetual Care Debt Service Funds ASSETS Cash and cash equivalents $ 267,794 $ 11,188 $ 195,125 $ - $ 33,279 $ - $ 507,386 Investments - - - - 2,005,963 - 2,005,963 Accounts receivable - - 109 - - - 109 Due from other governments 4,627 - - 16,044 - - 20,671 Cash and cash equivalents - restricted - - - - - 21,156 21,156 TOTAL ASSETS $ 272,421 $ 11,188 $ 195,234 $ 16,044 $ 2,039,242 $ 21,156 $ 2,555,285 LIABILITIES AND FUND BALANCE Liabilities Accounts payable $ - $ - $ 386 $ 11,035 $ 4,017 $ - $ 15,438 Accrued liabilities 4,351 - 11,731 - - - 16,082 Due to other funds - - - 7,754 - - 7,754 Total liabilities 4,351 - 12,117 18,789 4,017 - 39,274 Fund balance Restricted 268,070 11,188 183,117 - - 21,156 483,531 Committed - - - - 2,035,225 - 2,035,225 Unassigned - - - (2,745) - - (2,745) Total fund balance 268,070 11,188 183,117 (2,745) 2,035,225 21,156 2,516,011 TOTAL LIABILITIES AND FUND BALANCE $ 272,421 $ 11,188 $ 195,234 $ 16,044 $ 2,039,242 $ 21,156 $ 2,555,285 79  Statement B-2 City of Fort Walton Beach, Florida NON-MAJOR GOVERNMENTAL FUNDS COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE Year Ended September 30, 2013 Special Revenue Funds Beal Total Law Law Community Memorial Nonmajor Enforcement Enforcement Florida Development Cemetery Governmental Trust Trust Training Building Code Block Grant Perpetual Care Debt Service Funds REVENUES Permits and fees $ - $ - $ 411,270 $ - $ - $ - $ 411,270 Intergovernmental 16,174 - - 55,412 - - 71,586 Fines and forfeits 33,017 7,215 - - - - 40,232 Miscellaneous 1,253 8 - - 48,795 - 50,056 TOTAL REVENUES 50,444 7,223 411,270 55,412 48,795 - 573,144 EXPENDITURES Current Public safety 29,721 5,904 226,891 - - - 262,516 Physical environment - - - - 8,642 - 8,642 Economic environment - - - 56,151 - - 56,151 Capital outlay 5,432 - 1,262 1,704 - - 8,398 Debt service Principal - - - - - 70,488 70,488 Interest - - - - - 202,719 202,719 Other debt service costs - - - - - 628 628 TOTAL EXPENDITURES 35,153 5,904 228,153 57,855 8,642 273,835 609,542 EXCESS OF REVENUES OVER (UNDER) EXPENDITURES 15,291 1,319 183,117 (2,443) 40,153 (273,835) (36,398) OTHER FINANCING SOURCES (USES) Transfers in - - - - 38,526 181,484 220,010 Transfers out - - - - (3,290) - (3,290) TOTAL OTHER FINANCING SOURCES (USES) - - - - 35,236 181,484 216,720 NET CHANGE IN FUND BALANCE 15,291 1,319 183,117 (2,443) 75,389 (92,351) 180,322 FUND BALANCE (DEFICIT) - BEGINNING OF YEAR 252,779 9,869 - (302) 1,959,836 113,507 2,335,689 FUND BALANCE (DEFICIT) - END OF YEAR $ 268,070 $ 11,188 $ 183,117 $ (2,745) $ 2,035,225 $ 21,156 $ 2,516,011 80  Schedule C-1 City of Fort Walton Beach, Florida LAW ENFORCEMENT TRUST SPECIAL REVENUE FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL Year Ended September 30, 2013 Budgeted Amounts Variance with Final Budget - Positive Original Final Actual (Negative) REVENUES Intergovernmental $ - $ 16,306 $ 16,174 $ (132) Fines and forfeits - - 33,017 33,017 Miscellaneous 1,800 1,800 1,253 (547) TOTAL REVENUES 1,800 18,106 50,444 32,338 EXPENDITURES Current operations Public safety 16,500 29,685 29,721 (36) Capital outlay - 5,564 5,432 132 TOTAL EXPENDITURES 16,500 35,249 35,153 96 NET CHANGE IN FUND BALANCE (14,700) (17,143) 15,291 32,434 FUND BALANCE - BEGINNING OF YEAR 14,700 17,143 252,779 235,636 FUND BALANCE - END OF YEAR $ - $ - $ 268,070 $ 268,070 81  Schedule C-2 City of Fort Walton Beach, Florida LAW ENFORCEMENT TRUST TRAINING SPECIAL REVENUE FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL Year Ended September 30, 2013 Budgeted Amounts Variance with Final Budget - Positive Original Final Actual (Negative) REVENUES Fines and forfeits $ 7,000 $ 7,000 $ 7,215 $ 215 Miscellaneous - - 8 8 TOTAL REVENUES 7,000 7,000 7,223 223 EXPENDITURES Current operations Public safety 7,000 7,000 5,904 1,096 NET CHANGE IN FUND BALANCE - - 1,319 1,319 FUND BALANCE - BEGINNING OF YEAR - - 9,869 9,869 FUND BALANCE - END OF YEAR $ - $ - $ 11,188 $ 11,188 82  Schedule C-3 City of Fort Walton Beach, Florida FLORIDA BUILDING CODE SPECIAL REVENUE FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL Year Ended September 30, 2013 Budgeted Amounts Variance with Final Budget - Positive Original Final Actual (Negative) REVENUES Permits and fees $ 254,740 $ 254,740 $ 411,270 $ 156,530 EXPENDITURES Current operations Public safety 247,916 263,444 226,891 36,553 Capital outlay - - 1,262 (1,262) TOTAL EXPENDITURES 247,916 263,444 228,153 35,291 EXCESS OF REVENUES OVER (UNDER) EXPENDITURES 6,824 (8,704) 183,117 191,821 OTHER FINANCING SOURCES (USES) Transfers in 8,704 8,704 - (8,704) Transfers out (15,528) - - - TOTAL OTHER FINANCING SOURCES (USES) (6,824) 8,704 - (8,704) NET CHANGE IN FUND BALANCE - - 183,117 183,117 FUND BALANCE (DEFICIT) - BEGINNING OF YEAR - - - - FUND BALANCE (DEFICIT) - END OF YEAR $ - $ - $ 183,117 $ 183,117 83  Schedule C-4 City of Fort Walton Beach, Florida COMMUNITY DEVELOPMENT BLOCK GRANT SPECIAL REVENUE FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL Year Ended September 30, 2013 Budgeted Amounts Variance with Final Budget - Positive Original Final Actual (Negative) REVENUES Intergovernmental $ 124,541 $ 124,541 $ 55,412 $ (69,129) EXPENDITURES Current operations Economic environment 101,643 161,771 56,151 105,620 Capital outlay - 14,493 1,704 12,789 TOTAL EXPENDITURES 101,643 176,264 57,855 118,409 EXCESS OF REVENUES OVER (UNDER) EXPENDITURES 22,898 (51,723) (2,443) 49,280 OTHER FINANCING SOURCES (USES) Transfers out (22,898) - - - NET CHANGE IN FUND BALANCE - (51,723) (2,443) 49,280 FUND BALANCE (DEFICIT) - BEGINNING OF YEAR - 51,723 (302) (52,025) FUND BALANCE (DEFICIT) - END OF YEAR $ - $ - $ (2,745) $ (2,745) 84  Schedule C-5 City of Fort Walton Beach, Florida BEAL MEMORIAL CEMETERY PERPETUAL CARE SPECIAL REVENUE FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL Year Ended September 30, 2013 Budgeted Amounts Variance with Final Budget - Positive Original Final Actual (Negative) REVENUES Miscellaneous $ 6,000 $ 15,000 $ 48,795 $ 33,795 EXPENDITURES Physical environment - 9,000 8,642 358 EXCESS OF REVENUES OVER EXPENDITURES 6,000 6,000 40,153 34,153 OTHER FINANCING SOURCES (USES) Transfers in 29,600 29,600 38,526 8,926 Transfers out (1,000) (4,290) (3,290) 1,000 TOTAL OTHER FINANCING SOURCES (USES) 28,600 25,310 35,236 9,926 NET CHANGE IN FUND BALANCE 34,600 31,310 75,389 44,079 FUND BALANCE (DEFICIT) - BEGINNING OF YEAR (34,600) (31,310) 1,959,836 1,991,146 FUND BALANCE - END OF YEAR $ - $ - $ 2,035,225 $ 2,035,225 85  Schedule C-6 City of Fort Walton Beach, Florida DEBT SERVICE FUND SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL Year Ended September 30, 2013 Budgeted Amounts Variance with Final Budget - Positive Original Final Actual (Negative) REVENUES Miscellaneous $ - $ - $ - $ - EXPENDITURES Debt service Principal 233,400 233,400 70,488 162,912 Interest 242,500 242,500 202,719 39,781 Other debt service costs 377 377 628 (251) TOTAL EXPENDITURES 476,277 476,277 273,835 202,442 EXCESS OF REVENUES OVER (UNDER) EXPENDITURES (476,277) (476,277) (273,835) 202,442 OTHER FINANCING SOURCES (USES) Transfers in 476,277 476,277 181,484 (294,793) NET CHANGE IN FUND BALANCE - - (92,351) (92,351) FUND BALANCE - BEGINNING OF YEAR - - 113,507 113,507 FUND BALANCE - END OF YEAR $ - $ - $ 21,156 $ 21,156 86  NON-MAJOR FUND ENTERPRISE FUND Stormwater Fund Accounts for the operations and maintenance of the City's stormwater system.  Statement D-1 City of Fort Walton Beach, Florida NON-MAJOR PROPRIETARY FUNDS STATEMENT OF NET POSITION September 30, 2013 Stormwater Fund ASSETS Current assets Cash and cash equivalents $ 535,464 Receivables, net 35,707 Total current assets 571,171 Capital assets, net Non-depreciable 28,532 Depreciable, net 871,079 Total capital assets 899,611 TOTAL ASSETS $ 1,470,782 LIABILITIES Current liabilities Accounts payable $ 6,384 Accrued liabilities Compensated absences 2,812 Wages 18,172 Other 2,777 Total current liabilities 30,145 Non-current liabilities Accrued liabilities Compensated absences 8,434 Other post-employment benefits 21,233 Total non-current liabilities 29,667 TOTAL LIABILITIES 59,812 NET POSITION Invested in capital assets, net of related debt 899,611 Unrestricted 511,359 TOTAL NET POSITION $ 1,410,970 87  Statement D-2 City of Fort Walton Beach, Florida NON-MAJOR PROPRIETARY FUNDS STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION For the Year Ended September 30, 2013 Stormwater Fund OPERATING REVENUES Charges for services $ 591,196 OPERATING EXPENSES Personal services 286,977 Operating 258,553 Depreciation/amortization expense 66,432 TOTAL OPERATING EXPENSES 611,962 OPERATING INCOME (LOSS) (20,766) NON-OPERATING REVENUES (EXPENSES) Gain (loss) on disposal of capital assets 1,176 Unrealized gain (loss) on investment (1,022) Realized gain (loss) on investment (1,553) Interest 3,094 Miscellaneous 976 TOTAL NON-OPERATING REVENUES (EXPENSES) 2,671 INCOME (LOSS) BEFORE CONTRIBUTIONS AND OPERATING TRANSFERS (18,095) CONTRIBUTIONS AND TRANSFERS Transfer out - TOTAL CONTRIBUTIONS AND TRANSFERS - CHANGE IN NET POSITION (18,095) NET POSITION - BEGINNING OF YEAR 1,429,065 NET POSITION - END OF YEAR $ 1,410,970 88  Statement D-3 City of Fort Walton Beach, Florida NON-MAJOR PROPRIETARY FUNDS STATEMENT OF CASH FLOWS For the Year Ended September 30, 2013 Stormwater Fund CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers and users $ 619,417 Payments to suppliers (281,268) Payments to employees (263,404) Miscellaneous income 976 Net cash provided by operating activities 75,721 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Acquisitions of capital assets (21,500) Proceeds from disposal of capital assets 439 Net cash provided (used) by capital and related financing activities (21,061) NET CASH FLOWS FROM INVESTING ACTIVITIES Interest income 519 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 55,179 CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 480,285 CASH AND CASH EQUIVALENTS - END OF YEAR $ 535,464 RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES Operating income $ (20,766) Adjustments to reconcile operating income to net cash provided by operating activities Depreciation 66,432 Miscellaneous revenue 976 Decrease (increase) in assets Accounts receivable 28,221 Increase (decrease) in liabilities Accounts payable (22,449) Compensated absences payable (1,005) Wages 5,805 Other liabilities (266) Other post-employment benefits 18,773 Net cash provided by operating activities $ 75,721 89 (THIS PAGE INTENTIONALLY LEFT BLANK.) III. STATISTICAL SECTION This section contains statistical tables reflecting various supplemental financial data concerning General Government and Proprietary Fund Operations. When applicable, a 10-year history has been depicted to disclose trends in finance-related matters. These tables have been included as a part of this report for information purposes only, and therefore, have not been subjected to audit by the City’s independent certified public accountants.  