Fort Walton Beach — Comprehensive Financial Report September 30, 2019

COMPREHENSI VEANNUAL FI NANCIALREPORT CITYOFFORTWALTONBEACH, FL WITHCOMPLI ANCEMAT TE RS ANDRESPONSES F ISCALYEARENDEDSE PT.30,2019  CITY OF FORT WALTON BEACH, FLORIDA TABLE OF CONTENTS FOR THE YEAR ENDED SEPTEMBER 30, 2019 Page CITY OFFICIALS I. INTRODUCTORY SECTION Table of Contents i Letter of Transmittal City Manager and Finance Director iv GFOA Certificate of Achievement x Organizational Chart xi II. FINANCIAL SECTION Independent Auditors’ Report 1 A. MANAGEMENT’S DISCUSSION AND ANALYSIS 4 B. BASIC FINANCIAL STATEMENTS Government-Wide Financial Statements Statement of Net Position 15 Statement of Activities 16 Fund Financial Statements Governmental Funds Balance Sheet 17 Reconciliation of the Balance Sheet to the Statement of Net Position 18 Statement of Revenues, Expenditures and Changes in Fund Balance 19 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balance to the Statement of Activities 20 Statement of Revenues, Expenditures and Changes in Fund Balance – Budget and Actual – General Fund 21 Statement of Revenues, Expenditures and Changes in Fund Balance – Budget and Actual – Community Redevelopment Agency 22 Proprietary Funds Statement of Net Position 23 Statement of Revenues, Expenses and Changes in Net Position 25 Statement of Cash Flows 26 Fiduciary Funds Statement of Fiduciary Net Position 28 Statement of Changes in Fiduciary Net Position 29 Notes to the Financial Statements 30 i  CITY OF FORT WALTON BEACH, FLORIDA TABLE OF CONTENTS FOR THE YEAR ENDED SEPTEMBER 30, 2019 Page Schedule II. FINANCIAL SECTION (CONTINUED) C. REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) Pension and OPEB Schedules Schedules of Changes in Net Pension Liability and Related Ratios 83 Schedule of Changes in Net OPEB Liability and Related Ratios 86 Schedule of Pension Contributions 87 Schedule of Investment Returns 88 Notes to the Schedule of Pension Contributions – General Employees’ Retirement Fund 89 Notes to the Schedule of Pension Contributions – Police Officers’ Retirement Fund 91 Notes to the Schedule of Pension Contributions – Firefighters’ Retirement Fund 93 D. COMBINING AND INDIVIDUAL FUND STATEMENTS AND SCHEDULES Non-Major Governmental Funds Combining Balance Sheet 95 Combining Statement of Revenues, Expenditures and Changes in Fund Balance 96 Schedules of Revenues, Expenditures, and Changes in Fund Balance – Budget and Actual Law Enforcement Trust Special Revenue Fund 97 Law Enforcement Trust Training Special Revenue Fund 98 Florida Building Code Special Revenue Fund 99 Community Development Block Grant Special Revenue Fund 100 Beal Memorial Cemetery Perpetual Care Special Revenue Fund 101 Debt Service Fund 102 III. STATISTICAL SECTION (UNAUDITED) Net Position by Component 103 1 Changes in Net Position 104 2 Fund Balances – Governmental Funds 106 3 Changes in Fund Balances – Governmental Funds 107 4 Revenues and Other Sources 108 5 Assessed Value of Taxable Property 109 6 ii  CITY OF FORT WALTON BEACH, FLORIDA TABLE OF CONTENTS FOR THE YEAR ENDED SEPTEMBER 30, 2019 Page Schedule III. STATISTICAL SECTION (UNAUDITED) Property Tax Rates Per $1,000 of Taxable Value – All Direct and Overlapping Governments 110 7 Principal Taxpayers 111 8 Property Tax Levies and Collections 112 9 Ratios of Outstanding Debt by Type 113 10 Ratio of Net General Bonded Debt Outstanding 114 11 Pledged Revenue Coverage – Schedule of Revenue Bond Coverage 115 12 Direct and Overlapping Governmental Activities Debt – General Obligations 116 13 Major Employers 117 14 Miscellaneous Demographical Statistics 118 15 Full-Time Equivalent Employees by Function/Program 119 16 Permits, Licenses and Recreation Facilities 120 17 Elections - Okaloosa County Voter Registration 121 18 Special Assessment Billings and Collections 122 19 Major Revenue Sources 123 20 Water and Wastewater Service Rates 124 21 Sanitation and Recycling Service Rates 125 22 Operating Indicators by Function/Program 126 23 Capital Asset Statistics by Function/Program 127 24 Insurance Coverage 128 25 IV. COMPLIANCE SECTION Schedule of Receipts and Expenditures of Funds Related to the Deepwater Horizon Oil Spill 131 Independent Auditors’ Report on the Schedule of Receipts and Expenditures of Funds Related to the Deepwater Horizon Oil Spill 132 Independent Auditors’ Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 133 Schedule of Findings and Responses 135 Independent Accountants’ Report on an Examination of Compliance Requirements in Accordance with Chapter 10.550, Rules of the Auditor General 141 Management Letter 142 iii  City of Fort Walton Beach “The Treasure of the Emerald Coast” 107 Miracle Strip Parkway SW * Fort Walton Beach, FL 32548 (850) 833-9504 * Fax (850) 833-9640 www.fwb.org April 22, 2020 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, 2019, is hereby submitted herewith pursuant to Chapter 218.39(1)(d) of the Florida Statutes 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, 2019, 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, 2019, 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. 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. iv GOVERNMENT PROFILE DATE OF INCORPORATION: June 16, 1941 FORM OF GOVERNMENT: Council & Manager PAVED STREETS: 93.12 miles GEOGRAPHIC AREA: 7.60 square miles SIDEWALKS: 63.67 miles TAXABLE ASSESSED VALUE: $1,449,583,519 WATER & SEWER LINES: 282.82 miles CITY MILLAGE RATE: 5.6395 STORM DRAIN: 43.18 miles POPULATION: 20,940 (April 1, 2019 Est) POLICE STATIONS: 1 FIRE STATIONS: 2 EMPLOYEES: 356 positions, 310.52 FTE’s LIBRARIES: 1 MUSEUMS: 4 SWORN POLICE OFFICERS: 50 18-HOLE GOLF COURSES: 2 FIREFIGHTING PERSONNEL: 44 ACRES OF PARKS: 206 The City of Fort Walton Beach, Florida prides itself on being a small, family-oriented seaside community boasting a downtown area that was home to a significant prehistoric Native American community on the Gulf Coast of Northwest Florida. Situated at the junction of two major highways - US 98 (Miracle Strip Parkway) and SR 85 (Eglin Parkway) - Fort Walton Beach enjoys the benefits of its crossroads location along the coastal portion of the Northwest Florida regional transportation network. The City offers a full- service government providing police and fire protection; cultural and recreational activities including parks, a library, a museum, and two championship golf courses; planning and zoning; public works such as street, sidewalk, right-of-way, and cemetery maintenance; utility services including water, sewer, and stormwater; and garbage and recycling collection to a coastal community of 20,940 full-time residents. The City has an exciting and romantic history. As early as 600 B.C., Indian tribes were attracted to Fort Walton Beach from the Mississippi and Tennessee River Valleys and the Southeast Georgia coast. The beginning for the City occurred following the War Between the States when Alabama war veteran John Brooks selected a site of 111 acres where he built a three-room cabin in 1867. Other settlers soon followed. By 1884, the population of the area required establishment of a small schoolhouse. In 1902, the first hotel, Brooks House, was built along the sound and shortly thereafter the first post office was built in 1906. The Montgomery, Alabama, Maxwell Field military base First Schoolhouse developed an airfield in Fort Walton in 1933 on 137 acres of land and used it as a bombing and gunnery range. The most significant factor in the City's growth was the creation and later expansion, of that airfield, which is now Eglin Air Force Base (the largest military installation in the world) in 1937, the year the City Charter was adopted. Originally chartered as a municipality under the laws of the State of Florida, actual formation of the City was in 1941 when the Florida Legislature officially named it the Town of Fort Walton. In 1953, the Florida Legislature granted the City a new charter at which time the name was changed to Fort Walton Beach. The name Walton originates from Colonel George Walton, who was Secretary of the East-West Florida Territory in 1822-26 and son of George Walton, signer of the Declaration of Independence and Governor of Georgia. The presence of the military base provided the key economic stimulus for the City's early growth, supplemented by the attractiveness of the location. The City enjoyed a substantial population and economic boom from the 1950's through the end of the 1970's. Subsequently, things started to slow down. The military base became less important to the City's economy than the growing tourism industry. In the late 1960’s and early 1970’s Fort Walton Beach began to experience a decline in economic prosperity, some of which can be attributed to the utility and transportation infrastructure getting older and commercial and residential structures becoming deteriorated. New development began to take place in the surrounding communities. The City, having nearly run out of developable land, started to focus attention on finding ways to induce private enterprise investment in the City and thus capturing a greater share of the local and regional market. v The City’s premier gathering place along the Santa Rosa Sound has been the Landing Park since its purchase in 1986. Building upon that with the complete reconstruction of Brooks Street, including the Brooks Bridge Park in 2013, the City’s downtown waterfront was opened up to an extent never before realized and spurred economic growth downtown. Outside of downtown, the City completed construction of a new recreational complex in 2015 and a new field office Complex in 2019, which has added to the attraction of the City. Downtown Redevelopment: Brooks Bridge Park Recreation Complex – opened Summer 2015 The financial reporting entity (the government) includes all the funds and account groups of the City of Fort Walton Beach, Florida, as well as component units. Component units are legally separate entities for which the primary government is financially accountable. Accordingly, the Fort Walton Beach Community Redevelopment Agency is reported as a blended component unit of the City of Fort Walton Beach. The budget process begins in January with the Finance Director and Budget & Grants Analyst developing five-year financial forecasts for the General and Enterprise Funds, including best, likely, and worst-case scenarios. Revenue assumptions are developed using financial forecasting software to analyze historical trends and account for any anticipated major economic or legislative changes. Revenue projections are continually updated until the budget is adopted to ensure the amounts are based on the most current information available. Expenditure assumptions are similarly developed in the forecast model considering relevant benchmark indices such as the municipal cost index, consumer price index, and producer price index. New programs and projects are also included to determine the future impact of current financial decisions. FISCAL FINANCIAL In March, the City Council, acting as the Legislative Body of the City YEAR FORECAST BEGINS Oct DEVELOPED holds at least one Strategic Planning Session. The goals set during 1 Jan this meeting are used by staff to formulate the budget policy items BUDGET that are presented to City Council in June and then utilized to prepare BUDGET MEETING ADOPTION the Budget. A Budget Policy Meeting is held with City Council in June Sep Jun to determine Council’s priorities and position issues specific to development of the operational and capital budgets for the upcoming PUBLIC DEPARTMENT BUDGET fiscal year. City Council’s decisions provide the framework under WORKSHOPS BUDGET MEETINGS May/Jun Aug which the budget is prepared to meet City Council’s programmatic COMMITTEE REVIEW Jun/Jul objectives within available fiscal resources projected in the five-year forecasts. The meeting is open to the public and the public is encouraged to attend and participate. Department Directors are responsible for identifying their staffing needs, operational funding needs within budget development parameters, five-year capital requests, as well as corresponding revenue sources to fund their needs. In addition, they must conduct a comprehensive review of departmental goals, objectives, and metrics. vi  The City Charter charges the City Manager with the duty of presenting a balanced budget to City Council. In order to accomplish this goal, a Budget Committee is formed comprised of the City Manager, Finance Director, and Budget & Grants Analyst. The Committee conducts comprehensive meetings with Department Directors to review their budget requests and a collaborative effort is undertaken to achieve City Council and department goals within fiscal constraints. The Budget Committee enlists assistance for areas of specialized interests, such as the Information Technology Manager for computer issues and the Human Resources Director for employee benefits, personnel and risk management issues. Department goals, objectives, and metrics are also evaluated during budget development to determine the effectiveness of program activities and appropriate funding levels. After the departmental meetings, the Budget Committee finalizes the proposed budget given revenue projections, economic conditions, funding requirements, and City Council program priorities and issues previously identified in the budget process. Once a balanced budget is achieved, it is presented to City Council for consideration. The City Council is required by Florida Statutes and the City Charter to hold public hearings on the proposed budget and adopt a final budget no later than September 30th, the close of the City’s fiscal year. The appropriated budget is prepared by fund, department (e.g. financial services), and division (e.g. purchasing). Department Directors may request transfers of appropriations within a department and between divisions to transfer appropriations between line items, not to increase the total budget or to transfer resources between funds. Transfers of appropriations between funds require the approval of the City Council. The budget may be amended at any time by Resolution of City Council. Budget-to-actual comparisons are provided in the report for each individual governmental fund for which an appropriated annual budget has been adopted. For the General Fund and the Community Redevelopment Agency Fund, this comparison is presented on pages 21 & 22 as part of the basic financial statements for the governmental funds. For governmental funds with appropriated annual budgets, other than those previously mentioned, this comparison is presented in the combining and individual fund statements and schedules, Section D of this report, which starts on page 95. FACTORS AFFECTING FINANCIAL CONDITION The information presented in the financial statements is best understood when it is considered from the broader perspective of the specific environment within which the City of Fort Walton Beach operates. Local Economy The FY 2019-20 budget of $47,231,660 is $5.5 million, or 13.23%, more than the adopted FY 2018-19 budget. Ad Valorem revenues will remain consistent with the prior year, as the City Council has set the millage rate at the roll-back rate, which is the rate that would generate the same amount of property tax revenue as the prior year. Assessed values are anticipated to increase 3.21% in the General Fund and 22.88% in the CRA Fund. The budget is predicated on reducing the millage rate to 5.6395 mills. Eglin Air Force Base is the world’s largest Department of Defense installation, spanning 724 square miles. Defense contractor companies are established throughout the Northwest Florida region. It is estimated that local military bases currently represent a $6.0 billion annual economic impact on the area, with approximately 70% of the local economy supported by the military. Being located on the Gulf of Mexico in Northwest Florida, tourism is a large part of the regional economy. Regional accolades continue to enhance the area’s image, promote visibility, and generate additional tourism and sales tax dollars. Local tourism has benefited from the national shift to vacation sites accessible by driving instead of flying. The Fort Walton Beach-Destin area is a popular drive destination in Florida, according to a survey of auto visitors by Visit Florida. vii  Long-Term Financial Planning The City undertakes several processes to assist in future planning, such as:  A five-year CIP (Capital Improvement Program) Plan is developed and approved by City Council each year during the annual budget process.  Five-year replacement plans for capital equipment, including vehicles, machinery, and computer hardware and software, are also developed and approved by management each year during the annual budget process  Annual Strategic Plan, which focuses on a one to three-year time period. Relevant Financial Policies The City has several financial policies that are utilized during daily operations, as well as during the budget and financial planning processes. The City utilizes fund balance reserves only for one-time non-recurring expenditures. In addition, the City maintains its fund balance level in the General Fund at 30% of fund expenditures – this policy helps to ensure that the City has sufficient funding in place for emergency and disaster relief. Major Initiatives These financial policies, as well as other indicators, were taken into account when adopting the City’s budget for FY 2019-20. The City’s budget for FY 2019-20 totals $47.2 million, which is $5.5 million, or 13.23%, more when compared to the FY 2018-19 approved budget. The FY 2019-20 budget allocates $26.7 million to the General Fund, $16.6 million to the Enterprise funds, and $3.9 million to other funds. For the FY 2019-20 budget, the ad valorem rate was decreased to 5.6395 mills. Both water and sewer rates and the stormwater fee remained the same as in FY 2018-19. A new five-year utility rate study will be completed in FY 2019-20 to begin implementation in FY 2020-21. The new utility rate study will include recommendations on rate structures for water and sewer, stormwater and solid waste. In October 2019, the City Council adopted a resolution to establish a fire assessment fee and rates effective in FY 2020. The City expects to generate revenues of approximately $1,200,000 from the fire assessment. No other significant changes to the City’s various rates and fees are included in the FY 2019-20 budget. AWARDS AND ACKNOWLEDGMENTS 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, 2018. This was the sixteenth 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, 2019. This was the twenty-fourth 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. viii 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 City Manager ix x  &LWL]HQVRI )RUW:DOWRQ%HDFK &LW\ &RXQFLO &LW\&OHUN &LW\0DQDJHU &LW\$WWRUQH\ )7( )7(   3XEOLF:RUNV )LQDQFLDO )LUH6HUYLFHV +XPDQ5HVRXUFHV 3ROLFH6HUYLFHV 5HFUHDWLRQ6HUYLFHV *URZWK0DQDJHPHQW DQG8WLOLWLHV 6HUYLFHV )7( )7( )7( )7( )7( )7( )7(             8WLOLW\$GPLQLVWUDWLRQ %XLOGLQJ,QVSHFWLRQV $FFRXQWLQJ $GYDQFHG/LIH +XPDQ5HVRXUFHV 8QLIRUP3DWURO $WKOHWLFV± $GXOW  3HUPLWWLQJ 6XSSRUW <RXWK )OHHW )DFLOLWLHV $XGLWLQJ ,QVXUDQFH 5LVN .3DWURO &RGH(QIRUFHPHQW )LUH6XSSUHVVLRQ 0DQDJHPHQW 5HFUHDWLRQ&HQWHUV *,6&$' %XGJHWLQJ &ULPLQDO DQG3URJUDPPLQJ &'%* )LUH3UHYHQWLRQ ,7 ,QYHVWLJDWLRQV 6DQLWDWLRQ 3XUFKDVLQJ *URXQGV 3ODQQLQJ )LUH,QVSHFWLRQ &RPPXQLW\3ROLFLQJ 0DLQWHQDQFH3DUNV 6HZHU&ROOHFWLRQV 'HEW6HUYLFH  &5$ &5$ 0DQDJHPHQW +D]DUGRXV0DWHULDOV 5LJKW2I:D\DQG 6WRUPZDWHU 5HVSRQVH &ULPH3UHYHQWLRQ &HPHWHU\ 7UHDVXU\ 6WUHHWV )LUH(GXFDWLRQ &RPPXQLFDWLRQV /LEUDU\ 8WLOLW\%LOOLQJ :DWHU'LVWULEXWLRQ 5HFRUGV 0XVHXP &RQWLQJHQFLHV  :DWHU2SHUDWLRQV 7UDQVIHUV 6XSSRUW6HUYLFHV *ROI&OXE2SHUDWLRQV 6FKRRO&URVVLQJ *XDUGV 5HVHUYH2IILFHUV xi  INDEPENDENT AUDITORS’ REPORT To the Honorable Mayor and City Council Members City of Fort Walton Beach, Florida Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the business- type activities, each major fund, and the aggregate remaining fund information of the City of Fort Walton Beach, Florida (the City), as of and for the year ended September 30, 2019, and the related notes to the financial statements, which collectively comprise the City's basic financial statements, as listed in the table of contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. 1 Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Fort Walton Beach, Florida, as of September 30, 2019, and the respective changes in financial position, and, where applicable, cash flows thereof, and the respective budgetary comparison for the General Fund and Community Redevelopment Agency (Special Revenue Fund) for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that management's discussion and analysis and the schedules related to the pension and OPEB liabilities, contributions, and investment returns, as listed in the table of contents, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City's basic financial statements. The introductory section, combining and individual non-major fund financial statements and schedules, and statistical section, as listed in the table of contents, are presented for purposes of additional analysis and are not a required part of the basic financial statements. The combining and individual non-major fund financial statements and schedules are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining and individual non- major fund financial statements and schedules 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. 2 Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated April 22, 2020, on our consideration of the City’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City’s internal control over financial reporting and compliance. Fort Walton Beach, Florida April 22, 2020 3  MANAGEMENT’S DISCUSSION AND ANALYSIS As management of the City of Fort Walton Beach, Florida (the City), we offer readers of the City’s financial statements this narrative overview and analysis of the financial activities of the City for the fiscal year ended September 30, 2019. 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 - ix of this report. FINANCIAL HIGHLIGHTS  The assets and deferred outflows of the City exceeded its liabilities and deferred inflows by $59.9 million (total net position). Of this amount, $13.6 million represents unrestricted net position that is available to meet the City’s ongoing obligations to citizens and creditors.  The government’s net position increased by $4.2 million during the fiscal year. Governmental activities experienced an increase that was primarily related to the new discretionary sales tax revenues that were authorized by a taxpayer referendum in November 2018. Business activities increased net position mainly attributable to increases in user charges and investment-related income.  As of the close of the fiscal year, the City’s governmental funds have combined ending fund balances of $23.9 million, an increase of $7.5 million from the prior year. This increase is attributable to unexpended resources from the issuance of long-term debt. Approximately 70.1% of this amount, or $16.7 million, is available for spending at the discretion of City Council.  As of September 30, 2019, committed, assigned, and unassigned fund balance of the General Fund totaled $13.7 million, or 47.8% of the total General Fund expenditures.  The City’s total debt increased by $10.7 million, or 33.7%, during the fiscal year. This increase is attributable to issuing capital improvement revenue bonds to fund the construction of the new field office complex that was completed in fiscal year 2020. OVERVIEW OF THE FINANCIAL STATEMENTS This discussion and analysis intends to serve as an introduction to the City’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 No. 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’s finances in a manner similar to a private-sector business. Two statements, the statement of net position and the statement of activities, are utilized to provide information on a government-wide basis. 4  The statement of net position presents information on all of the City’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. 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 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 include general government (city clerk, city council, city manager, human resources, finance, purchasing, fleet maintenance, service maintenance, and non-departmental expenses), public safety (police, fire, building, and code enforcement services), physical environment (cemetery), transportation (engineering, streets, public works, and right-of-way), economic development (Community Development Block Grant Program, and community redevelopment agency), culture and recreation (parks, golf, library, and museum), and debt service interest. The business-type activities of the City include utilities (water, sewer, and storm water), and sanitation. The government-wide financial statements include not only the City 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 is financially accountable. The CRA is considered a blended component unit of the City and is presented as a special revenue fund as part of the primary government. The government-wide financial statements are found on pages 15-16 of this report. Fund Financial Statements A fund is a grouping of related accounts used to maintain control over resources that have been segregated for specific activities or objectives. The City, 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 can be divided into three categories: governmental funds, proprietary funds, and fiduciary funds. FUNDS Governmental Funds Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements are reported using an accounting method called modified accrual accounting, the focus of which is on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government’s near-term financial requirements. The basic governmental fund financial statements are on pages 17-20 of this report. 5  Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government’s near-term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balance provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The City maintains eight individual governmental funds (General Fund, Community Redevelopment Agency Fund, Florida Building Code Fund, Law Enforcement Trust Fund, Law Enforcement Training Fund, Debt Service Fund, Community Development Block Grant Fund, and Beal Memorial Cemetery Perpetual Care Fund). Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures, and changes in fund balance for the General Fund and the Community Redevelopment Agency Fund. Data from the other six governmental funds are combined into a single, aggregated presentation. Individual fund data for each of these non-major governmental funds is provided in the form of combining statements elsewhere in this report. The Community Redevelopment Agency Fund is considered a major fund for reporting purposes. 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 and the CRA Fund on pages 21-22 of this report. Proprietary Funds All proprietary funds of the City 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 uses enterprise funds to account for its utilities operations (water operations and distribution, sewer collections and treatment, and stormwater management), and sanitation operations (garbage). Proprietary funds provide the same type of information as the government-wide financial statements, only in more detail. The proprietary fund financial statements provide separate information on utilities operations, sanitation operations, and stormwater operations, all of which are presented as major funds of the City. The basic proprietary fund financial statements are found on pages 23-27 of this report. Fiduciary Funds Fiduciary funds are used to account for resources held for the benefit of parties outside the government. The City’s fiduciary funds include the Pension Trust Funds (general employees, police officers, and firefighters). Fiduciary funds are not reflected in the government-wide financial statements because the resources of those funds are not available to support the City’s own programs. The accounting used for fiduciary funds is much like that used for proprietary funds. The basic fiduciary fund financial statements are found on pages 28-29 of this report. NOTES TO THE FINANCIAL STATEMENTS The notes to the financial statements provide additional information that is essential to the full understanding of the data provided in the government-wide and fund financial statements. The notes to the financial statements begin on page 30 of this report. 6 OTHER INFORMATION In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information concerning the City’s progress in funding its obligation to provide pension and other post-employment benefits (OPEB) to its employees. The required supplementary information is found on pages 83-94 of this report. The combining statements referred to earlier in connection with non-major governmental immediately follow the required supplementary information on pension and OPEB plans and can be found beginning on page 95 of this report. GOVERNMENT-WIDE FINANCIAL ANALYSIS As noted earlier, net position may serve over time as a useful indicator of a government’s financial position. Assets and deferred outflows of resources of the City exceeded its liabilities and deferred inflows of resources by $59.9 million, as reported in Table 1. The City’s net position increased by $4.2 million for the fiscal year ended September 30, 2019. Both governmental and business activities experienced increases. By far, the largest portion of the City’s assets, $42.0 million or 70.0%, reflects its investment in capital assets (e.g. land, infrastructure, buildings, machinery, and equipment) less any related debt still outstanding that was used to acquire those assets. The City uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the City reports the investment in its capital assets net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since capital assets themselves cannot be used to liquidate these liabilities. An additional portion of the City’s net position of $4.4 million, or 7.3%, represents resources that are subject to external restrictions on how they may be used. The remaining balance of $13.6 million is unrestricted and may be used to meet the government’s ongoing obligations to citizens and creditors. Table 1 Statement of Net Position As of September 30 (In Thousands of Dollars) Governmental Business-Type Activities Total Activities 2019 2018 2019 2018 2019 2018 Current & Other $27,496 $18,802 $17,843 $16,064 $45,339 $34,866 Capital Assets 47,406 39,911 33,752 35,023 81,158 74,934 Total Assets 74,902 58,713 51,595 51,087 126,497 109,800 Deferred Outflow of Resources 6,161 7,844 775 1,219 6,936 9,063 Long‐Term Liabilities Outstanding 41,784 33,134 21,076 23,178 62,860 56,312 Other Liabilities 4,097 2,283 2,127 1,990 6,224 4,273 Total Liabilities 45,881 35,417 23,203 25,168 69,084 60,585 Deferred Inflow of Resources 3,544 2,085 866 459 4,410 2,544 Net Position Net Investment in Capital Assets 28,280 29,375 13,678 13,830 41,958 43,205 Restricted 3,736 2,348 612 597 4,348 2,945 Unrestricted (378) (2,668) 14,011 12,252 13,633 9,584 Total Net Position $31,638 $29,055 $28,301 $26,679 $59,939 $55,734 7 Reported in Table 2 are the key elements of the increase in net position for the current year. Table 2 Statement of Activities Governmental Activities Business-Type Activities Total Activities 2019 2018 2019 2018 2019 2018 Revenues Program Revenue: Charges for Services $4,012,335 $3,679,746 $16,288,803 $15,487,820 $20,301,138 $19,167,566 Operating Grants & Contributions 765,032 706,094 - - 765,032 706,094 Capital Grants & Contributions 37,406 1,487,587 93,282 151,049 130,688 1,638,636 General Revenue: Property Taxes 6,416,668 6,041,303 - - 6,416,668 6,041,303 Other Taxes 8,380,199 7,123,327 - - 8,380,199 7,123,327 Tax Increments for Redevelopment 1,893,803 1,811,121 - - 1,893,803 1,811,121 Other Revenue 4,488,623 3,497,935 776,094 40,221 5,264,717 3,538,156 Total Revenues 25,994,066 24,347,113 17,158,179 15,679,090 43,152,245 40,026,203 Expenses Primary Government General Government 3,559,619 3,799,439 - - 3,559,619 3,799,439 Public Safety 11,159,777 11,420,904 - - 11,159,777 11,420,904 Physical Environment 519,126 505,458 - - 519,126 505,458 Transportation 1,406,227 1,401,819 - - 1,406,227 1,401,819 Economic Environment 1,412,332 1,174,794 - - 1,412,332 1,174,794 Culture & Recreation 5,781,339 5,538,881 - - 5,781,339 5,538,881 Debt Service Interest 664,131 291,590 - - 664,131 291,590 Business‐Type Expenses Utilities - - 9,961,949 9,810,437 9,961,949 9,810,437 Sanitation - - 3,720,984 3,774,624 3,720,984 3,774,624 Other - - 762,181 727,282 762,181 727,282 Total Expenses 24,502,551 24,132,885 14,445,114 14,312,343 38,947,665 38,445,228 Increase/(Decrease) in Net Position 1,491,515 214,228 2,713,065 1,366,747 4,204,580 1,580,975 before Transfers Transfers 1,091,579 847,373 (1,091,579) (847,373) - - Increase/(Decrease) in Net Position 2,583,094 1,061,601 1,621,486 519,374 4,204,580 1,580,975 Net Position – Beginning 29,055,249 27,993,648 26,679,073 26,159,699 54,734,322 54,153,347 Net Position – Ending $31,638,343 $29,055,249 $28,300,559 $26,679,073 $59,938,902 $55,734,322 Current Year Impacts – Governmental Activities Governmental activities increased the City’s net position by $2.6 million for the fiscal year ended September 30, 2019. Key elements of this change are as follows:  Total revenues increased by $1.6 million, which is primarily attributable to the City’s share of the local option discretionary sales taxes that were adopted by taxpayer referendum in November 2018.  Culture and recreation expenses increased by $242,458 due to an increase in payroll and related employee benefits, while debt service interest expense increased by $372,541 as a result of making the first interest payment on the Capital Improvement Revenue Bonds, Series 2018, which were issued to finance construction of the new field office complex.  Overall, expenses for governmental activities increased by $369,666, or 1.5%, while related revenue increased $1.6 million, or 6.8%. 8  Chart 1 Expense and Revenue ‐ Governmental Activities (In millions) Debt Service Interest Culture and Recreation Economic Environment Transportation Physical Environment Public Safety General Government 0 2,000,000 4,000,000 6,000,000 8,000,000 10,000,000 12,000,000 Revenues Expenses Chart 2 Municipal Revenue Revenues by Source ‐ Governmental Activities Franchise Fees , Sharing , $1,034,884 $2,084,717 Other Revenue , Tax Increments for $1,369,022 Redevelopment , $1,893,803 Charges for Services , $4,012,335 Other Taxes , $4,045,085 Operating Grants & Contributions , $765,032 Sales Tax , $4,335,114 Property Taxes , Capital Grants & $6,416,668 Contributions , Franchise Fees Other Revenue $37,406 Charges for Services Operating Grants & Contributions Capital Grants & Contributions Property Taxes Sales Tax Other Taxes Tax Increments for Redevelopment Municipal Revenue Sharing Current Year Impacts – Business-Type Activities Business-type activities increased the City’s net position by $1,621,486 for the fiscal year ended September 30, 2019. Key elements of this change are as follows:  Charges for services resulted in additional revenues of $800,983, or a 5.1% increase from the prior year due to an increase in rates charged to users for utility services.  Miscellaneous income increased by $735,873 from the prior year. This was primarily attributable to improved performance of the City’s pooled investments during fiscal year 2019.  Overall, expenses for the business-type activities of the City increased by $132,771, or 0.9%, primarily due to increases in salaries and related employee benefits. 