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i THIS PAGE INTENTIONALLY LEFT BLANK Introduction This is the twenty-sixth annual Report to Bondholders (Report) of the City of Pensacola, Florida (the "City"). The purpose of this document is to provide useful information to current and potential investors, rating agencies, bond insurers, municipal analysts and other interested parties. It is also the mechanism used to fulfill the obligation the City has undertaken to annually make available to the secondary market updated information consistent with that provided in official statements. Included in the Report is background information about the City and its services, key staff, demographics and finances; particularly as such finances relate to revenues that have been pledged to support debt service requirements on outstanding bonds. In addition, the Report includes details about each outstanding bond issue for which the City has a legal obligation to report, including information regarding economically, but not legally, defeased bond issues. All of the information presented is as of the close of our most recent fiscal year, September 30, 2019, unless the information is specifically noted as of a different date. The City has contracted with Digital Assurance Certification, LLC (DAC Bond) to provide compliance reporting for the municipal securities industry. The Report to Bondholders and Comprehensive Annual Financial Report (CAFR) are submitted annually through DAC Bond to the Electronic Municipal Market Access (EMMA) System pursuant to Securities and Exchange Commission (SEC) rules governing continuing disclosure. This provides a central location where investors can obtain municipal bond information free. The CAFR is the City’s official financial document and should be read in conjunction with this document. An electronic copy of the Report and CAFR can be accessed on the City’s website (www.cityofpensacola.com), under Government, Department Listing, Financial Services, Annual Financial Reports. Any request for financial information must be submitted in writing. If it is determined that the requested information should be available to the "market" and is not included in one of these documents the response will be provided through a filing with EMMA and the requestor will be so notified. The City has not undertaken an independent review or investigation to determine the accuracy of the information that has been obtained from other sources. Certain information presented herein has been obtained from sources that are believed by the City to be reliable, but neither the City nor the elected or appointed officials make any representations or warranties with respect to the accuracy or completeness of that information. To the extent that certain portions of the Report constitute summaries of documents, reports, resolutions or other agreements relating to the operations or outstanding debt of the City, including the CAFR, this Report is qualified by reference to each such document, report, resolution or agreement, copies of which may be obtained from the Office of the Chief Financial Officer at the address provided in this document. The Report contains certain capitalized undefined terms. Such terms are defined in the resolutions of the City authorizing the issuance of the respective bonds of the City. i MAJOR HIGHLIGHTS Pension Issues and Collective Bargaining The City maintains three contributory, defined benefit, single employer pension plans which are administered by the City’s Chief Financial Officer, the General Pension and Retirement Plan, Police Officers’ Retirement Fund and the Firefighters’ Relief and Pension Plan. The City also participates in the Florida Retirement System (FRS). On June 18, 2007, the City closed the General Pension and Retirement Plan to new participants and on January 1, 2013, the City closed the Police Officers’ Retirement Fund to new participants. The existing participants were given the opportunity to remain in the current plan(s) or participate in the FRS and new employees hired after the respective closing dates of each plan are required to participate in the FRS. The only contributory, defined benefit, single employer pension plan remaining open to new participants is the Firefighters’ Relief and Pension Plan. In addition, the City has five unions and negotiated pension reform over the past few years. The American Federation of State County and Municipal Employees (AFSCME) union and the City entered into a three year agreement on September 19, 2018 for fiscal years October 1, 2018 through September 30, 2021. The contract provides for the AFSCME members to receive a 3% pay increase effective October 1, 2018, October 1, 2019 and October 1, 2020. The City and the three police unions entered into a three year agreement on September 13, 2018 for fiscal years October 1, 2018 through September 30, 2021. The Police Officers’ contract provides for the members to receive a 10% pay increase effective October 1, 2018, and 4% pay increase effective October 1, 2019 and October 1, 2020. The