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HomeMy WebLinkAboutCAFR-June-30-2018 CITY OF PADUCAH, KENTUCKY COMPREHENSIVE ANNUAL FINANCIAL REPORT YEAR ENDED JUNE 30, 2018 FINANCE DEPARTMENT CITY OF PADUCAH, KENTUCKY City of Paducah Paducah, Kentucky Comprehensive Annual Financial Report Year Ended June 30, 2018 Issued by the Finance Department CITY OF PADUCAH, KENTUCKY COMPREHENSIVE ANNUAL FINANCIAL REPORT YEAR ENDED JUNE 30, 2018 TABLE OF CONTENTS Exhibit No. Page No. Introductory Section: Letter of Transmittal 1 - 7 Organizational Chart 8 Principal Officials 9 GFOA Certificate of Achievement 10 Financial Section: Independent Auditor’s Report 11-12 Required Supplementary Information: Management’s Discussion and Analysis 13-28 Basic Financial Statements: Government-wide Financial Statements: Statement of Net Position 1 29-30 Statement of Activities 2 31-32 Fund Financial Statements: Governmental Funds: Balance Sheet 3 33-34 Reconciliation of the Governmental Funds Balance Sheet to Statement of Net Position 4 35-36 Statement of Revenues, Expenditures and Changes in Fund Balances 5 37-38 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities 6 39-40 Statement of Revenues, Expenditures and Changes - Budget and Actual - General Fund 7 41-44 Statement of Revenues, Expenditures and Changes - Budget and Actual - Special Revenue Investment Fund 8 45 Proprietary Funds: Statement of Net Position 9 46 Statement of Revenues, Expenses and Changes in Fund Net Position 10 47 Statement of Cash Flows 11 48 Fiduciary Funds: Statement of Net Position 12 49 Statement of Changes in Net Position 13 50 Notes to Financial Statements 51-101 Required Supplementary Information: Schedule of Changes in the Police and Firefighters’ Pension Trust Fund’s Net Pension Liability and Related Ratios A-1 102 Schedule of Changes in the Appointive Employees’ Pension Trust Fund’s Net Pension Liability and Related Ratios A-2 103 Schedule of Police and Firefighters’ Pension Trust Fund Contributions and Investment Returns A-3 104 Schedule of Changes in the Appointive Employees’ Pension Trust Fund Contributions and Investment Returns A-4 105 Schedule of City’s Proportionate Share of the Net Pension Liability County Employees’ Retirement System A-5 106 Schedule of City’s Contributions - Pensions County Employees’ Retirement System A-6 107 Exhibit No. Page No. Supplementary Information: Schedule of City’s Proportionate Share of the Net Medical Insurance Plan Liability - County Employees’ Retirement System A-7 108 Schedule of City’s Contributions – Medical Insurance Plan County Employees’ Retirement System A-8 109 General Capital Improvements Detail Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual B-1 110 Debt Service Fund Detail Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual B-2 111 Nonmajor Governmental Funds: Combining Balance Sheet B-3 112-113 Combining Statement of Revenues, Expenditures and Changes in Fund Balances B-4 114-115 Detail Statement of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual: Municipal Aid Fund B-5 116 Emergency Communication Service Fund B-6 117 Court Awards Fund B-7 118 CDBG Grant Fund B-8 119 Special Revenue Bond Fund B-9 120 Nonmajor Proprietary Funds: Nonmajor Enterprise Funds: Combining Statement of Net Position C-1 121 Combining Statement of Revenues, Expenses and Changes in Fund Net Position C-2 122 Combining Statement of Cash Flows C-3 123 Internal Service Funds: Combining Statement of Net Position D-1 124 Combining Statement of Revenues, Expenses, and Changes in Fund Net Position D-2 125 Combining Statement of Cash Flows D-3 126 Fiduciary Funds: Combining Statement of Net Position - Private-purpose Trust Funds E-1 127 Combining Statement of Changes in Net Position - Private-purpose Trust Funds E-2 128 Statement of Changes in Assets and Liabilities - Agency Funds E-3 129 Table No. Page No. Statistical Section: Net Position by Component 1 130 Changes in Net Position 2 131-132 Fund Balances, Governmental Funds 3 133 Changes in Fund Balances, Governmental Funds 4 134 Assessed and Estimated Actual Value of Taxable Property 5 135 Governments 6 136 Principal Taxpayers 7 137 Secured Tax Levies and Collections 8 138 Employee License Tax Collections 9 139 Table No. Page No. Statistical Section: Principal Employee License Taxpayers 10 140 Ratio of Outstanding Debt by Type 11 141 Ratio of Net General Bonded Debt Outstanding 12 142 Direct and Overlapping Governmental Activities Debt 13 143 Legal Debt Margin Information 14 144 Demographic and Economic Statistics 15 145 Principal Employers 16 146 City Full-Time Employees by Function 17 147 Operating Indicators by Function 18 148 Capital Asset Statistics by Function 19 149 Single Audit Section: Schedule of Expenditures of Federal Awards 150 Notes to the Schedule of Expenditures of Federal Awards 151 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 152-153 Independent Auditor’s Report on Compliance for Each Major Program and on Internal Control Over Compliance Required by Uniform Guidance 154-155 Schedule of Findings and Questioned Costs 156-157 Schedule of Prior Audit Findings 158 CITY OF PADUCAH, KENTUCKY INTRODUCTORY SECTION COMPREHENSIVE ANNUAL FINANCIAL REPORT YEAR ENDED JUNE 30, 2018 December 21, 2018 Honorable Mayor and Commissioners City of Paducah Paducah, Kentucky We are pleased to submit Paducah's Comprehensive Annual