The statistical section of the City's comprehensive annual financial report presents detailed information as a context for understanding what the information in the financial statements, note disclosures and required supplementary information says about the City's overall financial health. Financial Trends These schedules contain trend information to help the reader understand how the City's financial performance and well-being have changed over time. Revenue Capacity These schedules contain information to help the reader assess the City's most significant local revenue source, the property tax. Debt Capacity These schedules present information to help the reader assess the affordability of the City's current levels of outstanding debt and the City's ability to issue additional debt in the future. Demographic and Economic Information These schedules offer demographic and economic indicators to help the reader understand the environment within which the City's financial activities take place. Operating Information These schedules contain service and infrastructure data to help the reader understand how the information in the City's financial report relates to the services the City provides and the activities it performs. Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. The City implemented GASB 34 in 2002; schedules presenting government-wide information include information beginning in that year.  City of Fort Walton Beach, Florida SCHEDULE 1 NET POSITION BY COMPONENT Last Ten Fiscal Years (full accrual basis of accounting) (amounts expressed in thousands) 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Governmental Activities Invested in capital assets, net of related debt $ 19,401,390 $ 17,236,582 $ 21,097,792 $ 22,013,431 $ 21,095,355 $ 20,563,790 $ 20,605,683 $ 24,756,705 $ 25,379,050 $ 23,531,576 Restricted Debt service 92,153 92,544 92,788 92,730 91,713 91,713 92,880 113,816 113,507 21,156 Capital projects 685,174 700,975 241,114 56,550 - - - - - - Improvement districts - - - - - - - 4,212,984 3,736,100 3,833,430 Public safety 301,230 305,647 266,492 307,983 307,983 254,409 269,600 268,820 262,648 462,375 Perpetual care - expendable 1,488,402 1,556,661 1,663,521 1,787,789 1,877,086 1,869,558 1,898,445 - - - Other purposes 817,932 533,486 474,924 657,116 473,655 463,168 477,194 234,568 194,193 177,129 Unrestricted 10,131,552 13,959,800 11,385,751 8,564,657 9,821,155 9,347,576 8,975,046 12,666,165 11,487,979 9,329,608 Total governmental activities net position $ 32,917,833 $ 34,385,695 $ 35,222,382 $ 33,480,256 $ 33,666,947 $ 32,590,214 $ 32,318,848 $ 42,253,058 $ 41,173,477 $ 37,355,274 Business-Type Activities Invested in capital assets net of related debt $ 19,907,722 $ 20,014,208 $ 20,352,399 $ 21,051,160 $ 21,043,965 $ 17,577,019 $ 18,928,438 $ 17,037,456 $ 14,929,648 $ 20,766,800 Restricted Debt service 317,444 319,139 333,522 323,430 316,153 471,441 481,023 184,711 184,933 1,087,405 System improvements 160,754 352,360 106,434 39,414 60,709 98,292 61,559 82,573 112,863 305,508 Unrestricted 7,820,602 7,652,753 8,358,417 9,011,906 8,301,545 8,276,703 6,791,840 6,859,952 8,552,169 5,918,787 Total business-type activities net position $ 28,206,522 $ 28,338,460 $ 29,150,772 $ 30,425,910 $ 29,722,372 $ 26,423,455 $ 26,262,860 $ 24,164,692 $ 23,779,613 $ 28,078,500 Primary Government Invested in capital assets net of related debt $ 39,309,112 $ 37,250,790 $ 41,450,191 $ 43,064,591 $ 42,139,320 $ 38,140,809 $ 38,728,907 $ 41,794,161 $ 40,308,698 $ 44,298,376 Restricted 3,863,089 3,860,812 3,178,795 3,265,012 3,127,299 3,257,332 3,297,029 5,097,472 4,604,244 5,887,003 Unrestricted 17,952,154 21,612,553 19,744,168 17,576,563 18,122,700 17,624,279 16,805,772 19,526,117 20,040,148 15,248,395 Total primary government net position $ 61,124,355 $ 62,724,155 $ 64,373,154 $ 63,906,166 $ 63,389,319 $ 59,022,420 $ 58,831,708 $ 66,417,750 $ 64,953,090 $ 65,433,774 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 90  City of Fort Walton Beach, Florida SCHEDULE 2 CHANGES IN NET POSITION Last Ten Fiscal Years (full accrual basis of accounting) 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Expenses Governmental activities General government $ 5,884,025 $ 6,935,799 $ 4,841,926 $ 4,563,855 $ 5,494,094 $ 4,625,871 $ 5,306,003 $ 3,765,536 $ 4,314,050 $ 2,662,406 Public safety 6,952,351 7,623,363 8,032,018 9,641,338 10,048,884 9,908,644 9,231,632 9,206,784 9,805,368 9,729,228 Physical environment 276,987 276,525 299,362 354,439 343,411 350,374 304,907 393,752 383,970 379,681 Transportation 1,562,995 1,678,395 1,791,455 1,943,966 2,135,639 1,672,741 1,543,310 1,570,038 1,592,150 1,631,665 Economic environment 210,649 199,284 313,153 335,185 127,355 266,132 98,996 545,242 707,603 1,090,025 Culture and recreation 2,712,947 2,754,947 2,989,900 3,115,151 3,097,289 3,028,285 2,944,221 2,677,051 2,880,815 2,715,977 Debt service interest 267,160 238,090 309,094 331,771 302,948 247,703 240,940 214,470 254,516 324,405 Total government activities 17,867,114 19,706,403 18,576,908 20,285,705 21,549,620 20,099,750 19,670,009 18,372,873 19,938,472 18,533,387 Business-type activities Utilities 4,403,421 4,938,340 5,329,682 5,859,301 5,809,192 5,474,550 6,725,349 9,162,926 7,017,160 7,644,240 Sanitation 2,738,742 2,945,209 2,888,403 3,008,205 2,609,129 2,493,357 2,466,881 2,524,994 2,741,266 3,163,638 Golf 2,596,450 2,603,460 2,631,289 2,780,632 2,547,992 2,479,804 2,203,739 2,199,453 2,012,165 2,023,186 Stormwater - - - - - 469,421 374,951 339,543 497,211 611,962 Total business-type activities 9,738,613 10,487,009 10,849,374 11,648,138 10,966,313 10,917,132 11,770,920 14,226,916 12,267,802 13,443,026 Total primary government expenses $ 27,605,727 $ 30,193,412 $ 29,426,282 $ 31,933,843 $ 32,515,933 $ 31,016,882 $ 31,440,929 $ 32,599,789 $ 32,206,274 $ 31,976,413 Program Revenues Governmental activities Charges for services General government $ 1,973,238 $ 2,108,169 $ 2,381,669 $ 2,456,663 $ 2,752,330 $ 2,921,887 $ 2,759,080 $ 2,556,270 $ 430,718 $ 409,983 Public safety 567,601 873,041 600,259 579,365 641,941 642,364 467,835 430,017 373,855 640,271 Physical environment 345,529 302,727 342,815 316,520 348,838 286,623 289,654 394,513 439,555 404,429 Transportation 102,068 68,402 72,815 241,622 93,987 87,654 83,586 104,776 118,067 122,275 Economic environment - - - - - - - 16,400 58,000 34,652 Culture and recreation 351,450 382,858 400,175 421,733 417,253 426,110 408,351 404,047 400,215 374,362 Debt service interest - - - - - - - - - - Operating grants and contributions 2,541,755 3,228,819 642,631 1,266,681 903,079 1,119,033 639,370 761,643 589,253 786,652 Capital grants and contributions 56,332 261,332 373,994 233,878 50,687 88,941 731,275 351,006 156,794 80,936 Total governmental activities program revenues 5,937,973 7,225,348 4,814,358 5,516,462 5,208,115 5,572,612 5,379,151 5,018,672 2,566,457 2,853,560 Business-type activities Charges for services Utilities 5,888,862 6,279,899 6,552,526 7,006,005 6,505,297 6,403,262 6,761,654 7,608,355 7,974,601 8,623,082 Sanitation 3,244,899 3,315,188 3,374,157 3,433,172 3,446,397 3,384,375 3,345,127 3,311,744 3,313,559 3,499,559 Golf 2,275,678 2,335,114 2,621,957 2,558,253 2,380,448 2,181,988 1,934,392 2,052,501 1,776,649 1,758,709 Stormwater - - - - - 654,346 626,903 481,854 577,706 591,196 Operating grants and contributions - - - - 39,403 - - 118,226 - 1,071 Capital grants and contributions 100,027 198,568 95,644 1,079,034 92,872 555,698 173,370 65,496 331,609 1,871,295 Total business-type activities program revenues 11,509,466 12,128,769 12,644,284 14,076,464 12,464,417 13,179,669 12,841,446 13,638,176 13,974,124 16,344,912 Total primary government program revenues $ 17,447,439 $ 19,354,117 $ 17,458,642 $ 19,592,926 $ 17,672,532 $ 18,752,281 $ 18,220,597 $ 18,656,848 $ 16,540,581 $ 19,198,472 Continued… 91  City of Fort Walton Beach, Florida SCHEDULE 2 CHANGES IN NET POSITION Last Ten Fiscal Years (full accrual basis of accounting) 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Net (Expense)/Revenue Governmental activities $ (11,929,141) $ (12,481,055) $ (13,762,550) $ (14,769,243) $ (16,341,505) $ (14,527,138) $ (14,290,859) $ (13,354,201) $ (17,372,015) $ (15,679,827) Business-type activities 1,770,853 1,641,760 1,794,910 2,428,326 1,498,104 2,262,537 1,070,526 (588,740) 1,706,322 2,901,886 Total primary government net expense $ (10,158,288) $ (10,839,295) $ (11,967,640) $ (12,340,917) $ (14,843,401) $ (12,264,601) $ (13,220,333) $ (13,942,941) $ (15,665,693) $ (12,777,941) General Revenues and Other