comprehensive annual financial report of the city of … rpts/2014 mary esther.pdf · comprehensive...

Prepared by

Steven A. Rausch, Finance Director Finance Department

Comprehensive Annual Financial Report of the City of Mary Esther, Florida

Fiscal Year Ended

September 30, 2014

The City of Mary Esther, Florida PRINCIPAL OFFICIALS

Year Ended September 30, 2014

CITY COUNCIL 2013-2014

Ron Stearns Ruth Sykes

Danny Bennett Lee Griffin

James Kitchens, Jr.

CITY OFFICIALS

Mayor Margaret McLemore

Mayor Pro-Tem

Ron Stearns

City Manager Lynne Oler

City Clerk

Dana Williams

City Attorney Hayward Dykes, Jr., Esq.

I. INTRODUCTORY SECTION

TABLE OF CONTENTS

LETTER OF TRANSMITTAL

GOVERNMENT FINANCE OFFICERS ASSOCIATION (GFOA) CERTIFICATE OF ACHIEVEMENT FOR EXCELLENCE IN FINANCIAL REPORTING

ORGANIZATIONAL CHART

CITY OF MARY ESTHER, FLORIDA TABLE OF CONTENTS

FOR THE YEAR ENDED SEPTEMBER 30, 2014

i

Page TITLE PAGE CITY OFFICIALS I. INTRODUCTORY SECTION Table of Contents i Letter of Transmittal–Finance Director iii GFOA Certificate of Achievement ix Organizational Chart x

II. FINANCIAL SECTION Independent Auditors’ Report 1 Management’s Discussion and Analysis 3 BASIC FINANCIAL STATEMENTS

Government-Wide Financial Statements Statement of Net Position 14 Statement of Activities 15 Fund Financial Statements

Governmental Fund Balance Sheet 16 Reconciliation of the Balance Sheet to the Statement of Net Position

17

Statement of Revenues, Expenditures and Changes in Fund Balance

18

Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balance to the Statement of Activities

19

Statement of Revenues, Expenditures and Changes in Fund Balance –Budget and Actual – General Fund

20

Proprietary Fund – Business-Type Activities Statement of Net Position 21 Statement of Revenues, Expenses and Changes in Net Position 22 Statement of Cash Flows 23 Fiduciary Fund Statement of Fiduciary Net Position – Pension Trust Fund 25 Statement of Changes in Fiduciary Net Position – Pension Trust Fund

26

Notes to the Financial Statements

27

CITY OF MARY ESTHER, FLORIDA TABLE OF CONTENTS


ii

Page Table III. STATISTICAL SECTION (UNAUDITED) Net Position by Component 48 1 Changes in Net Position 49 2 Fund Balances – Governmental Funds 51 3 Changes in Fund Balances – Governmental Funds 52 4 Assessed Value and Actual Value of Taxable Property 53 5 Property Tax Levies and Collections 54 6 Property Tax Rates – Direct and Overlapping Governments Per $100 of Assessed Value 55

7

Direct and Overlapping Governmental Activities Debt 56 8 Ratios of Outstanding Debt by Type 57 9 Pledged Revenue Coverage 58 10 Principal Property Taxpayers 59 11 Demographic and Economic Statistics 60 12 Operating Indicators by Function/Program 61 13 Full-Time Equivalent – City Government Employees by Function/Program 62 14 Capital Asset Statistics by Function/Program 63 15 Principal Employers – Current Year 64 16 IV. COMPLIANCE SECTION Independent Accountants’ Report On An Examination of Compliance

Requirements In Accordance With Chapter 10.550, Rules Of The Auditor General 65

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 66

Schedule of Findings and Responses 68

Management Letter 71

iii

CITY OF MARY ESTHER 195 CHRISTOBAL ROAD - N. MARY ESTHER, FLORIDA 32569

TELEPHONE (850) 243-3566 - FAX (850) 243-0736

Honorable Mayor, City Council Members and Citizens The comprehensive annual financial report of the City of Mary Esther, Florida for the fiscal year ended September 30, 2014, is hereby submitted. Responsibility for both the accuracy of the data and the completeness and fairness of the presentation, including all disclosures, rests with the City. To the best of our knowledge and belief, the enclosed data is accurate in all material respects and is reported in a manner designed to fairly present the financial position and results of operation of the government. All disclosures necessary to enable the reader to gain an understanding of the City’s financial activities have been included. The Comprehensive Annual Financial Report (CAFR) is presented in four sections as follows:

Introductory section – includes this transmittal letter, the Government Finance Officers’ Association (GFOA) Certificate of Achievement for Excellence in Financial Reporting for fiscal year ended September 30, 2013, and the City’s organizational chart of principal officials.

Financial section – includes the Independent Auditors’ Report, Management’s Discussion and Analysis (MD&A), the basic financial statements, and supplemental information.

Statistical section (unaudited) – 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.

Compliance section – includes Independent Accountants’ Report on an Examination of Compliance Requirements in Accordance with Chapter 10.550, Rules of the Auditor General; 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 Responses; and the Management Letter.

Generally accepted accounting principles require that management provides a narrative introduction, overview, and analysis to accompany the basic financial statements in the form of the MD&A. This letter is designed to complement the MD&A and should be read in conjunction with it. The City of Mary Esther’s MD&A can be found immediately following the Independent Auditors’ Report, located in the financial section. CITY PROFILE The City of Mary Esther has approximately 3,860 residents and is situated east of Hurlburt Field and west of Fort Walton Beach. Eglin Air Force Base, the largest military base in the world, surrounds these cities to the north and east. The Town of Mary Esther was established in 1946, with E. Roger Pryor serving as the first mayor. The City of Mary Esther was incorporated on June 5, 1984, after a referendum vote by Mary Esther citizens. Mary Esther has a council-manager form of government.

iv

Council members decide policy, create ordinances, and appoint the City Manager and City Clerk. The City Manager hires and supervises department directors and provides municipal administration. Our coastal City provides fire protection services with our own fire department, and in partnership with neighboring municipalities through mutual aid agreements. Code enforcement, maintenance, and library services are also provided directly by the City. The Mary Esther Public Library is a member of the Okaloosa County Public Library Cooperative and serves City and County residents. Some services provided are free access to the internet and Wi-Fi; a wide range of cultural and educational programs for people of all ages; movies and video games; and books, magazines, newspapers and audios for recreational and educational use. Mary Esther provides law enforcement through a contract with the Okaloosa County Sheriff’s Office. The City has contracted with Operations Management International, Inc. (CH2M Hill OMI) since 2003, to maintain and manage the City’s wastewater treatment facility, and since 2005, to maintain and manage the City’s water production and distribution system and wastewater collection system. The City of Mary Esther is home to the Santa Rosa Mall at the intersection of Hollywood Blvd. and Mary Esther Blvd. The 2.5 square miles of Mary Esther have small residential neighborhoods, interspersed with 10 beautiful parks, including a 14-acre nature park and a free public boat ramp and pier.

City of Mary Esther Park Acres

Amenities

Azalea Park Azalea Dr.

1.81

Elliot Park Mary Esther Manor Subdivision

3.02

North Bryn Mawr Park North End of Bryn Mawr Dr.

2.69 Oak Tree Nature Park

Between Hwy. 98 and Hollywood Blvd., West of Doolittle Blvd.

13.84

Oak Tree Park West End of N. Lorraine Dr.

0.38

Pier Park South End of Misty Water Ln.

0.10

Pryor Park South Side of City Hall, West of

Christobal Rd. 0.61

South Bryn Mawr Park South End of Bryn Mawr Blvd.

2.44

South Bryn Mawr Gazebo South End of Bryn Mawr Blvd.

0.25

Springdale Park Northwest End of Mary Esther Dr.

3.67

Total Park Acreage 28.81

Picnic Tables Playground Basketball Court Natural Trail

Baseball Field Gazebo

Tennis Courts Restrooms Shelter Pier and Boat Ramp Water Fountain

COUNTY PROFILE Florida was ranked as the 5th best business tax climate in the United States in July 2014 by the Tax Foundation, a non-partisan educational organization. Okaloosa County was rated the best-performing metropolitan statistical area in Florida in 2012 by the leading economic development trade publication, “Area Development”. The pleasant climate and highly-skilled workforce create an ideal business environment.

v

Okaloosa County has three airports, convenient access to waterways, and is easily accessible by Interstate 10. Unlike several neighboring counties, Okaloosa County does not have a sales surtax. According to the Florida Legislature, Office of Demographic Research, on April 1, 2013, Okaloosa County’s population was 188,349, an increase of over 4% during the prior three years. In Okaloosa County, the median property tax paid on homes during 2010 was $1,284, which was lower than 68.8% of all counties nationally. The 2014 Okaloosa County millage rate was 3.3443 mils. Okaloosa County has a 7-cent per gallon gas tax. From this gas tax revenue, six cents per gallon is divided among the nine municipalities within the County, including Mary Esther, and the 7th cent is used entirely for County transportation expenses. In September 2014, Okaloosa County’s unemployment rate was 4.6%, compared to 6.1% for the State of Florida. HISTORY Because of its easy access to local waterways, the City of Mary Esther is noted as one of the first areas settled in this part of Northwest Florida. The first settler of Mary Esther arrived in 1842, when Jesse Rogers and his family drove a large cattle herd from Louisiana to the shores of Santa Rosa Sound and settled here. During the mid-1850s, John Newton, a minister and a teacher, settled in the area west of Fort Walton Beach known as the Narrows, today known as Mary Esther. Reverend Newton founded the first school, which also doubled as a church during the Civil War. Additionally, he established the first post office in the community on October 10, 1871, and became its first postmaster. The post office location probably doubled as the Newton’s home. There are three versions of the story about how the City of Mary Esther got its name. Because the community needed a mailing name, old-timers say that through naming the community, Reverend Newton honored his daughters and wife. One version says it was the name of Newton’s wife, the second says it was a combination of his two daughters’ names and the third says it was a combination of his wife’s and daughters’ names. In 2014 a resident came forward with pictures from the local cemetery, of the engraved tombstones for Mary Christine Newton (September 12, 1863 to July 22, 1937) and Esther Newton (July 12, 1861 to November 11, 1931). This lends credence to the possibility the City of Mary Esther was eventually named after Reverend Newton’s daughters. Thomas Jefferson Pryor, born in Greenville, Alabama, sailed to Mary Esther in 1854 as a deckhand on a schooner headed for Pensacola. Pryor met Ona Rogers, daughter of Jesse Rogers, and they were married in May 1879. The couple had ten children, two of which—Tom and Roger Pryor—later served as mayors of the town. Thomas Jefferson Pryor later re-married and had three more children. Thomas Jefferson (T.J.) Pryor became postmaster of Mary Esther in 1899, and members of his family served in that position until 1972. Notably, Mary Pryor, T.J. Pryor’s daughter in-law, served as Postmistress from 1938 to 1972. William C. Pryor, Mary Esther’s pioneer and noted educator, was among the pupils taught by John Newton. He later became Okaloosa County’s first superintendent of schools. The Pryor name is very well-connected to Mary Esther’s history. Members of the family have lived in and often have run the small city. The Pryors continue to live on the same property purchased by the original settlers in the early 1800s, located on the north bank of Santa Rosa Sound. William (Bill) Lazarus is credited with discovering Oak Tree Nature Park. This 14-acre nature park is registered in the Florida Master Site File as 8Ok81 and is protected under Chapter 267 of Florida Statutes.

vi

Between 1999 and 2002, University of West Florida students and community volunteers studied Oak Tree Nature Park for cultural resources under the supervision and leadership of UWF Archaeology Institute professor Norma Harris. The survey uncovered artifacts including bone, shell, pottery shards and stone tools.

A trail, with two bridges crossing the Silver Sands Creek, is lined with markers identifying plant and animal life so visitors can learn from their relaxing stroll through this historic park. In November 2010, a local Boy Scout, Eagle Scout N. Klaus, used lumber and hardware donated by CH2M Hill, Inc., to build a deck at the Southeast corner of the Park

overlooking Silver Sands Creek floodplain.

In 1976, the opening of Santa Rosa Mall sparked a commercial building boom along Mary Esther Cutoff, later renamed Mary Esther Boulevard, within the City limits.

The City’s community garden at Springdale Park was started in 2013. Council member Sykes led an initiative to create the garden and many interested citizens have stepped up to make it a reality. The garden has grown to capacity at its location, and fostered community cooperation, teamwork, and goodwill as garden participants help each other with horticultural knowledge and handiwork. CLIMATE Mary Esther averages about 65 to 70 inches of rain per year. Temperatures range from 35-65°F in the winter, 50-80°F in the spring, 70-92°F in the summer, and 55-80°F in the fall. Hurricane season is from June 1st through November 30th. According to the National Oceanic and Atmospheric Administration Climate Prediction Center, an average Atlantic hurricane season will produce an average of 10 named

storms, of which six will be hurricanes and two or three of those will be major hurricanes. Monthly average water temperatures are depicted below:

vii

CITY FINANCIAL POLICIES The City Manager (CM) is the Chief Financial Officer for funds management and the Chief Investment Officer. He or she is responsible for executing the investment policies of the City Council. In addition, the CM employs members of the City Finance Department and is responsible for their compliance with the Personal Conduct Standards. The CM recommends to the City Council an operating budget and investment strategies based on the written investment policy and is responsible for recommending investment dealers and brokers who are eligible to do business with the City. These recommendations are subject to the City Council’s review and approval. The CM is responsible for the safe custody of security holdings, subject to Council policies, rules, regulations, and directives consistent with regulatory and statutory limitations. The Finance Director (FD), reporting to the CM, reviews the investments of the City to be sure that they conform to requirements and with the investment objectives and policies adopted by the City Council. The FD reviews the previous quarter’s investment transactions, investment performance, asset mix, and portfolio strategy and makes recommendations to the CM for any changes deemed appropriate. Additionally, the FD advises City Council on investment strategies, including specific investments for the City portfolio. The primary objectives of the City of Mary Esther’s investment activities, in priority order, are ensuring safety of principal, liquidity enabling the City to meet all operating requirements, and return on investment in consideration of the City’s investment risk constraints and cash flow characteristics. ECONOMIC ENVIRONMENT AND PROJECTIONS The City of Mary Esther has the infrastructure and necessary resources for businesses to thrive. By estimation, active duty and retired military veterans and their families comprise at least 33% of the City’s total population. A skilled and diversified labor force awaits the savvy business or entrepreneur ready to relocate or grow their business. The City of Mary Esther supports the Okaloosa Economic Development Council’s commitment to “continual growth and diversification through existing industry retention and expansion, workforce development and expansion of key industry clusters.” Mary Esther is businesses-friendly, charging a low utility tax rate of 10%, capped at $10 per customer or business for electricity and gas. This locally unique tax-cap is a valuable incentive to businesses, especially large energy consumers. Eglin Air Force Base and Hurlburt Field provide an economic boost, estimated to be over $600 million annually, for the local economy. According to Governor Scott, “Florida has experienced the largest drop in unemployment in the nation.” Within Florida, Okaloosa County has rebounded from the recession more quickly than most other counties. As of September 2014, Okaloosa County’s unemployment rate of 4.6% was the third lowest among Florida’s 67 counties. EDUCATIONAL INSTITUTIONS AND OPPORTUNITIES Nearby campuses for Northwest Florida State College (NWFSC), Troy University, and the University of West Florida collectively provide all levels of collegiate degrees to those preparing for entry into the workforce and those wanting to further their education. In addition to 2-year degree offerings, NWFSC offers 13 Bachelor’s degree programs, 4 in Project Management, 4 in Education, 4 in Management and Supervision, and 1 in Nursing. Troy University offers 2 in-class undergraduate degrees and 4 in-class graduate degrees at nearby campuses in Fort Walton Beach and at Eglin Air Force Base for those with access. Troy also offers numerous on-line undergraduate and graduate degrees, many of which have several specializations. UWF offers 7 undergraduate degrees at their Emerald Coast campus; some of which may require on-line classes in addition to in-class courses necessary for graduation. UWF also offers 7 online graduate degrees.