Financial Report for the year ended June 30, 2018. Responsibility for the accuracy of the presented data and the completeness and fairness of the presentation, including all disclosures, rests with the City. The major objective of this report is to describe the City’s financial condition and the financial results of its operation in a format designed to be useful to the general public, elected officials, investors and creditors. We believe the data, as presented, is accurate in all material aspects; that it is reported in a manner designed to present fairly the financial position and results of operations of the various funds. All disclosures necessary to enable the reader to gain maximum understanding of the City’s financial activities have been included. City management’s narrative on the financial activities of the City for the fiscal year ended June 30, 2018, is in the Management’s Discussion and Analysis (MD&A) section of this report, immediately following the Report of Independent Auditors. The letter of transmittal is written to complement the MD&A and the financial statements, and should be read from that perspective and in conjunction with all other sections of the CAFR. THE CITY Paducah was established in 1827 by explorer General William Clark. The City of Paducah is situated at the confluence of the Ohio and Tennessee Rivers in the north central portion of McCracken County. Paducah is the largest city both in the county and in the Jackson Purchase eight county region. The City has established itself as the cultural, economic, medical and transportation center for not only the Jackson Purchase region but for a large portion of Southern Illinois and portions of Western Tennessee and Southeastern Missouri. Industry The Paducah area has moved from the traditional “manufacturing industry” to a “service industry” economy and cultural center. Multi-state computer services, significant banking corporations, wholesale and retail trade, river-related services, the health care industry and related services are the major employment centers. CITY OF PADUCAH Finance Department P.O. Box 2267 Paducah, KY 42002-2267 270-444-8512 - 2 - Economic Development Activities Paducah Economic Development (PED) coordinates the City’s efforts in strengthening and building economic development activities. Representatives of financial institutions, utilities, local government, education and the business community serve as the Board of Directors. In existence since 1987, PED assumes and carries out the responsibility of working with existing industry and business, as well as identifying and recruiting new companies to the City of Paducah. Additionally, PED is responsible for development of long-term strategy for economic development activities and coordinates local entities in the accomplishment of those strategies. In the early 1990s, the City of Paducah, the State of Kentucky and several federal agencies, in conjunction with business, developed a 650-acre ‘Information Age’ Park. This park is designed to appeal to firms needing advanced telecommunications and computing capabilities. In 1997, the City of Paducah jointly with the County of McCracken acquired the ‘Industrial Park West of Paducah and McCracken County’. This park contains 218 acres with immediate access to two major railroad lines, Paducah and Louisville and Paducah and Illinois (formerly Illinois Central). The park is located within the southwest quadrant of the I-24/Cairo Road interchange. In 2007, PED began assembling property to establish Riverport West, an industrial park with rail and river access in western McCracken County. So far, 229 acres have been purchased. Churches And Schools A relatively strong religious base is evident in the community, as demonstrated by the many churches in Paducah. Numerous churches, representing many of the major denominations, are located within the City. Several area churches offer televised activities as a convenience to those who do not attend church. Elementary and secondary education in Paducah is provided by the Paducah Independent School System, the McCracken County School System, Community Christian Academy, and by the St. Mary’s Parochial School System. The availability of higher education in the area is continuing to flourish. West Kentucky Community and Technical College (WKCTC), formerly known as Paducah Community College, is a two-year institution affiliated with the University of Kentucky’s community college system. WKCTC also serves as a site for the University of Kentucky extended campus graduate programs, in addition to a four-year engineering college in conjunction with the University of Kentucky. In 2008, WKCTC opened a Paducah School of Art. In 2010, a new 65,000 square feet Emergency Technology Center was opened, offering industrial and manufacturing technologies, engineering technology, as well as business and industry training and information technology programs. This is the first state supported new building to be constructed on the WKCTC campus in over 20 years. In 2011, Murray State University entered into an agreement with the City, McCracken County, and Paducah Economic Development to construct an approximately 40,000 square foot educational building to serve as their Paducah campus. Classes began at the Paducah campus in 2014. Medical Facilities Paducah serves as the regional medical