Changes in Net Position Governmental activities Taxes Property taxes $ 3,763,976 $ 3,913,016 $ 4,557,414 $ 5,180,212 $ 5,052,903 $ 4,631,028 $ 4,380,221 $ 4,482,819 $ 4,295,068 $ 4,175,136 Sales taxes 2,393,744 2,466,783 2,529,028 2,363,078 2,214,232 1,977,959 1,943,337 2,066,834 2,198,270 2,241,242 Utility service taxes 3,163,325 3,690,239 4,006,985 1,420,142 5,094,918 3,454,691 3,914,362 3,926,930 3,739,311 3,761,437 Tax Increments for Redevelopment district - - - - - - - 1,547,609 1,386,521 1,311,101 Franchise Fees - - - - - - - - 1,876,575 1,764,733 Intergovernmental, unrestricted 619,197 877,198 889,450 845,090 740,554 709,550 712,776 825,591 809,756 818,039 Gain on sale of assets 99,587 456,675 (1,053) 477,494 2,592 2,950 795,860 16,865 16,440 37,833 Miscellaneous 100,950 46,174 37,595 56,788 61,199 54,223 492,052 96,105 154,996 106,546 Investment earnings 226,863 324,687 599,818 755,389 444,488 269,896 152,884 133,419 159,465 62,285 Special item: Impairment loss - - - - - - - - - (271,287) Transfers 1,991,333 1,875,000 1,980,000 1,928,924 2,917,310 2,310,464 1,667,644 1,682,717 1,656,032 (2,145,441) Total governmental activities 12,358,975 13,649,772 14,599,237 13,027,117 16,528,196 13,410,761 14,059,136 14,778,889 16,292,434 11,861,624 Business-type activities Taxes Utility service taxes 7,807 - 14,200 7,844 5,930 4,597 - - - - Gain on sale of assets 27,641 - 174,610 34,978 482 98,907 56,795 75,904 35,111 20,662 Miscellaneous 12,342 10,261 73,714 15,118 129,678 141,406 177,657 31,424 48,550 6,504 Investment earnings 128,808 354,915 734,878 713,872 579,578 340,155 202,071 65,961 69,622 11,107 Special item: Impairment loss - - - - - (3,836,055) - - (588,652) (786,713) Transfers (1,991,333) (1,875,000) (1,980,000) (1,925,000) (2,917,310) (2,310,464) (1,667,644) (1,682,717) (1,656,032) 2,145,441 Total business-type activities (1,814,735) (1,509,824) (982,598) (1,153,188) (2,201,642) (5,561,454) (1,231,121) 173,289 (2,091,401) 1,397,001 Total primary government $ 10,544,240 $ 12,139,948 $ 13,616,639 $ 11,873,929 $ 14,326,554 $ 7,849,307 $ 12,828,015 $ 14,952,178 $ 14,201,033 $ 13,258,625 Change in Net Position Governmental activities $ 429,834 $ 1,467,862 $ 836,687 $ (1,742,126) $ 186,691 $ (1,116,377) $ (231,722) $ 1,424,688 $ (1,079,581) $ (3,818,203) Business-type activities (43,882) 131,936 812,312 1,275,138 (703,538) (3,298,917) (160,595) (2,098,168) (385,079) 4,298,887 Total primary government $ 385,952 $ 1,599,798 $ 1,648,999 $ (466,988) $ (516,847) $ (4,415,294) $ (392,317) $ (673,480) $ (1,464,660) $ 480,684 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. 92  City of Fort Walton Beach, Florida SCHEDULE 3 FUND BALANCES - GOVERNMENTAL FUNDS Last Ten Fiscal Years (modified accrual basis of accounting) 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 General Fund Reserved $ 957,768 $ 4,756,085 $ 539,749 $ 701,829 $ 509,080 $ 482,179 $ 499,384 $ - $ - $ - Unreserved 10,179,527 10,022,750 11,129,373 12,161,545 9,367,864 9,709,202 9,314,142 - - - Nonspendable - - - - - - - 3,032,726 2,857,963 254,229 Restricted - - - - - - - 234,768 194,193 7,868,522 Committed - - - - - - - 5,219,706 5,040,585 5,501,353 Assigned - - - - - - - 1,537,572 354,999 1,301,385 Unassigned - - - - - - - 1,189,562 1,611,120 788,076 Total general fund $ 11,137,295 $ 14,778,835 $ 11,669,122 $ 12,863,374 $ 9,876,944 $ 10,191,381 $ 9,813,526 $ 11,214,334 $ 10,058,860 $ 15,713,565 All Other Governmental Funds Reserved $ - $ - $ - $ - $ - $ 50,117 $ 12,783 $ - $ - $ - Unreserved, reported in Capital projects 685,174 700,975 241,114 56,550 8,751 - - - - Debt service 92,153 92,544 92,788 92,730 91,713 91,713 92,880 - - - Special revenue funds 1,789,633 1,862,308 1,933,979 2,095,772 2,153,440 2,073,850 2,158,878 - - - Nonspendable - - - - - - - - - - Restricted - - - - - - - 4,595,420 4,112,255 4,316,961 Committed - - - - - - - 1,929,448 1,959,836 2,035,225 Assigned - - - - - - - - - - Unassigned - - - - - - - (306) (302) (2,745) Total all other governmental funds $ 2,566,960 $ 2,655,827 $ 2,267,881 $ 2,245,052 $ 2,245,153 $ 2,224,431 $ 2,264,541 $ 6,524,562 $ 6,071,789 $ 6,349,441 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 Districted was included with All Other Governmental Funds 93  City of Fort Walton Beach, Florida SCHEDULE 4 CHANGES IN FUND BALANCES - GOVERNMENTAL FUNDS Last Ten Fiscal Years (modified accrual basis of accounting) 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Revenues Taxes $ 9,102,668 $ 9,872,190 $ 11,086,466 $ 10,804,833 $ 9,039,398 $ 9,160,133 $ 9,414,513 $ 10,438,481 $ 10,065,983 $ 9,901,157 Licenses, permits, and fees 358,675 706,345 517,728 496,614 2,225,224 2,320,683 2,406,916 2,428,621 2,142,995 2,221,406 Intergovernmental 4,990,501 6,261,885 3,836,216 3,661,644 2,914,162 2,950,179 3,502,904 3,358,615 3,291,693 3,400,876 Charges for services 933,006 848,651 900,170 911,026 1,216,687 1,132,681 907,476 911,405 969,560 1,065,316 Fines and forfeits 305,851 329,038 247,329 247,493 268,415 387,449 204,849 151,616 142,936 241,923 Miscellaneous 637,460 1,052,422 850,248 3,588,708 1,211,662 1,020,342 1,370,077 817,975 537,975 431,625 Total Revenues 16,328,161 19,070,531 17,438,157 19,710,318 16,875,548 16,971,467 17,806,735 18,106,713 17,151,142 17,262,303 Expenditures General governmental services 5,722,625 6,737,331 4,646,594 4,355,885 5,306,276 4,419,077 5,095,790 3,699,506 3,899,740 2,514,734 Public safety 6,497,304 7,124,082 7,750,191 9,170,719 9,614,744 9,379,319 8,872,424 8,676,620 9,154,002 9,066,246 Physical environment 211,388 211,178 233,942 276,086 278,273 283,460 250,691 306,365 295,459 311,684 Transportation 1,183,153 1,284,018 1,364,414 1,550,204 1,750,680 1,316,954 1,207,449 994,272 966,050 1,012,387 Economic environment 210,649 199,284 313,153 335,185 127,355 266,132 98,996 493,526 652,086 1,032,659 Culture and recreation 2,250,304 2,277,069 2,503,469 2,636,387 2,698,993 2,582,642 2,535,682 2,233,104 2,383,239 2,267,141 Capital outlay 1,402,355 1,558,462 5,612,616 1,457,758 652,734 520,722 1,335,369 1,561,057 2,609,203 1,282,142 Debt service Principal 145,097 195,722 194,675 355,459 2,052,797 168,949 175,629 198,699 211,683 4,540,488 Interest and other costs 265,769 274,122 307,334 330,136 297,335 246,774 240,093 236,268 243,959 203,347 Total expenditures 17,888,644 19,861,268 22,926,388 20,467,819 22,779,187 19,184,029 19,812,123 18,399,417 20,415,421 22,230,828 Excess of revenue over (under) expenditures (1,560,483) (790,737) (5,488,231) (757,501) (5,903,639) (2,212,562) (2,005,388) (292,704) (3,264,279) (4,968,525) Other Financing Sources (Uses) Transfers in 2,516,798 2,376,403 2,618,738 2,644,727 5,367,633 3,191,822 2,342,226 2,296,944 2,284,416 673,836 Transfers out (525,465) (501,403) (638,738) (715,802) (2,450,323) (685,545) (674,583) (614,227) (628,384) (2,819,277) Insurance recoveries - 299,145 - - - - - - - - Lease proceeds 143,698 299,948 - - - - - - - 103,784 Debt issuance - 2,039,191 - - - - - 739,805 - 12,942,539 Contributions from others 40,929 7,860 10,572 - - - - - - - Total other financing sources (uses) 2,175,960 4,521,144 1,990,572 1,928,925 2,917,310 2,506,277 1,667,643 2,422,522 1,656,032 10,900,882 Net change in fund balance $ 615,477 $ 3,730,407 $ (3,497,659) $ 1,171,424 $ (2,986,329) $ 293,715 $ (337,745) $ 2,129,818 $ (1,608,247) $ 5,932,357 Debt service as a percentage of noncapital expenditures 2.49% 2.57% 2.90% 3.61% 10.62% 2.23% 2.25% 2.58% 2.56% 22.65% 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 94  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 2013 $9,901,157 $2,221,406 $3,400,876 $1,065,316 $241,923 $431,625 $13,720,159 $30,982,462 2012 10,065,983 2,142,995 3,291,693 969,560 142,936 537,975 2,284,416 19,435,558 2011 10,438,481 2,428,621 3,358,615 911,405 151,616 817,975 2,296,944 20,403,657 2010 9,414,513 2,406,916 3,502,904 907,476 204,849 1,370,077 2,342,226 20,148,961 2009 9,160,133 2,320,683 2,950,179 1,132,681 387,449 1,020,342 3,191,822 20,163,289 2008 9,039,398 2,225,224 2,914,162 1,216,687 268,415 1,211,662 5,367,633 22,243,181 2007 10,804,833 496,614 3,661,644 911,026 247,493 3,588,708 2,644,727 22,355,044 2006 11,086,466 517,727 3,836,216 900,170 247,329 860,820 2,618,738 20,067,466 2005 10,379,692 706,345 6,699,651 848,651 329,038 1,387,243 4,715,542 25,066,162 2004 9,506,835 358,675 5,514,537 933,006 305,851 653,600 2,701,425 19,973,929 (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. 95  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 2013 $ 1,451,775,552 $ 118,155,863 $ 1,569,931,415 $ 442,204,485 $ 1,127,726,930 5.7697 2012 1,445,327,759 120,653,616 1,565,981,375 446,565,401 1,119,415,974 4.5383 2011 1,478,072,570 126,412,302 1,604,484,872 452,378,818 1,152,106,054 4.5383 2010 1,550,325,157 129,348,680 1,679,673,837 469,933,333 1,209,740,504 4.5383 2009 1,864,657,624 148,104,763 2,012,762,387 476,888,476 1,309,056,015 4.1986 2008 2,046,319,844 147,625,998 2,193,945,842 816,366,365 1,377,579,477 4.1986 2007 2,100,890,582 148,394,292 2,249,284,874 777,377,988 1,471,906,886 4.1986 2006 1,980,162,078 137,191,649 2,117,353,727 761,995,075 1,355,358,652 4.6458 2005 1,518,656,395 129,244,507 1,647,900,902 548,237,161 1,099,663,741 4.9700 2004 1,194,748,692 123,444,654 1,318,193,346 400,213,897 917,979,449 4.9700 (1) Florida State Law requires all property to be assessed at current fair market. The January 2013 assessment is the basis for Fiscal Year 2013-14 tax revenues. Source: Okaloosa County Property Appraiser 96  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 2013 5.7697 5.7697 3.4308 7.5510 0.0400 11.0218 2012 4.5383 4.5383 3.2899 7.4760 0.0400 10.8059 2011 4.5383 4.5383 3.2899 7.7690 0.0400 11.0989 2010 4.5383 4.5383 3.2899 7.5340 0.0450 10.8689 2009 4.1986 4.1986 3.2899 7.6390 0.0450 10.9739 2008 4.1986 4.1986 3.2995 7.6240 0.0450 10.9685 2007 4.1986 4.1986 3.3443 7.6390 0.0450 11.0283 2006 4.6458 4.6458 3.6500 7.7860 0.0500 11.4860 2005 4.9700 4.9700 4.2500 8.0630 0.0500 12.3630 2004 4.9700 4.9700 4.2500 8.2940 0.0500 12.5940 (1) As of levy date, November 1 of each year listed. The 2013 millage rate is the basis for Fiscal Year 2013-14 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 97  City of Fort Walton Beach, Florida SCHEDULE 8 PRINCIPAL TAXPAYERS Unaudited 2013 2004 Total Total Assessed Assessed Taxpayer Value Percentage Rank Value Percentage Rank Gulf Power Co. $ 17,394,520 1.54% 1 $ 14,327,675 1.56% 2 DRS Training & Control Systems 14,955,171 1.33% 2 4,967,997 0.54% 7 Suso 2 Uptown, LP 14,233,565 1.26% 3 10,180,490 1.11% 3 Cox Communications Gulf Coast, LLC 7,108,180 0.63% 4 Fort Walton Machining, Inc. 6,742,312 0.60% 5 Presidio Developers, LLC 6,081,000 0.54% 6 BLC Westwood, LLC 6,034,454 0.54% 7 Embarq Corp. 5,592,401 0.50% 8 HSU Paul S & Majes 4,969,909 0.44% 9 DDRM Shoppes at Paradise Pointe, LLC 4,420,321 0.39% 10 Sprint Florida, Inc. 22,563,122 2.46% 1 Aero Technical Service 9,670,506 1.05% 4 American Senior Living of FWB 8,039,951 0.88% 5 Inland Southeast Paradise Point 5,009,660 0.55% 6 Home Depot USA, Inc. 4,749,285 0.52% 8 Emerald Coast Housing Corp. 4,635,287 0.50% 9 Mariner Plaza Realty Assoc. 