9  Chart 3 Expenses and Program Revenue ‐ Business‐Type Activities (In millions) $12,000,000 $10,000,000 $8,000,000 $6,000,000 $4,000,000 $2,000,000 $‐ Utilities Sanitation Stormwater Expenses Revenues Chart 4 Revenues by Source ‐ Business Type Activities Capital Grants, Miscellaneous $93,282 Income, $776,094 Charges for Services, $16,288,803 Charges for Services Capital Grants Miscellaneous Income FINANCIAL ANALYSIS OF THE CITY’S FUNDS As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. 10 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, 2019, the City’s governmental funds have combined ending fund balances of $23.9 million, an increase of $7.5 million from the prior year. Approximately 70.1% of this amount, or $16.7 million, is available for spending at the discretion of City Council. The remainder of fund balance is nonspendable or restricted. Details of the fund balance classifications can be found on page 17 of this report, as well as in Note 19. The General Fund is the chief operating fund of the City. At the end of this fiscal year, committed, assigned, and unassigned fund balance of the General Fund was $13.7 million, while total fund balance reached $18.4 million. As a measure of the General Fund’s liquidity, it may be useful to compare both committed, assigned, and unassigned fund balance and total fund balance to total expenditures. This amount represents 47.8% of the total General Fund expenditures, while total fund balance represents 64.5% of that same amount. During the 2019 fiscal year, the fund balance of the City’s General Fund increased by $7.2 million. This increase is attributable to unexpended resources from the issuance of long-term debt related to the field office complex construction, which was completed in December 2019. The CRA Fund’s fund balance decreased by $121,069. This decrease is primarily attributable to completing the Carson Streetscape Project and Gulfview Hotel renovations in fiscal year 2019. Proprietary Funds The City’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 $14.0 million at September 30, 2019, of which the Utilities Fund amounted to $10.4 million, the Sanitation Fund totaled $2.2 million, and the Stormwater Utility Fund was $1.4 million. The factors concerning the finances of these four funds have already been addressed in the discussion of the City’s business-type activities. Fiduciary Funds The General Employees’ Retirement Fund’s net position as a percentage of the total pension liability, an indicator of the sustainability of the Plan, was 95.1%, an increase of 6.4% over the prior year. Employees contribute 5% of pay to the Plan and the City contributed $1.8 million, which was a decrease of $255,271 when compared to the previous fiscal year. The Police Officers’ Retirement Fund’s net position as a percentage of the total pension liability was 82.1%, an increase of 4.5% over the previous fiscal year. Employees contribute 5% of pay to the Plan and the City contributed $732,187, a decrease of $98,426 when compared to the previous fiscal year. The Firefighters’ Pension Trust Fund’s net position as a percentage of the total pension liability was 65.0%, which was an increase of 0.5% over the previous fiscal year. Employees contribute 8.0% of pay to the Plan and the City contributed $1.0 million, a decrease of $73,186 when compared to the previous fiscal year. 11  Additional information on the pension plans can be found on pages 52-66 of this report. The General Employees’ Retirement Fund was closed to new entrants in January 2010, and all new hires are required to participate in a defined contribution plan, which is administered by the International City Managers Association Retirement Corporation. Additional information on the defined contribution plan can be found on page 67 of this report. GENERAL FUND BUDGETARY HIGHLIGHTS A statement showing the original budget, the final budget, the actual results and the variance from the final budget to the actual results is included for the General Fund on page 21 of the financial statements. The difference between the original budget and the final budget for expenditures was approximately $11.8 million. Significant information related to this difference is summarized as follows:  The City increased appropriations for capital outlay by $11.9 million in the final budget for construction of the field office complex. Actual results, when compared to the final budget, show a variance of $5.3 million for expenditures. This variance is primarily due to amending the budget for expenditures planned, but not yet completed. CAPITAL ASSET AND DEBT ADMINISTRATION Capital Assets The City’s investment in capital assets for its governmental and business-type activities, as of September 30, 2019, was $42.0 million (net of accumulated depreciation and related debt). This represents a net decrease of $1.2 million, or 2.9%. Highlights are summarized as follows:  Capital assets outdated, unserviceable, and no longer used are systematically disposed of on an annual basis.  The City continued construction of the consolidated field office complex that was not completed until fiscal year 2020. Capital outlay expenditures incurred for the project during fiscal year 2019 totaled $8.5 million.  The City placed into service its Gulfview Hotel renovations and the Carson Streetscape improvements. 12  Table 3 below highlights the overall changes in this category. Table 3 Total Capital Assets Net of Accumulated Depreciation Governmental Activities Business‐Type Activities Total Activities 2019 2018 2019 2018 2019 2018 Land $10,910,210 $11,148,479 $709,678 $709,678 $11,619,888 $11,858,157 Buildings 13,674,040 13,751,043 90,721 98,651 13,764,761 13,849,694 Improvements other than Buildings 6,837,867 6,653,717 29,440,410 30,817,177 36,278,277 37,470,894 Infrastructure 3,202,512 3,311,635 - - 3,202,512 3,311,635 Machinery & Equipment 3,428,487 3,912,577 3,360,685 3,257,852 6,789,172 7,170,429 Equipment under Capital Lease 39,591 53,146 - - 39,591 53,146 Easements - - 39,742 39,742 39,742 39,742 Construction in Progress 9,313,649 1,080,970 111,042 99,772 9,424,691 1,180,742 $47,406,356 $39,911,567 $33,752,278 $35,022,872 $81,158,634 $74,934,439 Additional information on the capital assets of the City can be found in Note 6 of this report on pages 48-50. Long-Term Debt As shown in the following table, as of September 30, 2019, the City had total outstanding long- term debt of $42.4 million. All of the City’s debt represents notes and bonds secured solely by specified revenue sources (i.e. revenue notes) and capital leases. The City has no general obligation or special assessment debt. The State of Florida does not place a legal limit of debt on municipalities. For general obligation debts greater than one year, the City is required to conduct a voter referendum. Table 4 Outstanding Debt Governmental Assets Business‐Type Activities Total Activities 2019 2018 2019 2018 2019 2018 Revenue Notes & Bonds $22,246,372 $10,389,217 $7,537,000 $7,968,000 $29,783,372 $18,357,217 State Revolving Fund - - 12,614,297 13,308,089 12,614,297 13,308,089 Capital Leases 6,681 42,217 - - 6,681 42,217 $22,253,053 $10,431,434 $20,151,297 $21,276,089 $42,404,350 $31,707,523 Additional information on the City of Fort Walton Beach’s long-term debt can be found in Notes 14-16 of this report on pages 73-78. 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 for the Southern Region. This indicator is a widely used gauge of inflation and translates into a higher cost of providing services to residents.  The Municipal Cost Index is 0.6% higher than a year ago. This index is prepared by American City & County to show the effects of inflation on the cost of providing municipal services. 13   The local unemployment rate was 2.4%, which represents an approximate 0.1% increase from September 2018. The State of Florida’s unemployment rate was 3.0%, which represents an approximate 0.1% decrease from September 2018. The unemployment rate will impact the City’s fee and usage-based revenues, and shared portions of the State of Florida’s usage-based taxes.  The published state revenue sharing distribution estimate is up by 3.1% over the prior year, the half-cent sales tax distribution estimate is up by 7.8% over the prior year, and the communication services tax distribution estimate is down by 8.0% compared to the prior year.  The military has a significant presence in our community with Eglin Air Force Base, Hurlburt Field, and Duke Field. Combined, these three installations employ over 72,000 military and civilian personnel. The military and defense-related industries have a $22 billion annual impact on Northwest Florida’s economy, according to the Florida Defense Industry Economic Impact Analysis. These financial policies, as well as other indicators, were taken into account when adopting the City’s budget for fiscal year 2020. The City’s budget for fiscal year 2020 totals $47.2 million, which is $5.5 million higher than the fiscal year 2019 approved budget. The 2020 budget allocates $26.7 million, a 20.3% increase as compared to the fiscal year 2019 budget, to the General Fund, $16.6 million to the enterprise funds, and $3.9 million to other funds. For the fiscal year 2020 budget, the ad valorem rate was lowered to 5.6395 mills. In October 2019, the City Council adopted a resolution to adopt a fire assessment fee and rates effective in FY2020. The City expects to generate revenues of approximately $1,200,000 from the assessment. No other significant changes to the City’s various rate and fees are included in the fiscal year 2020 budget. Personnel expenses account for approximately 49.1% of the City’s budget. The City’s fiscal year 2020 budget remains relatively stable in this category, at 310.5 full time equivalent (FTE’s) positions, an increase of only 9.4 FTE’s over the prior year. REQUESTS FOR INFORMATION This financial report is designed to provide citizens, taxpayers, customers, and creditors with a general overview of the City of Fort Walton Beach’s finances and to demonstrate the City’s accountability for the money it receives. Questions concerning any of the information provided in this report, or requests for additional information, should be addressed to the City Manager, 107 Miracle Strip Parkway S.W., City of Fort Walton Beach, Florida, 32548. This document and other financial information are available on the City’s website at www.fwb.org. Inquiries may also be sent via email to the Finance Department at finance@fwb.org. 14  CITY OF FORT WALTON BEACH, FLORIDA STATEMENT OF NET POSITION SEPTEMBER 30, 2019 Primary Government Governmental Business-Type Activities Activities Total ASSETS Cash and cash equivalents $ 7,144,614 $ 4,758,185 $ 11,902,799 Investments 15,979,190 10,984,285 26,963,475 Receivables, net 491,321 873,736 1,365,057 Internal balances (262,368) 262,368 - Due from other governments 144,228 44,560 188,788 Inventory, at cost 269,837 20,393 290,230 Prepaid assets - 4,534 4,534 Restricted assets Cash and cash equivalents 3,148,195 889,694 4,037,889 Other assets Other receivables, net 580,370 4,445 584,815 Capital assets Non-depreciable/amortizable 20,223,859 860,462 21,084,321 Depreciable/amortizable, net 27,182,497 32,891,816 60,074,313 TOTAL ASSETS 74,901,743 51,594,478 126,496,221 DEFERRED OUTFLOWS OF RESOURCES 6,160,913 775,247 6,936,160 LIABILITIES Accounts payable 2,189,671 422,505 2,612,176 Accrued liabilities 450,433 178,595 629,028 Due to other governments 3,178 9,384 12,562 Unearned revenues 25,449 41,487 66,936 Payable from restricted assets Accrued interest 182,127 - 182,127 Customer deposits - 277,902 277,902 Non-current liabilities Due within one year Compensated absences 168,518 46,026 214,544 Leases payable 6,681 - 6,681 Revenue bonds and notes payable 1,070,885 444,000 1,514,885 State revolving loans payable - 707,038 707,038 Due in more than one year Compensated absences 522,508 138,078 660,586 Revenue bonds and notes payable 21,175,487 7,093,000 28,268,487 State revolving loans payable - 11,907,259 11,907,259 Other post-employment benefits 4,384,930 1,175,546 5,560,476 Net pension liability 15,700,685 762,199 16,462,884 TOTAL LIABILITIES 45,880,552 23,203,019 69,083,571 DEFERRED INFLOWS OF RESOURCES 3,543,761 866,147 4,409,908 NET POSITION Net investment in capital assets 28,280,342 13,678,160 41,958,502 Restricted Debt service - 157,228 157,228 System improvements - 454,564 454,564 Improvement districts 1,691,456 - 1,691,456 Public safety 673,892 - 673,892 Other purposes 1,370,446 - 1,370,446 Unrestricted (deficit) (377,793) 14,010,607 13,632,814 TOTAL NET POSITION $ 31,638,343 $ 28,300,559 $ 59,938,902 See notes to the financial statements. 15  CITY OF FORT WALTON BEACH, FLORIDA STATEMENT OF ACTIVITIES FOR THE YEAR ENDED SEPTEMBER 30, 2019 Net (Expense) Revenue and Changes in Net Position Program Revenues Primary Government Charges for Operating Grants Capital Grants and Governmental Business-Type Function/program activities Expenses Services and Contributions Contributions Activities Activities Total Governmental activities General government $ 3,559,619 $ 508,494 $ 1,135 $ - $ (3,049,990) $ - $ (3,049,990) Public safety 11,159,777 643,944 473,092 3,777 (10,038,964) - (10,038,964) Physical environment 519,126 414,695 - - (104,431) - (104,431) Transportation 1,406,227 252,418 - - (1,153,809) - (1,153,809) Economic environment 1,412,332 21,300 170,313 33,629 (1,187,090) - (1,187,090) Culture and recreation 5,781,339 2,171,484 120,492 - (3,489,363) - (3,489,363) Debt service interest 664,131 - - - (664,131) - (664,131) Total governmental activities 24,502,551 4,012,335 765,032 37,406 (19,687,778) - (19,687,778) Business-type activities Utilities 9,961,949 11,390,289 - 88,802 - 1,517,142 1,517,142 Sanitation 3,720,984 3,871,204 - - - 150,220 150,220 Stormwater 762,181 1,027,310 - 4,480 - 269,609 269,609 Total business-type activities 14,445,114 16,288,803 - 93,282 - 1,936,971 1,936,971 Total primary government $ 38,947,665 $ 20,301,138 $ 765,032 $ 130,688 $ (19,687,778) $ 1,936,971 $ (17,750,807) General revenues Taxes Property taxes 6,416,668 - 6,416,668 Sales taxes 4,335,114 - 4,335,114 Utility service taxes 4,045,085 - 4,045,085 Tax increments for redevelopment districts 1,893,803 - 1,893,803 Franchise fees 2,084,717 - 2,084,717 Intergovernmental, unrestricted 1,034,884 - 1,034,884 Gain on sale of assets 66,523 44,914 111,437 Miscellaneous 77,264 17,671 94,935 Investment earnings 1,225,235 713,509 1,938,744 Transfers 1,091,579 (1,091,579) - Total general revenues and transfers 22,270,872 (315,485) 21,955,387 CHANGE IN NET POSITION 2,583,094 1,621,486 4,204,580 NET POSITION AT BEGINNING OF YEAR 29,055,249 26,679,073 55,734,322 NET POSITION AT END OF YEAR $ 31,638,343 $ 28,300,559 $ 59,938,902 See notes to the financial statements. 16  CITY OF FORT WALTON BEACH, FLORIDA GOVERNMENTAL FUNDS BALANCE SHEET SEPTEMBER 30, 2019 Community Other Total Redevelopment Governmental Governmental General Agency Funds Funds ASSETS Cash and cash equivalents $ 6,192,328 $ 202,740 $ 749,546 $ 7,144,614 Investments 11,476,076 1,431,368 3,071,746 15,979,190 Receivables 786,484 285,207 - 1,071,691 Due from other funds 71,919 - - 71,919 Due from other governments 6,268 97,995 39,965 144,228 Inventory, at cost 269,837 - - 269,837 Restricted assets Cash and cash equivalents 3,127,039 - 21,156 3,148,195 TOTAL ASSETS $ 21,929,951 $ 2,017,310 $ 3,882,413 $ 27,829,674 LIABILITIES Accounts payable $ 2,141,292 $ 30,736 $ 17,643 $ 2,189,671 Accrued liabilities 410,043 10,698 29,692 450,433 Due to other funds - - 71,919 71,919 Due to other governments 3,178 - - 3,178 Advance from other funds 262,368 - - 262,368 Unearned revenue 25,449 - - 25,449 Total liabilities 2,842,330 41,434 119,254 3,003,018 DEFERRED INFLOW OF RESOURCES Unavailable revenue 668,032 284,420 - 952,452 FUND BALANCE Nonspendable 269,837 - - 269,837 Restricted 4,497,485 1,691,456 673,892 6,862,833 Committed 8,019,062 - 3,120,593 11,139,655 Assigned 2,341,510 - - 2,341,510 Unassigned 3,291,695 - (31,326) 3,260,369 Total fund balance 18,419,589 1,691,456 3,763,159 23,874,204 TOTAL LIABILITIES, DEFERRED INFLOW OF RESOURCES, AND FUND BALANCE $ 21,929,951 $ 2,017,310 $ 3,882,413 $ 27,829,674 See notes to the financial statements. 17  CITY OF FORT WALTON BEACH, FLORIDA GOVERNMENTAL FUNDS RECONCILIATION OF THE BALANCE SHEET TO THE STATEMENT OF NET POSITION SEPTEMBER 30, 2019 Fund balance, total governmental funds (page 17) $ 23,874,204 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 20,223,859 Governmental depreciable/amortizable assets 72,237,641 Less accumulated depreciation/amortization (45,055,144) 47,406,356 Unavailable revenues in governmental funds is susceptible to full accrual on the entity-wide statements. Special assessments 319,207 Receivable related to sale of capital asset 633,245 952,452 Deferred inflows of resources and deferred outflows of resources are not available/receivable or due/payable, respectively, in the current period and therefore are not reported in the governmental funds. Deferred outflows of resources related to pension plans 5,553,121 Deferred outflows of resources related to OPEB plan 607,792 Deferred inflows of resources related to pension plans (2,906,858) Deferred inflows of resources related to OPEB plan (636,903) 2,617,152 Long-term liabilities are not due and payable in the current period and therefore are not reported in the governmental funds. Notes payable (22,246,372) Accrued interest (182,127) Capital leases (6,681) Compensated absences (691,026) Other post-employment benefits (4,384,930) Net pension liability (15,700,685) (43,211,821) Net position of governmental activities (page 15) $ 31,638,343 See notes to the financial statements. 18  CITY OF FORT WALTON BEACH, FLORIDA GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE FOR THE YEAR ENDED SEPTEMBER 30, 2019 Community Other Total Redevelopment Governmental Governmental General Agency Funds Funds REVENUES Taxes $ 11,961,569 $ 1,139,801 $ - $ 13,101,370 Permits and fees 2,114,019 23,864 521,317 2,659,200 Intergovernmental 4,586,960 787,631 141,633 5,516,224 Charges for services 2,868,887 - - 2,868,887 Fines 84,181 - 10,397 94,578 Miscellaneous 1,470,751 156,241 143,333 1,770,325 Total revenues 23,086,367 2,107,537 816,680 26,010,584 EXPENDITURES Current General governmental services 3,377,241 - - 3,377,241 Public safety 9,838,964 - 318,781 10,157,745 Physical environment 424,278 - 15,168 439,446 Transportation 824,349 - - 824,349 Economic environment - 1,143,721 138,342 1,282,063 Culture and recreation 4,685,690 - - 4,685,690 Capital outlay 9,385,760 1,084,885 27,383 10,498,028 Debt service Principal - - 698,381 698,381 Interest 6,236 - 540,929 547,165 Total expenditures 28,542,518 2,228,606 1,738,984 32,510,108 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES (5,456,151) (121,069) (922,304) (6,499,524) OTHER FINANCING SOURCES (USES) Sale of general capital assets 350,000 - - 350,000 Long-term debt issuance proceeds 12,520,000 - - 12,520,000 Transfers in 1,091,579 - 1,262,327 2,353,906 Transfers out (1,262,327) - - (1,262,327) Total other financing sources (uses) 12,699,252 - 1,262,327 13,961,579 NET CHANGE IN FUND BALANCE 7,243,101 (121,069) 340,023 7,462,055 FUND BALANCE AT BEGINNING OF YEAR 11,176,488 1,812,525 3,423,136 16,412,149 FUND BALANCE AT END OF YEAR $ 18,419,589 $ 1,691,456 $ 3,763,159 $ 23,874,204 See notes to the financial statements. 19  CITY OF FORT WALTON BEACH, FLORIDA GOVERNMENTAL FUNDS RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED SEPTEMBER 30, 2019 Net change in fund balance – governmental funds (page 19) $ 7,462,055 Amounts reported for governmental activities in the statement of activities are different because: Governmental funds do not report capital assets on the balance sheet; however, they are reported in the government-wide financial statements. Governmental funds report capital outlays as expenditures; however, in the statement of activities, the cost of those assets is depreciated/amortized over the estimated useful lives of the assets. Expenditures for capital assets 10,498,028 Less current year depreciation/amortization (2,719,762) 7,778,266 Governmental funds do not report capital assets on the balance sheet; however, they are reported in the government-wide financial statements. Accordingly, proceeds received for disposals of capital assets are shown as income in the governmental financial statements and a gain or loss is reported in the statement of activities. In addition, capital asset reassignments are reported as transfers on the statement of activities. Disposals of capital assets (683,826) Accumulated depreciation/amortization – disposals 437,143 Transfers and adjustments of capital assets (125,809) Accumulated depreciation/amortization – transfers and adjustments 89,015 (283,477) Special assessment revenue in the governmental funds is recognized when due; however, the revenue was recognized in the statement of activities when it was earned (when levied). Payments received from special assessments (31,912) Special assessment for interest and penalties 924 Payments received on receivable related to the sale of capital assets (52,053) (83,041) The issuance of long-term debt provides current financial resources to governmental funds, while the repayment of the principal of long-term debt consumes the current financial resources of governmental funds. Neither transaction, however, has any effect on net position. Also, governmental funds report the effect of issuance costs, premiums, discounts and similar items when debt is first issued, whereas these amounts are deferred and amortized in the statement of activities. In addition, long- term debt reassignments are reported as transfers on the statement of activities. Proceeds from issuance of long-term debt (12,520,000) Debt principal and capital lease payments 698,381 Change in accrued interest on long-term debt (116,966) (11,938,585) Some expenses reported in the statement of activities do not require the use of current financial resources and therefore are not reported as expenditures in governmental funds: Change in net pension liability and related deferred inflows and deferred outflows of resources (290,250) Change in other post-employment benefits liability and related deferred inflows and deferred outflows of resources (32,412) Change in long-term compensated absences (29,462) (352,124) Change in net position of governmental activities (page 16) $ 2,583,094 See notes to the financial statements. 20  CITY OF FORT WALTON BEACH, FLORIDA GENERAL FUND STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE – BUDGET AND ACTUAL FOR THE YEAR ENDED SEPTEMBER 30, 2019 Variance with Final Budget - Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Taxes $ 12,160,547 $ 12,160,547 $ 11,961,569 $ (198,978) Permits and fees 2,359,975 2,359,975 2,114,019 (245,956) Intergovernmental 3,171,713 3,177,221 4,586,960 1,409,739 Charges for services 2,629,474 2,647,658 2,868,887 221,229 Fines 95,961 95,961 84,181 (11,780) Miscellaneous 613,560 666,251 1,470,751 804,500 Total revenues 21,031,230 21,107,613 23,086,367 1,978,754 EXPENDITURES Current General governmental services 3,924,786 3,869,792 3,377,241 492,551 Public safety 10,517,536 10,425,278 9,838,964 586,314 Physical environment 384,117 384,117 424,278 (40,161) Transportation 975,009 974,709 824,349 150,360 Culture and recreation 4,989,808 5,006,195 4,685,690 320,505 Capital outlay 1,338,505 13,275,546 9,385,760 3,889,786 Debt service - - 6,236 (6,236) Total expenditures 22,129,761 33,935,637 28,542,518 5,393,119 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES (1,098,531) (12,828,024) (5,456,151) 7,371,873 OTHER FINANCING SOURCES (USES) Sale of general capital assets - 17,549 350,000 332,451 Long-term debt issuance proceeds - 12,520,000 12,520,000 - Transfers in 847,373 847,373 1,091,579 244,206 Transfers out (1,081,509) (1,081,509) (1,262,327) (180,818) Total other financing sources (uses) (234,136) 12,303,413 12,699,252 395,839 NET CHANGE IN FUND BALANCE (1,332,667) (524,611) 7,243,101 7,767,712 FUND BALANCE AT BEGINNING OF YEAR 1,332,667 524,611 11,176,488 10,651,877 FUND BALANCE AT END OF YEAR $ - $ - $ 18,419,589 $ 18,419,589 See notes to the financial statements. 21  CITY OF FORT WALTON BEACH, FLORIDA COMMUNITY REDEVELOPMENT AGENCY STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE – BUDGET AND ACTUAL FOR THE YEAR ENDED SEPTEMBER 30, 2019 Variance with Final Budget - Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Taxes $ 1,139,801 $ 1,139,801 $ 1,139,801 $ - Permits and fees - - 23,864 23,864 Intergovernmental 720,907 754,536 787,631 33,095 Miscellaneous 32,457 44,007 156,241 112,234 Total revenues 1,893,165 1,938,344 2,107,537 169,193 EXPENDITURES Current Economic environment 1,893,165 1,940,264 1,143,721 796,543 Capital outlay 1,473,270 1,473,270 1,084,885 388,385 Total expenditures 3,366,435 3,413,534 2,228,606 1,184,928 CHANGE IN FUND BALANCE (1,473,270) (1,475,190) (121,069) 1,354,121 FUND BALANCE AT BEGINNING OF YEAR 1,473,270 1,475,190 1,812,525 337,335 FUND BALANCE AT END OF YEAR $ - $ - $ 1,691,456 $ 1,691,456 See notes to the financial statements. 22  CITY OF FORT WALTON BEACH, FLORIDA PROPRIETARY FUNDS STATEMENT OF NET POSITION SEPTEMBER 30, 2019 Sanitation Stormwater Utilities Fund Fund Fund Total ASSETS Current assets Cash and cash equivalents $ 3,158,289 $ 514,087 $ 1,085,809 $ 4,758,185 Restricted assets – cash and cash equivalents 888,814 880 - 889,694 Investments 8,356,097 2,147,737 480,451 10,984,285 Receivables, net 628,955 188,878 55,903 873,736 Advance to other funds - 50,416 - 50,416 Due from other governments - - 44,560 44,560 Inventory – at cost 20,393 - - 20,393 Prepaid assets - - 4,534 4,534 Total current assets 13,052,548 2,901,998 1,671,257 17,625,803 Other assets Advance to other funds - 211,952 - 211,952 Other receivables, net 4,445 - - 4,445 Total other assets 4,445 211,952 - 216,397 Capital assets, net Non-depreciable/amortizable 801,242 - 59,220 860,462 Depreciable/amortization, net 28,816,079 1,016,048 3,059,689 32,891,816 Total capital assets 29,617,321 1,016,048 3,118,909 33,752,278 Total non-current assets 29,621,766 1,228,000 3,118,909 33,968,675 TOTAL ASSETS 42,674,314 4,129,998 4,790,166 51,594,478 DEFERRED OUTFLOWS OF RESOURCES 518,830 200,258 56,159 775,247 See notes to the financial statements. 23  CITY OF FORT WALTON BEACH, FLORIDA PROPRIETARY FUNDS STATEMENT OF NET POSITION – CONTINUED SEPTEMBER 30, 2019 Sanitation Stormwater Utilities Fund Fund Fund Total LIABILITIES Current liabilities Accounts payable $ 281,289 $ 139,268 $ 1,948 $ 422,505 Accrued liabilities Compensated absences 27,575 14,214 4,237 46,026 Wages 52,403 28,218 7,405 88,026 Interest 86,627 - - 86,627 Other 2,039 1,609 294 3,942 Due to other governments - 9,384 - 9,384 Revenue note payable 444,000 - - 444,000 State revolving loan payable 707,038 - - 707,038 Payable from restricted assets Customer deposits 277,022 880 - 277,902 Unearned revenue 41,487 - - 41,487 Total current liabilities 1,919,480 193,573 13,884 2,126,937 Non-current liabilities Accrued liabilities Compensated absences 82,724 42,643 12,711 138,078 Revenue note payable 7,093,000 - - 7,093,000 State revolving loan payable 11,907,259 - - 11,907,259 Other post-employment benefits 609,617 406,012 159,917 1,175,546 Net pension liability 508,715 205,082 48,402 762,199 Total non-current liabilities 20,201,315 653,737 221,030 21,076,082 TOTAL LIABILITIES 22,120,795 847,310 234,914 23,203,019 DEFERRED INFLOWS OF RESOURCES 552,656 246,071 67,420 866,147 NET POSITION Net investment in capital assets 9,543,203 1,016,048 3,118,909 13,678,160 Restricted Debt service 157,228 - - 157,228 System improvements 454,564 - - 454,564 Unrestricted 10,364,698 2,220,827 1,425,082 14,010,607 TOTAL NET POSITION $ 20,519,693 $ 3,236,875 $ 4,543,991 $ 28,300,559 See notes to the financial statements. 24  CITY OF FORT WALTON BEACH, FLORIDA PROPRIETARY FUNDS STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION FOR THE YEAR ENDED SEPTEMBER 30, 2019 Sanitation Stormwater Utilities Fund Fund Fund Total OPERATING REVENUES Charges for services $ 11,370,718 $ 3,871,204 $ 1,027,310 $ 16,269,232 OPERATING EXPENSES Personal services 2,094,523 1,157,409 277,074 3,529,006 Operating 5,501,453 2,284,905 305,867 8,092,225 Depreciation/amortization expense 1,880,770 278,670 179,240 2,338,680 Total operating expenses 9,476,746 3,720,984 762,181 13,959,911 OPERATING INCOME (LOSS) 1,893,972 150,220 265,129 2,309,321 NON-OPERATING REVENUES (EXPENSES) Rental income 19,571 - - 19,571 Interest expense (479,092) - - (479,092) Amortization (5,613) - - (5,613) Gain (loss) on sale of capital assets 39,269 5,645 - 44,914 Gain (loss) on investments 285,322 71,055 15,790 372,167 Interest 246,766 64,367 30,209 341,342 Grants in aid (498) - - (498) Miscellaneous 14,680 2,987 4 17,671 Total non-operating revenues (expenses) 120,405 144,054 46,003 310,462 INCOME BEFORE CAPITAL CONTRIBUTIONS AND TRANSFERS 2,014,377 294,274 311,132 2,619,783 CAPITAL CONTRIBUTIONS AND TRANSFERS Capital contributions 36,794 - 4,480 41,274 Impact fees 52,008 - - 52,008 Transfers out (815,586) (173,840) (102,153) (1,091,579) Total capital contributions and transfers (726,784) (173,840) (97,673) (998,297) CHANGE IN NET POSITION 1,287,593 120,434 213,459 1,621,486 NET POSITION AT BEGINNING OF YEAR 19,232,100 3,116,441 4,330,532 26,679,073 NET POSITION AT END OF YEAR $ 20,519,693 $ 3,236,875 $ 4,543,991 $ 28,300,559 See notes to the financial statements. 25  CITY OF FORT WALTON BEACH, FLORIDA PROPRIETARY FUNDS STATEMENT OF CASH FLOWS FOR THE YEAR ENDED SEPTEMBER 30, 2019 Sanitation Stormwater Utilities Fund Fund Fund Total CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers and users $ 11,460,356 $ 3,882,030 $ 1,022,960 $ 16,365,346 Payments to suppliers (5,437,861) (2,255,926) (307,320) (8,001,107) Payments to employees (2,160,611) (1,175,928) (279,194) (3,615,733) Miscellaneous income 34,251 2,987 4 37,242 Net cash provided by operating activities 3,896,135 453,163 436,450 4,785,748 CASH FLOWS FROM NON-CAPITAL FINANCING ACTIVITIES Change in intergovernmental balances - 1,469 - 1,469 Advance to other funds - 49,427 - 49,427 Grants and aids (498) - - (498) Transfers out (815,586) (173,840) (102,153) (1,091,579) Net cash used in non-capital financing activities (816,084) (122,944) (102,153) (1,041,181) CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Impact fees and capital received 52,008 - - 52,008 Acquisitions of capital assets (851,085) (140,225) (66,953) (1,058,263) Proceeds from disposal of capital assets 39,385 32,500 - 71,885 Proceeds from capital grants and contributions - - 4,480 4,480 Principal paid on revenue note (431,000) - - (431,000) Principal paid on state revolving loan (693,792) - - (693,792) Interest paid on loans and notes payable (482,238) - - (482,238) Net cash used in capital and related financing activities (2,366,722) (107,725) (62,473) (2,536,920) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of investments (5,736,044) (1,422,187) (488,338) (7,646,569) Proceeds from sales and maturities of investments 7,154,528 1,514,269 1,081,993 9,750,790 Investment income, net 532,088 135,422 45,999 713,509 Net cash provided by capital and related financing activities 1,950,572 227,504 639,654 2,817,730 NET INCREASE IN CASH AND CASH EQUIVALENTS 2,663,901 449,998 911,478 4,025,377 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,383,202 64,969 174,331 1,622,502 CASH AND CASH EQUIVALENTS AT END OF YEAR $ 4,047,103 $ 514,967 $ 1,085,809 $ 5,647,879 See notes to the financial statements. 26  CITY OF FORT WALTON BEACH, FLORIDA PROPRIETARY FUNDS STATEMENT OF CASH FLOWS - CONTINUED FOR THE YEAR ENDED SEPTEMBER 30, 2019 Sanitation Stormwater Utilities Fund Fund Fund Total CASH AND CASH EQUIVALENTS AT END OF YEAR CONSIST OF Current assets $ 3,158,289 $ 514,087 $ 1,085,809 $ 4,758,185 Restricted assets 888,814 880 - 889,694 Total cash and cash equivalents $ 4,047,103 $ 514,967 $ 1,085,809 $ 5,647,879 RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES Operating income $ 1,893,972 $ 150,220 $ 265,129 $ 2,309,321 Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation 1,880,770 278,670 179,240 2,338,680 Miscellaneous revenue 34,251 2,987 4 37,242 Decrease (increase) in assets: Accounts receivable 80,154 18,221 130 98,505 Due from other governments - - (4,480) (4,480) Inventory 106 - - 106 Decrease in deferred outflows of resources 298,150 114,734 24,964 437,848 Increase (decrease) in liabilities: Accounts payable 65,259 30,112 (1,216) 94,155 Compensated absences payable (463) 3,403 2,008 4,948 Wages 9,186 6,918 2,072 18,176 Other liabilities (1,773) (1,133) (237) (3,143) Customer deposits (4,966) (7,395) - (12,361) Other post-employment benefits (6,640) (4,422) (1,745) (12,807) Unearned revenue 14,450 - - 14,450 Net pension liability (628,780) (253,486) (59,825) (942,091) Increase in deferred inflows of resources 262,459 114,334 30,406 407,199 Net cash provided by operating activities $ 3,896,135 $ 453,163 $ 436,450 $ 4,785,748 SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITES Capital grants receivable $ - $ - $ 44,560 $ 44,560 Contributions of assets from other funds $ 36,794 $ - $ - $ 36,794 SUPPLEMENTAL DISCLOSURES OF NONCASH TRANSACTIONS Amortization of bond discount $ 5,613 $ - $ - $ 5,613 See notes to the financial statements. 27  CITY OF FORT WALTON BEACH, FLORIDA FIDUCIARY FUNDS STATEMENT OF FIDUCIARY NET POSITION SEPTEMBER 30, 2019 Employee Retirement Funds ASSETS Cash and cash equivalents $ 2,099,871 Investments, at fair value U.S. Government and Agency obligations 6,698,839 Corporate obligations 9,856,904 Corporate equity 13,076,815 Mutual funds and exchange-traded funds 46,991,993 Commingled real estate investment funds 9,437,936 Total investments 86,062,487 TOTAL ASSETS 88,162,358 LIABILITIES Accounts payable 134,541 NET POSITION RESTRICTED FOR PENSIONS $ 88,027,817 See notes to the financial statements. 28  CITY OF FORT WALTON BEACH, FLORIDA FIDUCIARY FUNDS STATEMENT OF CHANGES IN FIDUCIARY NET POSITION FOR THE YEAR ENDED SEPTEMBER 30, 2019 Employee Retirement Funds ADDITIONS Contributions Employer $ 3,500,401 Plan members 452,364 State of Florida 441,542 Total contributions 4,394,307 Investment income (loss) 3,793,013 Less investment expense (249,746) Net investment income (loss) 3,543,267 Miscellaneous revenue 17,474 TOTAL ADDITIONS 7,955,048 DEDUCTIONS Benefits and refunds paid Retirement payments 6,123,730 Disability payments 199,246 Refunds 96,917 Total benefits and refunds paid 6,419,893 Administrative expenses Legal 35,616 Contractual services 172,212 Other 74,047 Total administrative expenses 281,875 TOTAL DEDUCTIONS 6,701,768 CHANGE IN FIDUCIARY NET POSITION 1,253,280 NET POSITION RESTRICTED FOR PENSIONS Beginning of year 86,774,537 End of year $ 88,027,817 See notes to the financial statements. 