viii

Mary Esther Elementary School at 320 East Miracle Strip Parkway, has achieved the top rating of “A” for 6 of the last 8 years from the Florida Department of Education. The school’s student body of over 580 students has a teaching staff of more than 60 teachers including several National Board Certified teachers. The City of Mary Esther Fire Department frequently conducts training and demonstrations for school children to educate them on fire prevention as well as proper reactionary procedures in case they are ever faced with a fire at school or at home. LOOKING FORWARD Construction work was completed during the summer of 2013 for a $650 thousand Community Development Block Grant (CDBG) project to upgrade the City’s water and waste-water distribution systems and storm water system and for a $244 thousand, City-funded street drainage repair project at North Street and Scottsdale Drive. Our City has also received notification of the award of over $1.345 million from FEMA and the FL Department of Emergency Management to be used to repair pavement and the storm water drainage systems for several streets damaged from a severe rain disaster in the Spring of 2014. The City maintains and annually updates a Capital Improvement Plan to anticipate the repair and replacement of high-cost assets necessary to provide transportation and utility services for our residents and ensure funds will be available or obtainable when needed. In addition to water and sewer distribution and collection infrastructure, the life expectancy of City streets, sidewalks, vehicles, equipment, buildings, and all other depreciable assets are considered along with their maintenance and replacement costs. The City’s annual budget cycle includes discussions and decisions by City Council about which capital assets will be repaired or replaced. INDEPENDENT AUDIT Florida municipalities must be audited annually by an independent Certified Public Accounting firm. Warren Averett, LLC has been hired to complete annual audits of the City’s financial reports and provide single audits when required for state and federal grants, for the fiscal years ending September 30, 2013 through 2015. The City was awarded a Certificate of Achievement for Excellence in Government Financial Reporting, by the Government Finance Officers Association, for its Comprehensive Annual Financial Reports (CAFRs) for the fiscal year ending on September 30, 2013. This was the fourth consecutive year since entering the program that the City has received this prestigious award. Acknowledgements The entire City of Mary Esther Finance Department, as well as City Management and Department Managers, put forth great effort to gather the statistical data needed for this year’s CAFR. Special thanks go out to the Economic Development Council of Okaloosa County, the Okaloosa County Tax Collector’s Office, the Okaloosa County School District Finance Department, the Okaloosa County Property Appraiser’s Office, the Okaloosa County Sheriff’s Office, and our auditing firm, Warren Averett, LLC for all their work and assistance in preparing this report. Respectfully submitted, Steven A. Rausch, Finance Director January 27, 2015

The City of Mary Esther, FloridaORGANIZATIONAL CHART

As of September 30, 2014

Citizens

Zoning/Code Compliance

Robert Herbstreith

Fire DepartmentRon McArtor, Chief

Frank Matheny, Asst. ChiefTroy Smith, Asst. Chief

Stewart Avera P/TDavid CheekJoey Knight

Johnny RobertsonAustin Matheny

Michael HallCurtis Dison

LibrarySheila Ortyl, Director

Marlene BosakDebbie LambLillie EalumJames Betsill

Ivette Leaman P/T

Water/SewerRoger Batts, CH2M Hill

FinanceSteven Rausch, Director

Desiree TaylorTeri Davis

Brandon Mitchell

x

Asst. City ClerkNichole Wellem

Mayor andCity Council

Margaret McLemoreRon StearnsLee GriffinRuth Sykes

Danny BennettJames Kitchens, Jr.

City Attorney

City ManagerLynne Oler

City ClerkDana Williams

MaintenanceBrian McMahan,

DirectorScott Frederiksen

Joe LelievreTracy PowersMario Rubiera

Michael Wright

II. FINANCIAL SECTION

INDEPENDENT AUDITORS’ REPORT

MANAGEMENT’S DISCUSSION AND ANALYSIS

BASIC FINANCIAL STATEMENTS o Government-Wide Financial Statements o Fund Financial Statements o Notes to the Financial Statements

STATISTICAL SECTION (UNAUDITED)

1

INDEPENDENT AUDITORS’ REPORT To the Honorable Mayor and Members of the City Council

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 Mary Esther, Florida (the City), as of and for the year ended September 30, 2014, 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.

2

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 Mary Esther, Florida, as of September 30, 2014, and the respective changes in financial position, and, where applicable, cash flows thereof and the respective budgetary comparison information for the General Fund for the year then ended in conformity 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 the Management's Discussion and Analysis on pages 3-13 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City of Mary Esther, Florida's financial statements as a whole. The introductory section and statistical section are presented for purposes of additional analysis and are not a required part of the financial statements. The introductory and statistical sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on them. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated January 27, 2015, on our consideration of the City of Mary Esther, Florida’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering City of Mary Esther, Florida’s internal control over financial reporting and compliance.

Fort Walton Beach, Florida January 27, 2015

3

MANAGEMENT’S DISCUSSION AND ANALYSIS As management of the City of Mary Esther, Florida (the City), we offer readers of the City's financial statements this narrative overview and analysis of financial activities of the City for the fiscal year ended September 30, 2014. FINANCIAL HIGHLIGHTS

The assets of the City exceeded its liabilities and deferred inflow of resources by approximately $18.2 million (net position), and represents a decrease of $366.2 thousand, or 2.0%, from the prior year. Of this amount, $16.0 million represents investments in capital assets (e.g. land, construction in progress, infrastructure, building, machinery and equipment) less any related debt used to acquire these assets that is still outstanding and $2.2 million is unrestricted and may be used to meet the City's ongoing obligations to citizens and creditors.

The net position of governmental activities increased $131.8 thousand, or 1.6%, and the business-type activities decreased $498.0 thousand, or 4.9%.

The City's major governmental fund at September 30, 2014, the General Fund, reported ending fund balance of $1.0 million, a decrease in fund balance of $308.0 thousand. Approximately $966.7 thousand, or 96.5%, of ending fund balance, and 30.1% of the total General Fund expenditures, is available for spending at City Council's discretion.

OVERVIEW OF THE FINANCIAL STATEMENTS The focus of the Governmental Accounting Standards Board (GASB) Statement No. 34 Financial Statements is on both the City as a whole (government-wide), and on the 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, government-to-government), and enhance the City's accountability. This discussion and analysis intends to serve as an introduction to the City's basic financial statements. The City's basic financial statements comprise 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.

GOVERNMENT-WIDE FINANCIAL STATEMENTS

Designed to be corporate-like, the government-wide financial statements consolidate governmental and business-type activities into two columns, which add 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. The Statement of Net Position presents information on all of the City's assets, liabilities, and deferred inflow of resources with the difference reported as net position. This statement combines and consolidates the governmental fund's current financial resources (short-term spendable 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.

4

The Statement of Changes in Net Position 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 (including city manager, city clerk, human resources, finance, purchasing, and non-departmental expenses), public safety (including outsourced police services; fire protection and protective inspections), transportation (including road and street maintenance), human services (animal control) and culture and recreation (parks and library). The business-type activities of the City include water and sewer utility services. The government-wide financial statements are found on pages 14-15 of this report.

FUND FINANCIAL STATEMENTS

A fund is a grouping of related accounts used to maintain control over resources that have been segregated for specific activities of 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 focus 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. Found on pages 16-20 of this report are the basic governmental fund financial statements. 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 one individual governmental fund (General Fund) which is considered a major fund. The City adopts an annual appropriated budget for its General Fund. A budgetary comparison statement is provided to demonstrate compliance with the budgets.

5

Proprietary funds Proprietary funds include enterprise funds, which are used to report the same functions presented as business-type activities in the government-wide financial statements. To account for utility operations, the City uses an enterprise fund, the Water and Sewer Fund, which may be found on pages 21-24 of this report. Fiduciary funds Fiduciary funds are used to account for resources held for the benefit of parties outside the government, individuals or private organizations. The City has a Pension Retirement Fund used to account for retirement benefits of employees. Found on pages 25-26 of this report are the fiduciary fund financial statements.

NOTES TO THE FINANCIAL STATEMENTS The notes provide additional information, which is essential to the full understanding of the data provided in the government-wide and fund financial statements. Beginning on page 27 of this report are the notes to the financial statements. GOVERNMENT-WIDE FINANCIAL ANALYSIS As noted earlier, net position may serve over time as a useful indicator of a government's financial position. In the case of the City, assets exceeded liabilities and deferred inflow of resources by $18.2 million (net position) for the fiscal year, as reported in Table 1. By far the largest portion of the City's net position, $16.0 million, or 87.7%, reflects its investment in capital assets (e.g. land, infrastructure, buildings, machinery and equipment) less any related debt used to acquire those assets that is still outstanding. The City uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending.

6

2014 2013 2014 2013 2014 2013Current and other assets 1,196$ 1,547$ 1,512$ 1,759$ 2,708$ 3,306$ Capital assets 7,596 7,159 8,376 8,681 15,972 15,840

Total assets 8,792 8,706 9,888 10,440 18,680 19,146

Long-term liabilities outstanding 41 50 - - 41 50 Other liabilities** 173 217 150 205 323 422

Total liabilities 214 267 150 205 364 472

Total deferred inflow of resources** 106 100 - - 106 100

Net positionNet investment in capital assets 7,596 7,159 8,376 8,681 15,972 15,840 Restricted - 13 - 6 - 19 Unrestricted 875 1,167 1,361 1,548 2,236 2,715

Total net position 8,471$ 8,339$ 9,737$ 10,235$ 18,208$ 18,574$

*all dollar amounts rounded to the nearest thousand**2013 amounts have been reclassified to conform to newly adopted standards

Governmental Activities Business-Type Activities Total

Table 1CITY OF MARY ESTHER, FLORIDASTATEMENTS OF NET POSITION

AS OF SEPTEMBER 30, 2014 AND 2013(In Thousands of Dollars*)

The remaining balance of unrestricted net position, $2.2 million, may be used to meet the government's ongoing obligations to citizens and creditors. The overall decrease in the City's net position was $366.2 thousand, or 2.0%, during fiscal year 2014. Governmental activities increased by $131.8 thousand and business-type activities decreased by $498.0 thousand.

7

GOVERNMENTAL ACTIVITIES Reported in Table 2 are the key elements of this change in net position.

2014 2013 2014 2013 2014 2013REVENUES

Program revenuesCharges for services 259,287$ 254,568$ 1,565,132$ 1,489,909$ 1,824,419$ 1,744,477$ Operating grants and contributions 42,876 40,314 - - 42,876 40,314 Capital grants and contributions 92,150 - - 608,811 92,150 608,811

General revenuesProperty taxes 641,188 640,503 - - 641,188 640,503 Other taxes* 1,324,939 1,158,755 - - 1,324,939 1,158,755 Other revenue* 263,857 184,942 143,147 186,331 407,004 371,273

TOTAL REVENUES 2,624,297 2,279,082 1,708,279 2,285,051 4,332,576 4,564,133

EXPENSESPrimary government

General government 516,555 507,960 - - 516,555 507,960 Public safety 1,244,362 1,176,681 - - 1,244,362 1,176,681 Transportation 399,040 394,235 - - 399,040 394,235 Human Services 16,831 17,067 - - 16,831 17,067 Culture and recreation 285,407 278,985 - - 285,407 278,985 Unallocated depreciation 301,458 207,212 - - 301,458 207,212

Business-type activitiesWater and sewer - - 1,934,716 1,831,202 1,934,716 1,831,202

TOTAL EXPENSES 2,763,653 2,582,140 1,934,716 1,831,202 4,698,369 4,413,342

Change in net position before transfers (139,356) (303,058) (226,437) 453,849 (365,793) 150,791

Transfers 271,303 57,511 (271,303) (57,511) - -

CHANGE IN NET POSITION 131,947 (245,547) (497,740) 396,338 (365,793) 150,791

NET POSITION AT BEGINNING OF YEAR 8,338,898 8,584,445 10,234,912 9,838,574 18,573,810 18,423,019

NET POSITION AT END OF YEAR 8,470,845$ 8,338,898$ 9,737,172$ 10,234,912$ 18,208,017$ 18,573,810$

*2013 amounts have been reclassified to conform to the current year presentation

Table 2CITY OF MARY ESTHER, FLORIDA

STATEMENTS OF CHANGES IN NET POSITIONFOR THE YEARS ENDED SEPTEMBER 30, 2014 AND 2013


8

FINANCIAL IMPACTS NORMAL IMPACTS There are eight basic impacts on revenues and expenses as reflected below:

Revenues Economic Condition: This can reflect a declining, stable or growing economic

environment and has a substantial impact on property, sales, gas or other tax revenue.

Council Approved Rate Adjustments: While certain tax rates are set by statute, the City Council has significant authority to impose and periodically adjust rates (e.g., water, impact fees, recreation user fees, etc.).

Changing Patterns in Intergovernmental Grant Revenue (both recurring and non-recurring): Certain recurring revenues (state revenue sharing) may experience significant changes periodically while non-recurring (or one-time) grants are less predictable and often distorting in their impact on year-to-year comparisons.

Market Impacts on Investment Income: The current market conditions have a significant influence on the City's investment income causing it to fluctuate greatly.

Expenses

Introduction of New Programs: Within functional expense categories (e.g., police, fire,

public works, community development, parks and recreation, etc.), individual programs may be added or deleted to meet changing community needs.

Authorized Position Adjustments: Changes in service demand may cause the City Council to change authorized staffing. Staffing costs (salary and related benefits) represent 35% of the City's operating costs.

Salary Adjustments: The ability to attract and retain human and intellectual resources requires the City to strive for a competitive salary range position in the marketplace.

Inflation: While overall inflation appears to be reasonably modest, the City is a major consumer of certain commodities such as paper, chemicals, supplies, fuel, oil and parts. Some fluctuations may experience commodity specific increases.

Current Year Impacts - Governmental Activities Capital grants and contributions increased $92 thousand, or 100%, due to an equipment

grant obtained for the fire department.

Other taxes increased $166 thousand, or 14%, as a result of last fiscal year’s one-time change in accounting method for the City’s local business taxes in the prior year.

Other revenue increased $79 thousand, or 43%, which is primarily the result of revenue recognized from a litigation settlement whereby the actual loss was less than the expected. In 2014, the previously accrued loss was reversed and recognized as income in the current year. In addition, a portion of this increase is the result of proceeds from the sale of the City’s previous fire truck that was replaced in fiscal year 2014.

9

Overall primary government expenses increased $182 thousand. This increase was mainly driven by the $94 thousand increase in governmental activities depreciation, which was primarily due to the depreciation from the new fire truck. Public safety expenses also increased $68 thousand primarily due to an increase in salaries expenses related to the fire department.

$0$200,000$400,000$600,000$800,000

$1,000,000$1,200,000$1,400,000

Chart 1Expenses and Program Revenue - Governmental Activities

Program Revenues Expenses

Charges for Services

10% Operating and Capital Grants and

Contributions5%

Property Taxes24%

Sales Taxes18%

Other Taxes38%

Other Revenue5%

Chart 2 Revenues by Source - Governmental Activities

10

Current Year Impacts - Business-Type Activities The net position from business-type activities decreased $498 thousand, or 4.9%.

Charges for services for business-type activities increased by $75 thousand, or 5.1%,

which resulted from additional water and sewer usage during the year.

Capital grants and contributions decreased by $609 thousand, or 100%, resulting from CDBG funds received in the prior fiscal year for the water line replacement and sewer line rehabilitation project. No such project funds were received in fiscal year 2014.

Water and sewer expenses increased by $104 thousand, or 5.7%, mostly attributable to

the increase in depreciation which resulted from the recently completed CDBG project.

$0

$500,000

$1,000,000

$1,500,000

$2,000,000

Water and Sewer

Chart 3 Expenses and Program Revenue - Business-Type Activities

Program Revenues Expenses

Other Revenue and Investment Earnings

8%

Charges for Services

92%

Chart 4 Revenues by Source - Business-Type Activities

11

FINANCIAL ANALYSIS OF THE GOVERNMENT'S FUNDS As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with finance related legal requirements.