4,592,717 0.50% 10 Total Taxable Assessed Value of Principal Taxpayers 87,531,833 7.76% 88,736,690 9.67% Total Taxable Assessed Value of Other Taxpayers 1,040,195,097 92.24% 829,242,759 90.33% Total Taxable Assessed Value $ 1,127,726,930 100.00% $ 917,979,449 100.00% (1) The 2013 tax roll is the basis for Fiscal Year 2013-14 tax revenues. Source: Okaloosa County Property Appraiser 98  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 2013 The 2013 tax levy is the basis for Fiscal Year 2013-14 tax revenues. 2012 $ 5,096,206 $ 4,880,002 95.8% $ 50,880 $ 4,930,882 96.8% $ 10,265 0.2% 2011 5,251,483 5,050,661 96.2% 38,067 5,088,728 96.9% 19,826 0.4% 2010 5,519,832 5,309,040 96.2% 78,863 5,387,903 97.6% 11,576 0.2% 2009 5,523,136 5,280,090 95.6% 45,233 5,325,323 96.4% 59,371 1.1% 2008 5,814,307 5,606,480 96.4% 25,515 5,631,996 96.9% 22,112 0.4% 2007 6,215,424 5,976,218 96.2% 23,448 5,999,666 96.5% 16,699 0.3% 2006 6,317,712 6,085,783 96.3% 17,701 6,103,484 96.6% 17,752 0.3% 2005 5,481,001 5,271,070 96.2% 23,903 5,294,973 96.6% 17,072 0.3% 2004 4,577,392 4,408,022 96.3% 16,643 4,424,665 96.7% 15,383 0.3% 2003 4,305,962 4,151,604 96.4% 16,263 4,167,867 96.8% 11,174 0.3% (1) Includes discount taken for early payment of taxes (maximum of 4%). Source: Okaloosa County Tax Collector 99  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) 2013 $ - $ 101,696 $ 13,535,936 $ - $ - $ - $73,533 $ 7,068,522 $ 10,035,000 $ 30,814,687 0.36% 1,521.26 2012 - - 661,796 4,470,000 - 13,458 61,221 - 10,315,000 15,521,475 0.20% 768.62 2011 - - 728,480 4,615,000 - 66,118 76,586 - 10,585,000 16,071,184 0.21% 822.73 2010 - 47,374 - 4,755,000 - 141,737 - - 14,005,000 18,949,111 0.26% 930.93 2009 - 93,003 - 4,885,000 - 226,886 - - 14,740,000 19,944,889 0.28% 964.69 2008 - 197,509 - 5,010,000 - 584,170 - - 15,300,000 21,091,679 0.31% 1,008.30 2007 - 260,306 - 7,000,000 - 479,246 - - 15,835,000 23,574,552 0.35% 1,122.17 2006 - 320,764 - 7,295,000 - 614,203 - - 16,345,000 24,574,967 0.37% 1,176.85 2005 - 400,433 - 7,410,000 - 447,370 - - 16,830,000 25,087,803 0.39% 1,209.93 2004 - 186,213 - 5,475,000 - 594,046 - - 6,385,000 12,640,259 0.21% 613.04 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. 100  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) 2013 $ - 0.00% $ - 2012 - 0.00% - 2011 - 0.00% - 2010 - 0.00% - 2009 - 0.00% - 2008 - 0.00% - 2007 - 0.00% - 2006 - 0.00% - 2005 - 0.00% - 2004 - 0.00% - 2003 - 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. 101  City of Fort Walton Beach, Florida SCHEDULE 12 PLEDGED REVENUE COVERAGE SCHEDULE OF REVENUE BOND COVERAGE Last Ten Fiscal Years Unaudited Average Non-Ad Valorem Revenues Fiscal Non-Ad Valorem Avail. for Debt Service Requirements (2) Year Revenues (1) Debt Service Principal Interest Total Coverage 2013 $ 26,338,776 $ 25,803,342 $ 364,156 460,197 $ 824,353 31.30 2012 $ 25,267,908 $ 25,556,504 $ 497,049 697,060 $1,194,109 21.40 2011 25,845,100 26,274,792 468,935 695,713 1,164,648 22.56 2010 26,704,483 26,355,374 510,000 874,423 1,384,423 19.04 2009 26,006,265 28,208,317 340,000 889,985 1,229,985 22.93 2008 30,410,368 31,235,238 325,000 904,730 1,229,730 25.40 2007 32,060,108 30,760,329 315,000 918,699 1,233,699 24.93 2006 29,460,549 31,084,778 300,000 931,488 1,231,488 25.24 2005 32,709,007 29,841,670 285,000 552,986 837,986 35.61 2004 26,974,332 26,011,445 275,000 492,124 767,124 33.91 (1) Non-Ad Valorem Revenues of General Fund, Capital Projects Fund, other governmental funds, and proprietary funds. (2) Combined Debt Service requirements for Capital Improvement Revenue Note Series 2013 & 2013A, Utility System Revenue Bond, Series 2005, and 2011 Revenue Notes. See Financial Statement Notes for detail. Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. The City implemented GASB Statement 34 in 2002; schedules presenting government-wide information include information beginning in that year. 102  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 $ 29,192,000 (1) 10.84% (3) $ 3,164,014 Okaloosa County School District Certificates of Participation $ 53,576,000 31.11% (2) $ 16,668,089 Subtotal: Overlapping Debt $ 82,768,000 $ 19,832,103 Direct Debt City of Fort Walton Beach Revenue Notes $ 661,796 100.00% $ 661,796 City of Fort Walton Beach Revenue Bonds $ 4,470,000 100.00% $ 4,470,000 Subtotal: Direct Debt $ 5,131,796 $ 5,131,796 Total Direct and Overlapping Debt $ 87,899,796 $ 24,963,900 Source: Okaloosa County, Okaloosa County School Board (1) Clerk of Courts financial statements not available for FY 2012-2013, number estimated from FY 2011-2012 information. (2) Calculation based on total schools in Okaloosa County School District versus schools in Fort Walton Beach. (3) Calculation based on total population in Okaloosa County versus population in Fort Walton Beach. 103  City of Fort Walton Beach, Florida SCHEDULE 14 MAJOR EMPLOYERS Unaudited 2013 2004 Percentage Percentage of Total of Total Employer Product Employees Employment Ranking Employees Employment Ranking USAF - Eglin(1) Air Force Development Test Center 19,101 19.66% 1 20,000 21.95% 1 (2) USAF - Hurlburt Air Force Special Ops Command 10,055 10.35% 2 8,734 9.59% 2 Okaloosa County School District Education Services 3,417 3.52% 3 3,718 4.08% 3 Jacobs Technology - TEAS Group Military Technical Support 1,483 1.53% 4 (3) Okaloosa County Local Government Services 1,378 1.42% 5 1,360 1.49% 4 Fort Walton Beach Medical Center Medical Services 1,250 1.29% 6 975 1.07% 6 Northwest Florida State College Education Services 1,152 1.19% 7 L-3 Cresview Aerospace Military Technical Support 1,064 1.09% 8 Lockheed Martin Corporation Military Technical Support 800 0.82% 9 InDyne Inc Military Technical Support 800 0.82% 10 ResortQuest Property Management 0.00% 1,300 1.43% 5 DRS Training and Control Systems Defense Electronics 0.00% 747 0.82% 9 BAE Systems Technical Services Military Technical Support 0.00% 900 0.99% 8 North Okaloosa Medical Center Medical Services 0.00% 625 0.69% 10 State of Florida State Government Services 0.00% 966 1.06% 7 7 40,500 43.03% 39,325 45.57% (1) Includes military, civilian, and contractor personnel; a portion of contractor personnel may be duplicated with private sector employees also listed here. (2) Includes military and civilian personnel. (3) Includes County Commission, Clerk of Court, Property Appraiser, Sheriff, Supervisor of Elections, and Tax Collector. Source: Personnel Department of each employer 104  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 2013 20,256 186,887 10.84% $ 8,546,210 $ 44,960 4.7% 2012 20,194 185,803 10.87% 7,913,960 43,132 6.0% 2011 19,534 180,280 10.84% 7,497,082 42,007 7.3% 2010 20,355 195,346 10.42% 7,369,683 41,050 8.0% 2009 20,675 196,237 10.54% 7,090,979 39,158 7.2% 2008 20,918 197,597 10.59% 6,861,716 37,497 4.8% 2007 21,008 196,540 10.69% 6,781,908 37,423 2.9% 2006 20,882 192,672 10.84% 6,761,736 36,529 2.4% 2005 20,735 188,939 10.97% 6,360,148 34,755 2.9% 2004 20,619 185,778 11.10% 5,982,411 33,068 3.4% OKALOOSA COUNTY EDUCATION FY 2013 FY 2012 FY 2011 Schools: Grades K-5 18 18 18 Grades 6-8 7 7 7 Grades 9-12 4 4 4 PK-12 / Charter / Alternate 2 / 4 / 10 2 / 4 / 10 2 / 4 / 10 Grades K-8 1 1 1 Vocational / Technical 1 1 1 Exceptional Children 2 2 2 Students: Grades K-5 14,197 13,509 13,891 Grades 6-8 6,698 6,546 6,046 Grades 9-12 8,917 8,954 8,381 Adult Students 310 288 280 Exceptional Children 3,995 4,037 4,031 Personnel: Instructional (Classroom) 1,888 1,844 1,896 Non-Instructional 868 933 941 Source: Office of Economic & Demographic Research, FL Research & Economic Information Database, Okaloosa County School Board 105  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 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 General Government City Manager 2.00 2.00 2.00 2.00 2.00 3.00 4.00 3.00 3.00 3.00 Administrative Services 3.00 3.00 3.00 4.00 4.00 4.00 4.00 4.00 4.00 4.00 Risk Management - - - 1.00 1.00 - - - - - Information Technology 2.00 2.00 2.00 2.75 2.75 3.00 4.00 4.00 4.00 4.00 City Clerk 2.50 2.50 2.50 3.00 3.00 3.00 3.00 3.00 3.00 3.00 Finance 7.00 7.00 7.00 7.00 7.00 7.00 7.00 7.75 8.00 9.00 Purchasing 2.50 2.50 2.50 2.50 2.00 5.00 5.00 5.00 5.00 5.00 Public Safety Police 59.99 70.99 67.99 67.59 68.05 74.05 73.17 72.95 72.95 74.95 Fire 37.00 37.00 37.00 38.00 38.00 39.00 39.00 39.00 33.00 33.00 Recreation & Cultural Services Administration 13.45 13.67 13.81 15.93 17.19 32.09 32.64 34.04 34.04 34.04 Parks Maintenance 