29  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2019 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF THE CITY Description of the City The City of Fort Walton Beach, Florida, (the City) was originally chartered as a municipality under laws of the State of Florida Special Act of the Florida Legislature in 1937. The City Manager – Council form of government was established in 1953. As authorized by its charter, the City provides the following services: public safety (police, fire, and inspection), highways and streets, water and sewer, sanitation, stormwater, culture and recreation, public improvements, planning and zoning, and general administrative services. The financial statements of the City have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP), as applicable to governmental units and the Uniform Accounting System mandated by Chapter 218.33, Florida Statutes. The Governmental Accounting Standards Board (GASB) is the standard–setting body for governmental accounting and financial reporting. The following is a summary of the more significant accounting policies of the City: The Reporting Entity A seven member City Council and a Mayor govern the City, each elected at-large for four-year terms. The Council has no powers other than those expressly vested in it by State Statute and the City Charter, and their governmental powers cannot be delegated. As required by U.S. GAAP, these financial statements present the City of Fort Walton Beach (the primary government) and its blended component unit. In evaluating the City as a reporting entity, management has considered all potential component units for which the City may or may not be financially accountable and, as such, be included within the City's financial statements. Management utilized criteria set forth in GASB Statement No. 61 for determining financial accountability of potential component units in evaluating all potential component units. In accordance with GASB Statement No. 61, the City (primary government) is financially accountable if it appoints a voting majority of the potential component unit's governing board and 1) it is able to impose its will on the organization or 2) there is a potential for the organization to provide specific financial benefit to or impose specific financial burden on the City. In addition, component units can be other organizations for which the nature and significance of their relationship with the primary government are such that exclusion would cause the reporting entity's financial statements to be misleading or incomplete. As of September 30, 2019, the City had one component unit, as defined by GASB No. 61, which has been presented in the financial statements of the primary government using the blended presentation method, and is presented as a governmental fund type with a fiscal year end of September 30. The Fort Walton Beach Community Redevelopment Agency (the Agency) was formed to prepare a community redevelopment plan for a designated geographic area within the City of Fort Walton Beach, Florida. All of the City's council members serve as board members of the Agency. The Agency's governing body is the same as the governing body of the City. The Agency functions as a department of the City. City management have operational and fiscal responsibility for the Agency’s activities. 30  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2019 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF THE CITY – CONTINUED The Reporting Entity – Continued The Fort Walton Beach Housing Authority (the Authority) is considered a related organization to the City rather than a component unit. The City Council appoints the board members of the Authority. However, the Authority's board operates independently of the City Council and does not create a financial burden or benefit to the City. Government-Wide and Fund Financial Statements The basic financial statements include both government-wide (based on the City as a whole) and fund financial statements. The government-wide financial statements (i.e., the statement of net position and the statement of activities) report information on all of the non-fiduciary activities of the primary government and its component unit. For the most part, the effects of interfund activity has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely, to a significant extent, on fees and charges for support. The statement of activities demonstrates the degree to which the direct expenses of a given function or segment is offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues. Separate fund financial statements are provided for the governmental and proprietary funds. Major individual governmental funds and major enterprise funds are reported as separate columns in the fund financial statements. Separate fund financial statements for the fiduciary funds are disclosed within Note 8 of these financial statements. Measurement Focus and Basis of Accounting The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the proprietary fund and fiduciary fund financial statements. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Pension plans recognize revenue when contributions are due as there is a statutory requirement to make the contribution. Property taxes are recorded as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. 31  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2019 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF THE CITY – CONTINUED Measurement Focus and Basis of Accounting – Continued Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the City considers revenues to be available if they are collected within six months of the end of the current fiscal period, except for property taxes, for which the period is 60 days. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due. Franchise fees, licenses, and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. Only the portion of special assessments and other receivables within the current fiscal period are considered to be susceptible to accrual as revenue of the current period. Sales taxes, gasoline taxes, and other intergovernmental revenues collected and held by the state at year-end on behalf of the City, are also recognized as revenue. All other revenue items are considered to be measurable and available only when cash is received by the government. The Okaloosa County Tax Collector bills and collects property taxes for the City in accordance with the laws of the State of Florida. Property taxes attach as an enforceable lien on property as of the date of assessment and remain in effect until discharge by payment. Taxes are payable when levied (on November 1, or as soon thereafter as the assessment roll becomes available to the Tax Collector). The following is the current property tax calendar: Lien Date January 1, 2019 Levy Date November 1, 2019 Due Date November 1, 2019 Delinquent Date April 1, 2020 Discounts of 1% for each month taxes are paid prior to March 2020 are granted. Revenue recognition criteria for property taxes under GASB requires that property taxes expected to be collected within 60 days of the current period be accrued. No accrual has been made for 2019 ad valorem taxes because property taxes are not legally due until subsequent to the end of the fiscal year. Current year taxes, which are uncollected as of the end of the fiscal year, are generally immaterial in amount and highly susceptible to uncollectibility and, therefore, are not recorded as a receivable on the balance sheet date. 32  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2019 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF THE CITY – CONTINUED Basis of Presentation The financial transactions of the City are recorded in individual funds. Each fund is a separate accounting entity with a self-balancing set of accounts recording cash and other financial resources, together with all related liabilities and residual equities or balances, and changes therein, which are segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions or limitations. As a general rule, the effect of interfund activity has been eliminated from the government-wide financial statements. Exceptions to this general rule are other charges between the government's utility function and various other functions of the government. Elimination of these charges would distort the direct costs and program revenues reported for the various functions concerned. Amounts reported as program revenues include 1) charges to customers or applicants for goods, services, or privileges provided, 2) operating grants and contributions, and 3) capital grants and contributions, including special assessments. Internally dedicated resources are reported as general revenues rather than as program revenues. Likewise, general revenues include all taxes. Any portion of franchise fees that is not based on gross receipts are reported as a charge for service in the function or activity that generates the fee. During fiscal year 2019, franchise fees were all based on gross receipts and thus recorded as general revenues. Proprietary funds distinguish operating revenues and expenses from non-operating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund's principal ongoing operations. The principal operating revenues of the City's enterprise funds are charges to customers for sales and services. The City considers all impact fee revenue as capital contributions for the water and sewer system; therefore, no amount from the impact fees are included in operating revenue. Operating expenses for enterprise funds include the cost of sales and service, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses. The following three broad classifications are used to categorize the fund types used by the City: Governmental Governmental funds focus on the determination of financial position and changes in financial position (sources, uses, and balances of financial resources) and not net income. The City has the following major governmental funds: General Fund – This is the City's primary operating fund and is used to account for all financial resources except those required to be accounted for in another fund. Community Redevelopment Agency Fund – The Community Redevelopment Agency Fund is the operating fund of the Fort Walton Beach Community Redevelopment Agency (the "Agency"). It is used to account for the activities of the Agency. Revenue sources for this fund include tax increment financing proceeds from ad valorem taxes as well as investment income. 33  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2019 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF THE CITY – CONTINUED Basis of Presentation – Continued Proprietary Proprietary funds focus on the determination of net income, changes in net position, financial position, and cash flows. All of the City's proprietary funds are enterprise funds, as fees are charged to external users for services. The following is a description of the major proprietary funds of the City: Utilities Fund – Used to account for the operations of the City, which provides distribution of potable water, sales and service and sanitary wastewater collection, treatment and disposal. Sanitation Fund – Accounts for the operation of the City that provides for solid waste collection and disposal. Stormwater Fund – Used to account for the revenues and expenses associated with operating the City’s stormwater utility system. Fiduciary Fiduciary funds are used to account for the assets held on behalf of outside parties, including other governments, or on behalf of other funds within the City. The City has the following type of fiduciary fund: Pension Trust Funds – Used to report the resources that are required to be held in trust for the members and beneficiaries of the three defined benefit pension plans administered by the City: General Employees' Retirement Fund, Police Officers' Retirement Fund, and Firefighters' Retirement Fund. Assets, Liabilities, Deferred Outflows/Inflows of Resources, and Net Position or Fund Balance Cash and Cash Equivalents The City defines cash and cash equivalents as cash held at a depository and cash on hand for operating purposes and those investments which are short term and highly liquid. Generally, those investments have maturities of three (3) months or less from the date of acquisition. The City maintains an equity in pooled cash fund. The City’s cash deposits are held by banks that qualify as public depositories under the Florida Security for Public Deposits Act as required by Chapter 280, Florida Statutes. The City’s cash deposits are fully insured by the Public Deposits Trust Fund. Investments Investments for the City are reported at fair value (generally based on quoted market prices). Investments are pooled together for investment purposes while each individual funds and/or accounts are maintained on a daily transaction basis. Investment earnings are distributed in accordance with the participating funds’ relative equity. Allowable investments, with the appropriate minimum rating requirements, can consist of certificates of deposit, local government surplus trust fund, intergovernmental investment pool, SEC registered money market funds, United States government securities, repurchase agreements, banker’s acceptances, commercial paper, United States government agencies, federal instruments, securitized issues, corporate notes and state or local government taxable or tax-exempt debt. 34  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2019 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF THE CITY – CONTINUED Assets, Liabilities, Deferred Outflows/Inflows of Resources, and Net Position or Fund Balance – Continued Investments In addition, the Beal Memorial Cemetery Perpetual Care special revenue fund and the pension trust funds maintain separate investment accounts that are governed by separate investment policies. The Beal Memorial Cemetery investment policy allows for investments in domestic equities, international equities, real estate investment trusts, inflation hedges, fixed income securities, and cash equivalents within allowable ranges, ratings, and consideration of target asset allocations by asset class. The pension trust funds’ investment policies allow for investments in domestic and international equities, fixed income securities, mutual funds, exchange-traded funds, commingled funds, money market funds, and value add real estate within allowable ranges, ratings, and considerations of target asset allocations by range; however allowable asset classes, targets, ranges, and benchmarks vary by each individual policy. These investments are also reported at fair value. Receivables and Payables Interfund transactions are reflected as loans, services provided, reimbursements, or transfers. Loans between funds outstanding at the end of the fiscal year are referred to as either "due to other funds" or "due from other funds" (i.e., the current portion of interfund loans) or "advances" (i.e., the non- current portion of interfund loans). Any residual balances outstanding between governmental activities and business-type activities are reported in the government-wide financial statements as "internal balances." Advances between funds, as reported in the fund financial statements, are offset by a nonspendable fund balance account in applicable governmental funds to indicate that they are not available for appropriation and are not expendable and available financial resources. Services provided, deemed to be at market, or near market rates, are treated as revenues and expenditures/expenses. Reimbursements occur when one fund incurs a cost, charges the appropriate benefiting fund, and reduces its related cost as a reimbursement. All other interfund transactions are treated as transfers. Transfers between governmental or proprietary funds are netted as part of the reconciliation to the government-wide columnar presentation. All proprietary fund receivables are shown net of an allowance for uncollectible accounts. The allowance is computed by considering 100% of receivables in excess of 90 days, past trends on collections of accounts, and current year account write–offs. Inventory Inventory is valued at cost (first-in, first-out). The consumption method is used to account for inventory. Under the consumption method, inventory items are recorded as expenditures during the period the inventory is used. The General Fund inventory balance is considered nonspendable in the fund financial statements to indicate that it is not available for appropriation. 35  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2019 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF THE CITY – CONTINUED Assets, Liabilities, Deferred Outflows/Inflows of Resources, and Net Position or Fund Balance – Continued Restricted Assets Certain resources in the following funds are restricted for specific purposes: in the Debt Service Fund for the repayment of Capital Improvement Note, Series 2011; customer utility deposits, impact fees, and debt repayments received are restricted in the Utilities Fund and Sanitation Fund. Capital Assets Capital assets, which include property, plant, equipment, and infrastructure assets (roads, bridges, curbs and sidewalks, drainage systems, lighting systems and similar items) are reported in the applicable governmental or business-type activities columns in the government–wide financial statements. Capital assets are defined by the City as assets with an initial cost more than the following: Land All Buildings and improvements $ 10,000 Infrastructure $ 10,000 Improvements – other $ 10,000 Equipment, vehicles, computers $ 1,000 Library books All In the case of the initial capitalization of general infrastructure assets (i.e. those reported by governmental activities) the government chose to include all such items regardless of their acquisition date or amount. The government was able to estimate the historical cost for the initial reporting of these assets through various allowable estimating techniques. As the government constructs or acquires additional capital assets each period, including infrastructure assets, they are capitalized and reported at historical cost. The reported value excludes normal maintenance and repairs which are essentially amounts spent in relation to capital assets that do not increase the capacity or efficiency of the item or extend its useful life beyond the original estimate. Donated capital assets are recorded at their acquisition value on the date of donation. Major outlays for capital assets and improvements are capitalized in proprietary funds as projects are constructed. The amount of interest to be capitalized is calculated by offsetting interest expense incurred from the date of the borrowing until the completion of the project with interest earned on the invested proceeds over the same period. 36  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2019 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF THE CITY – CONTINUED Assets, Liabilities, Deferred Outflows/Inflows of Resources, and Net Position or Fund Balance – Continued Capital Assets – Continued Property, plant, and equipment of the primary government are depreciated using the straight-line method over the following estimated useful lives: Assets Years Buildings 20-50 Years Improvements other than buildings 7-40 Years System infrastructure 20-40 Years Machinery and equipment 3-10 Years Deferred Inflows/Outflows of Resources In addition to assets, the statement of financial position will report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period(s) and so will not be recognized as an outflow of resources (expense/expenditure) until then. See Note 7 for additional information on the City’s deferred outflows of resources. In addition to liabilities, the statement of financial position will report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of fund balance that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until that time. See Note 7 for additional information on the City’s deferred inflows of resources. Compensated Absences It is the City's policy to permit employees to accumulate earned, but unused, vacation and sick leave based on the length of service to the City. All vacation leave is accrued when incurred in the government-wide and proprietary fund financial statements. Sick leave is accrued in the government-wide and proprietary fund financial statements based on a ratio of the sum of sick leave paid over the last several years to the total balance of sick leave at the end of each fiscal year. A liability for the amounts of vacation and sick leave is reported in the governmental fund financial statements only if they have matured, for example, as a result of employee resignations and retirements. Compensated absences of the governmental activities are primarily paid from the General Fund. Long-Term Obligations In the government-wide financial statements and proprietary fund type financial statements, long- term debt and other long-term obligations are reported as liabilities in the applicable governmental activities, business-type activities, or proprietary fund type statement of net position. Bond premiums and discounts are deferred and amortized over the life of the bonds using the effective and straight- line interest methods. Bond issuance costs are expensed as they are incurred. Bonds payable are reported net of the applicable bond premium or discount. 37  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2019 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF THE CITY – CONTINUED Assets, Liabilities, Deferred Outflows/Inflows of Resources, and Net Position or Fund Balance – Continued Long-Term Obligations – Continued In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. Net Other Postemployment Benefits (OPEB) Liability For the purposes of measuring the net OPEB Liability, deferred outflows of resources and deferred inflows of resources related to OPEB, and OPEB expense, information about the fiduciary net position of the Fort Walton Beach's Retiree Health Care Plan and additions to/deductions from the plan's fiduciary net position have been determined on the same basis as they are reported by the plan. For this purpose, the plan recognizes benefit payments when due and payable in accordance with the benefit terms. See Note 11 for additional information about the City’s other postemployment benefit plan. Net Pension Liability For purposes of measuring the net pension liability, deferred outflows and inflows of resources related to pensions, and pension expense, information about the fiduciary net position of each plan, and additions to/deductions from the fiduciary net position of each plan have been determined on the same basis as they are reported by the Plans. For this purpose, benefit payments (including refunds of employee contributions, if any) are recognized when currently due and payable in accordance with the benefit terms. Investments are reported at fair value. Administrative costs are financed from each respective fund’s investment earnings. Typically, pension liabilities in the governmental fund types have been liquidated by the fund that incurred the expenditures for pensionable wages. GASB Statement No. 68 requires that the reported results must pertain to liability and asset information within certain defined timeframes. For this report, the following timeframes are used: Valuation Date (VD) October 1, 2017 Measurement Date (MD) September 30, 2018 Measurement Period (MP) October 1, 2017 to September 30, 2018 38  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2019 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF THE CITY – CONTINUED Assets, Liabilities, Deferred Outflows/Inflows of Resources, and Net Position or Fund Balance – Continued Classification of Fund Balance GASB Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions, establishes fund balance classifications that comprise a hierarchy based primarily on the extent to which a government is bound to observe constraints imposed upon the use of the resources reported in governmental funds. Fund balance classifications, under GASB Statement No. 54, are comprised of the following: Nonspendable – Includes amounts that are (a) not in spendable form, or (b) legally or contractually required to be maintained intact. The "not in spendable form" criterion includes items that are not expected to be converted to cash, for example: inventories, deposits, prepaid items, and advances from other funds. Restricted – Includes amounts that can be spent only for the specific purposes stipulated by external resource providers, constitutionally or through enabling legislation. Restrictions may effectively be changed or lifted only with the consent of resource providers. Committed – Includes fund balance amounts that can be used only for the specific purposes that are internally imposed by the formal action (an Ordinance) 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 (an Ordinance) 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 aforementioned categories. Unassigned fund balance may also include negative balances for any governmental fund if expenditures exceed amounts restricted, committed, or assigned for those specific purposes. These classifications reflect not only the nature of funds, but also provide clarity to the level of restriction placed upon fund balance. Fund balance can have different levels of restraint, such as external versus internal compliance requirements. Unassigned fund balance is a residual classification within the General Fund. The General Fund should be the only fund that reports a positive unassigned balance. In all other funds, unassigned is limited to negative residual fund balance. The City's formal fund balance policy establishes a targeted minimum reserve balance in the General Fund for committed fund balance equal to 30% of annual budgeted expenditures, which constitutes the City’s minimum fund balance policy. 39  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2019 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF THE CITY – CONTINUED Assets, Liabilities, Deferred Outflows/Inflows of Resources, and Net Position or Fund Balance – Continued Classification of Fund Balance – Continued In circumstances when an expenditure is made for a purpose for which amounts are available in multiple fund balance classifications, fund balance is generally depleted in the order of restricted, committed, assigned, and unassigned. Net Position When both restricted and unrestricted resources are available for use, it is the government's policy to use restricted resources first and then unrestricted resources, as they are needed. Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Subsequent Events The City has evaluated events and transactions that occurred between September 30, 2019, and April 22, 2020, which is the date the financial statements were available to be issued, for possible recognition or disclosure in the financial statements. 2. STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY Budgets Budgets are adopted on a basis consistent with U.S. generally accepted accounting principles. Annual appropriated budgets are adopted by resolution for all governmental and proprietary funds. However, budgets for proprietary funds are not legally required to be reported on and are not included in these financial statements. All appropriations lapse at fiscal year-end except for appropriations related to multi-year capital projects. Budgetary data reflected in the financial statements are established by the following procedures: Prior to September 1 of each year, proposed budgets are received by the City Council from the City Manager. These proposed expenditures, along with all estimated receipts, taxes to be levied, and balances expected to be brought forward are considered by the City Council. The City Council requires such changes as deemed necessary, sets proposed mileages, and establishes dates for tentative and final public budget hearings as prescribed by Florida Statutes. Proposed budgets are advertised in a newspaper of general circulation in the City. Public hearings are conducted for the purposes of receiving input, responding to complaints, and providing reasons and explanations for intended actions to all citizens participating. 40  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2019 2. STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY – CONTINUED 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 throughout the fiscal year. Budgeted beginning fund balance in the accompanying financial statements reflects planned utilization of prior years' unassigned fund balance to the level required to accomplish current year objectives. The level of budgetary control (that is the level at which expenditures cannot legally exceed appropriations) has been established at the fund level. The City Manager and Finance Director are authorized to transfer budgeted amounts within departments of a fund and between departments of a fund; however, any revisions that alter the total expenditures of any fund must be approved by the City Council. Budget amounts reflected in the financial statements are originally adopted amounts as amended by action of the City Council by revision of fund totals. All amendments to originally adopted amounts were made in a legally permissible manner. Encumbrances Encumbrances represent commitments related to unperformed contracts for goods or services. Encumbrance accounting is a form of budgetary control to ensure that appropriations are not exceeded. Encumbrances outstanding at year-end are reported as assignments of fund balance in the governmental fund types. 3. DEPOSITS AND INVESTMENTS The City maintains a cash and investment management pool in which each fund (with the exception of the Community Development Block Grant Special Revenue Fund and the pension trust funds) participates on a dollar equivalent and daily transaction basis. The City's cash and investment management pool includes pooled cash maintained in interest-bearing demand deposit accounts, and pooled investments managed by a financial institution. Interest income (which includes unrealized gains and losses) is distributed monthly based on the average balances. Deposits Custodial Credit Risk – It is the City's policy to maintain its deposits only with "Qualified Public Depositories" as defined in Chapter 280, Florida Statutes. The provisions of this statute allow qualified public depositories to participate in a multiple financial institution collateral pool to ensure the security for public deposits. All qualified public depositories must place with (or in the name of) the Chief Financial Officer of the State of Florida, collateral in the amount of the average daily balance of public deposits multiplied by the average monthly balance of public deposits or 125 percent of the average daily balance of public deposits greater than capital. In the event of default by a qualified public depository, excess losses over insurance and collateral will be recovered through assessments to all qualified public depositories of the same type as the depository in default. Under this method, all City deposits, including certificates of deposit, are considered fully insured. As of September 30, 2019, the value of the City's deposits was $15,794,206, all of which was held by qualified public depositories or permitted investments under Florida Statutes. 41  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2019 3. DEPOSITS AND INVESTMENTS – CONTINUED Investments As of September 30, 2019, the City's investments consist of the pooled investments held by each fund to maximize earnings on surplus cash, those held in the various pension trust funds and the Beal Memorial Cemetery Perpetual Care special revenue fund. The types of investments, which can be made by the City, are restricted by state statutes, retirement fund plan documents, and other contractual agreements. A description of the requirements and the types of investments allowed can be found in Note 1. As of September 30, 2019, 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 $ 21,862,638 $ 915,190 $ 20,740,482 $ 206,966 $ - $ - $ - $ - $ - Municipal debt 703,246 300,000 403,246 - - - - - - U.S. Treasury 13,603,559 - 10,001,733 219,672 692,381 - - 2,689,773 - U.S. Government Agencies 3,524,965 59,726 3,465,239 - - - - - - U.S. Government Agency Pools 699,422 - - 81,236 138,499 479,687 - - - 40,393,830 $ 1,274,916 $ 34,610,700 $ 507,874 $ 830,880 $ 479,687 $ - $ 2,689,773 $ - Investments not subject to interest rate risk: Money market funds 16,499 Common stock 13,076,815 Mutual and exchange- traded funds 50,054,234 Real estate investment funds 9,437,936 External investment pools 46,648 Total $ 113,025,962 Interest Rate Risk – The City's investment policy encourages matching investment maturities with known cash needs and anticipated cash flow requirements in order to manage interest rate risk. Investments of current operating funds shall have maturities of no longer than 24 months. Investments of bond reserves, construction funds, and other non-operating funds shall have a term appropriate to the need for funds and in accordance with debt covenants, but in no event shall the investment duration of these funds exceed five years. The investment policies for the pension trust funds do not specifically address interest rate risk. 42  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2019 3. DEPOSITS AND INVESTMENTS – CONTINUED Investments – Continued Credit Rate Risk – State law limits investments of surplus public funds to those investments described on the previous page. The table below outlines the authorized investments of the pension trust funds. General Police Employees' Officers' Firefighters' Retirement Retirement Retirement Investment Type Fund Fund Fund Minimum rating of Limited to obligations Minimum rating of Money Market or short-term A1 by S&P or backed by full faith & A1 by S&P or investment fund (STIF) options P1 by Moody's credit of US government P1 by Moody's Minimum rating in one Minimum rating of Minimum rating in one of Fixed-income securities of the four highest "investment grade" or the four highest classifications by a higher by a major rating classifications by a major 1 major rating service service rating service (1) No more than 5% of the total portfolio may be invested in securities that fall below these rating guidelines. All pension trust funds were in compliance with respective investment policies regarding credit rate risk as of September 30, 2019. The Moody's rating ranges of the different investment classes held by each respective plan at September 30, 2019, are as follows: General Pension Police Pension Plan Plan Fire Pension Plan Corporate debt Aa1-A3 Aa1-A3 Aa1-Baa1 U.S. Treasury Aaa Aaa Aaa U.S. government agencies Aaa Aaa Aaa U.S. government pools N/A N/A N/A The Beal Memorial Cemetery investment policy does not limit investments to those with specific credit ratings for domestic or international equities. The overall rating of fixed income investments shall be at least investment grade based on the rating of two of the three Nationally Recognized Statistical Rating Organizations (NRSRO). 43  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2019 3. DEPOSITS AND INVESTMENTS – CONTINUED Investments – Continued Concentration of Credit Risk – The City limits the amount that may be invested in any one issuer based on the type of investment. Investments issued by or explicitly guaranteed by the U.S. Government and investments in mutual funds, external investment pools, and other pooled investments are exempt from concentration of credit risk disclosures. The General Employees’ Retirement Fund and the Firefighters’ Retirement Fund investment policies limit investment concentration as follows:  Equities – No more than 5% of the Plan’s assets, at the time of purchase, shall be invested in the common stock, capital stock, or convertible stock of any one issuing company, nor shall the aggregate investment in any one issuing company exceed 5% of the outstanding capital stock of the company.  Fixed Income – The value of bonds issued by any single corporation shall not exceed 10% of the Plan’s total market value.  Other Limitations – Investments in corporate common stock and convertible bonds shall not exceed 75% of the Plan’s assets at market value, and foreign securities shall not exceed 25% of the Plan’s market value. The Police Officers’ Retirement Fund investment policy limits investment concentration as follows:  Equities – No more than 5% of the Plan’s assets, at the time of purchase, shall be invested in the common stock, capital stock, or convertible stock of any one issuing company, nor shall the aggregate investment in any one issuing company exceed 5% of the outstanding capital stock of the company.  