GOVERNMENTAL FUNDS

The focus of the City's governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the City's financing requirements. In particular, unassigned fund balance may serve as a useful measure of a government's net resources available for spending at the end of the fiscal year.

The General Fund is the chief operating fund and only major governmental fund of the City. As of the end of the current fiscal year, the City's General Fund reported ending fund balance of $1.0 million, a decrease in fund balance of $308.0 thousand in comparison with the prior year. The remainder of fund balance consists of nonspendable for prepaid items, which indicates that it is not available for new spending, and unassigned fund balance, which is available for future spending.

As a measure of the General Fund's liquidity, it may be useful to compare both unassigned fund balance and total fund balance to total expenditures. Unassigned fund balance represents 30.1% of the total General Fund expenditures, while total fund balance represents 31.2% of that same amount.

During the current fiscal year, the fund balance of the City's General Fund decreased by $308.0 thousand primarily due to capital outlay expenditures related to the purchase of the new fire truck.

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 fund net position of the proprietary funds totaled $1.4 million at the end of the year. Fund net position for proprietary funds decreased $498.0 million during 2014.

BUDGETARY HIGHLIGHTS

GENERAL FUND

An approximate $126.6 thousand increase in budget amendments to General Fund expenditures was made to the original adopted budget for 2014. These were made to account for unforeseen expenditures, primarily related to a fire department grant that the City received that was not originally budgeted or anticipated.

Actual revenues were over budgetary expectations by approximately $185.5 thousand.

Actual expenditures were greater than budgetary estimates by approximately $414.4 thousand, which is mostly attributable to the City not re-budgeting for the purchase of the new fire truck in the current fiscal year.

12

CAPITAL ASSETS AND LONG-TERM DEBT OUTSTANDING

CAPITAL ASSETS

The City's investments in capital assets for its governmental and business-type activities as of September 30, 2014, amounts to $16.0 million (net of accumulated depreciation). This investment in capital assets includes land, buildings, water, wastewater and drainage systems improvements, machinery and equipment, park facilities, roads and highways, etc. The total increase in the City's investment in capital assets for the current fiscal year was $131.9 thousand, or 0.8%, with an overall 6.1% increase for governmental activities, and a 3.5% decrease for business-type activities, all of which is summarized in Table 3.

2014 2013 2014 2013 2014 2013Land 4,363,248$ 4,363,248$ 77,878$ 77,878$ 4,441,126$ 4,441,126$ Buildings 963,551 1,003,253 48,097 51,788 1,011,648 1,055,041 Improvements other than buildings 1,292,755 1,287,324 7,750,049 7,231,791 9,042,804 8,519,115 Machinery and equipment 957,821 434,152 500,238 520,540 1,458,059 954,692 Library books 18,430 9,796 - - 18,430 9,796 Construction in progress - 61,112 - 799,298 - 860,410

Total 7,595,805$ 7,158,885$ 8,376,262$ 8,681,295$ 15,972,067$ 15,840,180$


Table 3CITY OF MARY ESTHER, FLORIDA

CAPITAL ASSETS(net of depreciation)

AS OF SEPTEMBER 30, 2014 AND 2013

DEBT

At the end of the current fiscal year, the City had no debt outstanding. All of the City's debt in Water and Sewer Revenue Bonds was paid off during prior years. 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 process for approval of this type of debt.

ECONOMIC FACTORS AND NEXT YEAR'S BUDGETS AND RATES By constitution, the State of Florida does not have a state personal income tax and therefore the State operates primarily using sales, gasoline, and corporate income taxes. Local governments (cities, counties, and school boards) primarily rely upon property and a limited array of permitted other taxes (sales, gasoline, utility service taxes, franchise taxes, etc.) and fees (occupational licenses) for their governmental activities. There is a limited number of state shared revenues and recurring and non-recurring grants from both the state and federal governments, which provide funding for specific programs, projects or activities. For the business-type activities and certain governmental activities (permitting and recreational programs), the user pays a related fee or charge associated with the service.

13

The level of taxes, fees, and charges for services (including development related impact fees) has an impact on the City's specific competitive ability to encourage development and redevelopment (office, retail, residential and industrial) for those businesses that choose to locate in our jurisdiction. As the City has limited growth potential, it places great emphasis on redevelopment and it is essential for the continued financial and economic health of our community. The military has a significant presence in the City's community with Eglin Air Force Base and Hurlburt Field, employing over 51,000 military and civilian personnel. These installations are essential to the continued long-term economic vitality of this area. Combined, the military and defense-related industries have a $30 billion annual impact on Florida's economy. The Governor's Office of Trade, Tourism & Economic Development (OTTED) is positioned closely with the military commanders in Florida, which may aid in limiting future base realignment and closures from negatively affecting this area. This strong relationship with the commanders gives the Governor and the State of Florida early warning of support issues they contend with on a regular basis. Regional economic indicators were also considered in preparing the fiscal year 2014-2015 budget for the City:

The local unemployment rate was 4.6%, which represents an approximate 0.2% increase from September 2013. The State of Florida's unemployment rate was 6.1%. 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 Florida Department of Revenue’s Office of Tax Research has increased its estimates of

tax distributions to the City of Mary Esther for FY14-15. The published State Revenue Sharing distribution estimate is up by 4.1% and the half-cent sales tax distribution estimate is up by 5.2%. However, the Communication Services Tax distribution estimate is down by 6.7%.

Moderate increases in property tax revenues are anticipated by most regional municipalities.

Property tax revenues in Mary Esther are expected to be up 3.3% for property tax roll year 2014 as compared to roll year 2013 for the City.

REQUESTS FOR INFORMATION This financial report is designed to provide a general financial overview of the City for all those with an interest in the City's finances. Questions concerning any of the information provided in this report or requests for additional information should be addressed to the Finance Department, City of Mary Esther, 195 Christobal Road North, Mary Esther, Florida 32569. The City's website address is www.cityofmaryesther.com.

CITY OF MARY ESTHER, FLORIDA STATEMENT OF NET POSITION

SEPTEMBER 30, 2014

See notes to the financial statements.

14

Governmental Activities

Business-Type Activities Total

ASSETSCash and cash equivalents 691,943$ 241,081$ 933,024$ Investments 355,272 924,202 1,279,474 Receivables 56,779 241,823 298,602 Due from other governments 68,616 - 68,616 Prepaid items 22,946 2,519 25,465 Restricted assets

Cash and cash equivalents - 101,962 101,962 Capital assets

Non-depreciable 4,363,248 77,878 4,441,126 Depreciable, net 3,232,557 8,298,384 11,530,941

TOTAL ASSETS 8,791,361 9,887,849 18,679,210

LIABILITIESAccounts payable 42,652 44,097 86,749 Accrued wages 45,485 - 45,485 Unearned revenue - 4,618 4,618 Payable from restricted assets

Amounts due within one yearCompensated absences 85,537 - 85,537 Customer deposits - 101,962 101,962

Amounts due beyond one yearCompensated absences 30,220 - 30,220 Net OPEB obligation 11,036 - 11,036

TOTAL LIABILITIES 214,930 150,677 365,607

DEFERRED INFLOW OF RESOURCESLocal business taxes received in advance 105,586 - 105,586

NET POSITIONInvestment in capital assets 7,595,805 8,376,262 15,972,067 Unrestricted 875,040 1,360,910 2,235,950

TOTAL NET POSITION 8,470,845$ 9,737,172$ 18,208,017$

Primary Government

CITY OF MARY ESTHER, FLORIDA STATEMENT OF ACTIVITIES



15

Function/program activities ExpensesCharges for

ServicesOperating Grants and Contributions

Capital Grants and Contributions


Business-type Activities Total

Governmental ActivitiesGeneral government 516,555$ 199,880$ -$ -$ (316,675)$ -$ (316,675)$ Public safety 1,244,362 3,990 - 92,150 (1,148,222) - (1,148,222) Transportation 399,040 52,927 - - (346,113) - (346,113) Human services 16,831 - - - (16,831) - (16,831) Culture and recreation 285,407 2,490 42,876 - (240,041) - (240,041) Unallocated depreciation/loss 301,458 - - - (301,458) - (301,458)

Total governmental activities 2,763,653 259,287 42,876 92,150 (2,369,340) - (2,369,340)

Business-type activitiesWater and sewer 1,934,716 1,565,132 - - - (369,584) (369,584)

Total primary government 4,698,369$ 1,824,419$ 42,876$ 92,150$ (2,369,340)$ (369,584)$ (2,738,924)$

General revenuesTaxes

Property taxes 641,188$ -$ 641,188$ Municipal revenue sharing 136,637 - 136,637 Sales taxes 468,942 - 468,942 Utility service taxes 487,133 - 487,133 Franchise taxes 224,189 - 224,189 Other taxes 144,675 - 144,675

Gain (loss) on disposal of assets 38,942 - 38,942 Miscellaneous 86,086 138,281 224,367 Investment earnings 2,192 4,866 7,058

Transfers 271,303 (271,303) -

Total general revenues and transfers 2,501,287 (128,156) 2,373,131

CHANGE IN NET POSITION 131,947 (497,740) (365,793)

NET POSITION AT BEGINNING OF YEAR 8,338,898 10,234,912 18,573,810

NET POSITION AT END OF YEAR 8,470,845$ 9,737,172$ 18,208,017$

Program RevenuesNet (Expense) Revenue and Changes in Net Position

Primary Government

CITY OF MARY ESTHER, FLORIDA GOVERNMENTAL FUND

BALANCE SHEET SEPTEMBER 30, 2014


16

General fundASSETS

Cash and cash equivalents 691,943$ Investments 355,272 Receivables 56,779 Due from other governments 68,616 Prepaid items 22,946

TOTAL ASSETS 1,195,556$

LIABILITIESAccounts payable 42,652$ Accrued payroll liabilities 45,485

Total liabilities 88,137

DEFERRED INFLOW OF RESOURCESLocal business taxes received in advance 105,586

FUND BALANCENonspendable for prepaid items 22,946 Assigned for general government 12,074 Unassigned 966,813

Total fund balances 1,001,833

TOTAL LIABILITIES, DEFERRED INFLOW OF RESOURCES, AND FUND BALANCE 1,195,556$


RECONCILIATION OF THE BALANCE SHEET TO THE STATEMENT OF NET POSITION SEPTEMBER 30, 2014


17

Fund balance, total governmental funds (page 16) 1,001,833$

Governmental non-depreciable assets 4,363,248 Governmental depreciable assets 5,601,128 Less accumulated depreciation (2,368,571)

7,595,805

Net OPEB obligation (11,036) Compensated absences (115,757)

(126,793)

Net position of governmental activities (page 14) 8,470,845$

Long-term liabilities are not due and payable in the current periodand therefore are not reported in the governmental funds.

Amounts reported for governmental activities in the Statement of NetPosition are different because:

Capital assets used in governmental activities are not financialresources and therefore are not reported in the funds.


STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE FOR THE YEAR ENDED SEPTEMBER 30, 2014


18

General fundREVENUES

Taxes 1,424,234$ Licenses, fees, and permits 242,354 Intergovernmental 589,367 Charges for services 207,314 Fines 33,808 Miscellaneous 88,278

Total revenues 2,585,355

EXPENDITURESCurrent

General government 519,438 Public safety 1,244,362 Transportation 399,040 Human services 16,831

Culture and recreation 285,407 Capital outlay 747,021

Total expenditures 3,212,099

DEFICIENCY OF REVENUES UNDER EXPENDITURES (626,744)

OTHER FINANCING SOURCES (USES)Transfers in 271,303 Proceeds from sale of capital assets 47,585

Total other financing sources (uses) 318,888

NET CHANGE IN FUND BALANCE (307,856)

FUND BALANCE AT BEGINNING OF YEAR 1,309,689

FUND BALANCE AT END OF YEAR 1,001,833$


RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE TO THE STATEMENT OF ACTIVITIES



19

Net change in fund balance - governmental funds (page 18) (307,856)$

Expenditures for capital assets 747,021 Less current year depreciation (301,458)

445,563

Disposals of capital assets and adjustments (282,360) Accumulated depreciation associated with disposals and adjustments 273,717

(8,643)

Change in net OPEB obligation (1,129) Change in long-term compensated absences 4,012

2,883

Change in net position of governmental activities (page 15) 131,947$

Amounts reported for governmental activities in the Statement of Activities are different because:

Some expenses reported in the Statement of Activities do notrequire the use of current financial resources and therefore are notreported as expenditures in governmental funds:

Governmental funds report capital outlays as expenditures;however, in the Statement of Activities, the cost of those assets isdepreciated over the estimated useful lives of the assets.

Governmental funds do not report capital assets on the balancesheet; however, they are reported in the government-wide financialstatements. According, proceeds received for disposal of assets areshown as income in the governmental financial statements and again or loss is reported in the Statement of Activities.

CITY OF MARY ESTHER, FLORIDA GENERAL FUND

STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE – BUDGET AND ACTUAL



20

Original Final Actual

Variance with

Final Budget Positive

(Negative)REVENUES

Taxes 1,415,488$ 1,415,488$ 1,424,234$ 8,746$ Licenses, fees, and permits 241,100 241,100 242,354 1,254 Intergovernmental 490,635 490,635 589,367 98,732 Charges for services 211,049 211,049 207,314 (3,735) Fines and forfeits 21,600 21,600 33,808 12,208 Miscellaneous 19,913 19,913 88,278 68,365

Total revenues 2,399,785 2,399,785 2,585,355 185,570

EXPENDITURESCurrent

General government services 549,400 554,600 519,438 35,162 Public safety 1,282,294 1,294,705 1,244,362 50,343 Transportation 427,735 433,734 399,040 34,694 Economic environment 17,067 17,067 16,831 236 Culture and recreation 284,192 284,192 285,407 (1,215)

Capital outlay 110,450 213,400 747,021 (533,621)

Total expenditures 2,671,138 2,797,698 3,212,099 (414,401)

DEFICIENCY OF REVENUES UNDER EXPENDITURES (271,353) (397,913) (626,744) (228,831)

OTHER FINANCING SOURCES (USES)Transfers in 271,303 271,303 271,303 - Proceeds from sale of capital assets 50 50 47,585 47,535

Total other financing sources (uses) 271,353 271,353 318,888 47,535

NET CHANGE IN FUND BALANCE - (126,560) (307,856) (181,296)

FUND BALANCE AT BEGINNING OF YEAR - 126,560 1,309,689 1,183,129

FUND BALANCE AT END OF YEAR -$ -$ 1,001,833$ 1,001,833$

Budgeted Amounts

CITY OF MARY ESTHER, FLORIDA PROPRIETARY FUND

WATER AND SEWER FUND STATEMENT OF NET POSITION

SEPTEMBER 30, 2014


21

ASSETSCurrent assets

Cash and cash equivalents 241,081$ Investments 924,202 Receivables, net 241,823 Prepaid items 2,519

Total current assets 1,409,625

Noncurrent assetsRestricted assetsCash and cash equivalents 101,962

Capital assetsNon-depreciable 77,878 Depreciable, net 8,298,384

Total capital assets 8,376,262

Total noncurrent assets 8,478,224

TOTAL ASSETS 9,887,849

LIABILITIESCurrent liabilities

Accounts payable 44,097 Unearned revenue 4,618 Payable from restricted assets

Customer deposits 101,962

Total current liabilities 150,677

TOTAL LIABILITIES 150,677

NET POSITIONInvested in capital assets 8,376,262 Unrestricted 1,360,910

TOTAL NET POSITION 9,737,172$


WATER AND SEWER FUND STATEMENT OF REVENUES, EXPENSES, AND CHANGE IN NET POSITION



22

OPERATING REVENUESCharges for services 1,565,132$

OPERATING EXPENSESOperating 1,583,163 Depreciation 351,553

Total operating expenses 1,934,716

OPERATING INCOME (LOSS) (369,584)

