City of Pensacola, Florida

THE CITY OF PENSACOLA, FLORIDA

COMPREHENSIVE ANNUAL FINANCIAL REPORT

FOR THE YEAR ENDED SEPTEMBER 30, 2012

Prepared by: Financial Services Department

Richard Barker, Jr. Chief Financial Officer

ACCOUNTING STAFF Mandy Bills, CPA Laura Picklap, CPA

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CITY OF PENSACOLA, FLORIDA COMPREHENSIVE ANNUAL FINANCIAL REPORT YEAR ENDED SEPTEMBER 30, 2012

TABLE OF CONTENTS

I. INTRODUCTORY SECTION Letter of Transmittal 1-17 Government Finance Officer’s Association Certificate of Achievement 18 Organizational Chart 19-20 List of Elected and Appointed Officials 21

II. FINANCIAL SECTION Independent Auditors’ Report 22-23

A. MANAGEMENT’S DISCUSSION AND ANALYSIS (REQUIRED SUPPLEMENTARY INFORMATION) 24-42

B. BASIC FINANCIAL STATEMENTS

Government-wide Financial Statements Statement of Net Assets 43-44 Statement of Activities 45-46

Fund Financial Statements Governmental Funds Financial Statements Balance Sheet 47-48 Statement of Revenues, Expenditures, and Changes in Fund Balances 49 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities 50 Statement of Revenues, Expenditures, and Changes in Fund Balances – Budget and Actual – General Fund 51 Statement of Revenues, Expenditures, and Changes in Fund Balances – Budget and Actual – Housing Assistance Payments Fund 52

Proprietary Funds Financial Statements Statement of Net Assets 53-54 Statement of Revenues, Expenses, and Changes in Fund Net Assets 55 Statement of Cash Flows 56-57

CITY OF PENSACOLA, FLORIDA

TABLE OF CONTENTS (CONTINUED)

Fiduciary Funds Financial Statements Statement of Net Assets 58 Statement of Changes in Net Assets 59

Notes to Financial Statements Note I – Summary of Significant Accounting Policies 60-69 Note II – Stewardship, Compliance, and Accountability 69 Note III – Detail Notes on All Funds 70-99 Note IV – Other Information 100-117 Note V – Subsequent Events 118

C. REQUIRED SUPPLEMENTARY INFORMATION (OTHER THAN MD&A)

Pension Funds – Schedule of Employer Contributions and Analysis of Funding Progress 119-122

D. COMBINING FINANCIAL STATEMENTS Nonmajor Governmental Funds Balance Sheet 123-126 Statement of Revenues, Expenditures, and Changes in Fund Balances 127-130 Schedule of Revenues, Expenditures, and Changes in Fund Balances – Budget and Actual – Local Option Sales Tax Fund 131 Schedule of Revenues, Expenditures, and Changes in Fund Balances – Budget and Actual – Maritime Community Park Construction Fund 132 Schedule of Revenues, Expenditures, and Changes in Fund Balances – Budget and Actual – Nonmajor Governmental Funds 133-145

Internal Service Funds Statement of Net Assets 146 Statement of Revenues, Expenses, and Changes in Fund Net Assets 147 Statement of Cash Flows 148-149

Fiduciary Funds Statement of Net Assets 150 Statement of Changes in Net Assets 151

CITY OF PENSACOLA, FLORIDA

TABLE OF CONTENTS (CONTINUED)

III. STATISTICAL SECTION Financial Trends Changes in Net Assets 152-153 Net Assets by Component 154 Program Revenues by Function/Program 155 Fund Balances, Governmental Funds 156 Changes in Fund Balances, Governmental Funds 157-158 Revenue Capacity Assessed Value and Estimated Value of Taxable Property 159 Direct and Overlapping Property Tax Rates 160 Principal Property Tax Payers 161 Property Tax Levies and Collections 162 Taxable Sales by Category 163 Direct and Overlapping Sales Tax Rates 164 Sales Tax Revenue Payers by Industry 165 Gas Sold in Mcfs by Type of Customer 166 Gas Rates 167 Debt Capacity Ratios of Outstanding Debt by Type 168 Direct and Overlapping Governmental Activities Debt 169 Pledged-Revenue Coverage 170-171 Demographic and Economic Information Demographic and Economic Statistics 172 Principal Employers 173 Operating Information Operating Indicators by Function/Program 174-175 Capital Asset Statistics by Function/Program 176-177 Full-time-Equivalent City Government Employees by Function/Program 178

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CITY OF PENSACOLA, FLORIDA

TABLE OF CONTENTS (CONTINUED)

IV. OTHER AUDIT REPORTS SECTION Independent Auditor’s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 179-180 Independent Auditor’s Report on Compliance with Requirements Applicable to Each Major Federal Program, State Project and Passenger Facility Charge Program and on Internal Control Over Compliance in Accordance with OMB Circular A-133 181-182 Schedule of Findings and Questioned Costs-Federal Programs and State Projects 183-184 Summary Schedule of Prior Year Audit Findings 185 Schedule of Expenditures of Federal Awards, Passenger Facility Charge 186-187 And State Financial Assistance Management Letter 188-191 Financial Data Schedule 192-193

INTRODUCTORY SECTION

LETTER OF TRANSMITTAL

CERTIFICATE OF ACHIEVEMENT FOR EXCELLENCE IN FINANCIAL REPORTING

CITY OF PENSACOLA ORGANIZATIONAL CHART

LIST OF ELECTED AND APPOINTED OFFICIALS

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ASHTON J. HAYWARD, III Mayor America’s First Settlement Established 1559

February 14, 2013

The Honorable P.C. Wu, President And Members of the City Council City of Pensacola Pensacola, Florida

Pursuant to applicable Florida Statutes and sound financial management practices, the Comprehensive Annual Financial Report (CAFR) of the City of Pensacola, Florida, for the fiscal year ended September 30, 2012, has been prepared and is submitted herewith.

The City of Pensacola's CAFR was prepared by the Financial Services Department. Responsibility for both the accuracy of the presented data and completeness and fairness of the presentation, including all disclosures, rests with the City. City management believes that the report is a fair presentation of the City's financial position and results of operations as measured by the financial activity of its various funds, that presented data is accurate in all material aspects and that all disclosures necessary to enable the reader to gain maximum understanding of the City's financial affairs have been included.

This report has been presented in accordance with Generally Accepted Accounting Principles (GAAP). These principles require that management provide a narrative introduction, overview, and analysis to accompany the basic financial statements in the form of Management’s Discussion and Analysis (MD&A). The Letter of Transmittal is designed to complement MD&A and should be read in conjunction with it. The City of Pensacola’s MD&A can be found immediately following the report of the independent auditors.

Mayor’s Initiatives

As the Chief Executive of the City of Pensacola, the Mayor and his staff serve to administer and enforce city ordinances, direct city employees providing services to citizens, and propose and execute the city budget. In addition to these specific duties outlined in the City Charter, the Mayor also performs economic development, community outreach, and public awareness functions.

1 Since taking office after the 2010 election, the Mayor’s Office has focused on creating economic opportunity, improving neighborhoods, fostering a healthier environment, restoring citizen confidence in government, and taking action for the future. Through internal staff reorganization, public outreach, and the introduction of new services like 311 Citizen Support Line, a more accountable, responsive, and efficient City government has been established.

The Reporting Entity

The financial reporting entity includes all funds of the primary government, as well as all of its component units. Component units are legally separate organizations for which the City is financially accountable and, for financial statement purposes, are either blended with the activities of the City or discretely presented. The criteria used to determine whether an organization should be a part of the City’s reporting entity were those outlined by Governmental Accounting Standards Board Statement No. 14, The Financial Reporting Entity.

The Downtown Improvement Board (DIB) and the Community Maritime Park Associates, Inc. (CMPA) have been classified as component units and are discretely presented in the City’s annual financial report as separate columns in the government-wide financial statements. The Community Redevelopment Agency (CRA), an independent agency of the City, also meets the definition of a component unit; however its financial reporting is blended with the City’s financial activity.

Form of Government

City Council adopted a new charter on November 25, 2009 with a fifty-five percent voter approval. The Council-Manager structure changed to a Mayor-Council form of government effective January 11, 2010; however, until inaugurated in January 2011, the City continued to operate under the Council-Manager structure. With the new structure, there are nine members of council with each member limited to three consecutive four year terms. The Mayor is not a member of Council and does not have voting power but the term is extended to a maximum of three consecutive four year terms of office as opposed to the prior two year term. Every ten years the Charter Review Commission will be established to review the City’s charter. With the new structure, the Mayor replaces the City Manager as the executive head of the City and shall appoint a City Administrator to assist in managing daily operations.

The City of Pensacola provides a full range of municipal services including public works, public safety, recreation and cultural activities. In addition, the City’s enterprise activities include a gas utility, sanitation collection system, seaport, and regional airport.

Accounting and Internal Controls

Management of the City is responsible for establishing and maintaining internal controls. Internal accounting controls are designed to provide reasonable, but not absolute, assurance regarding the safeguarding of assets against loss through unauthorized use or disposition; the reliability of financial records for preparing financial statements and maintaining accountability for assets. The concept of reasonable assurance recognizes that the cost of a control should not for assets. The concept of reasonable assurance recognizes that the cost of a control should not

2 for assets. The concept of reasonable assurance recognizes that the cost of a control should not exceed the benefits likely to be derived and the evaluation of costs and benefits requires estimates and judgments by management.

Budget Process

The budget process for the City of Pensacola does not have an easily identifiable beginning or end. During the course of each fiscal year, new initiatives for services, regulations, funding sources, better methods of providing existing services, and citizen comments are brought forward for discussion, study and implementation. Although the budget document is developed at a fixed point in time, and identifies a work plan for a specific period of time, the budget process is fluid.

There are a number of tools used throughout the course of the fiscal year to report on the status of the budget. City Council is briefed quarterly on comparisons of revenues and expenditures to budgeted numbers. Additionally, City Council is provided a monthly financial overview. Monthly reports are generated for public review to provide a more frequent overview of the financial status as compared to budget. At fiscal year end, the City’s CAFR, which provides end of year results, is compared to the respective budget to assist in revenue forecasting and expenditure analysis for the next budget cycle. Budget transfers within a fund (transfers of amounts from one line item to another) and Supplemental Budget Resolutions are the only means to amend an adopted budget. Two public hearings are held before the adoption of the final budget and final millage rates.

Debt Administration

Debt administration is the responsibility of the City’s Chief Financial Officer. Additional assistance is employed through the services of RBC Capital Markets, the City’s Financial Advisors.

On December 16, 2011 the City issued a $5 million Gas System Revenue Note. The note was issued for the purpose of financing the purchase of five (5) compressed natural gas refuse trucks and to acquire, construct and equip additions, extensions or other capital improvements to the Gas Utility System. Pledged revenues for the repayment of the principal and interest will be derived from the operation of the City’s gas distribution system.

On January 11, 2012, the Community Redevelopment Agency (CRA) approved, by CRA Resolution 01-2012, a $500,000 loan to the Community Maritime Park Associates (CMPA) specifically for the construction of the back of the house to the Amphitheater in addition to possible dirt work, engineering and related soft costs. The CMPA Board approved the loan January 18, 2012. The loan is to be repaid by January 15, 2013 and has an interest rate of 2.5%. On December 10, 2012, the CRA extended the term of the loan to September 15, 2013 requesting that CMPA present a plan for repayment prior to that date.

On September 28, 2012, the City issued a $6.3 million Airport Revenue Note for the purpose of financing the parking lot expansion at Pensacola International Airport. Pledged revenues for the repayment of the principal and interest will be derived from the general revenues of the City’s International Airport.

3 Pledged revenues for business-type debt are typically the sole pledge of net revenues from operations, however, from time to time there are pledges of specific revenue streams. In fiscal year 2012, business-type activities paid a total of $6.8 million and $3.5 million respectively for principal and interest on bonds.

Revenues traditionally pledged for general government type debt include public service taxes, electric franchise fees, sales taxes and tax increment revenues. The City paid a total of $3.5 million and $4.2 million, respectively for principal and interest, for governmental activities debt during fiscal year 2012. The City typically issues debt with a levelized structure thereby eliminating large increases and decreases in principal payments from year to year. The City has no general obligation debt.

The City of Pensacola issues an annual Report to Bondholders published on or before March 30th of each year. The City is in compliance with all continuing disclosure requirements. The Comprehensive Annual Financial Report and the Report to Bondholders should be read in conjunction to get a clear and complete understanding of the market effect on the City of Pensacola.

Pensacola Energy (formerly Energy Services of Pensacola)

Pensacola Energy, formerly Energy Services of Pensacola (ESP), a department of the City, became a City-owned utility on April 27, 1948, upon its purchase from the Gulf Power Company. Pensacola Energy supplies natural gas to approximately 58,000 service connections and is the largest municipal gas distribution system in Florida as it relates to customer base.

Pensacola Energy had operating income before depreciation of $12,751,932, an increase of $4.3 million over last year. Pensacola Energy billed $37.2 million in revenues, a decrease over the previous year of $2.2 million (5.6%). Although Pensacola Energy implemented an average rate increase of 6.9% during FY 2012, revenues decreased due to a warmer than normal winter and a decrease in the Purchase Gas Adjustment (PGA) rate attributable to the decrease in the cost of natural gas which is passed through to the customer. In fiscal year 2012, the PGA rate was adjusted to include a reserve component to restore Pensacola Energy’s operating reserves. Operating expenses decreased $6.5 million (21%) from fiscal year 2011 mainly from the decreased cost of natural gas. The revenue classification for billed gas service is 54.1 percent residential, 28.1 percent commercial and 17.8 percent industrial.

Fiscal year 2013 revenues of $53.4 million are budgeted lower than the previous year. Pensacola Energy budgets with anticipation of a normal winter; however, actual revenues fluctuate with the cost of gas and weather patterns. Pensacola Energy’s rates and fees are adjusted annually with the Consumer Price Index (CPI) if approved by City Council. City Council approved an average rate increase of 6.9% for fiscal year 2012. The CPI increased 2.7% for fiscal year 2013; however, no rate increase is contemplated for fiscal year 2013. Appropriations are budgeted $1.3 million (2%) less than fiscal year 2012. Pensacola Energy’s transfer to the General Fund is budgeted to remain at $8 million. The transfer is within the City Council adopted financial planning policy that permits a transfer of up to 15 percent of budget revenues.

4 Sanitation Services

The City has operated a solid waste collection system for over fifty years. Sanitation service is mandatory within the City limits and the city provides residential garbage, recycling and trash collection to approximately 19,000 customers. Commercial dumpster services are provided by private hauling companies that are franchised by the City and regulated by the Sanitation Services department.

Sanitation had operating income before depreciation of $574,711; an increase of $429,710 (296%) over last year. Sanitation billed $6,878,677 in revenue; an increase of $620,429 (9.9%) over fiscal year 2011 revenues. Both of these increases were due to rate increases during fiscal year 2012 to fund both operating and capital needs. Residential garbage fees increased 2.7% in accordance with the CPI increase and Commercial Solid Waste Franchise Fees increased $0.50 per cubic yard in order for the function to remain self-sustaining. Operating expenses decreased marginally from last year by $190,719 (3.1%).

Fiscal year 2013 total revenues of $7 million are budgeted higher than fiscal year 2012 actuals of $6.8 million (3%). The change primarily relates to the curbside recyclables program revenue sharing that was implemented in fiscal year 2012. Appropriations increased $100,300 (1.5%) mainly from Sanitation’s share of the 2011 Gas System Revenue Note used for the purchase of Compressed Natural Gas (CNG) refuse trucks.

Port of Pensacola

The Port of Pensacola, a department of the City, provides marine terminal services connecting water and land transportation. Revenues are generated through fees for wharfage, handling, dockage, rent, storage, security, and harbor services. Rates are established in a published, publicly available tariff. The two basic categories of freight are general cargo and bulk cargo.

During fiscal year 2012, the Port billed $2.4 million in revenues, an increase of approximately $500,000 (26%) over fiscal year 2011. The increase was due to the diversification of the Port’s business base and the growth in wind energy sector exports. Operating income before depreciation increased to $772,590 or approximately $520,000 (206%) over 2011 indicating that while revenues increased, operating expenses remained constant.

For many years the Port of Pensacola has been the recipient of Florida Seaport Transportation and Economic Development Trust Fund (FSTED) monies to fund capital projects. During fiscal year 2012, the Port was awarded a FSTED grant in the amount of $250,000 for maintenance dredging. Since inception of the program, the City has received a total of $4,779,251 in FSTED grant funding. During the last few fiscal years, the Port has also secured $5.3 million in FEMA Port Security grants which have provided funding to enhance security at the Port as well as other related City departments. It is anticipated that additional grant funding will be awarded in fiscal year 2013.

The Port Advisory Committee was established by the Mayor in 2011 to examine Port operations and maximize the Port’s property benefit to the community. In response to the committee’s

5 recommendations, the Port has secured $2 million in capital improvement funding from the State of Florida to expand its presence in the high-tech offshore service industry.

Fiscal year 2013 operating revenues are budgeted at $2.2 million, approximately $123,000 (6%) higher than the prior year budget due to an increase in dockage revenue anticipated with the focus on the offshore service industry uses. Appropriations for operating expenses are budgeted slightly more than last year and represent an increase of approximately $10,000 (1%).

Pensacola International Airport

The City of Pensacola owns and operates the Pensacola International Airport as a department of the City. The Airport plays an important role in the national, state, and local air transportation systems. It is the primary commercial service airport serving northwestern Florida and southern Alabama with its principal service area encompassing Escambia, Santa Rosa, Walton and Okaloosa Counties in Florida and Baldwin, Escambia and Mobile counties in Alabama. During fiscal year 2012, 1.51 million passengers utilized the Airport serviced by two major/national passenger airlines and up to nine regional/commuter airlines.

The Airport had operating income before depreciation of $4.4 million; a $600,000 (15.7%) increase from last year primarily due to an overall reduction in operating expenses. Airport operating revenues of $18 million remained fairly constant from the prior year, decreasing slightly (1%).

The 2013 operating budget of $23.3 million is $1.15 million (5.2%) more than last year. The Airport’s agreement with the airlines provides for the airlines to fund any revenue shortfall. Air Carrier landing fees are anticipated to increase $1.8 million. Appropriations for operating expenses increased $829,000 (10%) over the prior year budget mainly for operations associated with the new terminal building expansion, oversight and planning of the Commerce Park Development and general repairs and maintenance.

Current Year Events and Future Year Plans

The Pensacola City Council approved the fiscal year 2012 budget of $222.1 million, an increase of $5.3 million from the 2011 budget. The General Fund anticipated an increase in revenues of $1 million (2%) despite a projected decrease in Ad Valorem Revenues of $1 million due to a reduction in property tax valuations and a .25 mills decrease in the millage rate. The increase in General Fund Revenues is mainly due to the sale of the Army Reserve Property to the Airport for the development of a 500 space remote public parking lot. The Enterprise Funds anticipated an increase in funding of $4 million primarily due to Pensacola Energy’s rate adjustment and the increase in other Enterprise Fund fees in order for them to maintain financial independence.

6 Departmental events and plans

Planning Services provides the public the opportunity to obtain input from administrators of Planning Services, Inspection Services, Public Works and Engineering by coordinating a standing weekly development review meeting. Planning Services continues to maintain the City's Comprehensive Plan, which was updated in 2010. Planning Services also maintains a current Land Development Code (LDC) and is working towards implementing form-based, sustainable development guidelines to create a more walkable-built environment. Planning Services staff has recently completed revisions to permitted use regulations in the City's commercial and industrial land use districts, and will be continuing updates to the Land Development Code that will include the modernization of the City's off-street parking regulations and right-of-way permitting processes.

The Office of Sustainability works with the community, City departments, Escambia County, and State and Federal agencies to manage economic opportunity efforts and sustainability objectives for the City of Pensacola. This office continues to work toward positioning Pensacola as a national leader in clean energy solutions, infrastructure investment, job creation and existing business expansion. The Office of Sustainability drafted the City Council ratified Green Building Ordinance that incentivizes energy-efficient design and mechanical implementation for new construction or redevelopment. The Office manages all development and environmental issues related to two EPA designated Superfund sites and coordinates Brownfield property issues and grant applications. The Energy Services Company consultant agreement with Siemens Industries and the potential energy savings programs and contracts with them will be managed by the Office of Sustainability as well. Pensacola is a partner in the EPA’s Better Building Challenge and the Department of Energy’s Energy Star program with both programs seeking energy efficiency improvements across the City’s infrastructure. The Office of Sustainability coordinates actions pertaining to the City’s real estate programs including disposal, marketing and redevelopment.

In fiscal year 2013, the Office of Sustainability will continue to manage all energy efficiency, sustainability, and environmental programs, contracts and grant applications for the City. Additionally, it will manage Economic Opportunity and Development programs and serve as the City’s point of contact for economic outreach programs and marketing efforts for external agencies. The office will direct the City’s participation in Federal and State efficiency programs including the launch of a Commercial Property Assessed Clean Energy Program (PACE) and the DOE and EPA infrastructure efficiency programs. All State, Federal, and private grant opportunities will be reviewed for City applicability.

The Pensacola Police Department continued its quest to improve ways in which public services are provided. During FY2012, one of the top priorities was a commitment to providing safer neighborhoods. This was done not only by increased usage of radar and officer presence in response to speeding complaints in various areas, but also a patrol saturation on the streets during summer months when all sworn personnel worked patrol duties in response to an increase in shootings.

7 The department received $122,114 in federal and state grants. Among the items purchased were an AFIS system, which is connected to the Florida Department of Law Enforcement and enables crime scene personnel to search latent fingerprints statewide. Other grant purchases included traffic vests, radar units, a SMART trailer to monitor motorist speeds, and bulletproof vests.

Graffiti incidents declined through the use of surveillance cameras moved throughout city limits. That effort will continue this year. Officers also increased random presence at known drug, alcohol and crime hot spots/businesses to hinder criminal opportunities and plan to continue that effort this year.

Department personnel partnered with the Escambia County Sheriff’s Office and other agencies in August 2012 to create a multi-agency Gun Crime Response Team in an effort to curb gun violence. Team efforts resulted in the recovery of several stolen firearms and the arrests of several subjects on firearms related crimes.

An increase in daytime residential burglaries resulted in officers participating in concentrated burglary details, which resulted in numerous arrests and recovery of stolen property and vehicles. Also, working relationships with other law enforcement agencies were improved through information sharing meetings, which also resulted in numerous arrests and recoveries of stolen property.

PPD programs/goals for 2013 include the following:

. All public housing complexes within city limits now participate in Crime Watch Groups coordinated by the PPD. . Three Neighborhood Services Division officers have been awarded certificates in crime prevention and are using that training to educate people on how to make their neighborhoods safer. . Approximately 100 people will attend/graduate from Citizens Police Academies where they will learn different aspects of law enforcement provided by PPD. . Officers will continue using radar in response to speeding complaints in specific areas.

The Pensacola Fire Department maintained its Insurance Service Organization (ISO) Public Protection Classification (PPC™) rating of “2” during fiscal year 2012 which places the department in the top ten percent in the United States. Before a community can receive an ISO PPC classification, the community must meet minimum facilities, staffing and practices requirements. The rating is then based on the departments’ ranking on the Fire Suppression Rating Schedule (FSRS) which assesses the departments’ ability to fight fires effectively.

The Pensacola Fire Department successfully launched its new Child Passenger Safety Seat program. The program consisted in the training of twenty-six firefighters as certified car seat installers. The training and car seats were procured via a Florida DOT safety grant. The department transitioned from Mobile Data Laptop Computers to tablet devices in 2012 improving information delivery to the firefighters on fire apparatus at one third the cost of a replacement laptop computer. In 2012 the fire department conducted extensive training in the areas of hazardous materials enhancing the response level to this type of incident in the city.

8 Also during fiscal year 2012, the department made progress on several major projects funded with grant dollars. An update of the City comprehensive emergency plan for all departments, including police and fire was completed. Grant monies to contract for the purchase of a fire boat were acquired. The department also received grants to build a berth for the fire boat at the Port of Pensacola as well as replace the Englewood communications tower.

Neighborhood Services Department continued its active role in neighborhood enhancements in fiscal year 2012 with a more than $6 million investment of two new resource centers, Woodland Heights and Legion Field resource centers. Woodland Heights is designed to be a 13,544 square foot center that will include two multipurpose meeting rooms, a computer lab, auditorium/gym featuring a basketball court and stage, small kitchen and outside movie wall. This new resource center will serve the following Pensacola neighborhoods - Woodland Heights, Northeast and Pineglades. The Woodland Heights ground breaking ceremony occurred September 14, 2012 with construction scheduled later in 2012. Woodland Heights completion is expected in late 2013. Legion Field resource center is designed to be a 15,000 square foot center that will include a library branch, large multi-purpose room and gym, kitchen with concession windows and activity and meeting rooms. This new resource center will serve the neighborhoods on Pensacola's west side. The Legion Field ground breaking ceremony occurred December 14, 2012 with construction expected to take around 14 months. Legion Field's projected completion is February 2014. Both centers were designed to exceed energy efficiency standards and meet current green building standards.

In January 2013, the West Florida Regional Library Main Downtown Branch completed a two- year renovation and expansion that nearly doubled the library’s size. The new library includes an expanded children’s area, meeting rooms, coffee shop, bookstore and more than 50 new computers, including a 10-station computer training lab. In support of the Mayor’s green building code initiative, the new library becomes the City’s first LEED-certified building, incorporating a number of energy-efficient strategies. The improvements are expected to cut the library’s energy costs by as much as 15 percent.

In January 2012, Neighborhood Services was awarded contract for management services of the Community Maritime Park. Management duties include three primary components: event scheduling, planning and coordination for the multi-use stadium, amphitheater, outside kiosk sales, rentals and food services management, and parking management. In 2012 over 25 events took place including the Grand Opening park dedication featuring the Charlie Daniels Band. In addition, 26,000 cars were parked throughout the year for both baseball related events and community events. This year revenue totaled $168,218 for parking and event management. In 2013, the department will focus on outside kiosk sales and rentals for the Community Maritime Park as well as increasing the number of community events that are hosted at the park.

Neighborhood Services partnership with local corporate, non-profit, and community groups continued to expand over the last year. Through community meetings and monetary support from the local Sam's Club we installed the first Disc Golf Course in the City of Pensacola at Hitzman-Optimist Club Park. The entire course was installed by City of Pensacola staff and volunteers from the Scenic Heights Neighborhood Association. Home Depot continued their support of the Neighborhood Services Department through the sponsorship of our Annual Easter Egg Hunt, Halloween Egg Haunt, and the Grand Opening of the Maritime Park. The City of

9 Pensacola's Partnership with Naval Air Station Pensacola continues to thrive through City Wide Beautification efforts and assistance with Special Events. We have made an effort to solicit volunteer assistance from the University of West Florida this past year. Many clubs and organizations have participated in numerous volunteer activities throughout the City of Pensacola. The Hollice T. Williams Community Garden continues to thrive and produce fruits and vegetables for local gardeners, as well as, provides an outlet for Neighborhood Services Staff to teach our youth and senior populations how to garden and the importance of healthy eating and a healthy lifestyle.

The marketing initiatives employed during 2012 were highly successful and resulted in both increased program participation and revenues. With the development of the department's comprehensive marketing plan which included the expansion of the website, social media sites, sponsorships and print/radio advertisements the overall marketing resulted in increased sponsorship dollars and amplified our community partnerships. We hope to continue to grow our partnerships with community corporations, organizations, and non-profit groups as we assist the efforts to make the City of Pensacola a great place to live, work, and play…. “It Starts in Parks”.

The Public Works and Facilities Department continues to meet its mission statement of providing courteous and quality service, while maintaining the City’s current infrastructure and constructing new infrastructure. Normal service levels have been maintained even with staff reductions. The department maintains 326 miles of roadway, 47 stormwater ponds, 75 various treatment units, 18 ditches, 2,120 inlets and 130 major stormwater outfalls. Street sweeper activities swept 17,000 miles of curbing removing 3,100 tons of debris. The department provided barricades for traffic control to 78 parades and other related events.

During fiscal year 2012, the department upgraded the street markers within several neighborhoods and 159 intersections. The department also completed evaluations and enhancements for school zone areas and worked closely with several neighborhood associations to initiate and provide support for traffic calming programs including the installation of speed humps in five locations. The department added interactive speed limit signs on Burgess Road and Langley Ave as well as continue the speed limit reduction program by installing 25mph speed limit signs in eight (8) additional neighborhoods. The Main Street Streetscape Enhancement Project adjacent to the new Community Maritime Park was also completed in fiscal year 2012 and provides traffic calming, greatly enhanced pedestrian access, and increased lighting and vibrant landscape in the downtown area.

The department resurfaced 347 city blocks of roadway and repaired approximately 525 feet of sidewalk. Several significant stormwater projects were also completed that provided enhanced treatment and flooding abatement in numerous areas of the City. Major projects included Cypress Street, 9th Avenue and Texar, Hewitt Street and Admiral Mason Park, which won the state Engineering Excellence Award by the Florida Stormwater Association.

Through coordinated efforts with the CRA, the department was able to work with Episcopal Day School, located on Wright Street downtown, to move the car line from Palafox Street and Baylen Street and onto Wright Street, thereby improving safety for both students and the motoring public. The Baylen and Spring Street Two-Way conversion was initiated to modify 4 signalized intersections and convert 2 one-way streets to two-way traffic (16 city blocks). Through

10 coordination with FDOT, the department completed signal retiming studies for nine (9) critical traffic signals located within the city limits. The department also provided technical support services to several city departments, working closely for successful completion of projects in the areas of land use, capital improvements, special events, and many others.

The Community Redevelopment Agency (CRA), a 256-block Tax Increment Financing district, was established in 1980 to eliminate blight in the urban core. The past thirty years have brought a variety of public and private sector redevelopment improvements. In January 2010, the Pensacola City Council adopted the Urban Core Community Redevelopment Area Plan 2010, the first comprehensive update to the CRA Plan since 1989. The updated Plan serves as the CRA's guiding document for annual budgeting and both short-term and long-term redevelopment activities.

In 2012, the CRA undertook several projects in support of the Urban Core Redevelopment Plan and continued several projects that began in 2011. In order to foster downtown job growth, the CRA entered into an economic development property incentive agreement with Hixardt Technologies, Inc., an expanding information technology company with existing office space in downtown Pensacola in 2011. The use of the CRA-owned property at 120 West Government will allow Hixardt to expand their operations and hire additional employees. Hixardt has made progress through 2012 in designing their new office space, securing financing, and hiring additional employees through new projects and contracts.

In fiscal year 2012, the CRA completed the conversion of North Baylen and North Spring Streets within the downtown core from one-way to two-way traffic as identified in the CRA Plan. The first season of the Blue Wahoos baseball team at the Community Maritime Park multiuse stadium was also a tremendous success. The completion of the Community Maritime Park was a key step in the redevelopment of downtown Pensacola’s waterfront.

Additionally, the Mayor’s Urban Redevelopment Advisory Committee convened and produced a thorough report identifying opportunities for downtown Pensacola. The report will continue to be reviewed for implementation into 2013. The CRA will also work closely with the Emerald Coast Utility Authority to develop a redevelopment plan as the downtown wastewater treatment plant was demolished in summer 2012. Also, the CRA will explore the creation of a Pensacola Bay ferry system in 2013 to support both downtown redevelopment and link key sites throughout the area.

Housing focused on meeting the increased need for community services and housing assistance produced by the current economic climate during fiscal year 2012.

Community Development Block Grant (CDBG) funds were provided for the demolition of the Former Blount School located at 113 North “C” Street as Phase II of the Westside Neighborhoods Improvement Project. The demolition of the buildings eliminated an extremely blighted core property that was abandoned for many years and created a sense of disinvestment and a destabilizing influence on the surrounding area. In 2011, CDBG funds provided for the City’s acquisition of the property, which encompasses an entire block, as Phase I of the Westside Neighborhoods Improvement.

11 In fiscal year 2012, CDBG funds also provided for 1,240 code enforcement inspections within the CDBG target area; 14,890 meals for elderly and/or disabled City residents through the Council on Aging Meals on Wheels and Congregate Meals Programs; and 120 families received counseling, guidance, and educational information through the Homebuyers Club and Foreclosure Prevention Program. The counseling resulted in 19 families purchasing homes within the City.

During fiscal year 2012, through the City’s CDBG Housing Rehabilitation Program, three families had their homes rehabilitated. The services of this program include project development and administration to aid moderate and low income homeowners in repairing their homes. The program’s successful outcomes include fostering affordable workforce housing and neighborhood reinvestment, providing jobs, and reducing blight while spending program funds with local businesses. The HOME Reconstruction Program provided two families with newly reconstructed homes on their own lots after demolition of their existing homes.

The Section 8 Housing Choice Voucher (HCV) Program provided rental assistance for approximately 2,179 extremely low income families each month during fiscal year 2012. This reflects approximately $1 million in monthly housing assistance in our community providing payments to approximately 800 local landlords. The HCV Program stabilizes families and allows them to fulfill their other household obligations while pursuing jobs, education, and childcare, while offering attractive benefits to property owners. An average of 76 homeless veterans received rental assistance each month through the Veterans Affairs Supportive Housing Program (HUD-VASH). Participants receive VA case management services as well as rental assistance to secure housing.

In support of the Mayor’s initiative to reinvest in City neighborhoods, in fiscal year 2013 Housing will implement a new First Time Homebuyer Program which will provide down payment and closing cost assistance to qualified buyers purchasing homes within the City. Additionally, to leverage reduced CDBG funding, the City’s CDBG Housing Rehabilitation Program will be modified to include an option for qualified homeowners to receive a forgivable loan to make minor emergency repairs while continuing to occupy their homes. This will reduce blight in the community and provide local jobs, as well.

Pensacola Energy’s project under the Basic Ordering Agreement (BOA) for the United States Navy (Navy) is ongoing and will be completed in 2013. The project includes energy upgrades for the Navy Museum at the Naval Air Station (NAS) Pensacola. Siemens Building Technology is the subcontractor. The Navy funded the project internally; it did not require City financing. Pensacola Energy's estimated profit is $207,600.

Effective at the beginning of fiscal year 2012, Pensacola Energy implemented an average rate increase of 6.9% as recommended in the Natural Gas Rate Study conducted in fiscal year 2011. The natural gas rate ordinance provides for an annual adjustment in rates based on the Consumer Price Index (CPI). The rate increase includes CPI adjustments to bring revenues at a level to support current operating conditions and the current transfer amount. The study also recommended an Infrastructure Recovery Charge as a new rate component. This charge will help capture infrastructure replacement costs associated with the plan that was submitted to the Florida Public Service Commission, Division of Pipeline Safety. Also recommended in the

12 study, the Purchase Gas Adjustment rate was increased to include a reserve component to restore Pensacola Energy’s operating reserves.

Pensacola Energy completed a pipeline acquisition with Gulf South Pipeline and the Navy to transfer Gulf South's pipeline assets in the urbanized areas of Escambia County to Pensacola Energy. In addition, Pensacola Energy gained the Navy as an industrial customer.

Pensacola Energy completed the first public access Compressed Natural Gas (CNG) station in Escambia County. Zeit Energy was the subcontractor used to build the fueling facility in conjunction with Emerald Coast Utilities Authority (ECUA). Another private access station is under construction at the City's Public Works facility and will be completed in spring of 2013. Pensacola Energy and ECUA are negotiating a second public access site to be located in the Ellyson Industrial Park area. Discussions are ongoing with other local fleet operators for their interest in converting to CNG.

The Sanitation Services and Fleet Management collected 29,064 tons of solid waste and 4,539 tons of curbside recyclables in fiscal year 2012. As part of the Mayor’s initiative to reinvest in City neighborhoods, Sanitation implemented the Neighborhood Cleanup program with the goal of providing a cleanup to each city neighborhood once per year. The ten neighborhood cleanups completed in fiscal year 2012 resulted in the removal of 502 tons of bulk waste, 1,588 old tires and 5,199 gallons of old paint.

Sanitation Services has initiated several significant changes to its collection system over the past few years. In 2007, the City contracted with the Allied Waste transfer station, now owned by Escambia County, to provide transfer station services for household garbage. In 2009, Sanitation completed a two-year conversion of its yard trash collection system from three-person shuttle/collection crews to a system utilizing one-man collection trucks. Also in 2009, the City began a citywide recycling program in conjunction with a change to once-a-week garbage collection. These changes have resulted in the elimination of 15 positions that were previously dedicated to the collection of solid waste.

The City's curbside recycling program achieved a 23.5 percent diversion rate in fiscal year 2012 by recycling 4,539 tons of materials that would have previously been disposed of in the local landfill. The City's total recycling rate which combines materials recovered from the curbside recycling program with the 12,583 tons of yard trash collected, totals approximately 51 percent. In 2011, the City entered into a contract with West Florida Recycling for the processing of city collected recyclables. This contract provides for revenue sharing with the City for recyclables recovered based on a percentage of their market value. In fiscal year 2012 the revenue from recyclables totaled $50,561.

In fiscal year 2012, Sanitation Services in conjunction with the City’s Finance Services Department began an initiative to review the financial records of the City’s commercial solid waste franchisees for compliance with the City Code regarding franchise fee payments. This effort included the review of one franchisee and resulted in action to terminate that franchise for non-compliance. It is expected that additional compliance reviews will be performed in fiscal year 2013.

The Port of Pensacola posted a strong fiscal year 2012. Overall, the Port’s cargo tonnage activity remained on par with fiscal year 2011 performance. Anticipated growth in wind energy sector exports did occur and is expected to continue through fiscal 2013 as the local General Electric (GE) plant continues exporting wind turbine components to overseas wind farm development projects. Additionally, the Port added a new book of business exporting new rail hopper cars for use in the Colombian coal industry, which also is expected to post strong performance in fiscal year 2013. Both these business lines result in large numbers of very lightweight components moving through the Port, adding substantially to the Port’s revenue stream but not significantly impacting tonnage. Diversification of the Port’s business base to include establishment of an offshore oil and gas support vessel services center also has positively impacted the Port’s bottom line by substantially increasing the number of billable vessel call days logged annually. As the Port continues this diversification, it anticipates stable, consistent growth in non-cargo business sectors.

In response to 2011 Port Advisory Committee findings and recommendations that the Port expand its presence in the high-tech offshore service industry, $2 million in capital improvements funding has been secured from the State of Florida. Additional funding sources are currently being sought for another $38 million to $40 million in capital improvements required over the next 8 years in order to fulfill the Mayor’s vision for the Port’s growth in this industry sector.

The Pensacola International Airport, formerly known as Pensacola Gulf Coast Regional Airport, was renamed in November 2011 in efforts to position Pensacola as an attractive place for businesses to locate or expand. Pensacola’s airport serves more passengers than any other airport between New Orleans and Jacksonville.

The Airport completed its $50.9 million expansion and improvement project in fiscal year 2011, dedicating the new terminal in November 2011. A new entrance sign, right-turn lane, complete rehabilitation to the Loop Road, and enhanced landscaping were added in fiscal year 2012. Construction of a new approximate 500-space remote public parking lot on the site of the former Army Reserve Center Property began in fiscal year 2012 with a projected completion date of early 2013.

In November 2008, Council approved a ground lease and development agreement with Sandspur Development LLC for the development of a hotel and related facility on 11.44 acres of Airport property. A lawsuit was filed in the Escambia County Circuit Court by PNS Hotel Group Ltd. opposing the hotel agreement. Successful meditation of the lawsuit was conducted in September 2010 and the Airport issued a notice-to-proceed to Sandspur Development on November 1, 2010. Site work began on the leased area in the summer of 2011 with the 127-room Hyatt Place hotel planned for this development is expected to be completed by March 2013.

Further economic development efforts for the Airport include the construction of an Air Commerce Park. The Airport’s 2000 Master Plan identified 65 acres of property adjacent to the northwest quadrant of the airport for future land acquisition and the development of the park. The Airport started the commerce park land acquisition project in 2004 when the services of a relocation firm were secured. The City Council has approved the purchase of fifty-three

14 residential and 22 commercial parcels to date. A multi-year Florida Department of Transportation (FDOT) grant is in place that will fund 75 percent of the cost of acquisitions. This FDOT grant contains a provision that requires the Airport to repay FDOT 25 percent of the amounts drawn within ten years. An additional Florida Department of Transportation (FDOT) grant for infrastructure has been obtained for cargo development, taxiway extension, and FAA specific security improvements. This FDOT grant will fund 50 percent of the infrastructure cost with a 50 percent match with local non-airport funding.

Citywide topics

In fiscal year 2012, the City lost two key staff positions: the Community Redevelopment Agency Administrator and Housing Department Director. The positions were vacated and duties were absorbed by existing staff. The City experienced an 11 percent turnover rate in fiscal year 2012, which is greater than the 2011 rate of 9 percent. Based on exit interviews, employees have cited increased compensation as the primary reason for leaving the City. In fiscal year 2013, the Engineering Department was merged with the Public Works & Facilities Department to consolidate and streamline departmental operations. The Director of Engineering was appointed as the director of the newly consolidated Public Works & Facilities Department, thereby eliminating the Director of Engineering key staff position.

The City of Pensacola purchased a 27.5 acre of waterfront land for approximately $3.5 million in the spring of 2000. The vision for the property was to build a community friendly park encouraging citizen involvement and economic growth. In 2005, a group of local business men responded to the City’s Request for Proposal with a plan to build a festival park. The overall project budget for public improvements, including private party donations, is $56,007,502. The Community Maritime Park Associates (CMPA) was established to promote and oversee the development as well as manage the long term operation and maintenance of the park. On December 21, 2009, the City issued $45.6 million of Redevelopment Revenue Bonds, Series 2009 A&B to fund the construction of the public improvements. On May 27, 2010, the City used proceeds of $39.8 million to leverage a New Market Tax Credit Transaction (NMTC) transaction which provided an additional $12 million in funding. Construction was sustainably complete in spring of 2012 with the multi-use facility hosting the successful inaugural season of the Blue Wahoos; a Double A affiliated Cincinnati Reds Major League Baseball Team.

With the completion of the multi-use facility and the infrastructure improvements at the Community Maritime Park, approximately 12.4 acres of land became available for private development. In August 2012, City Council approved the first land lease at the Community Maritime Park with Maritime Place, LLC, for the development of a 60,000 square foot commercial building projected to cost the tenant $12 million. The lease will generate approximately $100,000 in rental fees to the City and an estimated $230,000 in ad valorem property taxes of which $128,000 will benefit the City’s CRA. It is anticipated that construction will commence in the first quarter of 2013.

In August 2012 the City and the CMPA executed an interlocal agreement for the City to contribute $75,000 per year, beginning in fiscal year 2014 to assist in the funding of the operation of public amenities and public spaces at the Community Maritime Park.

15 In August 2009, the City entered into an agreement with the Emerald Coast Utilities Authority (ECUA) as a financial commitment to demolishing the Main Street Waste Water Treatment Plant located in the downtown area. The City has committed up to $19.5 million to the project with installments commencing in 2013. The City pledged water and sewer franchise fees and beverage license tax revenues in the agreement and subsequently entered in to an agreement with the CRA wherein the annual installments to ECUA will be paid from TIF revenues generated by the CRA. If there are insufficient TIF revenues, the City will make the payment and CRA will reimburse the City when funds are available.

In fiscal year 2011, the Pension Advisory Committee was established and tasked with reviewing all three of the City’s pension plans, General, Fire, and Police, in an effort to reduce pension costs of the City in the most effective manner while minimizing the impact to the employee. The Committee’s report provided possible modifications to the existing pension plans which were subsequently sent to each pension plan’s actuary for estimating the financial impact to the City’s annual required contribution. The committee held two meetings for employees to provide their input regarding the possible modifications and continued to work with the Mayor’s office to find the best possible solution as union contract negotiations were undertaken in fiscal year 2012.

During fiscal year 2012, the City completed the reduction in leave balances through union negotiations with all unions agreeing to a reduction in leave balances except for the Police Officers’ Union. The American Federation of State County and Municipal Employees (AFSCME) union agreed to the changes in the General Pension and Retirement Plan with a new three year union contract effective October 1, 2012. The changes consisted of increasing the average final compensation calculation from 2 years to 5 years, reducing the benefit multiplier from 2.1% to 1.75%, reducing the Cost of Living Adjustment for new retirees from 1.5% per year to 1%, new participants in the Deferred Retirement Option Program (DROP) will not receive a Cost of Living Adjustment while participating in DROP and the interest rate on DROP balances will be reduced to 1.3%. Based on current estimates, these changes will result in a reduction of $946,200 per year in the City’s required contributions and decrease the Unfunded Actuarial Accrued Liability by $5.78 million.

The City and the police unions entered into agreements to close the Police Officers’ Retirement Fund participants effective January 1, 2013. Police officers hired on or after January 2, 2013 will become participants in the Florida Retirement System (FRS). Current officers will be given an opportunity to remain in the current Police Officers’ Retirement Fund or join FRS. Also in the agreements are several reductions in benefits for officers with less than twenty (20) years of service. The vesting period will increase from ten (10) years to twelve (12) years, the average final compensation will change from two (2) years to five (5) years, the cost of living adjustment will reduce from 3% to 2% after ten (10) years of retirement, and pensionable income will be calculated on base pay with no overtime. The DROP interest rate will reduce to 1.3% effective January 1, 2012 for new participants in DROP and they will not receive a cost of living adjustment while participating in DROP. These changes will result in a reduction in the Unfunded Actuarial Accrued Liability to the Police Officers’ Retirement Fund.

In fiscal year 2013, the City will continue the union negotiation process with the Fire Union with the expectation that the Fire Union will be taking a tentative agreement to the membership closing the Firefighters’ Relief and Pension Plan with new firefighters joining FRS.

16 Independent Auditors

The Florida Statutes and the City’s Bond Resolutions require an annual audit of the City’s financial records by an independent certified public accountant. The City’s fiscal year 2012 financial statements have been audited by the certified public accounting firm of Saltmarsh, Cleaveland and Gund. The goal of the independent audit was to provide reasonable assurance that the financial statements are free of material misstatement.

The City is also required to undergo an annual audit to obtain reasonable assurance about compliance with the requirements of laws, regulations, contracts and grants applicable to each of its major federal programs and state projects.

Reporting Achievements

The Government Finance Officers Association (GFOA) of the United States and Canada awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of Pensacola for its comprehensive annual financial report for the fiscal year ended September 30, 2011. The Certificate of Achievement is a prestigious national award, recognizing conformance with the highest standards for preparation of state and local government financial reports.

In order to be awarded a Certificate of Achievement, a government unit must publish an easily readable and efficiently organized comprehensive annual financial report, whose contents conform to program standards. Such comprehensive annual financial reports must satisfy both accounting principles generally accepted in the United States and applicable legal requirements. The City of Pensacola has been awarded a Certificate of Achievement for thirty-one of its last thirty-two fiscal years.

Acknowledgements

The City’s accounting staff, as always, is dedicated in preparing a timely and accurate comprehensive annual financial report. Appreciation is expressed to all those who assisted and contributed to its preparation and to City Council for the continued interest and support of a fiscally sound City government.

Respectfully submitted,

Ashton J. Hayward, III Mayor

Richard Barker, Jr. Chief Financial Officer

Certificate of Achievement for Excellence in Financial Reporting

Presented to

City of Pensacola

Florida

For its Comprehensive Annual Financial Report for the Fiscal Year Ended September 30, 2011

A Certificate of Achievement for Excellence in Financial Reporting is presented by the Government Finance Officers Association of the United States and Canada to government units and public employee retirement systems whose comprehensive annual financial reports (CAFRs) achieve the highest standards in government accounting and financial reporting.