10.00 11.00 11.00 11.00 11.90 - - - - - Right-of-Way Maintenance 1.00 1.00 1.00 7.00 8.00 9.00 9.00 9.00 9.00 10.00 Senior Citizens Center 1.85 1.85 1.85 1.85 1.85 2.38 2.58 2.58 2.58 3.08 Library 8.02 8.02 8.10 9.90 9.90 10.60 11.10 11.10 11.10 11.10 Museum 3.60 3.60 2.60 3.85 4.98 5.18 6.01 7.01 7.01 7.01 Cemetery 3.00 3.00 3.00 3.00 3.50 3.50 3.50 3.00 3.00 3.00 Engineering Services Administration 5.00 5.00 5.00 6.00 6.00 7.00 7.00 8.00 10.00 10.00 Planning & Zoning 1.00 1.00 1.00 1.00 - 4.00 4.00 5.00 5.00 5.00 Building & Permitting 4.00 3.70 3.00 3.00 3.00 6.00 6.00 4.00 4.00 4.00 Code Enforcement 2.00 2.00 2.00 2.00 2.00 - - - - - Fleet Maintenance 9.00 8.75 8.75 10.00 11.00 12.00 12.00 12.00 13.00 13.00 Facilities Maintenance 8.00 8.00 8.00 11.00 11.00 10.00 11.00 11.00 11.00 11.00 Streets Maintenance 5.50 5.50 5.50 6.50 6.50 14.50 13.50 15.00 15.00 15.00 Community Development Block Grant 0.48 0.48 0.48 0.48 0.48 0.48 1.48 1.48 1.48 1.48 Community Redevelopment Agency 3.00 3.00 3.00 1.00 1.00 1.00 1.75 1.75 1.00 1.00 Utility (Water/Sewer) Enterprise Administration 7.00 7.00 6.75 1.00 2.00 6.00 5.00 5.00 - - Customer Service 5.50 5.50 5.50 7.50 7.50 8.00 9.00 9.00 8.00 8.00 Water Operations 9.00 9.00 10.00 7.00 7.00 7.00 7.00 7.00 7.00 7.00 Sewer Operations - - - 2.00 11.00 11.00 13.00 13.00 16.00 16.00 Water Distribution 5.00 5.00 5.00 6.00 6.00 6.00 7.00 7.00 6.00 6.00 Sewer Collections 13.00 12.00 12.00 11.00 11.00 11.00 12.00 11.00 11.00 11.00 Sanitation Enterprise Solid Waste 19.00 19.00 18.75 19.62 19.87 21.00 21.00 21.00 22.00 22.00 Recycling - - - - - 4.00 4.00 4.00 4.00 Golf Enterprise Golf Club 14.26 14.26 14.26 14.26 31.01 36.51 36.56 36.56 36.36 37.56 Golf Grounds Maintenance 15.75 15.75 15.75 15.75 - - - - - - Stormwater Enterprise Stormwater 6.00 6.00 6.00 7.00 8.00 - - - - - Total 289.40 300.07 296.09 312.48 329.48 362.29 375.29 377.22 370.52 376.22 Source: City of Fort Walton Beach Adopted Budget for the relevant year. 106  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 2013 148 188 121 82 26 2012 148 168 102 100 39 2011 249 255 74 159 18 2010 212 290 87 154 27 2009 142 285 52 158 16 2008 168 298 97 178 20 2007 177 340 109 157 30 2006 202 473 126 235 32 2005 152 438 103 162 37 2004 163 396 61 182 53 BUSINESS TAX RECEIPTS ISSUED (formerly referred to as occupational licenses) Year Number Sold 2013 2,087 2012 1,947 2011 2,269 2010 2,311 2009 2,364 2008 2,426 2007 2,499 2006 2,483 2005 2,496 2004 2,391 MUNICIPAL RECREATIONAL FACILITIES 2 18-hole Golf Courses 1 Library 1 18-hole Disc Golf Course 4 Museums 1 Auditorium 23 Playgrounds 6 Baseball-Softball Facilities 1 Racquetball Court Facility 1 BMX/Skateboard Facility 3 Recreation Centers 5 Boat Ramps 1 Soccer Field Facilities 5 Exercise/Walking Tracks 4 Tennis Court Facilities 1 Fairgrounds 7 Undeveloped Parks 1 Football Stadium 4 Waterfront Parks Sources: City of Fort Walton Beach Customer Service, Building & Permitting, and Recreation departments. Note: Change in facility totals due to the demolition of Hendrick Recreation Center and Athletic Fields. 107  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 2,006 383 1,382 222 19 02 BLACKMON 606 142 402 58 4 03 MILLIGAN 1,147 232 709 182 24 04 HOLT 1,090 239 658 175 18 05 LAUREL HILL 953 266 512 161 14 06 GARDEN CITY 2,608 523 1,631 421 33 07 DORCAS 1,341 291 776 253 21 08 HONEY CREEK 3,598 861 2,073 612 52 09 YELLOW RIVER 3,385 707 2,048 583 47 10 WEST WRIGHT 5,280 1,280 2,774 1,109 117 11 EAST CRESTVIEW 6,908 1,498 3,804 1,471 135 12 WEST CRESTVIEW 836 478 195 157 6 13 NORTH CRESTVIEW 3,246 719 1,943 540 44 14 WEST NICEVILLE 2,408 470 1,413 482 43 15 VALPARAISO 2,758 505 1,644 553 56 16 SHALIMAR 2,676 610 1,483 522 61 17 CENTRAL WRIGHT 2,993 791 1,441 704 57 18 OCEAN CITY 2,286 577 1,176 488 45 19* EAST FWB 1,335 436 573 302 24 20 WEST DESTIN 2,245 430 1,311 452 52 21 MARY ESTHER 2,476 554 1,445 428 49 22* S CENTRAL FWB 1,842 591 865 354 32 23 EGLIN AFB 486 100 218 157 11 24* WEST FWB 2,602 750 1,285 516 51 25 N CENTRAL NICEVILLE 1,658 333 1,023 278 24 26 SEMINOLE 2,361 350 1,609 355 47 27 CINCO BAYOU 264 60 139 62 3 28* GARNIERS 341 62 231 42 6 29* GOLF COURSE 2,005 318 1,344 311 32 30 OKALOOSA ISLAND 1,299 203 768 295 33 31 LONGWOOD 1,748 271 1,240 212 25 32* FERRY PARK 2,245 447 1,374 382 42 33 ROCKY BAYOU 4,064 498 2,963 553 50 34 FLOROSA 3,196 740 1,658 727 71 35 NORTH DESTIN 2,711 341 1,765 561 44 36 SOUTH NICEVILLE 2,306 358 1,561 334 53 37 LAKE LORRAINE 2,646 355 1,840 402 49 38 NORTHGATE 2,053 478 1,152 380 43 39 EAST WRIGHT 2,226 568 1,186 434 38 40 SOUTH BLUEWATER 2,778 330 1,999 409 40 41* N CENTRAL FWB 1,281 229 834 197 21 42* NEW HEIGHTS 2,103 664 949 449 41 43 S CENTRAL NICEVILLE 2,031 424 1,198 372 37 44 CENTRAL DESTIN 1,613 312 884 389 28 45 SOUTH CRESTVIEW 4,099 915 2,161 951 72 46 NORTH BLUEWATER 4,122 536 2,829 685 72 47 WYNNEHAVEN BEACH 1,695 365 856 430 44 48* WESTWOOD RETIREMENT 142 37 95 10 0 49 EAST DESTIN 2,705 349 1,870 447 39 50 SOUTH DESTIN 2,827 381 1,904 486 56 51 AIRPORT ROAD 1,591 261 1,030 281 19 52 LIVE OAK 3,183 647 1,820 660 56 Countywide Total 118,404 24,265 70,043 21,996 2,100 *City Precinct City Total 11,854 2,995 6,522 2,130 207 Source: Okaloosa County Supervisor of Elections 108  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 2013 $ - $ 5,302 $ - $ 119,704 2012 - 12,779 - 125,006 2011 - 5,986 - 137,785 2010 - 19,801 - 143,771 2009 - 6,528 - 163,572 2008 - 7,511 - 170,100 2007 218,730 72,576 33.18% 177,610 2006 0.00 1,965 - 31,456 2005 0.00 50,257 - 33,421 2004 0.00 37,510 - 83,678 (1) Assessments are payable over a 20 year period. Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. 109  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 2013 $ 5,486,237 17.3% $ 6,355,549 20.1% $ 4,949,525 15.7% $ 3,499,459 11.1% $ 3,078,174 9.7% $ 1,591,423 5.0% 2012 $ 5,681,589 18.5% $ 6,482,596 21.1% $ 4,839,764 15.8% $ 3,313,559 10.8% $ 3,052,071 9.9% $ 1,656,721 5.4% 2011 $ 6,030,428 19.2% $ 6,673,824 21.2% $ 4,631,992 14.7% $ 3,307,993 10.5% $ 2,753,590 8.8% $ 1,954,589 6.2% 2010 5,332,480 17.5% 6,645,189 21.8% 4,154,795 13.6% 3,335,342 10.9% 2,379,913 7.8% 1,914,053 6.3% 2009 5,629,812 19.0% 6,425,482 21.7% 3,943,722 13.3% 3,363,185 11.4% 2,245,512 7.6% 2,164,174 7.4% 2008 6,021,743 20.6% 5,706,534 19.5% 3,984,282 13.6% 3,441,588 11.8% 2,271,327 7.8% 2,365,739 8.1% 2007 6,123,749 15.7% 5,645,463 14.5% 4,162,172 10.7% 3,427,925 8.8% 2,492,378 6.4% 2,441,793 6.3% 2006 5,303,877 14.9% 6,544,881 18.4% 3,932,591 11.1% 3,369,729 9.5% 2,360,766 6.6% 2,500,736 7.0% 2005 4,421,852 11.8% 5,957,840 15.8% 3,727,073 9.9% 3,311,508 8.8% 2,179,849 5.8% 2,224,935 5.9% 2004 4,166,452 13.1% 4,983,270 15.7% 3,544,738 11.2% 3,240,131 10.2% 689,910 2.2% 2,173,351 6.9% 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. 110  City of Fort Walton Beach, Florida SCHEDULE 21 WATER AND WASTEWATER SERVICE RATES Unaudited Monthly Water Rates (1,2) Residential Commercial Number of Inside Outside(3) Inside Outside(3) Meters Lifeline Rate(4) $8.30 $10.37 $8.30 $10.37 Monthly Base Charge(5), Meter Size: 3/4" $8.30 $10.37 $8.30 $10.37 8,677 1.0" $8.30 $10.37 $8.30 $10.37 333 1.5" $11.29 $14.11 $11.29 $14.11 107 2.0" $19.17 $23.96 $19.17 $23.96 216 3.0" $29.22 $36.52 $29.22 $36.52 14 4.0" $36.52 $45.65 $36.52 $45.65 19 6.0" $58.10 $72.62 $58.10 $72.62 0 8.0" or 10.0" $87.07 $108.83 $87.07 $108.83 1 Multi-Residential, Addt'l per Unit $6.14 $7.67 $8.30 $10.37 9,367 Residential Customers (6) 8,170 Commercial Customers (6) 1,109 Total Customers 9,279 Gallonage Rate (per 1,000 gallons per unit) Inside Outside Block 1 (0 - 2,000) Included in monthly base charge Block 2 (2,001 - 4,000) $2.48 $3.10 Block 3 (4,001 - 8,000) $3.03 $3.78 Block 4 (8,001 +) $4.54 $5.67 Monthly Wastewater Rates (2) Residential Commercial Lifeline Rate(4) $18.20 Monthly Base Charge $18.20 $21.84 Gallonage Rate (per 1,000 gallons per unit) (5) Block 1 (0 - 2,000) Included in monthly base charge Block 2 (2,001 +) $5.72 $6.86 (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 111  City of Fort Walton Beach, Florida SCHEDULE 22 SANITATION AND RECYCLING SERVICE RATES Unaudited Basic Garbage Rates Garbage Tipping Total Residential One Container $ 10.60 $ 6.45 $ 17.05 Two Containers 21.20 12.80 34.00 Residential Dumpsters, Individual Meters 10.60 6.45 17.05 Commercial One Container 28.60 7.25 35.85 Two Containers 57.20 14.55 71.75 Shared Dumpster (minimum charge) 28.60 7.25 35.85 Garbage and Trash Collection Garbage Tipping Total 2 Cubic Yards 2 times per week $ 60.70 $ 52.40 $ 113.10 3 times per week 91.05 78.50 169.55 4 times per week 121.45 104.55 226.00 5 times per week 151.75 130.70 282.45 6 times per week 182.10 156.80 338.90 4 Cubic Yards 2 times per week 85.70 104.55 190.25 3 times per week 128.55 156.80 285.35 4 times per week 171.40 209.05 380.45 5 times per week 214.25 261.30 475.55 6 times per week 257.10 313.55 570.65 6 Cubic Yards 2 times per week 112.50 156.80 269.30 3 times per week 168.75 235.20 403.95 4 times per week 224.95 313.55 538.50 5 times per week 281.20 391.90 673.10 6 times per week 337.45 470.35 807.80 8 Cubic Yards 2 times per week 135.70 209.05 344.75 3 times per week 203.55 313.55 517.10 4 times per week 271.40 418.05 689.45 5 times per week 339.25 522.60 861.85 6 times per week 407.10 627.05 1,034.15 Compactor Commercial Rate x 3 x Bulk Container(s) Commercial Recycling Garbage Tipping Total 4 Cubic Yards 2 times per week 112.70 - 112.70 3 times per week 169.00 - 169.00 4 times per week 225.35 - 225.35 5 times per week 281.70 - 281.70 6 Cubic Yards 2 times per week 169.00 - 169.00 3 times per week 253.50 - 253.50 4 times per week 338.00 - 338.00 5 times per week 422.50 - 422.50 8 Cubic Yards 2 times per week 225.35 - 225.35 3 times per week 338.00 - 338.00 4 times per week 450.70 - 