NON-OPERATING REVENUES (EXPENSES)Tap fees 15,125 Rental income 112,643 Interest 6,050 Miscellaneous 9,329

Total non-operating revenues (expenses) 143,147

INCOME (LOSS) BEFORE TRANSFERS (226,437)

Transfers out (271,303)

CHANGE IN NET POSITION (497,740)

NET POSITION AT BEGINNING OF YEAR 10,234,912

NET POSITION AT END OF YEAR 9,737,172$


WATER AND SEWER FUND STATEMENT OF CASH FLOWS



23

CASH FLOWS FROM OPERATING ACTIVITIESReceipts from customers and users 1,587,430$ Payments to suppliers/employees (1,633,206) Miscellaneous income 121,972

Net cash provided by operating activities 76,196

CASH FLOWS FROM NON-CAPITAL FINANCING ACTIVITIESTransfers out (271,303)

CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIESAcquisitions of capital assets (46,520) Proceeds from tap fees 15,125

Net cash used in capital and related financing activities (31,395)

CASH FLOWS FROM INVESTING ACTIVITIESInterest income 6,050 Proceeds from sale of investments 241,437 Purchases of investments (249,868)

Net cash flows used in investing activities (2,381)

NET DECREASE IN CASH AND CASH EQUIVALENTS (228,883)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 571,926

CASH AND CASH EQUIVALENTS AT END OF YEAR 343,043$


WATER AND SEWER FUND STATEMENT OF CASH FLOWS - CONTINUED FOR THE YEAR ENDED SEPTEMBER 30, 2014


24

CASH AND CASH EQUIVALENTS AT END OF YEAR CONSIST OFCurrent 241,081$ Restricted 101,962

Total cash and cash equivalents 343,043$

RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES

Operating income (loss) (369,584)$ Adjustments to reconcile operating income (loss) to net cash provided by operating activities

Depreciation 351,553 Miscellaneous expense 9,329 Rental income 112,643 Decrease (increase) in assets:

Accounts receivable (28,303) Due from other governments 48,383 Prepaid expenses 6,758

Increase (decrease) in liabilities:Customer deposits 58 Accounts payable (56,801) Unearned revenue 2,160

Net cash provided by operating activities 76,196$

CITY OF MARY ESTHER, FLORIDA FIDUCIARY FUNDS

STATEMENT OF FIDUCIARY NET POSITION SEPTEMBER 30, 2014


25

Pension Trust Fund

ASSETSInvestments

Money market fund 646,935$ Mutual funds 813,813

TOTAL ASSETS 1,460,748$

FIDUCIARY NET POSITIONHeld in trust for pension benefits 1,460,748$

CITY OF MARY ESTHER, FLORIDA FIDUCIARY FUNDS

STATEMENT OF CHANGES IN FIDUCIARY NET POSITION FOR THE YEAR ENDED SEPTEMBER 30, 2014


26

Pension Trust Fund

ADDITIONSEmployer contributions 99,312$ Investment income 64,246

TOTAL ADDITIONS 163,558

DEDUCTIONSBenefits and refunds paid

Retirement payments and withdrawals 31,719

NET INCREASE IN FIDUCIARY NET POSITION 131,839

FIDUCIARY NET POSITION AT BEGINNING OF YEAR 1,328,909

FIDUCIARY NET POSITION AT END OF YEAR 1,460,748$

CITY OF MARY ESTHER, FLORIDA NOTES TO THE FINANCIAL STATEMENTS

SEPTEMBER 30, 2014

27

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF CITY Description of City The City of Mary Esther, Florida (the City) was established as a town under the laws of the State of Florida in 1946. On June 5, 1984, after referendum vote by the citizens of Mary Esther, the Council approved ordinance number 84-3 to incorporate Mary Esther as a City. The City operates under a council form of government and provides the following services: public safety (fire control, protective inspections and law enforcement), transportation (road and street facilities), human services (animal control), culture and recreation (library and parks and recreation), physical environment (community development), utility (water and sewer) and general government. The financial statements of the City have been prepared in accordance with accounting principles generally accepted (GAAP) in the United States of America applicable to governmental units and the Uniform Accounting System mandated by Chapter 218.33, Florida Statutes. The Governmental Accounting Standards Board (GASB) is the standard-setting body for governmental accounting and financial reporting. The following is a summary of the more significant accounting policies of the City: The Reporting Entity As required by accounting principles generally accepted in the United States of America, these financial statements present the City as the primary government. 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 is financially accountable if it appoints a voting majority of the potential component unit's governing board, and it is able to impose its will on the organization, or 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, 2014, the City had no component units, as defined by GASB Statement No. 61, with a significant operational or financial relationship with 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 Changes in Net Position) report information on all of the activities of the primary government and its component unit. For the most part, the effect of interfund activity has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which significantly rely on fees and charges for support. Likewise, the primary government is reported separately from the legally separate component unit for which the primary government is financially accountable.


SEPTEMBER 30, 2014

28

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF CITY – CONTINUED Government-Wide and Fund Financial Statements - Continued 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 governmental funds, proprietary funds, and fiduciary funds, even though fiduciary funds are excluded from government-wide financial statements. Major individual governmental funds and the enterprise fund are reported as separate columns in the fund 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. 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. 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.


SEPTEMBER 30, 2014

29

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF CITY – CONTINUED Measurement Focus and Basis of Accounting - Continued The Okaloosa 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, 2014Levy Date November 1, 2014Due Date November 1, 2014Delinquent Date April 1, 2015 Discounts of 1% are granted for each month taxes are paid prior to March 2015. Revenue recognition criteria for property taxes under the GASB requires that property taxes expected to be collected within 60 days of the current period be accrued. No accrual has been made for 2014 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. 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. 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 utility services. The City also recognizes, as operating revenues, the portion of tap fees intended to recover the cost of connecting customers to the system.


SEPTEMBER 30, 2014

30

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF CITY – CONTINUED Basis of Presentation - Continued Operating expenses for enterprise funds include the cost of 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 one major governmental fund: General Fund - This is the City's primary operating fund and is used to account for all financial resources of the general government, except those required to be accounted for in another fund. Proprietary Proprietary funds focus on the determination of fund net position, changes in fund net position, and cash flows. The City's proprietary fund is an enterprise fund, as fees are charged to external users for services. The following is a description of the City's major proprietary fund: Water and Sewer Fund - this fund accounts for the operations and activities of the City's water and sewer system. Fiduciary Fiduciary funds are used to account for the assets held on behalf of outside parties, including other governments, individuals and private organizations. The City has the following type of fiduciary fund: Pension Trust Fund - the Pension Trust Fund accounts for the assets of the City's Employee Thrift Plan. This fund is custodial in nature and does not present results of operations or have a measurement focus. Pension Trust Funds are accounted for using the accrual basis of accounting. Assets, Liabilities, Deferred Outflows/Inflows of Resources and Net Position or Equity Cash and Cash Equivalents Each fund's cash on hand, demand deposits, and short-term investments are considered cash and cash equivalents. For purposes of these statements, all highly liquid investments (including restricted assets), with a maturity of three months or less when purchased, are considered to be cash equivalents. Deposits and Investments The City is authorized under the City’s investment policy to invest and reinvest surplus public funds in its control or possession, in accordance with resolutions to be adopted from time to time and in accordance with Chapter 166.261, as amended under Chapter 21 Part IV, sections 218.40 through 218.45.


SEPTEMBER 30, 2014

31

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF CITY – CONTINUED Assets, Liabilities, Deferred Outflows/Inflows of Resources and Net Position or Equity – Continued Deposits and Investments - Continued According to its policy, the City’s primary objectives in priority order are: 1) safety, 2) liquidity, and 3) return on investment. The policy prohibits the following investments and investment practices: 1. Purchases on margin or short sales. 2. Derivative securities that are, in effect, a leveraged bet on future movements of interest

rates or some price index. Collateralized mortgage obligations, because of their complexity and prepayment rate uncertainties, are prohibited.

3. Lending securities with an agreement to buy them back after a stated period of time (reverse

purchased agreements from the perspective of the public body). All investments are stated at fair market value, based on quoted market prices. The City's cash and investment pool participates in the Local Government Surplus Trust Fund - Florida PRIME, operated by Florida's State Board of Administration (SBA). The SBA is governed by Chapter 19-1 of the Florida Administrative Code (FAC). The FAC provides guidance and establishes the general operating procedures for the administration of the Local Government Surplus Trust Funds. Additionally, the Florida Auditor General performs an operational audit of activities and investments of the SBA. GASB Statement No. 31, titled Accounting and Financial Reporting for Certain Investments and for External Investment Pools, applies to the Florida PRIME. GASB 31 outlines the two options for accounting and reporting for money market investment pools as either "2a-7 like" or fluctuating net asset value (NAV). GASB 31 describes a "2a-7 like" pool as an external investment pool that is not registered with the Securities and Exchange Commission (SEC) as an investment company, but nevertheless has a policy that it will, and does, operate in a manner consistent with Rule 2a-7 under the Investment Company Act of 1940 (the 1940 Act). Rule 2a-7 is the rule that permits money market funds to use amortized cost to maintain a constant NAV of $1.00 per share, provided that such funds meet certain conditions. In June 2010, GASB issued Statement 59, titled “Financial Instruments Omnibus”. GASB 59 clarifies the definition of a “2a-7 like” pool as an “external investment pool that operates in conformity with the Securities and Exchange Commission’s (SEC) Rule 2a-7 as promulgated under the Investment Company Act of 1940, as amended”. To qualify as a 2a7-like pool, the pool should satisfy all SEC requirements of Rule 2a-7, including the provision that a group of individuals fulfills the functions of a board of directors. The pool is not required to register with the SEC. The Florida PRIME is considered a SEC "2a-7 like" fund, thus the account balance is also considered the fair value of the City's investment.


SEPTEMBER 30, 2014

32

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF CITY – CONTINUED Assets, Liabilities, Deferred Outflows/Inflows of Resources and Net Position or Equity – Continued Receivables and Payables Interfund transactions are reflected as loans, services provided, reimbursements or transfers. At the end of the fiscal year, loans outstanding between funds are referred to as either "due to other funds" or "due from other funds" (i.e., the current portion of interfund loans) or "advances" (i.e., the non-current portion of interfund loans). Any residual balances outstanding between governmental activities and business-type activities are reported in the government-wide financial statements as "internal balances". Advances between funds, as reported in the fund financial statements, are offset by a fund balance reserve account in applicable governmental funds to indicate that they are not available for appropriation and are not expendable available financial resources. All receivables in governmental funds are shown net of an allowance for uncollectibles. At September 30, 2014, the City considers all governmental fund receivables collectible and accordingly does not have an allowance. Services provided, deemed to be at market, or near market rates, are treated as revenues and expenditures/expenses. Reimbursements occur when one fund incurs a cost, charges the appropriate benefiting fund, and reduces its related cost as a reimbursement. All other interfund transactions are treated as transfers. Transfers between governmental or proprietary funds are netted as part of the reconciliation to the government-wide columnar presentation. All proprietary fund receivables are shown net of an allowance for uncollectibles. The City's estimate is based on historical collection experience and a review of the current status of accounts receivable. When the collectability of a receivable becomes questionable, an allowance for doubtful accounts is established. When specific accounts are determined to be uncollectible, they are written off. At September 30, 2014, an allowance for doubtful accounts of $6,450 was recorded in the proprietary fund. Restricted Assets Restricted assets are maintained in business-type activities. Customer deposits for water and sewer services was classified as restricted assets.


SEPTEMBER 30, 2014

33

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF CITY – CONTINUED Assets, Liabilities, Deferred Outflows/Inflows of Resources and Net Position or Equity – Continued 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 $ 1Buildings $ 1,000Improvements other than buildings $ 1,000Machinery and equipment $ 1,000 Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at estimated fair market value at the date of donation. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend asset lives are not capitalized. Major outlays for capital assets and improvements are capitalized in the proprietary fund as projects are constructed. Interest incurred during the construction phase of proprietary fund capital assets is reflected in the capitalizable value of the asset constructed, net of interest earned on the invested proceeds over the same period. Property, plant and equipment of the primary government are depreciated using the straight-line method over the following estimated useful lives: Assets YearsBuildings 20-50 YearsImprovements other than buildings 10-50 YearsMachinery and equipment 5-10 Years Compensated Absences Vested or accumulated leave (annual, personal and sick) that is expected to be liquidated with expendable available financial resources is reported as an expenditure and a fund liability of the governmental fund that will pay it. All vested or accumulated leave is accrued when incurred in the government-wide statements. A liability for compensated absences is reported in the governmental fund financial statements only if they have matured, for example, as a result of employee resignations and retirements.


SEPTEMBER 30, 2014

34

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF CITY – CONTINUED Assets, Liabilities, Deferred Outflows/Inflows of Resources and Net Position or Equity – Continued Compensated Absences - Continued The policy of the City for annual leave is as follows:

Years of EmploymentEarned Leave

per YearMore than 0 years but less than 2 years 80 hours*2 or more years but less than 5 years 120 hours5 or more years 160 hours*New employees may not take annual vacation for the first six months of employment.

Years of EmploymentEarned Leave

per Year*More than 0 years but less than 2 years 112 hours**2 or more years but less than 5 years 168 hours5 or more years 224 hours*Union contract changes supersede these rates.

**New Fire Department employees may not take annual vacation during the first 12 months of employment.

City Employees (excluding the Fire Department)

Fire Department Employees

Certain employees are grandfathered in under the previous annual leave policy and may accumulate leave up to 240 hours for service in excess of 11 years. Upon proper separation (termination) of employment, employees will be paid for all accumulated annual leave up to 240 hours. Employees of the City also accumulate personal leave at a rate of four hours per month. Upon termination of employment, employees will be paid for all personal leave up to 96 hours. The policy of the City for sick leave is that all full-time, permanent employees accrue sick leave at a rate of eight hours per month. The maximum number of hours to be accumulated is 1,260 for fire department employees and 960 for all other employees. Upon proper separation (termination) of employment, employees will be paid for accumulated sick leave at a rate of two hours for each eight hours of accumulated sick leave. In the case of death while employed, all accumulated sick leave will be paid to the beneficiary. In the government-wide financial statements, compensated absences (i.e., paid absences for employee vacation leave and sick leave) are recorded as liabilities to the extent that it is probable that the benefits will result in termination payments. A liability is reported in the governmental fund financial statements only for the current portion of compensated absences expected to be paid using expendable available resources.


SEPTEMBER 30, 2014

35

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF CITY – CONTINUED Assets, Liabilities, Deferred Outflows/Inflows of Resources and Net Position or Equity – Continued

Categories and Classification Fund Equity On October 1, 2010, the City implemented GASB Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions. This statement establishes fund balance classifications that comprise a hierarchy based primarily on the extent to which a government is bound to observe constraints imposed upon the use of the resources reported in governmental funds. Fund balance classifications, under GASB 54, are comprised of the following:

Nonspendable – includes amounts that are (a) not in spendable form, or (b) legally or contractually required to be maintained intact. The "not in spendable form" criterion includes items that are not expected to be converted to cash, for example: inventories, deposits, prepaid items, and advances to other funds.

Restricted – includes amounts that can be spent only for the specific purposes stipulated by external resource providers, constitutionally or through enabling legislation. Restrictions may effectively be changed or lifted only with the consent of resource providers.

Committed – includes amounts that can only be used for the specific purposes determined by a formal action, Ordinance, of the City'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 that imposed the constraint originally, which is an Ordinance.

Assigned – comprises amounts intended to be used by the City for specific purposes that are neither restricted nor committed. Intent is expressed by the City Council to assign amounts to be used for specific purposes. The City’s fund balance policy does not explicitly specify who is authorized to establish fund balance assignments. Only the City Council has the authority to establish fund balance assignments.

Unassigned – is the residual classification for the General Fund and includes all amounts not contained in the other classifications. Unassigned amounts are technically available for any purpose.