CITY OF PENSACOLA FISCAL YEAR 2012 ORGANIZATIONAL CHART

CITIZENS OF PENSACOLA

CITY COUNCIL CITY CITY MAYOR ATTORNEY CLERK

COMMUNITY CITY REDEVELOPMENT ADMINISTRATOR AGENCY

CITY OF PENSACOLA FISCAL YEAR 2012 ORGANIZATIONAL CHART

MAYOR

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CITY ATTORNEY CITY ADMINISTRATOR CITY CLERK

PENSACOLA ENERGY ENGINEERING & FINANCIAL SERVICES FIRE CONSTRUCTION SERVICES

HOUSING HUMAN RESOURCES INSPECTION TECHNOLOGY SERVICES RESOURCES

NEIGHBORHOOD PENSACOLA INERNATIONAL PLANNING POLICE SERVICES AIRPORT SERVICES

PORT OF PENSACOLA PUBLIC WORKS SANITATION SERVICES AND WEST FLORIDA & FACILITIES FLEET MANAGEMENT PUBLIC LIBRARY

CITY OF PENSACOLA, FLORIDA LISTING OF ELECTED AND APPOINTED OFFICIALS

ELECTED OFFICIALS FY 2012 MAYOR & CITY COUNCIL

Ashton J. Hayward, III Mayor

P. C. Wu, Ph.D.

District 1

Sherri Myers District 2

Maren DeWeese

John Jerralds District 3 District 5

Ronald P. Townsend Council Vice President District 7 Larry B. Johnson District 4

Brian Spencer District 6

Sam Hall Megan B. Pratt Council President At-Large At-Large 21

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FINANCIAL SECTION

This section contains the following subsections:

INDEPENDENT AUDITORS’ REPORT

MANAGEMENT DISCUSSION AND ANALYSIS

BASIC FINANCIAL STATEMENTS

REQUIRED SUPPLEMENTARY INFORMATION

COMBINING AND INDIVIDUAL FUND STATEMENTS AND SCHEDULES

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INDEPENDENT AUDITORS REPORT

Honorable Members of the City Council City of Pensacola, Florida

We have audited the accompanying financial statements of the governmental activities, the business-type activities, the discretely presented component unit, Community Maritime Park Associates, Inc., each major fund, and the aggregate remaining fund information of the City of Pensacola, Florida as of and for the year ended September 30, 2012, which collectively comprise the City of Pensacola, Florida’s basic financial statements as listed in the table of contents. These financial statements are the responsibility of the City of Pensacola, Florida’s management. Our responsibility is to express opinions on these financial statements based on our audit. We did not audit the financial statements of the discretely presented component unit, the Downtown Improvement Board. Those financial statements were audited by other auditors whose report thereon has been furnished to us, and our opinion, insofar as it relates to the amounts included for the Downtown Improvement Board, is based on the report of the other auditors.

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 of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit and the report of the other auditors provide a reasonable basis for our opinions.

In our opinion, based on our audit and the report of other auditors, the financial statements referred to in the first paragraph present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, the discretely presented component unit, Community Maritime Park Associates, Inc., each major fund, and the aggregate remaining fund information of the City of Pensacola, Florida, as of September 30, 2012, and the respective changes in financial position and, where applicable, cash flows thereof and the respective budgetary comparison information of the General Fund and the Housing Assistance Payments Fund for the year then ended in conformity with accounting principles generally accepted in the United States of America.

In accordance with Government Auditing Standards, we have also issued our report, dated February 14, 2013, on our consideration of the City of Pensacola, 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 the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit.

Accounting principles generally accepted in the United States of America require that management’s discussion and analysis on pages 24 through 42 and schedules of employer contributions and analysis of funding progress for pension funds, and for other postemployment benefits on pages 119 through 122, 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.

Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City of Pensacola, Florida’s, financial statements as a whole. The introductory section, combining and individual nonmajor fund financial statements and schedules, and statistical section are presented for purposes of additional analysis and are not a required part of the basic financial statements. The accompanying schedule of expenditures of federal awards, passenger facility charges, and state financial assistance is presented for purposes of additional analysis as required by U.S. Office of Management and Budget Circular A- 133, Audits of States, Local Governments, and Non-Profit Organizations, and as specified in the Passenger Facility Charges Audit Guide for Public Agencies, issued by the Federal Aviation Administration, and by Section 215.97, Florida Statutes, and is also not a required part of the financial statements. The combining and individual nonmajor fund financial statements and schedules, the financial data schedule – Section 8 Housing Choice Vouchers Program, and the schedule of expenditures of federal awards, passenger facility charges, and state financial assistance are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole. 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 it.

Pensacola, Florida February 14, 2013

Management’s Discussion and Analysis

This section will provide a comparative analysis between fiscal year 2012 and 2011. The comparison amounts are shown at a summary level with additional detail provided for explanation. The format is designed to provide the reader a narrative overview of the City’s financial activity for the fiscal year ended September 30, 2012. This discussion should be read in conjunction with the Letter of Transmittal located in the Introductory Section.

Financial Highlights

• The City’s assets exceeded its liabilities (net assets) as of September 30, 2012 by $341,346,175. Of this amount, $9,348,610 (unrestricted net assets) may be used to meet the government’s ongoing obligations to citizens, customers, and creditors. The remainder of net assets is unavailable and restricted. Unrestricted net assets decreased $13,355,219 (58.8%) from the previous year’s unrestricted net assets balance of $22,703,829 primarily due to the recognition of the City’s $19.5 million long-term contribution to Emerald Coast Utilities Authority (ECUA) for the Main Street Waste Water Treatment Plant Replacement Project. This commitment is a voluntary non- exchange transaction; therefore the long-term liability and expenditure are recorded in the City’s government-wide financial statements since the eligibility criteria were met in fiscal year 2012. In anticipation of the long-term liability being recognized in fiscal year 2012, approximately $5.1 million of the total commitment was previously reserved as restricted net assets with funding beginning in fiscal year 2009. Since the long-term liability is not due and payable in the current period, it is not recorded in the fund financial statements.

• The City’s total net assets of $341,346,175 decreased $13,968,740 (3.9%) over fiscal year 2011 net assets of $355,314,915. Governmental activities decreased $15,811,756 (7.9%) due to the recognition of the $19.5 million ECUA contribution. Offsetting the $19.5 million decrease, was an increase of $3,688,244 due primarily to the completion of capital projects such as the expansion and renovation of the West Florida Regional Library Main Downtown Branch, the Main Street reconstruction and enhancement project, the Admiral Mason Park and Stormwater Retention Pond and smaller public works projects. Business-type activities increased $1,843,016 (1.2%). This increase is due to rate adjustments for the enterprise funds to finance operating, capital and reserves.

• At September 30, 2012 the City’s governmental funds reported combined ending fund balances of $79,980,241, a decrease of $5,849,411 (6.8%) in comparison to the prior year. This decrease is primarily related to construction of capital projects from the Local Option Sales Tax Fund from available cash. The unassigned fund balance for governmental funds is $1,100,516 reported in the General Fund. Unassigned fund balance is the portion of fund balance which is not obligated or specifically designated and is available for any purpose.

• Governmental funds’ revenues decreased $7,396,517 (8.7%) from fiscal year 2011. The decrease in governmental funds’ revenues stems from the $3 million decrease in Section 8 Housing Choice Vouchers program funding, a decrease in donations for the Maritime

24 Community Park Construction of $2.25 million as the project was completed, a decrease in Property Tax Revenues of $1 million due to the reduction in the millage rate and a decrease of $658,000 in Franchise Fees and Public Service Tax Revenues.

Governmental funds’ expenditures decreased by $564,901 (0.6%) over the prior year’s total of $95,799,017. Expenditures decreased $2.8 million due to the completion of projects that received special grants awards in the prior year and $1 million from the decrease in housing assistance program payments. Offsetting these decreases was a $2.9 million increase due to the transfer of donations held by the City for Maritime Community Park Construction to the recipient organization.

• The City’s General Fund unrestricted fund balance increased by $970,147 from $10,716,789 to $11,686,936 in fiscal year 2012 primarily due to the sale of the United States (US) Army Reserve Property by the City to the Airport. Included in the committed fund balance, which is a part of unrestricted fund balance, is the Council Reserve balance of $7,684,929. The Council Reserve balance represents 15.6 percent of fiscal year 2013 budgeted General Fund revenues which exceeds the 15 percent minimum reserve goal stated in the City Council’s Fund Balance Policy. The General Fund had a decrease in restricted fund balance of $115,580 related to a decrease in contractual obligations which offsets the increase in unrestricted fund balance of $970,147 for a net increase of total fund balance of $866,730 (7.7%) from fiscal year 2011.

General Fund revenues decreased over fiscal year 2011 by $1,803,667 (4.4%) while expenditures increased marginally by $474,842 (1.2%).

• The City’s Enterprise Funds ended the year with net assets in the amount of $157,636,903, an increase of $1,843,016 (1.2%) over fiscal year 2011. Of the total net asset amount, $132,621,897 represents capital assets net of related debt which decreased $3,064,756 (2.3%). This decrease resulted primarily from an increase of Airport debt and a decrease of Airport capital. Operating revenues decreased by $1,281,096 (1.9%) from last year and operating expenses before depreciation decreased by $7,106,739 (13.4%) primarily due to the decrease in gas purchases.

The Utility and Airport Funds experienced a decline in revenues while the Sanitation and Port Funds had an increase in revenues. The Utility Fund’s operating revenues decreased by $2,216,122 (5.6%) during fiscal year 2012 as natural gas per unit declined globally. The cost of gas is passed on to gas customers and therefore the revenue reported declined in tandem with its cost. Negating that decrease in Utility Fund revenues was a change in the calculation of the Purchase Gas Adjustment rate in order to recoup operating reserves. The Sanitation Fund’s revenues increased by $620,429 (9.9%) due to rate increases in fiscal year 2012 while the Port Fund experienced a $508,848 (26.5%) increase due to diversification of the Port’s business base and growth of the wind energy sector in fiscal year 2012. The Airport Fund’s operating revenues slightly decreased by $194,251 (1.06%) in fiscal year 2012.

All funds except the Sanitation Fund experienced a decrease in operating expenses. The Utility Fund’s operating expenses decreased $6,490,552 million (20.96%), mostly attributable to the decline in the unit cost of natural gas. The Sanitation Fund’s operating

25 expenses increased marginally by $190,719 (3.1%) over last year from the transfer of two code enforcement officers from the General Fund. The Port Fund’s operating expenses decreased slightly by $11,413 (0.7%). The Airport Fund’s operating expenses decreased by $795,493 (5.5%) due to vacant positions and savings in utility cost.

Overview of the Financial Statements

This discussion and analysis is intended to serve as an introduction to the City’s basic financial statements. These statements have 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. Following is a chart that illustrates the components of the CAFR.

COMPONENTS OF THE FINANCIAL REPORT

Management’s Basic Required Discussion Financial Supplementary and Statements Information Analysis (RSI)

Government Fund Notes -wide Financial to the Financial Statements Financial Statements Statements

Summary Detail

26 Government-Wide Financial Statements

The government-wide financial statements are designed to provide readers with a broad overview of the City of Pensacola’s finances, in a manner similar to a private-sector business.

The focus of the Statement of Net Assets is designed to be similar to bottom line results for the City and its governmental and business-type activities. This statement combines and consolidates governmental funds current financial resources (short-term spendable resources) with capital assets and long term obligations. The Statement of Activities distinguishes functions of the City of Pensacola that are principally supported by taxes and intergovernmental revenues (governmental activities such as police, fire, public works, recreation and general administration) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business-type activities include the airport, seaport, gas utility services and sanitation).

Component Units, which are other governmental units over which the City can exercise influence, are presented as a separate column in the government-wide statements. The Downtown Improvement Board and the Community Maritime Park Associates, Inc. are the two component units of the City. The focus of the financial statements is the Primary Government, which are the operations of the City.

Fund Financial Statements

A fund is a grouping of related accounts used to maintain control over resources that have been segregated for specific activities or objectives. Traditional users of the CAFR will find the Fund Financial Statements presentation more familiar. The focus is on “major” funds, rather than fund types, as reported in the traditional financial statement presentation. All of the City’s funds can be divided into three categories: governmental funds, proprietary funds, and fiduciary 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 financing requirements.

Since 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. This allows readers to 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 balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities.

27 Governmental fund information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures and changes in fund balances for the General Fund, Local Option Sales Tax Fund, Housing Assistance Payments Fund and the Maritime Community Park Construction Fund, all of which are considered to be major funds. All other governmental type funds are considered “nonmajor” and are reported in a single, aggregated column.

Proprietary Funds. Proprietary funds provide the same type of information as the business- type activities in the government-wide financial statements, only in more detail. The proprietary fund financial statements can be found in the Basic Financial Statements section of this report.

The City of Pensacola maintains two types of proprietary funds: enterprise funds and internal service funds. The City uses enterprise funds to account for the assets, operation and maintenance of the City-owned natural gas service, garbage and trash service, port facility, and airport. Internal service funds are used to account for activities that provide goods and services to other City departments such as computers, telecommunications, fleet maintenance and engineering. Since internal service funds predominately benefit governmental rather than business-type functions, they have been included within governmental activities in the government-wide financial statements.

Fiduciary Funds. The City of Pensacola is the plan sponsor for the General Pension, Firefighters’ and Police Officers’ retirement fund. The City is responsible for ensuring that the assets reported in these funds are used for their intended purposes. All of the City’s fiduciary activities are reported in a separate statement of fiduciary net assets and a statement of changes in net assets. These activities are excluded from the government-wide financial statements because the assets cannot be used to support or finance the City’s programs or operations. During fiscal year 2007, the City closed the General Pension requiring new general employees to participate in the Florida Retirement System (FRS) though the General Pension remains open for existing participants who chose not to participate in the FRS.

Notes to the Financial Statements

The notes to the financial statements provide additional information that is essential to gain a full understanding of the data provided in the government-wide and fund financial statements. The notes can be found as part of the Basic Financial Statements section of this report.

Other information

This report additionally includes Required Supplementary Information (RSI) containing schedules of the City’s pension contributions and an analysis of pension funding. Combining statements for nonmajor governmental funds and internal service funds are included as well as budgetary comparisons for all debt service, capital projects, and nonmajor governmental funds. Additional information about the City can be found in the Statistical Section.

28 Government-Wide Financial Analysis

The City of Pensacola adopted the government-wide financial statement presentation. This reporting structure and measurement focus using accrual accounting for all of the government’s activities was mandated by the Government Accounting Standards Board (GASB) in Statement No. 34, Basic Financial Statements - and Management’s Discussion and Analysis - for State and Local Governments. Comparative data for fiscal years ending September 30, 2012 and 2011 is presented.

At year end, the City is reporting positive balances in two of three categories of net assets for governmental activities and all three categories for business-type activities, as well as the government as a whole.

Summary Statement of Net Assets As of September 30, 2012

Governmental Business-Type Total Primary Activities Activities Government 2012 2011 2012 2011 2012 2011

Current and other assets $ 45,585,580 $ 52,609,080 $ 26,410,536 $ 17,307,491 $ 71,996,116 $ 69,916,571 Internal balances 3,892,263 1,489,433 (3,892,263) (1,489,433) 0 0 Noncurrent assets 50,605,462 51,274,826 10,018,578 12,653,589 60,624,040 63,928,415 Capital assets 193,725,581 187,826,425 225,107,117 222,255,505 418,832,698 410,081,930 Total assets 293,808,886 293,199,764 257,643,968 250,727,152 551,452,854 543,926,916

Current and other liabilities 17,594,197 12,927,177 9,068,287 8,261,402 26,662,484 21,188,579 Noncurrent liabilities 92,505,417 80,751,559 90,938,778 86,671,863 183,444,195 167,423,422 Total liabilities 110,099,614 93,678,736 100,007,065 94,933,265 210,106,679 188,612,001

Net assets: Invested in capital assets, net of related debt 170,014,519 160,201,917 132,621,897 135,686,653 302,636,416 295,888,570 Restricted 20,560,416 27,931,083 8,800,733 8,791,433 29,361,149 36,722,516 Unrestricted (6,865,663) 11,388,028 16,214,273 11,315,801 9,348,610 22,703,829 Total net assets $ 183,709,272 $ 199,521,028 $ 157,636,903 $ 155,793,887 $ 341,346,175 $ 355,314,915

The City’s investment in capital assets, such as land, roads, parks, buildings, machinery and equipment, amounts to 89 percent of net assets. This amount is presented less any outstanding debt related to the acquisition and accumulated depreciation of those assets. The City uses these capital assets to provide services to the citizens and consequently these assets are not available for future spending. Although our investment in capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities.

Restricted net assets are resources subject to external restriction on how they may be used while unrestricted assets may be used to meet the City’s ongoing obligations to citizens and creditors. Unrestricted net assets represent 10.3% of total net assets for business-type activities.

Unrestricted net assets for governmental activities are negative due to the recognition of the City’s $19.5 million long-term contribution to ECUA. In anticipation of the long-term liability being recognized in fiscal year 2012, approximately $5.1 million of the total commitment was previously 29 reserved as restricted net assets with funding beginning in fiscal year 2009. Since the commitment is a long-term liability and future revenue sources have been pledged for the annual payment of $1.3 million beginning in fiscal year 2013 with the last payment in fiscal year 2027, it is expected that this commitment will continue to negatively impact unrestricted net assets for future periods.

Changes in Net Assets Year Ended September 30, 2012

Governmental Business-type Activities Activities Total 2012 2011 2012 2011 2012 2011 Revenues Program revenues: Charges for services $ 7,869,356 $ 6,089,918 $ 64,137,157 $ 65,459,641 $ 72,006,513 $ 71,549,559 Operating grants and contributions 18,674,020 22,521,356 18,674,020 22,521,356 Capital grants and contributions 6,880,444 7,287,874 7,834,262 5,392,337 14,714,706 12,680,211

General revenues: Property taxes 12,311,601 13,318,749 12,311,601 13,318,749 Other taxes 26,697,084 27,565,335 26,697,084 27,565,335 Intergovernmental 6,123,014 6,054,345 6,123,014 6,054,345 Investment earnings 1,948,024 1,928,271 42,597 31,993 1,990,621 1,960,264 Gain on sale of capital asset 105,387 66,358 171,745 0 Other 32,315 71,951 392,351 350,963 424,666 422,914 Total revenues 80,641,245 84,837,799 72,472,725 71,234,934 153,113,970 156,072,733

Expenses General government 30,598,069 12,035,379 30,598,069 12,035,379 Public safety 30,960,121 29,982,610 30,960,121 29,982,610 Transportation 2,992,464 2,665,702 2,992,464 2,665,702 Culture and recreation 18,824,265 15,084,355 18,824,265 15,084,355 Economic environment 13,780,462 14,902,876 13,780,462 14,902,876 Physical environment 2,893,391 2,589,177 2,893,391 2,589,177 Human services 30,000 37,100 30,000 37,100 Unallocated deprecation 3,028,787 2,806,602 3,028,787 2,806,602 Interest on long-term debt 3,712,342 3,971,769 3,712,342 3,971,769 Utility 25,338,365 31,570,293 25,338,365 31,570,293 Sanitation 6,179,795 5,975,566 6,179,795 5,975,566 Port 2,633,916 2,675,500 2,633,916 2,675,500 Airport 26,110,733 24,710,561 26,110,733 24,710,561 Total expenses 106,819,901 84,075,570 60,262,809 64,931,920 167,082,710 149,007,490

Increase (decrease) in net assets before transfers and other items (26,178,656) 762,229 12,209,916 6,303,014 (13,968,740) 7,065,243

Transfers in (out) 10,366,900 10,360,326 (10,366,900) (10,360,326) 0 0 Increase (decrease) in net assets (15,811,756) 11,122,555 1,843,016 (4,057,312) (13,968,740) 7,065,243

Net assets at beginning of year 199,521,028 188,398,473 155,793,887 159,851,199 355,314,915 348,249,672

Net assets at end of year $ 183,709,272 $ 199,521,028 $ 157,636,903 $ 155,793,887 $ 341,346,175 $ 355,314,915

30 Governmental Activities Fiscal Year 2012

Program expenses matched with program revenues

Revenues by source

GASB Statement No. 34 reporting requires that functional expenses are matched with revenues that directly support the function. The net assets of the Governmental Activities decreased $15.8 million as a result of the recognition of the City’s commitment due to a long-term contribution. This $19.5 million contribution is reflected in General Government program expense and represents a significant nonrecurring increase for fiscal year 2012. The bar chart above gives a clear indication of which functions are dependant on general revenues to support their operations. Excluding General Government, Public Safety, consisting of police and fire services, has the largest differences as these functions are traditionally supported by taxes. Taxes,

31 investment earnings and other revenues are classified as general revenues of the government. Taxes continue to be the largest revenue source for governmental activities.

Business-type Activities Fiscal Year 2012

Expenses compared to charges for services revenues (Including depreciation and bad debt expense)

Revenues by Source

Net assets of Business-type Activities experienced a $1.8 million increase primarily due to rate adjustments for the enterprise funds to finance operating, capital and reserves. All Funds charged fees sufficient to cover operations when excluding depreciation, bad debt expense and other post-employment benefits (OPEB).

32 Financial Analysis of the Government’s Funds

The City of Pensacola uses fund accounting to ensure and demonstrate compliance with finance related legal requirements.

Governmental funds. The focus of 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, unreserved fund balance may serve as a useful measure of a government’s net resources available for spending at the end of the fiscal year.

As of September 30, 2012, the City’s governmental funds reported combined fund balances of $79,980,241, a decrease of $5,849,411 (6.8%) over the prior year. The decrease is mainly attributable to the construction of capital projects in the Local Option Sales Tax Fund from cash on hand. Non-spendable and restricted governmental funds balance of $70,161,073 to meet current commitments in the next fiscal year: $3,188,347 of non-spendable for prepaids and inventory, $97,700 for Saenger capital reserve, $5,044,335 for debt service requirements, $1,036,643 for housing assistance payments, $39,813,626 for the maritime park and $20,980,422 for other purposes leaving a remaining unrestricted fund balance of $9,819,168.

Below is a comparative chart for the City’s “major” funds; General Fund, Local Option Sales Tax Fund, Housing Assistance Payments Fund and Maritime Community Park Construction Fund. Major Fund Information Maritime Housing Community Park Local Option Assistance Construction General Fund Sales Tax Fund Payments Fund Fund Fiscal Year 2012 Revenues and other sources $ 54,173,809 $ 6,402,641 $ 11,345,450 $ 3,129,447 Expenditures and other outlays (53,307,079) (9,220,786) (13,256,085) (6,284,996) Increase (decrease) in fund balance $ 866,730 $ (2,818,145) $ (1,910,635) $ (3,155,549)

Fiscal Year 2011 Revenues and other sources $ 48,953,585 $ 6,365,188 $ 14,369,667 $ 5,485,495 Expenditures and other outlays (48,913,014) (9,484,894) (14,282,764) (3,384,820) Increase (decrease) in fund balance $ 40,571 $ (3,119,706) $ 86,903 $ 2,100,675

The General Fund is the chief operating fund of the City. At September 30, 2012, total fund balance in the general fund was $12,140,334, an increase of $866,730 (7.7%) from beginning fund balance. The unrestricted portion of fund balance is $11,686,936, however $7,684,929 is committed for the Council Reserve, $676,045 is committed for the tree landscape fund, $38,141 is committed for park purchases, $1,884,995 is assigned for general government projects, $183,126 is assigned for economic development incentives and $119,184 is assigned for assessments leaving an unassigned fund balance of $1,100,516.

As a measure of the general fund’s liquidity, a comparison of both total and unrestricted fund balances compared with total fund operating expenditures shows percentages of 29.4% and 28.3%, respectively. The Government Finance Officer’s Association (GFOA) Best Practice recommendation is for a government to maintain in its general fund unrestricted fund balance no

33 less than two months of general fund operating expenditures. At 28.3% of unrestricted fund balance, this provides more than three months of coverage.

The Local Option Sales Tax (LOST) Fund had a total fund balance at year end of $1,371,886, a decrease of $2,818,145 (67%). The decrease is from the ongoing capital equipment purchases, progress on capital projects and bond debt service. Non-spendable fund balance of $3,133,619 resulted from the prepayment of the first year principal for the Capital Funding Revenue Bonds, Series 2010 in the amount of $2,695,000 and interest in the amount of $438,619. Restricted fund balance of $3,234,190 represents restrictions placed on fund balance by third party executed contracts, primarily the Downtown Library expansion and renovation project. The monthly sales tax revenues are accumulated in this fund for purposes of repayment of the related debt issue; therefore, fund balance is unusually large. With a slowing economy and a tightening of consumer spending, the local option sales tax collections had dropped below the 2003 levels until fiscal year 2011. For the first time in four fiscal years, the local option sales tax revenue collections increased above the prior year collections and this increase continued in fiscal year 2012. Sufficient funds are projected for currently identified Penny for Progress projects and debt service obligations through the end of the current extension which expires December 31, 2017. However, unassigned fund balance is anticipated to be negative for the next few years based upon current project completion dates.

The Housing Assistance Payments Fund had a total fund balance at year end of $4,674,085, a decrease of $1.9 million (29%). Fund balance of $4,673,284 is restricted for housing assistance payments as required by the Department of Housing and Urban Development (HUD). Changes to fund balance are a function of federal funding by the HUD and the operating efficiency employed by the City’s Housing department. Fluctuations can be large or small depending on the goals of the federal government programs.

The Maritime Community Park Construction Fund had a total fund balance at year end of $46,572,618, a decrease of $3,155,549 (6.4%) over fiscal year 2011. The Maritime Community Park Construction fund was established to account for the capital expenditures of the Vince Whibbs, Sr. Community Maritime Park and has evolved to include several capital projects in the redevelopment district. The City issued Redevelopment Revenue Bonds, Series 2009 to fund the construction of the Park however proceeds were subsequently leveraged in a New Markets Tax Credit (NMTC) transaction to provide a $52 million construction fund that is owned and managed by the Community Maritime Park Associates. Fund balance in the amount of $41,435,484 is restricted for the Maritime Park and related debt service payments. Also accounted for in the Fund is the accumulation of fund balance in the amount of $5.1 million for the demolition of the Emerald Coast Utilities Authority Main Street Waste Water Treatment Plant.

34 Proprietary Funds. Proprietary fund statements provide the same information as in the business-type activities column of the government-wide statements, but in greater detail, and on a fund basis for enterprise funds and the internal service funds. All of the City’s enterprise funds are classified as major funds.

Enterprise Funds.

The City of Pensacola does not budget for depreciation, bad debt expense, or other post employment benefits. However, personnel services, operating expenses, capital outlay, and principal and interest payments are budgeted.

The Utility Fund had total net assets of $28,403,126 at fiscal year end, an increase of $3,954,744 over the prior year. Operating revenue exceeded operating expenses by $11,076,679 before transfers of $8 million to the General Fund. Revenue decreased by $2.2 million (5.6%) during fiscal year 2012 and expenses decreased by $6.5 million (21%). The primary reason for the decrease in operating revenue and operating expense is a result of the reduced cost of natural gas; the cost savings of which is passed to the customer in turn reducing charges for services revenue.

The Sanitation Fund had total net assets of $1,901,974 at fiscal year end, an increase of $300,703 (19%) primarily due to a rate increase to fund both operating and capital needs. The Sanitation Fund operated at a profit of $574,711 before depreciation expense by $278,638, an improvement from last year of $429,710. Revenues increased (9.9%). Since expenses only increased 3.1% it also contributed to the improvement over last year.

The Port Fund had total net assets of $13,930,591 at fiscal year end, a decrease of $106,813 (0.8%) from the prior year. The port operated at a profit of $772,590 before depreciation expense of $1.1 million; an improvement from last year by $520,261. Revenues increased $508,848 (26%) from the diversification of the Port’s business base and the growth in the wind energy sector exports. Expenses decreased slightly to $11,413 (0.7%) from the prior fiscal year.

The Airport Fund had total net assets of $113,401,212 at fiscal year end, a decrease of $2,305,618 over the prior year. The airport operated at a profit of $4.4 million before depreciation expense of $9.8 million; an improvement from last year of approximately $600,000. The airport has an operating agreement with the airlines which provides for revenues sufficient to meet operating expenses, debt service payments and capital expenditures, however it does not provide for depreciation or bad debt expense which is reported on the City’s financial statements as an operating expense.

Operating Income (Loss) 2012 2011 Utility Fund $ 11,076,679 $ 7,104,494 Sanitation Fund 296,073 (130,976) Port Fund (293,256) (872,288) Airport Fund (5,373,898) (3,249,328) Total $ 5,705,598 $ 2,851,902

Note: Includes depreciation, other post employment benefits and bad debt expense.

Internal Service Funds

The internal service funds are designed to recover the internal costs of general services provided to other city departments. The increase in total net assets for all internal service funds was $416,090.

General Fund Budgetary Highlights

Budgetary control is established within each fund at the line item. Amounts may be transferred between departmental line items or between departments within a fund. Amounts to be transferred require the approval of the Mayor or his designee; however, amounts appropriated for capital expenditures can only be transferred from capital expenditure accounts with City Council approval. The budgetary changes as described below were a necessary part for overall operations of the City’s activities reported in the General Fund.

The final budget as compared with the original budget for the General Fund estimated revenues decreased by approximately $920,000 (2.3%) during fiscal year 2012. The other financing sources budget increased from original budget mainly due to the $3.5 million increase of transfers-in to the General Fund from the Stormwater Capital Projects Fund for reimbursement of expenditures incurred for certain capital improvements including stormwater projects. Additionally, the original budget for the sale of assets increased by $820,000 due to the entire amount of $3.5 million for the sale of the old US Army Reserve Property by the City to the Airport being paid rather than the initial installment of $2.65 million as was originally budgeted. Budget decreases occurred for electricity franchise fees and gas franchise fees totaling $863,600 due to a warmer than normal winter in fiscal year 2012.

The final appropriations in the General Fund as compared with the original budget increased by approximately $4.6 million (9%) in fiscal year 2012. The primary reason for the increase relates to:

• An increase in appropriations for the transfer from the General Fund to the Stormwater Capital Projects Fund of $3.7 million primarily for the transfer-out of the proceeds received from the sale of the US Army Reserve property since the funds are restricted to use for capital items due to financing tax laws and regulations. Transfers-out also increased due to an increased transfer to the Tax and Franchise Fee Debt Service Fund of $200,000. • An increase in appropriations for amounts carryforwarded from the prior fiscal year primarily $195,000 for the cost of a disparity study and $80,000 for the cost to complete the fiscal year 2011 audit. • An increase in appropriations for capital improvements mainly for the Saenger Theatre in the amount of $104,000 and the approximately $270,000 demolition of the building on the US Army Reserve Property.

Capital Asset and Debt Administration

Capital Assets. As of year end, the City had $302,636,416 invested in capital assets, net of depreciation and related debt. Governmental activities accounted for $170,014,519 and business-type activities accounted for $132,621,897. This investment in capital assets includes land, buildings, improvements, machinery and equipment and infrastructure.

Major capital asset additions during the current fiscal year include the following:

Governmental Activities

• Main Library Downtown Branch expansion and renovation $7,252,474

• Stormwater, street and sidewalk capital projects $3,302,850

• Main Street reconstruction and enhancements $1,638,599

• Admiral Mason Park and Stormwater Retention Pond $1,528,987

• Exchange Park improvements $404,224

• Police vehicles $378,099

• Fire Pumper Truck $358,295

Business-type Activities

• Land and building acquisitions for Airport expansion $5,064,479

• Airport road improvements and ramp rehabilitation $3,265,592

• Compressed Natural Gas (CNG) refueling station $1,784,560

• Utility improvements $1,537,695

• Sanitation CNG garbage trucks $1,272,855

• Utility acquisition of Gulf South Pipeline $1,090,909

• Airport parking revenue control equipment $409,604

• Port dredging project $332,507

Governmental Activities Capital Assets net of depreciation

Business-type Activities Capital Assets net of depreciation

Additional details about the City’s capital assets can be found in Section III, C, of the Notes of this report. The City has two capital plans. The first is required by Florida’s growth management legislation and is an element of the City’s comprehensive plan. The second is a broader plan and covers all infrastructure needs of the City. This plan is two-part; the first is transportation and stormwater funded by the Local Option Gasoline Tax (LOGT) with a transfer from the General Fund totaling the same amount as the Stormwater Fee collections. The second is referred to as the Penny for Progress Plan and is funded by LOST collections. Additional details of the capital plans are available in the City’s annual budget which is available on the City’s website.

Long-term Debt. At the end of fiscal year 2012, the City had total non-self-supporting bonded debt of $135,824,903. Governmental activities have bonds payable (direct debt) in the amount of $67,324,750 which includes the unamortized discount of $159,303 and business-type activities have bonds payable in the amounts of $68,500,153. The City also has outstanding notes payable of $23,100,000 (self-supporting debt). The City has no general obligation debt.

The City does not borrow for operating needs. All of its outstanding long-term indebtedness is for capital needs only. The direct debt per capita (population 52,508) as of September 30, 2012 is as follows: Tax and Franchise Fee Debt $ 3,240,000 Per capita $ 62 Community Redevelopment Agency 414,053 Per capita 8 Local Option Sales Tax Debt 18,190,000 Per capita 346 Maritime Community Park Debt 45,640,000 Per capita 869 Total $ 67,484,053 $ 1,285

The Tax and Franchise Fee Debt Service Fund is supported by revenues pledged to specific bond issues. The pledged revenues include franchise fees on electricity, public service taxes on gas, water and electricity, and the Half Cent Sales Tax. The cash reserves at fiscal year end were $3.3 million.

The Local Option Sales Tax Debt is supported by sales tax collections. The fund’s current unrestricted cash balance has been eliminated; however, projected future revenue collections are sufficient to complete projects underway and those scheduled for future fiscal years, including principal and interest obligations for the Capital Funding Revenue Bonds, Series 2010A-1 and 2010A-2 which mature October 1, 2017.

The Community Redevelopment Agency Fund is supported with both a covenant to budget and appropriate and a pledge of tax increment financing (TIF) revenues which secure the principal and interest payments of the note. TIF revenues are recorded in the Urban Core Redevelopment Trust Fund and transfers are made as needed to the CRA Fund for debt service obligations.

The Maritime Community Park Debt is supported with a covenant to budget and appropriate from non-ad valorem revenues of the City, TIF revenues, and a Credit Agreement (Loan) between the City and CMPA arising from a New Market Tax Credit transaction. Please refer to the Notes to the Financial Statements (Note IV. G.) for a thorough explanation of the transaction.

All required principal and interest payments on outstanding debt were remitted timely and in full. The reserve requirements and deposits into the debt service funds mandated by the bond covenant remain funded at or above the prescribed levels at year end.

Prior to July 2008 insurance was purchased for all bonded debt issued by the City of Pensacola. The insured rating for the City’s debt will fluctuate because it is dependent on the rating of the insurance provider. The 2008 Airport Revenue Bonds were issued without insurance using only its underlying credit rating. Underlying ratings are reviewed annually with the City by ratings agencies.

On April 5, 2011 Standard and Poor’s affirmed a long-term rating of “A+” on the City’s outstanding 2004 Sales and Excise Revenue Bonds.

On March 25, 2010 Fitch Ratings published a report on ‘Recalibration of U.S. Public Finance Ratings’. The recalibrated rating for the City’s Capital Improvement Bonds, Series 2009A&B was assigned a “AA”, an upward adjustment from the previous rating of “AA-“ which was affirmed by Fitch on October 20, 2011. Standard and Poor’s rating for the 2009A&B remained at “AA”. Fitch also recalibrated the implied general obligation rating for the City of Pensacola from an “AA” upward to an “AA+” which was affirmed on October 20, 2011.

On June 4, 2010 Moody’s Investor Service – New York affirmed their existing rating of “A3” on the outstanding Airport Revenue Bond debt and on July 5, 2011 Fitch Ratings – Chicago affirmed their existing rating of “BBB+”. On January 31, 2012 Standard & Poor’s affirmed their existing rating of “BBB” on the outstanding Airport Revenue Bond debt while also affirming a stable outlook. On June 28, 2012, Fitch Ratings downgraded the Airport revenues to BBB with a negative outlook.

The City of Gulf Breeze, Florida issued 2010 A&B Capital Funding Revenue Bonds dated July 20, 2010 for which the City of Pensacola, Florida was a participant and the only borrower through a Participant Loan Agreement. Moody’s Investor Services, Inc. assigned a rating of “Aa3” to the bond issue with the understanding that Assured Guaranty Municipal (AGM) is insuring payment of principal and interest. As the City is the only borrower, Moody’s Investor Services assigned an underlying rating of “Aa3” to both Series A and B based upon the City’s pledge of the Local Option Sales Tax on Series A and net revenues of the Gas System on Series B. On October 25, 2010 Standard & Poor’s revised the rating for AGM to “AA+”, outlook stable, from “AAA” citing the current state of the financial guarantee market as the reason for the downgrade. Standard & Poor’s last affirmed AGM at “AA-” with a stable outlook in June 2012. On January 17, 2013, Moody’s Investor Services downgraded the rating of AGM from “Aa3” to “A2” based on the downward reassessment of Assured’s business franchise, expected future profitability and financial flexibility.

The fluctuations of the financial market and downgrades or potential downgrades of bond insurers’ ratings have had no material effect on the interest rates of the City’s outstanding bonds or the City’s underlying bond ratings. All required principal and interest payments have been remitted timely and in full.

Additional detail about long-term debt can be found in the Notes to the Financial Statements; Note III, E. Long-term debt.

Economic Factors and Next Year’s Budgets and Rates

The City’s fiscal year 2013 budget totals $220,680,000. Of this $49.3 million is for the General Fund, $95.9 million for enterprise funds, and the remaining $75.4 million to the miscellaneous special revenue, debt service, capital projects, and internal services funds. The General Fund original budget decreased from the prior year by $2.3 million (4.7%). The decrease in the General Fund budgeted revenue is a $2 million decrease for the sale of the US Army Reserve Property which occurred in fiscal year 2012. Offsetting the decrease in revenue is a $2.9 million reduction in the transfer to the Tax and Franchise Fee Debt Service Fund as the final debt payment will be made in fiscal year 2013. The General Fund consists of governmental services such as general administration, public safety, parks and recreation, and public works. Enterprise Funds are expected to be self-supporting, on a cash-flow basis, from user fees for services.

Personnel expenditures account for $63,773,100 of the City’s budget. The City had 842 total authorized positions at the beginning of fiscal year 2012, decreasing to 830 in the fiscal year 2013 beginning budget. Total funded positions have reduced by 171 vacant positions (17.1%) since the 2007 budget year level. The reductions are a result of the downturn in the economy and State of Florida property tax reform.

Beginning fiscal year 2007, General Fund capital items were programmed for funding through fiscal year 2017 from the Penny for Progress Local Option Sales Tax Fund. Fiscal year 2012 marked the first year revenue projections were increased since the extension was approved in 2006. Fiscal year 2013 anticipated revenues does not anticipate any additional growth, however. Though revenues have not grown as initially anticipated, the budget for capital items remains on target because of conservative estimates put in place at the beginning of the Penny for Progress plan.

Pension actuarial reports received during fiscal year 2011 were not approved by the three defined benefit Boards of Trustees. Based on the reports, the unfunded actuarial accrued liability would have increased $37.5 million from the September 30, 2010 valuation and resulted in a fiscal year 2012 annual contribution increase of $2.6 million over the current funding requirements. During fiscal year 2012, by implementing changes recommended by the Mayor’s Pension Advisory Committee and through union negotiations with the City’s General, Police and Fire unions, the majority of the above referenced annual contribution increase has been mitigated. The unions for the Police and General employees agreed to close their defined benefit plans and the City has reached a tentative agreement with the Fire Union to do the same. Actuarial reports based on the changes to the pension plans, will be forthcoming during fiscal year 2013 and the above referenced unfunded actuarial accrued liability is estimated to be reduced by at least $12 million.

In the fiscal year 2013 budget, a new Economic Development Fund is established in the amount of $1 million. The fund will be used to market surplus properties, provide incentives to existing, growing business or new ventures and to provide seed money to assist with the site development.

The fiscal year 2012 actual property tax valuation decreased by $60.2 million representing a 2.3 percent decline. While the declining trend continues, it is not as great as in prior years. The

decrease in taxable value is anticipated to result in a $278,300 decrease in General Fund ad valorem revenue from the fiscal year 2012 budget. Property tax revenues have decreased $3 million (19.6%) from the fiscal year 2007 levels as a result of both property tax reform and the economic decline. The State of Florida mandated a formula to determine the maximum millage rate that a government can levy. Based on that calculation, the maximum millage rate the City can impose is 5.5494 which equates to an additional $3.5 in potential property tax revenue. In addition, Florida State Statutes authorize levying a millage up to the statutory maximum of 10 mills by a unanimous vote of City Council or referendum. However, fiscal year 2013 estimated revenues have been prepared using the same millage rate of 4.2895 as was adopted in the fiscal year 2012 budget.

The City Council formally adopted by resolution a Fund Balance Policy in fiscal year 2011 which states that a minimum reserve of 15 percent of budgeted annual revenues should be maintained in the General Fund as a Council Reserve. The minimum reserve was initially adopted as part of the Financial Planning and Administration Policy on July 23, 1998. The existing General Fund reserve balance (shown on the face of the financial statements as “Council Reserve”) increased from $7.67 million to $7.68 million in fiscal year 2012. The sale of surplus property and interest earnings are identified as sources which increase the reserve balance. The $7.68 million balance represents 15.6 percent of fiscal year 2013 budgeted General Fund revenues. This marks the fifth consecutive year the minimum reserve has been accomplished since the initial adoption of the reserve policy.

The City’s financial policy states that non-recurring revenues should be used only to finance non-recurring expenditures. Fiscal year 2013 marks the fifth consecutive year that the City’s beginning General Fund budget has balanced ongoing revenues with ongoing expenditures (no drawdown of fund balance). However, the fiscal year 2012 budget did use one-time revenues in the amount of $3.47 million from the sale of assets from the US Army Reserve Property to balance the General Fund budget. This has been budgeted with the knowledge that in fiscal year 2013 the transfer to the Tax and Franchise Fee Debt Service Fund will no longer be required as the debt will be retired and will free up $2.9 million in ongoing revenues. Council revised the Financial Planning and Administration Policy in fiscal year 2007 to stipulate that the General Fund’s maximum amount of appropriated beginning fund balance should not be more than three percent of budgeted revenues. If actual revenues collected are insufficient to cover expenditures, a draw down of fund balance can be made at fiscal year end. The City continues to move in the right direction relying on on-going revenues to support recurring expenditures in spite of the continuing economic challenges.

Request for Information

This financial report is designed to provide a general overview of the City of Pensacola’s finances for all those with an interest in the government’s finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the Office of the Chief Financial Officer, PO Box 12910, Pensacola, Florida 32521. The City of Pensacola’s website address is www.cityofpensacola.com.

THIS PAGE INTENTIONALLY LEFT BLANK

BASIC FINANCIAL STATEMENTS

CITY OF PENSACOLA, FLORIDA STATEMENT OF NET ASSETS SEPTEMBER 30, 2012

Primary Government Component Units Downtown Community Governmental Busine ss-type Improvement Maritime Park Activities Activities Total Board Associates, Inc.

ASSETS

Current assets Cash and cash equivalents $ 18,834,626 $ 4,663,501 $ 23,498,127 $ 132,969 $ 40,709 Other cash 925,059 925,059 Investments 3,399,056 828,768 4,227,824 Accrued interest 32,552 32,552 Receivables (net of allowances) Accounts 2,335,285 7,219,045 9,554,330 65,171 341,341 Special assessments 178,817 178,817 Internal balances 3,127,396 (3,127,396) 0 Due from other governments 1,606,509 2,876,094 4,482,603 99,290 Inventory 584,405 28,273 612,678 Prepaids and deposits 3,617,842 1,619,265 5,237,107 11,649 Restricted assets Restricted cash and cash equivalents 10,733,185 7,788,311 18,521,496 2,730,094 Other cash 12,189 1,387,279 1,399,468 Investments 1,911,284 1,911,284 Due from other governments 1,002,802 1,002,802 Notes receivable 411,969 411,969 Total current assets 48,712,976 23,283,140 71,996,116 209,789 3,211,434

Noncurrent assets Internal balances 764,867 (764,867) 0 Unamortized bond/loan issue costs 614,024 1,151,199 1,765,223 2,253 1,383,454 Intangible asset 66,646 66,646 Restricted assets Cash and cash equivalents 6,949,558 7,472,526 14,422,084 Investments 1,235,252 1,235,252 Notes receivable 41,806,628 1,328,207 43,134,835 Capital assets Non-depreciable 28,282,201 28,524,548 56,806,749 52,743,840 Depreciable (net) 165,443,380 196,582,569 362,025,949 380,961 Total noncurrent assets 245,095,910 234,360,828 479,456,738 383,214 54,127,294

Total assets $ 293,808,886 $ 257,643,968 $ 551,452,854 $ 593,003 $ 57,338,728

(continued)

The accompanying notes are an integral part of these financial statements.

43 CITY OF PENSACOLA, FLORIDA STATEMENT OF NET ASSETS SEPTEMBER 30, 2012

Primary Government Component Units Downtown Community Governmental Busine ss-type Improvement Maritime Park Activities Activities Total Board Associates, Inc.

LIABILITIES AND NET ASSETS

Liabilities

Current liabilities Accounts payable $ 1,715,358 $ 1,797,019 $ 3,512,377 $ 35,963 $ 212,731 Contracts payable 527,467 405,971 933,438 Contracts payable - retainage 1,078,776 303,920 1,382,696 452,848 Due to other governments 47,705 47,705 191,739 Wages and benefits payable 1,621,459 1,621,459 Compensated absences payable 177,193 79,595 256,788 Deposits 290,342 405,168 695,510 Notes payable 0 35,296 411,969 Unearned revenue 1,909,004 148,374 2,057,378 43,750 Revenue bonds payable 6,884,053 6,884,053 Payable from restricted assets Due to other governments 1,300,000 1,300,000 Notes payable 445,000 445,000 Revenue bonds payable 3,950,000 3,950,000 Accrued interest payable 2,042,840 1,533,240 3,576,080 167,337 Total current liabilities 17,594,197 9,068,287 26,662,484 71,259 1,480,374

Noncurrent liabilities Due to other governments 18,200,000 18,200,000 Compensated absences payable 3,793,441 1,443,159 5,236,600 13,980 Claims and judgments payable 2,361,442 2,361,442 Notes payable 22,655,000 22,655,000 199,672 54,137,774 Revenue bonds payable 60,440,697 64,550,153 124,990,850 Deferred loss on early retirement (418,594) (736,038) (1,154,632) Deferred gain on early retirement 2,283,298 416,873 2,700,171 Interest rate swap agreement 357,818 357,818 Net OPEB liability 5,845,133 2,251,813 8,096,946 Other liabilities 0 1,000 Total noncurrent liabilities 92,505,417 90,938,778 183,444,195 214,652 54,137,774

Total liabilities 110,099,614 100,007,065 210,106,679 285,911 55,618,148

Net assets Invested in capital assets, net of related debt 170,014,519 132,621,897 302,636,416 145,993 Restricted for Capital projects 3,162,981 3,162,981 1,579,933 Debt service 1,691,374 5,652,400 7,343,774 Community redevelopment 4,602,461 4,602,461 Federal housing program 4,674,085 4,674,085 Other purposes 3,805,540 3,805,540 Hurricane damage 2,623,975 2,623,975 Renewal and replacement 1,000,000 1,000,000 Operations and maintenance 2,148,333 2,148,333 Unrestricted (6,865,663) 16,214,273 9,348,610 161,099 140,647

Total net assets $ 183,709,272 $ 157,636,903 $ 341,346,175 $ 307,092 $ 1,720,580

The accompanying notes are an integral part of these financial statements.