450.70 5 times per week 563.35 - 563.35 Contaminated Load Fee (per dump) 4 CY 20.00 31.20 51.20 6 CY 20.00 56.10 76.10 8CY 20.00 87.20 107.20 Source: City of Fort Walton Beach Comprehensive Fee Schedule 112  City of Fort Walton Beach, Florida SCHEDULE 23 OPERATING INDICATORS BY FUNCTION/PROGRAM Last Ten Fiscal Years Function Unaudited Fiscal Year 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 Public Safety Police Arrests 867 1,042 1,265 1,773 2,298 2,526 2,201 1,916 1,708 1,801 Traffic citations 3,413 3,773 3,246 6,207 6,430 7,211 5,171 5,399 5,633 7,138 Fire Emergency medical responses 3,231 3,197 3,041 2,791 2,645 2,484 2,567 2,441 1,671 1,605 Fire responses 1,277 1,288 1,224 1,158 477 479 517 335 403 143 Inspections 800 758 1,431 2,040 2,863 3,277 3,319 2,605 1,658 1,876 Code Enforcement Code violations 2,118 2,158 2,456 2,426 2,513 2,108 1,793 1,914 1,674 1,632 Engineering Services Building permits issued n/a n/a n/a n/a 1,429 1,582 1,710 2,341 3,151 1,907 Residential building permits issued 1,095 697 588 630 n/a n/a n/a n/a n/a n/a Commercial building permits issued 457 164 284 380 n/a n/a n/a n/a n/a n/a Value of permits (in millions) n/a n/a n/a n/a $46.20 $37.40 $28.70 $31.10 $61.70 $20.80 Value of residential permits (in millions) $14.659 $9.100 $10.067 $7.108 n/a n/a n/a n/a n/a n/a Value of commercial permits (in millions $22.659 $9.200 $7.276 $7.094 n/a n/a n/a n/a n/a n/a Street resurfacing (lane miles) - 1.70 2.25 5.71 1.53 0.78 0.46 2.25 3.55 3.17 Pot holes (hours spent repairing) 813 989 1,014 617 1,257 1,476 1,022 713 861 613 Sanitation Refuse collected (tons) 24,059 25,374 25,332 25,676 25,485 27,873 28,374 28,446 34,378 28,813 Recyclables collected (tons) 615 375 251 161 150 112 367 400 385 417 Culture and Recreation Parks and Recreation (3) Recreation program participants n/a 92,267 106,486 103,121 116,565 118,890 125,697 120,329 86,312 79,991 Recreation program registrations 571 n/a n/a n/a n/a n/a n/a n/a n/a n/a Adult athletic participants (3) n/a 6,728 9,003 10,009 11,406 14,591 14,669 14,239 1,155 968 Adult athletic registrations 467 n/a n/a n/a n/a n/a n/a n/a n/a n/a Youth athletic participants (3) n/a 14,548 13,038 12,525 14,211 15,570 14,418 14,254 1,674 1,327 Youth athletic registrations 1,253 n/a n/a n/a n/a n/a n/a n/a n/a n/a Skate/tennis park participants (4) n/a 13,114 18,291 15,297 18,480 24,100 29,088 29,396 24,741 24,670 Library Circulation volume 142,888 139,196 126,146 135,314 142,148 137,002 126,271 124,489 118,368 116,883 Museum Number of visitors/participants(1) 22,901 21,480 28,200 39,935 47,700 45,168 28,916 30,144 31,531 35,598 Water System New connections 26 39 18 27 16 20 30 32 37 53 Water customers 9,279 8,846 8,804 8,795 8,741 8,927 8,996 8,966 8,984 8,928 Water produced (million gallons) 855 868 899 897 943 963 1,071 1,127 1,046 1,047 Wastewater System (2) Wastewater treated (million gallons) - - - 381 769 916 796 839 1,164 935 (1) Decline in 2011 primarily in outreach numbers; reducing outreach to be more in line with in-house service numbers at the suggestion of City Council (2) Wastewater treatment transferred to County in March 2010 (3) FY 2012-2013 total participants was changed to total registrations (4) FY 2012-2013 numbers were not required to be collected for the BMX Park or the Tennis Center Source: City of Fort Walton Beach Performance Measures. 113  City of Fort Walton Beach, Florida SCHEDULE 24 CAPITAL ASSET STATISTICS BY FUNCTION/PROGRAM Last Ten Fiscal Years Unaudited Function/Program Fiscal Year 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 Public Safety Police Stations 1 1 1 1 1 1 1 1 1 1 Sworn Officers 43 51 48 49 49 55 53 52 N/A N/A Engineering Services Miles of roads 93.12 93.06 92.65 (2) 112.76 112.76 (1) 99.35 98.50 98.50 98.50 98.50 Miles of sidewalks 64.05 63.93 62.80 62.11 61.35 61.32 60.92 60.82 N/A N/A Signs fabricated and installed 785 935 976 910 1,110 1,223 1,481 1,412 1,509 894 Culture and Recreation Parks and Recreation Recreational Amenities 117 (4) 122 122 122 (3) 91 90 90 89 82 89 Parks (acres) 180.26 180.26 180.26 180.26 180.26 180.26 180.26 173.58 143.55 144.44 Library Inventoried collection 74,649 74,448 72,873 74,317 73,641 71,006 69,061 68,064 67,517 59,843 Water and Sewer System Potable water lines (miles) 145.9 (5) 118.63 118.57 118.52 118.10 118.09 118.09 115.95 115.69 115.54 Sanitary sewer lines (miles) 118.76 118.76 118.76 118.77 118.77 118.77 118.77 118.77 118.64 118.64 Reuse water lines (miles) 7.14 3.82 3.82 3.82 4.14 4.14 4.14 4.14 2.19 2.19 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 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 Cpacity: 1 tank 1,000,000 gal Stormwater System Storm drains (miles) 42.01 41.64 41.64 (2) 45.70 45.66 (1) 34.73 34.73 34.73 N/A N/A (1) FY 2009 Increase due to better data with GIS system and methodology change for calculation. (2) FY 2011 Adjustment to only include City-maintained roads and stormwater pipe (collector, culvert, french drain) (3) FY 2010 Adjustment due to re-evaluation of how amenities are counted. (4) Decrease due to demolition of the Rec Center and fields. (5) Increase due to better data output from GIS system. (6) One elevated tank with 200,000 gallon capacity was converted to reuse water. N/A: Not available. Source: City of Fort Walton Beach Performance Measures. 114  City of Fort Walton Beach, Florida SCHEDULE 25 INSURANCE COVERAGE September 30, 2011 Unaudited Agent, Broker, or Effective Dates Company Policy Number Company Rep. Type Amount Location 10/12/13 to 10/12/14 Wright National 1150113370 Fisher-Brown Agency Flood $ 402,700 B 4th Avenue & Carson $ 16,300 C Chester Pruitt Building 10/12/13 to 10/12/14 Wright National 1150113362 Fisher-Brown Agency Flood $ 402,700 B 50 Ferry Road $ 23,500 C Docie Bass Recreation Building 10/12/13 to 10/12/14 Wright National 1150113371 Fisher-Brown Agency Flood $ 402,700 B 14 Robinwood Drive SW $ 84,500 C Sanitation Building 12/06/13 to 12/06/14 Wright National 1150167295 Fisher-Brown Agency Flood $ 500,000 B #7 Hollywood Boulevard $ 500,000 C Police Department 10/12/13 to 10/12/14 Wright National 1150113360 Fisher-Brown Agency Flood $ 500,000 B #5 Hollywood Boulevard $ 260,100 C Fire Department 10/12/13 to 10/12/14 Wright National 1150113366 Fisher-Brown Agency Flood $ 366,100 B Memorial Parkway $ 31,100 C Senior Citizens Building 10/12/13 to 10/12/14 Wright National 1150113367 Fisher-Brown Agency Flood $ 402,700 B 107 Miracle Strip Parkway $ 128,200 C Auditorium 10/12/13 to 10/12/14 Wright National 1150113368 Fisher-Brown Agency Flood $ 402,700 B 107 Miracle Strip Parkway $ 382,900 C City Hall 10/12/13 to 10/12/14 Wright National 1150113361 Fisher-Brown Agency Flood $ 177,300 B 107 Miracle Strip Parkway $ 16,300 C Council Chamber 10/12/13 to 10/12/14 Wright National 1150113365 Fisher-Brown Agency Flood $ 402,700 B 107 Miracle Strip Parkway $ 382,900 C Annex Building 10/12/13 to 10/12/14 Wright National 1150113363 Fisher-Brown Agency Flood $ 389,700 B 107 Miracle Strip Parkway $ 16,300 C Utility Building Continued… 115  City of Fort Walton Beach, Florida SCHEDULE 25 INSURANCE COVERAGE September 30, 2011 Unaudited Agent, Broker, or Effective Dates Company Policy Number Company Rep. Type Amount Location 10/12/13 to 10/12/14 Wright National 1150113369 Fisher-Brown Agency Flood $ 402,700 B 141 Miracle Strip Parkway $ 51,200 C City Museum 10/12/13 to 10/12/14 Wright National 1150113364 Fisher-Brown Agency Flood $ 324,200 B 22 McGriff Street 7,900 C Child Care Facility 12/02/13 to 12/02/14 Wright National 1150164378 Fisher-Brown Agency Flood $ 38,500 B 338 Miracle Strip Parkway Restroom, East of Pavillion Liza Jackson Park 12/02/13 to 12/02/14 Wright National 1150164379 Fisher-Brown Agency Flood $ 38,500 B 338 Miracle Strip Parkway Restroom Near Ditch Liza Jackson Park 05/17/13 to 05/17/14 Wright National 1150342974 Fisher-Brown Agency Flood $ 98,300 B 55 Ferry Road Boy Scout Hut 07/23/13 to 07/23/14 Wright National 1150518779 Fisher-Brown Agency Flood $ 266,200 B 18 Robinwood Drive $ 33,600 C Pump Station #1 06/23/13 to 06/23/14 Wright National 1150458831 Fisher-Brown Agency Flood $ 55,000 B 168 Coral Drive SW City Hall Ball Field Restrooms 10/01/13 to 10/01/14 Indian Harbor Ins. Co. PEC002924704 Public Risk Insurance Agency Petroleum $ 1,000,000/inc Golf Course, Police, City Shop, Fuel Station Liability $ 1,000,000/agg 10/01/13 to 10/01/14 PGIT PKFL1046200313-09 Public Risk Insurance Agency Inland $ 555,260 Fine Arts Marine $ 250,000 Rented, Borrowed, Leased Equipment $ 2,033,411 Contractor's Mobile Equipment $ 603,740 EDP/Minicomputer/Word Processor $ 250,000 Valuable Papers $ 238,361 Other Inland Marine $ 321,638 Emergency Svcs Portable Equipment $ 255,211 Communication Equipment Continued… 116  City of Fort Walton Beach, Florida SCHEDULE 25 INSURANCE COVERAGE September 30, 2011 Unaudited Agent, Broker, or Effective Dates Company Policy Number Company Rep. Type Amount Location 09/16/13 to 09/16/14 Hartford 21BSBDB7459 Fisher-Brown Agency Public Official $ 50,000 Finance Director Bond 04/18/13 to 04/18/14 Hartford 21BSBDB7454 Fisher-Brown Agency Public Official $ 50,000 Customer Service Administrator, Finance Bond Department 10/01/13 to 10/01/14 PGIT PKFL1046200313-09 Public Risk Insurance Agency Auto $ 100,000 Uninsured Motorist $ 1,000,000 CSL Liability 10/01/13 to 10/01/14 PGIT PKFL1046200313-09 Public Risk Insurance Agency Forgery $ 250,000 Alteration 10/01/13 to 10/01/14 PGIT PKFL1046200313-09 Public Risk Insurance Agency Money & $ 10,000 Securities 10/01/13 to 10/01/14 PGIT PKFL1046200313-09 Public Risk Insurance Agency Crime $ 250,000 Public Employees Blanket Fidelity Bond 10/01/13 to 10/01/14 PGIT PKFL1046200313-09 Public Risk Insurance Agency General $ 1,000,000 Occurance Liability Aggregate 