center for much of the Jackson Purchase Area of Western Kentucky, a large portion of Southern Illinois, and Northwestern Tennessee. Paducah’s medical industry has almost every major medical specialty represented in the physician population. The medical industry, represented by Lourdes Hospital and Western Baptist Hospital, provides over 650 beds for medical needs. The two largest hospitals, together, employ over 3,000 persons. - 3 - Recreation And Culture Citizens have available a wide range of recreational and cultural activities which cater to diverse tastes. Area residents may choose from fishing on nearby Kentucky and Barkley Lakes to enjoying the performing arts. City parks provide areas for baseball, softball, golf, football, tennis, disc golf, footgolf, skate boarding, soccer, hiking and picnicking. The Parks Services Department offers a substantial number of activities for people of all ages. The Dogwood Festival, held in April, highlights the coming of spring in Paducah. Residents are encouraged to spotlight their trees to illuminate a driving tour to celebrate an abundance of dogwood trees. The LowerTown Art and Music Festival is uniquely showcased within the borders of Paducah’s 180- year-old historic neighborhood. The LowerTown Art and Music Festival is an outdoor-juried show in its 16th year. The weekend exhibits the work of local artists and includes jazz, salsa, zydeco and blues music, as well as food from area restaurants. Started in 2004, the Rivers Edge International Film Festival is a four-day event built around the showing of independent film from around the world. The festival is held in multiple venues including Maiden Alley Cinema, Market House Theatre, and Yeiser Art Center. In addition to appealing to the film lover, the festival also provides filmmakers opportunities for exhibition, education, and networking. Paducah is the site of the Museum of the American Quilter’s Society. In May 2008, a congressional designation was passed naming the museum as the National Quilt Museum of the United States. The museum, dedicated in 1991, is the centerpiece for the quilters’ annual convention held in April. The convention attracts an estimated 30,000 visitors to Paducah annually. A second annual show began in September 2017, which had an estimated 15,000 in attendance. One of Paducah’s oldest celebrations is the 8th of August Emancipation Celebration, which features African American family reunions, or a homecoming. It is a time for African Americans to pay tribute to their heritage and roots, and a time of reconciliation. The Barbecue on the River event was started in 1995, as a way for local charities to raise funds. It attracts in excess of 40,000 participants to Paducah’s riverfront during the last weekend in September. Over time, this annual event has grown to incorporate other events, including Marine Industry Day and Old Market Days. Paducah Power sponsors the annual Christmas in the Park lighting display at Noble Park. The public is invited to a special lighting ceremony the Friday after Thanksgiving. This is the fifteenth year for the event. Although the event is free, volunteers collect more than $40,000 in cash and thousands of pounds of canned food annually. Paducah has an active symphony and several theater groups. The Paducah Symphony Orchestra stages concerts during the winter season, with the Market House Theater presenting several productions during the same time period. In addition, West Kentucky Community and Technical College’s Arts in Focus series sponsors a variety of professional productions. The Luther F. Carson Four Rivers Center for the Performing Arts opened in February 2004 as a regional, multiple-purpose facility, with a 1,800-seat main hall designed to accommodate a wide variety of cultural and educational programs. - 4 - The McCracken County Public Library offers a large selection of literature, special collections and programs. The West Kentucky Community and Technical College Library supplement this community resource. THE GOVERNMENT Paducah operates under a City Manager plan of government. The Paducah Board of Commissioners is made up of a Mayor and four Commissioners elected at large by the citizens on a non-partisan basis. The Mayor is elected for a four-year term and Commissioners for a two-year term. The Mayor and Commissioners have equal voting powers. The Board of Commissioners sets the policies that govern the City. It appoints advisory citizens groups that help in the decision-making process. The City Manager is appointed by the Board and assists it in formulating objectives, policies and programs. The City Manager is responsible for the day-to-day operation of the City’s 332 full-time employees as of June 30, 2018. Department managers are responsible for their respective departments and report directly to the City Manager. REPORTING ENTITY AND ITS SERVICES For financial statement purposes, as required by generally accepted accounting principles, the City’s Comprehensive Annual Financial Report includes all City of Paducah financial statements (primary government) and its component units. The component units discussed below are included in the City’s reporting entity because of the significance of their operational or financial relationships with the City of Paducah. Blended units are presented as such because the units’ governing bodies