44 CITY OF PENSACOLA, FLORIDA STATEMENT OF ACTIVITIES FOR THE YEAR ENDED SEPTEMBER 30, 2012

Program Revenues

Operating Capital Charges for Grants and Grants and Expenses Services Contributions Contributions Function/Programs Primary government Governmental activities: General government $ 30,598,069 $ 493,530 $ 2,611,120 $ 4,608,441 Public safety 30,960,121 1,901,310 100,615 578,338 Transportation 2,992,464 543,851 249,640 Culture and recreation 18,824,265 2,387,544 3,663,495 1,094,401 Economic environment 13,780,462 12,298,790 119,281 Physical environment 2,893,391 2,543,121 230,343 Human services 30,000 Unallocated depreciation 3,028,787 Interest on long-term debt 3,712,342 Total governmental activities 106,819,901 7,869,356 18,674,020 6,880,444

Busine ss-type a ctivitie s: Utility 25,338,365 36,900,749 1,153,682 Sanitation 6,179,795 6,838,663 Port 2,633,916 2,401,744 184,468 Airport 26,110,733 17,996,001 6,496,112 Total business-type activities 60,262,809 64,137,157 0 7,834,262

Total primary government $ 167,082,710 $ 72,006,513 $ 18,674,020 $ 14,714,706

Component unit: Downtown Improvement Board $ 1,286,942 $ 971,853 $ $ Community Maritime Park Assoc., Inc. 3,835,843 494,446 1,894,745 3,972,924 Total component units $ 5,122,785 $ 1,466,299 $ 1,894,745 $ 3,972,924

(continued)

The accompanying notes are an integral part of these financial statements.

45 CITY OF PENSACOLA, FLORIDA STATEMENT OF ACTIVITIES FOR THE YEAR ENDED SEPTEMBER 30, 2012

Net (Expenses) Revenue and Changes in Net Assets Component Units Primary Government Downtown Community Governmental Busine ss-type Improvement Maritime Park Activities Activities Total Board Associates, Inc. Function/Programs Primary government Governmental activities: General government $ (22,884,978) $ (22,884,978) Public safety (28,379,858) (28,379,858) Transportation (2,198,973) (2,198,973) Culture and recreation (11,678,825) (11,678,825) Economic environment (1,362,391) (1,362,391) Physical environment (119,927) (119,927) Human services (30,000) (30,000) Unallocated depreciation (3,028,787) (3,028,787) Interest on long-term debt (3,712,342) (3,712,342) Total governmental activities (73,396,081) (73,396,081)

Busine ss-type a ctivitie s: Utility $ 12,716,066 12,716,066 Sanitation 658,868 658,868 Port (47,704) (47,704) Airport (1,618,620) (1,618,620) Total business-type activities 11,708,610 11,708,610

Total primary government (73,396,081) 11,708,610 (61,687,471)

Component unit: Downtown Improvement Board $ (315,089) Community Maritime Park Assoc., $ 2,526,272 Total component units

General revenues: Property taxes 12,311,601 12,311,601 349,684 Public service taxes and franchise fee 14,252,846 14,252,846 Communication service tax 3,600,306 3,600,306 Local business tax 885,161 885,161 Local option gasoline tax 1,557,013 1,557,013 Local option sales tax 6,401,758 6,401,758 Unrestricted intergovernmental revenu 6,123,014 6,123,014 Unrestricted investment earnings 1,948,024 42,597 1,990,621 171 14,531 Gain on sale of capital asset 105,387 66,358 171,745 Miscellaneous 32,315 392,351 424,666 31,447 Tra nsfe rs 8,000,000 (8,000,000) 0 Overhead transfers 2,366,900 (2,366,900) 0

Total general revenues, transfers, and 57,584,325 (9,865,594) 47,718,731 349,855 45,978

Special item Forgiveness of Debt 79,854

Change in net assets (15,811,756) 1,843,016 (13,968,740) 114,620 2,572,250 Net assets, October 1, 2011 199,521,028 155,793,887 355,314,915 192,472 (851,670) Net assets September 30, 2012 $ 183,709,272 $ 157,636,903 $ 341,346,175 $ 307,092 $ 1,720,580

The accompanying notes are an integral part of these financial statements.

46 CITY OF PENSACOLA, FLORIDA BALANCE SHEET GOVERNMENTAL FUNDS SEPTEMBER 30, 2012

Housing Maritime Other Total General Local Option Assista nce Community Park Governmental Governmental Fund Sales Tax Payments Construction Funds Funds ASSETS

Cash and cash equivalents $ 10,073,677 $ $ 2,330,450 $ $ 5,014,726 $ 17,418,853 Other cash 925,059 925,059 Investments 1,770,889 414,227 891,345 3,076,461 Accrued interest 32,552 32,552 Accounts receivable 1,645,251 335,102 78,803 2,059,156 Special assessments receivable 178,817 178,817 Due from other funds 832,456 122,596 955,052 Due from other governments 962,354 482,256 17,307 144,592 1,606,509 Prepaids and deposits 24,780 3,133,619 801 25,530 3,184,730 Inventories 3,617 3,617 Notes receivable 411,969 411,969 Restricted assets: Cash and cash equivalents 793,751 325,226 880,193 6,143,939 6,730,462 14,873,571 Other cash 12,189 12,189 Investments 141,086 57,808 156,450 1,095,566 1,196,309 2,647,219 Accounts receivable - Due from other funds 1,733,521 1,733,521 Due from other governments 1,002,802 1,002,802 Prepaids and desposits - Notes receivable 39,813,626 1,993,002 41,806,628

Total assets $ 16,455,613 $ 3,998,909 $ 5,042,282 $ 47,070,438 $ 19,361,463 $ 91,928,705

LIABILITIES AND FUND BALANCE

Liabilities Accounts payable $ 1,290,915 $ 25,280 $ 4,611 $ 69 $ 365,320 $ 1,686,195 Contracts payable 12,667 189,342 325,458 527,467 Contracts payable - retainage 865,513 213,263 1,078,776 Due to other funds 1,546,888 28,484 8,631 488,339 2,072,342 Due to other governments 47,705 47,705 Compensated absences payable 153,154 24,039 177,193 Wages and benefits payable 1,621,459 1,621,459 Deferred revenue 1,106,617 335,102 489,120 2,533,825 4,464,664 Deposits 130,467 142,196 272,663 Total liabilities 4,315,279 2,627,023 368,197 497,820 4,140,145 11,948,464 (continued) The accompanying notes are an integral part of these financial statements.

47 CITY OF PENSACOLA, FLORIDA BALANCE SHEET GOVERNMENTAL FUNDS SEPTEMBER 30, 2012

Housing Maritime Other Total General Local Option Assista nce Community Park Governmental Governmental Fund Sales Tax Payments Construction Funds Funds Fund balances Non-spendable 24,780 3,133,619 801 29,147 3,188,347 Restricted Saenger capital 97,700 97,700 Housing Assistance Payments 1,036,643 1,036,643 Maritime Park 39,813,626 39,813,626 Other restricted 330,918 3,234,190 3,636,641 6,758,992 12,064,016 26,024,757 Committed Park purchases 38,141 38,141 Tree landscape 676,045 676,045 Council Reserve 7,684,929 7,684,929 Other committed 4,207,674 4,207,674 Assigned 2,187,305 6,858 2,194,163 Unassigned 1,100,516 (4,995,923) (1,086,377) (4,981,784) Total fund balances 12,140,334 1,371,886 4,674,085 46,572,618 15,221,318 79,980,241

Total liabilities and fund balances $ 16,455,613 $ 3,998,909 $ 5,042,282 $ 47,070,438 $ 19,361,463

Capital assets used in governmental activities are not financial resources to the governmental funds. The cost of the assets is $262,598,896 and the accumulated depreciation is $71,538,573 191,060,323 Other long-term assets are not available to pay for current period expenditures and therefore are deferred in the funds. 2,555,660 The assets and liabilities of the internal service funds are included in governmental activities in the statement of net assets. 9,050,020 Net other post employment benefits (OPEB) liability, as required by Governmental Accounting Standards Statement No. 45, are not due and payable in the current period and therefore are not reported in the governmental funds. (5,349,565) Long-term liabilities, including bonds payable, are not due and payable in the current period and therefore are not reported in the governmental funds. Bonds payable (67,484,053) Unamortized bond premium (156,467) Unamortized bond discount 315,770 Unamortized bond issue costs 614,024 Deferred gain on refunding (2,283,298) Deferred loss on early retirement 418,594 Due to other governments (19,500,000) Compensated absences (3,469,137) Accrued interest payable (2,042,840) (93,587,407) Net assets of governmental activities $ 183,709,272

The accompanying notes are an integral part of these financial statements.

48 CITY OF PENSACOLA, FLORIDA STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE GOVERNMENTAL FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2012

Housing Maritime Other Total General Local Option Assista nce Community Park Governmental Governmental Revenues: Fund Sales Tax Payments Construction Funds Funds Taxes $ 23,275,738 $ 6,401,758 $ $ $ 1,557,013 $ 31,234,509 Licenses and permits 61,432 1,071,054 1,132,486 Franchise fees 7,774,176 7,774,176 Intergovernmental 6,123,014 11,260,850 978,239 9,683,375 28,045,478 Charges for services 1,026,274 206,273 4,610,118 5,842,665 Fines and forfeits 112,019 225,839 337,858 Assessments 51,729 51,729 Interest income 48,204 883 12,678 1,859,422 37,494 1,958,681 Donations 199,965 199,965 Other 611,677 69,897 5,513 19,177 706,264 Total revenues 39,084,263 6,402,641 11,343,425 3,049,447 17,404,035 77,283,811 Expenditures: Current - General government 4,031,338 3,955,496 7,986,834 Public safety 28,406,704 104,404 1,381,167 29,892,275 Transportation 2,233,817 297,820 2,531,637 Culture and recreation 6,071,068 32,118 3,221,515 6,637,799 15,962,500 Economic environment 233,517 13,256,085 181,829 13,671,431 Physical environment 238,958 2,770,640 3,009,598 Human services 30,000 30,000 Capital outlay 45,077 8,207,027 6,231,092 14,483,196 Debt service - Principal retirement 3,504,241 3,504,241 Interest 877,237 3,063,481 221,686 4,162,404 Total expenditures 41,290,479 9,220,786 13,256,085 6,284,996 25,181,770 95,234,116 Excess (deficiency) of revenues over (under) expenditures (2,206,216) (2,818,145) (1,912,660) (3,235,549) (7,777,735) (17,950,305) Other financing sources (uses): Transfers in 11,495,507 80,000 16,823,219 28,398,726 Transfers (out) (12,016,600) (7,882,126) (19,898,726) Sale of capital assets 98,532 2,025 4,830 105,387 Total other financing sources (uses) (422,561) 0 2,025 80,000 8,945,923 8,605,387

Net Change in fund balances before special item (2,628,777) (2,818,145) (1,910,635) (3,155,549) 1,168,188 (9,344,918)

Special item - Sale of capital asset 3,495,507 3,495,507

Net Change in fund balances 866,730 (2,818,145) (1,910,635) (3,155,549) 1,168,188 (5,849,411)

Fund balances at beginning of year 11,273,604 4,190,031 6,584,720 49,728,167 14,053,130 85,829,652 Fund balances at end of year $ 12,140,334 $ 1,371,886 $ 4,674,085 $ 46,572,618 $ 15,221,318 $ 79,980,241

The accompanying notes are an integral part of these financial statements.

49 CITY OF PENSACOLA, FLORIDA RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED SEPTEMBER 30, 2012

Net change in fund balances - total governmental funds $ (5,849,411) Amounts reported for governmental activities in the statement of activities are different because:

Governmental funds report capital outlays as expenditures. However, in the statement of activities, the cost of those assets is depreciated over their estimated useful lives. Expenditures for capital assets 14,166,329 Less current year depreciation (8,083,340) 6,082,989

Repayment of bond principal is an expenditure in the governmental funds, but the repayment reduces long-term liabilities in the statement of net assets. 3,504,241

Some revenues reported in the statement of activities do not provide current financial resources, therefore, those revenues are not reported as revenues in governmental funds. (235,636)

Long-term due to other governments, reported in the statement of activities, does not require the use of current financial resources, therefore, it is not reported as an expenditure in governmental funds. (19,500,000)

Compensated absences, reported in the statement of activities, does not require the use of current financial resources, therefore, it is not reported as an expenditure in governmental funds. 290,557

Accrued interest expense, reported in the statement of activities, does not require the use of current financial resources in governmental funds. Included is the amortization of bond issuance costs, discounts, and premiums of ($380,742) 450,061

Annual other post employment benefits (OPEB) cost, as required by Governmental Accounting Standards Statement No. 45, does not require the use of current financial resources, therefore, it is not reported as an expenditure in governmental funds. (996,846)

Internal service funds are used by management to charge the costs of certain activities to individual funds. The net revenue of certain activities of internal service funds is reported with governmental activities. 416,090

The proceeds from the sale of capital assets are reported as revenue in the governmental funds. However, the cost of capital assets disposed must be offset against the sale proceeds resulting in a gain/(loss) on sale of capital assets in the statement of activities. Donations of capital assets do not provide current financial resources to the governmental funds. Donations of capital assets 58,743 Gain/(loss) on disposal of capital assets (32,544) 26,199

Change in net assets of governmental activities $ (15,811,756)

The accompanying notes are an integral part of these financial statements.

50 CITY OF PENSACOLA, FLORIDA STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE – BUDGET AND ACTUAL GENERAL FUND FOR THE YEAR ENDED SEPTEMBER 30, 2012

Budgeted Amounts Variance w ith Final Budget - Original Final Actual Amounts Positive/(Negative)

Revenues: Taxes $ 23,398,800 $ 23,275,700 $ 23,275,738 $ 38 Licenses and permits 59,700 59,700 61,432 1,732 Franchise fees 8,637,700 7,774,100 7,774,176 76 Intergovernmental 6,084,800 6,109,200 6,123,014 13,814 Charges for services 1,051,300 1,041,100 1,026,274 (14,826) Fines and forfeits 73,300 100,700 112,019 11,319 Assessments 100,000 51,729 (48,271) Interest income 40,000 30,700 48,204 17,504 Donations 0 Other 636,000 570,000 611,677 41,677

Total revenues 39,981,600 39,061,200 39,084,263 23,063

Expenditures: Current - General government 4,844,100 5,177,363 4,031,339 1,146,024 Public safety 28,965,000 28,703,661 28,406,704 296,957 Transportation 2,205,600 2,233,817 2,233,817 0 Culture and recreation 6,244,100 6,471,742 6,071,068 400,674 Economic environment 242,500 248,250 233,517 14,733 Physical environment 3,000 273,028 238,958 34,070 Human services 30,000 30,000 30,000 0 Capital outlay 53,309 45,077 8,232 Total expenditures 42,534,300 43,191,170 41,290,480 1,900,690

Excess (deficiency) of revenues over (under) expenditures (2,552,700) (4,129,970) (2,206,217) 1,923,753

Other financing sources (uses): Transfers in 8,000,000 11,600,000 11,495,507 (104,493) Transfers (out) (8,147,300) (12,118,221) (12,016,599) 101,622 Sale of capital assets 50,000 98,500 98,532 32 Total other financing sources (uses) (97,300) (419,721) (422,560) (2,839)

Net change in fund balances before special item (2,650,000) (4,549,691) (2,628,777) 1,920,914

Special item - Sale of capital asset 2,650,000 3,470,222 3,495,507 25,285

Net change in fund balances 0 (1,079,469) 866,730 1,946,199

Fund balances at beginning of year 0 1,079,469 11,273,604 10,194,135 Fund balances at end of year $ 0 $ 0 $ 12,140,334 $ 12,140,334

The accompanying notes are an integral part of these financial statements.

51 CITY OF PENSACOLA, FLORIDA STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE – BUDGET AND ACTUAL HOUSING ASSISTANCE PAYMENTS FUND FOR THE YEAR ENDED SEPTEMBER 30, 2012

Budgeted Amounts Variance with Final Budget - Original Final Actual Amounts Positive/(Negative) Revenues : Intergovernmental $ 14,860,800 $ 14,860,800 $ 11,260,850 $ (3,599,950) Interest income 9,500 9,500 12,678 3,178 Other 68,700 68,700 69,897 1,197 Total revenues 14,939,000 14,939,000 11,343,425 (3,595,575)

Expenditures : Current - Economic environment 16,539,000 16,625,900 13,256,085 3,369,815 Total expenditures 16,539,000 16,625,900 13,256,085 3,369,815

Excess (deficiency) of revenues over (under) expenditures (1,600,000) (1,686,900) (1,912,660) (225,760)

Other financing sources (uses): Sale of capital assets 2,025 2,025 Total other financing sources (uses): 0 0 2,025 2,025

Net change in fund balances (1,600,000) (1,686,900) (1,910,635) (223,735)

Fund balances at beginning of year 1,600,000 1,686,900 6,584,720 4,897,820

Fund balances at end of year $ 0 $ 0 $ 4,674,085 $ 4,674,085

The accompanying notes are an integral part of these financial statements.

52 CITY OF PENSACOLA, FLORIDA STATEMENT OF NET ASSETS PROPRIETARY FUNDS SEPTEMBER 30, 2012

Business-type Activities - Enterprise Funds Governmental Activities- Total Internal Utility Sanitation Port Airport Enterprise Service Fund Fund Fund Fund Funds Funds ASSETS Current assets Cash and cash equivalents $ 2,251,481 $ 1,356,110 $ 537,283 $ 518,627 $ 4,663,501 $ 1,415,773 Investments 400,191 241,042 95,499 92,036 828,768 322,595 Accounts receivable (net) 4,143,703 645,702 656,055 1,773,585 7,219,045 276,129 Due from other funds 115,700 115,700 2,657,205 Due from other governments 226,793 2,649,301 2,876,094 Prepaid expenses 1,504,668 975 14,355 99,267 1,619,265 222,792 Inventory 28,273 28,273 580,788 Restricted assets Cash and cash equivalents 1,895,145 23,048 308,056 5,562,062 7,788,311 Investments 336,853 4,097 54,755 991,574 1,387,279 Total current assets 10,676,014 2,270,974 1,892,796 11,686,452 26,526,236 5,475,282

Noncurrent assets Intangible asset 66,646 66,646 Unamortized bond issue costs 29,122 1,122,077 1,151,199 Prepaid expenses 0 210,320 Advances to other funds 1,184,300 1,184,300 783,325 Restricted assets Cash and cash equivalents 266,356 7,206,170 7,472,526 2,809,173 Investments 47,344 1,280,863 1,328,207 499,317 Capital assets Non-depreciable 435,768 41,093 1,893,130 26,154,557 28,524,548 84,296 Depreciable (net) 34,661,274 2,435,523 10,829,898 148,655,874 196,582,569 2,580,963 Total noncurrent assets 36,690,810 2,476,616 12,723,028 184,419,541 236,309,995 6,967,394

Total assets $ 47,366,824 $ 4,747,590 $ 14,615,824 $ 196,105,993 $ 262,836,231 $ 12,442,676 (continued)

The accompanying notes are an integral part of these financial statements.

53 CITY OF PENSACOLA, FLORIDA STATEMENT OF NET ASSETS PROPRIETARY FUNDS SEPTEMBER 30, 2012

Business-type Activities - Enterprise Funds Governmental Activities- Total Internal Utility Sanitation Port Airport Enterprise Service Fund Fund Fund Fund Funds Funds LIABILITIES AND NET ASSETS Liabilities Current liabilities Accounts payable $ 1,289,325 $ 105,904 $ 41,491 $ 360,299 $ 1,797,019 $ 29,163 Contracts payable 40,152 75,763 290,056 405,971 Contracts payable - retainage 135,199 28,058 140,663 303,920 Due to other funds 406,139 322,187 19,823 2,494,947 3,243,096 146,040 Compensated absences payable 62,254 17,341 79,595 Deposits 85 362,811 42,272 405,168 17,679 Deferred revenue 145,413 2,961 148,374 Payable from restricted assets Notes payable 445,000 445,000 Revenue bonds payable 1,450,000 2,500,000 3,950,000 Accrued interest payable 52,250 1,480,990 1,533,240 Total current liabilities 4,025,732 428,176 527,946 7,329,529 12,311,383 192,882

Noncurrent liabilities Compensated absences payable 624,413 327,664 65,261 425,821 1,443,159 324,306 Advances from other funds 236,692 1,654,649 57,826 1,949,167 18,458 Claims and judgments payable 0 2,361,442 Notes payable 4,555,000 18,100,000 22,655,000 Revenue bonds payable 7,995,000 56,555,153 64,550,153 Deferred gain on early retirement 416,873 416,873 Deferred loss on early retirement (37,582) (698,456) (736,038) Interest rate swap agreement 357,818 357,818 Net OPEB liability 1,147,570 435,127 92,026 577,090 2,251,813 495,568 Total noncurrent liabilities 14,937,966 2,417,440 157,287 75,375,252 92,887,945 3,199,774

Total liabilities 18,963,698 2,845,616 685,233 82,704,781 105,199,328 3,392,656

Ne t Asse ts Investment in capital assets, net of related debt 20,368,519 1,176,616 12,723,028 98,353,734 132,621,897 2,665,259 Restricted Debt service 313,700 5,338,700 5,652,400 Renewal and replacement 1,000,000 1,000,000 Operations and maintenance 2,148,333 2,148,333 Unrestricted (deficit) 7,720,907 725,358 1,207,563 6,560,445 16,214,273 6,384,761

Total net assets $ 28,403,126 $ 1,901,974 $ 13,930,591 $ 113,401,212 $ 157,636,903 $ 9,050,020 The accompanying notes are an integral part of these financial statements.

54 CITY OF PENSACOLA, FLORIDA STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET ASSETS PROPRIETARY FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2012

Business-type Activities - Enterprise Funds Governmental Activities- Utility Sanitation Port Airport Internal Fund Fund Fund Fund Total Service Funds Operating revenues: Charges for services $ 36,900,749 $ 6,838,663 $ 2,401,744 $ 17,996,001 $ 64,137,157 $ 4,700,539 Insurance 14,530,441 Other 321,645 40,014 29,216 1,476 392,351 434,218 Total operating revenues 37,222,394 6,878,677 2,430,960 17,997,477 64,529,508 19,665,198

Operating expenses: Gas purchases 11,887,888 11,887,888 Salaries and employee benefits 7,092,869 3,098,760 910,746 4,921,423 16,023,798 3,735,077 Materials and supplies 719,319 419,382 23,407 196,033 1,358,141 167,546 Repairs and maintenance 357,793 778,319 61,350 2,085,218 3,282,680 41,587 Contractual services 2,023,944 225,014 132,616 3,229,872 5,611,446 518,747 Office and utilities 1,227,249 422,594 426,004 2,437,533 4,513,380 291,748 Land fill fees 947,997 13,947 961,944 Overhead allocation 1,161,400 411,900 90,300 703,300 2,366,900 Premiums and claims expense 13,502,350 Total operating expenses before depreciation 24,470,462 6,303,966 1,658,370 13,573,379 46,006,177 18,257,055 Operating income (loss) before depreciation 12,751,932 574,711 772,590 4,424,098 18,523,331 1,408,143 Depreciation 1,675,253 278,638 1,065,846 9,797,996 12,817,733 426,106

Operating income (loss) 11,076,679 296,073 (293,256) (5,373,898) 5,705,598 982,037

Nonoperating revenues (expenses): Investment interest 19,658 6,138 1,975 14,826 42,597 31,131 Interest expense (434,716) (9,091) (3,306,825) (3,750,632) Amortization of bond expense 80,666 (135,833) (55,167) Gain (loss) on disposal of capital assets 58,775 7,583 66,358 622 Total nonoperating revenues (expenses) (275,617) 4,630 1,975 (3,427,832) (3,696,844) 31,753

Income (loss) before contributions and transfers 10,801,062 300,703 (291,281) (8,801,730) 2,008,754 1,013,790

Contributions and transfers: Contributions Federal and state grants 184,468 3,492,995 3,677,463 Passenger facility charge 3,002,111 3,002,111 Passenger facility charge - Interest 1,006 1,006 Contributed capital from other funds 1,153,682 1,153,682 Transfers (out) (8,000,000) (8,000,000) (597,700) Total contributions and transfers (6,846,318) - 184,468 6,496,112 (165,738) (597,700) Change in net assets 3,954,744 300,703 (106,813) (2,305,618) 1,843,016 416,090

Net assets at beginning of year 24,448,382 1,601,271 14,037,404 115,706,830 155,793,887 8,633,930

$ 28,403,126 $ 1,901,974 $ 13,930,591 $ 113,401,212 $ 157,636,903 $ 9,050,020 Net assets at end of year The accompanying notes are an integral part of these financial statements.

55 CITY OF PENSACOLA, FLORIDA STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2012

Business-type Activities - Enterprise Funds Governmental Activities- Utility Sanitation Port Airport Internal Fund Fund Fund Fund Total Service Funds

Cash flows from operating activities: Cash received from customers $ 36,357,686 $ 6,618,266 $ 2,136,938 $ 18,014,155 $ 63,127,045 $ 17,727,137 Cash payments to suppliers for goods and services (17,209,632) (3,061,958) (733,143) (8,589,763) (29,594,496) (14,672,332) Cash payments to employees for services (6,997,491) (2,906,068) (903,198) (2,620,006) (13,426,763) (3,686,959) Net cash provided by (used for) operating activities 12,150,563 650,240 500,597 6,804,386 20,105,786 (632,154)

Cash flows from noncapital financing activities: Advance from other funds (1,017,520) 1,167,267 27,281 177,028 (177,029) Transfers (out) (8,000,000) (8,000,000) (597,700) Net cash provided by (used for) noncapital financing activities (9,017,520) 1,167,267 0 27,281 (7,822,972) (774,729)

Cash flows from capital and related financing activities: Acquisition of capital assets (3,926,411) (1,297,401) (139,545) (4,479,427) (9,842,784) (216,261) Acquisition of capital assets with grant monies (141,365) (3,452,895) (3,594,260) Proceeds from sale of assets 31,491 7,583 39,074 808 Capital contributed 1,233,722 1,233,722 Contributions from customers 3,005,705 3,005,705 Acquisition of capital assets with contributions (813,371) (813,371) Principal paid on capital debt (1,405,000) (5,420,000) (6,825,000) Interest paid on capital debt (368,685) (9,091) (3,126,832) (3,504,608) Proceeds from capital debt 5,000,000 6,300,000 11,300,000 Payment for issuance cost (31,818) (129,109) (160,927) Net cash provided by (used for) capital and related financing activities (700,423) (1,298,909) (280,910) (6,882,207) (9,162,449) (215,453)

Cash flows from investing activities: (Purchase)/sale of investments (784,388) (245,139) (150,254) (2,364,473) (3,544,254) (752,998) Interest on investments 19,658 6,138 2,727 14,826 43,349 31,131 Net cash provided by (used for) investing activities (764,730) (239,001) (147,527) (2,349,647) (3,500,905) (721,867)

Net increase (decrease) in cash and cash equivalents 1,667,890 279,597 72,160 (2,400,187) (380,540) (2,344,203)

Cash and cash equivalents at beginning of year 2,745,092 1,099,561 773,179 15,687,046 20,304,878 6,569,148

Cash and cash equivalents at end of year $ 4,412,982 $ 1,379,158 $ 845,339 $ 13,286,859 $ 19,924,338 $ 4,224,945

(continued) The accompanying notes are an integral part of these financial statements.

56 CITY OF PENSACOLA, FLORIDA RECONCILIATION OF OPERATING INCOME (LOSS) PROPRIETARY FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2012

Business-type Activities - Enterprise Funds Governmental Activities- Utility Sanitation Port Airport Internal Fund Fund Fund Fund Total Service Funds

Operating income (loss) $ 11,076,679 $ 296,073 $ (293,256) $ (5,373,898) $ 5,705,598 $ 982,037

Adjustments to reconcile operating income to net cash provided by (used for) operating activities: Depreciation 1,675,253 278,638 1,065,846 9,797,996 12,817,733 426,106

Change in assets and liabilities: (Increase) decrease in accounts receivable (362,915) (101,402) (294,022) 12,680 (745,659) 303,165 (Increase) decrease in inventory 1,734 1,734 (448) (Increase) decrease in due from other funds (115,700) (115,700) (2,244,721) (Increase) decrease in prepaid expense (49,709) 144 (452) (17,341) (67,358) (182,289) Increase (decrease) in accounts payable (124,935) (15,882) (2,567) 79,534 (63,850) (77,003) Increase (decrease) in contracts payable 17,500 17,500 (11,404) Increase (decrease) in due to other funds (48,566) 104,564 (2,560) 2,288,064 2,341,502 815 Increase (decrease) in deposits (23) 3,998 3,975 3,943 Increase (decrease) in claims and judgments 0 120,342 Increase (decrease) in deferred revenue (45,222) (45,222) Increase (decrease) in compensated absences (65,072) 11,043 (7,773) (95,438) (157,240) (45,710) Increase (decrease) in net OPEB obligation 209,016 77,085 17,881 108,791 412,773 93,013 Net cash provided by (used for) operating activities: $ 12,150,563 $ 650,240 $ 500,597 $ 6,804,386 $ 20,105,786 $ (632,154)

Noncash investing, capital, and financing activities:

Utility Sanitation Port Airport Internal Fund Fund Fund Fund Total Service Funds

Amortization of bond expense $ 66,885 $ - $ - $ (357,424) $ (290,539) $ - Contribution of capital assets from other funds 73,686 - - - 73,686 - Donation of capital assets 1,079,996 - - - 1,079,996 - Gain (loss) on disposal of capital assets 27,284 - - - 27,284 (186) Transfer of capital assets to other funds - - - - - 97,700

The accompanying notes are an integral part of these financial statements.

57 CITY OF PENSACOLA, FLORIDA COMBINING STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS SEPTEMBER 30, 2012

Total Pension ASSETS Trust Funds Other cash $ 273,615

Receivables Employer 538,138 Employee 34,994 Commission Recapture 2,631 Total receivables 575,763 Investments Short term investments 9,691,507 Debt Securities & Bond Mutual Funds 65,215,253 Convertible Corporate Bonds 11,407,616 Stock Mutual Funds 15,819,166 Mortgage Backed Securities 21,678,444 Commingled Trust Fund 15,380,514 Domestic Stocks 134,822,603 Preferred Stocks 3,136,870 Foreign Stocks 10,521,918 Total investments 287,673,891

Tota l a sse ts $ 288,523,269

LIABILITIES AND FUND BALANCES

Liabilities: Accounts payable $ 421,645 Total liabilities 421,645

Net assets Held in trust for pension benefits $ 288,101,624

The accompanying notes are an integral part of these financial statements.

58 CITY OF PENSACOLA, FLORIDA COMBINING STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS FIDUCIARY FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2012

Total Pension Trust Funds Additions Contributions - city $ 12,996,882 Contributions - employee 1,042,209 Contributions - employee buy back 763,031 Contributions - lawsuit 1,928,651 Commission recapture 19,289 Insurance proceeds - State of Florida 1,144,034 Total contributions 17,894,096

Investment income Net appreciation (depreciation) in fair value of investments 41,332,553 Interest and dividends 6,646,920 47,979,473 Less investment expense 1,414,471 Net investment income 46,565,002

Total additions 64,459,098

Deductions Pensions paid - employees 16,926,008 Pensions paid - widows 2,909,691 Pensions paid - children 6,332 Refunds to employees 203,006 Deferred retirement option plan 4,168,894 Health insurance assistance 159,348 Administrative expenses 274,473

Total deductions 24,647,752

Change in net assets 39,811,346

Net assets held in trust for pension benefits Beginning of year 248,290,278

End of year $ 288,101,624

The accompanying notes are an integral part of these financial statements.

NOTES TO

FINANCIAL STATEMENTS

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CITY OF PENSACOLA, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2012

TOPICAL INDEX

Topic Page(s) Topic Page(s) Accounts Receivable 73 Interest Rate Swap Agreements 88 Basis of Accounting, Measurement Focus 63 Inventories 66 and Financial Presentation Investments 66 Blended Component Unit 60 Joint Ventures 61 Bond Discounts, Issuance Cost, and 68 Refunding Gains/Losses Litigation 113 Capital Assets Policy 62 Long-term Debt 81 Capital Assets 75 Net Assets Policy 68 Cash and Cash Equivalents/Investments 66 Other Postemployment Benefits 109 Changes in Long-Term Liabilities 85 Other Significant Commitments 114 Compensated Absences 68 Pension Funds 71 Conduit Debt 90 Pension Plan Descriptions and Contribution Information 104 Contractual, Construction, and Equipment Commitments 113 Pension Plan Financial Statements 102 Debt Restriction 89 Pension Plan Obligations 108 Deferred Compensation/Replacement Pension Plan Three-Year Trend Information 108 Benefit Program 112 Prepaid Insurance 67 Deferred Revenue 74 Property Tax Calendar Year and Revenue Recognition 73 Discretely Presented Component Unit 61 Reporting Entity 60 Encumbrances 69 Florida Ports Finance Commission Agreement 91 Restricted Assets 67 Fund Balance Deficit 81 Retiree Benefits 109 Fund Balance Disclosure 93 Revenues Pledged for Debt Repayment 90 Fund Balance Policy 68 Risk Management 100 General Budget Policies 69 Special Item 76 Government-Wide and Fund Financial Subsequent Events 118 Statements 63 Summary of Debt Service Requirements Grant Contingencies 113 to Maturity 86 Interfund Receivables, Payables, and Transfers 79 Surplus Funds 70 Termination Benefits 113 Interfund Receivables/Payables Policy 66 Unbilled Utility Services 73

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CITY OF PENSACOLA, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2012

NOTE I. - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The financial statements of the City of Pensacola (the “City”) have been prepared in accordance with generally accepted accounting principles (GAAP) as applied to governmental units. The Governmental Accounting Standards Board (GASB) is the standard-setting body for governmental accounting and financial reporting. Statements and Interpretations of the GASB have been applied in the preparation of these financial statements.

A. Reporting Entity

On November 24, 2009 voters approved amendments to the City Charter that changed the form of government from a Council-Manager to a Mayor-Council structure commonly referred to as a “Strong Mayor” form of government. The amended Charter became effective January 2010. With the new structure, the Council shall be the governing body of the City with all legislative powers of the City vested therein, consisting of nine (9) Council Members, one (1) to be elected from each of the seven (7) election districts of the City, and two Council members elected at large. Members of Council and Mayor are limited to 3 consecutive 4 year terms. The Mayor is elected at large, has a 4 year term in office, will exercise the executive powers of the City and shall not be a member of Council.

In evaluating the City as a reporting entity, management has addressed all potential component units for which the City may or may not be financially accountable and, as such, be includable within the City’s financial statements. The City (the primary government) is financially accountable if it appoints a voting majority of the organization’s governing board and 1) it is able to impose it’s will on the organization or 2) there is a potential for the organization to impose a specific financial benefit or burden to the City. Additionally, the primary government is required to consider other organizations for which exclusion of the nature and significance of their relationship with the City would cause the reporting entity’s financial statements to be misleading or incomplete.

The accompanying financial statements present the City and its component units and entities for which the government is considered to be financially accountable. Blended component units, although legally separate entities, are, in substance, part of the City’s operation. Each discretely presented component unit is reported in a separate column in the government-wide financial statements to emphasize that it is legally separate from the City.

Blended Component Unit

Community Redevelopment Agency (CRA) - On September 25, 1980, the Pensacola City Council declared itself the CRA pursuant to the provisions of Chapter 163, Part III, Florida Statutes. This action, adopted by Resolution Number 55-80, also outlined the rights, powers, duties, privileges and immunities invested in the nine member City Council acting as the CRA. The CRA selects a chair and a vice-chair from the nine-member agency and approves the annual operating budget. The CRA is reported as a special revenue fund of the City.

60 CITY OF PENSACOLA, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2012

NOTE I. - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Discretely Presented Component Unit

The component unit columns in the combined financial statements include the financial data of the City’s discretely presented component units. They are reported in a separate column to emphasize that they are legally separate from the City. The accounting policies of these discretely presented component units are the same as those detailed for the City. The City’s discretely presented component units are as follows:

Downtown Improvement Board (DIB) - The DIB was created in April 1972 by Chapter 72- 655, Laws of Florida. The DIB is considered a component unit since the Mayor of the City appoints and the Council approves the five member board. In addition, the City Council approves the budget of the Board, including the proposed millage rate. Complete financial statements of the DIB can be obtained from their administrative office as follows: Downtown Improvement Board, Post Office Box 653, Pensacola, Florida 32593.

Community Maritime Park Associates (CMPA) - The CMPA, a non-profit corporation under the provisions of Chapter 617, Florida Statues, was created in 2005 for the sole purpose of developing the public and private aspects of the Vince J. Whibbs, Sr. Community Maritime Park. The CMPA is considered a component unit since the CMPA is an agency of the City of Pensacola, and the City appoints all members of the CMPA’s Board of Trustees. Complete financial statements of the CMPA can be obtained from their administrative office as follows: Community Maritime Park Associates, Inc., 222 West Main St., Pensacola, Florida 32502.

Joint Ventures Excluded From the Reporting Entity

The following joint ventures do not meet the criteria for inclusion in the City's financial statements since no financial benefit or burden exists, nor can the City impose its will on the entities.

Escambia - Pensacola Human Relations Commission (HRC) - Created by an interlocal agreement between the Escambia County Board of County Commissioners and the Pensacola City Council in 1974, pursuant to Florida Statutes, for the purpose of promoting fair treatment and equal opportunity to all citizens of the community. The Commission is composed of nine members: four selected by the Escambia County Board of County Commissioners, four selected by the City Council, and one selected by the other eight members. There is no current or long- term debt nor does the City control the financial operations of the Commission. Complete financial statements of HRC can be obtained from their administrative office as follows: Escambia - Pensacola Human Relations Commission, 2257 North Baylen Street, Pensacola, Florida, 32501.

Pensacola - Escambia County Promotion and Development Commission (PEDC) - Created in 1967 by Chapter 67-1365, Laws of Florida, amended in 1989 by House Bill 984, for the purpose of promoting and developing the industrial, commercial and tourist potential of the County, increasing employment opportunities, improving the economic environment, and expanding the tax base. The nine member commission consists of representatives from the Escambia County Board of County Commissioners, the Pensacola City Council, the Pensacola Area Chamber of Commerce, and the Town of Century and Tourist Advisory Council. 61 CITY OF PENSACOLA, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2012

NOTE I. - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Escambia County and the City of Pensacola each contribute to the operation and maintenance of the PEDC, but neither has control over the financial operations of the PEDC nor can it impose its will. Complete financial statements of PEDC can be obtained from their administrative office as follows: Pensacola - Escambia County Promotion and Development Commission, 117 West Garden Street, Pensacola, Florida, 32502.

Summary financial statements including fiduciary funds of these entities are as follows:

Statement of Net Assets September 30, 2012

HRC PEDC Assets $ 16,172 $ 12,092,151

Liabilities 1,958 11,780,533

Net Assets: Restricted 563 61,198 Unrestricted 13,651 250,420 Total Net Assets 14,214 311,618 Total Liabilities and Net Assets $ 16,172 $ 12,092,151

Statement of Revenues, Expenditures and Changes in Net Assets for the Fiscal Year Ended September 30, 2012

HRC PEDC

Revenue $ 220,512 $ 270,556 Expenditures 221,528 294,765 Excess of revenue over (under) expenditures (1,016) (24,209)

Net assets (Deficit) Beginning of Year 15,230 335,827 Net assets (Deficit) at End of Year $ 14,214 $ 311,618

62 CITY OF PENSACOLA, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2012

NOTE I. - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

B. Government-Wide and Fund Financial Statements

The government-wide financial statements (i.e., the statement of net assets and the statement of changes in net assets) report information on all of the nonfiduciary activities of the primary government and its component units. The City’s fiduciary funds are not presented in the government-wide financial statements since by definition, the assets cannot be used to address activities or obligations of the City (i.e., the assets are being held for the benefit of pension participants). The purpose of the government-wide financial statements is to provide a consolidated financial picture of all City activities. The internal service funds provide services to departments throughout the City; therefore, their direct expenses are eliminated functionally on the government-wide financial statements. Governmental activities, supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely on fees and charges to customers for support. Likewise, the primary government is reported separately from the discretely presented component units for which the primary government is financially accountable.

The statement of activities demonstrates the degree to which the direct expenses of a given function are offset by program revenues. The purpose of categorizing direct expenses according to function and revenues according to program is to provide an analysis of activities that are revenue sufficient and those that use the support of general revenues. Direct expenses are those expenses that are clearly identifiable with a specific function. 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 and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function. Taxes and other items not included among program revenues are reported instead as general revenues.

Individual fund financial statements are provided for governmental funds, proprietary funds and fiduciary funds, even though the latter are excluded from the government-wide financial statements. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements. All other funds (nonmajor) are combined according to their category, governmental or business-type and are reported in a single column. Combining statements for nonmajor funds are found in the Combining Financial Statements section.

C. Basis of Accounting, Measurement Focus and Financial Presentation

The basis of accounting refers to when revenues, expenditures/expenses are recognized in the accounts and reported in the financial statements. Basis of accounting relates to the timing of the measurements made, regardless of the measurement focus applied.

63 CITY OF PENSACOLA, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2012

NOTE I. - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenues 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, revenues are considered to be available if they are collected within 60 days of the end of the current fiscal period. 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.

Property taxes, franchise fees, public service taxes, communication service tax, local business tax, local option gasoline tax, local option sales tax, lease revenues and interest associated with the current fiscal period are all considered to be susceptible to accrual and therefore have been recognized as revenues of the current fiscal period. All other revenue items are considered to be measurable and available only when cash is received.

The City reports the following major governmental funds:

General Fund - used to account for all financial resources except those required to be accounted for in another fund. All general property taxes, fines, property rentals and certain intergovernmental revenues are recorded in this fund. Typical expenditures are for administration, planning, parks and recreation, public works and public safety.

Local Option Sales Tax - a capital projects fund that accounts for the local option infrastructure sales surtax (pursuant to Florida Statutes 212.055) to provide for the construction of various infrastructure improvements including park and recreation improvements, street resurfacing and reconstruction, and payment of associated debt.

Housing Assistance Payments – a special revenue fund that accounts for the proceeds of specific revenue sources (other than for expendable trusts or for capital projects) that are legally restricted to expenditures for specific purposes.

Maritime Community Park Construction – a capital projects fund that accounts the Maritime Community Park infrastructure improvements as well as the accumulation of funds for the payment of demolition of the ECUA Waste Water Treatment Plant.

The City reports the following major proprietary funds:

Utility Fund – accounts for the assets, operation and maintenance of the City-owned natural gas service.

64 CITY OF PENSACOLA, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2012

NOTE I. - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Sanitation Fund – accounts for the assets, operation and maintenance of the City-owned garbage and trash services.

Port Fund – accounts for the assets, operation and maintenance of the City-owned port facility.

Airport Fund – accounts for the assets, operation and maintenance of the City-owned airport.

Additionally, the government reports the following fund types:

Internal Service Funds (ISF) account for services provided to various City departments on a cost reimbursement basis. The services provided include a central warehouse inventory, fleet maintenance, engineering, management information services and a risk management (insurance) program. ISFs are reported as a governmental activity within the government-wide financial statements. Individual fund statements are provided in the Combining Financial Statements section.

Fiduciary Funds are trust funds that account for assets held by the City in a trustee capacity for individuals, other governmental units and/or other funds and include the City’s General, Firemen’s and Police Officers’ pension funds. Fiduciary funds are not included in government- wide financial statements, however a statement of net assets and a statement of changes in net assets are included as part of the basic financial statements with individual fund statements presented in the Combining Financial Statements section.

Private-sector standards of accounting and financial reporting issued prior to December 1, 1989, generally are followed in both the government-wide and proprietary fund financial statements to the extent that those standards do not conflict with or contradict guidance of the Governmental Accounting Standards Board. Governments also have the option of following subsequent private-sector guidance for their business-type activities and enterprise funds, subject to this same limitation. The City has elected not to follow subsequent private-sector guidance.

Amounts reported as program revenues include 1) charges to customers for goods, services, or privileges provided, and fines and forfeitures, 2) operating grants and contributions, and 3) capital grants and contributions, including special assessments. Those revenues not clearly defined as program revenues are categorized as general revenue. General revenues include resources such as taxes, franchise fees, interest and sale of assets. As a general rule, the effect of interfund activity is eliminated from the government-wide financial statements.

Proprietary funds distinguish operating revenues and expenses from nonoperating 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 enterprise and internal service funds are charges to customers for sales and services. Operating expenses for enterprise funds and internal service funds include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses that do not meet this definition are reported as nonoperating revenues and expenses.

When both restricted and unrestricted resources are available for use, it is the City’s policy to use restricted resources first, then unrestricted resources as they are needed.

65 CITY OF PENSACOLA, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2012

NOTE I. - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

D. Assets, Liabilities, and Net Assets or Equity

1. Cash and Cash Equivalents/Investments

The City of Pensacola has defined cash and cash equivalents as cash held at a depository and cash on hand for operating purposes and those investments which are short term and highly liquid. Generally, those investments have original maturities of three (3) months or less. Cash equivalents normally consist of treasury bills, certificates of deposit and money market funds. All monies, which are not legally restricted to separate administration, are pooled together for investment purposes while each individual fund and/or account is maintained on a daily transaction basis. Investment earnings are distributed in accordance with the participating funds’ relative equity.

2. Investments

All investments held by the City of Pensacola, including external investment pools, defined benefit pension plans, and debt securities are reported at fair value.

The City has monies invested in the Local Government Surplus Funds Trust Fund Investment Pool, which is governed by the State Board of Administration. The fair value of the City’s position in the Pool is the same as the value of the pool shares; however, the fair value of the City’s position in the State Board of Administration's Fund B Surplus Funds Trust Fund is $3,824 less than the $74,935 investment in the pooled shares as of September 30, 2012.

3. Interfund Receivables/Payables

Interfund receivables and payables arise from interfund transactions and are recorded by all funds affected as “due to/from other funds” for the current portion of the receivable/payable or as “advance to/from other funds” for the noncurrent portion of the receivable/payable. Government-wide financial statements eliminate transactions occurring within like-kind activities (i.e., governmental to governmental or business-type to business-type). The residual balance between activities is reported in the government-wide financial statements as “internal balances”. Fund financial statements present the entire transaction on the balance sheet as “due to/from other funds” and/or “advance to/from other funds”.

4. Inventories

Inventories included in the internal service fund’s General Stock Fund consist primarily of utility stores, automotive supplies and fuel for purchase by City departments. Inventories included in the Golf Fund consist of inventories held for resale to the public. All inventories are accounted for by the consumption method and are valued at cost, which approximates market, using the first in, first out method. Appropriate allowances have been made for obsolete and surplus items.

66 CITY OF PENSACOLA, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2012

NOTE I. - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

5. Prepaid Insurance

The City of Pensacola accounts for property insurance premiums using the consumption method. Property Insurance Premiums for both governmental and enterprise funds are paid quarterly, with a term year beginning May 1st resulting in a prepaid insurance premium for the month of October.

6. Restricted Assets

Certain assets of both governmental and business-type activities are restricted by specific provisions of bond resolutions, grant agreements, or other agreements with outside parties. Assets such as these are restricted since their use is limited.

7. Capital Assets

Capital assets, which include land, buildings, equipment, improvements other than buildings, and infrastructure assets are reported in the applicable governmental or business-type activities columns in the government-wide financial statements. Capital assets are defined as assets with an initial, individual cost of more than $5,000 and an estimated useful life greater than one year. Such assets are recorded at historical cost or estimated historical cost if actual historical cost is not available. Donated capital assets are valued at fair value as of 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.

The City does not capitalize interest on borrowings used to finance the construction of general capital assets. Interest on capital assets is capitalized for proprietary funds; however, when the expense during construction is netted against the related income, the resulting amount is typically immaterial.

The Utility Fund reports an intangible asset on the face of the financial statements. The intangible asset is recorded as the excess of the purchase price over the fair market value of assets acquired and is amortized on a straight-line basis over an estimated useful life of forty years.