Police Sergeants’ contract provides for the members to receive a 3% pay increase effective October 1, 2018, and 4% pay increase effective October 1, 2019 and October 1, 2020. The Police Lieutenants’ contract provides for the members to receive a 3% pay increase effective October 1, 2018, October 1, 2019 and October 1, 2020. The City and International Firefighters’ Association (IFFA) entered into an agreement July 25, 2017 for fiscal years October 1, 2017 through September 30, 2020. The IFFA contract provides for the members to receive a 3% pay increase effective October 1, 2017, October 1, 2018 and October 1, 2019. In fiscal year 2020, the City provided a 4% salary adjustment for non-union employees, effective October 1, 2019. Non-union employees also received a merit increase of 0%, 1% or 2% based on performance reviews, effective October 1, 2019. For fiscal year 2020, each of the above unions executed a Memorandum of Understanding to amend their pay increases for October 1, 2019 referenced above in order to receive the same increases as the nonunion employees, which was a 4% salary adjustment, effective October 1, 2019 and a merit increase of 0%, 1% or 2% based on performance reviews. Hospital Special Assessment Fund In fiscal year 2019, the Hospital Special Assessment Fund was created to account for the non-ad valorem assessment imposed on real property owned by hospitals located within the City. The purpose of the assessment is to support the provision of charity health care by the hospitals to indigent members of the Northwest Florida community. The assessment collected by the City is paid to the State of Florida, Agency for Health Care Administration. The State then uses those funds to draw down a federal match of grant dollars equal to approximately 150% of the assessment dollars collected which are then returned to the participating hospitals. The Hospital ii Special Assessment Fund had total revenues and total expenditures of $14,462,331 in fiscal year 2019. The total fund balance at fiscal year-end was $0. Debt Issuances and Refundings On July 25, 2019, the City issued its $58,140,000 Urban Core Redevelopment Refunding and Improvement Revenue Bond, Series 2019 (the “2019 Urban Core Bond”) through a direct purchase by BBVA Mortgage Corporation. The 2019 Urban Core Bond was issued to provide for an advance refunding of the outstanding principal balance of the Redevelopment Revenue Bonds, Series 2009B (Federally Taxable – Build America Bonds – Direct Payment) (“2009B Redevelopment Bonds”), as well as finance certain community redevelopment capital improvements in the Urban Core Redevelopment Area included in the Urban Core Community Redevelopment Plan and the costs of issuance on the borrowing. The newly issued 2019 Urban Core Bond matures on December 31, 2043 and has a fixed interest rate of 3.40%. Pledged revenues for the repayment of the principal and interest will be Tax Increment Revenues derived from the Urban Core Community Redevelopment Area. In the event that these revenues are insufficient to pay debt service, the 2019 Urban Core Bond is further secured by certain non-ad valorem revenues budgeted and appropriated therefor pursuant to a Covenant to Budget and Appropriate. Bond Ratings On March 28, 2019 Fitch Ratings (“Fitch”) affirmed an implied general obligation rating for the City of “AA+” and on October 16, 2009 Standard & Poor’s Ratings Services (“Standard & Poor’s”) affirmed its “AA” Issuer Credit Rating of the City. Also, on March 28, 2019 Fitch affirmed a long-term rating of “AA” on the City’s Redevelopment Revenue Bonds, Series 2009A and Series 2009B (the “2009 Redevelopment Bonds”) and on February 23, 2018 Standard & Poor’s upgraded its rating on the 2009 Redevelopment Bonds to “AA” from "AA-". On October 17, 2017 Standard & Poor’s affirmed a long-term rating of “BBB”, on October 10, 2017 Fitch affirmed a rating of “BBB-” and on May 30, 2017 Moody’s Investors Service, Inc. (“Moody’s”) affirmed a long-term rating of “Baa1” on the City’s Airport Revenue Bonds. Standard & Poor’s and Fitch assigned a Positive outlook and Moody’s assigned Stable outlooks in conjunction with the ratings on the City’s Airport Revenue Bonds. The fluctuations of the financial market have had no material effect on principal and interest payments made by the City, or the City’s underlying bond ratings. All required principal and interest payments have been remitted timely and in full. Subsequent Events Cyber Attach. The City experienced a ransomware attack during the early morning hours of December 7, 2019. The ransomware penetrated the City’s network and illegally obtained access to the City’s network. The City hired the firm, Deloitte and Touche, to assist the City with determining the extent of the breach and, provide the City with recommendations for additional security measures to put in place to prevent a future occurrence. While the City did not pay the iii ransom, the City’s estimated cost related to the incident is $400,000 as of January 31, 2020.

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