are substantially the same as the governing body of the City, or provide services almost entirely to the City of Paducah. The City has only one blended unit: the Police and Firefighters’ Pension Fund, which was established for the benefit of police and firemen of the City. The City has one component unit that has been presented as a discrete unit to emphasize that it is legally separate from the City. Paducah Water Works is included in the City’s financial statements because of its financial relationship with the City. The City provides a full range of municipal services, including police and fire protection; maintenance of streets and infrastructure; sanitation services; cultural events and recreation activities. Accounting System The City’s accounting system is organized on the basis of separate funds, each of which is considered to be a separate accounting entity. The financial activities of each fund generate a separate set of self- balancing accounts, which comprise its assets, liabilities, fund equity, revenues, and expenditures/expenses. Municipal resources are allocated to and accounted for in individual funds based upon the purposes for which they are to be spent and the means by which spending activities are controlled. The City’s accounting records for the governmental funds and agency funds are maintained on a modified accrual basis, with revenues being recorded when “measurable and available” and expenditures being recorded when the services or goods are received and the liabilities are incurred. Accounting records for the City’s proprietary funds and trust funds are maintained on the accrual basis, with revenues recognized when earned and expenses recorded when the liability is incurred or economic asset used. - 5 - Internal Control In developing and evaluating the City’s accounting system, consideration is given to the adequacy of internal controls. Because the cost of a control should not exceed the benefits to be derived, the objective of these internal controls is to provide reasonable, rather than absolute assurance that the financial statements are free of any material misstatements. Internal controls were designed for Paducah’s accounting system to reasonably safeguard its assets against loss from unauthorized use or disposition, check the accuracy of accounting data, promote operational efficiency and encourage adherence to prescribed managerial policies. Budgetary Control Paducah’s budget process provides for input from department managers, top management, elected officials and the public to determine what programs and services will be provided for during the upcoming year. Budgetary control is maintained at the departmental level by comparing budgeted expenditures with actual expenditures on a periodic and year-to-date basis. An expenditure, which would result in an overrun of department appropriation, cannot be made until additional funds are appropriated and a budget amendment is approved. Purchase orders which result in an overrun of department appropriations cannot be honored until additional appropriations are made available. Unencumbered funds at year-end roll into the fund balance. Financial Policies The City’s financial policies are shaped by state law and established by management and the City Commission. Financial policies include budgeting and financial planning, capital planning, revenue, investment, debt management, procurement, and accounting and auditing. During FY2018, one of the City’s financial policies did have a significant impact on the financial statements: Pension Obligation Costs. In FY2006, the City issued general obligation bonds of $6,100,000 to finance the police and firefighters’ pension fund actuary liability. Since the issuance of these bonds, the City has made it policy to contribute the normal cost as well as the minimum actuarially sound contribution annually that would arise from the fund being in a deficit position as of the actuarial date. For FY2018 this contribution was $376 thousand. This amount was $435 thousand in FY2017. LONG-TERM FINANCIAL PLANNING On October 1, 2005, the City’s payroll tax was increased ½ cent. As a result of the payroll tax increase, the City Commission created the Investment Fund. The Investment Fund is funded with the ½ cent increase and is dedicated to the following purposes: community redevelopment, economic development, infrastructure capital investment, and property tax relief. During the FY2018 budget process, the Commission reviewed numerous decision packages proposed for the Investment Fund Budget; expenditures totaling approximately $5.5 million were appropriated. The City has numerous infrastructure/capital items that will affect the long-term financial planning process. The following projects are examples of future considerations facing the City: Floodwall Restoration. The 12.5-mile long floodwall and levee system protecting a large portion of the Paducah-McCracken area exceeds 70 years of age. Its age has marginalized its electrical and mechanical components well beyond their 50 year useful design life; therefore, it is in need of necessary repairs and upgrades. In FY2011, the U.S. Army Corps of Engineers (USACE) issued a Feasibility Report, which recommended a comprehensive reconstruction, rehabilitation, and restoration project to improve the - 6 - reliability and restore the system performance