Capital assets are depreciated using the straight-line method over the following estimated useful lives: Buildings 15 - 50 years Improvements other than buildings 15 - 50 years Infrastructure 15 - 50 years Machinery and equipment 3 - 10 years Utility lines and extensions 40 - 50 years Vehicles and heavy equipment 5 - 25 years

67 CITY OF PENSACOLA, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2012

NOTE I. - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

8. Compensated Absences

It is the policy of the City to permit general employees to accumulate up to 500 hours of earned but unused leave benefits (Paid Time Off - PTO), fire employees may accumulate up to 720 hours of PTO, police sergeants, lieutenants and captains may accumulate up to 500 hours PTO and police officers may accumulate up to 900 hours PTO, which can be paid to the employee upon separation from service. Employees who separate service in good standing can be paid the balance of their accrued PTO. Unpaid compensated absences are recorded as a liability when the benefits are earned in both the government-wide financial statements and proprietary fund financial statements. Governmental funds within the fund financial statements are not required to record a liability of accumulated amounts of unused leave benefits.

9. Bond Discounts, Issuance Cost, and Refunding Gains and Losses

In the government-wide financial statements and proprietary fund types in the fund financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities, business-type activities, or proprietary fund type statement of net assets. Capital appreciation bonds are reported at their accreted value which is computed at the end of each fiscal year. Bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds using the effective interest method. Bonds payable are reported net of the applicable bond premium or discount. Bond refunding gains and losses are deferred and amortized over the remaining life of the old debt or the life of the new debt, whichever is shorter, using the effective interest method. Bond refunding gains are presented as noncurrent liabilities while losses are presented as noncurrent assets.

In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs (whether or not withheld from the actual debt proceeds received), during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses.

10. Fund Balance

GASB Statement No. 54 (GASB 54), Fund Balance Reporting and Governmental Fund Type Definitions, establishes fund balance classifications 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 are non-spendable, restricted, committed, assigned and unassigned. Each classification reflects the nature and extent to which a restriction is placed upon fund balance.

11. Net Assets

The government-wide and business-type fund financial statements utilize a net asset presentation. Net assets are categorized as invested in capital assets (net of related debt), restricted and unrestricted.

Invested in Capital Assets (net of related debt) is intended to reflect the portion of net assets which are associated with non-liquid, capital assets less outstanding capital asset related debt. 68 CITY OF PENSACOLA, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2012

NOTE I. - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Restricted Net Assets are liquid assets (generated from revenues and net bond proceeds) which are not accessible for general use because of third-party (statutory, bond covenant or granting agency) limitations.

Unrestricted Net Assets represent unrestricted liquid assets.

NOTE II. – STEWARDSHIP, COMPLIANCE, AND ACCOUNTABILITY

General Budget Policies

Prior to the beginning of each fiscal year, the Mayor submits an operating budget to the City Council. The operating budget includes proposed expenditures and the means for financing them. After acceptance by the Council the budget is legally enacted by the passage of a budget resolution. Budgetary control is established within each fund at the line item. Amounts may be transferred between departmental line items or between departments within a fund. Amounts to be transferred require the approval of the Mayor or his designee; however, amounts appropriated for capital expenditures can only be transferred from capital expenditure accounts with City Council approval.

Appropriations for expenditures within a fund may only be decreased or increased with City Council approval. Expenditures for each fund may not legally exceed the total fund appropriation.

A legally adopted budget is employed as a control device for the General Fund, Special Revenue Funds, and Debt Service Funds. In addition, Enterprise and Internal Service Funds are budgeted on a limited non-GAAP basis for management control purposes.

The City prepares its governmental fund type budgets on a GAAP basis. All budget amounts presented in the financial statements are as originally adopted or as authorized by the City Council.

Encumbrances

Encumbrance accounting, under which purchase orders, contracts and other commitments for the expenditure of monies are recorded in order to reserve that portion of the applicable appropriation, is employed as an extension of formal budgetary integration in the General, Special Revenue and Capital Projects Funds. The budget for the subsequent year provides a re- appropriation of funds to complete transactions for outstanding encumbrances.

69 CITY OF PENSACOLA, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2012

NOTE III. - DETAIL NOTES ON ALL FUNDS

A. Deposits and Investments

1. Surplus Funds (not including pensions)

As of September 30, 2012, the City had the following investments which are disclosed by specific identification.

Investments Maturity Range Fair Value State Investment Pool LGIP 39 days $ 1 Fund B 4.08 years 71,111 Total Investments $ 71,112

As of September 30, 2012, the City had a nominal balance of $1 invested in the State Board of Administration's Local Government Surplus Funds Trust Fund Investment Pool (LGIP). Standard and Poor's Ratings Services assigned its "AAAm" principal stability fund rating to LGIP. As monies become available from Fund B, they are transferred to the LGIP.

As of September 30, 2012, the City had $74,935 invested in the State Board of Administration's Fund B Surplus Funds Trust Fund. Fund B’s fair value as of September 30, 2012 was $71,111 resulting in an unrealized loss of $3,824. Fund B is not yet rated by any nationally recognized statistical rating agency.

All monies invested in the State Board of Administration are recorded in the Insurance Retention Fund.

Credit Risk. The City’s investment policy limits investments to those securities identified in the Florida Statutes, Section 218.415(16). Additional investment types are permitted only if they are granted authority through a separate ordinance approved by the City Council.

Concentration Credit Risk. The City’s investment policy requires that bank deposits be secured as provided by Chapter 280, Florida Statues, titled Security for Public Deposits Act. If statutory responsibilities are met then the deposits placed in any qualified public depository (QPD) are protected from loss, without limit. The investment policy sets no limits as to the maximum amount that any particular institution can hold or a maximum amount for an individual type of investment. Given the statutorial restriction to the highest rating and the legal obligation to collaterize certain other investments held by individual banks, the concentration risk is not viewed to be a risk by the City.

Interest Rate Risk. The City’s investment policy requires that maturities on investments are limited to an average maturity not to exceed two years with the maximum maturity of any individual investment not to exceed five years. The investments held at September 30, 2012 meet the criteria of the City’s investment policy.

70 CITY OF PENSACOLA, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2012

NOTE III. - DETAIL NOTES ON ALL FUNDS (Continued)

2. Pension Funds

Investments Fair Value Short Term Investments $ 9,691,507 Mutual Funds - Pension Plans 81,034,419 Convertible Corporate Bonds 11,407,616 Mortgage & Asset backed securities 21,678,444 Commingled Index and Trust Funds 15,380,514 Stocks 148,481,391 $ 287,673,891

The City’s pension funds contain certain bonds that are actually mortgage-backed and asset- backed securities which could be classified as “derivative” investments under GASB Technical Bulletin No. 94-1. These securities are based on cash flows from interest and principal payments on underlying mortgages. Therefore, they are sensitive to prepayments by mortgagees, which may result in a decline of interest rates. The City invests in interest and principal securities (a form of mortgage-backed and asset-backed securities) in part to maximize yields and in part to hedge against a rise in interest rates. These investments are within the investment policy guidelines for the pension funds.

Interest Rate Risk. The City’s General, Fire and Police Pension Plans each have funds invested in bond mutual funds. Each plan has its own investment policy, which restricts the investments that the mutual funds can hold. The policy limits the percentage of plan assets invested in bonds but does not place limits on the length of the maturities. The pension plans’ investment weighted average maturities are as follows:

General Pension Weighted Average Maturity Amount PIMCO Total Return 5.93 Years $ 6,103,224 PIMCO Real Return 9.46 Years 7,695,557 Integrity Fixed Income Management 7.00 Years 14,375,389

Fire Pension Weighted Average Maturity Amount

PIMCO Total Return 5.93 Years $ 9,217,423 Integrity Fixed Income Management 7.00 Years 11,177,921

Police Pension Weighted Average Maturity Amount Integrity Fixed Income Management 4.30 Years $11,010,380 Integrity Fixed Income Management- TIPS 9.70 Years 2,326,522 PIMCO Diversified Income 8.42 Years 1,678,889 Templeton Global Bond Fund 2.53 Years 1,629,948 71 CITY OF PENSACOLA, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2012

NOTE III. - DETAIL NOTES ON ALL FUNDS (Continued)

Credit Risk. The risk that an issuer or other counterparty to an investment will not fulfill its obligations.

General Pension

PIMCO Total Return Bond Fund Not Rated by Nationally Recognized Statistical Rating Agency PIMCO Real Return Bond Fund Not Rated by Nationally Recognized Statistical Rating Agency Integrity Fixed Income Management Not Rated by Nationally Recognized Statistical Rating Agency

Fire Pension PIMCO Total Return Bond Fund Not Rated by Nationally Recognized Statistical Rating Agency Integrity Fixed Income Management Not Rated by Nationally Recognized Statistical Rating Agency

Police Pension Integrity Fixed Income Management Not Rated by Nationally Recognized Statistical Rating Agency Integrity Fixed Income Management – TIPS Not Rated by Nationally Recognized Statistical Rating Agency PIMCO Diversified Income Fund Not Rated by Nationally Recognized Statistical Rating Agency Templeton Global Bond Fund Not Rated by Nationally Recognized Statistical Rating Agency

Custodial Credit Risk. For an investment, custodial credit risk is the risk that, in the event of the failure of the counterparty, the City’s retirement plans will not be able to recover the value of their investments that are in the possession of an outside party. The Retirement Plans’ Board of Trustees has contracts with each of their money managers which include a requirement that coverage be provided to protect the City’s retirement plans from any losses incurred arising out of the money manager’s negligence. Therefore, the City does not have a custodial credit risk.

The gross unrealized gains and losses for the marketable equity securities in the pension funds for the fiscal year ended were as follows:

General Firefighters’ Police Pension and Releif and Officers’ Retirement Pension Fund Retirement Totals d d Unrealized Gains $ 26,368,520 $ 21,657,988 $ 16,595,551 $ 64,622,059 Unrealized Losses (9,112,274) (8,700,969) (5,756,163) (23,569,406) Net Unrealized Gains (Losses) $ 17,256,246 $ 12,957,019 $ 10,839,388 $ 41,052,653

The average cost method is used in computing realized gains and losses on the sale of marketable equity securities.

72 CITY OF PENSACOLA, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2012

NOTE III. - DETAIL NOTES ON ALL FUNDS (Continued)

B. Accounts Receivable

1. Unbilled Utility Services

All utility billing is performed on a cyclical basis which gives rise to unbilled gas services at the end of any given period. The City has recorded estimated accounts receivable and the related revenues based on the number of days of unbilled services for each cycle as of the end of the fiscal year.

2. Property Tax Calendar and Revenue Recognition

Escambia County Constitutional Officers perform all appraisals, assessments and collections of City property taxes as an agent for the City of Pensacola. Property valuations are determined each year as of January 1. All property taxes are levied and become due and payable on November 1. The collection period is from November 1 through March 31, with discounts allowed of 4, 3, 2 and 1 percent for early payment in November through February, respectively. All taxes become delinquent on April 1 in the year following assessment, and tax certificates are sold on all real property with unpaid taxes as of June 1. Property tax revenue recognition occurs during the fiscal year of levy (the year the property tax revenue was intended to finance).

As of November 2001, the City of Pensacola assessed a stormwater fee to provide additional revenue for stormwater management improvements. The fee is billed annually by the Escambia County Property Tax Collector on the November property tax roll with the exception of government owned property which is billed directly by the City. The stormwater fee is subject to the same collection laws, discounts and penalties as are property taxes. Stormwater revenues are recognized during the fiscal year in which it is billed.

3. Accounts Receivable

Accounts receivable are shown net of allowances for doubtful accounts as follows: Acounts Receivable Allowance Net Governmental activities: General Fund $ 1,645,251 $ $ 1,645,251 Housing Assistance Payments Fund 1,137,054 801,952 335,102 Nonmajor Governmental Funds 78,803 78,803 Internal Service Fund 276,129 276,129 Total governmental activities $ 3,137,237 $ 801,952 $ 2,335,285

Business-type activities: Utility Fund $ 4,931,017 $ 787,314 $ 4,143,703 Sanitation Fund 769,898 124,196 645,702 Port Fund 656,055 656,055 Airport Fund 1,773,585 1,773,585 Total business-type activities $ 8,130,555 $ 911,510 $ 7,219,045

73 CITY OF PENSACOLA, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2012

NOTE III. - DETAIL NOTES ON ALL FUNDS (Continued)

4. Deferred Revenue

Governmental funds report deferred revenue in connection with receivables for revenues that are not considered available to liquidate liabilities of the current period. Governmental funds also defer revenue recognition in connection with resources that have been received, but not-yet earned. Amounts that are “unavailable” are not reported as deferred revenue in entity-wide statements. At the end of the current fiscal year, the various components of deferred revenue and unearned revenue reported in the governmental funds were as follows:

Unavailable Unearned General Fund Special assessments $ 178,817 $ Leases – Land/ROW receivables 15,212 Prepaid lease payments 23,167 288,033 Occupational license fees and fines received for subsequent year 601,388 Special Revenue Funds HUD – Fraud Recovery 335,102 CDBG Housing Rehab Project notes receivable 1,215,708 CRA - Lease receivables 6,263 Golf Course- Lease receivables 4,025 Tennis Center- Lease receivables 72 CMPA - Build America Bonds subsidy 489,120 Grant request and draws prior to meeting all requirements 777,294 530,463 $ 2,555,660 $ 1,909,004

In Proprietary funds, the Utility Fund has deferred revenue of $145,413 which is related to the Purchase Gas Adjustment and the Airport Fund has deferred revenue of $2,961 which is for prepaid rent.

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74 CITY OF PENSACOLA, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2012

NOTE III. - DETAIL NOTES ON ALL FUNDS (Continued)

C. Capital Assets

Capital asset activity for the fiscal year ended September 30, 2012 was as follows:

Beginning Ending Balance Increases Decreases Balance Governmental activities: Non-depreciable assets: Land $ 22,247,648 $ 3,914,306 $ (3,495,507) $ 22,666,447 Construction in progress 7,428,377 13,209,815 (15,022,438) 5,615,754 Total Non-depreciable assets 29,676,025 17,124,121 (18,517,945) 28,282,201

Depreciable assets: Buildings 77,304,552 6,998,395 -0- 84,302,947 Improvements 28,964,303 508,149 -0- 29,472,452 Infrastructure 82,233,139 6,527,540 -0- 88,760,679 Equipment 38,983,313 1,812,200 (1,466,785) 39,328,728 Total Depreciable assets 227,485,307 15,846,284 (1,466,785) 241,864,806 Total capital assets $ 257,161,332 $ 32,970,405 $ (19,984,730) $ 270,147,007

Less accumulated depreciation for: Buildings $ 17,058,161 $ 1,798,166 $ -0- $ 18,856,327 Improvements 13,004,470 967,353 -0- 13,971,823 Infrastructure 17,313,181 3,028,787 -0- 20,341,968 Equipment 21,959,095 2,726,841 (1,434,628) 23,251,308 Total accumulated depreciation $ 69,334,907 $ 8,521,147 $ (1,434,628) $ 76,421,426

Governmental activities net capital assets $ 187,826,425 $ 24,449,258 $ (18,550,102) $ 193,725,581

The preceding schedule includes capital assets and accumulated depreciation for both governmental funds and the internal services funds. Per GASB 34 requirements, the internal service funds are reported on the entity-wide statements as a governmental activity. In fiscal year 2012, the net book value of assets held by Internal Service Funds is $2,665,259. Total depreciation expense for governmental activities for fiscal year 2012 is $8,509,447. The difference between depreciation expense and the increase in accumulated depreciation is $11,700, which is a result of capital assets transferred business-type to governmental activities that are different from the assets transferred from governmental to business-type activities.

75 CITY OF PENSACOLA, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2012

NOTE III. - DETAIL NOTES ON ALL FUNDS (Continued)

Beginning Ending Balance Increases Decreases Balance Business-type activities: Non-Depreciable Assets: Land $ 21,976,365 $ 5,238,349 $ -0- $ 27,214,714 Construction in Progress 2,110,102 7,668,886 (8,469,154) 1,309,834 Total Non-depreciable assets 24,086,467 12,907,235 (8,469,154) 28,524,548

Depreciable Assets: Buildings 145,467,927 1,295,432 (61,156) 146,702,203 Improvements 152,816,668 8,054,099 (893,937) 159,976,830 Equipment 27,115,960 2,311,144 (350,386) 29,076,718 Total Depreciable assets 325,400,555 11,660,675 (1,305,479) 335,755,751 Total capital assets $ 349,487,022 $ 24,567,910 $ (9,774,633) $ 364,280,299

Less accumulated depreciation for: Building $ 45,435,118 $ 5,316,011 $ (61,156) $ 50,689,973 Improvements 67,571,407 5,444,337 (482,981) 72,532,763 Equipment 14,224,992 2,071,684 (346,230) 15,950,446 Total accumulated depreciation $ 127,231,517 $ 12,832,032 $ (890,367) $ 139,173,182

Business-type activities net capital assets $ 222,255,505 $ 11,735,878 $ (8,884,266) $ 225,107,117

Total depreciation expense for business-type activities for fiscal year 2012 is $12,817,733. The difference between depreciation expense and the increase in accumulated depreciation is $14,299, which is a result of capital assets transferred from governmental to business-type activities that are different from the assets transferred from business-type to governmental activities.

An intangible asset is reported in the Utility Fund representing the excess of the purchase price paid over the fair market value of assets acquired. The intangible asset is amortized on a straight-line basis over an estimated useful life of forty years.

Special Item Sale of Asset

In June 2012, the Pensacola International Airport purchased from the City of Pensacola General Fund, the property located at 1200 College Boulevard in the amount of $3,495,507 for its exclusive use and control. The Pensacola International Airport plans to use this property for the expansion of its public parking facilities. The sale of this asset was recorded as a special item in the City’s fund financial statements since it is a significant transaction within control of management which is infrequent in occurrence. In the City’s government-wide financial statements, the sale of the asset nets with the capital asset transfer between governmental and business-type activities.

76 CITY OF PENSACOLA, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2012

NOTE III. - DETAIL NOTES ON ALL FUNDS (Continued)

Component Unit Capital Assets

Material capital asset activity for the City’s component units fiscal year ended September 30, 2012 was as follows: Beginning Decreases/ Ending Balance Increases Transfers Balance Community Maritime Park Associates, Inc. Non-Depreciable Assets: Construction in Progress $ 31,655,506 $ 21,452,513 $ (53,108,019) $ 0 Total Non-depreciable assets 31,655,506 21,452,513 (53,108,019) 0

Depreciable Assets: Buildings 0 0 26,500,299 26,500,299 Improvements 0 0 23,742,384 23,742,384 Equipment 0 800,582 2,753,336 3,553,918 Total Depreciable assets 0 800,582 52,996,019 53,796,601 Total capital assets $ 31,655,506 $ 22,253,095 $ (112,000) $ 53,796,601

Less accumulated depreciation for: Building $ 0 $ 251,321 $ 0 $ 251,321 Improvements 0 236,072 0 236,072 Equipment 0 565,368 0 565,368 Total accumulated depreciation $ 0 $ 1,052,761 $ 0 $ 1,052,761

Business-type activities net capital assets $ 31,655,506 $ 21,200,334 $ (112,000) $ 52,743,840

Total depreciation expense for Community Maritime Park Associates, Inc for fiscal year 2012 is $1,052,761.

77 CITY OF PENSACOLA, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2012

NOTE III. - DETAIL NOTES ON ALL FUNDS (Continued)

Depreciation expense was charged to functions/programs of the primary government as follows:

Governmental activities: General Government $ 713,328 Public Safety 1,549,224 Physical Environment 25,659 Transportation 364,507 Economic Environment 46,882 Culture and Recreation 2,354,954 Unallocated Infrastructure 3,028,787 Capital assets held by governmental type internal service funds are charged to the various functions based on their usage 426,106 Total depreciation expense- governmental activities $ 8,509,447

Infrastructure reported per requirement of GASB 34 is presented as a separate line item instead of a specific function/program.

Business-type activities: Gas $ 1,675,253 Sanitation 278,638 Port 1,065,846 Airport 9,797,996 Total depreciation expense- business-type activities $ 12,817,733

The fifteen year lease agreement for the City owned Amtrak Station expired May 14, 2008. Rail services for the Sunset Limited route which passes through Northwest Florida have been suspended since 2005 as a result of the damages suffered by Hurricane Katrina. The carrying value for the land and building is approximately $680,330 as reported in the governmental activities.

78 CITY OF PENSACOLA, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2012

NOTE III. - DETAIL NOTES ON ALL FUNDS (Continued)

D. Interfund Receivables, Payables, and Transfers

Interfund receivables/payables balances as of September 30, 2012, are as follows: Due To Due From Advance To Advance From Governmental activities: General Fund $ $ 832,456 $ $ Local Option Sales Tax Fund 1,546,888 Housing Assistance Fund 28,484 Maritime Community Park 8,631 Nonmajor Governmental Funds 488,339 1,856,117 Internal Service Funds 146,040 2,657,205 783,325 18,458 Total Governmental activities 2,218,382 5,345,778 783,325 18,458

Business-type activities: Utility Fund 406,139 115,700 1,184,300 236,692 Sanitation Fund 322,187 1,654,649 Port Fund 19,823 Airport Fund 2,494,947 57,826 Total Business-type activities 3,243,096 115,700 1,184,300 1,949,167 Total governmental and business-type activities $ 5,461,478 $ 5,461,478 $ 1,967,625 $ 1,967,625

Internal balances-current reported in the government-wide statement of net assets in the amount of $3,127,396 represents the amounts receivable/payable between government and business-type activities for end of year payroll liabilities, risk management claims and inter-fund transfers.

Internal balances-noncurrent reported in the government-wide statement of net assets in the amount of $764,867 represents the long-term portion of future claims payable by the business- type funds to the Internal Service Fund-Insurance Retention Fund. The Insurance Retention Fund is reported in the government-wide statement as a governmental activity. Due to/from and Advance to/from are reported in fund financial statements as shown in the schedule above.

79 CITY OF PENSACOLA, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2012

NOTE III. - DETAIL NOTES ON ALL FUNDS (Continued)

For the year ended September 30, 2012, interfund transfers are as follows:

Governmental activities: Major Governmental Funds Transfer In Transfer Out Purpose General Fund $ 8,000,000 Operating subsidy from Utility Fund 3,495,507 Operating subsidy from Strormwater Capital Fund $ 12,016,600 UCRT, Library, Golf Course, Eastside TIF, Inspection Services, TFFDS, Stormwater Capital Maritime Community Park 80,000 Transfer from UCRT for ECUA/WWTP Relocation Construction (MCPC) Nonmajor Governmental Funds Local Option Gasoline Tax 500,000 Transfer from Engineering for street reconstruction (LOGT) Community Redevelopment 3,879,536 Operating transfer from UCRT Agency (CRA) Urban Core Redevelopment 1,441,891 City’s required contribution Trust (UCRT) 4,386,619 Transfer to MCPC, CRA and CRA Debt Service West Florida Regional Library 1,327,300 City’s portion of interlocal agreement CRA Debt Service Fund 427,083 Transfer from UCRT to pay debt service Golf Course Fund 110,000 Operating subsidy from General Fund Eastside Tax Increment 35,380 City’s required contribution Financing District Tax and Franchise Fee Debt 3,069,688 Transfer from General Fund to pay debt service Service Fund (TFFD) 6,032,341 Capital subsidy from General Fund Stormwater Capital Fund 3,495,507 Operating subsidy to General Fund Internal Service Fund (ISF) 500,000 Transfer to LOGT for street reconstruction

Business-type activities: Utility Fund 8,000,000 Operating subsidy to General Fund

Total $ 28,398,726 $ 28,398,726

80 CITY OF PENSACOLA, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2012

NOTE III. - DETAIL NOTES ON ALL FUNDS (Continued)

Transfers reported in the government-wide statement of activities in the amount of $8,000,000 represent the net amount of transfers between government and business type activities. Fund financial statements report transfers without eliminations within same type activity and are reported as above.

E. Fund Balance Deficit

The CMPA Management Services Fund has a negative fund balance of $38,777 for the year ended September 30, 2012. This represents expenditures incurred on year-end public events which are to be funded by donations received in the subsequent fiscal year.

F. Long-term Debt

Individual Bond Issues

Below are the City’s individual bond issues as well as the material bond issues for the City’s component units which were outstanding at September 30, 2012:

Governmental activities:

Major Funds

$14,000,000 Sales & Excise Tax Refunding Revenue Bonds, Series 2004, serial bonds have a fixed interest rate of 2% - 4% with annual principal installments beginning October 1, 2004. Debt service payments are secured with the Public Service Tax Revenues, Electric Franchise Fee Revenue and Sales Tax Revenues. Final maturity of principal occurs on October 1, 2012. $ 3,240,000

$45,640,000 Redevelopment Revenue Bonds, Series 2009A and 2009B:

$6,715,000 Redevelopment Revenue Bonds, Series 2009A, serial bonds have a fixed interest rate of 4% - 4.25% with annual principal installments beginning April 1, 2013. Debt service payments are secured with Tax Increment Financing (TIF) revenues of the CRA and a covenant to budget and appropriate non-ad valorem revenues of the City. Final maturity of principal occurs on April 1, 2020. 6,715,000

$38,925,000 Redevelopment Revenue Bonds, Series 2009B (federally taxable Build America Bonds), $5,235,000 of term bonds with a fixed interest rate of 6.829% with annual principal installments beginning April 2021 and maturing April 2024, $15,890,000 of term bonds with a fixed interest rate of 7.263% maturing April 2033 and $17,800,000 of term bonds with a fixed interest rate of 7.21% maturing April 2040. Debt service payments are secured with Tax Increment Financing (TIF) revenues of the CRA, Federal Subsidy Payments and a covenant to budget and appropriate non-ad valorem revenues of the City. Final maturity of principal occurs on April 1, 2040. 38,925,000

81 CITY OF PENSACOLA, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2012

NOTE III. - DETAIL NOTES ON ALL FUNDS (Continued)

$18,190,000 Capital Funding Revenue Bonds, Series 2010A-1 and 2010A-2:

$5,910,000 Capital Funding Revenue Bonds, Series 2010A-1 were derived from participation in the Gulf Breeze Loan Pool which refinanced the existing Capital Improvement Revenue Bonds, Series 2000A. The 2010A-1 bonds are all serial bonds with a rate of 4.00% - 5.00% with annual principal installments beginning October 1, 2012. Debt service payments are secured with the Infrastructure Sales Tax revenues and to the extent of any deficiency, Communications Sales Tax revenues. Final maturity of principal occurs on October 1, 2017. 5,910,000

$12,280,000 Capital Funding Revenue Bonds, Series 2010A-2 were derived from participation in the Gulf Breeze Loan Pool which refinanced the existing Capital Improvement Revenue Bonds, Series 2000B. The 2010A-2 bonds are all serial bonds with a rate of 4.00% - 5.00% with annual principal installments beginning October 1, 2012. Debt service payments are secured with the Infrastructure Sales Tax revenues and to the extent of any deficiency, Communications Sales Tax revenues. Final maturity of principal occurs on October 1, 2017. 12,280,000

Unamortized discounts (159,303)

Total Major Fund Types 66,910,697

Nonmajor Funds

$3,271,866 Redevelopment Refunding Revenue Bonds, Series 2004 serial bonds with a fixed rate of interest at 3.71% with annual principal installments beginning April 1, 2005. Debt service payments are secured with Tax Increment Financing (TIF) revenues of the CRA and a covenant to budget and appropriate non-ad valorem revenues of the City. Final maturity of principal occurs on April 1, 2013. 414,053

Total Governmental Activities $ 67,324,750

Business-type Activities:

Utility Enterprise

$12,255,000 Capital Funding Revenue Bonds, Series 2010B-1 and 2010B-2:

$5,345,000 Capital Funding Revenue Bonds, Series 2010B-1 were derived from participation in the Gulf Breeze Loan Pool which refinanced the existing loan for the Gas System Revenue Bonds, 2008. The 2010B-1 bonds are all serial bonds with a rate of 3.00% - 4.00% with annual principal installments beginning October 1, 2010. Debt service payments are secured with Net Revenues of the Utility System. Final maturity of principal occurs on October 1, 2017. 4,125,000 82 CITY OF PENSACOLA, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2012

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$6,910,000 Capital Funding Revenue Bonds, Series 2010B-2 refunded the outstanding principal of Gas System Revenue Bonds, Series 1999. The 2010B-2 bonds are all serial bonds with a rate of 3.00% - 4.00% with annual principal installments beginning October 1, 2010. Debt service payments are secured with Net Revenues of the Utility System. Final maturity of principal occurs on October 1, 2017. 5,320,000

$5,000,000 Gas System Revenue Note, Series 2011, taxable note has a fixed interest rate of 2.09% with annual principal installments beginning October 1, 2012. Debt service payments are secured with Net Revenues of the Utility System. Final maturity of principal occurs on October 1, 2021. 5,000,000

Total Utility Enterprise 14,445,000

Airport Enterprise

$15,145,000 Airport Refunding Revenue Bonds, Series 2005A refunded the outstanding principal of Airport Revenue Bonds, Series 1997A. The 2005A bonds are all serial bonds with a rate of 3.00% - 4.375% with annual principal installments beginning October 1, 2006. Debt service payments are secured with Net Revenues of the Airport. Final maturity of principal occurs on October 1, 2027. 14,545,000

$35,780,000 Airport Capital Improvement Revenue Bonds, Series 2008A and 2008B:

$29,060,000 Airport Capital Improvement Revenue Bonds, Series 2008A. $4,805,000 of serial bonds have a fixed interest rate of 5% - 5.5% with annual principal installments beginning October 2009 and maturing October 2018, $8,630,000 of term bonds with a fixed interest rate of 6% maturing October 2028 and $15,625,000 with a fixed interest rate of 6.25%. Debt service payments are secured with Passenger Facility Charge (PFC) revenues. Final maturity of principal occurs on October 1, 2038. 28,015,000

$6,720,000 Airport Capital Improvement Revenue Bonds, Series 2008B. $995,000 of serial bonds have a fixed interest rate of 5% - 5.5% with annual principal installments beginning October 2011 and maturing October 2018, $2,040,000 of term bonds with a fixed interest rate of 6% maturing October 2028 and $3,685,000 with a fixed interest rate of 6.25%. Debt service payments are secured with Net Revenues of the Airport. Final maturity of principal occurs on October 1, 2038. 6,615,000

$19,000,000 Airport Taxable Customer Facility Charge Revenue Note, Series 2008. Proceeds were derived from a Bank of America loan. Interest is paid on the first of every month and is calculated using 30 day LIBOR plus .75% per annum. Debt service payments are secured with an additional $2.50 Customer Facility Charge (CFC). The loan agreement calls for interest only payments through December 2015 at which point the loan expires and principal is due in full. 11,800,000 83 CITY OF PENSACOLA, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2012

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$12,310,000 Airport Refunding Revenue Bonds, Series 2010 refunded the outstanding principal of the Airport Revenue Bonds, Series 1997B and Airport Revenue Refunding Bonds, Series 1998A. The 2010 bonds are all serial bonds with a rate of 2.39% with annual principal installments beginning October 1, 2011. Debt service payments are secured with Net Revenues of the Airport. Final maturity of principal occurs on October 1, 2018. 10,535,000

$6,300,000 Airport Revenue Note, Series 2012, taxable note has a fixed interest rate period commencing April 1, 2013, to and including October 1, 2017, payable each April 1 and October 1 of each year, and a variable interest rate period starting November 1, 2017, to and including October 1, 2027, payable on the first day each month thereafter. The fixed interest rate is 2.5% and the variable interest rate is equal the sum of the Treasury Swap Rate plus one hundred and fifty basis points per annum (1.50%), computed on the principal amount outstanding as of such date. Principal payments commence on October 1, 2018, payable October 1 of each year. Debt service payments are secured with Net Revenues of the Airport. Final maturity of principal occurs on October 1, 2027. 6,300,000

Unamortized discounts (654,847) Total Airport Enterprise 77,155,153 Total Business-type Activities $ 91,600,153

Component Units:

Community Maritime Park Associates, Inc. (CMPA)

$54,079,902 Community Development Entities (CDEs) Notes with interest rates ranging from .5016% to 4.641% and annual principal installments beginning October 1, 2017. Debt service payments are secured with assets of the CMPA. Final maturity of principal occurs on October 1, 2040. $ 54,079,902

$57,872 Northwest Florida Professional Baseball, LLC (NFPB) interest free note payable due in ten equal annual installments of $5,782. Principal payments commence on December 31, 2013. Final maturity of principal occurs on December 31, 2023. 57,872

Total Community Maritime Park Associates, Inc $ 54,137,774

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Changes in Long-Term Liabilities

Following is a summary of changes in the long-term liabilities for the City as well as the material liabilities for the City’s component units year ended September 30, 2012:

Beginning Ending Within One Balance Increases Decreases Balance Year

Governmental activities Due to other governments $ $ 19,500,000 $ $ 19,500,000 $ 1,300,000 Bonds Payable 70,845,690 (3,520,940) 67,324,750 6,884,053 Claims and judgments 2,241,100 1,534,305 (1,413,963) 2,361,442 Compensated absences 4,550,801 2,379,997 (2,960,164) 3,970,634 177,193 OBEP 4,755,273 1,089,860 5,845,133 Governmental activity long-term liabilities $ 82,392,864 $ 24,504,162 $ (7,895,067) $ 99,001,959 $ 8,361,246

Business-type activities Bonds Payable $ 72,294,962 $ $ (3,349,809) $ 68,945,153 $ 3,950,000 Notes Payable 14,800,000 11,300,000 (3,445,000) 22,655,000 445,000 Compensated absences 1,679,994 750,293 (907,533) 1,522,754 79,595 OBEP 1,839,040 412,773 2,251,813 Business-type activity long-term liabilities $ 90,613,996 $ 12,463,066 $ (7,702,342) $ 95,374,720 $ 4,474,595

Component unit CMPA notes payable $ 54,079,902 $ 57,872 $ $ 54,137,774 $

Bonds payable for governmental activities includes $159,303 of unamortized discounts. Bonds payable for business-type activities is reported net of unamortized discounts in the amount of $654,847. Reductions of Bonds payable include principal payments and amortization of discounts.

Due to other governments includes an interlocal agreement between the City of Pensacola and the Emerald Coast Utilities Authority (ECUA) which committed the City to contribute to the Main Street Waste Water Treatment Plant Replacement Project (the Project). The City committed $19.5 million for the project and agreed to budget and appropriate water and sewer franchise fees and the beverage license tax revenues. Annual installments of $1.3 million will begin in January 2013. For accounting purposes, this is a voluntary non-exchange transaction. In December 2012, ECUA provided documentation which showed all eligibility criteria had been met as of September 30, 2012. Therefore, the long-term liability and expenditure was recorded

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in the City’s government-wide financial statements. Since the long-term liability is not due and payable in the current period it is not recorded in the fund financial statements. Related to this transaction, the City entered in an agreement with the Community Redevelopment Agency (CRA) wherein the annual installments to ECUA will be paid from CRA revenues and any shortfall paid by the City will be reimbursed.

Compensated absences are estimated at year end only. In addition, for the governmental activities, claims and judgments are liquidated by the insurance retention fund and compensated absences are generally liquidated by the general fund.

Other Postemployment Benefits (OPEB) were calculated by an independent consultant which provided an actuarial valuation of post-employment benefits as required by GASB 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other than Pensions.

Summary of Debt Service Requirements to Maturity

Annual debt service requirements to maturity for the City’s long-term bonds and notes as well as the material long-term bonds and notes for the City’s component units are as follows; includes both fixed and variable interest rate bonds/notes:

Governmental Long-Term Debt

Fiscal Year Ending Total Principal September 30, Principal Interest and Interest 2013 $ 6,884,053 $ 3,965,296 $ 10,849,349 2014 3,365,000 3,750,297 7,115,297 2015 3,520,000 3,594,706 7,114,706 2016 3,695,000 3,416,988 7,111,988 2017 4,290,000 3,233,478 7,523,478 2018-2022 9,310,000 14,262,311 23,572,311 2023-2027 7,310,000 12,146,936 19,456,936 2028-2032 9,200,000 9,249,107 18,449,107 2033-2037 11,580,000 5,585,624 17,165,624 2038-2040 8,330,000 1,219,572 9,549,572 Total 67,484,053 60,424,315 127,908,368 Less: Current (6,884,053) - (6,884,053)

Total government debt $ 60,600,000 $ 60,424,315 $ 121,024,315

Includes Nonmajor Fund (Community Redevelopment Agency) debt service of $414,053. Principal is shown in gross, excluding unamortized discounts of $159,503. Interest shown does not include the $19,623,545 BAB subsidy on the Redevelopment Revenue Bonds, Series 2008.

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Business-Type Activities Long-Term Debt

Fiscal Year Ending Total Principal September 30, Principal Interest and Interest 2013 $ 4,395,000 $ 4,053,272 $ 8,448,272 2014 4,520,000 3,998,872 8,518,872 2015 4,665,000 3,862,683 8,527,683 2016 16,590,000 3,272,737 19,862,737 2017 4,960,000 2,881,085 7,841,085 2018-2022 18,205,000 12,675,386 30,880,386 2023-2027 14,845,000 9,143,023 23,988,023 2028-2032 9,385,000 5,807,570 15,192,570 2033-2037 9,840,000 3,128,125 12,968,125 2038-2040 4,850,000 307,500 5,157,500 Total 92,255,000 49,130,253 141,385,253 Less: Current (3,495,000) - (3,495,000)

Total business-type debt $ 88,760,000 $ 49,130,253 $ 137,890,253

Principal is shown in gross, excluding unamortized discounts $654,847.

Component Unit Long-Term Debt

Community Maritime Park Associates, Inc. (CMPA)

Fiscal Year Ending Total Principal September 30, Principal Interest and Interest 2013 $ - $ 2,008,049 $ 2,008,049 2014 5,787 2,008,049 2,013,836 2015 5,787 2,008,049 2,013,836 2016 5,787 2,008,049 2,013,836 2017 337,365 1,873,159 2,210,524 2018-2022 7,534,616 9,329,459 16,864,075 2023-2027 9,467,596 7,755,201 17,222,797 2028-2032 11,928,740 5,781,533 17,710,273 2033-2037 15,035,327 3,296,448 18,331,775 2038-2040 9,816,769 523,837 10,340,606 Total 54,137,774 36,591,833 90,729,607 Less: Current - - - Total component unit debt, CMPA $ 54,137,774 $ 36,591,833 $ 90,729,607

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Business-type activities long-term debt includes the 2008 Airport Taxable Customer Facility Charges Revenue Note dated February 4, 2008 for $19,000,000. The note is variable rate debt with interest calculated on 30 day LIBOR plus .75% per annum. Interest is due through December 2015 with a one-time principal payment due at that time. For purposes of the Debt Service Requirement Summary, interest is computed at 5.55%; however, actual interest rates for fiscal year 2012 ranged between 0.97% and 1.05% resulting in interest expense of $142,568. As of September 30, 2012 the outstanding balance of the Note is $11,800,000.

Business-type activities long-term debt includes the Airport Revenue Note, Series 2012, dated September 28, 2012 for $6,300,000. The taxable note has a fixed interest rate period commencing April 1, 2013, to and including October 1, 2017, and a variable interest rate period starting November 1, 2017, to and including October 1, 2027. The fixed interest rate is 2.5% and the variable interest rate is equal the sum of the Treasury Swap Rate plus one hundred and fifty basis points per annum (1.50%), computed on the principal amount outstanding as of such date. For purposes of the Debt Service Requirement Summary, the variable interest rate is computed at 4.45%. As of September 30, 2012 the outstanding balance of the Note is $6,300,000.

Debt Issuances

Issuance of the Gas System Revenue Note, Series 2011. On December 16, 2011 the City issued $5,000,000 of Revenue Note. The note was issued for the purpose of financing purchase five (5) compressed natural gas refuse trucks and to acquire, construct and equip additions, extensions or other capital improvements to the Gas Utility System. Pledged revenues for the repayment of the principal and interest will be derived from the operation of the City’s gas distribution system.

Issuance of the Airport Revenue Note, Series 2012. On September 28, 2012 the City issued $6,300,000 Revenue Note. The note was issued for the purpose of financing parking lot expansion at Pensacola International Airport. Pledged revenues for the repayment of the principal and interest will be derived from the general revenues of the City’s International Airport.

Interest Rate Swap Agreements

Business-Type Activities

In compliance with GASB Statement No. 53, Accounting and Financial Reporting for Derivative Instruments, the following disclosure is made to highlight the key components of the derivative instrument used by the City to lock in an interest rate. On September 29, 1010 the City issued $12,310,000 Airport Revenue Refunding Bonds, Series 2010 with a commitment from Compass Mortgage Corporation, an Alabama corporation and the "lender", to purchase the 2010 Note. Compass Bank, an Alabama banking corporation and the "counterparty", entered into an interest rate swap agreement with the City for the purpose of hedging the financial risk of increased interest costs attributable to a notional amount equal to the principal amount of the 2010 Note to enable the City to achieve the economic result of a fixed interest rate on the refunding.

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Objectives. The City’s objective for entering into the swap agreement was to effectively change its new variable interest rate bonds to a synthetic fixed rate of 2.39%. The City issued variable rate debt and simultaneously entered into an interest rate swap agreement to serve as a hedge against swings in the cash flows that would be required for the Series 2010 Airport Bonds.

Terms. The significant terms of the interest rate swap agreement is as follows:

Swap Notional Effective Fixed Rate Variable Rate Fair Value at Termination Related To Amount Date Paid Received 9/30/2012 Date Series 2010 $12,310,000.00 9/29/10 2.39% 65% of Libor ($357,818) 10/1/18 + 98 bps

Credit risk. The interest rate swap for the Series 2010 is held by a single counterparty whose credit rating is currently "A3" by Moody's Investors Service and "A" by Standard & Poor's. The credit risk is also mitigated by the City's right to "set-off".

Interest rate risk. The City is exposed to interest rate risk on its interest rate swap. As LIBOR decreases, the City will receive a lower swap rate and pay a greater loan rate.

Early Termination risk. The City has the right to "set off" which both eliminates the credit risk and termination risk. If the counterparty is unable to make their payment, then the City can withhold its payment on the loan for all amounts in excess of 2.39%.

The table below presents the debt service obligation using the loan rate at September 30, 2012 (1.63%-floor) and the net swap payment. As rates vary, variable-rate bond interest payments and net swap payments will vary.

Variable-Rate Bonds Fisacal Year Ending Interest Rate September 30, Principal Interest Swaps, Net Total 2013 $ 1,820,000 $ 156,888 $ 73,150 $ 2,050,038 2014 1,855,000 126,936 59,185 2,041,121 2015 1,900,000 96,333 44,916 2,041,249 2016 1,200,000 71,068 33,136 1,304,204 2017 1,225,000 51,304 23,921 1,300,225 2018 1,250,000 31,133 14,516 1,295,649 2019 1,285,000 10,473 4,883 1,300,356 Total $ 10,535,000 $ 544,135 $ 253,707 $ 11,332,842

Debt Restriction

There are a number of limitations and restrictions contained in the various bond indentures. The City is in compliance with all significant limitations and restrictions. The City has no legal debt margin.

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Revenues Pledged for Debt Repayment

General Government Public Service Tax Electric Franchise Fees Sales Taxes Infrastructure Sales Tax Communication Services Tax Tax Increment Build America Bond Subsidy

Utility Enterprise Utility

Airport Enterprise Airport Passenger Facility Charges Customer Facility Charges

In June 2009 the pledged revenues for the Redevelopment Refunding Revenue Note, Series 2004 were substituted. The original issuance of bonds had a pledge of tax increment financing (TIF) revenues of the Community Redevelopment Agency (CRA). This pledge of TIF revenues was substituted with a covenant to budget and appropriate from non-ad valorem revenues of the City however the payment stream for debt service will continue to be made from CRA revenues. The pledge substitution was needed to increase the strength of the newly issued 2009 Redevelopment Bonds.

Conduit Debt

In the past, the City of Pensacola has issued Industrial Development Bonds to provide assistance to private-sector entities for acquisition and construction of facilities deemed to be in the public interest. The bonds are secured by the property financed and are payable solely from payments received on the underlying mortgage loans. Neither the City, the State, nor any other political subdivision thereof is obligated in any manner for repayment of the bonds. Accordingly, the bonds are not reported as liabilities in the accompanying financial statements.

As of September 30, 2012, there was only one series of Industrial Development Bonds outstanding. That issue has a principal balance of $1,445,000. The bonds were issued in 1984 bearing the name of Harborview Corporation and will mature in 2014.

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Florida Ports Finance Commission Agreement

Florida Ports Financing Commission Revenue Bonds, Series 1999 – On July 17, 1996, the Florida Ports Financing Commission (the “commission”) was created pursuant to Section 320.20(3) and Chapter 163, Part I, Florida Statutes through an Interlocal Agreement among Canaveral Port Authority, Jacksonville Port Authority and Panama City Port Authority. The commission’s purpose is to provide a cost-effective means of financing various capital projects for the State of Florida’s ports by issuing bonds and transferring the proceeds thereof to the individual ports. The Commission and SunTrust Bank, Central Florida, National Association, Orlando, Florida (the “Trustee”) entered into an Indenture of Trust, dated September 1, 1999 (the “Indenture”), which authorized the issuance of $153,115,000 Florida Ports Financing Commission Revenue Bonds (State Transportation Trust Fund), Series 1999 (the Bonds”). On

October 14, 1999, the Bonds were issued to provide funds to finance the costs of acquiring and constructing capital projects undertaken by 10 ports located in the State of Florida (the “Ports”), including the City. The amount allocated to the City is not to exceed $3,000,000, which is available for approved expenditures. The Commission loaned the proceeds of the Bonds (the “Loans”) to the Ports pursuant to separate loan agreements (the “Loan Agreements”) entered into between each of the Ports individually and the Commission.

The Loan Agreement entered into by the City provides that the City will repay its Loan solely from moneys due from the State Transportation Trust Funds. Pursuant to Section 320.20(4), Florida Statutes, $10,000,000 of the revenues received by the State of Florida from motor vehicle registration fees is to be deposited annually in the State Transportation Trust Fund for funding Projects (the “State Moneys”). Basic Payments under the Loan Agreement are payable solely from moneys on deposit in the State Transportation Trust Fund. The Department of Transportation and the Commission entered into a Master Agreement pursuant to which the Department of Transportation agrees to transfer the State Moneys annually into an escrow account held by the State Department of Insurance, Division of Treasury, on behalf of the Trustee which may be drawn upon by the Trustee in order to pay the debt service on the Bonds as the same becomes due. The City has assigned all of its right, title and interest to the moneys allocated to the City from State Moneys to the Trustee on behalf of the Commission, to pay its portion of debt service on the Bonds.

In addition to the Basic Payments, the City agreed to pay on demand of the Commission or the Trustee additional payments constituting (a) its proportionate share of certain ongoing fees, costs and expenses related to the financing program, (b) all reasonable fees and expenses of the Commission and the administrator of the financing program, (c) its proportionate share of rebate obligations relating to the Bonds pursuant to Section 149 of the Internal Revenue Code of 1986, and (d) any unallowable costs required to be repaid by the Borrower under the Loan Agreement (the “Additional Payments”). The City has agreed to pay from legally available non-ad valorem revenues of its Port facilities (the “Port Revenues”) sufficient moneys to make such Additional Payments. Such agreement is applicable solely to the Additional Payments and does not cover the Basic Payments.

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The Bonds do not create nor constitute an obligation or debt of the State of Florida or any political subdivision thereof or any public corporation, port or governmental agency existing under the laws of the State of Florida other than the Commission. The Bonds do not constitute the giving, pledging or loan of the faith and credit of the State of Florida or any political subdivision thereof or any public corporation, port or governmental agency existing under the laws of the State of Florida. The Bonds are payable solely from State Moneys as the Basic Payments of the Borrowers.

The financing program of the Commission described above is in substance a grant program, inasmuch as all debt service payments on the Bonds are payable solely from moneys in the State Transportation Trust Fund. The program was structured with Loan Agreements in order to satisfy certain legal requirements. Bondholders have no recourse to the Borrowers, including the City, for payment of the principal and interest on the Bonds.