These classifications reflect not only the nature of funds, but also provide clarity to the level of restriction placed upon fund balance. Fund balance can have different levels of restraint, such as external versus internal compliance requirements. Unassigned fund balance is a residual classification with the General Fund. The General Fund should be the only fund that reports a positive unassigned balance. In all other funds, unassigned is limited to negative residual fund balance. The City's General Fund formal fund balance policy establishes a targeted minimum reserve balance in its unassigned fund balance equal to 40% of annual budgeted expenditures. In circumstances when an expenditure is made for a purpose for which amounts are available in multiple fund balance classifications, fund balance is generally depleted in the order of restricted, committed, assigned, and unassigned.


SEPTEMBER 30, 2014

36

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND DESCRIPTION OF CITY – CONTINUED Assets, Liabilities, Deferred Outflows/Inflows of Resources and Net Position or Equity – Continued Net Position Net position in the government-wide financial statements are categorized as invested in capital assets, net of related debt, restricted or unrestricted. Invested in capital assets, net of related debt represents net position related to property, plant and equipment, net of any related debt. Restricted net position represents the net position restricted by state legislation. The City uses restricted amounts to be spent first when both restricted and unrestricted fund balances are available. Unearned Revenue Unearned revenues are reported in connection with resources that have been received but not yet earned. At September 30, 2014, unearned revenue in the Water and Sewer Fund is composed of lease payments received in advance on leased space for cellular towers. Deferred Outflows/Inflows of Resources In addition to assets, the statement of financial position will sometimes 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. At this time, the City has no transactions that meet the definition of deferred outflows of resources. In addition to liabilities, the statement of financial position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until that time. The City currently has one item that qualifies for reporting in this category which relates to fiscal year 2015 business tax payments received by the City in advance. Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Subsequent Events Subsequent events were evaluated through January 27, 2015, which is the date the financial statements were available to be issued.


SEPTEMBER 30, 2014

37

2. STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY Budgets Annual appropriated budgets are adopted for the General Fund and the Water and Sewer Fund. The annual budgets for the General Fund are adopted using the modified accrual basis of accounting, which is in accordance with GAAP for governmental fund types. The Water and Sewer Fund budget is adopted on the full accrual basis, which is consistent with GAAP for proprietary fund types. Every appropriation, except an appropriation for a capital expenditure, lapses at the end of the year to the extent it has not been expended or encumbered. The City follows these procedures in establishing the budgetary data reflected in the financial statements: 1. Prior to September 1, the City Manager submits to the City Council a proposed operating

budget for the fiscal year commencing the following October 1. The operating budget includes proposed expenditures and revenue sources.

2. Public hearings are conducted to obtain taxpayer comments. 3. Prior to September 30, the budget is legally enacted through passage of an ordinance. 4. The City Manager is authorized to transfer budgeted amounts among programs within a

department, office or agency within any fund; however, any revisions that alter the total expenditures of any fund must be approved by the City Council.

5. Budgeted amounts have been amended by the City Council or by City Manager in

accordance with applicable City ordinances. 6. Encumbrance accounting is employed in governmental funds. Encumbrances (e.g.,

purchase orders or contracts) outstanding at year-end are reported as assignment of fund balances and do not constitute expenditures or liabilities because the commitments will be re-appropriated and honored during the subsequent year.

For the fiscal year ended September 30, 2014, expenditures exceeded appropriations in the General Fund by $414,401. These over-expenditures were primarily the result of the purchase a new fire truck. The City had initially budgeted the purchase in fiscal year 2013 when a full deposit was due and paid. Due to the fire truck being delivered in fiscal year 2014, the acquisition was recognized in that fiscal year, and the amount for that expenditure was not re-budgeted for fiscal year 2014. Encumbrances Encumbrances represent commitments related to unperformed contracts for goods or services. As stated above, encumbrance accounting is employed in governmental funds. Any purchase order or contract outstanding at year-end does not constitute expenditures, but is reported as assignment of fund balance.


SEPTEMBER 30, 2014

38

3. DEPOSITS AND INVESTMENTS Deposits The investment of surplus funds is governed by provisions of Florida Statute 218.415 as to the type of investments that can be made. Deposits may be exposed to custodial credit risk, which is the risk that, in the event of a bank failure, the government's deposits may not be returned. The City manages its custodial credit risk by maintaining its deposits 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 deposit eligible collateral with the Treasurer of the State of Florida equal to or in excess of their required collateral pledging level. In the event of default by a qualified public institution, the Treasurer will pay public depositors all losses in excess of insurance and collateral through assessments among all Qualified Public Depositories. The City's deposits at September 30, 2014, were entirely covered by federal depository insurance or pooled collateral held by the State Treasurer and, therefore, have no custodial risk. Investments As of September 30, 2014, the City's investments consist of those held in certificates of deposit with maturities greater than three months, government pool, and various pension trust funds. 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. The following is a summary of the City's investments:


Business-Type Activities Total Credit Risk

Average Maturity

Certificates of deposit 131,000$ 493,472$ 624,472$ N/A 17 monthsLocal government surplus funds trust fund - Florida Prime 224,272 430,730 655,002 AAAm 39 days

.Total investments 355,272$ 924,202$ 1,279,474$

NR = not rated

Fair ValueMoney market funds 646,935$ Mutual funds 813,813

1,460,748$

Investments - Governmental and Business-Type Activities

Investments - Pension Fund

Concentration Risk - The City's investment policy requires diversification, but does not specify limits on types of investments. As of September 30, 2014, the City did not hold any investments that were considered to be a concentration credit risk.


SEPTEMBER 30, 2014

39

3. DEPOSITS AND INVESTMENTS - CONTINUED Investments - Continued Custodial Credit Risk - For an investment, custodial credit risk is the risk that the City will not be able to recover the value of the investments or collateral securities that are in the possession of an outside party. The City has adopted a policy for custodial risk, whereby the Council has authorized the Finance Director to maintain a list of financial institutions that have been authorized for investment services. In addition, a list of approved security brokers/dealers selected by credit worthiness authorized in the State of Florida will be utilized for investment purposes. It is the City's policy that no public deposit be made except in a Qualified Public Depository as established by the State of Florida. Also, only brokers and dealers (or their agents) included on the Federal Reserve Bank or New York's List of Primary Government Security Dealers will be identified as authorized by policy. Other non-primary dealers may be used, provided that the dealer is approved by City Council, City Manager, and Finance Director. A memo indicating such approval is required to be retained in the investment files. Interest Rate Risk - Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. The weighted average days to maturity of the PRIME fund at September 30, 2014, was 39 days. The City does not have a formal policy for addressing interest rate risk; however, investments are made with discretion, to seek reasonable returns, preserve capital, and in general, avoid speculative investments. The City manages its exposure to declines in fair values from interest rate changes by reviewing the portfolio on an ongoing basis for changes in effective yield amounts. 4. RECEIVABLES Receivables and amounts due from other governments at September 30, 2014, were as follows:


Business-TypeActivities Total

Taxes 49,519$ 41$ 49,560$ Accounts 7,260 248,232 255,492 Less allowance for doubtful accounts - (6,450) (6,450)

Total receivables 56,779 241,823 298,602

Due from other governments 68,616 - 68,616

Total receivables and due from other governments 125,395$ 241,823$ 367,218$

Due from Other Governments Amounts due from other governments relate to 1/2 cent sales tax, local option fuel tax, and communications tax.


SEPTEMBER 30, 2014

40

5. CHANGES IN CAPITAL ASSETS Capital asset activity for the year ended September 30, 2014, was as follows:

BeginningBalance Increases

Decreases/Transfers

EndingBalance

Governmental activitiesCapital assets not being depreciated

Land 4,363,248$ -$ -$ 4,363,248$ Construction in progress 61,112 - (61,112) -

Total capital assets not being depreciated 4,424,360 - (61,112) 4,363,248

Capital assets being depreciatedBuildings 1,494,487 - - 1,494,487 Improvements other than buildings 1,702,307 17,531 61,112 1,780,950 Machinery and equipment 1,868,765 720,856 (282,360) 2,307,261 Library books 9,796 8,634 - 18,430

Total capital assets being depreciated 5,075,355 747,021 (221,248) 5,601,128

Less accumulated depreciationBuildings (491,234) (39,702) - (530,936) Improvements other than buildings (414,983) (73,212) - (488,195) Machinery and equipment (1,434,613) (188,544) 273,717 (1,349,440)

Total accumulated depreciation (2,340,830) (301,458) 273,717 (2,368,571)

Total capital assets being depreciated, net 2,734,525 445,563 52,469 3,232,557

Governmental activities, net 7,158,885$ 445,563$ (8,643)$ 7,595,805$


SEPTEMBER 30, 2014

41

5. CHANGES IN CAPITAL ASSETS – CONTINUED

BeginningBalance Increases

Decreases/Transfers

EndingBalance

Business-type activitiesCapital assets not being depreciated

Land 77,878$ -$ -$ 77,878$ Construction in progress 799,298 - (799,298) -

Total capital assets not being depreciated 877,176 - (799,298) 77,878

Capital assets being depreciatedBuildings 97,000 - (1,125) 95,875 Improvements other than buildings 13,206,517 27,176 786,648 14,020,341 Machinery and equipment 1,069,841 19,344 (33,139) 1,056,046

Total capital assets being depreciated 14,373,358 46,520 752,384 15,172,262

Less accumulated depreciationBuildings (45,212) (3,691) 1,125 (47,778) Improvements other than buildings (5,974,726) (308,216) 12,650 (6,270,292) Machinery and equipment (549,301) (39,646) 33,139 (555,808)

Total accumulated depreciation (6,569,239) (351,553) 46,914 (6,873,878)

Total capital assets being depreciated, net 7,804,119 (305,033) 799,298 8,298,384

Business-type activities, net 8,681,295$ (305,033)$ -$ 8,376,262$

The City elected not to capitalize and report general infrastructure assets (e.g., roads, bridges, sidewalks and other assets that are immovable and of value only to the government) retroactively. The City did not have any general infrastructure asset additions during the fiscal year ending September 30, 2014. Depreciation expense was charged to functions/programs of the primary government as follows: Governmental activities

General government 301,458$

Business-type activitiesWater and sewer 351,553$


SEPTEMBER 30, 2014

42

6. EMPLOYMENT THRIFT PLAN The City offers its employees an Employee Thrift Plan (the Plan), a defined contribution plan created in accordance with Internal Revenue Code Section 401(a) and 501(a), as amended from time to time. The Plan is administered by ING Retirement. The City Council has the authority for establishing Plan provisions, and contribution requirements under the Plan. To be eligible for the Plan, employees must be a minimum of 18 years of age, work at least 1,000 hours during the year, and work for the City at least 6 months. The City's contribution to the Plan is an amount equal to 6% of the participant's compensation for the plan year. In addition, the City contributes on behalf of each participant who makes a contribution to the Deferred Compensation Plan $1 for every $1 of said contributions to the Deferred Compensation Plan in increments of 1% of compensation, up to 8%*. Any forfeiture during the year may be used to fund the City's contribution requirement. * Union-negotiated retirement requirements take precedent over this financial statement for fire department union members. The vesting percentage of City contributions is determined in accordance with the following schedule: Number of Years of ServiceCredit for Purposes of Vesting

VestedPercentage

1 year 20%2 years 40%3 years 60%4 years 80%5 years 100% During the fiscal year ended September 30, 2014, the City remitted its required contributions totaling $99,312. 7. LONG-TERM DEBT Changes in Long - Term Debt Liabilities Long-term debt activity for the year ended September 30, 2014, is summarized as follows:

BeginningBalance Additions Reductions

EndingBalance

Due WithinOne Year

Governmental activitiesOther post employment benefits 9,907$ 1,129$ -$ 11,036$ -$ Compensated absences 119,769 87,630 (91,642) 115,757 85,537

Total governmental activities 129,676$ 88,759$ (91,642)$ 126,793$ 85,537$


SEPTEMBER 30, 2014

43

7. LONG-TERM DEBT - CONTINUED Description of Long-Term Debt Outstanding

Current Long-Term TotalGOVERNMENTAL ACTIVITIESOther Post Employment BenefitsTotal other post employment dental and life insurance benefitsobligation -$ 11,036$ 11,036$

Accrued Compensated AbsencesTotal long-term portion of accumulated, vested annual and sickleave for governmental fund types 85,537 30,220 115,757

TOTAL GOVERNMENTAL ACTIVITIES 85,537$ 41,256$ 126,793$

8. INTERFUND RECEIVABLES, PAYABLES, AND TRANSFERS The composition of interfund balances as of September 30, 2014, is as follows:

Transfers InTransfers Out General Fund

Water and sewer fund 271,303$

Transfers between funds occur on a routine basis and are consistent with the activities of the fund making the transfer, contingent upon the availability of funds. 9. COMMITMENTS AND CONTINGENCIES Legal Matters At September 30, 2014, the City is involved in various legal actions arising in the normal course of business. In the opinion of management, such matters will not have a material effect on the financial position of the City. 10. 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; and natural disasters. These risks are covered by the Florida Municipal Insurance Trust and other commercial insurance purchased from independent third parties. There has been no significant change in insurance coverage from the previous fiscal year. For the commercial insurance purchased from independent third parties, the amount of settlements have not exceeded the insurance coverage in each of the past three years. 11. POST- EMPLOYMENT DENTAL AND LIFE INSURANCE BENEFITS Plan Description The City’s dental and life insurance benefits are provided to employees upon actual retirement.


SEPTEMBER 30, 2014

44

11. POST – EMPLOYMENT DENTAL AND LIFE INSURANCE BENEFITS – CONTINUED Plan Description - Continued The employer pays 100% of the retiree dental coverage for retirees but not dependents. Employees are covered by a retirement system whose retirement eligibility provisions are attainment of age 55 while employed with the City or completion of 25 years of service as an employee of the City. Life insurance coverage is continued to retirees in the flat amount of $9,000. The employer pays 100% of the active/retired blended rate for this life insurance. Since GASB 45 requires the use of "unblended" rates, we have used the 94GAR mortality table described below to "unblend" the rates so as to reproduce the composite blended rate overall as the rate structure to calculate the actuarial valuation results for life insurance. All of the assumptions used for the valuation of the dental benefits have been used except for the trend assumption; zero trend was used for life insurance. Contribution Rates Employees and retirees do not contribute to their post- employment benefits costs. The plan provisions and contribution rates for the City contributions are contained in the official plan documents. Funding Policy Until 2009, the City recognized the cost of providing post-employment dental and life insurance benefits (the City’s portion of the retiree dental and life insurance benefit premiums) as an expense when the benefit premiums were due and thus financed the cost of the post-employment benefits on a pay-as-you-go basis. In fiscal year 2014 and 2013, the City’s portion of health care and life insurance funding cost for retired employees totaled $6,522 and $6,039, respectively. Effective October 1, 2009, the City implemented Government Accounting Standards Board Statement Number 45, Accounting and Financial Reporting by Employers for Post-employment Benefits Other than Pensions (GASB 45). This amount was applied toward the Net OPEB Benefit Obligation as shown in the following “Net Post-Employment Benefit Obligation (Asset) section”. Annual Required Contribution The City’s Annual Required Contribution (ARC) is an amount actuarially determined in accordance with GASB 45. The ARC is the sum of the Normal Cost plus the contribution to amortize the Unfunded Actuarial Accrued Liability (UAAL). A level dollar, open amortization period of 30 years (the maximum amortization period allowed by GASB 43/45) has been used for the post-employment benefits. The actuarially computed ARC is as follows:

2014 2013Normal Cost 1,838$ 1,767$ 30-year UAL amortization amount 5,990 5,760

Annual required contribution (ARC) 7,828$ 7,527$


SEPTEMBER 30, 2014

45

11. POST - EMPLOYEMENT DENTAL AND LIFE INSURANCE BENEFITS - CONTINUED Net Post-employment Benefit Obligation (Asset) The table below shows the City’s Net Other Post-employment Benefit (OPEB) Obligation for fiscal years ending September 30:

2014 2013Beginning net OPEB obligation 9,907$ 8,572$

Annual required contribution 7,828 7,527 Interest on net OPEB obligation 396 343 Annual required contribution adjustment (573) (496) OPEB cost 7,651 7,374 Current year retiree premium (6,522) (6,039) Change in net OPEB obligation 1,129 1,335

Net OPEB obligation - end of year 11,036$ 9,907$

The following table shows the City’s annual post-employment benefits (PEB) cost, percentage of the cost contributed, and the net unfunded post-employment benefits (PEB) liability for last year and this year:

Fiscal Year EndedAnnual OPEB

Cost

Percentage of Annual Cost Contributed

Net OPEB Liability (Asset)

September 30, 2014 7,651 85.24% 11,036$ September 30, 2013 7,374 81.89% 9,907$

Funded Status and Funding Progress In fiscal year 2014 and 2013, the City made no contributions to its post-employment benefits plan. The plan is not funded, has no assets, and hence has a funded ratio of zero. Based on the October 1, 2012 actuarial valuation, the most recent valuation, the Actuarial Accrued Liability (AAL) at the end of the year September 30, 2014 was $107,789 which is defined as that portion, as determined by a particular actuarial cost method (the City uses the Projected Unit Credit Cost Method), of the actuarial present value of post-employment plan benefits and expenses which is not provided by normal cost.