Fixed Income – The value of bonds issued by any single corporation shall not exceed 3% of the Plan’s total market value.  Other Limitations – Investments in corporate common stock and convertible bonds shall not exceed 70% of the Plan’s assets at market value, and foreign securities shall not exceed 25% of the Plan’s market value. All pension trust fund plans were in compliance with respective investment policies regarding concentration of credit risk as of September 30, 2019. 44  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2019 3. DEPOSITS AND INVESTMENTS – CONTINUED Investments – Continued Concentration of Credit Risk – Continued The Beal Memorial Cemetery investment policy limits investment concentrations as follows:  Domestic Equities – No more than 5% of the total equity portfolio valued at market may be invested in the equity of any one corporation; ownership of the shares of one company shall not exceed 2% of those outstanding and not more than 25% of equity valued at market may be held in any one sector.  International Equities – No more than 5% of the total equity portfolio valued at market may be invested in the common equity of any one corporation; ownership of the shares of one company shall not exceed 2% of those outstanding and not more than 25% of equity valued at market may be held in any one sector.  Fixed Income Investments – Securities of any one issuer shall not exceed 5% of a total bond portfolio at time of purchase. Investments in Entities That Calculate Net Asset Value (NAV) per Share The fair values of investments in real estate funds held by the pension trust funds are based on the investments’ NAV per share, as provided by the investee. Unfunded Redemption Redemption Fair Value Commitments Frequency Notice Period Real Estate Funds $ 9,437,936 None Quarterly 0 - 90 days The real estate funds consist of two open-ended commingled funds that invest in office, industrial, retail, and multi-family real estate assets throughout the United States. Although the funds are private investments, they can be redeemed on a quarterly basis, subject to available liquidity. 4. FAIR VALUE OF INVESTMENTS The City measures and records its investments using fair value measurements guidelines established by generally accepted accounting principles. These guidelines recognize a three-tiered fair value hierarchy, as follow:  Level 1 – Quoted prices (unadjusted) for identical assets in active markets that a government can access at the measurement date.  Level 2 – Inputs other than quoted prices included within Level 1 that are observable for an asset, either directly or indirectly.  Level 3 – Unobservable inputs for an asset. 45  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2019 4. FAIR VALUE MEASUREMENTS – CONTINUED The following table presents the investments carried at fair value on September 30, 2019: Fair Value Level 1 Level 2 Level 3 Money market funds $ 16,499 $ - $ 16,499 $ - Debt securities U.S. Treasury bonds 13,603,559 13,603,559 - - U.S. Government Agency obligations 3,524,965 - 3,524,965 - U.S. Government Agency collateralized mortgage obligations (CMO's) 699,422 - 699,422 - Corporate bonds 21,862,638 - 21,862,638 - Municipal bonds 703,246 - 703,246 - Total debt securities 40,393,830 13,603,559 26,790,271 - Equity securities Domestic common stock 12,250,718 12,250,718 - - Foreign common stock 826,097 826,097 - - Mutual funds and exchange-traded funds 50,054,234 - 50,054,234 - Total equity securities 63,131,049 13,076,815 50,054,234 - * External investment pools 46,648 - - - * Commingled real estate investment funds 9,437,936 - - - Total investments measured at fair value $ 113,025,962 $ 26,680,374 $ 76,861,004 $ - * In accordance with GASB 72, certain investments that were measured at NAV per share (or its equivalent) have not been classified in the fair value hierarchy. Money market funds, debt securities, and equity securities classified in Level 2 are determined by broker quotes that utilize matrix pricing models and other observable market inputs. 46  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2019 5. RECEIVABLES Receivables at September 30, 2019, were as follows: Governmental Activities Business-Type Activities Community Redevelopment General Fund Utilities Sanitation Stormwater Total Taxes $ 19,387 $ - $ - $ - $ - $ 19,387 Accounts 99,065 787 667,171 196,827 59,139 1,022,989 Less allowance for doubtful accounts - - (39,678) (7,949) (3,236) (50,863) Assessments 34,787 284,420 1,462 - - 320,669 Other 633,245 - 4,445 - - 637,690 Total receivables, net $ 786,484 $ 285,207 $ 633,400 $ 188,878 $ 55,903 $ 1,949,872 During fiscal year 2015, the City sold a building for $462,000 and will receive $442,000 of the proceeds over twelve years ($2,917 monthly payments started November 2014). This note receivable bears interest at 5% per year and includes a balloon payment of $232,362 due to the City in October 2026. The balance of this note receivable is $370,245 as of September 30, 2019. During fiscal year 2014, the City sold a recreational center for $425,000 and will receive the proceeds over twelve years ($3,000 monthly principal only payments started October 2015). The City has calculated imputed interest on the receivable, but it has not been recorded as the imputed amount was deemed to be immaterial to the financial statements. The balance of this note receivable is $263,000 as of September 30, 2019. Due from Other Governments The City's receivables from other governments for governmental activities as of September 30, 2019, are $144,228. Due from other governments in the governmental activities consists primarily of federal proceeds related to the U.S. Department of Housing and Urban Development grants and U.S. Department of Justice grants. The City's receivables from other governments for business-type activities as of September 30, 2019, are $44,560 which consists of state proceeds related to stormwater system improvement grants. 47  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2019 6. CHANGES IN CAPITAL ASSETS Capital asset activity for the year ended September 30, 2019, was as follows: Beginning Adjustments/ Ending Balance Increases Decreases Transfers Balance Governmental activities Capital assets not being depreciated/amortized Land $ 11,148,479 $ - $ (238,269) $ - $ 10,910,210 Construction in progress 1,080,970 8,509,254 - (276,575) 9,313,649 Total capital assets not being depreciated/amortized 12,229,449 8,509,254 (238,269) (276,575) 20,223,859 Capital assets being depreciated/amortized Buildings 25,376,412 522,593 - 81,042 25,980,047 Improvements other than buildings 18,819,972 733,149 - 146,033 19,699,154 Infrastructure 13,156,072 182,865 - - 13,338,937 Software 521,876 - - - 521,876 Machinery and equipment 12,539,346 550,167 (445,557) (76,309) 12,567,647 Equipment under capital lease 129,980 - - - 129,980 Total capital assets being depreciated/amortized 70,543,658 1,988,774 (445,557) 150,766 72,237,641 Less accumulated depreciation/amortization Buildings (11,625,369) (711,996) - 31,358 (12,306,007) Improvements other than buildings (12,166,255) (695,032) - - (12,861,287) Infrastructure (9,844,437) (291,988) - - (10,136,425) Software (560,253) (9,790) - - (570,043) Machinery and equipment (8,588,392) (997,401) 437,143 57,657 (9,090,993) Equipment under capital lease (76,834) (13,555) - - (90,389) Total accumulated depreciation/amortization (42,861,540) (2,719,762) 437,143 89,015 (45,055,144) Total capital assets being depreciated/amortized, net 27,682,118 (730,988) (8,414) 239,781 27,182,497 Governmental activities, net $ 39,911,567 $ 7,778,266 $ (246,683) $ (36,794) $ 47,406,356 48  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2019 6. CHANGES IN CAPITAL ASSETS – CONTINUED Beginning Adjustments/ Ending Balance Increases Decreases Transfers Balance Business-type activities Capital assets not being depreciated/amortized Land $ 709,678 $ - $ - $ - $ 709,678 Construction in progress 99,772 11,270 - - 111,042 Easements 39,742 - - - 39,742 Total capital assets not being depreciated/amortized 849,192 11,270 - - 860,462 Capital assets being depreciated/amortized Buildings 411,900 - - - 411,900 Improvements other than buildings 49,513,999 212,442 - 49,500 49,775,941 Software 111,215 - - - 111,215 Machinery and equipment 10,551,955 834,551 (456,568) 76,309 11,006,247 Total capital assets being depreciated/amortized 60,589,069 1,046,993 (456,568) 125,809 61,305,303 Less accumulated depreciation/amortization Buildings (313,249) (7,930) - (321,179) Improvements other than buildings (18,696,822) (1,607,351) - (31,358) (20,335,531) Software (111,215) - - - (111,215) Machinery and equipment (7,294,103) (723,399) 429,597 (57,657) (7,645,562) Total accumulated depreciation/amortization (26,415,389) (2,338,680) 429,597 (89,015) (28,413,487) Total capital assets being depreciated/amortized, net 34,173,680 (1,291,687) (26,971) 36,794 32,891,816 Business-type activities, net $ 35,022,872 $(1,280,417) $ (26,971) $ 36,794 $ 33,752,278 49  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2019 6. CHANGES IN CAPITAL ASSETS – CONTINUED Amortization of equipment under capital lease is included with depreciation expense in the financial statements. Depreciation and amortization expense was charged to functions/programs of the primary government as follows: Governmental activities General government $ 137,738 Public safety 762,028 Physical environment 67,925 Transportation 578,245 Economic environment 128,577 Culture and recreation 1,045,249 Total depreciation/amortization expense – governmental activities $ 2,719,762 Business-type activities Utilities fund $ 1,880,770 Sanitation fund 278,670 Stormwater fund 179,240 Total depreciation/amortization expense – business-type activities $ 2,338,680 Construction Commitments During fiscal year 2019, the City began constructing a new consolidated facility complex. The total project was approved at $13.4 million and the issuance of a revenue note to finance the project was completed in December 2018. At September 30, 2019, the remaining project costs are approximately $4.1 million. The project is expected to be completed in December 2019. 50  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2019 7. DEFERRED OUTFLOWS OF RESOURCES AND DEFERRED INFLOWS OF RESOURCES As of September 30, 2019, the City had various components of deferred outflows of resources and deferred inflows of resources as follows: Governmental activities: Community General Redevelopment Governmental Fund Fund Activities Deferred outflows City pension contributions made subsequent to the measurement date $ - $ - $ 3,406,813 Net difference between projected and actual earnings on pension plan investments - - 89,551 Differences between expected and actual experience on pension plan actuarial assumptions - - 514,838 Changes in assumptions related to pension plan - - 1,541,919 City OPEB contributions made subsequent to the measurement date 190,926 Changes in assumptions related to OPEB plan - - 416,866 Total deferred outflows $ - $ - $ 6,160,913 Deferred inflows Differences between expected and actual experience on pension plan actuarial assumptions $ - $ - $ 1,159,688 Net difference between projected and actual earnings on pension plan investments - - 1,558,398 Changes in assumptions related to pension plan - - 188,772 Differences between expected and actual experience on OPEB plan actuarial assumptions - - 334,530 Changes in assumptions related to OPEB plan 302,373 Unavailable revenue – special assessments 34,787 284,420 - Unavailable revenue – long-term receivable from sale of buildings 633,245 - - Total deferred inflows $ 668,032 $ 284,420 $ 3,543,761 51  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2019 7. DEFERRED OUTFLOWS OF RESOURCES AND DEFERRED INFLOWS OF RESOURCES – CONTINUED Business-type activities: Utilities Sanitation Stormwater Business-Type Fund Fund Fund Activities Deferred outflows City pension contributions made subsequent to the measurement date $ 357,162 $ 143,986 $ 33,982 $ 535,130 Deferred loss on refunding 77,179 - - 77,179 City OPEB contributions made subsequent to the measurement date 26,535 17,674 6,973 51,182 Changes in assumptions related to OPEB plan 57,954 38,598 15,204 111,756 Total deferred outflows $ 518,830 $ 200,258 $ 56,159 $ 775,247 Deferred inflows Net difference between projected and actual earnings on pension plan investments $ 437,032 $ 176,185 $ 41,581 $ 654,798 Differences between expected and actual experience on pension plan actuarial assumptions 27,106 10,928 2,579 40,613 Changes in assumptions related to OPEB plan 42,024 27,991 11,043 81,058 Differences between expected and actual experience on OPEB plan actuarial assumptions 46,494 30,967 12,217 89,678 Total deferred inflows $ 552,656 $ 246,071 $ 67,420 $ 866,147 8. DEFINED BENEFIT PENSION PLANS The City of Fort Walton Beach, Florida sponsors three single–employer defined benefit pension plans: the General Employees' Retirement Fund (GERF), the Police Officers' Retirement Fund (PORF) and the Firefighters' Retirement Fund (FRF). These plans provide benefits for all qualifying employees of the City. The financial activity of each plan is reported as a Pension Trust Fund in the City of Fort Walton Beach, Florida's internal combined financial statements and can be found under subheading “Fund Financial Statements” of this note. There is no separate report available for the individual pension plans. Plan Description – General Employees’ Retirement Fund (GERF) Plan Administration The authority and responsibility for the establishment, amendment and administration of this Plan is vested in the City Council, and the Members thereof shall be designated as trustees of the fund. The trustees are authorized to adopt reasonable rules and regulations for the administration of the fund created by this Plan. 52  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2019 8. DEFINED BENEFIT PENSION PLANS – CONTINUED Plan Description – General Employees’ Retirement Fund (GERF) – Continued Plan Administration – Continued The Plan is a single-employer defined benefit pension plan administered by the City’s Finance Director. The Finance Director shall administer this Plan for the trustees and participants, subject at all times to the limitations and conditions specified in or imposed by provisions of this Plan and the rules and regulations adopted by the City Council. The trustees and the plan administrator shall serve without additional compensation beyond that already provided by the City for their respective duties. Plan membership consists of all full-time City employees including the City Manager, Finance Director, and the Chief of Police, if they elect to participate, but not including City Council Members, police officers other than the Chief of Police, and firefighters. Effective January 1, 2010, the plan is closed to new entrants. Plan Membership as of October 1, 2017: Inactive Plan Members or Beneficiaries Current Receiving Benefits 162 Inactive Plan Members Entitled to But Not Yet Receiving Benefits 42 Active Plan Members 75 279 Benefits Provided The plan provides retirement, termination, disability and death benefits. A member may retire at age 52 with 10 years of credited service (early retirement) or at age 62 and 10 years of credited service (normal retirement). Benefits become 100% vested upon completion of 10 years of credited service. For the City Manager, Finance Director, or Department Heads, including the Chief of Police, the Member becomes vested at 20% per year, except that credited service other than that as a Charter Officer or Department Head will accrue at a rate of 10% per year. Retirement benefits are a percentage (2.75% or 2.50%) of final average earnings times the years of credited service with maximum of 75% or 100% of current compensation depending on vested status at April 5, 1999. Benefits are reduced by 3% for each year by which the early retirement date precedes the age of 62. Varied benefits exist for service and non-service connected disabilities as well as death in the line of duty or other pre-retirement death. In accordance with the annual increase in CPI-U as measured in December, all retirees are entitled to an adjustment payable each April 1, subject to a minimum of 0% and a maximum of 3%. The adjustment does not apply to members who retire following a vested terminated status or disability retirees. Funding Policy and Contributions Contributions to the Plan are established based on an actuarially determined rate recommended by an independent actuary. For the year ended September 30, 2019, the participants’ contribution rate was 5.0%. The City is required to contribute the difference between the actuarially determined rate and the contribution rate of the participants. For the year ended September 30, 2019, the City was required to contribute 53.4% of payroll. 53  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2019 8. DEFINED BENEFIT PENSION PLANS – CONTINUED Net Pension Liability – GERF The measurement date is September 30, 2018. The measurement period for the pension expense was October 1, 2017 to September 30, 2018. The reporting period is October 1, 2018 through September 30, 2019. The city’s net pension liability was measured as of September 30, 2018. The total pension liability used to calculate the net pension liability was determined as of that date. Actuarial Assumptions The total pension liability was determined by an actuarial valuation as of October 1, 2017 updated to September 30, 2018 using the following actuarial assumptions: Inflation 3.00% Salary Increases 3.50% - 6.50% Discount Rate 7.90% Investment Rate of Return 7.90% Mortality rates for healthy lives were obtained from the RP-2000 Fully Generational with Scale BB mortality table, with collar and annuitant adjustments as follows: Males – 50% Annuitant White Collar, 50% Annuitant Blue Collar. Females – 100% Annuitant White Collar. Mortality rates for disable lives were obtained from the RP-2000 mortality table without projection, with the following adjustments: Males – 100% Disabled Male with four year setback Females – 100% Disabled Female with two year set forward. The long-term expected rate of return on pension plan investments was determined using a building- block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expenses and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. For 2018, the inflation rate assumption of the investment advisor was 3.0%. Best estimates of arithmetic real rates of return for each major asset class included in the pension plan's target asset allocation as of September 30, 2018 are summarized in the following table: Long Term Expected Asset Class Target Allocation Real Rate of Return Domestic Equity 55.00% 7.50% International Equity 10.00% 8.50% Broad Market Fixed Income 25.00% 2.50% Real Estate 10.00% 3.50% Total 100.00% 54  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2019 8. DEFINED BENEFIT PENSION PLANS – CONTINUED Net Pension Liability – GERF – Continued Discount Rate The discount rate used to measure the total pension liability was 7.90%. The projection of cash flows used to determine the discount rate assumed that plan member contributions will be made at the current contribution rate and that Sponsor contributions will be made at rates equal to the difference between actuarially determined contribution rates and the member rate. Based on those assumptions, the pension plan's fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. Change in Net Pension Liability – GERF Increase (Decrease) Total Pension Plan Fiduciary Net Pension Liability Net Position Liability (Asset) (a) (b) (a) – (b) Balances at September 30, 2018 (Valuation Date of 10/01/2017) $ 49,580,471 $ 44,001,782 $ 5,578,689 Changes: Service cost 446,214 - 446,214 Interest 3,827,379 - 3,827,379 Differences between expected and actual experience (265,877) - (265,877) Contributions – employer - 2,006,925 (2,006,925) Contributions – employee - 158,138 (158,138) Net investment income - 4,975,937 (4,975,937) Benefit payments, including refunds of employee contributions (3,157,696) (3,157,696) - Administrative expenses - (49,518) 49,518 Net changes 850,020 3,933,786 (3,083,766) Balances at September 30, 2019 (Measurement Date of 9/30/2018) $ 50,430,491 $ 47,935,568 $ 2,494,923 Sensitivity of the Net Pension Liability to changes in the Discount Rate: Current Discount 1% Decrease Rate 1% Increase 6.90% 7.90% 8.90% Sponsor's net pension liability (asset) $ 7,964,056 $ 2,494,923 $ (2,119,461) 55  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2019 8. DEFINED BENEFIT PENSION PLANS – CONTINUED Change in Net Pension Liability – GERF – Continued Pension Plan Fiduciary Net Position Detailed information about the pension Plan's fiduciary net position is available in a separately issued Plan financial report. A separate audited financial report of the Plan is not available. Pension Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions – GERF For the year ended September 30, 2019, the City recognized pension expense of $1,679,623. On September 30, 2019, the City reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Deferred Outflows of Inflows of Resources Resources City contributions subsequent to measurement date $ 1,751,654 $ - Net difference between projected and actual earnings on pension plan investments - 2,143,363 Differences between expected and actual experience - 132,939 Total $ 1,751,654 $ 2,276,302 Deferred outflows of resources related to pensions of $1,751,654 resulting from the City’s contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability for the year ending September 30, 2020. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense as follows: Year ended September 30: 2020 $ (408,714) 2021 (887,588) 2022 (671,808) 2023 (308,192) $ (2,276,302) Plan Description – Police Officers’ Retirement Fund (PORF) Plan Administration The Police Officers’ Retirement Board of Trustees (Police Board) is designated as the plan administrator. The Police Board shall consist of five Trustees, two of whom, unless otherwise prohibited by law, shall be legal residents of the City, who shall be appointed by the City Council, and two of whom shall be Members of the System, who shall be elected by a majority of the Police Officers who are Members of the System. The fifth Trustee shall be chosen by a majority of the previous four Trustees as provided for herein, and such person's name shall be submitted to the City Council who shall, as a ministerial duty, appoint such person to the Police Board as its fifth Trustee. 56  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2019 8. DEFINED BENEFIT PENSION PLANS – CONTINUED Plan Description – PORF – Continued Each person employed by the City’s police department as a full-time police officer becomes a member of the Plan as a condition of his employment. All police officers are therefore eligible for plan benefits as provided for in the plan document and by applicable law. Plan Membership as of October 1, 2017: Inactive Plan Members or Beneficiaries Currently Receiving Benefits 47 Inactive Plan Members Entitled to But Not Yet Receiving Benefits 16 Active Plan Members 43 106 Benefits Provided The plan provides retirement, termination, disability and death benefits. A member may retire at age 50 with 10 years of credited service or completion of 25 years of credited service (early retirement) or at age 55 or the completion of 30 years of credited service (normal retirement). Members hired between ages 45 and 50 must work 10 years. Benefits become 100% vested upon completion of 10 years of credited service. The plan provides retirement benefits in the amount of 2.75% of average final compensation times credited service. Benefits are reduced 6% for each year prior to the age of 55. Varied benefits exist for disability and pre-retirement death. Each April 1 the benefit paid to service retires is adjusted in accordance with the CPI increase during the previous year not to exceed 3%. Contributions Contributions to the Plan are established based on an actuarially determined rate recommended by an independent actuary. For the year ended September 30, 2019, the participants’ contribution rate was 5.0% of payroll until a 75% maximum accrual is attained and then 0.5% thereafter. The State of Florida is required to contribute 8.0% of payroll and the City is required to contribute the difference between the actuarially determined rate and the contribution rate of the participants and the State of Florida. For the year ended September 30, 2019, the City was required to contribute 29.0% of payroll. Net Pension Liability – PORF The measurement date is September 30, 2018. The measurement period for the pension expense was October 1, 2017 to September 30, 2018. The reporting period is October 1, 2018 through September 30, 2019. The city’s net pension liability was measured as of September 30, 2018. The total pension liability used to calculate the net pension liability was determined as of that date. Actuarial Assumptions The total pension liability was determined by an actuarial valuation as of October 1, 2017 updated to September 30, 2018 using the following actuarial assumptions: Inflation 2.50% Salary increases Service based Discount rate 7.60% Investment rate of return 7.60% 57  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2019 8. DEFINED BENEFIT PENSION PLANS – CONTINUED Net Pension Liability – PORF – Continued Actuarial Assumptions – Continued Mortality rates for healthy lives were obtained from the RP-2000 Fully Generational with Scale BB mortality table, with collar and annuitant adjustments as follows: Males – 10% Annuitant White Collar, 90% Annuitant Blue Collar. Females – 100% Annuitant White Collar. Mortality rates for disable lives were obtained from the RP-2000 mortality table without projection, with the following adjustments: Males – 60% Disabled Male with four year setback, 40% Annuitant White Collar with no setback. Females – 60% Disabled Female set forward two years, 40% Annuitant White Collar with no setback. The other significant actuarial assumptions used in the October 1, 2017 valuation were based on the results of an actuarial experience study dated June 4, 2018. The long-term expected rate of return on pension plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expenses and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. For 2018, the inflation rate assumption of the investment advisor was 2.50%. Best estimates of arithmetic real rates of return for each major asset class included in the Pension Plan's target asset allocation as of September 30, 2018 are summarized in the following table: Long Term Expected Asset Class Target Allocation Real Rate of Return Domestic equity 45.00% 7.50% International equity 15.00% 8.50% Broad market fixed income 40.00% 2.50% Total 100.00% Discount Rate The discount rate used to measure the total pension liability was 7.60%. The projection of cash flows used to determine the discount rate assumed that plan member contributions will be made at the current contribution rate and that sponsor contributions will be made at rates equal to the difference between actuarially determined contribution rates and the member rate. Based on those assumptions, the pension plan's fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. 58  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2019 8. DEFINED BENEFIT PENSION PLANS – CONTINUED Changes in Net Pension Liability – PORF Increase (Decrease) Total Pension Plan Fiduciary Net Pension Liability Net Position Liability (Asset) (a) (b) (a) – (b) Balances at September 30, 2018 (Valuation Date of 10/01/2017) $ 27,002,003 $ 20,960,073 $ 6,041,930 Changes: Service cost 395,440 - 395,440 Interest 2,112,261 - 2,112,261 Contributions – employer - 830,613 (830,613) Contributions – state - 202,468 (202,468) Contributions – employee - 112,112 (112,112) Change in excess state contributions 20,893 - 20,893 Net investment income - 1,609,609 (1,609,609) Differences between expected and actual experience (833,418) - (833,418) Changes of assumptions (251,695) (251,695) Benefit payments, including refunds of employee contributions (1,764,575) (1,764,575) - Administrative expenses - (54,400) 54,400 Net changes (321,094) 935,827 (1,256,921) Balances at September 30, 2019 (Measurement Date of 9/30/2018) $ 26,680,909 $ 21,895,900 $ 4,785,009 Sensitivity of the Net Pension Liability to changes in the Discount Rate: Current Discount 1% Decrease Rate 1% Increase 6.60% 7.60% 8.60% Sponsor's net pension liability $ 7,850,968 $ 4,785,009 $ 2,230,508 Pension Plan Fiduciary Net Position Detailed information about the pension Plan's fiduciary net position is available in a separately issued Plan financial report. A separate audited financial report of the Plan is not available. 59  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2019 8. DEFINED BENEFIT PENSION PLANS – CONTINUED Pension Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions – PORF For the year ended September 30, 2019, the City recognized pension expense of $828,428. On September 30, 2019, the City reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Deferred Outflows of Inflows of Resources Resources City and State contributions subsequent to measurement date $ 953,828 $ - Net difference between projected and actual earnings on pension plan investments 89,551 - Changes of assumptions 408,281 188,772 Differences between Expected and Actual experience - 902,876 Total $ 1,451,660 $ 1,091,648 Deferred outflows of resources related to pensions of $953,828 resulting from the City’s and State’s contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ending September 30, 2020. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense as follows: Year ended September 30: 2020 $ 244,235 2021 (486,376) 2022 (359,724) 2023 8,049 $ (593,816) Plan Description – Firefighters’ Retirement Fund (FRF) Plan Administration The Plan is administered by the Firefighters’ Retirement Board of Trustees (Fire Board) comprised of: a. Two members of the fund elected by a majority of the membership, b. Two City residents appointed by the City Council, c. Fifth member elected by other four and appointed by City Council as a ministerial duty. Each person employed by the City’s fire department as a full-time firefighter becomes a member of the plan as a condition of this employment. All firefighters are therefore eligible for plan benefits as provided for in the plan document and by applicable law. 60  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2019 8. DEFINED BENEFIT PENSION PLANS – CONTINUED Plan Description – FRF – Continued Plan Membership as of October 1, 2017: Inactive Plan Members or Beneficiaries Currently Receiving Benefits 26 Inactive Plan Members Entitled to But Not Yet Receiving Benefits 4 Active Plan Members 36 66 Benefits Provided The plan provides retirement, disability and death benefits. A member may retire at age 45 with 10 years of credited service (early retirement) or at age 55 and 10 years of credited service or 25 years of credited service regardless of age (normal retirement). Benefits become 100% vested upon completion of 10 years of credit service. The plan provides a retirement benefit which is 3.25% of average final compensation times credited service with maximum of 100% of current compensation. Benefits are reduced 0.25% for each month prior to the normal retirement date. Varied benefits exist for disability and pre-retirement death. Benefits for service retirees are adjusted for a 3% cost of living increase on the January 1 following the later of age 58 or the date of retirement. Contributions Contributions to the Plan are established based on an actuarially determined rate recommended by an independent actuary. For the year ended September 30, 2019, the participants’ contribution rate was 8.0% of payroll. The State of Florida is required to contribute 9.1% of payroll and the City is required to contribute the difference between the actuarially determined rate and the contribution rate of the participants and the State of Florida. For the year ended September 30, 2019, the City was required to contribute 38.6% of payroll. Net Pension Liability – FRF The measurement date is September 30, 2018. The measurement period for the pension expense was October 1, 2017 to September 30, 2018. The reporting period is October 1, 2018 through September 30, 2019. The city’s Net Pension Liability was measured as of September 30, 2018. The Total Pension Liability used to calculate the Net Pension Liability was determined as of that date. Actuarial Assumptions The total pension liability was determined by an actuarial valuation as of October 1, 2017 updated to September 30, 2018 using the following actuarial assumptions: Inflation 2.50% Salary increases Service based Discount rate 7.60% Investment rate of return 7.60% 61  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2019 8. DEFINED BENEFIT PENSION PLANS – CONTINUED Net Pension Liability – FRF – Continued Actuarial Assumptions – Continued Mortality rates for healthy lives were obtained from the RP-2000 Fully Generational with Scale BB mortality table, with collar and annuitant adjustments as follows: Males (Inactive) – 10% Annuitant White Collar, 90% Annuitant Blue Collar. Females (Inactive) – 100% Annuitant White Collar. Males (Active) – 10% Combined Healthy White Collar, 90% Combined Healthy Blue Collar. Females (Active) – 100% Combined Healthy White Collar. Mortality rates for disable lives were obtained from the RP-2000 mortality table without projection, with the following adjustments: Males – 60% Disabled Male with four year set back, 40% Annuitant White Collar with no setback. Females – 60% Disabled Female set forward two years, 40% Annuitant White Collar with no setback. The most recent actuarial experience study used to review the other significant assumptions was dated June 2, 2017. The long-term expected rate of return on pension plan investments was determined using a building- block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expenses and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. For 2018, the inflation rate assumption of the investment advisor was 2.50%. Best estimates of arithmetic real rates of return for each major asset class included in the Pension Plan's target asset allocation as of September 30, 2018 are summarized in the following table: Long Term Expected Asset Class Target Allocation Real Rate of Return Domestic equity 50.00% 7.50% International equity 15.00% 8.50% Broad market fixed income 20.00% 2.50% Global fixed income 5.00% 3.50% Real estate 10.00% 4.50% Total 100.00% 62  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2019 8. DEFINED BENEFIT PENSION PLANS – CONTINUED Net Pension Liability – FRF – Continued Discount Rate The discount rate used to measure the total pension liability was 7.60%. The projection of cash flows used to determine the discount rate assumed that plan member contributions will be made at the current contribution rate and that sponsor contributions will be made at rates equal to the difference between actuarially determined contribution rates and the member rate. Based on those assumptions, the pension plan's fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. Changes in Net Pension Liability – FRF Increase (Decrease) Total Pension Plan Fiduciary Net Pension Liability Net Position Liability (Asset) (a) (b) (a) – (b) Balances at September 30, 2018 (Valuation Date of 10/01/2017) $ 24,087,817 $ 15,532,148 $ 8,555,669 Changes: Service cost 477,930 - 477,930 Interest 1,864,720 - 1,864,720 Contributions – employer - 1,089,746 (1,089,746) Contributions – state - 195,017 (195,017) Contributions – employee - 182,127 (182,127) Net investment income - 1,430,717 (1,430,717) Changes of assumptions 601,424 - 601,424 Differences between expected and actual experience 513,043 - 513,043 Benefit payments, including refunds of employee contributions (1,318,156) (1,318,156) - Administrative expenses - (67,773) 67,773 Net changes 2,138,961 1,511,678 627,283 Balances at September 30, 2019 (Measurement Date of 9/30/2018) $ 26,226,778 $ 17,043,826 $ 9,182,952 63  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2019 8. DEFINED BENEFIT PENSION PLANS – CONTINUED Changes in Net Pension Liability – FRF – Continued Sensitivity of the Net Pension Liability to changes in the Discount Rate: Current Discount 1% Decrease Rate 1% Increase 6.60% 7.60% 8.60% Sponsor's net pension liability $ 12,589,370 $ 9,182,952 $ 6,389,276 Pension Plan Fiduciary Net Position Detailed information about the pension Plan's fiduciary net position is available in a separately issued Plan financial report. A separate audited financial report of the Plan is not available. Pension Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions – FRF For the year ended September 30, 2019, the City recognized a pension expense of $1,605,602. On September 30, 2019, the City reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Deferred Outflows of Inflows of Resources Resources City and State contributions subsequent to measurement date $ 1,236,461 $ - Net difference between projected and actual earnings on pension plan investments - 69,833 Changes of assumptions 1,133,638 - Differences between expected and actual experience 514,838 164,486 Total $ 2,884,937 $ 234,319 Deferred outflows of resources related to pensions of $1,236,461 resulting from the City’s and State’s contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ending September 30, 2020. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense as follows: Year ended September 30: 2020 $ 632,506 2021 462,596 2022 139,371 2023 179,684 $ 1,414,157 64  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2019 8. DEFINED BENEFIT PENSION PLANS – CONTINUED Fund Financial Statements The following are the financial statements for the individual pension trust funds (GERF, PORF and FRF) for the year ended September 30, 2019: 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 $ 1,080,545 $ 645,868 $ 373,458 $ 2,099,871 Investments, at market U.S. Government and Agency obligations 3,177,337 2,214,309 1,307,193 6,698,839 Corporate obligations 4,788,254 3,019,986 2,048,664 9,856,904 Corporate equity 13,076,815 - - 13,076,815 Mutual and exchange-traded funds 20,806,038 14,141,743 12,044,212 46,991,993 Commingled real estate investment funds 5,506,298 2,139,283 1,792,355 9,437,936 Total investments, at market 47,354,742 21,515,321 17,192,424 86,062,487 TOTAL ASSETS 48,435,287 22,161,189 17,565,882 88,162,358 LIABILITIES Accounts payable 50,588 60,385 23,568 134,541 NET POSITION RESTRICTED FOR PENSIONS $ 48,384,699 $ 22,100,804 $ 17,542,314 $ 88,027,817 65  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2019 8. DEFINED BENEFIT PENSION PLANS – CONTINUED Fund Financial Statements – Continued COMBINING STATEMENT OF CHANGES IN PLAN NET POSITION Employee Retirement Funds Total General Police Employee Employees' Officers' Firefighters' Retirement Retirement Retirement Retirement Funds ADDITIONS Contributions Employer $ 1,751,654 $ 732,187 $ 1,016,560 $ 3,500,401 Plan members 150,018 113,192 189,154 452,364 State of Florida - 221,641 219,901 441,542 Total contributions 1,901,672 1,067,020 1,425,615 4,394,307 Investment income (loss) 2,009,736 1,151,228 632,049 3,793,013 Less investment expense (171,301) (36,560) (41,885) (249,746) Net investment income (loss) 1,838,435 1,114,668 590,164 3,543,267 Miscellaneous revenue 11,034 1,264 5,176 17,474 TOTAL ADDITIONS 3,751,141 2,182,952 2,020,955 7,955,048 DEDUCTIONS Benefits and refunds paid Retirement payments 3,126,018 1,663,464 1,334,248 6,123,730 Disability payments 35,794 157,558 5,894 199,246 Other - 30,052 66,865 96,917 Total benefits and refunds paid 3,161,812 1,851,074 1,407,007 6,419,893 Administrative expenses Legal 5,257 14,153 16,206 35,616 Contractual 47,875 61,582 62,755 172,212 Other 32,234 19,641 22,172 74,047 Total administrative expenses 85,366 95,376 101,133 281,875 TOTAL DEDUCTIONS 3,247,178 1,946,450 1,508,140 6,701,768 INCREASE IN PLAN NET POSITION 503,963 236,502 512,815 1,253,280 NET POSITION RESTRICED FOR PENSIONS Beginning of year 47,880,736 21,864,302 17,029,499 86,774,537 End of year $ 48,384,699 $ 22,100,804 $ 17,542,314 $ 88,027,817 66  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2019 9. DEFINED CONTRIBUTION PENSION PLAN City of Fort Walton Beach Defined Contribution Plan In December 2009, City Council closed the General Employees’ Defined Benefit Plan. All general, full-time employees hired on or after January 1, 2010, are members of the Defined Contribution Retirement Plan (Plan). The Plan is a money purchase defined contribution retirement plan administered by ICMA Retirement Corporation, with the City serving as trustee. All funds are held in the ICMA Retirement Corporation Governmental Money Purchase Plan & Trust in the name of each participant. The City finance director serves as the coordinator for the Plan. The Plan requires a 5% payroll contribution by the employee with a 5% employer (City) match. Employees can increase their contribution; however, only an additional 2 ½% is eligible for City match. Members of the General Employees’ Defined Benefit Pension Plan, who were not fully or partially vested at the time the Plan was opened, were permitted to transfer their contributions to the Plan as a one-time, irrevocable election. The Plan participants individually select and make changes in funding options, which are made available by the independent plan administrator. Since participants select the investment fund or funds in which their deferred compensation accounts are invested, the city has no liability for investment losses. The authority for establishing and amending the Plan’s provisions lies with the City Council. The City Council also has the authority for amending contribution requirements. Contributions made to the Plan by the employees and by the City were $217,725 and $217,725, respectively, for the fiscal year ending September 30, 2019. The City’s contributions vest 20% each year beginning after one year of employment. Participants are fully vested after 5 years of service. 10. DEFERRED COMPENSATION PLAN The City offers employees a deferred compensation plan created in accordance with Internal Revenue Code Section 457 (Plan). The Plan is a tax-deferred supplemental retirement program that allows City employees to contribute a portion of their salary, before federal income taxes, to a retirement account. The assets are held in trust for the employees’ benefit. The Plan participants individually select and make changes in funding options, which are made available by the independent plan administrator. Since participants select the investment fund or funds in which their deferred compensation accounts are invested, the City has no liability for investment losses. The City’s fiduciary responsibility is to administer the Plan properly and to assure the investment alternatives made available are reasonable. Assets of the Plan have a fair value of $2,374,550 at September 30, 2019. Contributions made by Plan members during the fiscal year ended September 30, 2019, were $45,638. 67  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2019 11. OTHER POST EMPLOYMENT BENEFITS (OPEB) Plan Description The Fort Walton Beach’s Retiree Health Care Plan (the Plan) is a single-employer defined benefit postemployment health care plan that covers eligible retired employees of the City. The Plan, which is administered by the City, allows employees who retire and meet retirement eligibility requirements under one of the City’s retirement plans to continue medical, dental, and life insurance coverage as a participant in the City’s plan. Plan Membership as of September 30, 2018: Inactive Plan Members or Beneficiaries Current Receiving Benefits 136 Inactive Plan Members Entitled to But Not Yet Receiving Benefits - Active Plan Members 248 384 Benefits Provided The benefits provided are the same as those provided for active employees. Spouses and dependents of eligible retirees are also eligible for medical coverage. All employees of the City are eligible to receive postemployment health care benefits. Contributions Retirees participating in the group insurance plans offered by the City are required to contribute 100% of the active premiums. In future years, contributions are assumed to increase at the same rate as premiums. Total OPEB Liability The City’s total OPEB liability was measured as of September 30, 2018. The total OPEB liability was determined by an actuarial valuation. The measurement period for OPEB expense was October 1, 2017 to September 30, 2018. The reporting period is October 1, 2018 to September 30, 2019. Actuarial Assumptions The total OPEB liability was determined by an actuarial valuation as of September 30, 2018 using the following actuarial assumptions: Inflation 2.50% Salary Increases Service based Discount Rate 4.18% Initial Trend Rate 8.00% Ultimate Trend Rate 4.00% Years to Ultimate 56 68  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2019 11. OTHER POST EMPLOYMENT BENEFITS (OPEB) – CONTINUED Total OPEB Liability – Continued For general employees, mortality rates were based on the RP-2000 mortality tables. For female lives, 100% of the white-collar table was used. For male lives, a 50% white collar table, 50% blue collar table blend was used. All tables include fully generational adjustments for mortality improvements using improvement scale BB. For disabled lives, mortality rates were based on the RP-2000 sex- distinct disabled mortality tables with female lives set forward two years, male lives set back four years. Disabled mortality has not been adjusted for mortality improvements. For police and fire employees, mortality rates were also based on various RP-2000 mortality tables. For female lives, 100% of the white-collar table was used. For male lives, a 10% white collar table, 90% blue collar table blend was used. All tables include fully generational adjustments for mortality improvements using improvement scale BB. For disabled female lives, a blend of 60% of the RP- 2000 disabled female mortality table set forward two years and 40% of the white-collar table with no setback was used. For disabled male lives, a blend of 60% of the RP-2000 disabled male mortality table set back four year and 40% of the white-collar table with no setback was used. Disabled mortality has not been adjusted for mortality improvements. Discount Rate Given the City’s decision not to fund the program, all future benefit payments were discounted using a high-quality municipal bond rate of 4.18%. The high-quality municipal bond rate was based on the week closest but not later than the measurement date of the Bond Buyer 20-Bond Index as published by the Federal Reserve. The 20-Bond Index consists of 20 general obligation bonds that mature in 20 years. The average rating of the 20 bonds is roughly equivalent to Moody's “Aa2” rating and S&P's “AA” rating. 69  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2019 11. OTHER POST EMPLOYMENT BENEFITS (OPEB) – CONTINUED Change in Total OPEB Liability Increase (Decrease) Total OPEB Plan Fiduciary Total OPEB Liability Net Position Liability (a) (b) (a) – (b) Balances at September 30, 2018 $ 5,621,056 $ - $ 5,621,056 Changes for the year: Service cost 91,714 - 91,714 Interest 205,213 - 205,213 Differences between expected and actual experience (494,909) - (494,909) Changes of assumptions 288,811 - 288,811 Contributions – employer - 154,409 (154,409) Benefit payments (151,409) (151,409) - Administrative expense - (3,000) 3,000 Net changes (60,580) - (60,580) Reporting period ending September 30, 2019 $ 5,560,476 $ - $ 5,560,476 Sensitivity of the Total OPEB Liability to Changes in the Discount Rate: Current 1% Decrease Discount Rate 1% Increase 3.18% 4.18% 5.18% Total OPEB liability $ 6,442,631 $ 5,560,476 $ 4,854,687 Sensitivity of the Total OPEB Liability to Changes in the Healthcare Trend Rates: Healthcare Cost 1% Decrease Trend Rates 1% Increase 3.00%-7.00% 4.00%-8.00% 5.00%-9.00% Total OPEB liability $ 4,937,112 $ 5,560,476 $ 6,338,625 OPEB Plan Fiduciary Net Position The plan is unfunded, so the OPEB plan’s fiduciary net position is $0. 70  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2019 11. OTHER POST EMPLOYMENT BENEFITS (OPEB) – CONTINUED OPEB Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to OPEB For the year ended September 30, 2019, the City recognized OPEB expense of $283,209. On September 30, 2019, the City reported deferred outflows of resources and deferred inflows of resources related to OPEB from the following sources: Deferred Deferred Outflows of Inflows of Resources Resources Differences between Expected and Actual experience $ - $ 424,208 Changes of assumptions 528,622 383,431 Employer contributions subsequent to the measurement date 242,108 - Total $ 770,730 $ 807,639 Deferred outflows of resources related to pensions of $242,108 resulting from the City’s contributions subsequent to the measurement date will be recognized as a reduction of the OPEB liability in the year ending September 30, 2020. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to OPEB will be recognized in OPEB expense as follows: Year ended September 30: 2020 $ (16,718) 2021 (16,716) 2022 (157,253) 2023 (29,442) 2024 (29,442) Thereafter (29,446) $ (279,017) 12. RISK MANAGEMENT The City is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; employee medical benefits and natural disasters. The City purchases insurance through commercial carriers. Insurance coverage for workers’ compensation, liability, casualty, inland marine, flood, police accidental death, public officials’ bonds, fiduciary and fuel tanks were purchased from several commercial carriers during the year ended September 30, 2019. 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. 71  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2019 13. OPERATING LEASES Lessor The City receives rental income from leasing various parcels of land and buildings under cancelable operating agreements. The lease periods vary from one to forty years. Income for the year ended September 30, 2019, was $329,580 in the General Fund, $21,300 in the CRA Fund, and $19,571 in the Utilities Fund. Future minimum lease payments are as follows: Governmental Business-Type Year Ending September 30 Activities Activities 2020 $ 351,285 $ 20,158 2021 348,357 20,750 2022 323,862 20,373 2023 278,785 22,014 Total minimum lease payments $ 1,302,289 $ 83,295 Lessee The City leases golf carts in the General Fund through an operating lease with Yamaha. The original lease term began August 2016 and expires on July 31, 2020. Under the lease, monthly payments are $6,474 plus property tax paid by the lessor. Rent expense for the fiscal year ending September 30, 2019 was $83,064. Future minimum lease payments are as follows: Governmental Year Ending September 30 Activities 2020 $ 64,740 Total minimum lease payments $ 64,740 72  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2019 13. OPERATING LEASES – CONTINUED Lessee – Continued The City leases golf course and parks grounds maintenance equipment and utility carts in the General Fund through operating leases with DLL Finance. The grounds maintenance equipment lease is a five-year lease which began January 1, 2016 and expires December 31, 2020. The utility cart lease is a four-year lease which began September 1, 2016 and terminates August 31, 2020. Monthly lease payments for the grounds equipment and utility carts are $2,105 plus property taxes paid by the lessor. Lease expense for the fiscal year ending September 30, 2019 was $31,346. Future minimum lease payments are as follows: Governmental Year Ending September 30 Activities 2020 $ 24,421 2021 3,808 Total minimum lease payments $ 28,229 14. CAPITAL LEASES The City has entered into a lease agreement for financing the acquisition of fitness equipment for its recreation complex. The lease agreement qualifies as a capital lease for accounting purposes as a result of the transfer of title or bargain purchase option and therefore has been recorded at the present value of the future minimum lease payments as of the inception date in the General Fund. The assets acquired through capital leases are as follows: Governmental Assets Activities Fitness equipment $ 67,774 Accumulated depreciation (59,867) Assets acquired by lease, net $ 7,907 The future minimum lease obligations and the net present value of these minimum lease payments as of September 30, 2019, are as follows: Governmental Year Ending September 30 Activities 2020 $ 6,777 Total minimum lease payments 6,777 Less amount representing interest (96) Present value of minimum lease payments $ 6,681 73  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2019 15. LONG-TERM DEBT Changes in Long-Term Debt Liabilities The following is a summary of changes in long-term debt liabilities of the City for the year ended September 30, 2019: Beginning Ending Due Within Balance Additions Reductions Balance One Year Governmental activities Direct placements: Capital Improvement Revenue Note, Series 2011 $ 204,330 $ - $ (59,941) $ 144,389 $ 81,721 Capital Improvement Revenue Note, Series 2013 3,418,021 - (227,408) 3,190,613 233,083 Capital Improvement Revenue Note, Series 2013A 6,766,866 - (375,496) 6,391,370 385,597 Capital Improvement Revenue Note, Series 2018 - 12,520,000 - 12,520,000 370,484 Direct borrowings: Capital lease - phone system 21,490 - (21,490) - - Capital lease - fitness equipment 20,727 - (14,046) 6,681 6,681 Compensated absences 661,564 761,298 (731,836) 691,026 168,518 Total governmental activities $ 11,092,998 $ 13,281,298 $ (1,430,217) $ 22,944,079 $ 1,246,084 Beginning Ending Due Within Balance Additions Reductions Balance One Year Business-type activities Direct placements: Utility System Revenue Refunding Note, Series 2015 $ 7,968,000 $ - $ (431,000) $ 7,537,000 $ 444,000 Direct borrowings: State Revolving Fund Loan, 2015 13,308,089 - (693,792) 12,614,297 707,038 Compensated absences 179,156 186,757 (181,809) 184,104 46,026 Total business-type activities $ 21,455,245 $ 186,757 $ (1,306,601) $ 20,335,401 $ 1,197,064 For the governmental activities, compensated absences are generally liquidated by the General Fund. Description of Long-Term Debt Outstanding Governmental Activities – Direct Placements $819,000 City of Fort Walton Beach, Florida, Capital Improvement Revenue Note, Series 2011, due in quarterly installments of $24,449 through April 2016 then $21,156 from June 2016 through April 2021; interest at 2.55%. Available non ad valorem revenues are pledged for payment of the note. Proceeds used for purchase of a fire truck and golf equipment. 74  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2019 15. LONG-TERM DEBT – CONTINUED Description of Long-Term Debt Outstanding – Continued Governmental Activities – Direct Placements – Continued $4,470,610 City of Fort Walton Beach, Florida, Capital Improvement Refunding Revenue Note, Series 2013, 2.30% interest due semiannually and principal due annually ranging from $187,659 to $299,010 through 2031. Available non ad valorem revenues are pledged for payment of the note. Proceeds used for refunding Series 2001 revenue bonds for construction of certain capital improvements. $8,500,000 City of Fort Walton Beach, Florida, Capital Improvement Revenue Note, Series 2013A, 2.69% interest due semiannually and principal due annually ranging from $326,969 to $464,334 through 2027 with a balloon payment of $3,000,000 due in 2028. Budgeted and appropriated half cent sales tax is pledged for payment of the note. Proceeds used to finance the construction of the City's new recreational complex along with the purchase of a bucket truck and a grounds sweeper for City's municipal golf course. $12,520,000 City of Fort Walton Beach, Florida, Capital Improvement Revenue Bond, Series 2018, bearing interest at 3.83%, due semiannual payment of principal and interest ranging from $11,583 to $1,019,479 through 2038. Available non ad valorem revenues are pledged for payment of the bond. Proceeds used to finance the construction of a new field office complex on Hollywood Blvd. In the event of default (non-payment), the lender may declare all outstanding payments of principal and interest on the debt to be immediately due and payable for all of the direct placement issuances discussed above. Furthermore, these direct placement issuances do not contain any subjective acceleration clauses. Governmental Activities – Direct Borrowings $103,784 capital lease payable, 2013, due in monthly installments of $2,088 through August 2019, collateralized by the City's phone system. This capital lease was repaid in full during fiscal year 2019. $67,774 capital lease payable, 2015, due in quarterly installments of $3,734 through December 2019, collateralized by fitness equipment at the City's Recreation Complex. In the event of default (non- payment), the lender may declare all unpaid principal to be immediately due and payable or repossess the financed fitness equipment. This lease agreement does not contain any subjective acceleration clauses. Business-Type Activities – Direct Placements $8,794,000 Utility System Revenue Refunding Note, Series 2015, due in annual installments of $407,000 to $645,000 beginning July 2017 through July 2033, with interest only semi-annual payments from January 2016 through January 2017; stated interest at 2.92%. Net revenues derived by the City from the utility operations are pledged for the payment of the note. Proceeds used to refinance and refund the Utility System Revenue Bonds, Series 2005, which was for water system and wastewater system improvements. In the event of default (non-payment), the lender may declare all outstanding payments of principal and interest on the debt to be immediately due and payable. This note does not contain any subjective acceleration clauses. 75  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2019 15. LONG-TERM DEBT – CONTINUED Description of Long-Term Debt Outstanding – Continued Business-Type Activities – Direct Borrowings $15,637,939 State of Florida Department of Environmental Protection Revolving Loan Fund; semiannual payments of $471,683 including interest at 1.90% beginning August 2015, through February 2035. Proceeds used for force main replacement, storage tank construction and pump station upgrades. In the event of default (non-payment), the lender may notify financial market credit rating agencies, file suit for past due amounts, and accelerate repayment of unpaid principal to as much as 1.667 times the financing rate. This loan does not contain any subjective acceleration clauses. 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, 2019, are as follows: Governmental Activities Capital Lease Revenue Notes and Bonds Year Ending September 30 Principal Interest Principal Interest 2020 $ 6,681 $ 96 $ 1,070,885 $ 727,733 2021 - - 1,081,711 695,705 2022 - - 1,049,375 664,037 2023 - - 1,084,957 632,205 2024 - - 1,115,885 599,277 2025-2029 - - 8,683,510 2,357,951 2030-2034 - - 4,696,434 1,167,090 2035-2039 - - 3,463,615 314,385 Total $ 6,681 $ 96 $ 22,246,372 $ 7,158,383 76  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2019 15. LONG-TERM DEBT – CONTINUED Annual Requirements to Amortize Debt Outstanding – Continued Business-Type Activities Revenue Note State Revolving Loan Year Ending September 30 Principal Interest Principal Interest 2020 $ 444,000 $ 220,080 $ 707,038 $ 236,329 2021 456,000 207,116 720,535 222,832 2022 470,000 193,800 734,290 209,076 2023 484,000 180,076 748,308 195,059 2024 498,000 165,944 762,594 180,773 2025-2029 2,714,000 603,097 4,036,979 679,856 2030-2034 2,471,000 182,996 4,437,307 279,525 2035-2039 - - 467,246 4,439 Total $ 7,537,000 $ 1,753,109 $ 12,614,297 $ 2,007,889 16. COMMENTS REQUIRED BY THE BOND AND ORDINANCES Capital Improvement Revenue Note, Series 2011 1. The balance sheet and statement of revenues, expenditures, and changes in fund balance of the Debt Service Fund are shown in the financial section of the report. 2. The City is required to establish sinking fund amounts sufficient to pay all principal and interest becoming due on the bonds on the next quarter payment date. Sinking Fund Requirement at Principal/Interest September 30, Payments Due 2019 Principal due at October 1, 2019 $ 19,233 $ 19,233 Interest due at October 1, 2019 1,924 1,924 1 Total $ 21,157 $ 21,157 (1) Amounts are included in restricted cash amounts on the balance sheet of the Debt Service Fund The City is not aware of any instances of noncompliance with the bond ordinances. 77  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2019 16. COMMENTS REQUIRED BY THE BOND AND 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 semiannual payment date. The sinking fund was not required to be funded at September 30, 2019. 3. The City is not aware of any instances of noncompliance with the debt covenants. Capital Improvement Revenue Note, Series 2013A 1. The balance sheet and statement of revenues, expenditures, and changes in fund balance of the Debt Service Fund are shown in the financial section of the report. 2. The City is required to establish sinking fund amounts sufficient to pay all principal and interest becoming due on the notes on the next semiannual payment date. The sinking fund was not required to be funded at September 30, 2019. 3. The City is not aware of any instances of noncompliance with the debt covenants. Capital Improvement Revenue Note, Series 2018 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 semiannual payment date. The sinking fund was not required to be funded at September 30, 2019. 3. The City is not aware of any instances of noncompliance with the debt covenants. Utility System Revenue Refunding Note, Series 2015 1. The statement of net position and statement of revenues, expenses, and changes in net position of the Utility Fund are shown in the financial section of the report. 2. Net revenues pledged consist of gross revenues less costs of operation and maintenance. The net revenues pledged in fiscal year 2019 were approximately $3,774,742. 3. The debt issued refunded Series 2005 bond used for system improvements. 4. The term of the pledge commitment ends in January 2033. 5. The pledged revenues needed to meet the rate covenants in fiscal year 2019 were $830,100. The covenant is based upon 125% of the annual debt service requirement. 6. The pledged revenues exceeded the debt service requirements by $3,110,662 in fiscal year 2019. The City is not aware of any instances of noncompliance with the debt covenants. 78  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2019 17. INTERFUND RECEIVABLES, PAYABLES AND TRANSFERS The composition of interfund balances as of September 30, 2019, is as follows: Due to/from Other Funds Receivable Fund Payable Fund Amount General Community Development Block Grant $ 41,736 General Debt Service $ 30,183 Advance to/from Other Funds Receivable Fund Payable Fund Amount Sanitation General $ 262,368 General Fund receivables from the Community Development Block Grant Fund and the Debt Service Fund are the result of eliminating temporary deficit cash balances. On September 30, 2014, the City’s Sanitation Fund loaned the General Fund $500,000 to purchase a Fire Engine. The loan from the Sanitation Fund will be paid back over a 10-year period at an interest rate of 2.00%. The balance of the advance as of September 30, 2019 is $262,368.The composition of interfund transfers for the year ended September 30, 2019, is as follows: Transfers In Other Governmental Transfers Out General Fund Funds Total General Fund $ - $ 1,262,327 $ 1,262,327 Utilities Fund 815,586 - 815,586 Sanitation Fund 173,840 - 173,840 Stormwater Fund 102,153 - 102,153 $ 1,091,579 $ 1,262,327 $ 2,353,906 The transfers out of the General Fund are $1,262,327. These transfers consist of a $1,230,257 transfer to the Debt Service Fund (Other Governmental Fund) for principal and interest payments on debt, and a $32,070 transfer to the Beal Memorial Cemetery Perpetual Care Fund (Other Governmental Fund) for permanent maintenance. Transfers in to the General Fund of $1,091,579 consist of franchise fees, compensation for heavy trucks wear and tear on roadways, and a portion of the debt service for the new field office complex from the enterprise funds representing their portion of use of the facility. 79  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2019 18. ENCUMBRANCES The amount of encumbrances outstanding as of September 30, 2019, were as follows: Governmental Funds – General Fund $ 1,076,253 Community Redevelopment Agency Fund 256,110 Other Governmental Funds 42,259 $ 1,374,622 Encumbrances at year end do not constitute expenditures or liabilities; therefore, they are not reflected in the statement of revenues, expenditures, and changes in fund balances. 19. GOVERNMENTAL FUND BALANCES At September 30, 2019, the City's governmental fund balances were classified as follows: Community Other Total Redevelopment Governmental Governmental General Fund Agency Funds Funds Nonspendable Inventory $ 269,837 $ - $ - $ 269,837 Restricted for Improvement districts - 1,691,456 - 1,691,456 Library 96,268 - - 96,268 Public safety - - 673,892 673,892 Field office complex 3,127,039 - - 3,127,039 Discretionary sales taxes 1,267,293 - - 1,267,293 Other purposes 6,885 - - 6,885 Total restricted 4,497,485 1,691,456 673,892 6,862,833 Committed Cemetery maintenance - - 3,120,593 3,120,593 Natural disaster recovery 8,019,062 - - 8,019,062 Total committed 8,019,062 - 3,120,593 11,139,655 Assigned to Capital projects 1,132,222 - - 1,132,222 Long-term debt 850,000 - - 850,000 Other purposes 359,288 - - 359,288 Total assigned 2,341,510 - - 2,341,510 Unassigned 3,291,695 - (31,326) 3,260,369 $ 18,419,589 $ 1,691,456 $ 3,763,159 $ 23,874,204 80  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2019 20. EXPENDITURES IN EXCESS OF BUDGETED APPROPRIATIONS The following funds had an excess of expenditures over final budgeted appropriations for the year ending September 30, 2019: Excess Over Fund Budget Community Redevelopment Agency Fund $ 288,342 Debt Service Fund $ 197,569 21. COMMITMENTS AND CONTINGENCIES Grants Amounts received or receivable from grant agencies are subject to audit and adjustment by grantor agencies, principally the federal government. Any disallowed claims, including amounts already collected, may constitute a liability of the applicable funds. The amount, if any, of expenditures which may be disallowed by the grantor cannot be determined at this time, although the City expects such amount, if any, to be immaterial. Wastewater Service Interlocal Agreement with Okaloosa County On August 11, 2009, the City adopted the Wastewater Service Interlocal Agreement with Okaloosa County (Agreement). The Agreement outlines a long–term association with Okaloosa County Water & Sewer for the treatment of the City’s influent wastewater flow at a set percentage of the County’s base sewer rate plus a locked-in annual rate escalator. The agreement provides other ancillary benefits to the City such as the provision of “no cost” tertiary treated effluent for use as irrigation water at the City’s’ 36–hole municipal Golf Club. The Agreement is effective for 30 years and can be automatically extended for up to two additional terms for a period of ten years for each extension term. On a monthly basis, the County will bill the City at a rate equal to $2.77 per each 1,000 gallons of wastewater flow. Additionally, the City will pay to the County the Sewer Readiness to Serve Fee, which is equal to $4,893 per month. Each year in March, the rate per thousand and the Readiness to Serve Fee will increase by 3%. Fees paid for wastewater treatment to Okaloosa County, Florida during the year ended September 30, 2019, were $2,700,142. 81  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2019 21. COMMITMENTS AND CONTINGENCIES – CONTINUED Wastewater Service Interlocal Agreement with Okaloosa County – Continued The minimum commitment by the City under the Agreement is as follows: Fiscal Year Ending September 30 2020 $ 59,742 2021 61,534 2022 63,380 2023 65,281 2024 67,239 2025 through 2029 367,690 2030 through 2034 426,251 2035 through 2039 494,141 Total $ 1,605,258 22. SUBSEQUENT EVENTS Special Assessment – Fire Protection In October 2019, the City Council adopted a resolution to adopt a fire assessment fee and establish rates effective in 2020. This form of this fee is a non-ad valorem special assessment. The rates for the first year will be $80 per residential dwelling unit, $0.07 per square foot for commercial property, and $0.02 per square foot for industrial property. The City expects to generate revenues of $1,235,668 in the first year of the assessment. Proceeds will be used to increase the level of fire protection services and fund improvements to existing facilities. Alleged Fraud In February 2020, the City’s Finance Director was arrested and charged with criminal misconduct. The charges allege that the Finance Director opened a credit card in the City’s name and used the card for personal use. The card account balance was paid with City funds. The amount of the known charges in question is approximately $50,000 of which $5,840 was expended during the year ended September 30, 2019. The investigation is ongoing as of the date of this report. Health Pandemic (COVID-19) On March 11, 2020, the World Health Organization (WHO) declared the novel strain of the coronavirus (COVID-19) a pandemic. The COVID-19 outbreak is disrupting supply chains and affecting production of services across a range of industries, including but not limited to, tourism and travel. The extent of the impact of COVID-19 on the City’s operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, impact on citizens, employees, vendors, and economical mitigation measures to be taken by federal and state government, all of which are uncertain and cannot be predicted. At this point, the extent to which COVID-19 may impact the City’s financial condition or results of operations is uncertain and cannot be estimated. 82 REQUIRED SUPPLEMENTARY INFORMATION  CITY OF FORT WALTON BEACH, FLORIDA REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF CHANGES IN NET PENSION LIABILITY AND RELATED RATIOS (UNAUDITED) GENERAL EMPLOYEES RETIREMENT FUND Reporting Date * 2019 2018 2017 2016 2015 Total Pension Liability Service cost $ 446,214 $ 504,055 $ 557,163 $ 569,712 $ 622,382 Interest 3,827,379 3,771,606 3,317,396 3,314,990 3,222,809 Differences between expected and actual experience (265,877) (404,763) 400,221 (1,074,244) - 1 Changes of assumptions - - 4,485,495 - - Benefit payments, including refunds of employee contributions (3,157,696) (3,056,444) (2,858,889) (2,676,038) (2,575,304) Net change in total pension liability 850,020 814,454 5,901,386 134,420 1,269,887 Total pension liability – beginning 49,580,471 48,766,017 42,864,631 42,730,211 41,460,324 Total pension liability – ending (a) $ 50,430,491 $ 49,580,471 $ 48,766,017 $ 42,864,631 $ 42,730,211 Plan Fiduciary Net Position Contributions – employer $ 2,006,925 $ 1,254,097 $ 1,280,082 $ 1,355,041 $ 1,296,450 Contributions – member 158,138 171,869 202,268 209,567 212,790 Net investment income 4,975,937 4,967,834 4,031,981 (4,390) 3,228,153 Benefit payments, including refunds of employee contributions (3,157,696) (3,056,444) (2,858,889) (2,676,038) (2,575,304) Administrative expenses (49,518) (42,201) (35,704) (39,535) (42,483) Net change in plan fiduciary net position 3,933,786 3,295,155 2,619,738 (1,155,355) 2,119,606 Plan fiduciary net position – beginning 44,001,782 40,706,627 38,086,889 39,242,244 37,122,638 Plan fiduciary net position – ending (b) $ 47,935,568 $ 44,001,782 $ 40,706,627 $ 38,086,889 $ 39,242,244 Net pension liability – ending (a) – (b) $ 2,494,923 $ 5,578,689 $ 8,059,390 $ 4,777,742 $ 3,487,967 Plan fiduciary net position as a percentage of the total pension liability 95.05% 88.75% 83.47% 88.85% 91.84% Covered payroll $ 3,162,762 $ 3,437,375 $ 4,045,350 $ 4,191,304 $ 4,255,801 Net pension liability as a percentage of covered employee payroll 78.88% 162.30% 199.23% 113.99% 81.96% Notes: 1 As a result of Chapter 2015-157, Laws of Florida, the assumed rates of mortality were changed to the assumptions used by the Florida Retirement System for the 2016 measurement date. * This schedule is intended to show information for ten years. Additional years will be displayed as they become available. 