The City has not recorded a liability for the loan since it does not have any obligation except for moneys due it from the State Transportation Trust Fund. As discussed above, all of such moneys have been assigned to the Trustee to pay the debt. Except to the extent the City is obligated to pay Additional Payments from the Port Revenues, the City has no other obligation on the debt and no other moneys of the Authority have been pledged, or are obligated for payment of the debt. As expenditures are incurred for the approved projects, the City records a receivable from the Commission for 50% of qualified amounts and records the amount to be reimbursed as contributed capital. As of September 30, 2012, the City has incurred $3,904,251 of eligible expenditures. Monies not expended on approved projects by individual ports (excess project funds) are returned to the funding pool and reallocated. The amount expended by the City in excess of the allocated $2.7 million was made possible through the excess funding reallocation program.

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G. Fund Balance Disclosure

Fund Balance information is used to identify the available resources to repay long-term debt, reduce property taxes, add new governmental programs, expand existing ones, or enhance the financial position of the City, in accordance with policies established by the City Council. In accordance with Governmental Accounting and Financial Standards Board Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions, the City classifies fund balance as follows.

Non-Spendable Fund Balance – Amounts that are not in a spendable form or are required to be maintained intact (such as inventory or prepaids).

Restricted Fund Balance – Amounts that can be spent only for the specific purposes stipulated by external resource providers (such as grantors), or enabling legislation. Restrictions may be changed or lifted only with the consent of the resource providers.

Committed Fund Balance – Amounts that can be used only for the specific purposes determined by a formal action of the City’s highest level of decision making authority. Commitments may be changed or lifted only by the City Council taking the same formal action that imposed the constraint originally. An Ordinance or Resolution adopted by Council establishes a fund balance commitment as they both have equal binding authority.

Assigned Fund Balance – Amounts the City intends to use for a specific purpose. The City Council via Council Action or the Mayor as authorized by City Council Policy establishes fund balance assignments.

Unassigned Fund Balance – The residual classification for the general fund and includes amounts that are not contained in the other classifications. Unassigned amounts are the portion of fund balance which is not obligated or specifically designated and is available for any purpose.

For classification of fund balance 1) when expenditures are incurred for purposes for which both restricted and unrestricted fund balance is available, restricted fund balance is considered to have been spent first. 2) When expenditures are incurred for purposes for which amounts in any of unrestricted fund balance classifications can be used, committed amounts should be reduced first, followed by assigned amounts and then unassigned amounts.

The City Council established a reserve policy and fund by resolution beginning in fiscal year 2011. The Council Reserve, which is required to be a minimum of 15 percent of the General Fund beginning adopted appropriations, is reported as committed fund balance in the General Fund. The Council Reserve shall not be used until current year revenues decrease by 5 percent or more of the total adopted beginning estimated revenues, including transfers and all efforts have been exhausted to fund unanticipated needs and/or emergencies, such as implementing a modified hiring freeze and expenditure reductions. Upon determination of the need, the Mayor may initiate use of the reserves through written communication to the City Council, explaining the nature of the emergency with approval by a two-thirds vote of City Council. Proceeds from

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the sale of City (general government) owned surplus real property and any other funds identified in the budget will be used to increase the reserve. Interest earnings will be applied on the reserve balance each fiscal year.

The City does not have a formal minimum fund balance policy. A schedule of City fund balances is provided in the following pages.

Major Funds Housing Maritime Local Option Assistance Community Park General Fund Sales Tax Payments Construction Fund Balance Non-spendable Inventories $ $ $ $ Prepaid expense 24,780 3,133,619 801 Subtotal non-spendable fund balance 24,780 3,133,619 801 - Restricted Maritime park bonds leveraged for NMTC 39,813,626 Additional maritime park 311,737 Wastewater treatment plant relocation 5,137,134 2004 Sales & Excise Tax Ref Bond debt payments 2004 Redevelopment Ref Rev Bond debt payments 2009 Redevelopment Ref Bond debt payments 1,310,121 Stormwater projects Housing assistance payments 1,036,643 Section 8 program administrative 3,636,641 Hurricane projects General government 150,552 Transportation 1,636 362,430 Saenger capital 97,700 DOJ Equitable Sharing Agreement Public safety 51,953 97,953 Community development projects Public library system Culture and recreation 126,777 2,773,807 Building inspections SHIP Program HOME Program Subtotal restricted fund balance 428,618 3,234,190 4,673,284 46,572,618 Committed Council Reserve 7,684,929 Tree landscape 676,045 Park purchases 38,141 Culture and recreation Stormwater projects Eastside TIF district projects Subtotal committed fund balance 8,399,115 - - - Assigned General government 1,884,995 Lien amnesty 119,184 Economic Development 183,126 Other assigned Subtotal assigned fund balance 2,187,305 - - - Unassigned 1,100,516 (4,995,923) Total Fund Balance $ 12,140,334 $ 1,371,886 $ 4,674,085 $ 46,572,618

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Nonmajor Funds Special Revenue Funds Community Community Local Option Development Redevelopment Special Grants Gasoline Tax Block Grant Agency Fund Balance Non-spendable Inventories $ $ $ $ Prepaid expense 817 Subtotal non-spendable fund balance - - - 817 Restricted Maritime park bonds leveraged for NMTC Additional maritime park Wastewater treatment plant relocation 2004 Sales & Excise Tax Ref Bond debt payments 2004 Redevelopment Ref Rev Bond debt payments 2009 Redevelopment Ref Bond debt payments Stormwater projects Housing assistance payments Section 8 program administrative Hurricane projects General government Transportation 27,520 1,047,661 Saenger capital DOJ Equitable Sharing Agreement Public safety 920,628 Community development projects 913,239 Public library system Culture and recreation 1,805 Building inspections SHIP Program 10,896 HOME Program 137,609 Subtotal restricted fund balance 1,098,458 1,047,661 - 913,239 Committed Council Reserve Tree landscape Park purchases Culture and recreation Stormwater projects Eastside TIF district projects Subtotal committed fund balance - - - - Assigned General government Lien amnesty Economic Development Other assigned Subtotal assigned fund balance - - - - Unassigned (949,953) Total Fund Balance $ 148,505 $ 1,047,661 $ - $ 914,056

95 CITY OF PENSACOLA, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2012

NOTE III. - DETAIL NOTES ON ALL FUNDS (Continued)

Nonmajor Funds Special Revenue Funds Urban Core Redevelopment West Florida Stormwater Utility Law Enforcement Trust Public Library Fund Trust Fund Balance Non-spendable Inventories $ $ $ $ Prepaid expense 6,724 862 Subtotal non-spendable fund balance - 6,724 862 - Restricted Maritime park bonds leveraged for NMTC Additional maritime park Wastewater treatment plant relocation 2004 Sales & Excise Tax Ref Bond debt payments 2004 Redevelopment Ref Rev Bond debt payments 2009 Redevelopment Ref Bond debt payments Stormwater projects 13,382 Housing assistance payments Section 8 program administrative Hurricane projects General government Transportation Saenger capital DOJ Equitable Sharing Agreement 374,387 Public safety 7,070 Community development projects 1,244,721 Public library system 499,990 Culture and recreation Building inspections SHIP Program HOME Program Subtotal restricted fund balance 1,244,721 499,990 13,382 381,457 Committed Council Reserve Tree landscape Park purchases Culture and recreation Stormwater projects 258,353 Eastside TIF district projects Subtotal committed fund balance - - 258,353 - Assigned General government Lien amnesty Economic Development Other assigned Subtotal assigned fund balance - - - - Unassigned Total Fund Balance $ 1,244,721 $ 506,714 $ 272,597 $ 381,457

96 CITY OF PENSACOLA, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2012

NOTE III. - DETAIL NOTES ON ALL FUNDS (Continued)

Nonmajor Funds Special Revenue Funds Eastside Hurricane Tax Increment Damage Fund Golf Course Fund Financing District Inspections Fund Fund Balance Non-spendable Inventories $ $ 3,617 $ $ Prepaid expense 3,016 Subtotal non-spendable fund balance - 6,633 - - Restricted Maritime park bonds leveraged for NMTC Additional maritime park Wastewater treatment plant relocation 2004 Sales & Excise Tax Ref Bond debt payments 2004 Redevelopment Ref Rev Bond debt payments 2009 Redevelopment Ref Bond debt payments Stormwater projects Housing assistance payments Section 8 program administrative Hurricane projects 2,623,975 General government Transportation Saenger capital DOJ Equitable Sharing Agreement Public safety Community development projects Public library system Culture and recreation Building inspections 178,423 SHIP Program HOME Program Subtotal restricted fund balance 2,623,975 - - 178,423 Committed Council Reserve Tree landscape Park purchases Culture and recreation 3,866 Stormwater projects Eastside TIF district projects 450,682 Subtotal committed fund balance - 3,866 450,682 - Assigned General government Lien amnesty Economic Development Other assigned 662 Subtotal assigned fund balance - 662 - - Unassigned Total Fund Balance $ 2,623,975 $ 11,161 $ 450,682 $ 178,423

97 CITY OF PENSACOLA, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2012

NOTE III. - DETAIL NOTES ON ALL FUNDS (Continued)

Nonmajor Funds Special Revenue Funds Debt Service Funds CMPA Management Tax & Franchise Recreation Fund Tennis Fund Services Fund Fee Debt Service Fund Balance Non-spendable Inventories $ $ $ $ Prepaid expense 878 586 12,647 Subtotal non-spendable fund balance 878 586 12,647 - Restricted Maritime park bonds leveraged for NMTC Additional maritime park Wastewater treatment plant relocation 2004 Sales & Excise Tax Ref Bond debt payments 3,304,800 2004 Redevelopment Ref Rev Bond debt payments 2009 Redevelopment Ref Bond debt payments Stormwater projects Housing assistance payments Section 8 program administrative Hurricane projects General government Transportation Saenger capital DOJ Equitable Sharing Agreement Public safety Community development projects Public library system Culture and recreation 4,185 15,256 85,000 Building inspections SHIP Program HOME Program Subtotal restricted fund balance 4,185 15,256 85,000 3,304,800 Committed Council Reserve Tree landscape Park purchases Culture and recreation 436,966 41,164 Stormwater projects Eastside TIF district projects Subtotal committed fund balance 436,966 41,164 - - Assigned General government Lien amnesty Economic Development Other assigned 5,584 612 Subtotal assigned fund balance 5,584 612 - - Unassigned (136,424) Total Fund Balance $ 447,613 $ 57,618 $ (38,777) $ 3,304,800

98 CITY OF PENSACOLA, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2012

NOTE III. - DETAIL NOTES ON ALL FUNDS (Continued)

Nonmajor Funds Debt Service Funds Capital Projects

CRA Debt Service Stormwater Capital Total ALL Funds Fund Balance Non-spendable Inventories $ $ $ 3,617 Prepaid expense 3,184,730 Subtotal non-spendable fund balance - - 3,188,347 Restricted Maritime park bonds leveraged for NMTC 39,813,626 Additional maritime park 311,737 Wastewater treatment plant relocation 5,137,134 2004 Sales & Excise Tax Ref Bond debt payments 3,304,800 2004 Redevelopment Ref Rev Bond debt payments 429,414 429,414 2009 Redevelopment Ref Bond debt payments 1,310,121 Stormwater projects 224,055 237,437 Housing assistance payments 1,036,643 Section 8 program administrative 3,636,641 Hurricane projects 2,623,975 General government 150,552 Transportation 1,439,247 Saenger capital 97,700 DOJ Equitable Sharing Agreement 374,387 Public safety 1,077,604 Community development projects 2,157,960 Public library system 499,990 Culture and recreation 3,006,830 Building inspections 178,423 SHIP Program 10,896 HOME Program 137,609 Subtotal restricted fund balance 429,414 224,055 66,972,726 Committed Council Reserve 7,684,929 Tree landscape 676,045 Park purchases 38,141 Culture and recreation 481,996 Stormwater projects 3,016,643 3,274,996 Eastside TIF district projects 450,682 Subtotal committed fund balance - 3,016,643 12,606,789 Assigned General government 1,884,995 Lien amnesty 119,184 Economic Development 183,126 Other assigned 6,858 Subtotal assigned fund balance - - 2,194,163 Unassigned (4,981,784) Total Fund Balance $ 429,414 $ 3,240,698 $ 79,980,241

99 CITY OF PENSACOLA, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2012

NOTE IV. – OTHER INFORMATION

A. Risk Management

The City is self-insured with respect to general, auto liability and workers' compensation claims. An excess liability policy for workers’ compensation has been purchased. In any given fiscal year, insurance settlements have not exceeded insurance coverage. (Coverage limits have remained relatively constant over the past five years.) The coverage limits and deductibles are as follows:

Primary Coverage Coverage (in millions) Deductible Port operations 50 15,000 Airport operations 75 2,500 Police officers 2 50,000 Public officials 2 50,000

Excess Liability Coverage Coverage (in millions) Self Insured Retentions Workers' compensation Per Florida Statutory Limits 500,000 Per Occurrence Gas Operation 35 200,000 Per Occurrence Gas Operation - Pollution 35 500,000 Per Occurrence

The City has established reserves of $1,559,314 in the Insurance Retention Fund representing a contract between the City and its employees regarding health, life, dental and survivor disability insurance; a majority of which is survivor disability insurance. This amount is not available for city-wide catastrophic losses.

All departments of the City participate in the self insurance program and make payments to the Insurance Retention Fund. Claims liability of $2,361,442 at September 30, 2012 is based on the requirements of Governmental Accounting Standards Board (GASB) Statements No. 10 and No. 30, which require that a liability for claims be reported if information prior to the issuance of the financial statements indicates that it is a) probable that a liability has been incurred at the date of the financial statements and b) the amount of the loss can be reasonably estimated.

Claim liabilities, including incurred but not reported (IBNR) claims, are based on the estimated ultimate cost of settling the claim (including the effects of inflation and other societal and economic factors), using past experience adjusted for current trends, and any other factors that would modify past experience. Claim liabilities also include specific, incremental claim adjustment expenses. In addition, estimated amounts of salvage and subrogation and reinsurance recoverable on unpaid claims are deducted from the liability for unpaid claims. Expenses and liabilities are estimated through a case-by-case review of all claims and the application of historical experience of the outstanding claims. Estimates of IBNR losses are based on historical experience and are stratified to general, automobile and workers' compensation liabilities.

100 CITY OF PENSACOLA, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2012

NOTE IV. – OTHER INFORMATION

At September 30, 2012, the claims liability for automobile, general and workers’ compensation liability were $80,377, $121,610, and $2,159,455, respectively. The City’s insurance administrators do not calculate or report discounted amounts for automobile and general liability. Workers’ compensation liability is discounted at a rate of 8%. Each claim under workers’ compensation is calculated independently using the monthly payment amount and the present value factor. The undiscounted amount is not calculated, therefore unavailable for disclosure.

Changes in the Fund's claims liability amount in fiscal year 2011 and 2012 were:

Beginning of Current Year Claims Balance at Fiscal Fiscal Year and Changes in Claim Fiscal Year Liability Estimates Payments Year End 2011 $2,081,195 2,340,254 (2,180,349) $2,241,100 2012 $2,241,100 1,534,305 (1,413,963) $2,361,442

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101 CITY OF PENSACOLA, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2012

NOTE IV. – OTHER INFORMATION (Continued)

B. Pension Plans

The financial statements for the General, Fire and Police Pension Plans are presented below:

STATEMENT OF NET ASSETS SEPTEMBER 30, 2012

General Firemen's Police Pension and Relief and Officers' Retirement Pension Retirement Total Pension ASSETS Fund Fund Fund Trust Funds Other cash $ 70,554 $ 138,169 $ 64,892 $ 273,615

Receivables Employer 270,102 95,381 172,655 538,138 Employee 16,840 17,076 1,078 34,994 Commission Recapture 800 1,831 2,631 Total receivables 287,742 114,288 173,733 575,763 Investments Short term investments 1,911,426 7,066,854 713,227 9,691,507 Debt Securities & Bond Mutual Funds 28,174,170 20,395,344 16,645,739 65,215,253 Convertible Corporate Bonds 5,427,410 5,980,206 11,407,616 Stock Mutual Funds 15,819,166 15,819,166 Mortgage Backed Securities 9,876,647 3,723,332 8,078,465 21,678,444 Commingled Trust Fund 12,550,574 2,829,940 15,380,514 Domestic Stocks 54,857,636 43,715,105 36,249,862 134,822,603 Preferred Stocks 1,358,583 1,778,287 0 3,136,870 Foreign Stocks 3,110,558 1,254,748 6,156,612 10,521,918 Total investments 120,535,596 96,464,450 70,673,845 287,673,891

Tota l a sse ts $ 120,893,892 $ 96,716,907 $ 70,912,470 $ 288,523,269

LIABILITIES AND FUND BALANCES

Liabilities: Accounts payable $ 121,204 $ 123,068 $ 177,373 $ 421,645 Total liabilities 121,204 123,068 177,373 421,645

Net assets Held in trust for pension benefits $ 120,772,688 $ 96,593,839 $ 70,735,097 $ 288,101,624

102 CITY OF PENSACOLA, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2012

NOTE IV. – OTHER INFORMATION (Continued)

STATEMENT OF CHANGES IN NET ASSETS FOR THE YEAR ENDED SEPTEMBER 30, 2012

General Firemen's Police Pension and Relief and Officers' Retirement Pension Retirement Total Pension Fund Fund Fund Trust Funds Additions Contributions - city $ 7,075,211 $ 2,895,957 $ 3,025,714 $ 12,996,882 Contributions - employee 496,722 516,288 29,199 1,042,209 Contributions - employee buy back 763,031 763,031 Contributions - lawsuit 1,661,991 266,660 1,928,651 Commission recapture 5,062 14,207 20 19,289 Insurance proceeds - State of Florida 667,020 477,014 1,144,034 Total contributions 9,238,986 4,360,132 4,294,978 17,894,096

Investment income Net appreciation (depreciation) in fair value of investments 17,617,500 13,372,446 10,342,607 41,332,553 Interest and dividends 2,780,793 2,387,221 1,478,906 6,646,920 20,398,293 15,759,667 11,821,513 47,979,473 Less investment expense 515,305 582,402 316,764 1,414,471 Net investment income 19,882,988 15,177,265 11,504,749 46,565,002

Total additions 29,121,974 19,537,397 15,799,727 64,459,098

Deductions Pensions paid - employees 9,225,870 5,028,570 2,671,568 16,926,008 Pensions paid - widows 1,533,583 802,700 573,408 2,909,691 Pensions paid - children 6,332 6,332 Refunds to employees 168,354 17,581 17,071 203,006 Deferred retirement option plan 2,069,005 1,394,848 705,041 4,168,894 Health insurance assistance 159,348 159,348 Administrative expenses 98,755 102,254 73,464 274,473

Total deductions 13,254,915 7,352,285 4,040,552 24,647,752

Change in net assets 15,867,059 12,185,112 11,759,175 39,811,346

Net assets held in trust for pension benefits Beginning of year 104,905,629 84,408,727 58,975,922 248,290,278

End of year $ 120,772,688 $ 96,593,839 $ 70,735,097 $ 288,101,624

The State Insurance proceeds are based on Chapter 185.08 and Chapter 175.101 of the Laws of Florida.

103 CITY OF PENSACOLA, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2012

NOTE IV. – OTHER INFORMATION (Continued)

The employee buy back contributions are based on a new provision in the Police Officers’ Retirement Fund providing for the purchase of up to five (5) years of outside law enforcement service and/or military service. The cost is 20% per year purchased based on the participant’s current pensionable salary.

During fiscal year 2012, the General Pension and Retirement Fund received a $1,661,991 settlement from a former financial advisor in connection with claims that the former advisor had caused the Fund to pay excessive management fees. Since the monies arguably represent amounts that should have been credited to the Fund over the period, City contributions during that time period were greater than otherwise would have been. Thus, this amount has been reported as “contributions – lawsuit” in the combining statement of changes in fiduciary net assets to recognize the higher contributions actually made by the City over that period.

C. Pension Plan Obligations

Pension Plan Descriptions and Contribution Information

The City maintains three contributory, defined benefit, single employer pension plans which are administered by the City’s Chief Financial Officer. The Firefighters’ Relief and Pension plan covers full-time firefighters; the Police Officers’ Retirement plan covers full-time police officers; the General Pension and Retirement plan covers non-public safety, full-time employees. The administrative costs are included in the City’s cost and contribution rate provided in the actuarial valuation. Benefits and refunds of the defined pension plan are recognized when due and payable in accordance with the terms of the plan.

Prior to October 1, 1979 all non-public safety, full-time employees were required to participate in the General Pension and Retirement plan; employees hired between October 1, 1979 and October 6, 1997 were given an option to participate in the General Pension and Retirement plan or a deferred compensation plan; new employees hired between October 6, 1997 through June 17, 2007 were required to participate in the General Pension and Retirement plan. As of June 18, 2007 the General Pension and Retirement Plan was closed to new participants. Existing non- public safety, full-time employees were given an option to remain in the General Pension and Retirement plan or join the Florida Retirement System (FRS), multiple-employer, cost sharing public employee retirement system. Non-public safety, full-time employees hired after June 18, 2007 are required to participate in the FRS. Unlike the General Pension and Retirement plan, FRS requires employees to participate in the Federal Social Security Program.

Further discussion on the potential future funding of the pension plans can be found in the Letter of Transmittal page 16.

104 CITY OF PENSACOLA, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2012

NOTE IV. – OTHER INFORMATION (Continued)

Actuarial reports for the General Pension and Retirement plan, Firefighters’ Relief and Pension plan and Police Officers’ Retirement plan are required to be updated every three years per State Statue Chapter 112.63(2), 175.261(1)(b) and 185.221(2)(b), respectively. Membership of the General Pension and Retirement Plan, the Firefighters’ Relief and Pension Plan, and the Police Officers’ Retirement plan at September 30, 2011 (GASB Updates) consisted of the following: General Pension Firefighters’ Police Officers’ and Retirement Relief and Pension Retirement

Retirees and beneficiaries receiving benefits 567 157 119 Terminated plan members entitled to but not yet receiving benefits 56 0 7 DROP plan members 69 22 21 Active plan members 244 93 136 Total 936 272 283

Number of participating Employers 1 1 1

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105 CITY OF PENSACOLA, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2012

NOTE IV. – OTHER INFORMATION (Continued)

The benefit provisions and all other requirements of the firefighters' plan are established by Special Act of the State. The benefit provisions and all other requirements of the police officers’ and regular employees’ plans are established by City ordinance. FRS benefits are established by Chapter 121 of the Florida Statue. The accrual method of accounting is used as the basis of accounting for all four of the plans. Those provisions and requirements as of September 30, 2011 are summarized as follows: Florida Retirement System General Pension Firefighters' Relief Police Officers' (FRS) and Retirement and Pension Retirement Vesting 6 years 6 years 10 years 10 years Eligibility for Age 62 with (w/) 30 yrs of Age 55 w/ 20 yrs of svc Age 52 w/10 yrs of svc Age 55 w/10 yrs of svc retirement svc or 30 yrs of svc w/no or 30 yrs of svc w/no or 25 yrs of svc w/no or 25 yrs of svc w/ no age requirement age requirement age requirement age requirement Monthly Based on final average Based on final average Based on final average Based on final average retirement earnings (highest 5 yrs): earnings (highest 2 of earnings (highest 2 of earnings (highest 2 of benefit last 5 yrs): last 5 yrs): last 5 yrs): Regular Class - Age 62 1.6% - 75% of 1st $2,400 75% of final monthly Percentage of average - Age 63 1.63% - 50% of next $1,200 average earnings for final compensation for - Age 64 1.65% - 40% of excess or normal retirements with each full year of - Age 65 1.68% 2.1% times yrs of svc 25 or more yrs of svc credited service: or: - Hired before 10/1/79 Senior Mgmt (30 yrs max) times - 75% of 1st $2,400 receive 2% - Age 62 2% final monthly average earnings (whichever - 70% of next $1,200 - Hired after 10/1/79 Elected Officials formula provides the - 65% of any add'l who elected to - Age 62 3% greater benefit) but amount for disability participate receive 3% retirements and - Hired after 10/1/79 Special Risk not less than $25 per normal retirements who elected to - Age 62 yr of svc w/less than participate receive 3% - 2% if hired between 25 yrs of svc 12/1/70 and 9/30/74 - 3% if hired after 10/1/74 Other - Early retirement - Early retirement - Early retirement - Early retirement Benefits - Deferred retirement - Deferred retirement - Deferred retirement - Deferred retirement - Disability retirement - Disability retirement - Disability retirement - Disability retirement - Health insurance subsidy - Health ins. subsidy - Death benefits - Death benefits - Death benefits - Death benefits - Deferred retirement - Deferred retirement - Deferred retirement option - Deferred retirement option program option program program option program Post- 3% per year Up to 1.5% annually Up to 3% annually w/a Up to 3% annually w/a retirement w/a corresponding corresponding increase corresponding increase COLA increase in the CPI in the CPI in the CPI (Increase discretion - Pension Bd) Contributions * Employee 3.00% 5.50% 11.00% 0.50% Employer See Below 78.50% 61.70% 51.81% Regular Class 5.18% N/A N/A N/A Senior Mgmt 6.30% N/A N/A N/A Elect Officials 10.23% N/A N/A N/A DROP 5.44% N/A N/A N/A Special Risk 14.90% N/A N/A N/A Retired 1.60% N/A N/A N/A State N/A N/A 14.21% 8.17% *All employee contributions to the pension plans and the City’s contribution to the Police Officers’ Retirement Plan are based on a percentage of pay. The remaining contribution percentages shown above are reported as a percentage of pay for comparative purposes only. 106 CITY OF PENSACOLA, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2012

NOTE IV. – OTHER INFORMATION (Continued)

The General Pension and Retirement Plan, the Firefighters’ Relief and Pension Plan and the Police Officers’ Retirement Fund do not issue audited stand-alone financial statements but rely on the audit performed for the City. All three of the defined benefit pension plans are included within this financial report.

The funded status of the General Pension and Retirement Plan as of September 30, 2011, the Firefighters’ Relief and Pension Plan as of October 1, 2011 and the Police Officers’ Retirement Fund as of October 1, 2011 is as follows (in thousands of dollars):

(4) UAAL (1) Unfunded (5) As A Percentage Actuarial (2) (3) AAL Annual Of Covered Value Actuarial Accrued Percentage (UAAL) (2)- Covered Payroll of Assets Liability(AAL) Funded (1)/(2) (1) Payroll (4)/(5)

General Pension $ 117,463 $ 177,966 66.0% $ 60,504 $ 10,344 $ 584.9% Fire Pension 93,326 110,560 84.4% 17,236 4,696 367.0% Police Pension 62,461 101,445 61.6% 38,984 6,766 576.2%

The schedules of funding progress, presented as required supplementary information (RSI) following the notes to the financial statements, present multiyear trend information about whether the actuarial values of the plan assets are increasing or decreasing over time relative to the AALs for benefits.

Additional information as of the latest actuarial valuation follows:

General Pension and Firefighters’ Relief and Police Officers’ Retirement Pension Retirement

Valuation date 9/30/2011 10/1/2011 10/1/2011 Actuarial cost method Entry Age Normal Cost Entry Age Normal Cost Individual Entry Age Amortization method Level Dollar Closed Level Percentage Closed Level Dollar Amount Closed Remaining Amortization 16 years 30 years 20 years Asset Valuation Method 5 year smoothed market 5 year phased in period 5 year weighted index Actuarial Assumptions: Investment rate of return 8.00% 8.00% 7.75% Projected salary increases 4.50% - 9.50% 7.30% 5.00% Includes inflation at: 3.00% 3.00% 3.00% Cost of living adjustments 1.50% 2.875% 2.50%

The Florida Retirement System issues a publicly available financial report that includes financial statements and required supplementary information for the System. That report may be obtained by writing to the Florida Division of Retirement, 2639 N. Monroe Street, Building C, Tallahassee, Florida 32399 or calling 1-850-488-6491.

107 CITY OF PENSACOLA, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2012

NOTE IV. – OTHER INFORMATION (Continued)

Pension Plan Obligations

General Firefighters’ Police Pension and Relief and Officers’ Retirement Pension Retirement Annual required contributions for 9/30/11 $ 7,246,614 $ 2,650,637 $ 3,508,864 Interest on net pension obligation - - - Adjustment to annual required contribution - - - Annual pension cost 7,246,614 2,650,637 3,508,864 Contributions made (7,246,614) (2,650,637) (3,508,864) Increase (decrease) in net pension obligation - - - Net pension obligation beginning of year - - - Net pension obligation end of year $ - $ - $ -

Three-Year Trend Information Trend information gives an indication of the progress made in accumulating sufficient assets to pay benefits when due. The annual pension cost (APC) and net pension obligation for the years ended 2010, 2011 and 2012 for the City’s three contributory, defined benefit, single employer pension plans are presented below. The years presented are the most recent years that actuarial information is available.

FLORIDA RETIREMENT SYSTEM (FRS)

Annual Pension Percentage of Net Pension Cost (APC) APC Contributed Obligation 9/30/2010 $ 885,118 100% - 9/30/2011 843,014 100% - 9/30/2012 443,388 100% -

GENERAL PENSION AND RETIREMENT FUND

Annual Pension Percentage of Net Pension Cost (APC) APC Contributed Obligation 9/30/2010 $ 7,210,946 100% - 9/30/2011 7,241,853 100% - 9/30/2012 7,246,614 100% -

108 CITY OF PENSACOLA, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2012

NOTE IV. – OTHER INFORMATION (Continued)

FIREFIGHTERS’ RELIEF AND PENSION FUND

Annual Pension Percentage of Net Pension Cost (APC) APC Contributed Obligation 9/30/2009 $ 3,697,271 100% - 9/30/2010 3,441,454 100% - 9/30/2011 2,650,637 100% -

POLICE OFFICERS’ RETIREMENT FUND

Annual Pension Percentage of Net Pension Cost (APC) APC Contributed Obligation 9/30/2009 $ 3,278,441 100% - 9/30/2010 3,133,416 100% - 9/30/2011 3,508,864 100% -

Retiree Benefits In addition to providing pension benefits, the City of Pensacola provides a health insurance benefit for retired employees who worked for the City for ten or more years and had health insurance coverage at the time of their retirement. Retirees may keep the same level of insurance coverage (single or family) they had as an active employee or they may reduce the level of coverage from family to single coverage. However, they cannot increase coverage from single to family after retirement. Approximately 368 retirees and/or families were covered during the fiscal year ended September 30, 2012. The city does not cover the cost of any retiree insurance.

Other Postemployment Benefits (OPEB) Plan Description. The City of Pensacola administers a single-employer defined benefit plan which offers three plans for health care through Blue Cross Blue Shield of Florida; Health Options HMO, Blue Options PPO Health Savings Account and BlueMedicare Group PPO. Insurance is offered to both active employees and retirees however only active employees receive a premium contribution.

Membership of the plan consisted of the following at December 31, 2010, the date of the latest actuarial valuation:

Retirees and beneficiaries currently receiving benefits 405 Terminated employees entitled to benefits but not yet receiving benefits -0- Active members 693 Total 1,098

109 CITY OF PENSACOLA, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2012

NOTE IV. – OTHER INFORMATION (Continued)

In order to comply with requirements of GASB 45, the City contracted with a recognized and certified actuarial firm to provide an actuarial valuation of post-employment benefits (a copy of this report can be obtained by contacting the City of Pensacola’s Financial Services Department). Post-employment benefits, such as health care, will continue to be offered on a retiree pay all basis with no premium subsidy. The State of Florida, per Statute 112.0801, requires claims experience of the retiree group to be co-mingled with that of active employees in determining the health plan cost. According to GASB 45, the co-mingling of claims requirement equates to an implicit subsidy to retirees which creates an OPEB liability on the part of the City.

Basis of Accounting. The net OPEB obligation and ARC is recorded at the fund level for proprietary activities and the allocated amount for governmental activities is presented at the government-wide level. The OPEB expense, or ARC, is included in the line item of salaries for proprietary fund statements and is allocated by function for governmental activities on the government-wide financial statements. In the year of implementation the Net OPEB Obligation and the ARC are the same amount. The Net OPEB Obligation will continue to increase if the obligation is not funded.

Annual Required Contribution (ARC) Expense Governmental Activities $ 996,848 Utility Fund 209,016 Sanitation Fund 77,085 Port Fund 17,881 Airport Fund 108,791 Insurance Retention Fund 9,016 Central Services 83,997 Total ARC Expense $ 1,502,634

Contributions. The City does not intend to fund the actuarial liability; therefore, no employer or employee contributions were made. The contribution status as of December 31, 2010, the date of the latest actuarial valuation and the preceding years, are as follows:

SCHEDULE OF EMPLOYER CONTRIBUTIONS ANNUAL YEAR REQUIRED ACTUAL PERCENTAGE ENDED CONTRIBUTION CONTRIBUTIONS CONTRIBUTED 9/30/2010 $1,723,825 -0- -0- 9/30/2011 $1,329,211 -0- -0- 9/30/2012 $1,502,634 -0- -0-

110 CITY OF PENSACOLA, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2012

NOTE IV. – OTHER INFORMATION (Continued)

Funding Status and Funding Progress. The funding status as of December 31, 2010, the date of the latest actuarial valuation and the preceding years, are as follows:

ACTUARIAL ACCRUED UAAL AS OF ACTUARIAL LIABILITY (AAL) PERCENT ACTUARIAL VALUE OF PROJECTED UNIT UNFUNDED FUNDED COVERED COVERED FISCAL VALUATION ASSETS CREDIT AAL (UAAL) RATIO PAYROLL PAYROLL YEAR DATE (A) (B) (B - A) (A/B) (C) ((B - A) / C) 2010 12/31/2008 -0- $33,511,399 $33,511,399 -0- $31,848,131 105.22% 2011 12/31/2009 -0- $25,706,929 $25,706,929 -0- $29,776,492 86.33% 2012 12/31/2010 -0- $29,153,926 $29,153,926 -0- $28,711,114 101.54%

Actuarial Methods and Assumptions. Actuarial valuations involve estimates and assumptions. As such, amounts regarding the funding status of the plan and the annual required contributions of the employer are subject to revision as actual results are compared to past expectations and new estimates are made about the future. Actuarial calculations reflect a long-term perspective. Significant accrual methods and assumptions for the reporting period of September 30, 2012 were as follows:

FISCAL YEAR 2012 Valuation Date 12/31/2010 Actuarial cost method Projected unit credit Amortization method Level percent of pay, open Remaining amortization period 30 years Asset valuation method Market value of assets Actuarial assumptions: Investment rate of return* 4.50% Medical cost trend rate* 10.50% Ultimate trend rate 5.00% Year of ultimate trend rate 2018

*Includes inflation at 3.00%

The calculation produced an unfunded obligation of $29,153,926 and an annual required contribution (ARC) as 4.30% of active payroll projected to be $1,502,634. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liability over a period not to exceed thirty years.

111 CITY OF PENSACOLA, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2012

NOTE IV. – OTHER INFORMATION (Continued)

Annual required contribution (ARC) $ 1,502,634 Interest on net OPEB obligation 298,170 Adjustment to interest (59,609) Adjustment to ARC (270,260) Annual OPEB cost 1,470,935 Contributions made - Increase in net OPEB obligation 1,470,935 Net OPEB obligation-beginning of year 6,626,011

Net OPEB obligation-end of year $ 8,096,946

The required schedule of funding progress presented as required supplementary information provides multi-year tend information that shows whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial liability for benefits.

Deferred Compensation/Replacement Benefit Program

The City of Pensacola also has four retirement plans which are defined contribution pension plans. These plans provide benefits at retirement to general and public safety employees of the City. At September 30, 2012 there were 692 active plan members. The plan provisions and contribution requirements are established and may be amended by the City of Pensacola City Council. The following is a schedule of employee and employer contributions.

Elected Officers & Social Security Pension Part-time Replacement Replacement Non-Social Employees Plan Plan Security Plan Plan Employee 4.7%, 5.7% or 6.7% 5.5% $10 minimum 7.5% Contribution 0-5 yrs of service 1.5% City Matches employee’s 5-10 yrs of service 2.5% None None Contributions contribution up to 6.7% 10 or more years 6.5% Employee Contribution $1,763,757 $115,410 $445,546 $2,481 for 9/30/12 City Contribution $1,169,996 $101,700 N/A N/A for 9/30/12

Employer and plan member contributions are recognized in the period that the contributions are due. As required by Internal Revenue Code Section 457, the assets are held in trust for the employees’ benefit. The Chief Financial Officer, selected by the government as the administrator, is responsible for the administration of the plan, including approval of certain investment alternatives (funds) which are made available to plan participants. The government has a fiduciary duty to administer the plan properly and to assure that the investment alternatives made

112 CITY OF PENSACOLA, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2012

NOTE IV. – OTHER INFORMATION (Continued)

available are reasonable. However, since plan participants select the investment fund or funds in which their deferred compensation accounts are invested, the government has no liability for investment losses which occur as a result of the investments selected by the plan participants.

Termination Benefits The City of Pensacola does not offer any termination benefits to employees. Therefore, GASB Statement No. 47, Accounting for Termination Benefits, does not apply.

D. Litigation

The City contracted with Dooley Mack Constructors of Northwest Florida, LLC (“DM”) for the renovations and additions to the Saenger Theater. The project was completed in 2009; however, in 2010, DM filed a lawsuit against the City for damages in excess of $1.2 million. DM alleged breach of contract due to failing to adjust the contract time and contract price and that the City provided defective plans and specifications. As DM’s claims relate in part to alleged errors and omissions of the project architect, Caldwell Associates Architects, Inc., the City has demanded indemnification by Caldwell under the terms of Caldwell’s professional services contract with the City.

The City is contingently liable with respect to other lawsuits and other claims incidental to the ordinary course of its operations. Although the outcome of these lawsuits is not presently determinable, in the opinion of management, based on the advice of counsel, the resolution of these matters will not have a material adverse effect on the financial condition of the City.

E. Grant Contingencies

The City has received numerous state and federal grants. The disbursement of funds received under these programs is subject to review and audit by grantor agencies. Any disbursements disallowed by these agencies could become a liability of the City. In the opinion of management, any such claims should not have a material adverse effect on the financial position of the City.

F. Contractual, Construction, and Equipment Commitments

The City has outstanding commitments for contractual services and for the construction and acquisition of property, plant and equipment at year end. The commitments represent the difference between the contract prices of the various projects and the amounts paid on each contract. Outstanding commitments by fund at September 30, 2012 were as follows:

General Fund $ 330,924 Local Option Sales Tax Fund 1,363,851 Utility Fund 420,405 Port Fund 511,214 Airport Fund 3,683,924 Nonmajor Government 2,694,670 Internal Service Fund 27,098 Total $ 9,032,086

113 CITY OF PENSACOLA, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2012

NOTE IV. – OTHER INFORMATION (Continued)

G. Other Significant Commitments

1. Airport Lease – Air Traffic Control Tower. The City receives lease payments amounting to $248,000 annually from the federal government for their use of one of the Airport's air traffic control towers. The City in turn pays these lease payments to a private corporation as a repayment on the corporation's investment in the construction of the tower. The lease began on April 14, 1992. In the event the federal government terminates its lease with the City after the tenth year of the term then the amount the City is obligated to pay the corporation is a sum equal to the cost of amortizing its development loan plus interest. The amount due from the City will be reduced by the sum representing that percentage of the annual rental allocated to the corporation’s profit. In the opinion of management, the likelihood of the termination of the government’s lease with the City and this outcome is not probable. The debt service commitment, as well as the lease agreement with Financial American Services Company expires September 30, 2022.

2. City Land Lease – Port Royal. On May 1, 1997, the City entered into an agreement with Port Royal Phase II, Inc. (the Developer), a Florida corporation regarding real property known as the Baylen Street Property, Phase II. The Developer has entered into a lease term for a period of 86 years for the purpose of developing a residential project consisting of lots for sixteen single- family residences and eight carriage house units and parking areas. The Developer paid a lump sum of $420,000 for the initial 50 year lease. Annual lease revenue will be recognized over the 50 year period. For years 51 through 86 the Developer will make annual installments not to be less than $4,119.69 adjusted every five years by a factor of the Consumer Price Index. There is a renewal term of 100 years after the initial 86-year term.

3. Energy Services of Pensacola (ESP) Contract – Natural Gas Purchases. ESP has the option under its contract with its natural gas supplier, BP Corporation North America, to exercise several hedging options for the purchase of natural gas. This hedging strategy allows ESP to purchase a percentage of its natural gas at specified prices for future delivery. ESP, in concurrence with its commodities consultant, decide on pricing strategies due to the volatility in the market price of natural gas. ESP enters into these hedging contracts to protect itself against volatility in the market price of natural gas. However due to the instability of the market, the market price to purchase natural gas may be lower than the price at which ESP is committed to buy. Should the natural gas supplier fail to fulfill the gas hedging contracts, the terms of the contract include provisions for recovering the cost in excess of the guaranteed price from the natural gas supplier should ESP have to procure natural gas on the open market.

114 CITY OF PENSACOLA, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2012

NOTE IV. – OTHER INFORMATION (Continued)

4. Port Leases. The Port of Pensacola has entered into several long term leases of land and warehouse space. Listed below is a summary of the current lease terms.

TYPE OF TENANT PROPERTY TERM ANNUAL RENT

Halcorp Land 2 1/2 years with rolling 365-day $300,000 Effective 1/1/09 notice of cancellation thereafter

Community Redevelopment Land Years 1 - 10 $16,910 Agency (20 years) Years 11 - 15 $27,395 Effective 8/1/96 Years 16 - 20 $32,875

Martin Marietta Land 1 year with “4” 5 year renewals $63,228 Effective 12/1/01; Rent Effective 12/1/07

CEMEX Ready Mix Warehouse 5 years with “3” 5 year $205,920 Effective 10/25/03; Rent renewals Effective 1/1/08

NWF Cold Storage Warehouse 5 years with “2” 5 year renewals $127,833 Effective 2/24/09

Offshore Inland Marine Warehouse 2 years with “2” 5 year renewals Variable Effective 3/1/10 and “1” 2 year renewal $104,400 to $208,800 based on use

5. City Agreement – Master Development Agreement. On March 27, 2006, the City entered into a Master Development Agreement with Community Maritime Park Associates, Inc. (CMPA) regarding the terms and conditions for the development of the real property commonly referred to as the Community Maritime Park. The parties’ agreed that the City would pay the cost of design and construction of public improvements to be completed under the terms of the Master Lease. The City complied with the conditions precedent contained in the Agreement by providing project funding of $40 million through the issuance of the Redevelopment Revenue Bonds, Series 2009. The Agreement should be read in its entirety to obtain a full understanding of the terms and conditions.

115 CITY OF PENSACOLA, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2012

NOTE IV. – OTHER INFORMATION (Continued)

6. City Land Lease – Master Lease Agreement. On March 27, 2006, the City entered into a Master Lease Agreement with Community Maritime Park Associates, Inc. (CMPA) regarding 27 acres of waterfront property located at the 300 block of Main Street, for the purpose of developing the Community Maritime Park. CMPA’s lease term is for 60 years with annual installments of $1. The Agreement should be read in its entirety to obtain a full understanding of the terms and conditions.

Community Redevelopment Agency (CRA)

1. CRA Interlocal Agreement – Project Support Payments. In May 2010, the CRA of the City of Pensacola entered into an Amended and Restated Interlocal Agreement with the Community Maritime Park Associates, Inc. (CMPA) whereby CRA shall pay monthly Project Support Payments to CMPA through 2040. Of the $94,768,509 beginning balance, the CRA has $90,484,094 in remaining Project Support Payments. Project Support Payments will be paid with Tax Increment Financing (TIF) revenues of the CRA. Annualized project support payments to be remitted by the CRA are as follows:

Fiscal Year Ending Project Support September 30, Payment

2013 $ 1,894,745 2014 1,894,745 2015 1,894,745 2016 1,894,745 2017 2,251,662 2018-2022 16,863,450 2023-2027 17,264,387 2028-2032 17,757,212 2033-2037 18,378,473 2038-2040 10,389,930 Total $ 90,484,094

116 CITY OF PENSACOLA, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2012

NOTE IV. – OTHER INFORMATION (Continued)

Community Maritime Park Associates, Inc. (CMPA)

1. CMPA – New Market Tax Credits. In December 2009 the City of Pensacola issued $45.6 million in Redevelopment Revenue Bonds to, among other things, provide $40 million for the construction and development of the Vince Whibbs Sr. Community Maritime Park (Park). The Community Maritime Park Associates (CMPA), a nonprofit instrumentality of the City, was created to construct and subsequently own the public improvements of the Park. The land, however, is owned by the City and leased to CMPA for a $1 per year. The primary security for the bonds is the City's covenant to annually budget and appropriate from non-ad valorem revenues of the City sufficient moneys to pay debt service on the bonds. See Note III Detailed Notes on all Funds, Debt Issuances and Refundings for additional detail on these bonds.

In May 2010, the CMPA received state and federal New Markets Tax Credits (NMTC) allocations through Capital Trust Agency Community Development Entity, LLC (CTA CDE), and two other NMTC allocates (collectively the CDEs). These allocations and the related benefits were made because the development and operation of the Park is a “qualified active low-income community business” or “QALICB” under Federal law. To leverage these allocations and generate approximately $12 million of net additional proceeds for the Park by the sale of NMTC, the City lent approximately $40 million of 2009 bond proceeds to the NMTC investor. (As a result of its loan to the investor entity, the City receives monthly interest payments until the loan matures in 2040 or is prepaid at the end of the 7-year NMTC compliance period.) The proceeds of this loan, together with approximately $12 million of net markets tax credit equity provided by the NMTC investor, for a total of approximately $52 million, were invested by the NMTC investor in CMPA via the CDEs and will be drawn, subject to City approval, to pay project costs.

If, however, at some point in time CMPA fails to continue to qualify as a QALICB or violates certain representations and warranties made to the CDEs, such failure may result in a recapture or loss of the NMTC. CMPA has agreed to indemnify the NMTC investor for loss or recapture of NMTC by reason of certain acts or omission of CMPA, including its failure to remain a QALICB or to complete the project within the time required under the NMTC rules or its’ engaging in certain businesses not permitted under the NMTC rules. The City, however, is not a party to, or guarantor of, this indemnity and has disclaimed all liability.

117 CITY OF PENSACOLA, FLORIDA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2012

NOTE V. - SUBSEQUENT EVENTS

On October 3, 2012, Energy Services of Pensacola (ESP), a City Department, unveiled the $1.8 million Compressed Natural Gas (CNG) station located at 6722 Pine Forest Road. The station was a joint project between Pensacola Energy and Emerald Coast Utilities Authority (ECUA), a local governmental body. It will serve over 80 natural gas vehicles operated by the City, ECUA and Escambia County. Pensacola Energy hopes to open the station to the general public in 2013.

On December 10, 2012, City Council approved the agreement providing for the transfer of Pensacola Energy’s exclusive franchise area on Pensacola Beach to the City of Gulf Breeze for a total sum of $470,000. The basic terms will require Pensacola to support official action by the Escambia County Commission regarding the termination of Pensacola's exclusive franchise to provide gas service to Pensacola Beach and the award of same to Gulf Breeze. The County's official action will also reaffirm Pensacola's exclusive franchise rights for the remainder of Escambia County, excluding the area served by the Town of Century. The average net revenue from this account for Pensacola Energy is $21,000.

On December 10, 2012, the Community Redevelopment Agency (CRA) board extended the term of the $500,000 loan to the Community Maritime Park Associates (CMPA) for eight months. The original loan was to be repaid by January 15, 2013 and has an interest rate of 2.5%. The extension is contingent upon the CMPA presenting a plan for repayment before September 15, 2013 specifying sources of revenue and continued operations.

Effective October 1, 2012, during contract negotiations, the City of Pensacola and the general employee union agreed to reduce benefits in the General Pension and Retirement Plan thus reducing the cost of the City’s contributions in future years.

Effective January 1, 2013, during contract negotiations, the City of Pensacola and the Police unions agreed to close and reduce benefits in the Police Officers’ Retirement Plan thus reducing the cost of the City’s contributions in future years. New Police Officers’ hired will participate in the Florida Retirement System.