2014 2013Actuarial accrued liability (AAL) 107,789$ 103,643$ Actuarial value of plan assets (AVP) - - Unfunded actuarial accrued liability (UAAL) 107,789$ 103,643$

Funded ratio (AVP/AAL) 0.00% 0.00%Covered payroll (active plan members) 1,158,421$ 1,046,056$ UAAL as a percentage of covered payroll 9.30% 9.91%


SEPTEMBER 30, 2014

46

11. POST-EMPLOYEE DENTAL AND LIFE INSURANCE BENEFITS - CONTINUED Actuarial Methods and Assumptions Actuarial valuations involve estimates of the value of reported amounts and assumptions about the probability of events far into the future. The actuarial valuation for post-employment benefits includes estimates and assumptions regarding (1) turnover rate; (2) retirement rate; (3) health care cost trend rate; (4) mortality rate; (5) discount rate (investment return assumption); and (6) the period to which the costs apply (past, current, or future years of service by employees). Actuarially determined amounts are subject to continual revision as actual results are compared to past expectations and new estimates are made about the future. The actuarial calculations are based on the types of benefits provided under the terms of the substantive plan (the plan as understood by the City and its employee plan members) at the time of the valuation and on the pattern of sharing costs between the City and its plan members to that point. The projection of benefits for financial reporting purposes does not explicitly incorporate the potential effects of legal or contractual funding limitations on the pattern of cost sharing between the City and plan members in the future. Consistent with the long-term perspective of actuarial calculations, the actuarial methods and assumptions used include techniques that are designed to reduce short-term volatility in actuarial liabilities and the actuarial value of assets. Actuarial Cost Method The ARC is determined using the Projected Unit Credit Cost Method. The employer portion of the cost for retiree dental care in each future year is determined by projecting the current cost levels using the healthcare cost trend rate and discounting this projected amount to the valuation date using the other described pertinent actuarial assumptions, including the investment return assumption (discount rate), mortality and turnover. Actuarial Value of Plan Assets There are not any plan assets. It is anticipated that in future valuations, should funding take place, a smoothed market value consistent with Actuarial Standards Board ASOP 6, as provided in paragraph number 125 of GASB Statement 45. Turnover Rate An age-related turnover scale based on actual experience has been used. The rates, when applied to the active employee census, produce a composite average annual turnover of approximately 10%. Post-Employment Benefit Plan Eligibility Requirements Based on the City Personnel Policy, a current employee’s entitlement to dental and life insurance retiree benefits will commence with attainment of age 55 years or completion of 25 years of service. Retirement dental and life benefits are provided to employees upon actual retirement. Investment Return Assumption (Discount Rate) GASB Statement 45 states that the investment return assumption should be the estimated long-term investment yield on the investments that are expected to be used to finance the payment of benefits (that is, for a plan which is funded). Based on the assumption that the ARC will not be funded, a 4% annual investment return has been used in this valuation.


SEPTEMBER 30, 2014

47

11. POST-EMPLOYEE DENTAL AND LIFE INSURANCE BENEFITS - CONTINUED Trend Rate The expected rate of increase in dental cost has been assumed to be a flat 2% annually. Mortality Rate The 1994 Group Annuity Reserving (94GAR) table, projected to 2002, based on a fixed blend of 50% of the unloaded male mortality rates and 50% of the unloaded female mortality rates, is used. This is a recently published mortality table which has been used in determining the value of accrued benefits in defined benefit pension plans. Projected future mortality improvement has not been used since it is our opinion that this table contains sufficiently conservative margin for the population involved in this valuation. Method of Determining Value of Benefits The "value of benefits" has been assumed to be the portion of the premium after retirement date expected to be paid by the employer for each retiree. The "retiree only" premium has therefore been used as the basis for calculating the actuarial present value of OPEB benefits to be paid. Inflation Rate Included in both the Investment Return Assumption and the Healthcare Cost Trend rates above is an implicit inflation assumption of 2.50% annually. Projected Salary Increases This assumption is not applicable since neither the benefit structure nor the valuation methodology involves salary. Post-Retirement Benefit Increases The plan benefit provisions in effect for retirees as of the valuation date have been used and it has been assumed for valuation purposes that there will not be any changes in the future. Below is a summary of OPEB cost and contributions for the last three fiscal calendar years.

FY2012 FY2013 FY2014OPEB cost 8,572$ 7,374$ 7,651$

Contribution - - - Retiree premium - 6,039 6,522 Total contribution and premium - 6,039 6,522

Change in net OPEB obligation 8,572$ 1,335$ 1,129$

% of contribution to cost 0.00% 0.00% 0.00%

% of contribution plus premium to cost 0.00% 81.90% 85.24%

OPEB Costs and Contributions

III. STATISTICAL SECTION

Financial TrendsThese schedules contain trend information to help the reader understand howthe City's financial performance and well-being have changed over time.

Revenue CapacityThese schedules contain information to help the reader assess the City's mostsignificant local revenue source, the property tax.

Debt CapacityThese schedules present information to help the reader assess the affordabilityof the City's current levels of outstanding debt and the City's ability to issueadditional debt in the future.

Demographic and Economic InformationThese schedules offer demographic and economic indicators to help the readerunderstand the environment within which the City's financial activities takeplace.

Operating InformationThese schedules contain service and infrastructure data to help the readerunderstand how the information in the City's financial report relates to theservices the City provides and the activities it performs.

Sources: Unless otherwise noted, the information in these schedules is derived from thecomprehensive annual financial reports for the relevant year.

This section of the City's comprehensive annual financial report presents detailedinformation as a context for understanding what the information in the financialstatements, note disclosures, and required supplementary information says aboutthe City's overall financial health.

City of Mary Esther, FloridaNET POSITION BY COMPONENT

Last Ten Fiscal Years(accrual basis of accounting)

FINANCIAL TRENDS - Table 1

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Governmental activitiesInvested in capital assets, net of related debt 5,433$ 6,696$ 6,901$ 6,792$ 6,869$ 6,789$ 7,022$ 6,950$ 7,159$ 7,596$ Restricted - - - - - - 24 25 13 - Unrestricted 2,633 2,661 3,117 3,108 2,860 2,845 2,712 1,609 1,266 875

Total governmental activities net assets 8,066$ 9,357$ 10,018$ 9,900$ 9,729$ 9,634$ 9,758$ 8,584$ 8,438$ 8,471$

Business-type activitiesInvested in capital assets, net of related debt 3,136$ 3,493$ 5,842$ 12,616$ 6,074$ 6,557$ 6,489$ 8,025$ 8,681$ 8,376$ Restricted - - 737 759 658 652 586 10 6 - Unrestricted 4,148 3,857 1,158 4,354 1,787 1,918 2,139 1,803 1,548 1,361

Total business-type activities net assets 7,284$ 7,350$ 7,737$ 17,729$ 8,519$ 9,127$ 9,214$ 9,838$ 10,235$ 9,737$

Primary governmentInvested in capital assets, net of related debt 8,569$ 10,189$ 12,743$ 19,408$ 12,943$ 13,346$ 13,511$ 14,975$ 15,840$ 15,972$ Restricted - - 737 759 658 652 610 35 19 - Unrestricted 6,781 6,518 4,275 7,462 4,647 4,763 4,851 3,412 2,814 2,236

Total primary government net assets 15,350$ 16,707$ 17,755$ 27,629$ 18,248$ 18,761$ 18,972$ 18,422$ 18,673$ 18,208$

*Amounts shown should be multiplied by 1,000 Source: Audited Financial Statements

Fiscal Year*

48

City of Mary Esther, FloridaCHANGES IN NET POSITION



2005 2006 2007 2008 2009 2010 2011 2012 2013 2014ExpensesGovernmental activities

General government 444,723$ 403,966$ 427,441$ 460,651$ 458,046$ 457,152$ 464,628$ 639,016$ 506,077$ 516,555$ Public safety 957,353 971,672 1,092,967 1,079,069 1,110,601 1,091,671 1,097,677 1,138,081 1,176,521 1,244,362 Physical environment - - - - - - - - - - Transportation 338,534 356,079 379,181 383,279 360,450 364,826 353,180 383,961 388,736 399,040 Human services 13,846 14,158 14,450 16,204 19,487 18,037 18,037 17,083 17,067 16,831 Culture and recreation 438,339 202,684 265,549 266,360 396,125 248,399 226,967 263,338 278,985 285,407 Hurricane expenses 517,698 83,402 - - - - - - - - Unallocated depreciation/loss on disposal 145,374 140,633 148,307 177,759 160,296 173,656 185,962 202,084 207,212 301,458

Total governmental activities expenses 2,855,867 2,172,594 2,327,895 2,383,322 2,505,005 2,353,741 2,346,451 2,643,563 2,574,598 2,763,653

Business-type activitiesWater and sewer 1,886,418 2,203,757 1,903,658 1,905,694 1,861,695 1,917,633 1,971,980 2,057,978 1,831,202 1,934,716

Total business-type activities expenses 1,886,418 2,203,757 1,903,658 1,905,694 1,861,695 1,917,633 1,971,980 2,057,978 1,831,202 1,934,716

Total primary government expenses 4,742,285$ 4,376,351$ 4,231,553$ 4,289,016$ 4,366,700$ 4,271,374$ 4,318,431$ 4,701,541$ 4,405,800$ 4,698,369$

Program RevenuesGovernmental activities

Charges for servicesGeneral government 138,457$ 136,365$ 144,117$ 136,838$ 165,203$ 129,722$ 147,542$ 178,535$ 189,929$ 199,880$ Public safety 198,711 209,557 220,667 199,281 193,967 109,099 113,250 4,117 7,897 3,990 Physical environment 77,818 61,172 - - - - - - - Transportation - - - - - 40,385 45,124 50,097 52,267 52,770 Human services - - - - - - - - - - Culture and recreation - - - - - 36,334 33,717 4,872 4,475 2,490

Operating grants and contributions 619,711 - 25,874 156,161 216,109 80,288 331,810 40,023 40,314 42,876 Capital grants and contributions - 1,033,949 250,992 - - 36,567 - - - 92,150

Total governmental activities program revenues 1,034,697 1,441,043 641,650 492,280 575,279 432,395 671,443 277,644 294,882 394,156

Business-type activitiesCharges for services

Water and sewer 830,280 762,174 1,199,671 1,273,667 1,772,630 1,527,867 1,661,163 1,515,798 1,489,909 1,565,132 Capital grants and contributions - 306,948 - - - 550,474 - - - -

Total business-type activities program revenues 830,280 1,069,122 1,199,671 1,273,667 1,772,630 2,078,341 1,661,163 1,515,798 1,489,909 1,565,132

Total primary government program revenues 1,864,977$ 2,510,165$ 1,841,321$ 1,765,947$ 2,347,909$ 2,510,736$ 2,332,606$ 1,793,442$ 1,784,791$ 1,959,288$

Continued…

Fiscal Year

49

City of Mary Esther, FloridaCHANGES IN NET POSITION



2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Net (Expenses) RevenuesGovernmental activities (1,821,170)$ (731,551)$ (1,686,245)$ (1,891,042)$ (1,929,726)$ (1,921,346)$ (1,675,008)$ (2,365,919)$ (2,279,716)$ (2,369,340)$ Business-type activities (1,056,138) (1,134,635) (703,987) (632,027) (89,065) 160,708 (310,817) (542,180) (341,293) (369,584)

Total primary government net expense (2,877,308)$ (1,866,186)$ (2,390,232)$ (2,523,069)$ (2,018,791)$ (1,760,638)$ (1,985,825)$ (2,908,099)$ (2,621,009)$ (2,738,924)$

General Revenues and Other Changes in Net AssetsGovernmental activities

TaxesProperty taxes 858,922$ 960,323$ 1,105,080$ 1,049,146$ 842,197$ 776,649$ 708,658$ 682,845$ 640,503$ 641,188$ Municipal revenue sharing - - - - - 113,703 113,936 130,293 126,208 136,637 Sales taxes - - 483,289 432,396 398,943 389,868 410,767 439,838 444,407 468,942 Utility service taxes - - - - - - - 375,625 490,919 487,133 Franchise taxes - - - - - - - 161,368 198,614 224,189 Other taxes - - - - - - - 153,215 124,475 144,675

Grants and contributions not restricted to specific programs 732,456 763,202 376,712 123,501 150,897 - - - - -

Gain (loss) on disposal of asset - - - - - - (499) 3,341 38,942 Miscellaneous 136,641 168,994 25,876 12,353 48,260 51,933 49,645 14,267 35,762 86,086 Investment earnings - - 200,704 763 (21,452) 35,331 10,218 44,727 12,089 2,192 Transfers 93,759 130,376 155,211 155,211 339,188 459,289 505,311 (809,201) 57,511 271,303

Total governmental activities 1,821,778 2,022,895 2,346,872 1,773,370 1,758,033 1,826,773 1,798,535 1,192,478 2,133,829 2,501,287

Business-type activitiesMiscellaneous 66,931 103,294 422,315 121,875 134,302 172,476 111,413 164,398 787,060 138,281 Franchise fees 203,970 233,859 237,053 222,480 245,626 250,140 237,835 50,066 - - Utility service fees 454,026 475,465 496,208 468,796 706,062 549,835 532,609 129,165 - - Grants and contributions not restricted to

specific programs 5,000 - - - - - - - - - Loss on disposal of assets - - - - - (95,379) - - - - Investment earnings 100,831 146,155 90,171 65,666 32,808 25,133 20,600 14,463 8,082 2,866 Transfers (93,759) (130,376) (155,211) (155,211) (339,188) (454,717) (505,311) 809,201 (57,511) (271,303)

Total business-type activities 736,999 828,397 1,090,536 723,606 779,610 447,488 397,146 1,167,293 737,631 (130,156)

Total primary government 2,558,777$ 2,851,292$ 3,437,408$ 2,496,976$ 2,537,643$ 2,274,261$ 2,195,681$ 2,359,771$ 2,871,460$ 2,371,131$

Change in Net AssetsGovernmental activities 608$ 1,291,344$ 660,627$ (117,672)$ (171,693)$ (94,573)$ 123,527$ (1,173,441)$ (145,887)$ 131,947$ Business-type activities (319,139) (306,238) 386,549 91,579 690,545 608,196 86,329 625,113 396,338 (499,740)

Total primary government (318,531)$ 985,106$ 1,047,176$ (26,093)$ 518,852$ 513,623$ 209,856$ (548,328)$ 250,451$ (367,793)$

Fiscal Year

50

City of Mary Esther FloridaFUND BALANCES - GOVERNMENTAL FUNDS

Last Ten Fiscal Years(modified accrual basis of accounting)