83  CITY OF FORT WALTON BEACH, FLORIDA REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF CHANGES IN NET PENSION LIABILITY AND RELATED RATIOS (UNAUDITED) POLICE OFFICERS’ RETIREMENT FUND Reporting Date * 2019 2018 2017 2016 2015 Total Pension Liability Service cost $ 395,440 $ 334,061 $ 344,958 $ 336,234 $ 322,118 Interest 2,112,261 2,084,744 1,948,181 1,953,123 1,905,286 Change in excess state money 20,893 8,823 - - - Differences between expected and actual experiences (833,418) (343,066) (425,107) (659,966) - 2 Changes of assumptions (251,695) - 1,633,122 - - Benefit payments, including refunds of employee contributions (1,764,575) (1,821,727) (1,744,710) (1,655,069) (1,632,053) Net change in total pension liability (321,094) 262,835 1,756,444 (25,678) 595,351 Total pension liability – beginning 27,002,003 26,739,168 24,982,724 25,008,402 24,413,051 Total pension liability – ending (a) $ 26,680,909 $ 27,002,003 $ 26,739,168 $ 24,982,724 $ 25,008,402 Plan Fiduciary Net Position 1 Contributions – employer $ 830,613 $ 569,215 $ 577,564 $ 628,975 $ 836,053 Contributions – state 202,468 190,399 181,303 175,025 175,703 Contributions – member 112,112 104,557 102,214 101,886 96,591 Net investment income 1,609,609 2,036,244 1,698,093 (538,198) 1,869,244 Benefit payments, including refunds of employee contributions (1,764,575) (1,821,727) (1,744,710) (1,655,069) (1,632,053) Administrative expenses (54,400) (39,184) (44,882) (25,084) (38,242) Net change in plan fiduciary net position 935,827 1,039,504 769,582 (1,312,465) 1,307,296 Plan fiduciary net position – beginning 20,960,073 19,920,569 19,150,987 20,463,452 19,156,156 Plan fiduciary net position – ending (b) $ 21,895,900 $ 20,960,073 $ 19,920,569 $ 19,150,987 $ 20,463,452 Net pension liability – ending (a) – (b) $ 4,785,009 $ 6,041,930 $ 6,818,599 $ 5,831,737 $ 4,544,950 Plan fiduciary net position as a percentage of the total pension liability 82.07% 77.62% 74.50% 76.66% 81.83% Covered payroll $ 2,242,245 $ 2,091,146 $ 2,073,208 $ 2,037,716 $ 1,975,478 Net pension liability as a percentage of covered employee payroll 213.40% 288.93% 328.89% 286.19% 230.07% Notes: 1 Adjusted for actual contributions made 2 As a result of Chapter 2015-157, Laws of Florida, the assumed rates of mortality were changed to the assumptions used by the Florida Retirement System for the 2016 measurement date. For the 2018 measurement date, changes of assumptions were based on an experience study dated June 4, 2018. This experience study resulted in changes to actuarial assumptions for the investment rate of return, cost-of-living increases, salary increases, early retirement rates, normal retirement rates, disability rates, and termination rates. * This schedule is intended to show information for ten years. Additional years will be displayed as they become available. 84  CITY OF FORT WALTON BEACH, FLORIDA REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF CHANGES IN NET PENSION LIABILITY AND RELATED RATIOS (UNAUDITED) FIREFIGHTERS’ RETIREMENT FUND Reporting Date * 2019 2018 2017 2016 2015 2014 Total Pension Liability Service cost $ 477,930 $ 494,032 $ 453,506 $ 478,365 $ 414,836 $ 384,107 Interest 1,864,720 1,830,663 1,645,954 1,554,072 1,425,875 1,367,809 Change in excess state money - - - - 89,886 Changes of benefit terms - - - 804,097 - - Differences between expected and actual experiences 513,043 (199,349) 261,007 (224,382) - - Contributions – buy back - 32,155 - 72,413 - - Changes of assumptions 1 601,424 258,300 1,243,794 - - - Benefit payments, including refunds of employee contributions (1,318,156) (1,434,474) (1,237,389) (1,140,432) (1,071,302) (1,042,333) Net change in total pension liability 2,138,961 981,327 2,366,872 1,544,133 859,295 709,583 Total pension liability – beginning 24,087,817 23,106,490 20,739,618 19,195,485 18,336,190 17,626,607 Total pension liability – ending (a) $ 26,226,778 $ 24,087,817 $ 23,106,490 $ 20,739,618 $ 19,195,485 $ 18,336,190 Plan Fiduciary Net Position Contributions – employer $ 1,089,746 $ 794,144 $ 744,019 $ 672,369 $ 715,439 $ 703,618 Contributions – state 195,017 204,568 201,904 205,007 214,272 204,226 Contributions – member 182,127 173,480 164,876 150,357 135,622 133,633 Contributions – buy back - 32,155 - 72,413 - - Net investment income 1,430,717 1,401,324 969,107 15,563 1,201,162 1,099,298 Benefit payments, including refunds of employee contributions (1,318,156) (1,434,474) (1,237,389) (1,140,432) (1,071,302) (1,042,333) Administrative expenses (67,773) (28,449) (43,625) (47,088) (34,537) (33,706) Net change in plan fiduciary net position 1,511,678 1,142,748 798,892 (71,811) 1,160,656 1,064,736 Plan fiduciary net position – beginning 15,532,148 14,389,400 13,590,508 13,662,319 12,501,663 11,436,927 Plan fiduciary net position – ending (b) $ 17,043,826 $ 15,532,148 $ 14,389,400 $ 13,590,508 $ 13,662,319 $ 12,501,663 Net pension liability – ending (a) – (b) $ 9,182,952 $ 8,555,669 $ 8,717,090 $ 7,149,110 $ 5,533,166 $ 5,834,527 Plan fiduciary net position as a percentage of the total pension liability 64.99% 64.48% 62.27% 65.53% 71.17% 68.18% Covered payroll $ 2,276,592 $ 2,168,503 $ 2,060,954 $ 2,072,260 $ 2,054,879 $ 2,054,879 Net pension liability as a percentage of covered employee payroll 403.36% 394.54% 422.96% 344.99% 269.27% 283.94% Notes: 1 For the 2018 measurement date, amounts reported as changes of assumptions resulted from lowering the investment return assumption from 7.80% to 7.60% per year, net of investment related expenses. * This schedule is intended to show information for ten years. Additional years will be displayed as they become available. 85  CITY OF FORT WALTON BEACH, FLORIDA REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF CHANGES IN NET OPEB LIABILITY AND RELATED RATIOS (UNAUDITED) FORT WALTON BEACH RETIREE HEALTH CARE PLAN Reporting Date * 2019 2018 2017 Total OPEB Liability Service cost $ 91,714 $ 105,139 $ 85,100 Interest 205,213 187,954 195,814 Changes of benefit terms - - - 2 Differences between expected and actual experience (494,909) - - 1 Changes of assumptions 288,811 (639,051) 702,672 Benefit payments (151,409) (139,227) (139,227) Net change in total OPEB liability (60,580) (485,185) 844,359 Total OPEB liability - beginning 5,621,056 6,106,241 5,261,882 Total OPEB liability - ending (a) 5,560,476 5,621,056 6,106,241 Plan Fiduciary Net Position Contributions - employer 154,409 148,727 141,727 Benefit payments (151,409) (139,227) (139,227) Administrative expenses (3,000) (9,500) (2,500) Net change in plan fiduciary net position - - - Plan fiduciary net position - beginning - - - Plan fiduciary net position - ending (b) - - - Sponsor's total OPEB liability - ending (a) - (b) $ 5,560,476 $ 5,621,056 $ 6,106,241 Plan fiduciary net position as a percentage of total OPEB liability 0.00% 0.00% 0.00% Covered payroll (projected) $ 10,891,364 $ 7,927,323 $ 7,520,263 City's total OPEB liability as a percentage of covered employee payroll 51.05% 70.91% 81.20% Notes: 1 As a result of Chapter 2015-157, Laws of Florida, the assumed rates of mortality were changed to the assumptions used by the Florida Retirement System to match the pension plan assumptions. Changes of assumptions and other inputs also reflect the changes in the discount rate each period. The following are the discount rates used in each period: FY 2019: 4.18% FY 2018: 3.64% FY 2017: 3.06% FY 2016: 3.71% In addition, there were changes to actuarial assumptions for updated health care costs and premiums, health care trend rates, mortality rates, salary increases, retirement rates, disability rates, and termination rates. 2 Differences between expected and actual experience reflects the impact of changes to the census data from the prior valuation to the valuation as of 9/30/2018. * This schedule is intended to show information for ten years. Additional years will be displayed as they become available. 86  CITY OF FORT WALTON BEACH, FLORIDA REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF PENSION CONTRIBUTIONS (UNAUDITED) LAST TEN FISCAL YEARS Reporting Date 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 General Employees' Retirement Fund Actuarially determined contribution $ 1,602,192 $ 1,771,147 $ 1,120,584 $ 1,197,424 $ 1,286,744 $ 1,187,794 $ 1,268,253 $ 1,258,659 $ 1,091,338 $ 1,477,933 Contributions in relation to the actuarially determined contributions 1,751,654 2,006,925 1,254,097 1,280,082 1,355,041 1,296,450 1,318,790 1,306,268 1,159,438 1,477,777 Contribution deficiency (excess) $ (149,462) $ (235,778) $ (133,513) $ (82,658) $ (68,297) $ (108,656) $ (50,537) $ (47,609) $ (68,100) $ 156 1 Covered payroll $ 3,000,359 $ 3,162,762 $ 3,437,375 $ 4,045,350 $ 4,191,304 $ 4,255,801 $ 4,259,070 $ 4,542,537 $ 5,004,486 $ 5,595,076 Contributions as a percentage of covered employee payroll 58.38% 63.45% 36.48% 32.33% 32.33% 30.46% 30.96% 28.76% 23.17% 26.41% Police Officers' Retirement Fund Actuarially determined contribution $ 837,623 $ 928,289 $ 650,347 $ 709,037 $ 772,294 $ 932,426 $ 881,697 $ 875,055 $ 682,860 $ 665,220 Contributions in relation to the actuarially determined contributions 953,828 1,033,081 750,791 790,573 772,294 1,011,756 925,589 968,003 682,860 665,220 Contribution deficiency (excess) $ (116,205) $ (104,792) $ (100,444) $ (81,536) $ - $ (79,330) $ (43,892) $ (92,948) $ - $ - Covered payroll1 $ 2,263,844 $ 2,242,245 $ 2,091,146 $ 2,073,208 $ 2,037,716 $ 1,975,478 $ 2,038,886 $ 2,178,847 $ 2,239,545 $ 2,195,529 Contributions as a percentage of covered employee payroll 42.13% 46.07% 35.90% 38.13% 37.90% 51.22% 45.40% 44.43% 30.49% 30.30% Firefighters' Retirement Fund Actuarially determined contribution $ 1,127,832 $ 1,138,295 $ 899,929 $ 816,138 $ 748,086 $ 824,007 $ 817,997 $ 700,045 $ 675,386 $ 708,063 Contributions in relation to the actuarially determined contributions 1,236,461 1,284,763 998,712 945,923 877,376 839,825 829,245 784,705 675,386 708,063 Contribution deficiency (excess) $ (108,629) $ (146,468) $ (98,783) $ (129,785) $ (129,290) $ (15,818) $ (11,248) $ (84,660) $ - $ - 1 Covered payroll $ 2,364,429 $ 2,276,592 $ 2,168,503 $ 2,060,954 $ 2,072,260 $ 2,121,613 $ 2,153,568 $ 1,946,811 $ 1,961,080 $ 2,116,516 Contributions as a percentage of covered employee payroll 52.29% 56.43% 46.06% 45.90% 42.34% 39.58% 38.51% 40.31% 34.44% 33.45% ¹ As of 2014, the Covered payroll numbers shown are in compliance with GASB Statement No. 82. See notes to the schedule of contributions. 87  CITY OF FORT WALTON BEACH, FLORIDA REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF INVESTMENT RETURNS SEPTEMBER 30, 2019 Measurement Date 9/30/2018 9/30/2017 9/30/2016 9/30/2015 9/30/2014 9/30/2013 General Employees' Retirement Fund Annual Money-Weighted Rate of Return Not Net of Investment Expense 11.43% 12.45% 10.78% -0.01% 8.82% Available Police Officers' Retirement Fund Annual Money-Weighted Rate of Return Not Net of Investment Expense 7.82% 10.52% 9.12% -2.69% 9.96% Available Firefighters' Retirement Fund Annual Money-Weighted Rate of Return Net of Investment Expense 9.24% 9.88% 7.25% 0.12% 9.72% 9.63% Note: This information is not available for previous years. 88  CITY OF FORT WALTON BEACH, FLORIDA REQUIRED SUPPLEMENTARY INFORMATION NOTES TO THE SCHEDULE OF PENSION CONTRIBUTIONS (UNAUDITED) GENERAL EMPLOYEES’ RETIREMENT FUND Valuation Date: October 1, 2017 Notes: Actuarially determined contribution rates are calculated as of October 1, which is two years prior to the end of the fiscal year in which contributions are reported. Methods and Assumptions Used to Determine Contribution Rates: Funding method: Entry-Age Actuarial Cost Method Mortality rates: Healthy lives: Female: RP2000 Generational, 100% Annuitant White Collar, Scale BB Male: RP2000 Generational, 50% Annuitant White Collar / 50% Annuitant Blue Collar, Scale BB Disabled lives: Female: 100% RP2000 Disabled Female set forward two years Male: 100% RP2000 Disabled Male set back four years Interest rate: 7.90% per year, compounded annually, net of investment related expenses Inflation: 3.00% Termination rates: Age-based rates. Sample rates as follows: Sample Ages Probability 25 7.724% 30 7.397% 35 6.858% 40 6.113% 45 5.163% 50 4.316% 55 4.371% 60 5.631% Disability rates: Age-based rates. Sample rates as follows: Sample Ages Probability 20 0.07% 30 0.11% 40 0.19% 50 0.51% 60 1.66% 89  CITY OF FORT WALTON BEACH, FLORIDA REQUIRED SUPPLEMENTARY INFORMATION NOTES TO THE SCHEDULE OF PENSION CONTRIBUTIONS (UNAUDITED) – CONTINUED GENERAL EMPLOYEES’ RETIREMENT FUND Salary increases: Age-based increase table, as follows: Age Increase* Under 25 6.50% 25-34 5.50% 35-44 4.50% 45+ 3.50% *Increase shown is inclusive of a 3% wage inflationary assumption. Retirement age: 100% probability of retirement upon attaining age 62 and ten years of service, along with probabilities of retiring with a subsidized benefit prior to age 62 at the following rates: Age Probability 52 4.218% 53 4.249% 54 4.293% 55 4.371% 56 4.500% 57 4.688% 58 4.941% 59 5.258% 60 5.631% 61 6.053% Payroll growth: None (closed plan) for purposes of amortizing the Unfunded Actuarial Accrued Liability. Actuarial asset All assets are valued at market value with an adjustment made to uniformly spread method: actuarial investment gains and losses (as measured by actual market value investment return against expected market value investment return) over a five-year period. 90  CITY OF FORT WALTON BEACH, FLORIDA REQUIRED SUPPLEMENTARY INFORMATION NOTES TO THE SCHEDULE OF PENSION CONTRIBUTIONS (UNAUDITED) POLICE OFFICERS’ RETIREMENT FUND Valuation Date: October 1, 2017 Notes: Actuarially determined contribution rates are calculated as of October 1, which is two years prior to the end of the fiscal year in which contributions are reported. Methods and Assumptions Used to Determine Contribution Rates: Funding method: Entry-Age Normal Actuarial Cost Method Mortality rates: Healthy lives: Female: RP2000 Generational, 100% Annuitant White Collar, Scale BB Male: RP2000 Generational, 10% Annuitant White Collar / 90% Annuitant Blue Collar, Scale BB Disabled lives: Female: 60% RP2000 Disabled Female set forward two years / 40% Annuitant White Collar with no set back, no projection scale Male: 60% RP2000 Disabled Male set back four years / 40% Annuitant White Collar with no set back, no projection scale Interest rate: 8.00% per year, compounded annually, net of investment related expenses Retirement age: Member Age Retirement Probability 55 10.0% 56 10.0% 57 25.0% 58 20.0% 59 33.3% 60+ 100.0% In addition to the above table, 100% retirement is assumed upon completion of 30 years of service. Early retirement: Earlier of 1) Age 50 and ten years of service, or 2) 25 years of service, regardless of age, Members are assumed to retire with an immediate subsidized benefit at the rate of 4% per year. 91  CITY OF FORT WALTON BEACH, FLORIDA REQUIRED SUPPLEMENTARY INFORMATION NOTES TO THE SCHEDULE OF PENSION CONTRIBUTIONS (UNAUDITED) – CONTINUED POLICE OFFICERS’ RETIREMENT FUND Salary increases: Member Age Assumption 30 or less 10.0% 31-35 8.5% 36-40 7.0% 41-45 6.0% 45-50 4.5% 51-55 4.0% 56+ 3.0% In addition to the above table, projected salary at retirement is increased 20% to account for non-regular compensation. Cost-of-living increase: 3.0% per year beginning at retirement Payroll growth: None Actuarial asset Each year, the prior Actuarial Value of Assets is brought forward utilizing the historical method: geometric four-year average market value return. It is possible that over time this technique will produce an insignificant bias above or below market value. Termination and disability rate table: % Becoming Disabled During the % Terminating Age Year During the Year 20 0.14% 10.63% 30 0.18% 9.60% 40 0.30% 6.90% 50 1.00% 3.40% 92  CITY OF FORT WALTON BEACH, FLORIDA REQUIRED SUPPLEMENTARY INFORMATION NOTES TO THE SCHEDULE OF PENSION CONTRIBUTIONS (UNAUDITED) FIREFIGHTERS’ RETIREMENT FUND Valuation Date: October 1, 2017 Notes: Actuarially determined contribution rates are calculated as of October 1, which is two years prior to the end of the fiscal year in which contributions are reported. Methods and Assumptions Used to Determine Contribution Rates: Actuarial cost method: Entry Age Normal Actuarial Cost Method Mortality rates: Healthy lives: Female: RP2000 Generational, 100% Annuitant White Collar, Scale BB Male: RP2000 Generational, 10% Annuitant White Collar / 90% Annuitant Blue Collar, Scale BB Disabled lives: Female: 60% RP2000 Disabled Female set forward two years / 40% Annuitant White Collar with no set back, no projection scale Male: 60% RP2000 Disabled Male set back four years / 40% Annuitant White Collar with no set back, no projection scale Interest rate: 7.80% per year compounded annually, net of investment related expenses Retirement age: Earlier of Age 55 and ten years of service or 25 years of service, regardless of age. Also, any Member who has reached Normal Retirement is assumed to continue employment for one additional year Early retirement: Commencing with the earliest early retirement age (45), Members are assumed to retire with an immediate subsidized benefit at the rate of 3.00% per year. Disability rate: See table below; it is assumed that 75% of disablements and active Member deaths are service related. Termination rate: See table below; assumed rates were approved in conjunction with an actuarial experience study dated June 2017. Salary increases: See table below; assumed rates were approved in conjunction with an actuarial experience study dated June 2017. Cost-of-living increase: 3.00% per year beginning at age 58 Payroll increase: 1.49% per year, in compliance with Part VII of Chapter 112, Florida Statutes Actuarial asset Each year, the prior Actuarial Value of Assets is brought forward utilizing the historical method: geometric four-year average market value return. It is possible that over time this technique will produce an insignificant bias above or below Market Value. Disability rate: Age Disability Rate 20 0.14% 30 0.18% 40 0.30% 50 1.00% 93  CITY OF FORT WALTON BEACH, FLORIDA REQUIRED SUPPLEMENTARY INFORMATION NOTES TO THE SCHEDULE OF PENSION CONTRIBUTIONS (UNAUDITED) – CONTINUED FIREFIGHTERS’ RETIREMENT FUND Termination rate: Service Years Termination Rate 0 13.00% 1 12.00% 2 11.00% 3 10.00% 4 9.00% 5 8.00% 6 7.00% 7 6.50% 8 6.00% 9 5.50% 10 5.00% 11 4.50% 12+ 4.00% Salary increases: Service Years Increase 0 12.0% 1-9 6.0% 10+ 5.0% 94  CITY OF FORT WALTON BEACH, FLORIDA NON-MAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEET SEPTEMBER 30, 2019 Special Revenue Funds Beal Law Memorial Total Law Enforcement Florida Community Cemetery Nonmajor Enforcement Trust Building Development Perpetual Governmental Trust Training Code Block Grant Care Debt Service Funds ASSETS Cash and cash equivalents $ 128,901 $ 9,089 $ 559,725 $ - $ 51,831 $ - $ 749,546 Investments - - - - 3,071,746 - 3,071,746 Due from other governments 10,843 - - 29,122 - - 39,965 Cash and cash equivalents - restricted - - - - - 21,156 21,156 TOTAL ASSETS $ 139,744 $ 9,089 $ 559,725 $ 29,122 $ 3,123,577 $ 21,156 $ 3,882,413 LIABILITIES Accounts payable $ - $ - $ 4,974 $ 9,685 $ 2,984 $ - $ 17,643 Accrued liabilities 23,764 - 5,928 - - - 29,692 Due to other funds - - - 41,736 - 30,183 71,919 Total liabilities 23,764 - 10,902 51,421 2,984 30,183 119,254 FUND BALANCE Restricted 115,980 9,089 548,823 - - - 673,892 Committed - - - - 3,120,593 - 3,120,593 Unassigned - - - (22,299) - (9,027) (31,326) Total fund balance 115,980 9,089 548,823 (22,299) 3,120,593 (9,027) 3,763,159 TOTAL LIABILITIES AND FUND BALANCE $ 139,744 $ 9,089 $ 559,725 $ 29,122 $ 3,123,577 $ 21,156 $ 3,882,413 95  CITY OF FORT WALTON BEACH, FLORIDA NON-MAJOR GOVERNMENTAL FUNDS COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE FOR THE YEAR ENDED SEPTEMBER 30, 2019 Special Revenue Funds Beal Law Memorial Total Law Enforcement Florida Community Cemetery Nonmajor Enforcement Trust Building Development Perpetual Debt Governmental Trust Training Code Block Grant Care Service Funds REVENUES Permits and fees $ - $ - $ 521,317 $ - $ - $ - $ 521,317 Intergovernmental 6,320 - - 135,313 - - 141,633 Fines 5,469 4,928 - - - - 10,397 Miscellaneous 2,658 130 10,903 - 129,642 - 143,333 Total revenues 14,447 5,058 532,220 135,313 129,642 - 816,680 EXPENDITURES Current Public safety 10,784 - 307,997 - - - 318,781 Physical environment - - - - 15,168 - 15,168 Economic environment - - - 138,342 - - 138,342 Capital outlay 3,699 - 23,684 - - - 27,383 Debt service Principal - - - - - 698,381 698,381 Interest - - - - - 540,929 540,929 Total expenditures 14,483 - 331,681 138,342 15,168 1,239,310 1,738,984 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES (36) 5,058 200,539 (3,029) 114,474 (1,239,310) (922,304) OTHER FINANCING SOURCES Transfers in - - - - 32,070 1,230,257 1,262,327 Total other financing sources - - - - 32,070 1,230,257 1,262,327 NET CHANGE IN FUND BALANCE (36) 5,058 200,539 (3,029) 146,544 (9,053) 340,023 FUND BALANCE (DEFICIT) AT BEGINNING OF YEAR 116,016 4,031 348,284 (19,270) 2,974,049 26 3,423,136 FUND BALANCE (DEFICIT) AT END OF YEAR $ 115,980 $ 9,089 $ 548,823 $ (22,299) $ 3,120,593 $ (9,027) $ 3,763,159 96  CITY OF FORT WALTON BEACH, FLORIDA LAW ENFORCEMENT TRUST SPECIAL REVENUE FUND SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE – BUDGET AND ACTUAL FOR THE YEAR ENDED SEPTEMBER 30, 2019 Variance with Final Budget - Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Intergovernmental $ - $ 4,368 $ 6,320 $ 1,952 Fines - - 5,469 5,469 Miscellaneous 2,309 2,309 2,658 349 Total revenues 2,309 6,677 14,447 7,770 EXPENDITURES Current Public safety 7,309 13,299 10,784 2,515 Capital outlay - 4,368 3,699 669 Total expenditures 7,309 17,667 14,483 3,184 NET CHANGE IN FUND BALANCE (5,000) (10,990) (36) 10,954 FUND BALANCE AT BEGINNING OF YEAR 5,000 10,990 116,016 105,026 FUND BALANCE AT END OF YEAR $ - $ - $ 115,980 $ 115,980 97  CITY OF FORT WALTON BEACH, FLORIDA LAW ENFORCEMENT TRUST TRAINING SPECIAL REVENUE FUND SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE – BUDGET AND ACTUAL FOR THE YEAR ENDED SEPTEMBER 30, 2019 Variance with Final Budget - Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Fines $ 4,000 $ 4,000 $ 4,928 $ 928 Miscellaneous 97 97 130 33 Total revenues 4,097 4,097 5,058 961 EXPENDITURES Current Public safety 4,097 4,097 - 4,097 NET CHANGE IN FUND BALANCE - - 5,058 5,058 FUND BALANCE AT BEGINNING OF YEAR - - 4,031 4,031 FUND BALANCE AT END OF YEAR $ - $ - $ 9,089 $ 9,089 98  CITY OF FORT WALTON BEACH, FLORIDA FLORIDA BUILDING CODE SPECIAL REVENUE FUND SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE – BUDGET AND ACTUAL FOR THE YEAR ENDED SEPTEMBER 30, 2019 Variance with Final Budget - Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Permits and fees $ 387,249 $ 398,539 $ 521,317 $ 122,778 Miscellaneous 4,100 4,100 10,903 6,803 Total revenues 391,349 402,639 532,220 129,581 EXPENDITURES Current Public safety 386,427 388,276 307,997 80,279 Capital outlay 22,617 22,617 23,684 (1,067) Total expenditures 409,044 410,893 331,681 79,212 NET CHANGE IN FUND BALANCE (17,695) (8,254) 200,539 208,793 FUND BALANCE AT BEGINNING OF YEAR 17,695 8,254 348,284 340,030 FUND BALANCE AT END OF YEAR $ - $ - $ 548,823 $ 548,823 99  CITY OF FORT WALTON BEACH, FLORIDA COMMUNITY DEVELOPMENT BLOCK GRANT SPECIAL REVENUE FUND SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE – BUDGET AND ACTUAL FOR THE YEAR ENDED SEPTEMBER 30, 2019 Variance with Final Budget - Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Intergovernmental $ 138,113 $ 144,658 $ 135,313 $ (9,345) Miscellaneous - - - - Total revenues 138,113 144,658 135,313 (9,345) EXPENDITURES Current Economic environment 180,633 144,658 138,342 6,316 Capital outlay 5,123 - - - Total expenditures 185,756 144,658 138,342 6,316 NET CHANGE IN FUND BALANCE (47,643) - (3,029) (3,029) FUND BALANCE (DEFICIT) AT BEGINNING OF YEAR 47,643 - (19,270) (19,270) FUND BALANCE (DEFICIT) AT END OF YEAR $ - $ - $ (22,299) $ (22,299) 100  CITY OF FORT WALTON BEACH, FLORIDA BEAL MEMORIAL CEMETERY PERPETUAL CARE SPECIAL REVENUE FUND SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE – BUDGET AND ACTUAL FOR THE YEAR ENDED SEPTEMBER 30, 2019 Variance with Final Budget - Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Miscellaneous $ 26,500 $ 26,500 $ 129,642 $ 103,142 EXPENDITURES Current Physical environment 12,200 12,200 15,168 (2,968) EXCESS OF REVENUES OVER EXPENDITURES 14,300 14,300 114,474 100,174 OTHER FINANCING SOURCES (USES) Transfers in 38,922 38,922 32,070 (6,852) Transfers out (53,222) (53,222) - 53,222 Total other financing sources (uses) (14,300) (14,300) 32,070 46,370 NET CHANGE IN FUND BALANCE - - 146,544 146,544 FUND BALANCE AT BEGINNING OF YEAR - - 2,974,049 2,974,049 FUND BALANCE AT END OF YEAR $ - $ - $ 3,120,593 $ 3,120,593 101  CITY OF FORT WALTON BEACH, FLORIDA DEBT SERVICE FUND SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE – BUDGET AND ACTUAL FOR THE YEAR ENDED SEPTEMBER 30, 2019 Variance with Final Budget - Budgeted Amounts Positive Original Final Actual (Negative) REVENUES Miscellaneous $ - $ - $ - $ - Total revenues - - - - EXPENDITURES Debt service Principal 767,536 767,536 698,381 69,155 Interest 274,205 274,205 540,929 (266,724) Total expenditures 1,041,741 1,041,741 1,239,310 (197,569) DEFICIENCY OF REVENUES UNDER EXPENDITURES (1,041,741) (1,041,741) (1,239,310) (197,569) OTHER FINANCING SOURCES Transfers in 1,041,741 1,041,741 1,230,257 188,516 NET CHANGE IN FUND BALANCE - - (9,053) (9,053) FUND BALANCE AT BEGINNING OF YEAR - - 26 26 FUND BALANCE (DEFICIT) AT END OF YEAR $ - $ - $ (9,027) $ (9,027) 102 III. STATISTICAL SECTION (UNAUDITED) This section of the City’s comprehensive annual financial report presents detailed information as a context for understanding what the information in the financial statements, and note disclosures say 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 and annual financial reports for the relevant year.  City of Fort Walton Beach, Florida SCHEDULE 1 NET POSITION BY COMPONENT Last Ten Fiscal Years (full accrual basis of accounting) 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Governmental Activities Net investment in capital assets $ 20,605,683 $ 24,756,705 $ 25,379,050 $ 23,531,576 $ 24,866,399 $ 27,443,877 $ 27,791,054 $ 27,347,098 $ 29,375,380 $ 28,280,342 Restricted Debt service 92,880 113,816 113,507 21,156 25,449 25,449 21,156 21,156 26 - Improvement Districts - 4,212,984 3,736,100 3,833,430 4,073,364 1,874,265 1,437,363 1,552,484 1,812,525 1,691,456 Public safety 269,600 268,820 262,648 462,375 565,946 507,625 536,448 426,892 468,331 673,892 Perpetual care - expendable 1,898,445 - - - - - - - - - Other purposes 477,194 234,568 194,193 177,129 172,630 187,575 165,895 93,456 66,707 1,370,446 Unrestricted (deficit) 8,975,046 12,666,165 11,487,979 9,329,608 10,700,661 159,868 2,158,813 (1,447,438) (2,667,720) (377,793) Total governmental activities net position $ 32,318,848 $ 42,253,058 $ 41,173,477 $ 37,355,274 $ 40,404,449 $ 30,198,659 $ 32,110,729 $ 27,993,648 $ 29,055,249 $ 31,638,343 Business-Type Activities Net investment in capital assets $ 18,928,438 $ 17,037,456 $ 14,929,648 $ 17,305,881 $ 13,779,184 $ 12,886,793 $ 12,893,855 $ 13,818,340 $ 13,829,575 $ 13,678,160 Restricted Debt service 481,023 184,711 184,933 1,087,405 1,082,935 157,228 157,228 157,228 157,228 157,228 System improvements 61,559 82,573 112,863 305,508 367,263 382,734 404,761 452,472 440,212 454,564 Unrestricted 6,791,840 6,859,952 8,552,169 9,379,587 9,658,709 10,656,992 11,118,844 11,731,659 12,252,058 14,010,607 Total business-type activities net position $ 26,262,860 $ 24,164,692 $ 23,779,613 $ 28,078,381 $ 24,888,091 $ 24,083,747 $ 24,574,688 $ 26,159,699 $ 26,679,073 $ 28,300,559 Primary Government Net investment in capital assets $ 38,728,907 $ 41,794,161 $ 40,308,698 $ 40,837,576 $ 38,645,583 $ 40,330,670 $ 40,684,909 $ 41,165,438 $ 43,204,955 $ 41,958,502 Restricted 3,297,029 5,097,472 4,604,244 5,887,003 6,287,587 3,134,876 2,722,851 2,703,688 2,945,029 4,347,586 Unrestricted 16,805,772 19,526,117 20,040,148 18,709,195 20,359,370 10,816,860 13,277,657 10,284,221 9,584,338 13,632,814 Total primary government net position $ 58,831,708 $ 66,417,750 $ 64,953,090 $ 65,433,774 $ 65,292,540 $ 54,282,406 $ 56,685,417 $ 54,153,347 $ 55,734,322 $ 59,938,902 Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. The City implemented GASB Statement 34 in 2002; schedules presenting government-wide information include information beginning in that year. Note: Beginning in FY11, the Community Redevelopment Area was included with the Governmental Activities and the Perpetual care - expendable was reclassified from Restricted to Unrestricted 103  City of Fort Walton Beach, Florida SCHEDULE 2 CHANGES IN NET POSITION Last Ten Fiscal Years (full accrual basis of accounting) 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Expenses Governmental activities General government $ 5,306,003 $ 3,765,536 $ 4,314,050 $ 2,662,406 $ 3,179,768 $ 2,735,875 $ 3,285,039 $ 3,581,072 $ 3,799,439 $ 3,559,619 Public safety 9,231,632 9,206,784 9,805,368 9,729,228 9,685,621 9,562,140 10,172,215 11,507,059 11,420,904 11,159,777 Physical environment 304,907 393,752 383,970 379,681 392,255 379,334 430,490 543,287 505,458 519,126 Transportation 1,543,310 1,570,038 1,592,150 1,631,665 1,495,374 1,474,209 1,494,178 1,536,979 1,401,819 1,406,227 Economic environment 98,996 545,242 707,603 1,090,025 803,175 1,813,782 1,540,230 1,591,643 1,174,794 1,412,332 Culture and recreation 2,944,221 2,677,051 2,880,815 2,715,977 4,829,004 4,601,503 5,375,183 5,403,198 5,538,881 5,781,339 Debt service interest 240,940 214,470 254,516 324,405 483,301 340,497 323,639 304,331 291,590 664,131 Total government activities 19,670,009 18,372,873 19,938,472 18,533,387 20,868,498 20,907,340 22,620,974 24,467,569 24,132,885 24,502,551 Business-type activities Utilities 6,725,349 9,162,926 7,017,160 7,644,240 9,185,338 9,205,259 10,066,769 9,420,248 9,810,437 9,961,949 Sanitation 2,466,881 2,524,994 2,741,266 3,163,638 3,393,269 3,319,760 3,407,992 3,687,087 3,774,624 3,720,984 Golf 2,203,739 2,199,453 2,012,165 2,023,186 2,215 - - - - - Stormwater 374,951 339,543 497,211 611,962 439,191 460,314 611,351 681,541 727,282 762,181 Total business-type activities 11,770,920 14,226,916 12,267,802 13,443,026 13,020,013 12,985,333 14,086,112 13,788,876 14,312,343 14,445,114 Total primary government expenses $ 31,440,929 $ 32,599,789 $ 32,206,274 $ 31,976,413 $ 33,888,511 $ 33,892,673 $ 36,707,086 $ 38,256,445 $ 38,445,228 $ 38,947,665 Program Revenues Governmental activities Charges for services General government $ 2,759,080 $ 2,556,270 $ 430,718 $ 409,983 $ 476,824 $ 421,987 $ 421,503 $ 448,911 $ 434,820 $ 508,494 Public safety 467,835 430,017 373,855 640,271 495,111 490,379 523,163 570,556 532,536 643,944 Physical environment 289,654 394,513 439,555 404,429 376,998 409,253 371,205 399,338 387,821 414,695 Transportation 83,586 104,776 118,067 122,275 140,038 140,809 207,860 240,653 246,164 252,418 Economic environment - 16,400 58,000 34,652 10 5,000 392,118 12,000 - 21,300 Culture and recreation 408,351 404,047 400,215 374,362 1,853,087 1,930,131 1,805,332 1,846,019 2,078,405 2,171,484 Operating grants and contributions 639,370 761,643 589,253 786,652 682,200 909,461 908,595 825,624 706,094 765,032 Capital grants and contributions 731,275 351,006 156,794 80,936 109,629 525,320 802,809 361,641 1,487,587 37,406 Total governmental activities program revenues 5,379,151 5,018,672 2,566,457 2,853,560 4,133,897 4,832,340 5,432,585 4,704,742 5,873,427 4,814,773 Business-type activities Charges for services Utilities 6,761,654 7,608,355 7,974,601 8,623,082 8,586,045 9,233,820 10,141,724 10,970,823 10,737,496 11,390,289 Sanitation 3,345,127 3,311,744 3,313,559 3,499,559 3,571,037 3,582,005 3,599,838 3,663,445 3,774,519 3,871,204 Golf 1,934,392 2,052,501 1,776,649 1,758,709 - - - - - - Stormwater 626,903 481,854 577,706 591,196 596,133 694,581 860,644 917,844 975,805 1,027,310 Operating grants and contributions - 118,226 - 1,071 - - - - - - Capital grants and contributions 173,370 65,496 331,609 1,871,295 (157,294) 87,797 533,515 1,314,521 151,049 93,282 Total business-type activities program revenues 12,841,446 13,638,176 13,974,124 16,344,912 12,595,921 13,598,203 15,135,721 16,866,633 15,638,869 16,382,085 Total primary government program revenues $ 18,220,597 $ 18,656,848 $ 16,540,581 $ 19,198,472 $ 16,729,818 $ 18,430,543 $ 20,568,306 $ 21,571,375 $ 21,512,296 $ 21,196,858 Continued… 104  City of Fort Walton Beach, Florida SCHEDULE 2 CHANGES IN NET POSITION Last Ten Fiscal Years (full accrual basis of accounting) 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Net (Expense)/Revenue Governmental activities $ (14,290,858) $ (13,354,201) $ (17,372,015) $ (15,679,827) $ (16,734,601) $ (16,075,000) $ (17,188,389) $ (19,762,827) $ (18,259,458) $ (19,687,778) Business-type activities 1,070,526 (588,740) 1,706,322 2,901,886 (424,092) 612,870 1,049,609 3,077,757 1,326,526 1,936,971 Total primary government $ (13,220,332) $ (13,942,941) $ (15,665,693) $ (12,777,941) $ (17,158,693) $ (15,462,130) $ (16,138,780) $ (16,685,070) $ (16,932,932) $ (17,750,807) General Revenues and Other Changes in Net Position Governmental activities Taxes Property taxes $ 4,380,221 $ 4,482,819 $ 4,295,068 $ 4,175,136 $ 5,385,235 $ 5,473,438 $ 5,617,998 $ 5,807,598 $ 6,041,303 $ 6,416,668 Sales taxes 1,943,337 2,066,834 2,198,270 2,241,242 2,362,190 2,557,062 2,707,153 2,792,840 2,941,301 4,335,114 Utility service taxes 3,914,362 3,926,930 3,739,311 3,761,437 3,889,976 4,036,009 3,931,939 3,962,859 4,182,026 4,045,085 Tax Increments for Redevelopment district - 1,547,609 1,386,521 1,311,101 1,501,208 1,552,560 1,628,439 1,649,589 1,811,121 1,893,803 Franchise Fees - - 1,876,575 1,764,733 2,004,101 2,162,617 2,202,420 2,034,209 2,131,104 2,084,717 Intergovernmental, unrestricted 712,776 825,591 809,756 818,039 819,556 896,837 910,615 981,613 1,009,901 1,034,884 Gain on sale of assets 795,860 16,865 16,440 37,833 520,152 524,720 873,101 - - 66,523 Miscellaneous 492,052 96,105 154,996 106,546 103,986 199,776 27,976 157,806 93,106 77,264 Investment earnings 152,884 133,419 159,465 62,285 345,734 272,076 444,972 414,160 263,824 1,225,235 Special item: Impairment loss - - - (271,287) - - - - - - Transfers 1,667,644 1,682,717 1,656,032 (2,145,441) 2,851,638 657,558 755,846 761,739 847,373 1,091,579 Total governmental activities 14,059,136 14,778,889 16,292,434 11,861,624 19,783,776 18,332,653 19,100,459 18,562,413 19,321,059 22,270,872 Business-type activities Taxes Utility service taxes - - - - - - - - - - Gain on sale of assets 56,795 75,904 35,111 20,662 22,813 