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REQUIRED SUPPLEMENTARY INFORMATION

PENSION FUNDS AND OTHER POST EMPLOYEMENT BENIFITS SCHEDULE OF EMPLOYER CONTRIBUTIONS AND ANALYSIS OF FUNDING PROGRESS

CITY OF PENSACOLA, FLORIDA GENERAL PENSION & RETIREMENT FUND REQUIRED SUPPLEMENTARY INFORMATION

SCHEDULE OF EMPLOYER CONTRIBUTIONS (IN THOUSANDS OF DOLLARS) Fiscal Annual Required Percentage Year Contributions Contributed 2003 $ 3,190 100% 2004 4,591 100% 2005 5,515 100% 2006 6,061 100% 2007 6,267 100% 2008 6,264 100% 2009 7,341 100% 2010 7,211 100% 2011 7,242 100% 2012 7,247 100%

ANALYSIS OF FUNDING PROGRESS (IN THOUSANDS OF DOLLARS)

UAAL AS A (1) (2) (3) (4) (5) PERCENT OF ACTUARIAL ACTUARIAL PERCENTAGE UNFUNDED ANNUAL COVERED FISCAL VALUE OF ACCRUED FUNDED AAL (UAAL) COVERED PAYROLL YEAR ASSETS LIABILITY (AAL) (1)/(2) (2)-(1) PAYROLL (4)/(5) 2002 $ 104,817 $ 140,310 74.7% $ 35,493 $ 15,445 229.8% 2003 105,000 155,855 67.4% 50,855 15,286 332.7% 2004 104,027 160,845 64.7% 56,818 15,708 361.7% 2005 104,435 157,913 66.1% 53,478 16,904 316.4% 2006 106,662 157,417 67.8% 50,755 17,598 288.4% 2007 113,372 163,684 69.3% 50,312 14,807 339.8% 2008 114,133 163,922 69.6% 49,789 13,546 367.6% 2009 117,544 169,052 69.5% 51,509 12,091 426.0% 2010 119,198 174,015 68.5% 54,817 11,280 486.0% 2011 117,463 177,966 66.0% 60,504 10,344 584.9%

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CITY OF PENSACOLA, FLORIDA FIREFIGHTERS' RELIEF AND PENSION FUND REQUIRED SUPPLEMENTARY INFORMATION

SCHEDULE OF EMPLOYER CONTRIBUTIONS (IN THOUSANDS OF DOLLARS) Fiscal Annual Required Percentage Year Contributions * Contributed 2002 $ 1,199 100% 2003 1,265 100% 2004 2,130 100% 2005 2,534 100% 2006 3,182 100% 2007 3,605 100% 2008 3,705 100% 2009 3,691 100% 2010 3,441 100% 2011 2,651 100%

*Annual Required Contributions include Chapter 175 contributions

ANALYSIS OF FUNDING PROGRESS (IN THOUSANDS OF DOLLARS)

UAAL AS A (1) (2) (4) (5) PERCENT OF ACTUARIAL ACTUARIAL (3) UNFUNDED ANNUAL COVERED FISCAL VALUE OF ACCRUED PERCENTAGE AAL (UAAL) COVERED PAYROLL YEAR ASSETS LIABILITY (AAL) FUNDED (1)/(2) (2)-(1) PAYROLL (4)/(5) 2002 $ 71,441 $ 83,545 85.5% $ 12,104 $ 3,887 311.4% 2003 72,891 85,334 85.4% 12,443 4,103 303.3% 2004 73,263 85,214 86.0% 11,951 4,468 267.5% 2005 74,679 92,165 81.0% 17,486 5,025 348.0% 2006 78,872 97,021 81.3% 18,149 4,840 375.0% 2007 85,956 100,973 85.1% 15,017 5,041 297.9% 2008 88,835 107,803 82.4% 18,968 5,513 344.1% 2009 91,292 104,575 87.3% 13,283 5,175 256.7% 2010 93,479 106,664 87.6% 13,186 5,009 263.2% 2011 93,326 110,560 84.4% 17,235 4,696 367.0%

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CITY OF PENSACOLA, FLORIDA POLICE OFFICERS' RETIREMENT FUND REQUIRED SUPPLEMENTARY INFORMATION

SCHEDULE OF EMPLOYER CONTRIBUTIONS (IN THOUSANDS OF DOLLARS) Fiscal Annual Required Percentage Year Contributions * Contributed 2002 $ 787 100% 2003 1150 100% 2004 1,992 100% 2005 2,959 100% 2006 2,937 100% 2007 3,190 100% 2008 3,441 100% 2009 3,278 100% 2010 3,133 100% 2011 3,509 100%

*Annual Required Contributions include Chapter 185 contributions

ANALYSIS OF FUNDING PROGRESS (IN THOUSANDS OF DOLLARS)

(1) UAAL AS A ACTUARIAL (2) (4) (5) PERCENT OF VALUE OF ACTUARIAL (3) UNFUNDED ANNUAL COVERED FISCAL ASSETS ACCRUED PERCENTAGE AAL (UAAL) COVERED PAYROLL YEAR (A) LIABILITY (AAL) FUNDED (1)/(2) (2)-(1) PAYROLL (4)/(5) 2002 $ 39,144 $ 41,900 93.4% $ 2,756 $ 6,318 43.6% 2003 40,485 48,631 83.2% 8,146 6,484 125.6% 2004 43,022 54,823 78.5% 11,801 6,883 171.5% 2005 46,703 58,611 79.7% 11,908 7,934 150.1% 2006 50,257 62,328 80.6% 12,071 7,153 168.8% 2007 55,628 67,807 82.0% 12,179 7,601 160.2% 2008 57,430 69,693 82.4% 12,263 7,513 163.2% 2009 57,897 69,259 83.6% 11,362 7,093 160.2% 2010 60,162 71,375 84.3% 11,213 6,967 160.9% 2011 62,461 101,445 61.6% 38,984 6,766 576.2%

Notes: All numbers for the pension funds schedules of employer contributions and analysis of funding progress are obtained from the most recent actuarial reports. Further discussion on the potential future funding of the pension plans can be found on page 16 of the Letter of Transmittal.

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CITY OF PENSACOLA, FLORIDA OTHER POST EMPLOYMENT BENEFITS (OPEB) REQUIRED SUPPLEMENTARY INFORMATION

FY 2010 FY 2011 FY 2012 Retirees and beneficiaries currently receiving benefits 469 442 405 Terminated employees entitled to benefits but not yet receiving benefits -0- -0- -0- Active members 777 727 693 Total 1,246 1,169 1,098

SCHEDULE OF FUNDING PROGRESS ACTUARIAL ACCRUED UAAL AS OF ACTUARIAL LIABILITY (AAL) PERCENT ACTUARIAL VALUE OF PROJECTED UNIT UNFUNDED FUNDED COVERED COVERED FISCAL VALUATION ASSETS CREDIT AAL (UAAL) RATIO PAYROLL PAYROLL YEAR DATE (A) (B) (B - A) (A/B) (C) ((B - A) / C) 2010 12/31/2008 -0- $33,511,399 $33,511,399 -0- $31,848,131 105.22% 2011 12/31/2009 -0- $25,706,929 $25,706,929 -0- $29,776,492 86.33% 2012 12/31/2010 -0- $29,153,926 $29,153,926 -0- $28,711,114 101.54%

FISCAL YEAR 2010 FISCAL YEAR 2011 FISCAL YEAR 2012 Valuation Date 12/31/2008 12/31/2009 12/31/2010 Actuarial cost method Projected unit credit Projected unit credit Projected unit credit Amortization method Level percent of pay, open Level percent of pay, open Level percent of pay, open Remaining amortization period 30 years 30 years 30 years Asset valuation method Market value of assets Market value of assets Market value of assets Actuarial assumptions: Investment rate of return* 4.50% 4.50% 4.50% Medical cost trend rate* 9.00% 10.50% 10.50% Ultimate trend rate 5.00% 5.00% 5.00% Year of ultimate trend rate 2016 2018 2018

*Includes inflation at 3.00%

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COMBINING FINANCIAL STATEMENTS

NONMAJOR GOVERNMENTAL FUNDS

INTERNAL SERVICE FUNDS

FIDUCIARY FUNDS

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NONMAJOR GOVERNMENTAL FUNDS

Special Revenue Funds

Special revenue funds are used to account for specific revenues that are legally restricted to expenditure for particular purposes.

Special Grants Fund – to account for various private, state and federal grant receipts and the expenditures thereof.

Local Option Gasoline Tax Fund - to account for the receipt and expenditures of gasoline tax revenue.

Community Development Block Grant Fund - to account for the community development block grant and the housing rehabilitation program federal grant receipts and the expenditures thereof.

Community Redevelopment Agency - to account for the tax increment development receipts and the expenditures thereof.

Urban Core Redevelopment Trust - to account for the tax increment development receipts and the expenditures thereof.

West Florida Public Library Fund – to account for the receipt and expenditures of the West Florida Public Library.

Stormwater Utility Fund – to account for the receipt and expenditures for the operating and maintenance activities related to stormwater.

Law Enforcement Trust Fund - to account for proceeds from the sale of confiscated property. Expenditure of such funds is restricted to law enforcement purposes.

Hurricane Damage Fund - to account for federal and state monies received and expended for disaster relief as a result of hurricanes.

Golf Course Fund - to account for the revenues and expenditures of the Osceola Golf Course and Pro Shop.

Eastside Tax Increment Financing District - to account for the tax increment revenues associated with programs and projects identified in eastside community redevelopment area.

Inspections Fund – to account for the revenues and expenditures of collections as regulated under Florida Statue 553 referred to as the ‘Florida Building Code’.

Recreation Fund – to account for the revenues and expenditures of recreation center and athletic activities.

Tennis Fund – to account for the revenues and expenditures of the Roger Scott Tennis Center.

CMPA Management Services Fund – to account for the revenues and expenditures related to the Community Maritime Park Associates Management Services Agreement.

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Debt Service Funds

Debt service funds are used to account for resources accumulated and payments made for principal and interest on long-term debt of governmental funds.

Tax and Franchise Fee Debt Service Fund – to account for the principal and interest payments for the sales and excise tax revenue bonds.

CRA Debt Service Fund – to provide monies for payment of the 2004 Redevelopment Refunding Revenue Bonds which were issued to defease the 1994 Series. Financing is provided from assessed valuation within the redevelopment area.

Capital Projects Funds

Capital project funds are used to account for the acquisition and construction of major capital facilities other than those financed by proprietary funds.

Stormwater Capital Fund – to account for the capital expenditures of stormwater improvements. Financing is provided by a transfer from the General Fund of matching receipts collected by the stormwater utility fee. CITY OF PENSACOLA, FLORIDA COMBINING BALANCE SHEET NONMAJOR GOVERNMENTAL FUNDS SEPTEMBER 30, 2012

Special Revenue Funds

Local Community Community Special Option Development Redevelopment Grants Gasoline Tax Block Grant Agency

ASSETS

Cash and cash equivalents $ 341,695 $ 1,074,800 $ $ 405,050 Investments 60,735 191,041 71,997 Accounts receivable 65,077 Due from other funds Due from other governments Prepaids and deposits 817 Inventory Notes receivable 411,969 Restricted assets Cash and cash equivalents 1,776 Other cash 12,189 Investments 316 Due from other funds Due from other governments 400,097 142,997 283,745 Notes receivable 777,294 1,215,708

Total assets $ 1,579,821 $ 1,408,838 $ 1,511,642 $ 957,002

LIABILITIES AND FUND BALANCES

Liabilities Accounts payable $ 49,601 $ $ 62,854 $ 13,011 Contracts payable 22,967 273,703 367 Contracts payable - retainage 87,474 39,700 579 Due to other funds 3,286 193,380 21,726 Due to other governments 47,705 Compensated absences payable Deferred revenue 1,307,757 1,215,708 6,263 Deposits 1,000 Total liabilities 1,431,316 361,177 1,511,642 42,946

Fund balances Non-spendable 817 Restricted 1,098,458 1,047,661 913,239 Committed Assigned Unassigned (949,953) Total fund balances 148,505 1,047,661 0 914,056

Total liabilities and fund balances $ 1,579,821 $ 1,408,838 $ 1,511,642 $ 957,002

123 CITY OF PENSACOLA, FLORIDA COMBINING BALANCE SHEET NONMAJOR GOVERNMENTAL FUNDS SEPTEMBER 30, 2012

Special Revenue Funds

Urban Core West Florida Stormwater Law Hurricane Golf Redevelopment Public Utility Enforcement Damage Course Trust Library Fund Trust Fund Fund

ASSETS

Cash and cash equivalents $ $ 426,980 $ 269,515 $ 323,888 $ 508,416 $ 31,406 Investments 75,894 47,905 57,569 90,368 5,582 Accounts receivable 5,750 Due from other funds Due from other governments 125,000 19,592 Prepaids and deposits 6,724 862 3,016 Inventory 3,617 Notes receivable Restricted assets Cash and cash equivalents 1,056,868 247,651 Other cash Investments 187,853 44,019 Due from other funds 1,733,521 Due from other governments Notes receivable

Total assets $ 1,244,721 $ 634,598 $ 337,874 $ 381,457 $ 2,623,975 $ 49,371

LIABILITIES AND FUND BALANCES

Liabilities Accounts payable $ $ 51,547 $ 9,296 $ $ $ 22,920 Contracts payable 4,415 338 Contracts payable - retainage Due to other funds 70,816 40,680 6,966 Due to other governments Compensated absences payable 1,106 15,301 Deferred revenue 4,025 Deposits 3,961 Total liabilities 0 127,884 65,277 0 0 38,210

Fund balances Non-spendable 6,724 862 6,633 Restricted 1,244,721 499,990 13,382 381,457 2,623,975 Committed 258,353 3,866 Assigned 662 Unassigned Total fund balances 1,244,721 506,714 272,597 381,457 2,623,975 11,161

Total liabilities and fund balances $ 1,244,721 $ 634,598 $ 337,874 $ 381,457 $ 2,623,975 $ 49,371 (continued)

124 CITY OF PENSACOLA, FLORIDA COMBINING BALANCE SHEET NONMAJOR GOVERNMENTAL FUNDS SEPTEMBER 30, 2012

Special Revenue Funds

Ea stside Tax Increment Inspections Recreation Tennis Financing District Fund Fund Fund

ASSETS

Cash and cash equivalents $ 382,665 $ 267,078 $ 336,517 $ 55,123 Investments 68,017 47,472 59,814 9,798 Accounts receivable 4,543 3,433 Due from other funds 122,596 Due from other governments Prepaids and deposits 878 586 Inventory Notes receivable Restricted assets Cash and cash equivalents Other cash Investments Due from other funds Due from other governments Notes receivable

Total assets $ 450,682 $ 314,550 $ 524,348 $ 68,940

LIABILITIES AND FUND BALANCES

Liabilities Accounts payable $ $ 17,937 $ 25,690 $ 9,998 Contracts payable Contracts payable - retainage Due to other funds 22,386 1,982 1,252 Due to other governments Compensated absences payable 7,632 Deferred revenue 72 Deposits 88,172 49,063 Total liabilities 0 136,127 76,735 11,322

Fund balances Non-spendable 878 586 Restricted 178,423 4,185 15,256 Committed 450,682 436,966 41,164 Assigned 5,584 612 Unassigned Total fund balances 450,682 178,423 447,613 57,618

Total liabilities and fund balances $ 450,682 $ 314,550 $ 524,348 $ 68,940

125 CITY OF PENSACOLA, FLORIDA COMBINING BALANCE SHEET NONMAJOR GOVERNMENTAL FUNDS SEPTEMBER 30, 2012

Special Debt Service Capital Projects Revenue Funds Funds Funds Total CMPA Tax & Nonmajor Management Franchise Fee CRA Stormwater Governmental Services Fund Debt Service Debt Service Capital Funds

ASSETS

Cash and cash equivalents $ $ $ $ 591,593 $ 5,014,726 Investments 105,153 891,345 Accounts receivable 78,803 Due from other funds 122,596 Due from other governments 144,592 Prepaids and deposits 12,647 25,530 Inventory 3,617 Notes receivable 411,969 Restricted assets Cash and cash equivalents 2,806,039 364,607 2,253,521 6,730,462 Other cash 12,189 Investments 498,761 64,807 400,553 1,196,309 Due from other funds 1,733,521 Due from other governments 175,963 1,002,802 Notes receivable 1,993,002

Total assets $ 188,610 $ 3,304,800 $ 429,414 $ 3,350,820 $ 19,361,463

LIABILITIES AND FUND BALANCES

Liabilities Accounts payable $ 78,022 $ $ $ 24,444 $ 365,320 Contracts payable 23,500 168 325,458 Contracts payable - retainage 85,510 213,263 Due to other funds 125,865 488,339 Due to other governments 47,705 Compensated absences payable 24,039 Deferred revenue 2,533,825 Deposits 142,196 Total liabilities 227,387 0 0 110,122 4,140,145

Fund balances Non-spendable 12,647 29,147 Restricted 85,000 3,304,800 429,414 224,055 12,064,016 Committed 3,016,643 4,207,674 Assigned 6,858 Unassigned (136,424) (1,086,377) Total fund balances (38,777) 3,304,800 429,414 3,240,698 15,221,318

Total liabilities and fund balances $ 188,610 $ 3,304,800 $ 429,414 $ 3,350,820 $ 19,361,463

126 CITY OF PENSACOLA, FLORIDA COMBINING SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE NONMAJOR GOVERNMENTAL FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2012

Special Revenue Funds

Local Community Community Special Option Development Redevelopment Grants Gasoline Tax Block Grant Agency Revenues: Taxes $ $ 1,557,013 $ $ Licenses and permits Intergovernmental 1,247,780 1,092,727 Charges for services 96,811 Fines and forfeits Interest income 6 2,082 12,335 Donations 118,491 30,114 Other Total revenues 1,366,277 1,559,095 1,105,062 126,925

Expenditures: Current - General government 687,613 3,256,943 Public safety 331,140 Transportation 249,640 48,180 Culture and recreation 20,734 Economic environment 181,829 Physical environment Capital outlay 598,061 2,094,724 418,799 21,749 Debt service - Principal retirement Interest Total expenditures 1,381,404 2,142,904 1,106,412 3,278,692

Excess (deficiency) of revenues over (under) expenditures (15,127) (583,809) (1,350) (3,151,767)

Other financing sources (uses): Transfers in 500,000 3,879,536 Transfers (out) Sale of capital assets 1,350 Total other financing sources (uses) 0 500,000 1,350 3,879,536

Net change in fund balances (15,127) (83,809) 0 727,769

Fund balances at beginning of year 163,632 1,131,470 0 186,287 Fund balances at end of year $ 148,505 $ 1,047,661 $ 0 $ 914,056

(continued)

127 CITY OF PENSACOLA, FLORIDA COMBINING SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE NONMAJOR GOVERNMENTAL FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2012

Special Revenue Funds

Urban Core West Florida Stormwater Law Hurricane Golf Redevelopment Public Utility Enforcement Damage Course Trust Library Fund Trust Fund Fund Revenues: Taxes $ $ $ $ $ $ Licenses and permits Intergovernmental 2,512,106 3,571,917 1,201,312 Charges for services 2,631,250 611,088 Fines and forfeits 131,292 5,231 89,316 Interest income 5,004 789 1,344 696 4,208 85 Donations 1,481 Other 19,000 23 Total revenues 2,517,110 3,724,479 2,637,848 90,012 1,205,520 611,173

Expenditures: Current - General government 2,370 Public safety 135,180 7,768 Transportation Culture and recreation 4,508,791 739,037 Economic environment Physical environment 2,331,996 Capital outlay 326,865 64,637 Debt service - Principal retirement Interest Total expenditures 0 4,835,656 2,396,633 135,180 10,138 739,037

Excess (deficiency) of revenues over (under) expenditures 2,517,110 (1,111,177) 241,215 (45,168) 1,195,382 (127,864)

Other financing sources (uses): Transfers in 1,441,891 1,327,300 110,000 Transfers (out) (4,386,619) Sale of capital assets 3,480 Total other financing sources (uses) (2,944,728) 1,330,780 0 0 0 110,000

Net change in fund balances (427,618) 219,603 241,215 (45,168) 1,195,382 (17,864)

Fund balances at beginning of year 1,672,339 287,111 31,382 426,625 1,428,593 29,025 Fund balances at end of year $ 1,244,721 $ 506,714 $ 272,597 $ 381,457 $ 2,623,975 $ 11,161

(continued)

128 CITY OF PENSACOLA, FLORIDA COMBINING SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE NONMAJOR GOVERNMENTAL FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2012

Special Revenue Funds

Ea stside Tax Increment Inspections Recreation Tennis Financing District Fund Fund Fund Revenues: Taxes $ $ $ $ Licenses and permits 1,071,054 Intergovernmental 57,533 Charges for services 785,832 214,421 Fines and forfeits Interest income 792 480 915 124 Donations 1,629 Other 154 Total revenues 58,325 1,071,534 788,530 214,545

Expenditures: Current - General government 8,570 Public safety 907,079 Transportation Culture and recreation 761,817 249,677 Economic environment Physical environment Capital outlay Debt service - Principal retirement Interest Total expenditures 8,570 907,079 761,817 249,677

Excess (deficiency) of revenues over (under) expenditures 49,755 164,455 26,713 (35,132)

Other financing sources (uses): Transfers in 35,380 Transfers (out) Sale of capital assets Total other financing sources (uses) 35,380 0 0 0

Net Change in fund balances 85,135 164,455 26,713 (35,132)

Fund balances at beginning of year 365,547 13,968 420,900 92,750 Fund balances at end of year $ 450,682 $ 178,423 $ 447,613 $ 57,618

(continued)

129 CITY OF PENSACOLA, FLORIDA COMBINING SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE NONMAJOR GOVERNMENTAL FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2012

Special Debt Service Capital Projects Revenue Funds Funds Funds Total CMPA Tax & Nonmajor Management Franchise Fee CRA Stormwater Governmental Services Fund Debt Service Debt Service Capital Funds Revenues: Taxes $ $ $ $ $ 1,557,013 Licenses and permits 1,071,054 Intergovernmental 9,683,375 Charges for services 270,716 4,610,118 Fines and forfeits 225,839 Interest income 2,331 6,303 37,494 Donations 48,250 199,965 Other 19,177 Total revenues 318,966 0 2,331 6,303 17,404,035

Expenditures: Current - General government 3,955,496 Public safety 1,381,167 Transportation 297,820 Culture and recreation 357,743 6,637,799 Economic environment 181,829 Physical environment 438,644 2,770,640 Capital outlay 2,706,257 6,231,092 Debt service - Principal retirement 3,105,000 399,241 3,504,241 Interest 191,513 30,173 221,686 Total expenditures 357,743 3,296,513 429,414 3,144,901 25,181,770

Excess (deficiency) of revenues over (under) expenditures (38,777) (3,296,513) (427,083) (3,138,598) (7,777,735)

Other financing sources (uses): Transfers in 3,069,688 427,083 6,032,341 16,823,219 Transfers (out) (3,495,507) (7,882,126) Sale of capital assets 4,830 Total other financing sources (uses) 0 3,069,688 427,083 2,536,834 8,945,923

Net change in fund balances (38,777) (226,825) 0 (601,764) 1,168,188

Fund balances at beginning of year 0 3,531,625 429,414 3,842,462 14,053,130 Fund balances at end of year $ (38,777) $ 3,304,800 $ 429,414 $ 3,240,698 $ 15,221,318

130 CITY OF PENSACOLA, FLORIDA SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE – BUDGET AND ACTUAL LOCAL OPTION SALES FUND FOR THE YEAR ENDED SEPTEMBER 30, 2012

Variance w ith Final Budget - Budget Actual Positive/(Negative)

Revenues: Taxes $ 6,401,800 $ 6,401,758 $ (42) Interest income 900 883 (17)

Total revenues 6,402,700 6,402,641 (59)

Expenditures: Current - General government Public Safety 104,407 104,404 3 Culture and recreation 36,218 32,118 4,100 Capital outlay 17,170,633 8,207,027 8,963,606 Debt service - Principal retirement 311,161 311,161 Interest 877,300 877,237 63 Total expenditures 18,499,719 9,220,786 9,278,933

Excess (deficiency) of revenues over (under) expenditures (12,097,019) (2,818,145) 9,278,874

Net change in fund balances (12,097,019) (2,818,145) 9,278,874

Fund balances at beginning of year 12,097,019 4,190,031 (7,906,988) Fund balances at end of year $ 0 $ 1,371,886 $ 1,371,886

131 CITY OF PENSACOLA, FLORIDA SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE – BUDGET AND ACTUAL MARITIME COMMUNITY PARK CONSTRUCTION FUND FOR THE YEAR ENDED SEPTEMBER 30, 2012

Variance w ith Final Budget - Budget Actual Positive/(Negative)

Revenues: Intergovernmental $ 978,200 $ 978,239 $ 39 Charges for services 199,600 206,273 6,673 Interest income 1,847,800 1,859,422 11,622 Other 5,513 5,513

Total revenues 3,025,600 3,049,447 23,847

Expenditures: Current - Culture and recreation 5,232,900 3,221,515 2,011,385 Debt service - Interest 3,063,500 3,063,481 19 Total expenditures 8,296,400 6,284,996 2,011,404

Excess (deficiency) of revenues over (under) expenditures (5,270,800) (3,235,549) 2,035,251

Other financing sources (uses): Transfers in 80,000 80,000 0 Total other financing sources (uses) 80,000 80,000 0

Net change in fund balances (5,190,800) (3,155,549) 2,035,251

Fund balances at beginning of year 5,190,800 49,728,167 44,537,367 Fund balances at end of year $ 0 $ 46,572,618 $ 46,572,618

132 CITY OF PENSACOLA, FLORIDA COMBINING SCHEDULES OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE–BUDGET AND ACTUAL (GAAP BASIS) NONMAJOR GOVERNMENTAL FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2012

Special Grants Variance Positive/ Budget Actual (Negative)

Revenues: Taxes $ $ $ Licenses and permits Intergovernmental 5,269,946 1,247,780 (4,022,166) Charges for services Fines and forfeits Interest income 28,955 6 (28,949) Donations 559,603 118,491 (441,112) Other Total revenues 5,858,504 1,366,277 (4,492,227)

Expenditures: Current - General government Public safety 894,028 331,140 562,888 Transportation 250,000 249,640 360 Culture and recreation 123,922 20,734 103,188 Economic environment 827,071 181,829 645,242 Physical environment Capital outlay 3,919,555 598,061 3,321,494 Debt service - Principal retirement Interest Total expenditures 6,014,576 1,381,404 4,633,172 Excess (deficiency) of revenues over (under) expenditures (156,072) (15,127) 140,945

Other financing sources (uses): Transfers in Transfers (out) Sale of capital assets Total other financing sources (uses) 0 0 0

(156,072) (15,127) 140,945 Net change in fund balances Fund balances at beginning of year 156,072 163,632 7,560

Fund balances at end of year $ 0 $ 148,505 $ 148,505

(continued)

133 CITY OF PENSACOLA, FLORIDA COMBINING SCHEDULES OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE–BUDGET AND ACTUAL (GAAP BASIS) NONMAJOR GOVERNMENTAL FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2012

Local Option Gasoline Tax Community Development Block Grant Variance Variance Positive/ Positive/ Budget Actual (Negative) Budget Actual (Negative)

Revenues: Taxes $ 1,555,500 $ 1,557,013 $ 1,513 $ $ $ Licenses and permits Intergovernmental 1,741,100 1,092,727 (648,373) Charges for services Fines and forfeits Interest income 400 2,082 1,682 12,335 12,335 Donations 65,000 (65,000) Other Total revenues 1,620,900 1,559,095 (61,805) 1,741,100 1,105,062 (636,038)

Expenditures: Current - General government 1,274,400 687,613 586,787 Public safety Transportation 55,453 48,180 7,273 Culture and recreation Economic environment Physical environment Capital outlay 3,196,917 2,094,724 1,102,193 466,700 418,799 47,901 Debt service - Principal retirement Interest Total expenditures 3,252,370 2,142,904 1,109,466 1,741,100 1,106,412 634,688 Excess (deficiency) of revenues over (under) expenditures (1,631,470) (583,809) 1,047,661 0 (1,350) (1,350)

Other financing sources (uses): Transfers in 500,000 500,000 0 Transfers (out) Sale of capital assets 1,350 1,350 Total other financing sources (uses) 500,000 500,000 0 0 1,350 1,350

(1,131,470) (83,809) 1,047,661 0 0 0 Net change in fund balances Fund balances at beginning of year 1,131,470 1,131,470 0 0 0 0

Fund balances at end of year $ 0 $ 1,047,661 $ 1,047,661 $ 0 $ 0 $ 0

(continued)

134 CITY OF PENSACOLA, FLORIDA COMBINING SCHEDULES OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE–BUDGET AND ACTUAL (GAAP BASIS) NONMAJOR GOVERNMENTAL FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2012

Community Redevelopment Agency Variance Positive/ Budget Actual (Negative)

Revenues: Taxes $ $ $ Licenses and permits Intergovernmental Charges for services 116,500 96,811 (19,689) Fines and forfeits Interest income Donations 25,000 30,114 5,114 Other 7,800 (7,800) Total revenues 149,300 126,925 (22,375)

Expenditures: Current - General government 4,326,825 3,256,943 1,069,882 Public safety Transportation Culture and recreation Economic environment Physical environment Capital outlay 1,120,060 21,749 1,098,311 Debt service - Principal retirement Interest Total expenditures 5,446,885 3,278,692 2,168,193 Excess (deficiency) of revenues over (under) expenditures (5,297,585) (3,151,767) 2,145,818

Other financing sources (uses): Transfers in 5,121,837 3,879,536 (1,242,301) Transfers (out) Sale of capital assets Total other financing sources (uses) 5,121,837 3,879,536 (1,242,301)

(175,748) 727,769 903,517 Net change in fund balances Fund balances at beginning of year 175,748 186,287 10,539

Fund balances at end of year $ 0 $ 914,056 $ 914,056

(continued)

135 CITY OF PENSACOLA, FLORIDA COMBINING SCHEDULES OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE–BUDGET AND ACTUAL (GAAP BASIS) NONMAJOR GOVERNMENTAL FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2012

Urban Core Redevelopment Trust West Florida Public Library Variance Variance Positive/ Positive/ Budget Actual (Negative) Budget Actual (Negative)

Revenues: Taxes $ $ $ $ $ $ Licenses and permits Intergovernmental 2,512,106 2,512,106 0 3,571,900 3,571,917 17 Charges for services Fines and forfeits 131,300 131,292 (8) Interest income 5,000 5,004 4 789 789 Donations 1,400 1,481 81 Other 19,000 19,000 Total revenues 2,517,106 2,517,110 4 3,723,600 3,724,479 879

Expenditures: Current - General government Public safety Transportation Culture and recreation 4,737,360 4,508,791 228,569 Economic environment Physical environment Capital outlay 600,366 326,865 273,501 Debt service - Principal retirement Interest Total expenditures 0 0 0 5,337,726 4,835,656 502,070 Excess (deficiency) of revenues over (under) expenditures 2,517,106 2,517,110 4 (1,614,126) (1,111,177) 502,949

Other financing sources (uses): Transfers in 1,441,891 1,441,891 0 1,327,300 1,327,300 0 Transfers (out) (5,631,337) (4,386,619) 1,244,718 Sale of capital assets 3,500 3,480 (20) Total other financing sources (uses) (4,189,446) (2,944,728) 1,244,718 1,330,800 1,330,780 (20)

(1,672,340) (427,618) 1,244,722 (283,326) 219,603 502,929 Net change in fund balances Fund balances at beginning of year 1,672,340 1,672,339 (1) 283,326 287,111 3,785

Fund balances at end of year $ 0 $ 1,244,721 $ 1,244,721 $ 0 $ 506,714 $ 506,714

(continued)

136 CITY OF PENSACOLA, FLORIDA COMBINING SCHEDULES OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE–BUDGET AND ACTUAL (GAAP BASIS) NONMAJOR GOVERNMENTAL FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2012

Stormwater Utility Fund Variance Positive/ Budget Actual (Negative)

Revenues: Taxes $ $ $ Licenses and permits Intergovernmental Charges for services 2,623,450 2,631,250 7,800 Fines and forfeits 10,000 5,231 (4,769) Interest income 1,344 1,344 Donations Other 23 23 Total revenues 2,633,450 2,637,848 4,398

Expenditures: Current - General government Public safety Transportation Culture and recreation Economic environment Physical environment 2,576,812 2,331,996 244,816 Capital outlay 64,638 64,637 1 Debt service - Principal retirement Interest Total expenditures 2,641,450 2,396,633 244,817 Excess (deficiency) of revenues over (under) expenditures (8,000) 241,215 249,215

Other financing sources (uses): Transfers in Transfers (out) Sale of capital assets Total other financing sources (uses) 0 0 0

(8,000) 241,215 249,215 Net change in fund balances Fund balances at beginning of year 8,000 31,382 23,382

Fund balances at end of year $ 0 $ 272,597 $ 272,597

(continued)

137 CITY OF PENSACOLA, FLORIDA COMBINING SCHEDULES OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE–BUDGET AND ACTUAL (GAAP BASIS) NONMAJOR GOVERNMENTAL FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2012

Law Enforcement Trust Hurricane Damage Fund Variance Variance Positive/ Positive/ Budget Actual (Negative) Budget Actual (Negative)

Revenues: Taxes $ $ $ $ $ $ Licenses and permits Intergovernmental 1,201,300 1,201,312 12 Charges for services Fines and forfeits 89,300 89,316 16 Interest income 700 696 (4) 4,200 4,208 8 Donations Other Total revenues 90,000 90,012 12 1,205,500 1,205,520 20

Expenditures: Current - General government 2,370 (2,370) Public safety 204,988 135,180 69,808 7,768 (7,768) Transportation Culture and recreation 154 154 Economic environment Physical environment Capital outlay 11,640 11,640 Debt service - Principal retirement Interest Total expenditures 216,628 135,180 81,448 154 10,138 (9,984) Excess (deficiency) of revenues over (under) expenditures (126,628) (45,168) 81,460 1,205,346 1,195,382 (9,964)

Other financing sources (uses): Transfers in Transfers (out) Sale of capital assets Total other financing sources (uses) 0 0 0 0 0 0

(126,628) (45,168) 81,460 1,205,346 1,195,382 (9,964) Net change in fund balances Fund balances at beginning of year 126,628 426,625 299,997 (1,205,346) 1,428,593 2,633,939

Fund balances at end of year $ 0 $ 381,457 $ 381,457 $ 0 $ 2,623,975 $ 2,623,975

(continued)

138 CITY OF PENSACOLA, FLORIDA COMBINING SCHEDULES OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE–BUDGET AND ACTUAL (GAAP BASIS) NONMAJOR GOVERNMENTAL FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2012

Golf Course Fund Variance Positive/ Budget Actual (Negative)

Revenues: Taxes $ $ $ Licenses and permits Intergovernmental Charges for services 608,900 611,088 2,188 Fines and forfeits Interest income 85 85 Donations Other Total revenues 608,900 611,173 2,273

Expenditures: Current - General government Public safety Transportation Culture and recreation 739,600 739,037 563 Economic environment Physical environment Capital outlay Debt service - Principal retirement Interest Total expenditures 739,600 739,037 563 Excess (deficiency) of revenues over (under) expenditures (130,700) (127,864) 2,836

Other financing sources (uses): Transfers in 110,000 110,000 0 Transfers (out) Sale of capital assets Total other financing sources (uses) 110,000 110,000 0

(20,700) (17,864) 2,836 Net change in fund balances Fund balances at beginning of year 20,700 29,025 8,325

Fund balances at end of year $ 0 $ 11,161 $ 11,161

(continued)

139 CITY OF PENSACOLA, FLORIDA COMBINING SCHEDULES OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE–BUDGET AND ACTUAL (GAAP BASIS) NONMAJOR GOVERNMENTAL FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2012

Eastside Tax Increment Financing District Fund Inspections Fund Variance Variance Positive/ Positive/ Budget Actual (Negative) Budget Actual (Negative)

Revenues: Taxes $ $ $ $ $ $ Licenses and permits 1,071,100 1,071,054 (46) Intergovernmental 57,534 57,533 (1) Charges for services Fines and forfeits Interest income 792 792 500 480 (20) Donations Other Total revenues 57,534 58,325 791 1,071,600 1,071,534 (66)

Expenditures: Current - General government 332,060 8,570 323,490 Public safety 928,100 907,079 21,021 Transportation Culture and recreation Economic environment Physical environment Capital outlay 126,400 126,400 Debt service - Principal retirement Interest Total expenditures 458,460 8,570 449,890 928,100 907,079 21,021 Excess (deficiency) of revenues over (under) expenditures (400,926) 49,755 450,681 143,500 164,455 20,955

Other financing sources (uses): Transfers in 35,380 35,380 0 Transfers (out) Sale of capital assets Total other financing sources (uses) 35,380 35,380 0 0 0 0

(365,546) 85,135 450,681 143,500 164,455 20,955 Net change in fund balances Fund balances at beginning of year 365,546 365,547 1 (143,500) 13,968 157,468

Fund balances at end of year $ 0 $ 450,682 $ 450,682 $ 0 $ 178,423 $ 178,423

(continued)

140 CITY OF PENSACOLA, FLORIDA COMBINING SCHEDULES OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE–BUDGET AND ACTUAL (GAAP BASIS) NONMAJOR GOVERNMENTAL FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2012

Recreation Fund Variance Positive/ Budget Actual (Negative)

Revenues: Taxes $ $ $ Licenses and permits Intergovernmental Charges for services 779,900 785,832 5,932 Fines and forfeits Interest income 1,500 915 (585) Donations 1,629 1,629 Other 154 154 Total revenues 781,400 788,530 7,130

Expenditures: Current - General government Public safety Transportation Culture and recreation 781,400 761,817 19,583 Economic environment Physical environment Capital outlay Debt service - Principal retirement Interest Total expenditures 781,400 761,817 19,583 Excess (deficiency) of revenues over (under) expenditures 0 26,713 26,713

Other financing sources (uses): Transfers in Transfers (out) Sale of capital assets Total other financing sources (uses) 0 0 0

0 26,713 26,713 Net change in fund balances Fund balances at beginning of year 0 420,900 420,900

Fund balances at end of year $ 0 $ 447,613 $ 447,613

(continued)

141 CITY OF PENSACOLA, FLORIDA COMBINING SCHEDULES OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE–BUDGET AND ACTUAL (GAAP BASIS) NONMAJOR GOVERNMENTAL FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2012

Tennis Fund CMPA Management Services Fund Variance Variance Positive/ Positive/ Budget Actual (Negative) Budget Actual (Negative)

Revenues: Taxes $ $ $ $ $ $ Licenses and permits Intergovernmental Charges for services 209,300 214,421 5,121 332,900 270,716 (62,184) Fines and forfeits Interest income 124 124 Donations 68,600 48,250 (20,350) Other 93,700 (93,700) Total revenues 209,300 214,545 5,245 495,200 318,966 (176,234)

Expenditures: Current - General government Public safety Transportation Culture and recreation 264,980 249,677 15,303 420,200 357,743 62,457 Economic environment Physical environment Capital outlay 75,000 75,000 Debt service - Principal retirement Interest Total expenditures 264,980 249,677 15,303 495,200 357,743 137,457 Excess (deficiency) of revenues over (under) expenditures (55,680) (35,132) 20,548 0 (38,777) (38,777)

Other financing sources (uses): Transfers in Transfers (out) Sale of capital assets Total other financing sources (uses) 0 0 0 0 0 0

(55,680) (35,132) 20,548 0 (38,777) (38,777) Net change in fund balances Fund balances at beginning of year 55,680 92,750 37,070 0 0 0

Fund balances at end of year $ 0 $ 57,618 $ 57,618 $ 0 $ (38,777) $ (38,777)

(continued)

142 CITY OF PENSACOLA, FLORIDA COMBINING SCHEDULES OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE–BUDGET AND ACTUAL (GAAP BASIS) NONMAJOR GOVERNMENTAL FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2012

Tax & Franchise Fee Debt Service Variance Positive/ Budget Actual (Negative)

Revenues: Taxes $ $ $ Licenses and permits Intergovernmental Charges for services Fines and forfeits Interest income Donations Other Total revenues 0 0 0

Expenditures: Current - General government Public safety Transportation Culture and recreation Economic environment Physical environment Capital outlay Debt service - Principal retirement 3,105,000 3,105,000 0 Interest 191,600 191,513 87 Total expenditures 3,296,600 3,296,513 87 Excess (deficiency) of revenues over (under) expenditures (3,296,600) (3,296,513) 87

Other financing sources (uses): Transfers in 3,069,800 3,069,688 (112) Transfers (out) Sale of capital assets Total other financing sources (uses) 3,069,800 3,069,688 (112)

(226,800) (226,825) (25) Net change in fund balances Fund balances at beginning of year 226,800 3,531,625 3,304,825

Fund balances at end of year $ 0 $ 3,304,800 $ 3,304,800

(continued)

143 CITY OF PENSACOLA, FLORIDA COMBINING SCHEDULES OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE–BUDGET AND ACTUAL (GAAP BASIS) NONMAJOR GOVERNMENTAL FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2012

CRA Debt Service Fund Stormwater Capital Fund Variance Variance Positive/ Positive/ Budget Actual (Negative) Budget Actual (Negative)

Revenues: Taxes $ $ $ $ $ $ Licenses and permits Intergovernmental Charges for services Fines and forfeits Interest income 2,331 2,331 6,300 6,303 3 Donations Other Total revenues 0 2,331 2,331 6,300 6,303 3

Expenditures: Current - General government Public safety Transportation Culture and recreation Economic environment Physical environment 578,452 438,644 139,808 Capital outlay 5,804,165 2,706,257 3,097,908 Debt service - Principal retirement 399,300 399,241 59 Interest 30,200 30,173 27 Total expenditures 429,500 429,414 86 6,382,617 3,144,901 3,237,716 Excess (deficiency) of revenues over (under) expenditures (429,500) (427,083) 2,417 (6,376,317) (3,138,598) 3,237,719

Other financing sources (uses): Transfers in 429,500 427,083 (2,417) 6,133,850 6,032,341 (101,509) Transfers (out) (3,600,000) (3,495,507) 104,493 Sale of capital assets Total other financing sources (uses) 429,500 427,083 (2,417) 2,533,850 2,536,834 2,984

0 0 0 (3,842,467) (601,764) 3,240,703 Net change in fund balances Fund balances at beginning of year 0 429,414 429,414 3,842,467 3,842,462 (5)

Fund balances at end of year $ 0 $ 429,414 $ 429,414 $ 0 $ 3,240,698 $ 3,240,698

(continued)

144 CITY OF PENSACOLA, FLORIDA COMBINING SCHEDULES OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE–BUDGET AND ACTUAL (GAAP BASIS) NONMAJOR GOVERNMENTAL FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2012

Total Nonmajor Governmental Funds Variance Positive/ Budget Actual (Negative)

Revenues: Taxes $ 1,555,500 $ 1,557,013 $ 1,513 Licenses and permits 1,071,100 1,071,054 (46) Intergovernmental 14,353,886 9,683,375 (4,670,511) Charges for services 4,670,950 4,610,118 (60,832) Fines and forfeits 230,600 225,839 (4,761) Interest income 47,555 37,494 (10,061) Donations 719,603 199,965 (519,638) Other 120,500 19,177 (101,323) Total revenues 22,769,694 17,404,035 (5,365,659)

Expenditures: Current - General government 5,933,285 3,955,496 1,977,789 Public safety 2,027,116 1,381,167 645,949 Transportation 305,453 297,820 7,633 Culture and recreation 7,067,616 6,637,799 429,817 Economic environment 827,071 181,829 645,242 Physical environment 3,155,264 2,770,640 384,624 Capital outlay 15,385,441 6,231,092 9,154,349 Debt service - Principal retirement 3,504,300 3,504,241 59 Interest 221,800 221,686 114 Total expenditures 38,427,346 25,181,770 13,245,576 Excess (deficiency) of revenues over (under) expenditures (15,657,652) (7,777,735) 7,879,917

Other financing sources (uses): Transfers in 18,169,558 16,823,219 (1,346,339) Transfers (out) (9,231,337) (7,882,126) 1,349,211 Sale of capital assets 3,500 4,830 1,330 Total other financing sources (uses) 8,941,721 8,945,923 4,202

(6,715,931) 1,168,188 7,884,119 Net change in fund balances Fund balances at beginning of year 6,715,931 14,053,130 7,337,199

Fund balances at end of year $ 0 $ 15,221,318 $ 15,221,318

145

INTERNAL SERVICE FUNDS

Internal service funds are used to account for the financing of goods or services provided by one department to other departments of the government on a cost reimbursement basis.

General Stock Account - to account for the cost of operating a central warehouse facility used by other City departments. Material purchases are recovered from the users.

Insurance Retention Fund - to account for the City's self-insurance program.

Central Services Fund - to account for the operation of the City Mail Room, Management Information Services, Engineering, and City Garage Facilities.