2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

General FundReserved -$ -$ 4,953$ 4,953$ 6,635$ 20,526$ -$ -$ -$ -$ Unreserved 2,390,994 2,390,994 2,386,041 2,386,041 2,235,547 2,236,978 - - - - Restricted - - - - - - 23,824 24,584 13,433 - Committed - - - - - - - - 560,802 - Assigned - - - - - - 15,649 1,357 28,755 12,074 Nonspendable - - - - - - 27,771 32,453 30,045 22,946 Unassigned - - - - - - 2,795,978 1,703,713 776,314 966,813

Total General Fund 2,390,994$ 2,390,994$ 2,390,994$ 2,390,994$ 2,242,182$ 2,257,504$ 2,863,222$ 1,762,107$ 1,409,349$ 1,001,833$

Capital Improvement FundReserved -$ -$ -$ -$ -$ 14,458$ -$ -$ -$ -$ Unreserved, reported in - - - -

Capital Improvement Fund 372,272 416,283 833,583 867,608 739,788 693,835 - - - -

Total all other governmental funds 372,272$ 416,283$ 833,583$ 867,608$ 739,788$ 708,293$ -$ -$ -$ -$

Fiscal Year

51

City of Mary Esther, FloridaCHANGES IN FUND BALANCES - GOVERNMENTAL FUNDS

Last Ten Fiscal Years(modified accrual basis of accounting)


2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

RevenuesTaxes 858,922$ 960,323$ 1,105,080$ 1,049,146$ 842,197$ 776,649$ 708,658$ 1,349,323$ 1,387,049$ 1,424,234$ Licenses, fees and permits 198,711 209,557 172,354 167,735 163,866 129,722 144,292 175,784 217,003 242,354 Intergovernmental 732,456 1,113,202 1,136,867 712,058 765,949 643,494 871,791 472,516 479,777 589,367 Charges for services 138,457 136,365 144,117 136,838 165,203 147,758 170,731 187,614 204,633 207,314 Fines 77,818 61,172 65,813 31,546 30,101 36,334 33,717 35,592 31,546 33,808 Miscellaneous 132,675 155,913 205,798 13,117 7,760 65,923 35,478 58,992 47,851 88,278

Total revenues 2,139,039 2,636,532 2,830,029 2,110,440 1,975,076 1,799,880 1,964,667 2,279,821 2,367,859 2,585,355

ExpendituresGeneral government 445,042 397,960 429,367 458,058 478,469 466,439 457,979 638,359 504,423 519,438 Public safety 954,267 964,009 1,080,180 1,079,069 1,110,388 1,091,671 1,097,677 1,138,081 1,176,521 1,244,362 Physical environment - - - - - - - - - - Transportation 335,950 358,885 379,767 386,399 360,450 364,826 353,180 383,961 388,736 399,040 Internal Service - - - - - - - - - - Human services 13,846 14,158 14,450 16,204 19,487 18,037 18,037 17,083 17,067 16,831 Culture and recreation 238,743 196,954 262,742 263,240 396,125 248,399 226,967 263,338 278,985 285,407 Capital outlay 76,186 754,564 264,794 25,761 98,157 93,901 418,713 130,914 415,737 747,021 Debt Service

Principal - - - - - - - - - - Interest - - - - - - - - - -

Total expenditures 2,064,034 2,686,530 2,431,300 2,228,731 2,463,076 2,283,273 2,572,553 2,571,736 2,781,469 3,212,099

Excess of revenues over (under) expenditures 75,005 (49,998) 398,729 (118,291) (488,000) (483,393) (607,886) (291,915) (413,610) (626,744)

Other FinancingSources (Uses)

Transfers in 199,738 130,376 155,211 155,211 339,188 459,289 1,213,604 - 57,511 271,303 Transfers out (274,743) (80,378) (553,940) (36,920) - - (708,293) (809,201) - - Proceeds from sale of assets - - - - - - - - 3,341 47,585 Total other financing sources (uses) (75,005) 49,998 (398,729) 118,291 339,188 459,289 505,311 (809,201) 60,852 318,888

Net changes in fund balances -$ -$ -$ -$ (148,812)$ (24,104)$ (102,575)$ (1,101,116)$ (352,758)$ (307,856)$

Fiscal Year

52

City of Mary Esther, FloridaASSESSED VALUE AND ACTUAL VALUE OF TAXABLE PROPERTY

(UNAUDITED)Last Ten Fiscal Years

REVENUE CAPACITY - Table 5

Ratio ofReal Property Personal Property Total Total Assessed

Fiscal Estimated Estimated Estimated Value to Total TotalYear Ended Taxable Actual Taxable Actual Taxable Actual Estimated Direct

September 30 Value Value Value Value Value Value Actual Value Tax Rate

2005 262,089,880$ 308,341,035$ 21,941,789$ 25,233,057$ 284,031,669$ 333,574,093$ 85.00% 3.50002006 313,259,111$ 368,540,131$ 22,868,709$ 26,299,015$ 336,127,820$ 394,839,146$ 85.00% 3.40002007 331,732,530$ 390,273,565$ 26,281,684$ 30,223,937$ 358,014,214$ 420,497,501$ 85.00% 3.01252008 305,327,953$ 359,209,356$ 20,053,300$ 23,061,295$ 325,381,253$ 382,270,651$ 85.00% 2.69962009 282,241,502$ 332,048,826$ 19,012,115$ 21,863,932$ 301,253,617$ 353,912,758$ 85.00% 2.69962010 260,387,512$ 306,338,249$ 16,477,664$ 16,477,664$ 276,865,176$ 322,815,913$ 85.00% 2.64352011 247,678,730$ 291,386,741$ 15,354,132$ 15,354,132$ 263,032,862$ 306,740,873$ 85.00% 2.64352012 236,084,822$ 271,497,545$ 14,090,823$ 14,090,823$ 250,175,645$ 285,588,368$ 85.00% 2.64352013 237,111,129$ 272,677,798$ 13,269,617$ 13,269,617$ 250,380,746$ 285,947,415$ 85.00% 2.64352014 244,180,450$ 287,271,118$ 14,136,059$ 14,136,596$ 258,316,509$ 301,407,714$ 85.00% 2.6435

Source: Okaloosa County Property Appraiser's Office

53

City of Mary Esther FloridaPROPERTY TAX LEVIES AND COLLECTIONS



Taxes Levied CollectionsTax Levy for the Percentage in Subsequent Percentage

Year Fiscal Year Amount of Levy Years Amount of Levy

2005 994,839$ 955,009$ 96.00% 1,364$ 956,373$ 96.13%2006 1,143,345$ 1,101,843$ 96.37% 1,865$ 1,103,708$ 96.53%2007 1,079,421$ 1,040,298$ 96.38% 2,834$ 1,042,960$ 96.62%2008 879,127$ 841,649$ 95.74% 3,694$ 845,343$ 96.16%2009 813,694$ 785,951$ 96.59% 2,750$ 787,623$ 96.80%2010 731,108$ 688,141$ 94.12% 1,424$ 689,565$ 94.32%2011 695,328$ 654,640$ 94.15% 542$ 655,182$ 94.23%2012 661,089$ 619,606$ 93.73% 20,000$ 639,606$ 96.75%2013 662,902$ 623,764 94.10% 16,239$ 640,003$ 96.55%2014 682,860$ * * * * *

*Not Available

Collected within the

(By October 31 of Year After Levy)

Source: Okaloosa County Property Appraiser for Levy Years 2004-2009. Audited Financial Statements for Prior and Subsequent Years. Tax Levy Year 2012 and 2013 from DR420-MM, block 22

Levy Fiscal Year Total Collections to Date

54

City of Mary Esther, FloridaPROPERTY TAX RATES - DIRECT AND OVERLAPPING GOVERNMENTS

PER $100 OF ASSESSED VALUE(UNAUDITED)

Last Ten Fiscal Years


City Rate

Operating Okaloosa Northwest Florida School TotalMillage County Water District Millage

3.5000 4.2500 0.0500 8.0630 15.86303.4000 3.6500 0.0500 7.7860 14.88603.0125 3.3443 0.0450 7.6390 14.04082.6996 3.2995 0.0450 7.6240 13.66812.6996 3.2899 0.0450 7.6390 13.67352.6435 3.2899 0.0450 7.5340 13.51242.6435 3.2899 0.0400 7.7690 13.74242.6435 3.2899 0.0400 7.4760 13.44942.6435 3.4308 0.0400 7.5510 13.66532.6435 3.4308 0.0390 7.4410 13.5543

1

20072008

20052006

Overlapping Rates1

FiscalYear

20092010

2012


Overlapping rates are those of local and county governments that apply to property owners within the City ofStatistical Section. Not all overlapping rates apply to all statistical property owners; for example, although thecounty property tax rates apply to all City property owners, the Flood Control District rates apply only toapproximately one-third of City property owners whose property is located within that district's geographicboundaries.

2011

20132014

55

City of Mary Esther FloridaDIRECT AND OVERLAPPING GOVERNMENTAL ACTIVITIES DEBT

AS OF SEPTEMBER 30, 2014


EstimatedEstimated Share of

Debt Percentage Overlapping

Governmental Unit Outstanding Applicable Debt

Debt repaid with property taxesOkaloosa County School Board 47,708,000$ 0.37% 175,895$

City Water/Sewer Bond Debt - 100% -

Total direct and overlapping debt 175,895$

Taxable Value of All Okaloosa County Property: 67,910,365,037$

Sources: Assessed value data used to estimate applicable percentages provided by the Okaloosa County School Board. Debtoutstanding data provided by each governmental unit.

Note: Overlapping governments are those that coincide, at least in part, with the geographic boundaries of the City. This scheduleestimates the portion of the outstanding debt of those overlapping governments that is borne by the residents and businesses of theCity of Mary Esther. This process recognizes that, when considering the City's ability to issue and repay long-term debt, the entire debtburden borne by the residents and businesses should be taken into account. However, this does not imply that every taxpayer is aresident, and therefore responsible for repaying the debt of each overlapping government.

56

City of Mary Esther FloridaRATIOS OF OUTSTANDING DEBT BY TYPE


DEBT CAPACITY - Table 9

Business-Type Activities Total

Fiscal Water and Sewer Primary Per Capita Year Revenue Bonds Government Debt

2005 2,950,104$ 2,950,104$ 1.99% 701$ 2006 2,793,541$ 2,793,541$ 1.75% 656$ 2007 2,631,978$ 2,631,978$ 1.57% 614$ 2008 2,455,235$ 2,455,235$ 1.87% 604$ 2009 2,232,342$ 2,232,342$ 1.88% 547$ 2010 2,026,646$ 2,026,646$ 1.62% 526$ 2011 1,966,334$ 1,966,334$ 1.68% 511$ 2012 -$ -$ 0.00% -$ 2013 -$ -$ 0.00% -$ 2014 -$ -$ 0.00% -$

Note:

Sources: Information was provided by the Local Chamber of Commerce

Details regarding the City's outstanding debt can be found in the notes tothe financial statements.

Income

Percentageof Personal

57

City of Mary Esther, FloridaPLEDGED REVENUE COVERAGE


DEBT CAPACITY - Table 10

Plus UtilityWater and Sewer Service Fee and Less Net

Fiscal Utility Franchise Fee Operating Less Other Available TotalYear Charges Revenues Expenses Financing Uses Revenue Principal Interest Coverage

2005 1,056,138$ 645,944$ 1,714,288$ 93,759$ (105,965)$ 170,000$ 174,149$ (0.31) 2006 1,134,635$ 745,905$ 2,040,198$ 130,376$ (290,034)$ 180,000$ 165,762$ (0.84) 2007 1,199,671$ 736,436$ 1,749,130$ 155,211$ 31,766$ 185,000$ 156,797$ 0.09 2008 1,273,667$ 684,389$ 1,758,446$ 155,211$ 44,399$ 200,000$ 147,248$ 0.13 2009 1,772,630$ 956,890$ 1,995,890$ 339,188$ 394,442$ 255,038$ 131,959$ 1.02 2010 1,527,867$ 799,975$ 1,529,086$ 426,542$ 372,214$ 235,000$ 80,141$ 1.18 2011 1,659,813$ 770,444$ 1,562,321$ 503,961$ 363,975$ 250,000$ 71,807$ 1.13 2012 1,519,798$ 179,231$ 1,522,008$ -$ 177,021$ 1,995,000$ 54,763$ 0.09 2013 1,489,909$ -$ 1,538,654$ -$ (48,745)$ -$ -$ N/A2014 1,565,132$ -$ 1,583,163$ -$ (18,031)$ -$ -$ N/A

Note: Details regarding the City's outstanding debt can be found in the notes to the financial statements. Operating expenses do not include interest, depreciation, or amortization expenses.

Water and Sewer Revenue Bonds Debt Service

58

City of Mary Esther, FloridaPRINCIPAL PROPERTY TAXPAYERS

(UNAUDITED)Current and Ten Years Ago

DEMOGRAPHIC AND ECONOMIC INFORMATION - Table 11

Percentage Percentageof Total City of Total City

Taxable Taxable Taxable TaxableAssessed Assessed Assessed Assessed

Taxpayer Value Rank Value Value Rank Value

SRM-SPE, LLC/Santa Rosa Mall, LLC 27,651,771 1 10.70% 40,227,719$ 1 17.33%Mary Esther Shopping Center 3,603,159 2 1.39% 3,333,523 5 1.44%Dayton Hudson Co. 3,487,886 3 1.35% 4,192,187 4 1.81%Mercantile Prop Inc. 3,151,559 4 1.22% 6,058,701 2 2.61%Gulf Power Company 2,883,418 5 1.12% 2,157,160 6 0.93%Mary Esther Leasing Inc. 2,641,911 6 1.02% 2,068,337 7 0.89%Belk Inc 2,360,838 7 0.91%Shivaram, Inc. 2,386,302 8 0.92% 1,708,251 10 0.74%Hood A Preston & Ann O 2,251,410 9 0.87%Mary Esther Restaurant Park 1,903,223 10 0.74%SRM Venture LLC 1,922,512 9 0.83%McRae's, Inc. 5,565,174 3 2.40%Sprint Florida Inc. 1,939,546 8 0.84%

Total 52,321,477$ 20.25% 69,173,110$ 29.81%

Total Taxable Assessed Value of Other Taxpayers 205,995,032$ 79.75% 187,665,563$ 80.87%

Total Taxable Assessed Value 258,316,509$ 100.00% 232,063,071$ 100.00%


20042014

59

City of Mary Esther, FloridaDEMOGRAPHIC AND ECONOMIC STATISTICS


DEMOGRAPHIC ECONOMIC INFORMATION - Table 12

Per Capita City of Okaloosa Okaloosa Personal Mary Esther County County

Okaloosa County Income Population School UnemploymentYear Population Population (x $1,000) as % of County Enrollment Rate

2005 4,207 183,398 35.3 2.29% 31,059 2.8%2006 4,258 182,462 37.5 2.33% 30,983 2.4%2007 4,285 180,911 39.2 2.37% 30,254 2.9%2008 4,067 179,529 32.2 2.27% 29,550 4.6%2009 4,080 178,473 29.1 2.29% 29,123 7.2%2010 3,851 179,257 32.5 2.15% 28,967 8.2%2011 3,844 180,280 30.5 2.13% 29,441 7.0%2012 3,857 187,280 30.3 2.06% 29,384 5.9%2013 3,860 188,349 35.2 2.05% 29,454 4.4%2014 * * * * 31,645 4.6%

*Not AvailableSources: Unemployment provided by the Florida Research and Economic Database and U.S. Bureau of Labor Statistics. Per Capita Personal Income provided by higheredinfo.org and city-data.com. School enrollment data provided by the Okaloosa County School Board. Population data through 2009 is from the U.S. Census Bureau. 2010-2012 population data is from Office of Economic and Demographic Research, 2010-2011 per capita estimates from www.bestplaces.net or www.clrsearch.com. 2013 per capita estimate from the US Census website at: http://factfinder2.census.gov/faces/tableservices/jsf/pages/productview.xhtml?src=bkmk

60

City of Mary Esther, FloridaOPERATING INDICATORS BY FUNCTION/PROGRAM


OPERATING INFORMATION - Table 13

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014Function/Program

PolicePhysical arrests 417 870 497 437 310 291 210 598 450 227 Traffic violations 2,188 2,018 1,659 1,442 1,646 1,925 2,357 2,525 1,824 1,748

FireEmergency responses 851 833 916 853 779 884 864 784 890 1,025 Annual inspections * 324 425 410 399 419 406 254 157 198 Re-inspections * 44 51 32 61 27 19 39 60 35 Plan reviews * 21 24 19 9 16 12 55 19 18 Site inspections * 49 48 33 21 48 20 112 60 20 Permits issued * 10 12 6 5 7 3 4 4 5 New Inspections 20 55 42 32 24 26 10 29 16 12

BuildingPermits issued 5 18 11 10 8 22 89 75 100 137

LibraryVolumes in collection 19,320 19,393 22,891 24,000 26,999 27,616 28,319 26,802 28,387 26,409

WaterNew connections 310 317 284 280 290 282 260 265 289 346Average daily consumption (x1,000) 428.2 451.1 433.5 404.3 365.5 342.6 335.0 330.0 304.2 301.6

*Not Available

Sources: Various City departments, CH2M Hill/OMI for W/S data and OCSO for Police sectionNote: Indicators are not available for the general government function.