716 26,093 32,663 14,258 44,914 Miscellaneous 177,657 31,424 48,550 6,504 6,839 9,222 5,502 27,727 16,575 17,671 Investment earnings 202,071 65,961 69,622 11,107 55,669 159,761 165,583 85,567 9,388 713,509 Special item: Impairment loss - - (588,652) (786,713) - - - - - - Transfers (1,667,644) (1,682,717) (1,656,032) 2,145,441 (2,851,638) (657,558) (755,846) (761,739) (847,373) (1,091,579) Total business-type activities (1,231,121) (1,509,428) (2,091,401) 1,397,001 (2,766,317) (487,859) (558,668) (615,782) (807,152) (315,485) Total primary government $ 12,828,015 $ 13,269,461 $ 14,201,033 $ 13,258,625 $ 17,017,459 $ 17,844,794 $ 18,541,791 $ 17,946,631 $ 18,513,907 $ 21,955,387 Change in Net Position Governmental activities $ (231,722) $ 1,424,688 $ (1,079,581) $ (3,818,203) $ 3,049,175 $ 2,257,653 $ 1,912,070 $ (1,200,414) $ 1,061,601 $ 2,583,094 Business-type activities (160,595) (2,098,168) (385,079) 4,298,887 (3,190,409) 125,011 490,941 2,461,975 519,374 1,621,486 Total primary government $ (392,317) $ (673,480) $ (1,464,660) $ 480,684 $ (141,234) $ 2,382,664 $ 2,403,011 $ 1,261,561 $ 1,580,975 $ 4,204,580 Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. The City implemented GASB Statement 34 in 2002; schedules presenting government-wide information include information beginning in that year. Note: Beginning in FY11, the Community Redevelopment Area was included with the Governmental Activities Note: Beginning in FY12, Franchise Fees were reported as General Revenues - in prior years they were included in General Government - charges for services Note: Beginning in FY13, Cost Allocations were reported as expense reductions in General Government - in prior years they were reported as transfers. Note: Beginning in FY14, the Golf Enterprise Fund was transferred into the General Fund. 105  City of Fort Walton Beach, Florida SCHEDULE 3 FUND BALANCES - GOVERNMENTAL FUNDS Last Ten Fiscal Years (modified accrual basis of accounting) 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 General Fund Reserved $ 499,384 $ - $ - $ - $ - $ - $ - $ - $ - $ - Unreserved 9,314,142 - - - - - - - - - Nonspendable - 3,032,726 2,857,963 254,229 262,964 249,732 240,865 245,181 250,315 269,837 Restricted - 234,768 194,193 7,868,522 4,083,267 183,512 163,817 93,456 66,707 4,497,485 Committed - 5,219,706 5,040,585 5,501,353 5,589,056 5,761,221 6,009,523 6,687,557 6,663,230 8,019,062 Assigned - 1,537,572 354,999 1,301,385 1,584,887 1,396,207 1,198,378 1,891,555 1,913,861 2,341,510 Unassigned - 1,189,562 1,611,120 788,076 1,300,881 2,225,633 4,356,681 3,561,586 2,282,375 3,291,695 Total general fund $ 9,813,526 $ 11,214,334 $ 10,058,860 $ 15,713,565 $ 12,821,055 $ 9,816,305 $ 11,969,264 $ 12,479,335 $ 11,176,488 $ 18,419,589 All Other Governmental Funds Reserved $ 12,783 $ - $ - $ - $ - $ - $ - $ - $ - $ - Unreserved, reported in Debt service 92,880 - - - - - - - - - Special revenue funds 2,158,878 - - - - - - - - - Nonspendable - - - - 798 848 1,762 - - - Restricted - 4,595,420 4,112,255 4,316,961 4,663,961 2,410,554 1,995,283 2,000,532 2,280,882 2,365,348 Committed - 1,929,448 1,959,836 2,035,225 2,249,720 2,259,756 2,467,828 2,739,865 2,974,049 3,120,593 Unassigned - (306) (302) (2,745) (6,231) - - (5,861) (19,270) (31,326) Total all other governmental funds $ 2,264,541 $ 6,524,562 $ 6,071,789 $ 6,349,441 $ 6,908,248 $ 4,671,158 $ 4,464,873 $ 4,734,536 $ 5,235,661 $ 5,454,615 Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. The City implemented GASB Statement 34 in 2002; schedules presenting government-wide information include information beginning in that year. Note: The City implemented GASB 54 in FY11 and the Community Redevelopment Area was included with All Other Governmental Funds 106  City of Fort Walton Beach, Florida SCHEDULE 4 CHANGES IN FUND BALANCES - GOVERNMENTAL FUNDS Last Ten Fiscal Years (modified accrual basis of accounting) 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Revenues Taxes $ 9,414,513 $ 10,438,481 $ 10,065,983 $ 9,901,157 $ 11,537,812 $ 11,837,177 $ 11,941,311 $ 12,220,392 $ 12,741,642 $ 13,101,370 Licenses, permits, and fees 2,406,916 2,428,621 2,142,995 2,221,406 2,392,487 2,564,079 2,623,810 2,514,178 2,586,035 2,659,200 Intergovernmental 3,502,904 3,358,615 3,291,693 3,400,876 3,376,079 3,951,367 4,322,696 4,266,425 4,880,937 5,516,224 Charges for services 907,476 911,405 969,560 1,065,316 2,373,486 2,499,107 2,402,801 2,488,384 2,739,021 2,868,887 Fines and forfeits 204,849 151,616 142,936 241,923 133,645 131,020 121,513 127,406 101,378 94,578 Miscellaneous 1,370,077 817,975 537,975 431,625 827,526 1,142,936 935,821 1,042,958 819,264 1,770,325 Total Revenues 17,806,735 18,106,713 17,151,142 17,262,303 20,641,035 22,125,686 22,347,952 22,659,743 23,868,277 26,010,584 Expenditures General governmental services 5,095,790 3,699,506 3,899,740 2,514,734 2,891,275 2,813,835 3,017,374 3,228,767 3,631,410 3,377,241 Public safety 8,872,424 8,676,620 9,154,002 9,066,246 9,082,876 9,080,984 9,053,178 9,913,344 10,584,430 10,157,745 Physical environment 250,691 306,365 295,459 311,684 325,864 339,596 337,831 372,552 425,472 439,446 Transportation 1,207,449 994,272 966,050 1,012,387 867,730 862,712 852,602 890,762 762,058 824,349 Economic environment 98,996 493,526 652,086 1,032,659 745,586 1,730,631 1,432,788 1,468,393 1,045,687 1,282,063 Culture and recreation 2,535,682 2,233,104 2,383,239 2,267,141 3,744,452 4,122,310 4,196,979 4,170,787 4,477,927 4,685,690 Capital outlay 1,335,369 1,561,057 2,609,203 1,282,142 4,721,096 8,128,139 2,105,686 1,598,285 3,574,823 10,498,028 Debt service Principal 175,629 198,699 211,683 4,540,488 612,996 660,107 673,851 682,229 718,320 698,381 Interest and other costs 240,093 236,268 243,959 203,347 377,574 354,544 336,835 316,629 297,245 547,165 Total expenditures 19,812,123 18,399,417 20,415,421 22,230,828 23,369,449 28,092,858 22,007,124 22,641,748 25,517,372 32,510,108 Excess of revenue over (under) expenditures (2,005,388) (292,704) (3,264,279) (4,968,525) (2,728,414) (5,967,172) 340,828 17,995 (1,649,095) (6,499,524) Other Financing Sources (Uses) Capital lease proceeds - - - 103,784 - 67,774 - - - - Transfers in 2,342,226 2,296,944 2,284,416 673,836 1,636,165 1,721,632 1,798,184 1,794,419 1,868,634 2,353,906 Transfers out (674,583) (614,227) (628,384) (2,819,277) (1,241,454) (1,064,074) (1,042,338) (1,032,680) (1,021,261) (1,262,327) Sale of general capital assets - - - - - - 850,000 - - 350,000 Debt issuance - 739,805 - 12,942,539 - - - - - 12,520,000 Total other financing sources (uses) 1,667,643 2,422,522 1,656,032 10,900,882 394,711 725,332 1,605,846 761,739 847,373 13,961,579 Net change in fund balance $ (337,745) $ 2,129,818 $ (1,608,247) $ 5,932,357 $ (2,333,703) $ (5,241,840) $ 1,946,674 $ 779,734 $ (801,722) $ 7,462,055 Debt service as a percentage of noncapital expenditures 2.25% 2.58% 2.56% 22.65% 5.31% 5.08% 5.08% 4.75% 4.63% 5.66% Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. The City implemented GASB Statement 34 in 2002; schedules presenting government-wide information include information beginning in that year. Note: Beginning in FY11, the Community Redevelopment Area was included with the Governmental Funds Note: Beginning in FY14, the Golf Enterprise Fund was transferred into the General Fund. 107  City of Fort Walton Beach, Florida SCHEDULE 5 REVENUES AND OTHER SOURCES (1) Last Ten Fiscal Years Unaudited Other Fiscal Licenses, Fees, Intergovernmental Charges for Fines and Interest and Financing Year Taxes and Permits Revenues Services Forfeitures Other Revenues Sources TOTAL 2019 $ 13,101,370 $ 2,659,200 $ 5,516,224 $ 2,868,887 $ 94,578 $ 1,770,325 $ 15,223,906 $ 41,234,490 2018 12,741,642 2,586,035 4,880,937 2,739,021 101,378 819,264 1,868,634 25,736,911 2017 12,220,392 2,514,178 4,266,425 2,488,384 127,406 1,042,958 1,794,419 24,454,162 2016 11,941,311 2,623,810 4,322,696 2,402,801 121,513 935,821 2,648,184 24,996,136 2015 11,837,177 2,564,079 3,951,367 2,499,107 131,020 1,142,936 1,789,406 23,915,092 2014 11,537,812 2,392,487 3,376,079 2,373,486 133,645 827,526 1,636,165 22,277,200 2013 9,901,157 2,221,406 3,400,876 1,065,316 241,923 431,625 13,720,159 30,982,462 2012 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 (1) Includes General Fund, LETFs, CDBG Fund, FBC Fund, CRA Fund, Debt Service Fund, Capital Projects Fund, and Beal Memorial Fund Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. The City implemented GASB Statement 34 in 2002; schedules presenting government-wide information include information beginning in that year. Note: Beginning in FY14, the Golf Enterprise Fund was transferred into the General Fund. 108  City of Fort Walton Beach, Florida SCHEDULE 6 ASSESSED VALUE OF TAXABLE PROPERTY (1) Last Ten Fiscal Years Unaudited Total Assessed Total Tax Real Personal Assessed Value for Direct Tax Year Property Property Value Exemptions Operations Rate 2019 $ 1,330,528,554 $ 118,539,677 $ 1,942,542,259 $ 493,474,028 $ 1,449,068,231 5.6395 2018 1,240,032,941 113,382,574 1,831,324,319 477,406,649 1,353,415,515 5.7697 2017 1,622,927,933 117,555,021 1,740,482,954 462,721,193 1,277,761,761 5.7697 2016 1,569,650,612 113,113,590 1,682,764,202 458,344,109 1,224,420,093 5.7697 2015 1,521,529,660 112,451,954 1,633,981,614 448,170,536 1,185,811,078 5.7697 2014 1,475,665,054 108,533,120 1,584,198,174 434,639,300 1,149,558,874 5.7697 2013 1,451,775,552 118,155,863 1,569,931,415 442,204,485 1,127,726,930 5.7697 2012 1,445,327,759 120,653,616 1,565,981,375 446,565,401 1,119,415,974 4.5383 2011 1,478,072,570 126,412,302 1,604,484,872 452,378,818 1,152,106,054 4.5383 2010 1,550,325,157 129,348,680 1,679,673,837 469,933,333 1,209,740,504 4.5383 (1) Florida State Law requires all property to be assessed at current fair market. The January 2019 assessment is the basis for Fiscal Year 2018-19 tax revenues. Source: Okaloosa County Property Appraiser 109  City of Fort Walton Beach, Florida SCHEDULE 7 PROPERTY TAX RATES PER $1,000 OF TAXABLE VALUE - ALL DIRECT AND OVERLAPPING GOVERNMENTS (1) Last Ten Fiscal Years Unaudited City of Fort Walton Beach Direct Rate Overlapping Rates* Okaloosa Northwest Total Fiscal Total Direct Okaloosa County School Florida Water Overlapping Year Basic Rate Rate County Board Management Rates 2019 5.6395 5.6395 3.8308 6.2060 0.0327 10.0695 2018 5.7697 5.7697 3.8308 6.3610 0.0338 10.2256 2017 5.7697 5.7697 3.8308 6.5880 0.0353 10.4536 2016 5.7697 5.7697 3.4308 6.9070 0.0366 10.3744 2015 5.7697 5.7697 3.4308 7.2790 0.0378 10.7476 2014 5.7697 5.7697 3.4308 7.4410 0.0390 10.9108 2013 5.7697 5.7697 3.4308 7.5510 0.0400 11.0218 2012 4.5383 4.5383 3.2899 7.4760 0.0400 10.8059 2011 4.5383 4.5383 3.2899 7.7690 0.0400 11.0989 2010 4.5383 4.5383 3.2899 7.5340 0.0450 10.8689 (1) As of levy date, November 1 of each year listed. The 2019 millage rate is the basis for Fiscal Year 2018-19 tax revenues. * Overlapping rates are those of local and county governments that apply to property owners within the City of Fort Walton Beach Source: Okaloosa County Tax Collector 110  City of Fort Walton Beach, Florida SCHEDULE 8 PRINCIPAL TAXPAYERS Unaudited 2019 2010 Total Total Assessed Assessed Taxpayer Value Percentage Rank Value Percentage Rank Gulf Power Co. $ 25,816,874 1.78% 1 $ 15,015,243 1.20% 1 Suso 2 Uptown, LP 17,595,506 1.21% 2 127 Miracle Strip LLC 8,521,199 0.59% 3 BAE Systems Technology 8,165,108 0.56% 4 DJD Investments of FL II LLC 7,667,613 0.53% 5 North Florida Hotel 7,494,850 0.52% 6 DRS Training & Control 6,966,634 0.48% 7 Cox Communications Gulf Coast, LLC 6,756,467 0.47% 8 99 Eglin LTD 6,712,633 0.46% 9 13,953,676 1.11% 2 Pacifica Walton Beach LLC 6,627,259 0.46% 10 Embarq Corp 11,761,265 0.94% 3 Presidio Developers LLC 8,857,700 0.71% 4 COXCOM Inc 8,401,044 0.67% 5 BLC Westwood LLC 7,634,171 0.61% 6 Fort Walton Machining, Inc. 6,956,002 0.55% 7 DRS Training & Control 6,815,158 0.54% 8 DRS Training & Control Systems 6,253,192 0.50% 9 DDRM Shoppes at Paradise 5,722,845 0.46% 10 Total Taxable Assessed Value of Principal Taxpayers 102,324,143 7.06% 91,370,296 7.28% Total Taxable Assessed Value of Other Taxpayers 1,346,744,088 92.94% 1,163,828,986 92.72% Total Taxable Assessed Value $ 1,449,068,231 100.00% $ 1,255,199,282 100.00% (1) The 2018 tax roll is the basis for Fiscal Year 2018-19 tax revenues. Source: Okaloosa County Property Appraiser 111  City of Fort Walton Beach, Florida SCHEDULE 9 PROPERTY TAX LEVIES AND COLLECTIONS Last Ten Fiscal Years Unaudited Ratio of Ratio of Amount of Percent of Amount of Total Total Taxes Delinquent Current Current Delinquent Collected Collected to Amount of Taxes to Tax Total Tax Taxes Taxes Taxes for the Current Delinquent Current Year Levy (1) Collected Collected Collected Year Levy Taxes Levy 2019 The 2019 tax levy is the basis for Fiscal Year 2018-19 tax revenues. 2018 $ 7,822,441 $ 7,526,583 96.2% $ 20,747 $ 7,547,330 96.5% $ 3,469 0.0% 2017 7,387,081 7,119,876 96.4% 8,632 7,128,508 96.5% 8,122 0.1% 2016 7,080,530 6,826,718 96.4% 18,798 6,845,517 96.7% 9,696 0.1% 2015 6,858,983 6,606,940 96.3% 30,392 6,637,332 96.8% 8,058 0.1% 2014 6,656,342 6,414,562 96.4% 31,452 6,446,014 96.8% 3,604 0.1% 2013 6,528,146 6,269,683 96.0% 76,388 6,346,071 97.2% 11,388 0.2% 2012 5,096,206 4,880,002 95.8% 50,880 4,930,882 96.8% 10,265 0.2% 2011 5,251,483 5,050,661 96.2% 38,067 5,088,728 96.9% 19,826 0.4% 2010 5,519,832 5,309,040 96.2% 78,863 5,387,903 97.6% 11,576 0.2% (1) Includes discount taken for early payment of taxes (maximum of 4%). Source: Okaloosa County Tax Collector 112  City of Fort Walton Beach, Florida SCHEDULE 10 RATIOS OF OUTSTANDING DEBT BY TYPE Last Ten Fiscal Years Unaudited Governmental Activities Business Activities General General State Total Percentage Fiscal Obligation Lease Revenue Revenue Obligation Lease Revenue Revolving Revenue Primary of Personal Per Year Bonds Payable Notes Bonds Bonds Payable Notes Loans Bonds Government Income (1) Capita (2) 2019 $ - $ 6,681 $ 22,246,372 $ - $ - $ - $ 7,537,000 $ 12,614,297 $ - $ 42,404,350 0.42% 1,902.91 2018 - 42,217 10,389,217 - - - 7,968,000 13,308,089 - 31,707,523 0.34% 1,483.88 2017 - 76,099 11,073,656 - - - 8,387,000 13,988,885 - 33,525,640 0.38% 1,578.57 2016 - 106,653 11,725,331 - - - 8,794,000 14,656,929 - 35,282,913 0.40% 1,617.22 2015 - 134,249 12,371,587 - - - 8,794,000 15,312,458 - 36,612,294 0.42% 1,754.39 2014 - 89,654 13,008,515 - - - - 14,004,706 9,640,146 36,743,021 0.43% 1,773.40 2013 - 101,696 13,535,936 - - - 73,533 7,068,522 9,925,055 30,704,742 0.39% 1,515.83 2012 - - 661,796 4,470,000 - 13,458 61,221 - 10,199,963 15,406,438 0.21% 762.92 2011 - - 728,480 4,615,000 - 66,118 76,586 - 10,464,872 15,951,056 0.22% 816.58 2010 - 47,374 - 4,755,000 - 141,737 - - 13,856,796 18,800,907 0.19% 923.65 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. (1) See Schedule 15 for personal income data. (2) See Schedule 15 for population data. Note: Details regarding the City's outstanding debt can be found in the notes to the financial statements. 113  City of Fort Walton Beach, Florida SCHEDULE 11 RATIO OF NET GENERAL BONDED DEBT OUTSTANDING Last Ten Fiscal Years Unaudited Governmental Activities Percentage of General Actual Taxable Fiscal Year Obligation Bonds Value of Property (1) Per Capita (2) 2019 $ - 0.00% $ - 2018 - 0.00% - 2017 - 0.00% - 2016 - 0.00% - 2015 - 0.00% - 2014 - 0.00% - 2013 - 0.00% - 2012 - 0.00% - 2011 - 0.00% - 2010 - 0.00% - Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. The City implemented GASB Statement 34 in 2002; schedules presenting government-wide information include information beginning in that year. (1) See Schedule 6 for property value data. (2) See Schedule 15 for population data. Note: Details regarding the City's outstanding debt can be found in the notes to the financial statements. 114  City of Fort Walton Beach, Florida SCHEDULE 12 PLEDGED REVENUE COVERAGE SCHEDULE OF REVENUE BOND COVERAGE Last Ten Fiscal Years Unaudited Average Non-Ad Valorem Revenues Fiscal Non-Ad Valorem Avail. for Debt Service Requirements (2) Year Revenues (1) Debt Service Principal Interest Total Coverage 2019 $ 49,544,961 $ 40,526,928 $ 1,823,173 $ 1,029,403 $ 2,852,576 14.21 2018 31,508,894 29,893,013 1,846,847 803,314 2,650,161 11.28 2017 28,277,131 28,292,306 1,726,719 831,220 2,557,939 11.06 2016 28,307,481 28,537,163 1,301,785 860,023 2,161,808 13.20 2015 28,766,844 27,552,810 962,155 940,698 1,902,853 14.48 2014 26,593,384 26,466,080 890,954 797,317 1,688,271 15.68 2013 26,338,776 25,803,342 364,156 460,197 824,353 31.30 2012 25,267,908 25,556,504 497,049 697,060 1,194,109 21.40 2011 25,845,100 26,274,792 468,935 695,713 1,164,648 22.56 2010 26,704,483 26,355,374 510,000 874,423 1,384,423 19.04 (1) Non-Ad Valorem Revenues of General Fund, Capital Projects Fund, other governmental funds, and proprietary funds. (2) Combined Debt Service requirements for Capital Improvement Revenue Note Series 2013 & 2013A, Utility System Revenue Note 2015, SRF Loan and 2011 Revenue Notes. See Financial Statement Notes for detail. Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. The City implemented GASB Statement 34 in 2002; schedules presenting government-wide information include information beginning in that year. 115  City of Fort Walton Beach, Florida SCHEDULE 13 DIRECT AND OVERLAPPING GOVERNMENTAL ACTIVITIES DEBT – GENERAL OBLIGATIONS Unaudited Percentage Amount Net Debt Applicable to Applicable to Governmental Unit Outstanding Fort Walton Beach Fort Walton Beach Overlapping Debt Okaloosa County Revenue Bonds $ 58,618,000 10.94% (2) $ 6,413,088 Okaloosa County School District Certificates of Participation 15,157,000 31.11% (1) 4,715,511 Subtotal: Overlapping Debt 73,775,000 11,128,600 Direct Debt City of Fort Walton Beach Revenue Notes 22,246,372 100.00% 22,246,372 City of Fort Walton Beach Lease Payable 6,681 100.00% 6,681 Subtotal: Direct Debt 22,253,053 22,253,053 Total Direct and Overlapping Debt $ 96,028,053 $ 33,381,653 Source: Okaloosa County, Okaloosa County School Board (1) Calculation based on total schools in Okaloosa County School District versus schools in Fort Walton (2) Calculation based on total population in Okaloosa County versus population in Fort Walton Beach. 116  City of Fort Walton Beach, Florida SCHEDULE 14 MAJOR EMPLOYERS Unaudited 2019 2010 Percentage Percentage of Total of Total Employer Product Employees Employment Ranking Employees Employment Ranking (1) USAF - Eglin Air Force Development Test Center 17,040 17.36% 1 16,476 17.43% 1 USAF - Hurlburt(2) Air Force Special Ops Command 12,957 13.20% 2 11,171 11.82% 2 Okaloosa County School District Education Services 5,117 5.21% 3 3,278 3.47% 3 Walmart (Okaloosa Combined) Consumer Products 1,363 1.39% 4 (4) Fort Walton Beach Medical Center Medical Services 1,222 1.25% 5 1,305 1.38% 5 Northwest Florida State College Educatioin Services 1,081 1.10% 6 763 0.81% 8 (3) Okaloosa County BCC Local Government Services 936 0.95% 7 1,383 1.46% 4 Reliance Test and Technology Military Technical Support 750 0.76% 8 North Okaloosa Medical Center Medical Services 652 0.66% 9 BAE Military Technical Support 545 0.56% 10 700 0.74% 10 DRS Training and Control Systems Radar Systems, Digital Computers 0.00% 875 0.93% 6 InDyne Military Techincal Support 0.00% 786 0.83% 7 ResortQuest Property Management 0.00% 750 0.79% 9 41,663 48.55% 37,487 45.94% (1) Includes military, civilian, and contractor personnel; a portion of contractor personnel may be duplicated with private sector employees also listed here. (2) Includes military and civilian personnel. (3) Includes County Commission, Clerk of Court, Property Appraiser, Sheriff (estimated), Supervisor of Elections, and Tax Collector. (4) Economic Development Council estimated the employee count for largest employers in Okaloosa County for FY19. Source: Personnel Department of each employer 117  City of Fort Walton Beach, Florida SCHEDULE 15 MISCELLANEOUS DEMOGRAPHICAL STATISTICS Last Ten Fiscal Years Unaudited Fiscal Fort Walton Beach Okaloosa County FWB as a % Personal Income Per Capita Unemployment Year Population Population of the County (thousands of dollars) Personal Income Rate 2019 22,284 203,684 10.94% $ 10,130,252 $ 48,875 2.3% 2018 21,368 197,591 10.81% 9,627,521 47,433 3.4% 2017 21,238 195,798 10.85% 9,422,078 46,836 3.0% 2016 21,817 198,664 10.98% 8,803,001 44,923 4.9% 2015 20,869 190,550 10.95% 8,783,041 44,695 4.4% 2014 20,719 189,307 10.94% 8,775,211 45,277 4.6% 2013 20,256 186,887 10.84% 8,546,210 44,960 4.7% 2012 20,194 185,803 10.87% 7,913,960 43,132 6.0% 2011 19,534 180,280 10.84% 7,497,082 42,007 7.3% 2010 20,355 195,346 10.42% 7,369,683 41,050 8.0% OKALOOSA COUNTY EDUCATION FY 2019 FY 2018 FY 2017 Schools: Grades K-5 23 23 19 Grades 6-8 12 12 8 Grades 9-12 8 8 5 PK-12 / Charter / Alterna 2 / 5 / 10 2 / 5 / 10 2 / 5 / 10 Grades K-8 1 1 1 Vocational / Technical 1 1 1 Exceptional Children 2 2 2 Students: Grades K-5 15,459 14,936 16,583 Grades 6-8 8,014 7,551 7,754 Grades 9-12 9,428 9,150 9,919 Adult Students 473 132 508 Exceptional Children 6,023 5,953 7,001 Personnel: Instructional (Classroom) 1,920 1,879 1,794 Non-Instructional 752 740 624 Source: Office of Economic & Demographic Research, FL Research & Economic Information Database, Okaloosa County School Board 118  City of Fort Walton Beach, Florida SCHEDULE 16 FULL-TIME EQUIVALENT EMPLOYEES BY FUNCTION/PROGRAM Last Ten Fiscal Years Unaudited Full-Time Equivalent Employees as of September 30 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 General Government City Manager 3.00 3.00 3.00 3.00 3.00 2.00 2.00 2.00 2.00 2.00 Administrative Services 4.70 4.70 4.70 3.60 3.00 3.00 3.00 3.00 3.00 4.00 Risk Management - - - - - - - - - 1.00 Information Technology 4.00 4.00 3.80 2.00 2.00 2.00 2.00 2.00 2.00 2.75 City Clerk 2.40 2.40 2.40 2.50 2.50 2.50 2.50 2.50 2.50 3.00 Finance 6.00 6.00 6.00 6.00 6.00 7.00 7.00 7.00 7.00 7.00 Purchasing 3.00 3.00 3.00 3.00 2.75 2.75 2.50 2.50 2.50 2.50 Public Safety Police 71.82 70.90 65.90 61.90 61.38 60.99 59.99 70.99 67.99 67.59 Fire 37.00 37.00 37.00 37.00 38.00 37.00 37.00 37.00 37.00 38.00 Recreation & Cultural Services Administration 12.70 11.50 11.50 12.90 12.64 12.32 13.45 13.67 13.81 15.93 Parks Maintenance 12.00 10.25 10.25 10.00 10.00 10.00 10.00 11.00 11.00 11.00 Right-of-Way Maintenance 1.00 1.00 2.00 1.00 1.00 1.00 1.00 1.00 1.00 7.00 Senior Citizens Center - - - - - 1.85 1.85 1.85 1.85 1.85 Golf Club 13.96 13.81 13.81 14.26 13.93 14.26 - - - - Golf Grounds Maintenance 15.75 15.75 15.75 15.75 15.75 15.75 - - - - Library 8.72 8.72 8.72 8.02 8.02 8.02 8.02 8.02 8.10 9.90 Museum 3.60 4.00 4.00 4.60 4.10 3.60 3.60 3.60 2.60 3.85 Cemetery 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 Public Works Administration 2.00 3.00 3.00 3.00 4.00 4.00 5.00 5.00 5.00 6.00 Planning & Zoning 4.00 4.00 4.00 3.00 2.00 2.00 1.00 1.00 1.00 1.00 Building & Permitting 4.00 4.00 4.00 4.00 4.00 4.00 4.00 3.70 3.00 3.00 Code Enforcement 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 Fleet Maintenance 9.00 9.00 9.00 9.00 9.00 9.00 9.00 8.75 8.75 10.00 Facilities Maintenance 6.00 7.00 7.00 7.00 7.00 7.00 8.00 8.00 8.00 11.00 Streets Maintenance 5.00 5.00 5.00 6.00 6.00 6.00 5.50 5.50 5.50 6.50 Community Development Block Grant - - - - 0.48 0.48 0.48 0.48 0.48 0.48 Community Redevelopment Agency - - 5.00 3.00 3.00 3.00 3.00 3.00 3.00 1.00 Utility (Water/Sewer) Enterprise Administration 6.00 5.00 5.00 8.00 8.00 8.00 7.00 7.00 6.75 1.00 Customer Service 5.50 5.50 5.50 5.50 5.50 5.50 5.50 5.50 5.50 7.50 GIS 3.00 3.00 3.00 - - - - - - - Water Operations 8.00 9.00 9.00 9.00 10.00 9.00 9.00 9.00 10.00 7.00 Sewer Operations - - - - - - - - - 2.00 Water Distribution 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 6.00 Sewer Collections 13.00 13.00 13.00 13.00 13.00 13.00 13.00 12.00 12.00 11.00 Sanitation Enterprise Solid Waste 19.00 19.00 19.00 19.00 19.00 19.00 19.00 19.00 18.75 19.62 Recycling 1.00 1.00 1.00 1.00 1.00 1.00 - - - - Golf Enterprise Golf Club - - - - - - 14.26 14.26 14.26 14.26 Golf Grounds Maintenance - - - - - - 15.75 15.75 15.75 15.75 Stormwater Enterprise Stormwater 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 6.00 7.00 Total 301.15 299.53 300.33 292.03 292.05 291.02 289.40 300.07 296.09 312.48 Source: City of Fort Walton Beach Adopted Budget for the relevant year. Note: Golf Enterprise Fund moved to the General Fund in FY14. 119  City of Fort Walton Beach, Florida SCHEDULE 17 PERMITS, LICENSES AND RECREATION FACILITIES Last Ten Fiscal Years Unaudited MISCELLANEOUS PERMITS Water & Year Mechanical Electrical Gas Plumbing Sewer 2019 303 392 201 172 25 2018 300 360 159 159 37 2017 260 368 169 213 45 2016 200 216 144 92 81 2015 153 216 116 75 34 2014 247 379 136 194 27 2013 148 188 121 82 26 2012 148 168 102 100 39 2011 249 255 74 159 18 2010 212 290 87 154 27 BUSINESS TAX RECEIPTS ISSUED (formerly referred to as occupational licenses) Year Number Sold 2019 1,389 2018 1,101 2017 2,595 2016 2,115 2015 2,259 2014 2,402 2013 2,087 2012 1,947 2011 2,269 2010 2,311 MUNICIPAL RECREATIONAL FACILITIES 2 18-hole Golf Courses 1 Library 1 18-hole Disc Golf Course 4 Museums 1 Auditorium 23 Playgrounds 12 Baseball-Softball Facilities 2 Racquetball Court Facility 1 BMX/Skateboard Facility 1 Recreation Center 5 Boat Ramps 4 Soccer Field Facility 7 Exercise/Walking Tracks 4 Tennis Court Facilities 1 Fairgrounds 7 Undeveloped Parks 0 Football Stadium 4 Waterfront Parks 4 Beach Volleyball Court Sources: City of Fort Walton Beach Customer Service, Building & Permitting, and Recreation departments. Note: Change in facility and athletic field totals due to the construction of the new Recreation Center, which was complete in FY 2015. 120  City of Fort Walton Beach, Florida SCHEDULE 18 ELECTIONS - OKALOOSA COUNTY VOTER REGISTRATION Unaudited Registered Voters Pct Place Name Total Dems Reps NPA Other 01 BAKER 2,420 300 1,776 321 23 02 BLACKMON 635 95 459 79 2 03 MILLIGAN 1,291 185 871 221 14 04 HOLT 1,315 207 888 209 11 05 LAUREL HILL 1,063 196 685 173 9 06 GARDEN CITY 3,687 586 2,407 645 49 07 DORCAS 1,671 288 1,013 356 14 08 HONEY CREEK 4,311 863 2,512 876 60 09 YELLOW RIVER 4,172 789 2,434 886 63 10 WEST WRIGHT 6,223 1,474 3,046 1,606 97 11 EAST CRESTVIEW 9,379 2,078 4,638 2,478 185 12 WEST CRESTVIEW 883 459 227 187 10 13 NORTH CRESTVIEW 3,823 762 2,237 774 50 14 WEST NICEVILLE 2,922 553 1,688 634 47 15 VALPARAISO 3,032 538 1,772 673 49 16 SHALIMAR 2,891 606 1,586 659 40 17 CENTRAL WRIGHT 3,241 852 1,476 841 72 18 OCEAN CITY 2,588 586 1,303 659 40 19* EAST FWB 1,737 490 742 478 27 20 WEST DESTIN 2,504 426 1,516 532 30 21 MARY ESTHER 2,655 570 1,494 554 37 22* S CENTRAL FWB 1,911 518 928 440 25 23 EGLIN AFB 764 152 316 284 12 24* WEST FWB 2,678 759 1,246 638 35 25 N CENTRAL NICEVILLE 1,897 360 1,118 388 31 26 SEMINOLE 2,715 349 1,855 480 31 27 CINCO BAYOU 293 53 149 83 8 28* GARNIERS 327 56 207 58 6 29* GOLF COURSE 1,959 323 1,258 363 15 30 OKALOOSA ISLAND 1,588 265 912 388 23 31 LONGWOOD 2,078 330 1,391 334 23 32* FERRY PARK 2,464 446 1,477 504 37 33 ROCKY BAYOU 4,730 551 3,331 801 47 34 FLOROSA 3,660 825 1,814 956 65 35 NORTH DESTIN 3,504 494 2,190 770 50 36 SOUTH NICEVILLE 2,678 361 1,794 477 46 37 LAKE LORRAINE 2,776 371 1,838 539 28 38 NORTHGATE 2,224 490 1,203 499 32 39 EAST WRIGHT 2,164 552 1,082 503 27 40 SOUTH BLUEWATER 3,011 368 2,041 576 26 41* N CENTRAL FWB 1,319 256 796 251 16 42* NEW HEIGHTS 2,100 645 910 525 20 43 S CENTRAL NICEVILLE 2,222 393 1,315 488 26 44 CENTRAL DESTIN 1,902 360 1,000 513 29 45 SOUTH CRESTVIEW 4,313 960 2,228 1,051 74 46 NORTH BLUEWATER 4,566 618 2,939 935 74 47 WYNNEHAVEN BEACH 2,024 415 970 591 48 48* WESTWOOD RETIREMENT 107 30 67 10 0 49 EAST DESTIN 3,275 379 2,274 584 38 50 SOUTH DESTIN 3,123 384 2,078 635 26 51 AIRPORT ROAD 1,908 298 1,211 381 18 52 LIVE OAK 3,887 745 2,174 899 69 Countywide Total 136,610 26,009 78,882 29,785 1,934 *City Precinct City Total 14,602 3,523 7,631 3,267 181 Source: Okaloosa County Supervisor of Elections 121  City of Fort Walton Beach, Florida SCHEDULE 19 SPECIAL ASSESSMENT BILLINGS AND COLLECTIONS Last Ten Fiscal Years Unaudited Total Ratio of Outstanding Assessments Collections Current and Fiscal Collected or to Amount Delinquent Year Assessments (1) Released Assessed Assessment 2019 $ 325,278 $ 25,597 7.87% $ 1,371,958 2018 352,698 27,714 7.86% 1,072,277 2017 370,885 29,831 8.04% $747,293 2016 380,118 28,081 7.39% 406,239 2015 - 61,898 - 54,202 2014 - 3,604 - 116,100 2013 - 5,302 - 119,704 2012 - 12,779 - 125,006 2011 - 5,986 - 137,785 2010 - 19,801 - - 2009 - 6,528 - - (1) Assessments are payable over a 15-20 year period. Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. 122  City of Fort Walton Beach, Florida SCHEDULE 20 MAJOR REVENUE SOURCES Last Ten Fiscal Years Unaudited Other Fiscal Property % of Total Taxes/ % of Total Sewer % of Total Sanitation % of Total Water % of Total Golf % of Total Year Taxes Revenues Franchise Fees Revenues Fees Revenues Fees Revenues Fees Revenues Fees Revenues 2019 $ 6,416,668 18.0% $ 12,358,719 34.7% $ 7,005,068 19.7% $ 3,871,165 10.9% $ 4,041,311 11.3% $ 1,696,822 4.8% 2018 6,041,303 17.0% 7,343,744 20.6% 6,728,172 18.9% 3,774,520 10.6% 3,902,809 11.0% 1,676,940 4.7% 2017 7,457,189 20.9% 7,015,584 19.7% 6,668,790 18.7% 3,663,445 10.3% 3,906,282 11.0% 1,317,803 3.7% 2016 7,271,903 20.4% 7,124,985 20.0% 6,310,574 17.7% 3,589,419 10.1% 3,769,366 10.6% 1,378,730 3.9% 2015 7,025,998 19.7% 7,171,032 20.1% 5,748,749 16.1% 3,581,264 10.1% 3,425,909 9.6% 1,399,101 3.9% 2014 6,886,443 20.6% 6,807,274 20.4% 5,177,966 15.5% 3,562,694 10.7% 3,238,894 9.7% 1,365,764 4.1% 2013 5,486,237 17.3% 6,355,549 20.1% 4,949,525 15.7% 3,499,459 11.1% 3,078,174 9.7% 1,591,423 5.0% 2012 5,681,589 18.5% 6,482,596 21.1% 4,839,764 15.8% 3,313,559 10.8% 3,052,071 9.9% 1,656,721 5.4% 2011 6,030,428 19.2% 6,673,824 21.2% 4,631,992 14.7% 3,307,993 10.5% 2,753,590 8.8% 1,954,589 6.2% 2010 5,332,480 17.5% 6,645,189 21.8% 4,154,795 13.6% 3,335,342 10.9% 2,379,913 7.8% 1,914,053 6.3% Sources: Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. The city implemented GASB Statement 34 in 2002; schedules presenting government-wide information include information beginning in that year. Note: Beginning in FY14, the Golf Enterprise Fund was transferred into the General Fund. 123  City of Fort Walton Beach, Florida SCHEDULE 21 WATER AND WASTEWATER SERVICE RATES Unaudited Monthly Water Rates(1,2) Residential Commercial Number of Inside Outside(3) Inside Outside(3) Meters Lifeline Rate(4) $11.21 $14.01 $11.21 $14.01 Monthly Base Charge(5), Meter Size: 3/4" $11.21 $14.01 $11.21 $14.01 9,079 1.0" $11.21 $14.01 $11.21 $14.01 333 1.5" $15.23 $19.04 $15.23 $19.04 112 2.0" $25.89 $32.36 $25.89 $32.36 229 3.0" $39.45 $49.31 $39.45 $49.31 14 4.0" $49.30 $61.63 $49.30 $61.63 22 6.0" $78.43 $98.04 $78.43 $98.04 0 8.0" or 10.0" $117.54 $146.93 $117.54 $146.93 1 Multi-Residential, Addt'l per Unit $8.30 $10.38 $8.30 $10.38 9,790 Residential Customers (6) 8,544 Commercial Customers (6) 1,138 Total Customers 9,682 Gallonage Rate (per 1,000 gallons per unit) Inside Outside Block 1 (0 - 2,000) Included in monthly base charge Block 2 (2,001 - 4,000) $3.34 $4.18 Block 3 (4,001 - 8,000) $4.09 $5.11 Block 4 (8,001 +) $6.13 $7.66 Monthly Wastewater Rates (2) Residential Commercial Lifeline Rate(4) $24.95 $29.87 Monthly Base Charge $24.95 $29.87 Gallonage Rate (per 1,000 gallons per unit) Block 1 (0 - 2,000) Included in monthly base charge Block 2 (2,001 +) $8.10 $9.65 (1) Irrigation customers subject to water rates as outlined herein (2) Monthly Base Charge is per Unit. Residential Single Family and Commercial count as 1 unit Multi-Family and Multi-Commercial are billed according to meter size and unit count (3) Outside City surcharge of 25% for water (4) Single family residence with less than 2,000 gallons per month (5) Residential service capped at 16,000 gallons per unit (6) Billed in September Source: City of Fort Walton Beach Comprehensive Fee Schedule 124  City of Fort Walton Beach, Florida SCHEDULE 22 SANITATION AND RECYCLING SERVICE RATES Unaudited Basic Garbage Rates Garbage Tipping Total Residential One Container $ 10.60 $ 6.45 $ 17.05 Two Containers 21.20 12.80 34.00 Residential Dumpsters, Individual Meters 10.60 6.45 17.05 Commercial One Container 28.60 7.25 35.85 Two Containers 57.20 14.55 71.75 Shared Dumpster (minimum charge) 28.60 7.25 35.85 Garbage and Trash Collection Garbage Tipping Total 2 Cubic Yards 2 times per week $ 60.70 $ 52.40 $ 113.10 3 times per week 91.05 78.50 169.55 4 times per week 121.45 104.55 226.00 5 times per week 151.75 130.70 282.45 6 times per week 182.10 156.80 338.90 4 Cubic Yards 2 times per week 85.70 104.55 190.25 3 times per week 128.55 156.80 285.35 4 times per week 171.40 209.05 380.45 5 times per week 214.25 261.30 475.55 6 times per week 257.10 313.55 570.65 6 Cubic Yards 2 times per week 112.50 156.80 269.30 3 times per week 168.75 235.20 403.95 4 times per week 224.95 313.55 538.50 5 times per week 281.20 391.90 673.10 6 times per week 337.45 470.35 807.80 8 Cubic Yards 2 times per week 135.70 209.05 344.75 3 times per week 203.55 313.55 517.10 4 times per week 271.40 418.05 689.45 5 times per week 339.25 522.60 861.85 6 times per week 407.10 627.05 1,034.15 Compactor Commercial Rate x 3 x Bulk Container(s) Commercial Recycling Garbage Tipping Total 4 Cubic Yards 2 times per week $ 112.70 $ - $ 112.70 3 times per week 169.00 - 169.00 4 times per week 225.35 - 225.35 5 times per week 281.70 - 281.70 6 Cubic Yards 2 times per week 169.00 - 169.00 3 times per week 253.50 - 253.50 4 times per week 338.00 - 338.00 5 times per week 422.50 - 422.50 8 Cubic Yards 2 times per week 225.35 - 225.35 3 times per week 338.00 - 338.00 4 times per week 450.70 - 450.70 5 times per week 563.35 - 563.35 Contaminated Load Fee (per dump) 4 CY 20.00 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 125  City of Fort Walton Beach, Florida SCHEDULE 23 OPERATING INDICATORS BY FUNCTION/PROGRAM Last Ten Fiscal Years Unaudited Function Fiscal Year 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 Public Safety Police Arrests 611 660 757 921 1,041 873 867 1,042 1,265 1,773 Traffic citations 1,404 1,632 2,436 2,693 2,864 3,119 3,413 3,773 3,246 6,207 Fire Emergency medical responses 3,123 3,310 2,994 3,067 3,322 3,278 3,231 3,197 3,041 2,791 Fire responses 1,406 1,324 1,249 1,210 1,270 1,389 1,277 1,288 1,224 1,158 Inspections 1,008 966 932 2,409 1,000 700 800 758 1,431 2,040 Code Enforcement Code violations 1,251 1,446 1,825 1,807 1,702 1,766 2,118 2,158 2,456 2,426 Engineering Services Building permits issued 2,095 2,006 332 n/a n/a n/a n/a n/a n/a n/a Residential building permits issued 1,942 1,855 483 23 1,214 1,220 1,095 697 588 630 Commercial building permits issued 153 151 178 5 402 310 457 164 284 380 Value of permits (in millions) $65.80 $4.10 $2.70 n/a n/a n/a n/a n/a n/a n/a Value of residential permits (in millions) $ 41 $ 26 $ 12 $ 4 $ 16 $ 16 $ 15 $ 9 $ 10 $ 7 Value of commercial permits (in millions) $ 24 $ 15 $ 15 $ 1 $ 832 $ 27 $ 23 $ 9 $ 7 $ 7 Business Tax Receipts Sold 406 628 1,769 2,115 2,259 2,402 2,087 1,947 2,269 2,311 Street resurfacing (lane miles) 0.00 0.18 0.00 1.01 0.64 0.16 - 1.70 2.25 5.71 Pot holes (hours spent repairing) 557 166 213 163 770 528 813 989 1,014 617 Sanitation Refuse collected (tons) 26,498 26,317 26,151 25,203 24,467 26,102 24,059 25,374 25,332 25,676 Recyclables collected (tons) 2,048 2,032 1,811 1,507 1,191 754 615 375 251 161 Culture and Recreation Parks and Recreation Recreation program participants (3) 206 199 102 154 n/a n/a n/a 92,267 106,486 103,121 Recreation program registrations (5) n/a n/a n/a n/a 650 651 571 n/a n/a n/a Adult athletic participants (3) 820 770 530 n/a n/a n/a n/a 6,728 9,003 10,009 Adult athletic registrations n/a n/a n/a 621 424 426 467 n/a n/a n/a Youth athletic participants (3) 2,264 2,123 2,394 n/a n/a n/a n/a 14,548 13,038 12,525 Youth athletic registrations n/a n/a n/a 2,086 1,978 1,347 1,253 n/a n/a n/a Skate/tennis park participants (4) n/a n/a n/a n/a n/a n/a n/a 13,114 18,291 15,297 Library Circulation volume 157,554 147,760 139,980 144,474 137,363 145,684 142,888 139,196 126,146 135,314 Museum Number of visitors/participants(1) 30,050 23,012 24,522 22,437 22,683 19,461 22,901 21,480 28,200 39,935 Water System New connections 25 37 45 81 34 27 26 39 18 27 Water customers 0 9,682 9,620 9,618 9,537 9,480 9,279 8,846 8,804 8,795 Water produced (million gallons) 912 895 866 883 891 884 855 868 899 897 Wastewater System Wastewater treated (million gallons)(2) - - - - - - - - - 381 (1) Decline in 2011 primarily in outreach numbers; reducing outreach to be more in line with in-house service numbers at the suggestion of City Council (2) Wastewater treatment transferred to County in March 2010 (3) FY 2013 total participants was changed to total registrations; changed back to participants in FY 2016 (4) FY 2012-2013 numbers were not required to be collected for the BMX Park or the Tennis Center (5) FY 2016 registrations were changed to participants so that each person was counted once Source: City of Fort Walton Beach Performance Measures. 