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

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