CITY OF PENSACOLA, FLORIDA COMBINING STATEMENT OF NET ASSETS INTERNAL SERVICE FUNDS SEPTEMBER 30, 2012

Insurance Central General Retention Services ASSETS Stock Account Fund Fund Total

Current assets Cash and cash equivalents $ 70,119 $ 574,711 $ 770,943 $ 1,415,773 Investments 12,463 173,100 137,032 322,595 Accounts receivable (net) 276,129 276,129 Due from other funds 2,657,205 2,657,205 Prepaid expenses 183,849 38,943 222,792 Inventory 580,788 580,788 Total current assets 663,370 3,864,994 946,918 5,475,282

Noncurrent assets Prepaid expense 210,320 210,320 Advances to other funds 783,325 783,325 Restricted assets Cash and cash equivalents 2,809,173 2,809,173 Investments 499,317 499,317 Capital assets Non-depreciable 84,296 84,296 Depreciable (net) 2,580,963 2,580,963 Total noncurrent assets 0 4,386,431 2,580,963 6,967,394

Tota l a sse ts $ 663,370 $ 8,251,425 $ 3,527,881 $ 12,442,676

LIABILITIES

Current liabilities Accounts payable $ $ $ 29,163 $ 29,163 Due to other funds 13,412 132,628 146,040 Deposits 17,679 17,679 Total current liabilities 0 31,091 161,791 192,882

Noncurrent liabilities Compensated absences payable 17,093 307,213 324,306 Advances from other funds 18,458 18,458 Claims and judgments payable 2,361,442 2,361,442 Net OPEB obligation 51,483 444,085 495,568 Total noncurrent liabilities 0 2,430,018 769,756 3,199,774

Total liabilities 0 2,461,109 931,547 3,392,656

Net assets Investment in capital assets, net of related debt 84,296 2,580,963 2,665,259 Unrestricted 663,370 5,706,020 15,371 6,384,761

Total net assets 663,370 5,790,316 2,596,334 9,050,020

Total liabilities and net assets $ 663,370 $ 8,251,425 $ 3,527,881 $ 12,442,676

146 CITY OF PENSACOLA, FLORIDA COMBINING STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET ASSETS INTERNAL SERVICE FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2012

General Insurance Central Stock Retention Services Account Fund Fund Total Operating revenues: Charges for services $ $ $ 4,700,539 $ 4,700,539 Health 8,895,550 8,895,550 Dental 317,565 317,565 Vision 25,820 25,820 Life 257,042 257,042 Survivor disability 295,713 295,713 Liability 4,738,751 4,738,751 Other 432,162 2,056 434,218 Total operating revenues 0 14,962,603 4,702,595 19,665,198

Operating expenses: Salaries and employee benefits 453,274 3,281,803 3,735,077 Materials and supplies 26,352 141,194 167,546 Repairs and maintenance 9,799 31,788 41,587 Contractual services 81,570 437,177 518,747 Office and utilities 38,960 252,788 291,748 Premiums and claims expense - General liability 2,634,404 2,634,404 Workmen's compensation 1,145,588 1,145,588 Auto 178,709 178,709 Health 8,647,105 8,647,105 Dental 316,454 316,454 Vision 26,683 26,683 Life 258,842 258,842 Survivor disability 294,565 294,565 Total operating expenses before depreciation 0 14,112,305 4,144,750 18,257,055

Operating income (loss) before depreciation 0 850,298 557,845 1,408,143

Depreciation 426,106 426,106

Operating income (loss) 0 850,298 131,739 982,037

Nonoperating revenues (expenses): Investment interest 26,694 4,437 31,131 Gain (loss) on disposal of capital assets 622 622 Total nonoperating revenues 0 26,694 5,059 31,753

Income (loss) before contributions and transfers: 0 876,992 136,798 1,013,790

Contributions and transfers: Transfers (out) (597,700) (597,700) Total contributions and transfers 0 0 (597,700) (597,700)

Change in net assets 0 876,992 (460,902) 416,090

Net assets at beginning of year 663,370 4,913,324 3,057,236 8,633,930

Net assets at end of year $ 663,370 $ 5,790,316 $ 2,596,334 $ 9,050,020

147 CITY OF PENSACOLA, FLORIDA COMBINING STATEMENT OF CASH FLOWS INTERNAL SERVICE FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2012

General Insurance Central Stock Retention Services Account Fund Fund Total

Cash flows from operating activities: Cash received from customers $ (448) $ 8,971,660 $ 4,702,595 $ 13,673,807 Cash received from other funds 4,053,330 4,053,330 Cash payments to suppliers for goods and services (13,832,200) (840,132) (14,672,332) Cash payments to employees for services (445,045) (3,241,914) (3,686,959) Net cash provided by (used for) operating activities (448) (1,252,255) 620,549 (632,154)

Cash flows from noncapital financing activities: Advance from other funds (177,029) (177,029) Transfer out (597,700) (597,700) Net cash provided by (used for) noncapital financing activities 0 (177,029) (597,700) (774,729)

Cash flows from capital and related financing activities: Acquisition of capital assets (84,296) (131,965) (216,261) Proceeds from sale of assets 808 808 Net cash provided by (used for) capital and related financing activities 0 (84,296) (131,157) (215,453)

Cash flows from investing activities: (Purchase)/sale of investments (12,463) (603,503) (137,032) (752,998) Interest on investments 26,694 4,437 31,131 Net cash provided by (used for) investing activities (12,463) (576,809) (132,595) (721,867)

Net increase (decrease) in cash and cash equivalents (12,911) (2,090,389) (240,903) (2,344,203)

Cash and cash equivalents at beginning of year 83,030 5,474,272 1,011,846 6,569,148

Cash and cash equivalents of end of year $ 70,119 $ 3,383,883 $ 770,943 $ 4,224,945

148 CITY OF PENSACOLA, FLORIDA COMBINING STATEMENT OF CASH FLOWS RECONCILIATION OF OPERATING INCOME TO NET CASH INTERNAL SERVICE FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2012

General Insurance Central Stock Retention Services Account Fund Fund Total

Operating income (loss) $ $ 850,298 $ 131,739 $ 982,037 Adjustments to reconcile operating income to net cash provided by (used for) operating activities: Depreciation 426,106 426,106

Change in assets and liabilities: (Increase) decrease in accounts receivable 303,165 303,165 (Increase) decrease in inventory (448) (448) (Increase) decrease in due from other funds (2,244,721) (2,244,721) (Increase) decrease in due from other governments 0 (Increase) decrease in prepaid expenses (179,854) (2,435) (182,289) Increase (decrease) in accounts payable (102,253) 25,250 (77,003) Increase (decrease) in contracts payable (11,404) (11,404) Increase (decrease) in due to other funds (569) 1,384 815 Increase (decrease) in deposits 3,943 3,943 Increase (decrease) in claims and judgments 120,342 120,342 Increase (decrease) in compensated absences (218) (45,492) (45,710) Increase (decrease) in net OPEB obligation 9,016 83,997 93,013 Net cash provided by (used for) operating activities $ (448) $ (1,252,255) $ 620,549 $ (632,154)

Noncash investing, capital, and financing activities:

General Insurance Central Stock Retention Services Account Fund Fund Total

Gain (loss) on disposal of capital assets $ - $ - $ (186) $ (186) Transfer of capital assets to other funds - - 97,700 97,700

149

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FIDUCIARY FUNDS

Fiduciary funds are trust funds used to account for assets held by the City in a trustee capacity for individuals, other governmental units and/or other funds.

PENSION TRUST FUNDS

Pension Trust Funds account for financial operations of the City’s three pension plans.

General Pension and Retirement Fund – to account for the accumulation of resources to be used for pension and retirement payments for substantially all City employees except for those in the Fire and Police Pension Funds. Resources are contributed by employees and the City at actuarially determined rates. On June 18, 2007 the City’s General Pension was closed to all new employees. Existing general employees were given the option to participate in the Florida Retirement System or remain in the City’s General Pension.

Firemen’s Relief and Pension Fund – to account for the accumulation of resources to be used for pension and retirement payments for all firefighters. Resources are contributed by employees and the City at actuarially determined rates.

Police Officer’s Retirement Fund – to account for the accumulation of resources to be used for pension and retirement payments for all police officers. Resources are contributed by employees and the City at actuarially determined rates.

CITY OF PENSACOLA, FLORIDA COMBINING STATEMENT OF FIDUCIARY NET ASSETS FIDUCIARY FUNDS SEPTEMBER 30, 2012

General Firemen's Police Pension and Relief and Officers' Retirement Pension Retirement Total Pension ASSETS Fund Fund Fund Trust Funds Other cash $ 70,554 $ 138,169 $ 64,892 $ 273,615

Receivables Employer 270,102 95,381 172,655 538,138 Employee 16,840 17,076 1,078 34,994 Commission Recapture 800 1,831 2,631 Total receivables 287,742 114,288 173,733 575,763 Investments Short term investments 1,911,426 7,066,854 713,227 9,691,507 Debt Securities & Bond Mutual Funds 33,601,580 26,375,550 16,645,739 76,622,869 Stock Mutual Funds 15,819,166 15,819,166 Mortgage Backed Securities 9,876,647 3,723,332 8,078,465 21,678,444 Commingled Trust Fund 12,550,574 2,829,940 15,380,514 Domestic Stocks 54,857,636 43,715,105 36,249,862 134,822,603 Preferred Stocks 1,358,583 1,778,287 0 3,136,870 Foreign Stocks 3,110,558 1,254,748 6,156,612 10,521,918 Total investments 120,535,596 96,464,450 70,673,845 287,673,891

Tota l a sse ts $ 120,893,892 $ 96,716,907 $ 70,912,470 $ 288,523,269

LIABILITIES AND FUND BALANCES

Liabilities: Accounts payable $ 121,204 $ 123,068 $ 177,373 $ 421,645 Total liabilities 121,204 123,068 177,373 421,645

Net assets Held in trust for pension benefits $ 120,772,688 $ 96,593,839 $ 70,735,097 $ 288,101,624

150 CITY OF PENSACOLA, FLORIDA COMBINING STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS FIDUCIARY FUNDS FOR THE YEAR ENDED SEPTEMBER 30, 2012

Total additions 29,121,974 19,537,397 15,799,727 64,459,098

Total deductions 13,254,915 7,352,285 4,040,552 24,647,752

Change in net assets 15,867,059 12,185,112 11,759,175 39,811,346

Net assets held in trust for pension benefits Beginning of year 104,905,629 84,408,727 58,975,922 248,290,278

End of year $ 120,772,688 $ 96,593,839 $ 70,735,097 $ 288,101,624

151

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STATISTICAL SECTION

This part of the City of Pensacola’s comprehensive annual financial report presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the city’s overall financial health.

Financial Trends - These schedules contain trend information to help the reader understand how the city’s financial performance and well-being have changed over time.

Revenue Capacity - These schedules contain information to help the reader assess the factors affecting the city’s ability to generate its property, sales taxes, and utility revenue.

Debt Capacity - These schedules present information to help the reader assess the affordability of the city’s current levels of outstanding debt and the city’s ability to issue additional debt in the future. Note the city has no general obligation debt.

Demographic and Economic Information - These schedules offer demographic and economic indicators to help the reader understand the environment within which the city’s financial activities take place and to help make a comparison over time and with other governments.

Operating Information - These schedules contain information about the city’s operations and resources to help the reader understand how the city’s financial information relates to the services the city provides and the activities it performs.

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

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FINANCIAL TRENDS

CITY OF PENSACOLA, FLORIDA CHANGES IN NET ASSETS LAST TEN FISCAL YEARS (accrual basis of accounting)

Fiscal Year 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Expenses Governmental activities: General Government $ 10,436,763 $ 11,066,332 $ 12,288,844 $ 12,088,920 $ 13,760,551 $ 13,028,271 $ 10,607,815 $ 10,056,862 $ 12,035,379 $ 30,598,069 (d) Public safety 23,114,792 28,084,201 28,951,510 31,110,329 31,499,372 31,837,050 31,494,450 30,887,727 29,982,610 30,960,121 Transportation 4,133,112 4,831,361 5,022,158 6,840,783 4,302,907 4,515,948 2,837,201 2,751,634 2,665,702 2,992,464 Culture and recreation 10,798,822 11,780,250 16,562,124 14,850,420 14,102,175 13,463,182 14,140,256 15,355,160 15,084,355 18,824,265 Economic environment 10,798,460 10,443,891 8,479,343 8,670,298 9,655,932 13,772,416 14,502,662 14,792,350 14,902,876 13,780,462 Physical environment 2,290,689 2,910,187 34,160,089 3,470,795 2,417,760 3,037,313 3,151,470 2,965,146 2,589,177 2,893,391 Human services 111,850 129,903 120,756 91,500 109,670 115,000 94,200 51,900 37,100 30,000 Unallocated depreciation 1,649,004 1,636,690 731,323 875,748 1,144,137 1,700,181 2,162,409 2,541,975 2,806,602 3,028,787 Interest on long-term debt 5,887,415 1,829,965 1,519,935 1,082,666 1,656,581 1,272,372 769,278 2,923,782 3,971,769 3,712,342 Total governmental activities expenses 69,220,907 72,712,780 107,836,082 79,081,459 78,649,085 82,741,733 79,759,741 82,326,536 84,075,570 106,819,901

Business-type activities: Utility 32,690,179 34,908,268 36,027,746 43,300,811 38,972,519 46,166,828 39,206,068 35,002,074 31,570,293 25,338,365 Sanitation 5,328,118 5,600,079 5,106,334 5,634,608 6,001,189 6,463,890 6,873,786 6,097,312 5,975,566 6,179,795 Port 3,114,053 2,648,571 2,524,108 3,520,798 2,952,129 2,828,158 2,667,098 2,774,460 2, 675,500 2,633,916 Airport 12,647,237 13,691,938 15,532,401 16,194,337 14,681,765 18,964,646 22,709,226 25,169,494 24,710,561 26,110,733 Golf Course (a) 703,503 734,779 799,182 837,265 Total business-type activities expenses 54,483,090 57,583,635 59,989,771 69,487,819 62,607,602 74,423,522 71,456,178 69,043,340 64,931,920 60,262,809

Total primary government expenses $ 123,703,997 $ 130,296,415 $ 167,825,853 $ 148,569,278 $ 141,256,687 $ 157,165,255 $ 151,215,919 $ 151,369,876 $ 149,007,490 $ 167,082,710

Program Revenues Governmental activities: Charges for Services: General Government $ 1,387,764 $ 1,407,088 $ 1,322,200 $ 1,262,794 $ 417,496 $ 294,520 $ 335,438 $ 347,218 $ 439,138 $ 493,530 Public safety 2,042,048 2,184,730 2,458,155 2,338,428 2,032,238 2,069,778 1,728,932 1,941,582 1,601,919 1,901,310 Transportation 496,011 826,251 937,402 970,940 935,986 729,613 697,453 489,382 419,876 543,851 Culture and recreation 701,996 699,780 697,034 760,346 1,311,187 1,320,242 1,391,241 1,762,428 1,729,823 2,387,544 Physical environment 1,939,553 1,888,305 1,820,320 2,306,040 1,813,446 1,913,284 1,899,385 2,170,463 1,899,162 2,543,121 Operating grants and contributions (c) 16,153,346 17,464,270 13,536,300 5,815,503 22,328,404 17,310,191 19,475,151 22,751,256 22,521,356 18,674,020 Capital grants and contributions 1,215,224 995,622 42,595,215 22,341,613 10,624,444 6,834,357 8,169,629 4,335,871 7,287,874 6,880,444 Total governmental activities program revenues 23,935,942 25,466,046 63,366,626 35,795,664 39,463,201 30,471,985 33,697,229 33,798,200 35,899,148 33,423,820

Business-type activities: Charges for Services Utility 40,710,596 47,698,947 47,408,710 52,914,809 52,684,149 57,557,864 47,673,400 45,493,419 39,154,943 36,900,749 Sanitation 5,366,322 5,399,778 5,349,156 5,463,914 6,128,324 6,699,149 6,366,664 6,165,903 6,221,178 6,838,663 Port 1,495,583 1,382,933 2,120,485 2,736,093 1,601,256 1,801,002 1,242,839 1,803,407 1,894,871 2,401,744 Airport 10,776,719 11,224,092 12,625,713 14,655,698 16,503,822 17,696,841 14,972,720 16,642,691 18,188,649 17,996,001 Golf (a) 570,717 583,941 576,809 639,575 Operating grants and contributions 180,468 Capital grants and contributions 7,243,829 4,550,188 7,066,929 12,877,590 26,271,082 6,196,139 15,055,919 13,791,291 5,392,337 7,834,262 Total business-type activities program revenues 66,344,234 70,839,879 75,147,802 89,287,679 103,188,633 89,950,995 85,311,542 83,896,711 70,851,978 71,971,419

Total primary government program revenues $ 90,280,176 $ 96,305,925 $ 138,514,428 $ 125,083,343 $ 142,651,834 $ 120,422,980 $ 119,008,771 $ 117,694,911 $ 106,751,126 $ 105,395,239

152 CITY OF PENSACOLA, FLORIDA CHANGES IN NET ASSETS LAST TEN FISCAL YEARS (accrual basis of accounting)

Fiscal Year 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Net (Expense)/Revenue Governmental activities $ (45,284,965) $ (47,246,734) $ (44,469,456) $ (43,285,795) $ (39,185,884) $ (52,269,748) $ (46,062,512) $ (48,528,336) $ (48,176,422) $ (73,396,081) Business-type activities 11,861,144 13,256,244 15,158,031 19,799,860 40,581,031 15,527,473 13,855,364 14,853,371 5,920,058 11,708,610

Total primary government net expenses $ (33,423,821) $ (33,990,490) $ (29,311,425) $ (23,485,935) $ 1,395,147 $ (36,742,275) $ (32,207,148) $ (33,674,965) $ (42,256,364) $ (61,687,471)

General Revenues and Other Changes in Net Assets Governmental activities: Taxes: Property taxes (c) $ 10,729,011 $ 11,535,735 $ 12,624,627 $ 12,612,006 $ 15,328,153 $ 14,963,002 $ 13,990,633 $ 13,686,629 $ 13,318,749 $ 12,311,601 Public service taxes and franchise fees 10,810,180 11,060,170 11,358,867 12,703,460 13,209,195 13,268,556 13,999,030 14,996,638 15,093,190 14,252,846 Communication services tax 4,531,421 4,860,343 5,676,211 5,620,991 3,859,998 4,025,970 3,738,973 3,795,244 3,675,699 3,600,306 Local business tax (b) 907,014 940,673 895,570 923,457 904,327 885,161 Local option gasoline tax 2,106,436 2,214,743 2,339,408 2,242,110 1,748,740 1,612,704 1,605,605 1,610,128 1,569,013 1,557,013 Local option sales tax (c) 6,075,856 6,160,594 7,621,290 7,545,633 6,960,630 6,550,530 5,976,299 5,866,075 6,323,106 6,401,758 Intergovernmental revenues (c) 7,390,690 7,876,665 8,975,434 9,127,199 6,492,065 6,190,954 5,807,740 5,769,127 6,054,345 6,123,014 Unrestricted investment earnings (c) 562,349 488,652 1,226,597 2,460,641 2,674,332 2,177,667 1,349,471 700,726 1,928,271 1,948,024 Insurance recoveries 537,694 3,241,306 1,033,232 Donation of capital assets 684,476 Miscellaneous 272,837 237,571 234,984 91,090 123,968 27,872 34,364 38,267 71,951 32,315 Net gain (loss) on sale of asset 221,278 300,199 105,387 Gain (loss) on impairment of asset - Hurricane Ivan (3,974,027) Transfers 5,589,800 6,576,326 6,947,524 1,240,132 8,852,993 11,344,453 8,000,000 4,905,778 8,140,626 8,000,000 Overhead transfers 2,928,300 2,982,400 3,161,400 3,821,000 3,414,200 3,683,400 2,429,800 2,267,700 2,219,700 2,366,900 Total governmental activities 51,218,158 50,019,172 60,704,036 61,005,767 64,255,764 65,819,013 57,827,485 54,559,769 59,298,977 57,584,325

Business-type activities: Unrestricted investment earnings 278,322 219,965 773,466 1,162,375 1,036,596 999,959 1,235,552 267,732 31,993 42,597 Insurance recoveries 651,416 Donation of capital assets 180,000 Miscellaneous 319,096 567,130 270,871 269,834 309,576 327,094 350,963 392,351 Net gain (loss) on sale of asset 9,246 28,305 66,358 Gain (loss) on impairment of asset - Hurricane Ivan 198,469 Transfers (5,589,800) (6,576,326) (6,947,524) (1,240,132) (8,852,993) (11,344,453) (8,000,000) (4,905,778) (8,140,626) (8,000,000) Overhead transfers (2,928,300) (2,982,400) (3,161,400) (3,821,000) (3,414,200) (3,683,400) (2,429,800) (2,267,700) (2,219,700) (2,366,900) Total business-type activities (8,230,532) (9,111,987) (8,836,362) (3,331,627) (10,959,726) (13,106,644) (8,884,672) (6,578,652) (9,977,370) (9,865,594)

Total primary government $ 42,987,626 $ 40,907,185 $ 51,867,674 $ 57,674,140 $ 53,296,038 $ 52,712,369 $ 48,942,813 $ 47,981,117 $ 49,321,607 $ 47,718,731

Change in Net Assets Governmental activities $ 5,933,193 $ 2,772,438 $ 16,234,580 $ 17,719,972 $ 25,069,880 $ 13,549,265 $ 11,764,973 $ 6,031,433 $ 11,122,555 $ (15,811,756) Business-type activities 3,630,612 4,144,257 6,321,669 16,468,233 29,621,305 2,420,829 4,970,692 8,274,719 (4,057,312) 1,843,016

Total primary government $ 9,563,805 $ 6,916,695 $ 22,556,249 $ 34,188,205 $ 54,691,185 $ 15,970,094 $ 16,735,665 $ 14,306,152 $ 7,065,243 $ (13,968,740)

Note s: (a) In FY07, the Golf Course was moved from an enterprise fund to a special revenue fund. (b) In FY07, the Uniform Accounting System Manual changed how local governments recorded the local business tax. Prior to FY07, the tax was classified as a licenses and in FY07 the tax is classified as a tax, moving it from general government charges for services to general government taxes. (c) 2007 and prior have been restated, where noted, to reflect only those revenues which should be reported in each category. (d) In FY12, the City made a one time $19.5 million contribution to ECUA for Main Steeet Waste Water Treatment Plant Relocation Project. 153 CITY OF PENSACOLA, FLORIDA NET ASSETS BY COMPONENT LAST TEN FISCAL YEARS (accrual basis of accounting)

Fiscal Year 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Governmental activities Invested in capital assets, net of related debt $ 48,361,182 $ 43,946,470 $ 57,923,281 $ 72,919,805 $ 96,906,089 $ 117,973,303 $ 139,118,040 $ 145,873,745 $ 160,201,917 $ 170,014,519 Restricted 27,212,298 30,762,070 42,813,703 41,792,153 46,006,637 37,093,415 30,099,551 28,019,701 27,931,083 20,560,416 Unrestricted 14,942,445 18,579,823 13,381,959 15,374,631 13,924,384 15,535,349 13,149,449 14,505,027 11,388,028 (6,865,663) (a) Total governmental activities net assets $ 90,515,925 $ 93,288,363 $ 114,118,943 $ 130,086,589 $ 156,837,110 $ 170,602,067 $ 182,367,040 $ 188,398,473 $ 199,521,028 $ 183,709,272

Business-type activities Invested in capital assets, net of related debt $ 64,722,277 $ 65,911,984 $ 75,547,523 $ 91,681,359 $ 119,978,282 $ 90,891,929 $ 125,156,505 $ 131,503,050 $ 135,686,653 $ 132,621,897 Restricted 3,423,211 4,146,309 5,028,402 5,028,402 5,699,402 5,700,402 9,638,870 8,734,350 8,791,433 8,800,733 Unrestricted 19,475,472 21,706,924 17,510,961 17,692,713 18,082,391 50,074,594 16,781,105 19,613,799 11,315,801 16,214,273 Total business-type activities net assets $ 87,620,960 $ 91,765,217 $ 98,086,886 $ 114,402,474 $ 143,760,075 $ 146,666,925 $ 151,576,480 $ 159,851,199 $ 155,793,887 $ 157,636,903

Primary government Invested in capital assets, net of related debt $ 113,083,459 $ 109,858,454 $ 133,470,804 $ 164,601,164 $ 216,884,371 $ 208,865,232 $ 264,274,545 $ 277,376,795 $ 295,888,570 $ 302,636,416 Restricted 30,635,509 34,908,379 47,842,105 46,820,555 51,706,039 42,793,817 39,738,421 36,754,051 36,722,516 29,361,149 Unrestricted 34,417,917 40,286,747 30,892,920 33,067,344 32,006,775 65,609,943 29,930,554 34,118,826 22,703,829 9,348,610 Total primary government net assets $ 178,136,885 $ 185,053,580 $ 212,205,829 $ 244,489,063 $ 300,597,185 $ 317,268,992 $ 333,943,520 $ 348,249,672 $ 355,314,915 $ 341,346,175

Note s: (a) In FY12, the City made a one time $19.5 million contribution to ECUA for Main Steeet Waste Water Treatment Plant Relocation Project.

154 CITY OF PENSACOLA, FLORIDA PROGRAM REVENUES BY FUNCTION/PROGRAM LAST TEN FISCAL YEARS (accrual basis of accounting)

Fiscal Year 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Function/Programs Governmental activities: General government $ 1,399,764 $ 1,490,846 $ 4,072,170 $ 5,314,738 $ 5,590,979 $ 3,891,303 $ 3,734,253 $ 3,153,786 $ 3,042,474 $ 7,713,091 Public safety 2,155,160 3,235,786 3,774,577 2,789,747 2,715,923 2,497,330 1,903,690 2,764,575 3,727,640 2,580,263 Transportation 504,220 919,581 4,300,221 5,794,746 3,640,571 821,374 746,254 1,011,626 801,324 793,491 Culture and recreation 4,320,524 4,455,440 10,143,442 (a) 6,813,505 7,503,800 9,093,754 11,596,641 7,558,660 9,447,660 7,145,440 Economic environment 12,923,260 12,326,942 9,318,343 10,791,610 16,862,124 11,510,064 12,839,011 16,784,456 16,263,534 12,418,071 Physical environment 2,551,471 2,920,774 31,441,843 (a) 4,346,219 3,219,462 2,658,160 2,877,380 2,525,097 2,616,516 2,773,464 Human services 40,903 144,744 Total governmental activities 23,854,399 25,390,272 63,195,340 35,850,565 39,532,859 30,471,985 33,697,229 33,798,200 35,899,148 33,423,820

Business-type activities: Utility 40,710,596 47,698,947 47,408,710 52,914,809 52,684,149 57,557,864 47,673,400 45,501,820 39,281,504 38,054,431 Sanitation 5,366,322 5,399,778 5,349,156 5,463,914 6,218,324 6,699,149 6,366,664 6,165,903 6,232,698 6,838,663 Port 4,126,945 1,574,247 3,229,199 3,323,749 2,224,705 1,904,284 2,222,280 1,828,028 2,068,779 2,586,212 Airport 15,568,654 15,582,966 18,583,928 26,945,632 (b) 42,151,455 (b) 23,789,698 29,049,198 30,400,960 23,268,997 24,492,113 Golf Course 571,717 583,941 576,809 639,575 Total business-type activities 66,344,234 70,839,879 75,147,802 89,287,679 103,278,633 89,950,995 85,311,542 83,896,711 70,851,978 71,971,419

Total primary government $ 90,198,633 $ 96,230,151 $ 138,343,142 $ 125,138,244 $ 142,811,492 $ 120,422,980 $ 119,008,771 $ 117,694,911 $ 106,751,126 $ 105,395,239

Note s: (a) The increase to program revenues in the culture and recreation and physical environment activities is due to capital grants and contributions for Hurricanes Ivan, Dennis, and Katrina. (b) The increase to program revenues in the airport activity is primarily due to capital grants and contributions for Hurricane Ivan.

155 CITY OF PENSACOLA, FLORIDA FUND BALANCE, GOVERNMENTAL FUNDS LAST TEN FISCAL YEARS (modified accrual basis of accounting)

Pre-GASB 54 Fiscal Year 2003 2004 2005 2006 2007 2008 2009 2010 General Fund Reserved $ 495,195 $ 436,972 $ 701,440 $ 689,489 $ 921,523 $ 926,095 $ 1,332,323 $ 1,277,400 Unreserved 7,020,518 7,999,916 8,909,628 10,135,396 8,983,669 9,803,661 9,906,638 9,955,633 Total General Fund $ 7,515,713 $ 8,436,888 $ 9,611,068 $ 10,824,885 $ 9,905,192 $ 10,729,756 $ 11,238,961 $ 11,233,033

All Other Governmental Funds Reserved $ 8,193,123 $ 7,754,479 $ 12,479,371 $ 11,926,118 $ 8,623,413 $ 15,596,086 $ 13,634,480 $ 56,167,571 (a) Unreserved, reported in: Special revenue funds 6,519,583 7,728,562 8,151,788 8,623,967 18,562,204 11,553,673 9,091,855 8,460,053 Capital projects funds 15,804,549 15,538,378 21,854,883 21,950,966 19,167,052 10,935,750 7,359,785 11,024,056 Debt service funds 1,603,658 2,196,842 2,090,023 1,032,662 271,348 215,413 218,249 1,491,223 Total all other governmental funds $ 32,120,913 $ 33,218,261 $ 44,576,065 $ 43,533,713 $ 46,624,017 $ 38,300,922 $ 30,304,369 $ 77,142,903

Post-GASB 54 Fiscal Year 2011 2012 General Fund Non-spendable $ 12,617 $ 24,780 Restricted 544,198 428,618 Committed 8,388,656 8,399,115 Assigned 1,019,104 2,187,305 Unassigned 1,309,029 1,100,516 Total General Fund $ 11,273,604 $ 12,140,334

All Other Governmental Funds Non-spendable $ 459,554 $ 3,163,567 (b) Restricted 71,421,175 66,544,108 Committed 3,650,217 4,207,674 Assigned 5,764 6,858 Unassigned (980,662) (6,082,300) Total all other governmental funds $ 74,556,048 $ 67,839,907

Note: The City began to report accrual information when it implemented GASB Statement 34 in fiscal year 2003 (a) Increase in fund balance reserves is related to the combination of the 2009 Redevelopment Revenue Bonds and subsequent loan to the Community Maritime Park Associate, Inc. (b) Increase in non-spendable fund balance is related to the prepayment of bond principal in the Local Option Sales Tax fund

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CITY OF PENSACOLA, FLORIDA CHANGES IN FUND BALANCE, GOVERNMENTAL FUNDS LAST TEN FISCAL YEARS (modified accrual basis of accounting)

Fiscal Year Revenues 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Taxes $ 30,205,225 $ 31,810,661 $ 35,735,447 $ 36,070,618 $ 34,699,382 $ 33,850,592 $ 32,095,945 $ 32,380,241 $ 32,451,822 $ 31,234,509 Licenses and permits 1,476,315 1,503,479 1,831,273 1,721,355 875,705 1,235,120 864,844 752,488 791,950 1,132,486 Franchise fees 5,600,062 5,860,175 6,088,923 6,884,189 7,307,290 7,510,843 8,110,165 8,497,930 8,432,262 7,774,176 Intergovernmental 22,244,379 23,777,867 62,231,407 (a) 34,028,187 36,468,652 24,529,512 28,722,364 30,498,606 32,971,501 28,045,478 Charges for services 3,757,661 4,270,447 4,382,032 4,800,789 5,216,030 4,327,860 4,339,480 4,825,173 4,617,672 5,842,665 Fines and forfeits 549,669 569,923 554,047 469,118 354,393 385,063 441,251 746,929 370,689 337,858 Assessments 107,692 87,690 105,918 168,087 216,744 112,760 89,577 89,911 28,246 51,729 Interest income 659,423 578,335 1,437,059 2,935,879 3,394,311 2,711,137 1,470,144 764,193 1,961,934 1,958,681 Charges for overhead 3,293,700 3,447,600 3,652,600 4,545,600 4,046,200 (c) Rents and leases 151,279 159,617 181,161 (b) Donations 4,000 53,928 77,491 86,739 75,830 2,828,116 2,689,665 1,456,457 2,381,473 199,965 Other 894,567 1,027,807 7,067,287 765,734 2,151,466 652,214 733,049 748,346 672,779 706,264

Total revenues 68,943,972 73,147,529 123,344,645 92,476,295 94,806,003 78,143,217 79,556,484 80,760,274 84,680,328 77,283,811

Expenditures Current - General government 10,331,772 11,037,313 11,619,232 11,747,226 13,140,542 8,099,930 7,026,818 6,971,798 8,954,870 7,986,834 Public safety 21,945,655 26,801,960 27,215,803 29,369,501 30,073,622 30,108,528 29,285,357 29,826,611 29,097,514 29,892,275 Transportation 3,927,511 4,617,127 4,770,599 6,551,328 4,078,150 2,471,682 2,510,175 2,454,335 2,283,148 2,531,637 Culture and recreation 9,940,167 10,542,926 15,181,664 13,441,009 12,649,876 11,451,051 11,828,720 12,464,329 12,189,319 15,962,500 Economic environment 11,162,317 10,901,512 8,448,711 8,647,869 9,636,721 13,668,432 14,398,618 14,700,741 14,811,906 13,671,431 Physical environment 2,263,397 2,924,615 34,090,416 (a) 3,408,113 2,329,484 2,921,658 2,916,615 2,890,347 2,464,243 3,009,598 Human services 111,850 129,903 120,756 91,500 109,670 115,000 94,200 51,900 37,100 30,000 Capital outlay 7,209,555 6,976,163 11,286,300 23,583,756 22,483,692 23,176,356 24,998,552 16,154,212 18,616,603 14,483,196 Debt service - Principal retirement 2,640,478 2,645,397 7,426,150 3,797,282 4,655,760 3,372,006 2,850,209 3,231,188 3,354,959 3,504,241 Interest 3,504,752 3,507,298 3,377,456 2,526,411 1,728,048 1,292,286 858,442 1,477,422 3,989,355 4,162,404

Total expenditures 73,037,454 80,084,214 123,537,087 103,163,995 100,885,565 96,676,929 96,767,706 90,222,883 95,799,017 95,234,116 Excess (deficiency) of revenues over (under) expenditures (4,093,482) (6,936,685) (192,442) (10,687,700) (6,079,562) (18,533,712) (17,211,222) (9,462,609) (11,118,689) (17,950,305)

157 CITY OF PENSACOLA, FLORIDA CHANGES IN FUND BALANCE, GOVERNMENTAL FUNDS LAST TEN FISCAL YEARS (modified accrual basis of accounting)

Fiscal Year 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Other financing sources (uses) Transfers in 26,435,355 32,981,066 33,620,450 39,958,942 46,846,554 22,190,629 (d) 19,375,754 23,899,753 20,688,877 28,398,726 Transfers (out) (20,845,555) (24,731,992) (25,498,685) (32,687,643) (39,927,214) (13,439,238) (d) (11,375,754) (16,969,220) (12,188,877) (19,898,726) Sale of capital assets 298,380 37,058 6,661 255,330 99,547 1,072,364 724,093 725,270 72,405 105,387 Contributed capital from other funds 47,995 Contributed capital from other governments 3,264,631 Reimbursement of prior year expenditures 2,276,579 Insurance recoveries 3,241,306 1,033,232 999,781 74,429 Proceeds from debt Payment to refund debt (20,000,000) Bonds Issued 15,966,820 63,610,352 Issuance Cost (262,309) (37,498) (634,574) Payment to Escrow Agent (15,035,435)

Total other financing sources (uses) 5,888,180 8,955,208 8,128,426 10,767,935 7,018,887 10,819,489 9,723,874 56,295,215 8,572,405 8,605,387 Net change in fund balances before prior period adjustments/special items 1,794,698 2,018,523 7,935,984 80,235 939,325 (7,714,223) (7,487,348) 46,832,606 (2,546,284) (9,344,918)

Special item - sale of capital asset ------3,495,507 Prior period adjustments - - 4,596,000 91,230 1,231,286 215,692 - - - -

Net change in fund balances $ 1,794,698 $ 2,018,523 $ 12,531,984 $ 171,465 $ 2,170,611 $ (7,498,531) $ (7,487,348) $ 46,832,606 $ (2,546,284) $ (5,849,411) Debt service as a percentage of noncapital expenditures 9.34% 8.35% 9.58% 7.89% 8.10% 6.31% 5.13% 6.33% 9.49% 9.46%

Notes: (a) The increase in intergovernmental revenues and economic environment expenditures are a result of Hurricanes Ivan, Dennis, and Katrina. (b) Starting in FY 2006, rents and leases are reflected in charges for services. (c) Starting in FY 2008, charges for overhead are reflected as a reduction to expenditures (cost recovery). (d) The decrease in transfers in(out) are from an accounting change in the Tax and Franchise Fee Debt Service Fund (TFFDS). In FY 08, revenues recorded in the TFFDS Fund are now recorded directly in the General Fund.

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REVENUE CAPACITY

CITY OF PENSACOLA, FLORIDA ASSESSED VALUE AND ESTIMATED ACTUAL VALUE OF TAXABLE PROPERTY LAST TEN FISCAL YEARS (in thousands of dollars)

Le ss: Total Taxable Total Fisca l Personal Real Central Tax-Exempt Asse sse d Direct Year Property Property Property Property Value Tax Rate 2003 $ 441,745 $ 2,965,797 $ 4,616 $ 1,191,203 $ 2,220,955 5.0570 2004 413,014 3,238,596 7,135 1,313,660 2,345,085 5.0570 2005 421,212 3,594,930 6,946 1,420,435 2,602,653 5.0570 2006 433,775 3,652,079 4,842 1,470,558 2,620,138 5.0570 2007 534,628 4,713,764 4,517 2,013,162 3,239,747 4.9500 2008 537,581 4,760,528 5,113 1,935,505 3,367,717 4.5980 2009 568,137 4,749,243 7,608 2,134,762 3,190,226 4.5395 2010 569,930 4,557,110 6,093 2,037,452 3,095,681 4.5395 2011 555,898 4,435,062 4,731 1,977,899 3,017,792 4.5395 2012 534,538 4,300,878 5,391 1,873,379 2,967,428 4.2895

Source: Escambia County Property Appraiser's Office

Note s: Property is reassessed every year. Property is assessed at actual value; therefore, the assessed values are equal to actual value. Tax rates are per $1,000 of assessed value.

159 CITY OF PENSACOLA, FLORIDA DIRECT AND OVERLAPPING PROPERTY TAX RATES LAST TEN FISCAL YEARS (rate per $1,000 of assessed value)

Overlapping Rates City Of City Of Pensacola Pensacola Esca mbia Northwest Total Downtown County Florida Water Fisca l Direct Improvement School Esca mbia Management Year Rate Board Board County (a) District

2003 5.0570 1.0000 8.8870 8.7560 0.0500 2004 5.0570 2.0000 8.7880 8.7560 0.0500 2005 5.0570 2.0000 8.4100 8.7560 0.0500 2006 5.0570 2.0000 8.0330 8.7560 0.0500 2007 4.9500 2.0000 7.8940 8.7560 0.0500 2008 4.5980 2.0000 7.7200 8.0170 0.0450 2009 4.5395 2.0000 7.7200 6.9755 0.0450 2010 4.5395 2.0000 7.8600 6.9755 0.0450 2011 4.5395 2.0000 7.8600 6.9755 0.0450 2012 4.2895 2.0000 7.8210 6.9755 0.0400

Source: Escambia County Tax Collector

Notes: (a) Escambia County property tax rates do not include MSTU rate. The MSTU rate is a rate charged to County-Only residents.

160 CITY OF PENSACOLA, FLORIDA PRINCIPAL PROPERTY TAX PAYERS CURRENT YEAR AND NINE YEARS AGO

2012 2003 Percentage Percentage Taxable of Total City Taxable of Total City Asse sse d Taxable Asse sse d Taxable Taxpayer Value Rank Asse sse d Va lue Value Rank Asse sse d Va lue

Gulf Power $ 95,294,904 1 0.48% $ 72,109,050 1 0.68% Sacred Heart Hospital 46,197,923 2 0.23% 61,125,010 2 0.58% Simon Debartolo Group 34,831,566 3 0.18% 29,753,640 6 0.28% Armstrong World Industries 30,773,169 4 0.16% 34,048,130 4 0.32% Wal-mart 23,367,823 5 0.12% ------Bellsouth/Southern Bell 20,208,012 6 0.10% 32,748,460 5 0.31% Gayfers/Higbee 17,339,455 7 0.09% ------Pensacola POB Inc 15,396,711 8 0.08% ------Moulton Properties 13,864,407 9 0.07% ------Reichhold Inc/Arizona Chemical 13,282,193 10 0.07% 11,570,830 9 0.11% AT&T ------35,255,960 3 0.33% Network Telephone Corp. ------22,647,200 7 0.21% Cordova Community ------15,034,480 8 0.14% Pensacola Properties ---- 11,051,740 10 0.10%

Total $ 310,556,163 1.58% $ 325,344,500 3.06%

Source: Escambia County Tax Collector

161 CITY OF PENSACOLA, FLORIDA PROPERTY TAX LEVIES AND COLLECTIONS PAST TEN FISCAL YEARS

Collected within the Fiscal Year Taxes Levied Fiscal Year of the Levy Collections Totals Collections to Date Ended for the Percentage in Subsequent Percentage September 30, Fiscal Year (a) Amount (b) of Levy Years (c) Amount (d) of Levy

2003 $ 11,231,367 $ 10,669,274 95.0% $ 59,736 $ 10,729,011 95.5% 2004 11,859,094 11,406,796 96.2% 128,939 11,535,735 97.3% 2005 13,161,616 12,538,957 95.3% 85,670 12,624,627 95.9% 2006 13,250,038 12,413,790 93.7% 198,216 12,612,006 95.2% 2007 16,036,749 15,291,677 95.4% 36,476 15,328,153 95.6% 2008 15,484,765 14,879,673 96.1% 83,329 14,963,002 96.6% 2009 14,482,031 13,811,445 95.4% 179,188 13,990,633 96.6% 2010 14,052,844 13,592,771 96.7% 93,858 13,686,629 97.4% 2011 13,699,265 13,246,835 96.7% 71,914 13,318,749 97.2% 2012 12,728,569 12,279,754 96.5% 31,847 12,311,601 96.7%

Source: Escambia County Tax Collector.

Note s: (a) The tax levy is based on the tax roll as certified by the Escambia County Property Appraiser. (b) Current tax collections are after applicable discounts for early payment. (c) Collections represent subsequent and current year delinquent revenues. (d) Property taxes collected are accounted for in the General Fund. Outstanding delinquent property taxes are not reported because they are considered not available at year end.

162 CITY OF PENSACOLA, FLORIDA TAXABLE SALES BY CATEGORY LAST TEN CALENDAR YEARS (in thousands of dollars)

Calendar Year 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 (a)

General merchandise stores $ 681,095 $ 706,509 $ 775,301 $ 744,296 $ 720,523 $ 689,995 $ 680,381 $ 685,603 $ 698,467 $ 586,649 Grocery stores 171,254 190,511 226,175 220,364 215,618 201,809 207,857 212,553 217,919 191,200 Hotels and apartments 104,349 121,330 (c) 106,004 128,563 145,076 147,407 147,076 146,774 181,714 174,908 Lumber and building materials 234,608 242,896 325,156 (d) 258,968 243,424 232,226 206,656 209,492 198,282 183,146 Manufacturing and mining 68,366 69,282 93,780 124,271 104,058 74,887 63,638 69,889 73,577 49,843 Motor vehicle dealers 687,134 737,529 875,945 762,294 724,052 597,693 514,024 563,280 625,711 594,532 Office space and commercial rentals 170,548 168,992 176,203 187,011 197,872 197,947 191,201 199,864 202,963 173,983 Restaurants and lunchrooms 365,036 400,885 437,593 449,429 461,118 453,222 458,456 466,225 494,623 444,330

Total $ 2,482,390 $ 2,637,934 $ 3,016,157 $ 2,875,196 $ 2,811,741 $ 2,595,186 $ 2,469,289 $ 2,553,680 $ 2,693,256 $ 2,398,591

City direct sales tax rate (b)

Source: Florida Department of Revenue

Notes: Data presented reflects Escambia County. (a) 2012 data only represents the first ten months of the calendar year. (b) The city has no direct tax rate. However, the city receives a portion of the proceeds from the Half Cent Sales Tax and the Local Option Sales Tax. The distribution of the proceeds of the Half Cents Sales Tax and the Local Option Sales Tax to the incorporated municipalities of the County are controlled by the formula set forth in Section 218.65 and 218.62, Florida Statues. (c) The 16.2% increase in hotel and apartment taxable sales in 2004 is attributable to Hurricane Ivan displaced families. (d) The 33.9% increase in lumber and building materials taxable sales in 2005 is attributable to Hurricane Ivan and Dennis protective and repair measures.

163 CITY OF PENSACOLA, FLORIDA DIRECT AND OVERLAPPING SALES TAX RATES LAST TEN FISCAL YEARS

Local Option Half Cent Sales Tax Sales Tax Fisca l Escambia School Year County District

2003 1.00% 0.50% 2004 1.00% 0.50% 2005 1.00% 0.50% 2006 1.00% 0.50% 2007 1.00% 0.50% 2008 1.00% 0.50% 2009 1.00% 0.50% 2010 1.00% 0.50% 2011 1.00% 0.50% 2012 1.00% 0.50%

Source: City Budget Office

Note: The city has no direct tax rate. However, the city receives a portion of the proceeds from the Local Option Sales Tax. The distribution of the proceeds of the Local Option Sales Tax to the incorporated municipalities of the County are controlled by the formula set forth in Section 218.62, Florida Statues.

164 CITY OF PENSACOLA, FLORIDA SALES TAX REVENUE PAYERS BY INDUSTRY CURRENT YEAR AND NINE YEARS AGO (in thousands of dollars)

2012 2003 Number Percentage Tax Percentage Number Percentage Tax Percentage of Filers of Total Liability (a) of Total of Filers of Total Liability (a) of Total

Retail trade 2,195 31.12% $ 140,997 54.26% 2,632 35.93% $ 124,342 54.45% Services 1,900 26.94% 53,401 20.55% 2,085 28.46% 43,525 19.06% Manufacturing and mining 119 1.69% 3,678 1.42% 98 1.34% 4,026 1.76% Wholesale trade 141 2.00% 6,128 2.36% 134 1.83% 5,459 2.39% Construction 153 2.17% 13,898 5.35% 189 2.58% 16,436 7.20% Finance, insurance, and real estate 2,293 32.51% 24,066 9.26% 1,970 26.89% 16,430 7.19% Transportation and utilities 62 0.88% 14,647 5.64% 47 0.64% 7,495 3.28% Agricultural 54 0.77% 1,132 0.44% 44 0.60% 631 0.28% Other 137 1.92% 1,919 0.72% 127 1.73% 10,028 4.39%

Total 7,054 100.00% $ 259,866 100.00% 7,326 100.00% $ 228,372 100.00%

Source: Florida Department of Revenue Office of Research

Note s: Data presented reflects Escambia County. Data is presented on the State Fiscal Year of July 1 - June 30. (a) Tax liability represents the state percentage of the tax liability paid by businesses in Escambia County. Total tax liability was not available by industry for Escambia County.

165 CITY OF PENSACOLA, FLORIDA ENERGY SERVICES OF PENSACOLA GAS SOLD IN MCFS BY TYPE OF CUSTOMER LAST TEN FISCAL YEARS (in thousands of Mcfs)

Fiscal Year 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Type of Customer Residential -Inside City Limits 572 500 395 345 362 327 311 406 350 245 Residential -Outside City Limits 1,017 984 801 796 765 712 701 882 775 570 Commercial -Inside City Limits 344 357 334 327 358 353 287 331 322 304 Commercial -Outside City Limits 557 596 571 500 482 453 415 464 436 393 Municipal 63 45 43 47 34 14 15 18 68 27 Interruptible 905 575 592 579 588 642 628 648 630 633 Transportation 834 1,178 1,095 1,563 1,673 1,379 961 954 1,007 1,068

Total 4,292 4,235 3,831 4,157 4,262 3,880 3,318 3,703 3,588 3,240

Total direct rate per Mcf (a) $ 12.61 $ 15.16 $ 16.39 $ 19.38 $ 18.26 $ 20.47 $ 18.74 $ 15.25 $ 14.91 $ 16.55

Source: Energy Services of Pensacola

Note s: (a) Total direct rate per Mcf is calculated using residential in/out, commercial in/out, and municipal customers. Interruptible and transportation direct rates are not available.