10/01/13 to 10/01/14 PGIT PKFL1046200313-09 Public Risk Insurance Agency Property $ 45,451,357 Blank Real & Personal Property 10/01/13 to 10/01/14 PGIT PKFL1046200313-09 Public Risk Insurance Agency Property $ 500,000 Business Income 500,000 Additional Expense 10/01/13 to 10/01/14 PGIT WC-FL1046200313-04 Public Risk Insurance Agency Worker's $ 1,000,000 Accident Comp $ 1,000,000 Disease 10/01/13 to 10/01/14 PGIT PKFL1046200313-09 Public Risk Insurance Agency Public Officials $ 5,000,000 Empl. Practice 5,000,000 Continued… 117  City of Fort Walton Beach, Florida SCHEDULE 25 INSURANCE COVERAGE September 30, 2011 Unaudited Agent, Broker, or Effective Dates Company Policy Number Company Rep. Type Amount Location 10/01/13 to 10/01/15 Federal Insurance 9906-62-32 LB Bryan & Co. AD&D $ 59,695 Occupational Death $ 59,695 Response to Emergency $ 179,085 Unlawful/Unintentional 10/01/13 to 10/01/14 PGIT PKFL1046200313-09 Public Risk Insurance Agency Boiler & $ 45,451,357 Machinery 05/01/13 to 05/01/14 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 118 (THIS PAGE INTENTIONALLY LEFT BLANK.) IV. COMPLIANCE SECTION  COMPLIANCE MATTERS  MANAGEMENT LETTERS  RESPONSES TO THE MANAGEMENT LETTER  City of Fort Walton Beach, Florida SCHEDULE OF EXPENDITURES OF STATE FINANCIAL ASSISTANCE Year Ended September 30, 2013 State Agency Pass-Through Entity CSFA Contract/Grant State Project Number Number Expenditures Florida Department of Environmental Protection Direct Program Wastewater Treatment Facility Construction 37.077 WW284100 $ 10,529,441 Florida Department of Community Affairs Direct Program Disaster Funding Agreement - Hurricane Isaac 97.036 13IS3S015601551 455 Florida Executive Office of the Governor Direct Program Infrastructure Grant Agreement 31.003 DIG1113 194,876 TOTAL EXPENDITURES OF STATE FINANCIAL ASSISTANCE $ 10,724,772 The accompanying notes are an integral part of this schedule. 119  City of Fort Walton Beach, Florida NOTES TO SCHEDULE OF EXPENDITURES OF STATE FINANCIAL ASSISTANCE Year Ended September 30, 2013 NOTE 1 - BASIS OF PRESENTATION The accompanying Schedule of Expenditures of State Financial Assistance includes the state grant activity of the City of Fort Walton Beach, Florida, and is presented on the accrual basis of accounting. The information in this schedule is presented in accordance with the requirements described in Chapter 10.550, Rules of the Auditor General. Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in the preparation of, the basic financial statements. 120 Honorable Mayor and City Council Members City of Fort Walton Beach, Florida INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS We have audited, in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, the financial statements of governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Fort Walton Beach, Florida, as of and for the year ended September 30, 2013, and the related notes to the financial statements, which collectively comprise the City of Fort Walton Beach, Florida's basic financial statements and have issued our report thereon dated March 3, 2014. Internal Control over Financial Reporting In planning and performing our audit, we considered the City of Fort Walton Beach, Florida's internal control over financial reporting (internal control) as a basis for designing our auditing procedures for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City of Fort Walton Beach, Florida's internal control. Accordingly, we do not express an opinion on the effectiveness of the City's internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit, we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. Compliance and Other Matters As part of obtaining reasonable assurance about whether the City of Fort Walton Beach, Florida's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. 121 Honorable Mayor and City Council Members City of Fort Walton Beach, Florida Internal Auditor's Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards (Continued) 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. We noted certain matters that we reported to the City of Fort Walton Beach, Florida in a separate letter dated March 3, 2014. Fort Walton Beach, Florida March 3, 2014 122 Honorable Mayor and City Council Members City of Fort Walton Beach, Florida INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR STATE PROJECT AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH CHAPTER 10.550, RULES OF THE AUDITOR GENERAL Report on Compliance for Each Major State Project We have audited City of Fort Walton Beach, Florida's compliance with the types of compliance requirements described in the Florida Department of Financial Services' State Projects Compliance Supplement that could have a direct and material effect on each of City of Fort Walton Beach, Florida's major state projects for the year ended September 30, 2013. City of Fort Walton Beach, Florida's major state projects are identified in the summary of auditor’s results section of the accompanying Schedule of Findings and Questioned Costs. Management's Responsibility Management is responsible for compliance with the requirements of laws, regulations, contracts, and grants applicable to its state projects. Auditor’s Responsibility Our responsibility is to express an opinion on compliance for each of City of Fort Walton Beach, Florida’s major state projects based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and Chapter 10.550, Rules of the Auditor General. Those standards and Chapter 10.550 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major state project occurred. An audit includes examining, on a test basis, evidence about City of Fort Walton Beach, Florida’s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major state project. However, our audit does not provide a legal determination of City of Fort Walton Beach, Florida's compliance. Opinion on Each Major State Project In our opinion, City of Fort Walton Beach, Florida complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major state projects for the year ended September 30, 2013. 123 Honorable Mayor and City Council Members City of Fort Walton Beach, Florida Independent Auditor's Report on Compliance for Each Major Project and on Internal Control Over Compliance Required by Chapter 10.550, Rules of the Auditor General (Continued) Report on Internal Control Over Compliance Management of City of Fort Walton Beach, Florida is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered City of Fort Walton Beach, Florida’s internal control over compliance with the types of requirements that could have a direct and material effect on each major state project to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major state project and to test and report on internal control over compliance in accordance with Chapter 10.550, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of City of Fort Walton Beach, Florida’s internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a state project on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a state project will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a state project that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of Chapter 10.550. Accordingly, this report is not suitable for any other purpose. Fort Walton Beach, Florida March 3, 2014 124  City of Fort Walton Beach, Florida SCHEDULE OF FINDINGS AND QUESTIONED COSTS Year Ended September 30, 2013 I. SUMMARY OF AUDITOR'S RESULTS Financial Statements Type of auditor's report issued: Unmodified Internal control over financial reporting:  Material weakness(es) identified? Yes X No None  Significant deficiency(ies) identified? Yes X Reported Noncompliance material to financial statements noted? Yes X No State Financial Assistance Internal control over major programs:  Material weakness(es) identified? Yes X No None  Significant deficiency(ies) identified? Yes X Reported Type of auditor's report issued on compliance for major programs: Unmodified  Any audit findings disclosed that are required to be reported in accordance with Chapter 10.550? Yes X No Identification of major project: CFDA Number Name of State Project 37.077 Wastewater Treatment Facility Construction Dollar threshold used to distinguish between type A and type B programs $300,000 Auditee qualified as low-risk auditee? Yes X No II. FINANCIAL STATEMENT FINDINGS The results of our audit of the City of Fort Walton Beach, Florida did not disclose any findings required to be reported under Chapter 10.550, Rules of the Auditor General. 125 (THIS PAGE INTENTIONALLY LEFT BLANK.) Honorable Mayor and City Council Members City of Fort Walton Beach, Florida MANAGEMENT LETTER We have audited the financial statements of the City of Fort Walton Beach, Florida, as of and for the fiscal year ended September 30, 2013, and have issued our report thereon dated March 3, 2014. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, and Chapter 10,550, Rules of the Florida Auditor General. We have issued our Independent Auditor's Independent Auditor's Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards; Independent Auditor's Report on Compliance With Requirements Applicable to Each Major State Project and on Internal Control over Compliance in Accordance with Chapter 10.550, Rules of the Florida Auditor General; and the Schedule of Findings and Questioned Costs. Disclosures in this report, which are dated March 3, 2014, should be considered in conjunction with this management letter. Additionally, our audit was conducted in accordance with Chapter 10.550, Rules of the Auditor General, which govern the conduct of local governmental entity audits performed in the State of Florida. This letter includes the following information, which is not included in the aforementioned auditor's reports or schedules: Section 10.554(1)(i)1., Rules of the Auditor General, requires that we determine whether or not corrective actions have been taken to address findings and recommendations made in the preceding annual financial report. Corrective actions have been taken or are in progress to address findings and recommendations made in the preceding annual financial audit report. (please see status under the heading "Prior Year Comments") Section 10.554(1)(i)2, Rules of the Auditor General, requires our audit to include a review of the provisions of Section 218.415, Florida Statutes, regarding the investment of public funds. In connection with our audit, we determined that the City of Fort Walton Beach, Florida, complied with Section 218.415, Florida Statutes. Section 10.554(1)(i)3., Rules of Auditor General, requires that we address in the management letter any recommendations to improve financial management. In connection with our audit, we did not have any such recommendations. Section 10.554(1)(i)4., Rules of Auditor General, requires that we address noncompliance with provisions of contracts or grant agreements, or abuse, that have occurred, or are likely to have occurred, that have an effect on the financial statements that is less than material but which warrants the attention of those charged with governance. In connection with our audit, we did not have any such findings. Section 10.554(l)(i)5., Rules of the Auditor General, requires that the name or official title and legal authority for the primary government and each component unit of the reporting entity be disclosed in this management letter, unless disclosed in the notes to the financial statements. The City of Fort Walton Beach, Florida, was established as a municipality by a Special Act of the Florida Legislature in 1937. The City's original charter was enacted as Chapter 18539, Laws of Florida. 126 Honorable Mayor and City Council Members City of Fort Walton Beach, Florida Management Letter (Continued) The present charter was enacted in 1953 as Chapter 29093, Laws of Florida. The City of Fort Walton Beach, Florida, had one component unit within its reporting entity. The Fort Walton Beach Community Redevelopment Agency was created pursuant to provisions of Chapter 163, Part III, Florida Statutes. This action, adopted by Resolution Number 77-38, also outlines the rights, powers, duties, privileges, and immunities invested in the governing body. City ordinance 1262, adopted on September 27, 1994, gave the City Council the authority to appoint an independent Board of Commissioners in place of the City Council effective January 1, 1995. During 1992, the Florida Department of Community Affairs determined that the Fort Walton Beach Housing Authority was a dependent special district of the City of Fort Walton Beach, Florida. Utilizing the standards set forth in GASB 61, the Fort Walton Beach Housing Authority was not considered as having met sufficient criteria for inclusion within the City's audited financial statements for the year ended September 30, 2013. 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. Section 10.554(1)(i)6,.a., Rules of the Auditor General, requires a statement be included as to whether or not the local government entity has met one or more of the conditions described in Section 218.503(1), Florida Statutes, and identification of the specific condition(s) met. In connection with our audit, we determined that the City of Fort Walton Beach, Florida did not meet any of the conditions described in Section 218.503(1), Florida Statutes. Section 10.554(1)(i)6.b., Rules of the Auditor General, requires that we determine whether the annual financial report for the City of Fort Walton Beach, Florida, for the fiscal year ended September 30, 2013, 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, 2013. In connection with our audit, we determined that these two reports were in agreement. Pursuant to Sections 10.554(1)(i)6.c., and 10.556(7), Rules of the Auditor General, we applied financial condition assessment procedures. It is management's responsibility to monitor the City's financial condition, and our financial condition assessment was based in part on representations made by management and the review of financial information provided by same. Our assessment was performed as of September 30, 2013. 127 Honorable Mayor and City Council Members City of Fort Walton Beach, Florida Management Letter (Continued) PRIOR YEAR COMMENTS 2012-MC-01: DEFINED BENEFIT PENSION PLANS Prior Year Comment Summarized In June, 2012 the GASB adopted two statements, GASB 67 – Financial Reporting for Pension Plans, an amendment of GASB 25 and GASB 68 – Accounting and Financial Reporting for Pensions, an amendment of GASB 27. The provisions of the Statement 68 will be effective for the year ended September 30, 2015. This statement will require the recognition of the net pension liability in the full accrual financial statements which represents the total pension liability less the fiduciary net position of the pension plan which is currently presented in the supplementary information as the unfunded AAL (Actuarial Accrued Liability). The City of Fort Walton Beach, Florida has funded 100% of the actuarially required contributions of the three defined benefit pension plans over the last ten year period. However the overall funded status of each plan has declined over the same time period. If the City, as the plans' sponsor, were to adopt the provisions of GASB early, the effect is consequential. We recommend the City of Fort Walton Beach, Florida as the plans sponsor review alternatives as it related to the existing benefit structure in an effort to stabilize current and future pension costs and liability while providing benefits that meet the objectives of employees covered by the plans. Status The City Council, acting as the Board of Trustees for the General Employees’ Pension Plan, recently agreed to expand its Investment Policy to allow for a larger diversity in its portfolio and to respond to the changing economic environment. At the fiscal 2013-14 strategic planning session, alternative structures for the Plan will be presented for implementation during the fiscal year 2014-15 budget process. 2012-MC-02: GOLF ENTERPRISE FUND Prior Year Comment Summarized The Golf Fund reported a net loss of approximately $265,000 for the year ended September 30, 2012 and has deficit unrestricted net position of approximately $99,000 at September 30, 2012. The fund generated positive cash flow from operating activities of approximately $110,000 in FY 12; however that is not sufficient to cover the fund’s debt payments to creditors and the advance repayment to the General Fund. We recommended that City management continue to closely monitor the fiscal operations of the Golf Fund. If the fund continues operating at a loss, the City should consider temporarily suspending the repayments of the general fund advance or make additional budget transfers to eliminate the deficit fund balance. Status Effective October 1, 2014, the City opted to combine the Golf Enterprise Fund with the City’s General Fund operations, recognizing that self-sustainability was not a viable option in the Golf Fund’s current state. 128 Honorable Mayor and City Council Members City of Fort Walton Beach, Florida Management Letter (Continued) CURRENT YEAR COMMENTS (CONTINUED) 2012-MC-03: ANTI-FRAUD PROGRAM Prior year comment summarized The City maintains a strong ethical culture and positive environment to deter fraud and promote ethical behavior. None the less, fraud can occur in any entity and the City would benefit by formally reviewing its fraud prevention, detection and reaction programs on an annual basis. We recommended City Council and senior management would strengthen its anti-fraud program with the adoption of the following:  Periodic documented fraud risk assessments  A written fraud response plan  Training for City employees on warning signs of fraud and what to do if they suspect fraud is occurring  Implementation of a whistleblower policy Status While there have been no reported incidents of ethics or fraud violations at the City of Fort Walton Beach, the Senior Management team is being proactive in reviewing all policies and procedures and drafting a new Code of Ethics for both City Council and its employees. The City continues to research the various anti-fraud programs throughout the State and is currently implementing a fraud hotline. This will be the first step in the development of an anti-fraud program that is customized to the City of Fort Walton Beach. 2012-MC-04: ENTERPRISE RISK MANAGEMENT Prior year comment summarized The City of Fort Walton Beach, Florida has not formally documented management’s identification of strategic, operational and financial risks and the related monitoring of the risks identified. We recommended documenting enterprise risk assessments as they will provide additional assurances that key business processes have appropriate control activities in place. The assessment and documentation will help management identify control gaps, strengthen existing controls, and remove redundancies where applicable. Status The City recently completed its review of the Hurricane Response Plan and continues to make adjustments and revisions to its Continuity of Operations Plan. Effective with the fiscal year 2013-14 budget, both five- and ten-year replacement programs for Fleet and IT were adopted. 129 Honorable Mayor and City Council Members City of Fort Walton Beach, Florida Management Letter (Continued) 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, 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 3, 2014 130 (THIS PAGE INTENTIONALLY LEFT BLANK.)