126  City of Fort Walton Beach, Florida SCHEDULE 24 CAPITAL ASSET STATISTICS BY FUNCTION/PROGRAM Last Ten Fiscal Years Unaudited Function/Program Fiscal Year 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 Public Safety Police Stations 1 1 1 1 1 1 1 1 1 1 Sworn Officers 45 47 45 39 43 43 43 51 48 49 Engineering Services Miles of roads 93.12 93.12 93.12 93.12 93.12 93.12 93.12 93.06 92.65 (2) 112.76 Miles of sidewalks 63.79 63.67 63.67 64.73 63.67 64.73 64.05 63.93 62.80 62.11 Signs fabricated and installed 461 286 614 854 1,133 918 785 935 976 910 Culture and Recreation Parks and Recreation Recreational Amenities 129 129 129 129 129 116 (7) 117 (4) 122 122 122 (3) Parks (acres) 206.00 206.00 206.00 206.00 196.56 180.26 180.26 180.26 180.26 180.26 Library Inventoried collection 56,973 62,513 67,881 70,353 72,313 72,729 74,649 74,448 72,873 74,317 Water and Sewer System Potable water lines (miles) 146.40 146.33 146.10 144.91 144.77 146.25 145.9 (5) 118.63 118.57 118.52 Sanitary sewer lines (miles) 129.49 129.49 129.62 129.51 110.45 130.32(5) 118.76 118.76 118.76 118.77 Reuse water lines (miles) 7.10 7.10 7.10 7.10 7.10 7.10 7.14 3.82 3.82 3.82 Potable Water Elevated Storage Tank Capacity: 1 (6) tank 200,000 gal; 1 tank 750,000 gal; 2 tanks 500,000 gal Potable Water Ground Storage Tank Capacity: 1 tank 135,000 gal; 1 tank 250,000 gal; 1 tank 1,000,000 gal; 1 tank 25,000 gal Pumping Capacity of Potable Water Wells: 9.231 million gallons per day Sanitary Sewer Ground Storage Tank Capacity: 4,000,000 gal Reuse Water Elevated Storage Tank Capacity: 1 tank 200,000 gal Reuse Water Ground Storage Tank Capacity: 1 tank 1,000,000 gal Stormwater System Storm drains (miles) 43.33 43.18 42.10 42.03 42.05 42.01 41.64 41.64 45.70 45.66 (1) FY 2009 Increase due to better data with GIS system and methodology change for calculation. (2) FY 2011 Adjustment to only include City-maintained roads and stormwater pipe (collector, culvert, french drain). (3) FY 2010 Adjustment due to re-evaluation of how amenities are counted. (4) Decrease due to demolition of the Rec Center and fields. (5) Increase due to better data output from GIS system. (6) One elevated tank with 200,000 gallon capacity was converted to reuse water. (7) Decrease due to sale of Senior Center. New Recreation Center will be open mid FY 2015. N/A: Not available. Source: City of Fort Walton Beach Performance Measures. 127  City of Fort Walton Beach, Florida SCHEDULE 25 INSURANCE COVERAGE Unaudited Agent, Broker, or Effective Dates Company Policy Number Company Rep. Type Amount Location 10/12/18 to 10/12/19 Wright National 1151291251 Fisher-Brown Agency Flood $ 450,000 B 14 Robinwood Drive SW $ 100,000 C Sanitation Building 12/6/18 to 12/6/19 Wright National 1151306332 Fisher-Brown Agency Flood $ 500,000 B #7 Hollywood Boulevard $ 500,000 C Police Department 10/12/18 to 10/12/19 Wright National 1151291263 Fisher-Brown Agency Flood $ 500,000 B #5 Hollywood Boulevard $ 300,000 C Fire Department 10/12/18 to 10/12/19 Wright National 1151292103 Fisher-Brown Agency Flood $ 402,700 B 107 Miracle Strip Parkway $ 128,200 C Auditorium 10/12/18 to 10/12/19 Wright National 1151291796 Fisher-Brown Agency Flood $ 402,700 B 107 Miracle Strip Parkway $ 382,900 C City Hall 10/12/18 to 10/12/19 Wright National 1151292114 Fisher-Brown Agency Flood $ 177,300 B 107 Miracle Strip Parkway $ 16,300 C Council Chamber 10/12/18 to 10/12/19 Wright National 1151292125 Fisher-Brown Agency Flood $ 402,700 B 107 Miracle Strip Parkway $ 382,900 C Annex Building 10/12/18 to 10/12/19 Wright National 1151292120 Fisher-Brown Agency Flood $ 389,700 B 107 Miracle Strip Parkway $ 16,300 C Utility Building 10/12/18 to 10/12/19 Wright National 1151291389 Fisher-Brown Agency Flood $ 450,000 B 141 Miracle Strip Parkway $ 100,000 C City Museum 10/12/18 to 10/12/19 Wright National 1151291280 Fisher-Brown Agency Flood $ 350,000 B 22 McGriff Street 50,000 C Child Care Facility 12/2/18 to 12/2/19 Wright National 1150164378 Fisher-Brown Agency Flood $ 38,500 B 338 Miracle Strip Parkway Restroom, East of Pavilion Liza Jackson Park 12/2/18 to 12/2/19 Wright National 1150164379 Fisher-Brown Agency Flood $ 38,500 B 338 Miracle Strip Parkway Restroom Near Ditch Liza Jackson Park 05/17/18 to 05/17/19 Wright National 1150342974 Fisher-Brown Agency Flood $ 98,300 B 55 Ferry Road Boy Scout Hut 07/23/18 to 07/23/19 Wright National 1151270502 Fisher-Brown Agency Flood $ 300,000 B 18 Robinwood Drive $ 50,000 C Pump Station #1 128  City of Fort Walton Beach, Florida SCHEDULE 25 INSURANCE COVERAGE Unaudited Agent, Broker, or Effective Dates Company Policy Number Company Rep. Type Amount Location 06/23/18 to 06/23/19 Wright National 1150458831 Fisher-Brown Agency Flood $ 55,000 B 168 Coral Drive SW City Hall Ball Field Restrooms 10/01/18 to 10/10/19 AIG Environmental Tank Guard 12896318 Public Risk Insurance Agency Petroleum $ 1,000,000/inc Golf Course, Police, City Yard, Fuel Station Liability $ 1,000,000/agg Pump Station - Fire, Recreation Center 10/01/18 to 10/10/19 PGIT PKFL1046200315-11 Public Risk Insurance Agency Inland $ $750,000.00 # 2M | Blanket Unscheduled Marine $ $32,326.00 # 6M | Contractor's / Mobile Equipment - Agreed Value $ $36,677.00 # 6M | Contractor's / Mobile Equipment - Agreed Value $ $30,204.00 # 6M | Contractor's / Mobile Equipment - Agreed Value $ $30,204.00 # 6M | Contractor's / Mobile Equipment - Agreed Value $ $30,204.00 # 6M | Contractor's / Mobile Equipment - Agreed Value $ $30,749.00 # 6M | Contractor's / Mobile Equipment - Agreed Value $ $26,827.00 # 6M | Contractor's / Mobile Equipment - Agreed Value $ $29,079.00 # 6M | Contractor's / Mobile Equipment - Agreed Value $ $29,079.00 # 6M | Contractor's / Mobile Equipment - Agreed Value $ $43,205.00 # 6M | Contractor's / Mobile Equipment - Agreed Value $ $42,574.00 # 6M | Contractor's / Mobile Equipment - Agreed Value $ $42,849.00 # 6M | Contractor's / Mobile Equipment - Agreed Value $ $78,902.00 # 6M | Contractor's / Mobile Equipment - Agreed Value $ $93,150.00 # 7M | Electronic Data Processing Equipment - RC $ $730,000.00 # 11M | Fine Arts - Agreed Value $ $250,000.00 # 14M | Rented, Borrowed, Leased Equipment - ACV $ $445,000.00 # 6M | Contractor's / Mobile Equipment - Agreed Value $ $52,765.00 # 6M | Contractor's / Mobile Equipment - Agreed Value $ $97,373.00 # 6M | Contractor's / Mobile Equipment - Agreed Value $ $35,807.94 # 6M | Contractor's / Mobile Equipment - Agreed Value $ $48,088.00 # 6M | Contractor's / Mobile Equipment - Agreed Value $ $55,654.00 # 6M | Contractor's / Mobile Equipment - Agreed Value $ $1,000,000.00 # Blanket Unscheduled Inland Marine $ $2,040,716.94 # Scheduled Inland Marine $ $3,040,716.94 # Total All Inland Marine 9/16/18 to 9/16/19 Hartford 21BSBDB7459 Fisher-Brown Agency Public Official $ 50,000 Finance Director Bond 02/09/18 to 02/09/19 Hartford 21BSBDB7454 Fisher-Brown Agency Public Official $ 50,000 Customer Service Administrator, Finance Bond Department 10/01/18 to 10/10/19 PGIT PKFL1046200316-12 Public Risk Insurance Agency Auto $ 100,000 Uninsured Motorist $ 1,000,000 CSL Liability 129  City of Fort Walton Beach, Florida SCHEDULE 25 INSURANCE COVERAGE Unaudited Agent, Broker, or Effective Dates Company Policy Number Company Rep. Type Amount Location 10/01/18 to 10/10/19 PGIT PKFL1046200316-12 Public Risk Insurance Agency Forgery $ 250,000 Alteration 10/01/18 to 10/10/19 PGIT PKFL1046200315-11 Public Risk Insurance Agency Money & $ 10,000 Securities (theft) 10/01/18 to 10/10/19 PGIT PKFL1046200316-12 Public Risk Insurance Agency Crime $ 250,000 Public Employees (Employee dishonesty) Blanket Fidelity Bond 10/01/18 to 10/10/19 PGIT PKFL1046200316-07 Public Risk Insurance Agency General $ 1,000,000 Occurrence Liability 10/01/18 to 10/10/19 PGIT PKFL1046200316-12 Public Risk Insurance Agency Property $ 46,666,662 Blank Real & Personal Property 10/1/18 to 10/1/19 PGIT PKFL1046200316-12 Public Risk Insurance Agency Property $ 100,000 Business Income 500,000 Additional Expense 10/1/18 to 10/1/19 PGIT WC-FL1046200316-07 Public Risk Insurance Agency Worker's $ 1,000,000 Accident Comp $ 1,000,000 Disease 10/01/18 to 10/10/19 PGIT PKFL1046200316-12 Public Risk Insurance Agency Public Officials $ 5000000/inc Empl. Practice 5000000/agg 10/01/18 to 10/10/19 Federal Insurance 9906-62-32 Federal Insurance Co. AD&D $ 67,901 Occupational Death ACHUBB Co. $ 67,901 Response to Emergency Ace American Ins. Co. $ 197,876 Unlawful/Unintentional 10/01/18 to 10/10/19 PGIT PKFL1046200315-11 Public Risk Insurance Agency Boiler & $ 46,666,662 Machinery 5/01/18 to 5/01/19 Travelers 105927344 Fisher-Brown Agency Fiduciary $ 2,000,000 Retirement Fund for General Liability Employees and Fire Source: City of Fort Walton Beach Risk Management Department 130  CITY OF FORT WALTON BEACH, FLORIDA OTHER SUPPLEMENTARY INFORMATION SCHEDULE OF RECEIPTS AND EXPENDITURES OF FUNDS RELATED TO THE DEEPWATER HORIZON OIL SPILL FOR THE YEAR ENDED SEPTEMBER 30, 2019 Amounts Amounts Received in Expended in the 2018-2019 the 2018-2019 Source Fiscal Year Fiscal Year Florida Coastal Protection Trust Fund Early Restoration Deepwater Horizon oil spill $ - $ 33,629 131  INDEPENDENT AUDITORS’ REPORT ON THE SCHEDULE OF RECEIPTS AND EXPENDITURES OF FUNDS RELATED TO THE DEEPWATER HORIZON OIL SPILL To the Honorable Mayor and City Council Members City of Fort Walton Beach, Florida We have audited the financial statements of the City of Fort Walton Beach, Florida (the City) as of and for the year ended September 30, 2019, and have issued our report thereon dated April 22, 2020, which contained an unmodified opinion on those financial statements. Our audit was performed for the purpose of forming an opinion on the financial statements as a whole. The Schedule of Receipts and Expenditures of Funds related to the Deepwater Horizon Oil Spill on page 131 is presented for the purpose of additional analysis as required by Chapter 288.8018, Florida Statutes, and the Chapter 10.557(3)(f), Rules of the Auditor General, and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole. Fort Walton Beach, Florida April 22, 2020 132  INDEPENDENT AUDITORS’ REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS To the Honorable Mayor and City Council Members City of Fort Walton Beach, Florida We have audited, in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, the financial statements of governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Fort Walton Beach, Florida (the City), as of and for the year ended September 30, 2019, and the related notes to the financial statements, which collectively comprise the City's basic financial statements and have issued our report thereon dated April 22, 2020. Internal Control over Financial Reporting In planning and performing our audit, we considered the City's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City's internal control. Accordingly, we do not express an opinion on the effectiveness of the City's internal control. Our consideration of internal control was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that have not been identified. However, as described in the accompanying schedule of findings and questioned costs, we did identify certain deficiencies in internal control that we consider to be material weaknesses and significant deficiencies. 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 a 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. We consider the deficiencies described in the accompanying schedule of findings and questioned costs as items 2019-001, 2019-003, and 2019-004 to be material weaknesses. 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. We consider the deficiencies described in the accompany schedule of findings and questioned costs as items 2019-002 and 2019-005 to be significant deficiencies. 133 Compliance and Other Matters As part of obtaining reasonable assurance about whether the City's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matter that are required to be reported under Government Auditing Standards. City of Fort Walton Beach, Florida’s Response to Findings The City’s response to the findings identified in our audit is described in the accompanying schedule of findings and responses. The City’s response was not subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on it. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Fort Walton Beach, Florida April 22, 2020 134  CITY OF FORT WALTON BEACH, FLORIDA SCHEDULE OF FINDINGS AND RESPONSES FOR THE YEAR ENDED SEPTEMBER 30, 2019 FINDING 2019-001 BANK RECONCILIATIONS Criteria Under Government Auditing Standards, the auditor is required to obtain an understanding of the entity's internal control relevant to the audit. Internal Control is defined as a process affected by those charged with governance, management, and other personnel that is designed to provide reasonable assurance about the achievement of the entity's objectives with regards to the reliability of financial reporting, effectiveness and efficiency of operations, and compliance with applicable laws and regulations. Conditions Bank reconciliations were not performed on a timely basis during FY 2019. Bank reconciliations fell behind starting in March 2019 due to staff vacancies. The amount of activity of these accounts on a monthly basis is voluminous and data is captured from various transaction sources making timely monthly reconciliations critical to the internal control over cash. The City was over six months behind on completing its bank reconciliations in February 2020 when the Finance Director was arrested for alleged criminal misconduct. The City does not have a written policy that requires bank reconciliations be prepared within a designated time period after the end of the month. Cause Bank reconciliations from March to September 2019 were not prepared and reviewed on a timely basis due to a lack of oversight by the former Finance Director and staff turnover in the City's Financial Services Department during fiscal year 2019. Effect The internal controls over cash during the period under audit, as designed and placed in operation, does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct a material misstatement on a timely basis. Recommendation Bank accounts should be reconciled monthly and all differences between book and bank balances should be investigated on a timely basis by appropriate accounting personnel so that errors and adjustments can be quickly identified and corrected. All accounts reconciled should be reviewed by supervisory personnel. The City should require all bank reconciliations be completed within a designated time period after the end of the month and any exceptions should be reported to the appropriate member of management/Governance. Management’s Response Concur. Finance Department staff is aware of the importance of ensuring the bank accounts are up to date. A new internal department policy will be drafted to ensure this practice continues. 135  CITY OF FORT WALTON BEACH, FLORIDA SCHEDULE OF FINDINGS AND RESPONSES FOR THE YEAR ENDED SEPTEMBER 30, 2019 FINDING 2019-002 CUSTODY OF CASH Criteria The City’s internal control over financial reporting is designed to allow for management and employees, in the normal course of performing their assigned functions, to prevent, or detect and correct a material misstatement on a timely basis. Condition The fiscal year 2019 internal cash audit performed by City personnel in the Financial Services department on October 2, 2019 could not verify the existence of $5,000 of cash held in the safe for emergency/disaster purposes. The funds were missing from the safe at the time of the cash counts. The Finance Director and the City Clerk were notified at the date of discovery of the missing funds. However no further investigation of the missing funds took place. The suspected fraud was not brought to the attention of the external auditors in fraud risk questions asked of the City Finance Director and City Comptroller. The external auditors were made aware of the missing funds in February 2020 after arrest of the City Finance Director. City personnel also advised that the keys to safe do not have the appropriate physical safeguards and thus access to the safe is not effectively limited. Limited funds are stored in the safe. Cause Any number of City employees could have had access to the safe due to the lack of physical safeguards to the key and thus ultimate resolution of how the funds went missing most likely can not be factually proved. Appropriate investigation into the missing funds did not take place as reliance was placed on the Finance Director, due to her position of authority, to inform the City Manager and Police Chief about the missing funds. Recommendation The City should ensure appropriate physical safeguards to the keys to the safe as only a limited number of people would need access to the safe. Further access to the key and entry into the safe should require dual entry process. The City should require in its policy that the internal cash counts take place more frequently than annually. City personnel should also be trained to ensure the City Manager, Police Chief and external auditors are aware of any known or suspected fraud The City should consider a written fraud policy that promotes consistent organizational behavior by providing guidelines and assigning responsibility for the development of controls and conduct of investigations as it applies to any irregularity or suspected irregularity. Annual fraud awareness training for City employees should also be considered as this incident coupled with other behaviors exhibited by the Finance Director was a red flag. Fraud awareness training has been provided to City personnel in past years but is not a yearly requirement. Management’s Response Concur. The existing fraud policy/procedure is outdated and will be changed drastically. Finance Department staff will consult with experts, including the Police Department, to implement better safeguarding of the cash and access to the vault. The City will then adopt updated policies and procedures for fraud prevention and detection and safeguards of cash on hand for emergency response; this will include employee training. The COVID-19 pandemic has been a great exercise in developing emergency procedures for purchasing necessary resources. 136  CITY OF FORT WALTON BEACH, FLORIDA SCHEDULE OF FINDINGS AND RESPONSES FOR THE YEAR ENDED SEPTEMBER 30, 2019 FINDING 2019-003 AUDITOR PROPOSED JOURNAL ENTRIES Criteria The City’s internal control over financial reporting is designed to allow for management and employees, in the normal course of performing their assigned functions, to prevent, or detect and correct a material misstatement on a timely basis. Condition The final September 30, 2019 trial balances were not available for audit until January 19, 2020. Several audit adjustments were then necessary to properly reflect account balances as follows:  The City failed to record the trade-in of an existing garbage truck as a disposal. The new garbage truck purchased was recorded using the cash price paid without considering the proceeds of $32,500 received from the trade-in.  Retainage payable of approximately $440,000 on the new field office complex was not recorded.  Fund balance in the debt service fund varied by $21,000 from the prior year audit.  Accrued interest of approximately $62,000 was not record on long term debt.  Capital asset account classifications per the subsidiary detail did not agree the general ledger balances.  Pooled investment earnings were not properly recorded as interest income/realized gains and losses. Cause Recurring monthly and year end accounting activity, processes and account reconciliation is not taking place on a timely basis. The City Comptroller has not been trained in certain functions, to include capital asset accounting which is a transaction cycle with over $42 million in assets at September 30, 2019. This is a result of staff vacancies, lack of training and lack of oversight by the Finance Director during the year ended September 30, 2019. Effect The auditors proposed material entries either individually or in the aggregate which were reviewed and accepted by management to correct certain account balances at September 30, 2019. The system of internal control over financial accounting and reporting is not functioning as intended. Recommendation The City should ensure monthly and year end accounting activity to include account reconciliations are performed and reviewed on a timely basis by appropriately experienced and trained personnel. Management’s Response Concur. A training program for Finance Department staff will be developed and implemented under the oversight of the City Manager, Finance Director and Human Resources Department. In addition, the Finance Department will update policies and procedures to ensure timely reconciliations for all accounts, including subledgers (i.e. fixed assets) to the general ledger. 137  CITY OF FORT WALTON BEACH, FLORIDA SCHEDULE OF FINDINGS AND RESPONSES FOR THE YEAR ENDED SEPTEMBER 30, 2019 FINDING 2019-004 – ALLEGED FRAUD Criteria The City’s internal control over financial reporting is designed to allow for management and employees, in the normal course of performing their assigned functions, to prevent, or detect and correct a material misstatement on a timely basis. Conditions The Finance Director opened an American Express card in the name of the City in May 2019. Purchases were made on the card beginning in August 2019. An outbound ACH transaction was used to make payment of $5,840 on the credit card account on September 24, 2019. The credit card charges have been alleged to be for personal use. The Finance Director was terminated after being arrested and charged with criminal misconduct in February 2020. A journal entry in the amount of $5,840 was posted in the City’s general ledger on September 25, 2019 to account for the ACH payment. The support documentation provided with the journal entry was falsified and not reflective of the actual charges made on the credit card. The City’s accounting system required two individuals to post the journal entry. The journal entries and the accompanying falsified support documentation were prepared by the City’s Finance Director and reviewed and approved by the City’s Comptroller. Additional amounts of approximately $45,000 were paid for charges on the card using City funds in FY2020 by ACH payment method. The additional charges on the card are alleged to be for personal use. Cause City policy allowed the Finance Director to open a credit card account in the City’s name without secondary approval or notification. Outbound ACH transactions were able to be initiated and approved by the Finance Director as she served in the administrator role in the City’s banking platform. City policy does not require payments made by ACH payment method to follow the same input and approval process as check disbursements The Finance Director used her position of trust and authority to open the account and prepare journal entries and falsified support documentation to account for the transaction. The journal entry and falsified support documentation were reviewed and approved by the City Comptroller and posted to general ledger. The City has experienced significant turnover in the Financial Services department beginning in February of 2018. There have been two Comptroller’s in place since that date. As noted in a separate report prepared under the direction of a fraud investigation, certain employees were hired that may not have had the proper experience, qualifications or training for the position contributing to a slow erosion of the effectiveness of the Financial Services function. The current Comptroller is new in the role and lacks appropriate experience to robustly review and approve journal entries. Effect The City expended funds of approximately $5,840 on unauthorized transactions during the year ended September 30, 2019. While the amounts are not material to the financial statements, the City Council has asked all suspected fraud to be brought to their attention 138  CITY OF FORT WALTON BEACH, FLORIDA SCHEDULE OF FINDINGS AND RESPONSES FOR THE YEAR ENDED SEPTEMBER 30, 2019 FINDING 2019-004 – ALLEGED FRAUD – CONTINUED Recommendation The City has a written policy for approvals related to disbursements made via check. However the policy has not been updated to account for disbursements made via electronic funds transfer to include Automated Clearing House (ACH) electronic payment delivery system transactions and wire transactions. We recommend the City update its cash disbursement policy to address these methods used to provide payments to vendors. The policy should require a vendor to complete a form in order to be paid by an electronic payment method. Input documentation for new ACH and wire transactions should be reviewed and approved independently from the cash disbursement process similar to the process to add a vendor to the vendor master file. The City should work with its financial institution to determine if access controls at a task level can be configured in its electronic banking platform to achieve this objective. In addition City policy defines a process for the production of a check register each week prior to the disbursement of funds. The check register and related input and approval process should include disbursements by both physical checks and payments planned to be made by ACH and wire payment methods. City policy expressly requires journal entries prepared by the Comptroller are to be reviewed by the Finance Director. Management should adhere to the City’s policy that all adjusting journal entries be reviewed and approved by the Finance Director or another appropriate individual other than the individual responsible for recording journal entries in the general ledger. City policy does not address journal entries prepared by the Finance Director since the system does not contemplate the need for the Finance Director to make journal entries. Due to the turnover and lack of experience in the City’s finance function there may have been valid reasons for a journal entry to be prepared by the Finance Director; however the review of such entries should have been elevated to an individual with requisite financial experience that is not a direct report of the Finance Director. We recommend the City update its policy in this regard. City policy should require two individuals approve the opening of new accounts as well as the issuance of credit or procurement cards. Ultimately crime is a combination of motive and opportunity. Due the responsibility and authority of the Finance Director’s position it is virtually impossible to design a system of internal control to prevent an individual in that position from having opportunity to override the system of internal control. However additional checks and balances over the opening of accounts and the approval process for vendor disbursements using electronic payment methods can make it more difficult for fraud to be committed and increase the frequency in which fraud can be detected. Management’s Response Concur. The appropriate internal controls and policies will be amended or created to ensure this does not happen in the future. Recommendations from the forensic audit will be immediately implemented. Positive pay for ACH transactions has already been implemented after it was determined this feature was never activated for ACH as it was for checks. 139  CITY OF FORT WALTON BEACH, FLORIDA SCHEDULE OF FINDINGS AND RESPONSES FOR THE YEAR ENDED SEPTEMBER 30, 2019 FINDING 2019-005 IT RISK ASSESSMENT Criteria With threats to sensitive data growing in number and sophistication, along with targeted attacks on governmental agencies, management should focus limited IT budgets and resources on specific vulnerabilities. An IT risk assessment identifies, analyzes and prioritizes the risks to the confidentiality, integrity or availability of the organization’s data or information systems, based on both the likelihood of the event and the level of impact it might have on the organization. Condition City management has discussed the need for a current external IT risk assessment but has not formally taken action to procure the assessment. Cause City management has varying priorities and other items have taken precedence over this action item. IT management also agrees an external assessment would be valuable however management would like to accomplish certain IT objectives before proceeding forward. Recommendation The City should procure an external IT risk assessment that can be used as a foundation of its IT security strategy. IT risk assessment needs to be an on-going process that is constantly maintained and updated. While there is no good time for such an activity, proactive identification of system weaknesses can ultimately prevent a reactive response which can be very costly in the event of a breech. Management’s Response Concur. An overall IT assessment is needed for the City, which includes an enterprise software evaluation. Funding was allocated in the FY 2019-20 budget to contract with a third-party vendor for an overall City software evaluation project. This will be expanded to include an IT risk assessment as part of the overall project. 140  INDEPENDENT ACCOUNTANTS’ REPORT ON AN EXAMINATION OF COMPLIANCE REQUIREMENTS IN ACCORDANCE WITH CHAPTER 10.550, RULES OF THE AUDITOR GENERAL To the Honorable Mayor and City Council Members City of Fort Walton Beach, Florida We have examined the City of Fort Walton Beach, Florida’s (the City’s) compliance with the following requirements for the year ended September 30, 2019: 1) Section 218.415, Florida Statutes, in regard to the investments. 2) Section 218.8018, Florida Statutes, in regard to the Deepwater Horizon Oil Spill receipts and expenditures. Management is responsible for the City’s compliance with those requirements. Our responsibility is to express an opinion on the City’s compliance based on our examination. Our examination was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants. Those standards require that we plan and perform the examination to obtain reasonable assurance about whether the City complied, in all material respects, with the specified requirements. An examination involves performing procedures to obtain evidence about whether the City complied with the specified requirements. The nature, timing, and extent of the procedures selected depend on our judgement, including the assessment of the risks of material noncompliance, whether due to fraud or error. We believe that the evidence we obtained is sufficient and appropriate to provide a reasonable basis for our opinion. Our examination does not provide a legal determination of the City’s compliance with specified requirements. In our opinion, the City complied, in all material respects, with the aforementioned requirements for the year ended September 30, 2019. Fort Walton Beach, Florida April 22, 2020 141  MANAGEMENT LETTER To the Honorable Mayor and City Council Members City of Fort Walton Beach, Florida Report on the Financial Statements We have audited the financial statements of the City of Fort Walton Beach, Florida (the City), as of and for the fiscal year ended September 30, 2019, and have issued our report thereon dated April 22, 2020. Auditors’ Responsibility We conducted our audit in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, and Chapter 10.550, Rules of the Auditor General. Other Reporting Requirements We have issued our Independent Auditors’ Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards; Schedule of Findings and Questioned Costs; and Independent Accountant’s Report on an Examination of Compliance Requirements in Accordance with Chapter 10.550, Rules of the Auditor General. Disclosures in those reports, which are dated April 22, 2020, should be considered in conjunction with this management letter. Prior Audit Findings Section 10.554(1)(i)1., Rules of the Auditor General, requires that we determine whether or not corrective actions have been taken to address findings and recommendations made in the preceding annual financial report. There were no findings identified in the preceding annual final report. Official Title and Legal Authority Section 10.554(1)(i)4., Rules of 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 official title and legal authority for the City of Fort Walton Beach, Florida has been disclosed in Note 1 to the financial statements. Financial Condition and Management Section 10.554(1)(i)5.a. and 10.556(7), Rules of the Auditor General, require us to apply appropriate procedures and communicate the results of our determination as to whether or not the City has met one or more of the conditions described in Section 218.503(1), Florida Statutes, and to identify the specific condition(s) met. In connection with our audit, we determined that the City did not meet any of the conditions described in Section 218.503(1), Florida Statutes. 142 Financial Condition and Management – Continued Pursuant to Sections 10.554(1)(i)5.b., and 10.556(8), Rules of the Auditor General, we applied financial condition assessment procedures for the City. It is management's responsibility to monitor the City's financial condition, and our financial condition assessment was based in part on representations made by management and the review of financial information provided by same. Section 10.554(1)(i)2., Rules of the Auditor General, requires that we communicate any recommendations to improve financial management. In connection with our audit, see the schedule of findings and responses. Additional Matters Section 10.554(1)(i)3., Rules of the Auditor General, requires us to communicate noncompliance with provisions of contracts or grant agreements, or abuse, that has occurred, or are likely to have occurred, that has an effect on the financial statements that is less than material but which warrants the attention of those charged with governance. In connection with our audit, see the schedule of findings and responses. Purpose of this Letter Our management letter is intended solely for the information and use of the Legislative Auditing Committee, members of the Florida Senate and the Florida House of Representatives, the Florida Auditor General, Federal and other granting agencies, the City Council Members, and applicable management, and is not intended to be and should not be used by anyone other than these specified parties. We greatly appreciate the assistance and cooperation extended us during our audit. Fort Walton Beach, Florida April 22, 2020 143