166 CITY OF PENSACOLA, FLORIDA ENERGY SERVICES OF PENSACOLA GAS RATES LAST TEN FISCAL YEARS

Residential - Inside City Limits Residential - Outside of City Limits Commercial - Inside City Limits Fixed Ba se PGA & WNA Fixed Ba se PGA & WNA Fixed Ba se PGA & WNA Fiscal Monthly Rate per Rate per Monthly Rate per Rate per Monthly Rate per Rate per Year Charge Mcf Mcf (a) Charge Mcf Mcf (a) Charge Mcf Mcf (a)

2003 $ 6.00 $ 5.28 $ 6.43 $ 7.00 $ 6.95 $ 6.47 $ 10.00 $ 5.28 $ 6.46 2004 6.00 5.28 8.95 7.00 6.95 9.04 10.00 5.28 8.81 2005 6.00 5.28 10.21 7.00 6.95 10.32 10.00 5.28 9.91 2006 6.00 5.28 13.14 7.00 6.95 13.30 10.00 5.28 12.99 2007(b) 7.00 6.27 11.05 8.00 7.97 11.10 12.00 6.27 10.92 2008 7.00 6.27 12.87 8.00 7.97 12.94 12.00 6.27 12.62 2009 7.28 6.53 10.72 8.32 8.30 10.78 12.48 6.53 10.52 2010 7.25 6.50 7.38 8.29 8.27 7.30 12.43 6.50 7.59 2011 7.25 6.50 7.15 8.29 8.27 7.15 12.43 6.50 6.84 2012 8.95 7.52 8.27 10.00 9.29 8.31 15.85 7.52 7.37

Commercial - Outside of City Limits Municipal Interruptible and Transportation (c) Fixed Ba se PGA & WNA Fixed Ba se PGA & WNA Fixed Ba se PGA & WNA Fiscal Monthly Rate per Rate per Monthly Rate per Rate per Monthly Rate per Rate per Year Charge Mcf Mcf (a) Charge Mcf Mcf (a) Charge Mcf Mcf (a)

2003 $ 12.00 $ 6.95 $ 6.34 $ 15.00 $ 1.95 $ 4.48 $ 0.00 $ N/A $ N/A 2004 12.00 6.95 8.74 15.00 1.95 7.01 0.00 N/A N/A 2005 12.00 6.95 10.01 15.00 1.95 8.26 0.00 N/A N/A 2006 12.00 6.95 13.01 15.00 1.95 11.19 0.00 N/A N/A 2007(b) 14.00 7.97 10.93 16.00 2.30 9.75 150.00 N/A N/A 2008 14.00 7.97 12.70 16.00 2.30 12.41 150.00 N/A N/A 2009 14.56 8.30 10.57 16.64 2.39 10.39 150.00 N/A N/A 2010 14.50 8.27 7.57 16.57 2.38 7.53 150.00 N/A N/A 2011 14.50 8.27 6.85 16.57 2.38 6.76 150.00 N/A N/A 2012 18.00 9.29 7.37 20.00 2.93 6.36 200.00 N/A N/A

Source: Pensacola Energy Note s: (a) The Purchase Gas Adjustment (PGA) is a monthly adjustment to the gas rate due to increases in the cost of gas purchased for resale. The Weather Normalization Adjustment (WNA) is an adjustment to the gas rate to account for fluctuations in consumption due to colder or warmer weather during the months of October through March of the previous or current fiscal year. PGA and WNA rates are based on a yearly average. Both the base rate and the PGA/WNA rates need to be taking into consideration when determining the yearly rate per Mcf. (b) The increase to the fixed monthly charges and base rates took effect in the beginning of the monthly June 2007 billing cycle. (c) Interruptible and transportation rates per Mcf are not reported as rates are negotiated on a customer by customer bases. (d) The increase to rates took effect in the beginning of the monthly October 2011billing cycle 167 DEBT CAPACITY

CITY OF PENSACOLA, FLORIDA RATIOS OF OUTSTANDING DEBT BY TYPE LAST TEN FISCAL YEARS (dollars in thousands, except for per capita)

Governmental Activities Business-type Activities Tax and Local Option Community Maritime Gas Tax and Airport Total Percentage Fisca l Franchise Fee Sales Tax Redevelopment Community Park Revenue Franchise Fee Revenue Primary of Personal Per Year Bonds Bonds Bonds Construction Bonds Bonds Bonds (Port) Bonds Government Income (a) Capita (a)

2003 $ 25,125 $ 25,275 $ 3,815 $ - $ 13,810 $ 3,306 $ 41,634 $ 112,965 1.81% $ 372 2004 24,243 24,040 3,272 - 12,755 1,558 39,549 105,417 1.68% 343 2005 21,991 22,750 2,926 - 11,650 1,524 35,550 96,391 1.49% 317 2006 19,213 21,405 2,605 - 10,495 1,502 34,425 89,645 1.33% 290 2007 16,355 20,000 2,273 - 9,280 1,480 33,569 82,957 1.14% 266 2008 13,328 20,000 1,927 - 9,681 1,457 77,550 123,943 1.66% 390 2009 10,836 20,000 1,569 - 16,479 1,339 83,902 134,125 1.82% 425 2010 9,315 18,190 1,198 45,640 12,255 - 77,450 164,048 2.50% 551 2011 6,345 18,190 813 45,640 10,850 - 76,930 158,768 2.38% 532 2012 3,240 18,190 414 45,640 14,445 - 77,810 159,739 2.36% 531

Note s: Details regarding the city's outstanding debt can be found in the notes to the financial statements. (a) See demographic and economic statistics schedule for personal income and population data. These ratios are calculated using Escambia County population and personal income for the corresponding calander year.

168 CITY OF PENSACOLA, FLORIDA DIRECT AND OVERLAPPING GOVERMENTAL ACTIVITIES AS OF SEPTEMBER 30, 2012 (dollars in thousands)

Estimated Share of Estimated Direct and Debt Percentage Overlapping Governmental Unit Outstanding Applicable Debt

Other Debt

Escambia County Sales Tax Revenue Bonds $ 77,575 18.2200% $ 14,134 Tourism Development Revenue Bonds 8,395 18.2200% 1,530 Capital Improvement Bonds/Notes 18,750 18.2200% 3,416

Escambia County School District State Board of Education Bonds 6,235 0.8790% 55 Certificates of Participation 41,603 0.8790% 366

Subtotal, overlapping debt 19,500

City direct debt 74,343

Total direct and overlapping debt $ 93,843

Source: Debt outstanding provided by Escambia County Clerks office. Estimated percentages for Escambia County is obtained from the Florida Legislative Committee on Intergovernmental Relations. Estimated percentages for Escambia County School Board is obtained by dividing the city's population by the counties population (see the Demographic and Economic and Statistics schedule) and multiplying it by the .5% half cent sales tax.

Note s: Overlapping governments are those that coincide, at least in part, with the geographic boundaries of the city. This schedule estimates the portion of the outstanding debt of those overlapping governments that is borne by the residents and businesses of the City of Pensacola. This process recognizes that, when considering the city's ability to issue and repay long term debt, the entire debt burden borne by the residents and businesses should be taken into account. However, this does not imply that every tax payer is a resident - and therefore responsible for repaying the debt - of each overlapping government.

169 CITY OF PENSACOLA, FLORIDA PLEDGED REVENUE COVERAGE LAST TEN FISCAL YEARS (dollars in thousands)

Tax and Franchise Fee Bonds Local Option Sales Tax Bonds

Public Half cent Electric Occupational Local Fisca l Service Sales Franchise Ga s Licenses Debt Service Option Debt Service Year Tax Tax Fee Tax Tax Principal Interest Coverage Sales Tax Principal Interest Coverage

2003 $ 5,141 $ 3,810 $ 5,600 $ 63 $ 868 $ 1,869 $ 2,715 3.38 $ 6,076 $ 1,185 $ 880 2.94 2004 5,194 3,931 5,860 2 871 1,111 2,758 4.10 6,161 1,235 1,204 2.53 2005 5,264 4,408 4,063 - - 1,173 3,188 3.15 7,621 1,290 1,391 2.84 2006 5,815 4,487 4,623 - - 2,093 1,644 3.99 7,546 1,345 1,829 2.38 2007 5,896 4,093 4,972 - - 2,880 830 4.03 6,961 1,405 859 3.07 2008 5,747 3,825 5,049 - - 3,050 681 3.92 6,551 - 585 11.20 2009 5,879 3,443 5,802 - - 2,610 542 4.80 5,976 - 299 19.99 2010 6,487 3,397 6,240 - - 2,860 434 4.89 5,866 - 113 51.91 2011 6,649 3,673 6,159 - - 2,970 319 5.01 6,323 - 563 11.23 2012 6,466 3,716 5,504 - - 3,105 192 4.76 6,402 - 877 7.30

Community Redevelopment Bonds Gas Revenue Bonds

Tax Utility Le ss: Net Fisca l Increment Debt Service Charges Operating Available Debt Service Year Revenues Principal Interest Coverage for Services (a) Expense (b) Revenue Principal Interest Coverage

2003 $ 2,417 $ 245 $ 236 5.02 $ 40,711 $ 32,203 $ 8,508 $ 975 $ 707 5.06 2004 2,825 260 223 5.85 47,699 34,642 13,057 1,055 662 7.60 2005 3,387 346 84 7.88 47,699 35,967 11,732 1,105 613 6.83 2006 3,443 321 108 8.03 53,437 43,724 9,713 1,155 560 5.66 2007 5,399 333 97 12.56 52,914 39,455 13,459 1,215 504 7.83 2008 5,126 345 84 11.95 57,790 46,833 10,957 1,368 456 6.01 2009 4,653 358 72 10.82 47,926 38,601 9,325 1,205 451 5.63 2010 4,317 371 58 (j) 10.06 45,743 34,312 11,431 525 404 12.30 2011 4,068 385 44 (j) 9.48 39,439 30,961 8,478 1,405 251 5.12 2012 3,959 399 2,115 (j) 1.57 37,222 24,470 12,752 1,405 390 7.10

Airport Revenue Bonds Expenses Coverage Capital Coverage Fisca l Airport Le ss Operating/ (b) Net Debt Service before Fund after Year Revenues Total Grant Maintenance Revenue Principal Interest Transfer Transfer (c) Transfer

2003 $ 10,777 $ 6,393 $ 1 $ 6,392 $ 4,385 $ 1,125 $ 2,378 1.25 1,010 1.54 2004 11,224 6,764 - 6,764 4,460 1,185 2,314 1.27 1,069 1.58 2005 12,630 7,947 66 7,881 4,749 1,260 2,246 1.35 1,033 1.65 2006 14,669 9,429 102 9,327 5,342 1,279 1,572 1.87 1,513 2.40 2007 16,512 10,117 300 9,817 6,695 1,295 1,735 2.21 2,303 2.97 2008 17,700 10,559 (96) (d) 10,655 7,045 1,365 1,659 2.33 2,492 3.15 2009 13,719 12,021 144 11,877 1,842 1,440 1,579 (e) 0.61 2,380 1.40 2010 15,645 14,296 248 14,048 1,597 1,520 (f) 1,492 (e) 0.53 3,250 1.61 2011 16,162 14,369 21 14,348 1,814 100 1,162 1.44 876 2.13 2012 16,188 12,687 33 12,654 3,534 1,980 1,284 1.08 2,459 1.84 (continued) 170 CITY OF PENSACOLA, FLORIDA PLEDGED REVENUE COVERAGE LAST TEN FISCAL YEARS (dollars in thousands)

Airport Revenue Note CFC Airport Revenue Bonds PFC

Customer Le ss: Net Passenger Fisca l Facility Operating Available Debt Service Facility Debt Service Year Charge Expense Revenue Principal Interest Coverage (g) Charge (i) Principal Interest Coverage (h)

2003 ------2004 ------2005 ------2006 ------2007 ------2008 ------2009 $ 1,255 - 1,255 $ - $ 245 5.12 $ 2,844 $ - $ 1,097 2.59 2010 998 - 998 - 195 5.12 2,978 185 1,735 1.55 2011 2,027 - 2,027 - 139 14.58 3,082 420 1,719 1.44 2012 1,809 886 923 - 145 6.37 3,003 440 1,698 1.40

Source: City Finance Office

Note s: Details regarding the city's outstanding debt can be found in the notes to the financial statements. Interest consist of both variable and fixed rates. (a) 2003 operating revenues are deflated by a deferred revenue posting of $2.3 million; 2004 operating revenues are inflated by the same posting. (b) Operating expenses are net of depreciation expenses. (c) The capital fund transfer is a prepaid revenue amount which is comprised of the prior year's coverage plus non-obligated capital improvements and any excess operating funds. (d) Negative operating expenses were a result of prior year expenditure reclasses (e) Excludes debt payments which were paid with bond proceeds. (f) Excludes debt payments which were paid with sinking fund reserves. (g) The coverage table is for illustrative purposes as required by GAAP. See CFC Bank of America Note. (h) The coverage table is for illustrative purposes as required by GAAP. See PFC Rate Maintenance covenant in Resolution 17-08 for coverage requirements. (i) A portion of the Passenger Facilities Charge revenue shown are for Pay/Go projects and are not available to become PFC Pledged Revenue for deposit into the Bond Fund for the payment of Debt Service. (j) Excludes debt payments which were paid with bond proceeds and federal subsidy payments.

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DEMOGRAPHIC AND ECONOMIC INFORMATION

CITY OF PENSACOLA, FLORIDA DEMOGRAPHIC AND ECONOMIC STATISTICS LAST TEN CALANDER YEARS

Esca mbia Personal Per Capita Calendar Pensacola County Income Personal Median School Unemployment Year Population Population (in thousands) Income Age Enrollment Rate 2003 56,307 303,310 $ 6,253,039 $ 20,616 36 43,724 4.3% 2004 56,366 307,226 6,289,531 20,472 36 43,699 3.5% 2005 54,827 303,623 6,486,905 21,365 35 42,960 4.1% 2006 55,033 309,647 6,757,426 21,823 36 42,442 3.3% 2007 55,311 311,624 7,306,960 23,448 37 42,390 3.8% 2008 56,373 317,553 7,478,373 23,550 37 40,391 5.6% 2009 55,637 315,545 7,357,247 23,316 37 40,404 9.9% 2010 51,923 (a) 297,619 (a) 6,566,070 22,062 37 40,049 11.1% 2011 51,839 298,259 6,679,510 22,395 38 39,658 10.4% 2012 52,508 300,701 6,777,801 22,540 38 39,870 8.3%

Source: Unemployment data through 2011 provided by the Florida Research and Economic Database. Unemployment data for 2012 provided by the Bureau of Labor Statistics. Population, personal income and median age data provide by the University of West Florida, HAAS center. School enrollment data provided by Escambia county school system, public relations office.

Note s: All data is applicable to Escambia County except for Pensacola population. (a) Decrease in population numbers are based on the United States Census in 2010.

172 CITY OF PENSACOLA, FLORIDA PRINCIPAL EMPLOYERS CURRENT YEAR AND NINE YEARS AGO

2012 2003 Percentage Percentage Employees Rank of Total MSA Employees Rank of Total MSA Employment Employment Employer

Local Government 15,700 1 8.31% 15,790 1 8.94% Federal Government 6,800 2 3.60% 7,403 2 4.19% State Government 6,300 3 3.33% 5,970 3 3.38% Sacred Heart Health System 5,000 4 2.65% 3,500 4 1.98% Baptist Health Care 3,763 5 1.99% 3,470 5 1.96% Lakeview Center 2,000 6 1.06% 1,500 8 0.85% Ascend Performance Materials 1,400 7 0.74% ------Gulf Power Company 1,400 8 0.74% 1,400 9 0.79% West Florida Regional Medical Center 1,300 9 0.69% 1,200 10 0.68% University of West Florida 1,231 10 0.65% 2,267 6 1.28% Solutia, Inc. (formerly Monsanto Co.) ------1,800 7 1.02%

Total 44,894 23.76% 44,300 25.07%

Source: Pensacola Area Chamber of Commerce, Enterprise Florida Inc., Reference USA, and Florida Research and Economic Development Labor Market Statistics.

Notes: Principal employer information is only available on a calendar year basis and for the Pensacola Metropolitan Statistical Area. Actual numbers are not available, therefore estimates are presented.

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OPERATING INFORMATION

CITY OF PENSACOLA, FLORIDA OPERATING INDICATORS BY FUNCTION/PROGRAM LAST TEN FISCAL YEARS

Fiscal Year 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Governmental activities: General Government Permits issued 7,382 7,249 16,301 (d) 8,746 7,610 7,415 5,448 5,259 5,444 5,659 Building inspections conducted - - - 19,665 18,989 18,918 13,982 11,305 11,056 11,482 Police Residential burglary responses 402 392 207 401 410 363 521 426 478 640 Commercial burglary responses 198 223 146 198 198 118 173 144 137 144 Emergency responses 98,686 103,503 102,517 96,531 97,602 93,019 84,155 92,991 86,845 94,911 Physical arrests 4,031 3,960 4,582 4,490 4,059 3,958 3,894 3,375 3,402 3,316 Traffic violations 12,519 14,036 11,409 10,793 10,617 9,890 8,095 5,795 6,040 6,018 Fire Emergency responses 5,532 5,738 6,332 5,655 5,624 5,823 6,011 6,117 5,855 6,050 Fires extinguished 267 310 264 265 248 264 207 227 212 222 Inspections 1,340 1,354 1,147 1,615 1,344 1,111 1,689 1,527 1,655 1,652 Transportation (a) Traffic signals maintained 478 408 281 297 324 310 280 271 254 293 Traffic warning signals maintained 33 42 62 52 132 95 52 35 347 38 Street lights maintained 239 228 288 219 231 217 194 151 180 197 Street name markers replaced 56 47 83 479 251 193 164 188 195 204 Traffic control signs replaced 379 584 525 110 265 242 679 484 489 659 Parking meters replaced 35 35 35 40 50 - (h) - - - - Culture and recreation Parks and recreation Number of programs offered - - - 496 450 369 244 269 206 258 City resident program participants - - - 234,889 301,389 288,489 459,634 431,517 294,848 (j) 363,183 County resident program participants 115,691 135,406 74,053 62,324 40,955 58,571 52,763 Golf Course Rounds played 37,007 36,950 32,603 37,427 27,428 30,866 35,543 34,713 14,452 36,643 Tournaments held - - - 92 82 76 80 65 21 56 Tournament participants - - - 4,942 4,808 4,500 4,500 3,656 1,092 3,149 Libraries Items circulated 1,083,813 1,147,516 1,014,058 948,830 680,577 (e) 747,294 778,052 820,091 744,487 746,146 Public computer use 127,621 136,446 148,208 166,164 138,553 159,004 168,654 174,053 162,112 149,746 Program Attendance 16,375 17,086 12,674 13,358 11,551 11,335 10,011 12,535 10,913 13,364 Information Transactions 65,199 60,982 84,039 57,303 71,318 74,349 78,982 97,616 80,132 88,407 City resident library card usage 24,413 23,267 29,646 30,739 30,286 24,373 33,081 36,736 36,459 31,401 County resident library card usage 59,225 54,942 71,348 77,596 77,523 61,475 86,325 95,194 95,158 83,438

(continued)

174

CITY OF PENSACOLA, FLORIDA OPERATING INDICATORS BY FUNCTION/PROGRAM LAST TEN FISCAL YEARS

Fiscal Year 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Economic environment Homes repaired/rehabilitated 36 49 51 41 28 34 39 14 11 3 New homes constructed 12 23 45 49 47 46 3 7 4 2 First-time homebuyers assisted 6 22 14 59 21 52 35 113 54 120 Lots acquired for infill housing 1 4 3 - 1 - - - - - Families assisted 2,162 1,994 1,952 1,600 1,685 2,163 2,269 2,163 2,260 2,179 Housing inspections conducted 1,042 4,807 3,295 3,999 3,336 4,700 4,440 4,077 3,776 5,034 Congregate meals/meals on wheel provided 184 351 1,269 1,300 978 1,030 1,342 1,667 1,903 1,241 Day care assistance provided, number of children 235 355 815 295 335 - - - - - Physical environment (a) Miles of paved streets swept 20,000 22,000 22,500 23,610 25,680 27,378 24,740 25,989 16,266 29,232

Busine ss-type Activitie s: Utility Average daily consumption in mmbtu's (c) 10,158 9,653 8,729 7,983 8,923 9,182 8,124 9,286 8,707 7,404 Maximum daily consumption in mmbtu's 40,983 37,483 34,799 31,313 33,131 33,926 29,524 36,096 32,611 23,363 In City customer connections 19,046 17,427 (g) 17,396 17,448 17,468 17,032 16,648 16,545 16,581 16,580 Outside City customer connections 39,663 41,648 (g) 41,828 41,953 41,999 42,312 41,767 41,344 41,091 40,990 Sanitation Customers 19,000 19,000 19,300 19,150 19,167 19,122 18,965 18,958 18,962 19,095 Refuse collected (tons) Garbage 23,064 24,030 26,987 24,344 23,009 22,213 18,490 15,720 14,724 14,805 Green Waste 17,170 15,428 13,057 10,654 10,358 11,023 9,716 11,170 12,201 12,583 Recycling (new in FY 2009) 1,189 3,974 4,444 4,539 Construction/Demolition (C&D) 1,407 1,694 551 (b) 3,004 3,313 2,847 2,828 1,659 1,442 1,676 Port Tonnage exported 125,771 66,626 45,175 139,706 26,318 (f) 26,899 13,950 45,857 55,502 67,003 Tonnage imported 378,039 441,286 448,831 709,103 498,925 (f) 357,532 233,822 223,558 207,089 157,156 Number of vessels in port 477 425 145 189 85 (f) 64 16 36 51 69 Airport Mainland carriers 4 4 4 4 4 4 4 4 2 2 Regional commuter services 7 7 7 10 8 8 8 6 11 9 Passengers enplaned 672,397 740,608 799,907 811,291 835,121 814,279 700,662 719,648 780,621 756,229 Passengers deplaned 677,906 737,998 797,595 805,956 825,424 811,324 697,840 720,098 780,919 758,769 Air freight enplaned in pounds 2,917,762 2,739,046 2,157,396 2,029,739 2,675,816 2,594,147 681,481 (i) 212,729 225,829 4,229,417 Mail enplaned in pounds 1,166,787 1,320,534 392,944 71,176 875 303 102 54 165 - Total flights (private and commercial) 124,777 127,848 129,269 114,887 108,636 109,141 96,233 125,552 117,053 105,333

Sources: Various city departments.

Note s: No operating indicators are available for the human services function. For those indicators that are null, data is not available. (a) Data provided is based on estimates. (b) 40,458 cubic yards of C&D were also collected that year. (c) MMBTU stands for one million British Thermal Unit. (d) Fluctuation due to Hurricane Ivan. (e) The Santa Rosa Library was transferred to the County durring FY07. (f) Decrease due to a major tenant being inoperative a considerable length of time to make major renovations to their capital equipment. (g) In fiscal year 2004, new software was purchased which provided a more accurate count between in-city and outside city customers. (h) The responsibility of the City's parking garages, lots and meters were transferred to the Downtown Improvement Board during FY 2008. (i) In January 2009, Airborne Express stopped using the Airport's cargo ramp for its local operations. (j) In 2010 and prior playground attendence was considard a separate program; starting in FY11 playground attendence is not considard a separate program. 175

CITY OF PENSACOLA, FLORIDA CAPITAL ASSET STATISTICS BY FUNCTION/PROGRAM LAST TEN FISCAL YEARS

Fiscal Year 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Governmental Activities: General Government Police Stations 1 1 1 1 1 1 1 1 1 1 Patrol units 139 140 140 140 140 135 130 134 140 140 Fire Stations 7 7 7 7 7 7 6 6 6 6 Apparatus 28 28 28 28 28 31 31 31 31 31 Transportation (a) Miles of street 328 328 328 328 328 330 332 332 332 332 Traffic warning signals 51 51 47 47 49 48 45 43 51 60 Traffic control signals 93 93 94 96 96 95 92 90 90 92 Traffic control signs 5,150 5,248 5,524 6,138 7,210 7,284 7,292 8,193 10,033 10,293 Culture and recreation Parks and recreation Parks 95 95 95 94 93 93 93 92 92 93 Acreage 509 509 509 508 483 483 483 478 478 517 Golf course Par 72 72 72 72 72 72 72 72 70 70 Acreage 98 98 98 98 123 123 123 123 123 123 Yardage 6,400 6,400 6,400 6,400 6,400 6,400 6,400 6,400 6,400 6,400 Libraries Number of libraries 3 3 3 3 2 (b) 3 3 3 3 3 Number of bookmobiles 2 2 2 2 2 1 0 0 0 0 Number of volumes 307,384 330,392 339,687 359,005 294,084 (b) 297,639 289,128 301,434 292,291 296,373 Economic environment (a) Street lights 7,500 7,645 7,700 7,792 7,815 7,855 7,790 7,694 (f) 7,757 7,780 Street name markers 2,400 2,400 2,400 2,459 2,889 2,910 2,905 5,287 (f) 5,676 5,676 Parking garages and lots, Number and size 3 @550 sp 3 @550 sp 3 @550 sp 3 @550 sp 3 @550 sp 3 @550 sp (d) - - - - Parking meters 745 745 571 669 653 627 (d) - - - - Berths - - - - - 3 (c) 3 3 3 3 Physical environment Street Sweepers 8 8 8 8 8 6 7 6 7 7 (continued)

176

CITY OF PENSACOLA, FLORIDA CAPITAL ASSET STATISTICS BY FUNCTION/PROGRAM LAST TEN FISCAL YEARS

Fiscal Year 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Busine ss-type a ctivitie s: Utility Miles of gas mains 1,487 1,507 1,526 1,563 1,588 1,613 1,623 1,627 1,630 1,632 Sanitation Collection trucks - residential Garbage 17 16 16 16 16 17 12 (e) 12 12 12 Collection trucks - trash collection Container 2 2 2 2 2 2 2 2 2 2 Grapplers 9 8 8 8 8 8 9 9 9 9 Shuttle 10 9 9 9 9 9 2 2 2 2 Dump 2 2 2 2 2 2 1 1 1 1 Tractor 1 1 1 1 1 1 1 1 1 1 Shuttle trailers 20 20 20 20 20 20 8 8 8 8 Collection trucks - residential Recycling 4 (e) 4 4 4 Port Warehouses 8 8 8 8 8 8 8 7 7 7 Berths 8 8 8 8 8 5 (c) 5 5 5 5 Airport Runway 17-35 length and width in square feet 7000x150 7000x150 7000x150 7000x150 7000x150 7000x150 7000x150 7000+150 7000+150 7000+150 Runway 8-26 length and width in square feet 6000x150 6000x150 7000x150 7000x150 7000x150 7000x150 7000x150 7000+150 7000+150 7000+150 Terminal building in square feet 159,000 159,000 159,000 159,000 159,000 159,000 159,000 181,808 181,808 181,808

Sources: Various city departments.

Note s: No capital asset indicators are available for the economic environment and human services function. For those indicators that are null, data is not available. (a) Data provided is based on estimates. (b) The Santa Rosa Library was transferred to the County in FY07. (c) Three berths were transfered out Port's control during FY08. Two were moved to Culture and Recreation and one to Economic Environment. (d) The responsibility of the City's parking garages, lots and meters were transferred to the Downtown Improvement Board in FY 2008. (e) The City started a recycling program in fiscal year 2009. Four trucks were moved out of residentail garbage and into residential recycling. (f) The change is due to a physical count of inventory.

177

CITY OF PENSACOLA, FLORIDA FULL-TIME-EQUIVALENT CITY GOVERNMENT POSITIONS BY FUNCTION/PROGRAM LAST TEN FISCAL YEARS

Full-time-Equivalent Employees as of September 30, Function/Program 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Governmental activities: General government Mayor 0 0 0 0 0 0 0 0 6 11 City manager 11 9 8 7 7 7 7 5 0 0 City clerk 3 3 3 3 3 3 3 3 3 3 City council 0 0 0 0 0 0 0 0 0 1 Legal 6 6 6 6 6 6 3 3 3 4 Human Resources 13 13 12 14 14 14 8 7 7 9 Civil service 3 3 3 3 3 3 2 2 2 0 Financial services 58 57 57 57 54 52 32 32 31 29 Planning Services 0 33 (a) 32 32 32 14 (b) 10 10 12 8 Planning & neighborhood development 12 0 (a) 0 0 0 0 0 0 0 0 Garage 23 24 24 24 24 22 18 18 17 17 MIS 20 20 20 19 18 18 17 16 16 17 CRA 3 3 3 4 4 4 2 2 2 2 Public safety Police 233 230 229 229 226 220 212 209 204 205 Fire 139 139 136 142 142 138 115 114 111 111 Inspection services 19 0 (a) 0 0 0 18 (b) 14 11 9 10 Street cleaning 0 0 0 0 0 0 0 0 0 0 Transportation Public Works 15 16 16 17 17 16 12 12 12 54 (c) Culture and recreation Neighborhood services (d) 92 92 92 92 92 92 80 80 73 28 (c) Golf Course 5 5 7 7 7 7 5 5 5 5 Library 33 33 41 42 49 49 52 40 40 36 Economic environment Housing 28 28 27 27 25 25 23 23 23 22 Physical environment Stormwater utility 34 32 32 32 32 32 31 29 29 29 Engineering 11 10 10 11 11 11 11 12 13 12 Busine ss-type a ctivitie s: Utility 111 112 112 112 113 113 131 122 121 117 Sanitation 62 62 62 59 60 57 51 47 43 41 Port 14 11 11 10 12 12 10 10 10 10 Airport 48 49 49 49 50 51 62 63 68 61

996 990 992 998 1001 984 911 875 860 842

Source: City Budget Office Notes: (a) As part of reorganization, Community Development created; combining Planning and Neighborhood Dev. and Inspection Services. (b) Inspection Services moved to a Special Revenue Fund. (c) As part of reorganization, parks employees moved to public works. (d) Number of employees represent full time budgeted positions. Parks and recreation has part-time temporary employees to help facilitate programs during the summer. 178

OTHER AUDIT REPORTS SECTION

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INDEPENDENT AUDITOR’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS

Honorable Members of the City Council City of Pensacola, Florida

We have audited the accompanying financial statements of the governmental activities, the business-type activities, the discretely presented component unit, Community Maritime Park Associates, Inc., each major fund, and the aggregate remaining fund information of the City of Pensacola, Florida (the City) as of and for the year ended September 30, 2012, which collectively comprise the City’s basic financial statements and have issued our report thereon dated February 14, 2013. 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.

Internal Control Over Financial Reporting

Management of the City is responsible for establishing and maintaining effective internal control over financial reporting. In planning and performing our audit, we considered the City’s internal control over financial reporting 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’s internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control over financial reporting.

A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the City’s financial statements will not be prevented, or detected and corrected on a timely basis.

Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be deficiencies, significant deficiencies, or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above.

179

Compliance and Other Matters

As part of obtaining reasonable assurance about whether the City’s financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.

However, we noted certain matters that we reported to management of the City in a separate letter dated February 14, 2013.

This report is intended solely for the information and use of the City of Pensacola, the State of Florida, and applicable federal agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties.

Pensacola, Florida February 14, 2013

180

INDEPENDENT AUDITOR’S REPORT ON COMPLIANCE WITH REQUIREMENTS THAT COULD HAVE A DIRECT AND MATERIAL EFFECT ON EACH MAJOR FEDERAL PROGRAM, STATE PROJECT AND PASSENGER FACILITY CHARGE PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133

Honorable Members of the City Council City of Pensacola, Florida

Compliance

We have audited the City of Pensacola, Florida’s (the City) compliance with the types of compliance requirements described in the OMB Circular A-133 Compliance Supplement, the requirements described in the Executive Office of the Governor’s State Projects Compliance Supplement, and the compliance requirements described in the Passenger Facility Charge Audit Guide for Public Agencies, issued by the Federal Aviation Administration, that could have a direct and material effect on each of the City’s major federal programs, state projects and its passenger facility charges for the year ended September 30, 2012. The City’s major federal programs and state projects are identified in the summary of auditor’s results section of the accompanying schedule of findings and questioned costs. Compliance with the requirements of laws, regulations, contracts and grants applicable to each of its major federal programs, state projects, and its passenger facility charges is the responsibility of the City’s management. Our responsibility is to express an opinion on the City’s compliance based on our audit.

We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations; Chapter 10.550, Rules of the Auditor General and Federal Aviation Administration; Passenger Facility Charge Audit Guide for Public Agencies. Those standards, OMB Circular A-133, Chapter 10.550, Rules of the Auditor General and Passenger Facility Charge Audit Guide for Public Agencies, require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program, state project, and the passenger facility charge program occurred. An audit includes examining, on a test basis, evidence about the City’s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination on the City’s compliance with those requirements.

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In our opinion, the City complied, in all material respects, with the compliance requirements referred to above that could have a direct and material effect on each of its major federal programs, state projects, and passenger facility charge program for the year ended September 30, 2012.

Internal Control Over Compliance

Management of the City is responsible for establishing and maintaining effective internal control over compliance with the requirements of laws, regulations, contracts, and grants applicable to federal programs, state projects, and passenger facility charge program. In planning and performing our audit, we considered the City’s internal control over compliance with the requirements that could have a direct and material effect on a major federal program, state project, and passenger facility charge program to determine the auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with OMB Circular A-133, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control over compliance.

A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program, state project, and passenger facility charge program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program, state project, or passenger facility charge program will not be prevented, or detected and corrected, on a timely basis.

Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be deficiencies, significant deficiencies, or material weaknesses. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above.

Pensacola, Florida February 14, 2013

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CITY OF PENSACOLA FLORIDA SCHEDULE OF FINDINGS AND QUESTIONED COSTS - YEAR ENDED SEPTEMBER 30, 2012

A. SUMMARY OF AUDIT RESULTS

1. The independent auditor’s report expresses an unqualified opinion on the financial statements of the City of Pensacola, Florida.

2. No significant deficiencies in internal control relating to the audit of the financial statements are reported in the Independent Auditor’s Report on Compliance and Internal Control over Financial Reporting Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards.

3. No instances of noncompliance material to the financial statements of the City of Pensacola, Florida, which would be required to be reported in accordance with Government Auditing Standards, were disclosed during the audit.

4. No significant deficiencies relating to the audit of the major federal award programs and state projects are reported in the Independent Auditor’s Report on Compliance with Requirements That Could Have a Direct and Material Effect on Each Major Federal Program and State Project and on Internal Control Over Compliance in Accordance with OMB Circular A-133.

5. The auditor’s report on compliance for major federal award programs and state projects for the City of Pensacola expresses an unqualified opinion.

6. No instances of audit findings that are required to be reported in accordance with Section 510(a) of OMB Circular A-133 are reported in this schedule.

7. The programs tested as major programs/projects were:

Federal Programs Section 8 Housing Choice Vouchers (CFDA No. 14.871) Airport Improvement Program (CFDA No. 20.106)

State Projects Aviation Development Grants (CSFA No. 55.004)

8. The threshold for distinguishing Types A and B programs was $518,000 for major federal programs and $300,000 for major state projects.

9. The City of Pensacola, Florida was determined to be a low-risk auditee pursuant to OMB Circular A-133.

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CITY OF PENSACOLA FLORIDA SCHEDULE OF FINDINGS AND QUESTIONED COSTS - YEAR ENDED SEPTEMBER 30, 2012

B. FINDINGS - FINANCIAL STATEMENTS AUDIT

None.

C. FINDINGS AND QUESTIONED COSTS - MAJOR FEDERAL PROGRAMS

None.

D. FINDINGS AND QUESTIONED COSTS - MAJOR STATE PROJECTS

None.

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CITY OF PENSACOLA FLORIDA SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS YEAR ENDED SEPTEMBER 30, 2012

There were no prior year audit findings.

185 CITY OF PENSACOLA, FLORIDA ESTIMATED SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS, PASSENGER FACILITY CHARGE AND STATE FINANCIAL ASSISTANCE FOR THE YEAR ENDED SEPTEMBER 30, 2012

Federal Passenger CFDA Number/ Facility Federal/State Agency, Pass-Through State CSFA Contract Grant Charge Entity, Federal Program/State Project Number Number Expenditures Revenue

FEDERAL AWARDS

U. S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT Community Development Block Grant 14.218 B-09/10-MC-12-0016 $ 115,919 Housing Rehabilitation 14.218 B-09/10-MC-12-0016 624,493 Aid to Private Agencies 14.218 B-09/10-MC-12-0016 171,139 Passed through Escambia County Florida: Community Development Block Grant 14.218 B-09-UC-12-0012 194,861 Total Community Development Block Grants 1,106,412 HOME Investment Partnerships Program 14.239 B-10-UC-12-0012 147,855 Section 8 Housing Choice Vouchers Program 14.871 FL092 13,256,085 Total U. S. Department of Housing and Urban Development 14,510,352

U. S. DEPARTMENT OF JUSTICE Bulletproof Vest Partnership Program 16.607 2010-BU-BX-1005-3493 8,484 Bulletproof Vest Partnership Program 16.607 2011-BU-BX-1105-5216 3,895 Total Bulletproof Vest Partnership Program 12,379 Justice Assistance Grant Program Cluster: Edward Byrne Memorial Justice Assistance Program 16.738 2011-DJ-BX-3237 34,725 Passed through the State of Florida, Department of Law Enforcement: Edward Byrne Memorial Justice Assistance Program 16.738 2012-JAGC-ESCA-3-C4-090 68,775 Edward Byrne Memorial Justice Assistance Program 16.738 2012-JAGC-ESCA-5-4X-246 4,069 Total Edward Byrne Memorial Justice Assistance Program 107,569 Law Enforcement Trust Fund N/A N/A 26,276 Total U. S. Department of Justice 146,224

U. S. DEPARTMENT OF TRANSPORTATION Airport Improvement Program 20.106 N/A 2,081,337 Total U. S. Department of Transportation 2,081,337

U.S. DEPARTMENT OF ENERGY ARRA Energy Efficiency & Conservation Block Grant Program 81.128 DE-FOA-0000013 54,541 Total U.S. Department of the Energy 54,541

U.S. DEPARTMENT OF HOMELAND SECURITY Hurricane Isaac - 75% - Federal 97.036 13-IS-3S-01-27-01-516 11,136 Hurricane Isaac - 12.5% - State 97.036 13-IS-3S-01-27-01-516 1,856 Total Disaster Grants - Public Assistance 12,992 Assistance to Firefighters Grant Program 97.044 EMW-2010-FO-04394 28,960 Pass through Pensacola Bay Area Chamber of Commerce, Port Security Grant Program 97.056 2008-GB-T8-K035 8,972 Port Security Grant Program 97.056 2009-PU-T9-K008 235,205 Port Security Grant Program 97.056 2010-PU-T0-K028 170,170 Port Security Grant Program 97.056 2011-PU-K00171 3,450 Total Port Security Grant Program 417,797 Pass through State of Florida, Florida Division of Emergency Management: Homeland Security Grant Program 97.067 12-CI-A6-01-27-02-148 6,000 Homeland Security Grant Program 97.067 12-CC-A6-01-27-02-149 6,891 Total Homeland Security Grant Program 12,891 Total U.S. Department of Homeland Security 472,640

186 CITY OF PENSACOLA, FLORIDA ESTIMATED SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS, PASSENGER FACILITY CHARGE AND STATE FINANCIAL ASSISTANCE FOR THE YEAR ENDED SEPTEMBER 30, 2012

Federal Passenger CFDA Number/ Facility Federal/State Agency, Pass-Through State CSFA Contract Grant Charge Entity, Federal Program/State Project Number Number Expenditures Revenue

FEDERAL AWARDS CONTINUED

U.S. DEPARTMENT OF AGRICULTURE Passed through State of Florida, Florida Department of Health: Child and Adult Care Food Program 10.558 A-2573 8,989 Total U.S. Department of Agriculture 8,989

TOTAL EXPENDITURES OF FEDERAL AWARDS $ 17,274,083

PASSENGER FACILITY CHARGE $ 2,880,444 1 3,003,117 2

STATE FINANCIAL ASSISTANCE

FLORIDA DEPARTMENT OF STATE AND SECRETARY OF STATE Division of Library and Information Services: State Aid to Libraries 45.03 12-ST-91 128,577 Total Florida Department of State and Secretary of State 128,577

FLORIDA HOUSING FINANCE CORPORATION SHIP Program 52.901 SHIP 2011 33,975 Total Florida Housing Finance Corporation 33,975

FLORIDA DEPARTMENT OF TRANSPORTATION Aviation Development Air Commerce Park Land Acquisition 55.004 AO986 1,282,767 Aviation Development Airport Expansion 55.004 AQF11 128,891 Total Aviation Development Grants 1,411,658 Seaport Warehouse Improvement and Dredging 55.005 AP127 147,389 Seaport Shoreside Utility Improvements 55.005 AQ782 37,079 Total Seaport Grants 184,468 Area Wide Coordinate Signal Timings 55.013 AOM42 188,317 Total Transit Corridor Program Grants 188,317 Bayfront Parkway Medians 55.023 416533-8-58-14 249,640 Total State Highway Project Reimbursement 249,640 Total Florida Department of Transportation 2,034,083

TOTAL EXPENDITURES OF STATE FINANCIAL ASSISTANCE $ 2,196,635

NOTE TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS, PASSENGER FACILITY CHARGE AND STATE FINANCIAL ASSISTANCE

NOTE A - SIGNIFICANT ACCOUNTING POLICIES The schedule of expenditures of federal awards and passenger facility charge is presented on the accrual basis of accounting in accordance with generally accepted accounting principles. 1 Includes debt service of $2,126,863 2 Includes interest earnings of $1,613

NOTE B - FLORIDA DEPARTMENT OF TRANSPORTATION AVIATION RECEIPTS Actual reimbursements received during fiscal year 2012 for AO986 totaled $1,108,220.50 Actual reimbursements received during fiscal year 2012 for AQF11 totaled $0.00

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MANAGEMENT LETTER

Honorable Members of the City Council City of Pensacola, Florida

We have audited the financial statements of the City of Pensacola, Florida, as of and for the fiscal year ended September 30, 2012, and have issued our report thereon dated February 14, 2013.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations; and Passenger Facility Charge Audit Guide for Public Agencies, issued by the Federal Aviation Administration. We have issued our Independent Auditor’s Report on Internal Control over Financial Reporting and Compliance and Other Matters, Independent Auditor’s Report on Compliance with Requirements that could have a Direct and Material Effect on each Major Federal Program and State Project and on Internal Control over Compliance, and Schedule of Findings and Questioned Costs. Disclosures in those reports and schedule, which are dated February 14, 2013, should be considered in conjunction with this management letter.

Additionally, our audit was conducted in accordance with Chapter 10.550, Rules of the Auditor General, which governs the conduct of local governmental entity audits performed in the State of Florida. This letter includes the following information, which is not included in the aforementioned auditor’s reports or schedule:

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 significant findings and recommendations made in the preceding annual financial audit report. Corrective actions have been taken to address findings and recommendations made in the preceding annual financial audit report.

Section 10.554(1)(i)2., Rules of the Auditor General, requires our audit to include a review of the provisions of Section 218.415, Florida Statutes, regarding the investment of public funds. In connection with our audit, we determined that the City of Pensacola, Florida complied with Section 218.415, Florida Statutes.

Section 10.554(1)(i)3., Rules of the Auditor General, requires that we address in the management letter any recommendations to improve financial management. In connection with our audit, we have the following recommendation:

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Technology Resources Department

Auditor’s Comment:

During the audit we reviewed controls in the Technology Resources Department and discussed certain matters with management. Our discussions and procedures indicated a need for various improvements, including the following areas: (1) testing of the disaster recovery plan; (2) review of security and event logs; and (3) vendor management.

The Technology Resources Department is aware of these matters and intends to address them in its comprehensive plan. We recommend that the comprehensive plan include: (1) annual testing of the disaster recovery plan, along with periodic training for employees on their responsibilities related to the disaster recovery plan; (2) implementation of a formalized log management process to ensure appropriate and timely review of the security and event logs; and (3) implementation of a structured vendor management process for all critical vendors.

We recommend that the status of these items be monitored by the City’s Business Process Review program. The City may also consider an external review of the Technology Resources Department to identify other opportunities for improvement.

Management’s response:

Management agrees with the auditor’s comment. Management is in the process of revamping the security and management program which will include:

 Updated security policies and procedures  Vendor management process and procedures  Periodic DR and all critical system testing  Vulnerability and risk assessment completed on an annual basis and includes both internal and external testing  Automated log and system alert management  City-wide security awareness training  Governance and oversight  Security newsletters and proactive incident management  All implementations built around a platform of Continual Service Improvement  Development of a City-wide strategic technology plan

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Updating of Policies and Procedures

Auditor’s Comment:

Clearly established policies and procedures, updated on a timely basis, are a critical part of the governmental environment. We noted that the City’s policies and procedures were reviewed and updated in advance of the change to the Mayor-Council form of government in January 2011. The City has operated for two years under this new form of government, and we believe certain policies and procedures now warrant additional clarification.

We believe the following areas in particular should be updated and clarified: (1) various purchasing policies and procedures, including the role of price and qualifications in the procurement process; (2) circumstances in which contract work begins before the written contract is executed; and (3) reimbursements for use of personal vehicles and for local meals and entertainment. We also recommend that the City establish a regular schedule for reviewing and updating policies and procedures in the future.

Management’s response:

Management agrees with the auditor’s comment. Management will review, update and clarify policies and procedures where needed as well as implementing an ongoing review process.

Section 10.554(1)(i)4., Rules of the Auditor General, requires that we address violations of provisions of contracts or grant agreements, or abuse, that have occurred, or likely to have occurred, that have an effect on the financial statements that is less than material but more than inconsequential. In connection with our audit, we did not have any such findings.

Section 10.554(1)(i)5., Rules of the Auditor General, provides that the auditor may, based on professional judgment, report the following matters that have an inconsequential effect on financial statements, considering both quantitative and qualitative factors: (1) violations of provisions of contracts or grant agreements, fraud, illegal acts, or abuse, and (2) deficiencies in internal control that are not significant deficiencies. In connection with our audit, we did not have any such findings.

Section 10.554(1)(i)6., 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. This information is included in the notes to the City of Pensacola, Florida’s financial statements.

Section 10.554(1)(i)7.a., Rules of the Auditor General, requires a statement be included as to whether or not the local governmental entity has met one or more of the conditions described in Section 218.503(1), Florida Statutes, and identification of the specific condition(s) met. In connection with our audit, we determined that the City of Pensacola, Florida did not meet any of the conditions described in Section 218.503(1), Florida Statutes.

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Section 10.554(1)(i)7.b., Rules of the Auditor General, requires that we determine whether the annual financial report for the City of Pensacola, Florida for the fiscal year ended September 30, 2012, 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, 2012. In connection with our audit, we determined that these two reports were in agreement.

Pursuant to Sections 10.554(1)(i)7.c. and 10.556(7), Rules of the Auditor General, we applied financial condition assessment procedures. It is management’s responsibility to monitor the City of Pensacola, 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 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, and applicable management, and is not intended to be and should not be used by anyone other than these specified parties.

Pensacola, Florida February 14, 2013

191 CITY OF PENSACOLA, FLORIDA FINANCIAL DATA SCHEDULE SECTION 8 HOUSING CHOICE VOUCHERS PROGRAM CATALOGUE OF FEDERAL DOMESTIC ASSISTANCE NUMBER 14.871 FOR THE YEAR ENDED SEPTEMBER 30, 2012

Line Item # Account Description Amount

Assets: Current Assets: Cash: 111 Unrestricted $ 3,669,737 113 Other restricted 1,036,643 100 Total cash 4,706,380 Receivables: 128 Fraud recovery 1,137,054 128.1 Allowance for doubtful accounts - Fraud (801,952) 120 Total receivables 335,102 142 Prepaid expenses and other assets 801 150 Total current assets 5,042,283 190 Total assets $ 5,042,283

Liabilities: Current liabilities: 312 Accounts payable <= 90 days $ 4,611 342 Deferred revenue 335,102 347 Inter Program - Due To 28,484 310 Total current liabilities 368,197 300 Total liabilities 368,197

Equity: 509.2 Fund Balance Reserved 1,036,643 512.2 Unreserved, undesignated fund balance 3,637,443 513 Total equity/net assets 4,674,086 600 Total liabilities and equity/net assets $ 5,042,283

192 CITY OF PENSACOLA, FLORIDA FINANCIAL DATA SCHEDULE SECTION 8 HOUSING CHOICE VOUCHERS PROGRAM CATALOGUE OF FEDERAL DOMESTIC ASSISTANCE NUMBER 14.871 FOR THE YEAR ENDED SEPTEMBER 30, 2012

Line Item # Account Description Amount

Revenues Other revenue: 70600 HUD PHA Operating Grants $ 11,217,897 71100 Investment Income - unrestricted 9,928 71400 Fraud Recovery 42,953 71500 Other revenue 69,897 71600 Gain or loss on sale of capital assets 2,025 72000 Investment Income - restricted 2,750 700 Total revenues 11,345,450

Expenses 91100 Administrative salaries 649,877 91200 Auditing fees 35,000 91500 Employee benefit contributions - administrative 367,729 91810 Allocated Overhead 100,000 91900 Other operating - administrative 2,631 93100 Water 684 93200 Electricity 11,274 93300 Gas 656 93600 Sewer 688 94200 Maintenance and operations - materials and other 186,329 94300 Maintenance and operations - contracts 23,270 96120 Liability insurance 8,381 96200 Other general expenses 352 96210 Compensated absences (21,526) 96900 Total operating expenses 1,365,346 97000 Excess operating revenue over operating expenses 9,980,104 Other expenses: 97300 Housing Assistance Payments 11,823,974 97350 HAP Portability-In 66,764 90000 Total expenses 13,256,084

10000 Excess (deficiency) of total revenue over (under) total expenses $ (1,910,634)

11030 Beginning Equity $ 6,584,720 11040 Prior period adjustments, equity transfers and correction of errors 11170 Administrative Fee Equity $ 3,637,443 11180 Housing Assistance Payments Equity $ 1,036,643 11190 Unit Months Available 28,776 11210 Number of Unit Months Leased 27,059

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