61

City of Mary Esther, FloridaFULL-TIME EQUIVALENT - CITY GOVERNMENT EMPLOYEES BY FUNCTION/PROGRAM


OPERATING INFORMATION - Table 14


General government

Executive 1 1 1 1 1 1 1 1 1 1 Financial and administrative 6 6 6 6 5 5 6 6 5 6 Planning 1 1 1 1 1 1 1 1 1 1

Public safetyFire 11 10 10 10 11 11 11 11 12 11

Maintenance 7 9 6 6 7 6 6 7 6 7 Library 6 6 7 7 7 6 6 6 6 6

Water 6 - - - - - - - - - Total 38 33 31 31 32 30 31 31 31 32

Source: City Budget Department

62

City of Mary Esther, FloridaCAPITAL ASSET STATISTICS BY FUNCTION/PROGRAM


CAPITAL ASSET INFORMATION - Table 15


Police (contracted with Okaloosa County Sheriff's Office)Stations in Mary Esther - - - - - - - - - - Patrol units assigned 5 5 5 5 5 5 5 5 4 4

Fire stations 1 1 1 1 1 1 1 1 1 1 Other public works

Paved Streets (miles)1 19.3 19.3 19.3 19.3 19.3 19.3 19.3 19.3 19.4 19.4 Streetlights 364 373 373 373 373 373 373 373 373 373

Parks and recreationAcreage 28.2 28.2 28.2 28.2 28.2 28.2 28.2 28.2 28.2 28.2 Neighborhood parks 7 7 7 7 7 7 7 7 7 7 Community parks 2 2 2 2 2 2 2 2 2 2 Other parks 1 1 1 1 1 1 1 1 1 1

Water2

Water mains (miles) 18 18 18 18 18 18 18 18 18 18 Fire hydrants 199 200 200 200 201 202 202 202 168 168 Number of service connections 1,900 1,900 1,900 1,900 1,869 1,855 1,840 1,846 1,989 1,989 Storage capacity (thousands of gallons) 776 776 776 776 776 776 776 776 776 776

Wastewater2

Miles of sanitary sewers 24 24 24 24 24 24 24 24 24 24 Number of treatment plants 1 1 1 1 1 1 1 1 1 1 Number of service connections 1,900 1,900 1,900 1,900 1,869 1,855 1,840 1,846 1,989 1,989

Sources: City departments managers1Department of Transportation2CH2MHill

63

City of Mary Esther, FloridaPRINCIPAL EMPLOYERS - CURRENT YEAR

(UNAUDITED)Current and Ten Years Ago

DEMOGRAPHIC AND ECONOMIC INFORMATION - Table 16

Taxpayer Employees RankPercentage of Total

Employment Employees RankPercentage of

Total Employment

Target 109 1 0.11% * * *Sears 88 2 0.09% * * *JC Penny 75 3 0.07% * * *Logans 66 4 0.07% * * *Securitas 62 5 0.06% * * *Old Navy 42 6 0.04% * * *McDonald's 37 7 0.04% * * *Wendy's 35 8 0.03% * * *Hickory River Smokehouse 35 9 0.03% * * *Piggly Wiggly 31 10 0.03% * * *

Total 580 0.57% * *

Total County Employment 101,509 *

*Not availableSources: Survey of Local Businesses by City Staff

20042014

64

IV. COMPLIANCE SECTION

COMPLIANCE MATTERS

MANAGEMENT LETTER

RESPONSES TO MANAGEMENT LETTER

65

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 and Members of the City Council We have examined the City of Mary Esther, Florida’s (the City) compliance with Florida Statute 218.415 with regards to the investments for the year ended September 30, 2014. Management is responsible for the City’s compliance with those requirements. Our responsibility is to express an opinion on the City’s compliance based on our examination. Our examination was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants and, accordingly, included examining, on a test basis, evidence about the City’s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our examination provides a reasonable basis for our opinion. Our examination does not provide a legal determination on the City’s compliance with specified requirements. In our opinion, the City of Mary Esther, Florida complied, in all material respects, with Florida Statute 218.415 with regards to the investments for the year ended September 30, 2014.


66

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 and Members of the City Council 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 Mary Esther, Florida, as of and for the year ended September 30, 2014, and the related notes to the financial statements, which collectively comprise the City of Mary Esther, Florida's basic financial statements and have issued our report thereon dated January 27, 2015. Internal Control over Financial Reporting In planning and performing our audit, we considered the City of Mary Esther, Florida's internal control over financial reporting (internal control) as a basis for designing our auditing procedures for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City of Mary Esther, Florida's internal control. Accordingly, we do not express an opinion on the effectiveness of the City of Mary Esther, Florida's internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that were not identified. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. We did identify a certain deficiency in internal control, described in the accompanying Schedule of Findings and Responses that we consider to be a significant deficiency (SD-2014-01).

67

Compliance and Other Matters As part of obtaining reasonable assurance about whether the City of Mary Esther, Florida's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed an instance of noncompliance that is required to be reported under Government Auditing Standards and which is described in the accompanying Schedule of Findings and Responses (CF-2014-01). City of Mary Esther, Florida’s Response to Findings City of Mary Esther, Florida’s response to the findings identified in our audit is described in the accompanying Schedule of Findings and Responses. City of Mary Esther, Florida’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.


CITY OF MARY ESTHER, FLORIDA SCHEDULE OF FINDINGS AND RESPONSES

SEPTEMBER 30, 2014

68

SD-2014-01 INFORMATION TECHNOLOGY IMPROVEMENTS

Conditions During our audit procedures, we noted the following deficiencies in the design of information systems general, application, and user controls: - We noted several passwords on both the Windows operating system and Black

Mountain software package had not been changed in several years. In addition, we noted no complexity requirements on passwords.

- There is no written policy to address the necessary information technology procedures for terminated employees.

- There are network locations that are meant only for management access, yet staff employees have access to them.

- A risk assessment has not been performed on the information technology weaknesses of the City’s network to determine potential areas of vulnerability.

Cause of Conditions The conditions listed above surrounding the City’s information technology environment are caused by the following: - The City has not addressed or adopted password duration and complexity

requirements. - During employee termination procedures, the information technology related

procedures have not been addressed along with the other termination procedures. This has resulted user accounts of terminated employees to still be active in the system.

- Separate folders were set up on the network to restrict access to sensitive documents that only management should have access to. Shortcuts were then set up on the managers’ computers to access those folders. There were no controls or restrictions put in place to prevent unauthorized access to those folders by staff employees.

- During routine risk assessment procedures, the risks surrounding the City’s information technology environment were overlooked and thus not addressed.

Effects of Conditions The conditions listed above surrounding the City’s information technology environment could have the following effects if not addressed: - In the event that one City employee obtained knowledge of another employee’s

credentials, unauthorized changes could be made to account balances, etc. with no accountability or ability to trace back to the actual individual making the changes.

- On the same lines, if accounts of terminated employees are kept active, current employees could gain access and make unwarranted changes to the system.

- Without formal restrictions on access to sensitive documents, the network is open to unauthorized write and/or read access to documents that only management should be able to view and/or modify.

- Without having a risk assessment performed, the City increases its risk of vulnerability to their information technology infrastructure from an unknown source. Having a risk assessment performed will mitigate this risk and put procedures in place should the City’s system be penetrated.

69

SD-2014-01 INFORMATION TECHNOLOGY IMPROVEMENTS - CONTINUED Recommendations To remedy the conditions presented above, we are recommending that the City implement the following recommendations: - In order to reduce the risk of access to computer files by unauthorized personnel, we

recommend that the City institute a policy that requires passwords to be changed on a regular basis. The City may also wish to investigate building into its software automatic expiration of passwords to ensure that they are changed periodically. In addition, we suggest you consider improving password security throughout the City. Passwords should be unique; at least six characters long and a combination of upper and lower case letters, numbers, and punctuation marks. These recommendations are for both Windows (operating system access) as well as Black Mountain (accounting software access).

- Termination procedures should include immediate removal of such personnel from any system access. If the user account needs to be temporarily kept active, the password on that account should be immediately changed by the Finance Director and only the Finance Director should know that password. The date as to when that password was changed should be documented to ensure accountability for any transaction made using that user name.

- We recommend that controls be implemented to prevent non-admin access to data files that should only be accessed by admin (i.e. minutes, personnel information, etc.). A member of admin should periodically review access restrictions to ensure the access restrictions are constantly up-to-date.

- The City has not had an assessment performed on the weaknesses of the City’s IT system to determine potential areas of vulnerability. Thus, the City's system is at risk of attack by hackers and virus writers who exploit known vulnerabilities in networks and other software. They have been known to tap into, and disrupt, networks and websites of small private companies as well as large public ones. For this reason, as well as to obtain efficiencies from improved functionality, we recommend that the City consider performing penetration testing to determine vulnerable areas.

Management Response The City will create and adopt a written policy for information security as soon as possible. This policy will include password complexity and duration requirements, information technology procedures for terminated employees, and prudent controls to prevent data security breaches that could be caused by a weak information technology security program. In creating the new written information security policy, the City will consider and use, where appropriate, the recommendations offered by the auditor in the FY13-14 audit finding SD-2014-01. The City will have a professional information technology risk assessment performed as soon as the funding can be authorized and a qualified service provider can be hired. The technology assessment report will be used to create or improve a written information security policy. Network locations that were insecure have been improved. Any remaining insecure network locations identified by staff or by a risk assessment will be corrected or eliminated in a timely manner.

70

CF-2014-01 GENERAL FUND EXPENDITURES OVER APPROPRIATIONS

Condition For the fiscal year ending September 30, 2014, the City’s expenditures exceeded appropriations in the General Fund by $414,401. Cause of Condition The City did not adopt a budget amendment for the General Fund to reflect the significant expenditures incurred by the City in fiscal year 2014 related to the purchase of a new fire truck. The City had originally budgeted for the new fire truck in fiscal year 2013, when a full deposit was paid. As the fire truck wasn’t delivered until fiscal year 2014, the acquisition of the new truck was not recognized until then. The City did not adopt a budget amendment to re-budget the expenditure in fiscal year 2014. Effects of Condition Noncompliance with Florida Statute 166.241(2), whereas the adopted budget must regulate expenditures of the municipality, and a municipal government may not expend or contract for expenditures in any fiscal year except pursuant to the adopted budget. Recommendation Pursuant to Florida Statute 166.241(4), the governing body of each municipality at any time within a fiscal year or within 60 days following the end of the fiscal year may amend a budget for that year. We recommend that the City closely monitor its expenditures throughout the year to ensure that appropriations of the fund do not exceed budgeted expenditures. When the City incurs expenditures in excess of budgeted appropriations, the City should propose a budget amendment. This type of budget amendment, when budgeted expenditures in total will increase, must be adopted in the same manner as the original budget. The adopted amendment must be posted on the official website of the City within 5 days after adoption.

Management Response Because Florida Statute 166.241(4) takes precedence over the City Charter, the City Staff will ignore City Charter paragraph 6.08 which states, “An appropriation for a capital expenditure shall continue in force until the purpose for which it was made has been accomplished or abandoned; the purpose of any such appropriation shall be deemed abandoned if three (3) years pass without any disbursement from or encumbrance of the appropriation.” The City Staff will closely monitor its expenditures throughout the year to ensure that appropriations of the fund do not exceed budgeted expenditures. If the City Staff determines expenditures will likely exceed budgeted expenditures, a budget amendment will be recommended and passed, or the expenditure will not be completed.

71

MANAGEMENT LETTER To the Honorable Mayor and and Members of the City Council Report on the Financial Statements We have audited the financial statements of the City of Mary Esther, Florida, as of and for the fiscal year ended September 30, 2014, and have issued our report thereon dated January 27, 2015. Auditors’ Responsibility We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States and Chapter 10.550, Rules of the Auditor General. Other Reports and Schedule 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 in Accordance with Government Auditing Standards, the Schedule of Findings and Responses, and Independent Accountants’ Report on an Examination of Compliance Requirements in Accordance with Chapter 10.550, Rules of the Auditor General. Disclosures in these reports and schedule, which are dated January 27, 2015, 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 recommendations made in the preceding audit report. Official Title and Legal Authority Section 10.554(l)(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 Mary Esther, Florida has been disclosed in Note 1 to the financial statements. Financial Condition Section 10.554(1)(i)5.a., Rules of the Auditor General, requires that we report the results of our determination as to whether or not the City of Mary Esther, Florida has met one or more of the conditions described in Section 218.503(1), Florida Statutes, and identification of the specific condition(s) met. In connection with our audit, we determined that the City of Mary Esther, Florida did not meet any of the conditions described in Section 218.503(1), Florida Statutes.

72

Pursuant to Sections 10.554(1)(i)5.c., and 10.556(8), Rules of the Auditor General, we applied financial condition assessment procedures. It is management's responsibility to monitor the City of Mary Esther, Florida's financial condition, and our financial condition assessment was based in part on representations made by management and the review of financial information provided by same. Our assessment was performed as of September 30, 2014. Annual Financial Report Section 10.554(1)(i)5.b., Rules of the Auditor General, requires that we report the results of our determination as to whether the annual financial report for the City of Mary Esther, Florida, for the fiscal year ended September 30, 2014, filed with the Florida Department of Financial Services pursuant to Section 218.32(1)(a), Florida Statutes, is in agreement with the annual financial audit report for the fiscal year ended September 30, 2014. In connection with our audit, we determined that these two reports were in agreement. Special District Component Units Section 10.554(1)(i)5.d, Rules of the Auditor General, requires that we determine whether or not a special district that is a component unit of a county, municipality, or special district, provided the financial information necessary for proper reporting of the component unit, within the audited financial statements of the county, municipality, or special district in accordance with Section 218.39(3)(b), Florida Statutes. The City of Mary Esther, Florida has no special districts that are component units. Other Matters Section 10.554(1)(i)2., Rules of Auditor General, requires that we address in the management letter any recommendations to improve financial management. Our recommendations are outlined in the accompanying Schedule of Findings and Responses. Section 10.554(1)(i)3., Rules of Auditor General, requires that we address noncompliance with provisions of contracts or grant agreements, or abuse, that have occurred, or are likely to have occurred, that have an effect on the financial statements that is less than material but which warrants the attention of those charged with governance. Our recommendations are outlined in the accompanying 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, members of the City Council, and applicable management, and is not intended to be and should not be used by anyone other than these specified parties. We sincerely hope these comments and recommendations will be of assistance in the administration and operation of the City. Please feel free to contact us regarding the preceding or any other aspect of the audit of your financial statements. We greatly appreciate the assistance and cooperation extended to us during our audit.

January 27, 2015

comprehensive annual financial report of the city of … rpts/2014 mary esther.pdf · comprehensive...

Documents