of the original floodwall construction. It is anticipated the USACE will cover 65% of the expenses incurred and the City will be responsible for the remaining 35% by payment or credited by in-kind services. Pump stations #7 and #11 are currently under construction through USACE for a total bid amount of $3.7 million. Pump station #2 is currently under construction through the City for a bid amount of $4.9 million. Pump station #9 has been completed through the City as well, with the construction being performed in-house by the City. The remainder of the project will be released by USACE through either one or two bid packages in the 2019 calendar year, and design work is being finalized on these final phases though USACE in-house design services. Based on USACE revised authorization, it is still estimated that the City’s portion of the overall project costs is approximately $10.9 million. The City is expected to receive in-kind credits from the work performed on Pump Stations #2 and #9, as well as through professional services the City has acquired on behalf of USACE during their design of the second phase of the project. Storm Water Master Plan. In March 2017, the City Commission approved an ordinance to execute an agreement for professional engineering, consulting, and related services for the development of a comprehensive storm water master plan (CSMP). The CSMP was completed in the fall of 2018. It identified 23 problem areas and analyzed solutions for ten priority flood areas, including the analysis of flood mitigation alternatives, a priority ranking of projects along with a benefit cost analysis, and the development of a capital project program. Phase 2 of this project has now been initiated to determine the utility rate needed to launch a storm water management program. This rate would cover capital, operation maintenance, life cycle replacement, and permit requirements. This phase is expected to be completed in winter of 2019. Decisions made once this process is complete will require long-term financial planning consideration. ECONOMIC CONDITION The City continues to be aggressive in promoting economic development, since new developmental job growth is necessary to ensure the continued stability of the City’s tax base. Economic indicators and trends reflect that the area’s economy has remained fairly steady considering the nation’s recent economic struggles. It is expected that the economy will continue to hold over the near-term. Area employment increased slightly in comparison to the prior year, with 28,128 persons employed (McCracken County) as of June 30, 2018. The June 2018 unemployment rate was 6.4% (McCracken County), which is a decrease from 6.8% in the prior year, and exceeds the June 2018 federal unemployment rate of 4.0%. INDEPENDENT AUDIT Kentucky Revised Statute 91A-040 requires an annual audit of each fund of the City by an auditor of public accounts or a certified public accountant. The independent certified public accounting firm of Kemper CPA Group, LLP, has conducted this audit and their opinion has been included in this report. The City is also subject to the Single Audit Act Amendments of 1996 reporting requirements. The Single Audit Report is included within this report. CERTIFICATE OF ACHIEVEMENT The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of Paducah, Kentucky for its comprehensive annual financial report for the fiscal year ended June 30, 2017. This was the twenty- seventh consecutive year that the City achieved this prestigious award. In order to be awarded a Certificate of Achievement for Excellence in Financial Reporting, a government must publish an easily readable and efficiently organized comprehensive annual financial report. This report must satisfy both generally accepted accounting principles and applicable legal requirements. - 7 - A Certificate of Achievement for Excellence in Financial Reporting is valid for a period of one year only. We believe our current comprehensive annual financial report continues to meet the Certificate of Achievement Program’s requirements, and we are submitting it to GFOA to determine its eligibility for another certificate. ACKNOWLEDGMENTS The preparation of this report on a timely basis could not be accomplished without the efficient and dedicated services of the entire staff of the Finance Department. We wish to express our appreciation to all members of the Finance Department who assisted and contributed to its preparation, and special thanks to Kemper CPA Group, LLP. We also thank the Mayor, City Manager, and City Commission for their interest and support in planning and conducting the financial operations of the City in a responsible and progressive manner. CITY OF PADUCAH, KENTUCKY ORGANIZATIONAL CHART CITIZENS OF PADUCAH CITIZENS OF PADUCAH Mayor and Commissioners Advisory Board and Committees City Manager City Attorney City Clerk Parks Department Fire Department Police Department Emergency 911 Engineering/ Public Works Department -8- Information Systems Human Resources /Risk Management Finance Planning Department CITY OF PADUCAH, KENTUCKY PRINCIPAL OFFICIALS BOARD OF COMMISSIONERS Mayor Brandi Harless Mayor Pro tem Sandra Wilson Commissioner Allan Rhodes, Jr. Commissioner Richard Abraham Commissioner Sarah Stewart Holland CITY MANAGER James Arndt Finance Jonathan Perkins, CPA Police Chief Brandon Barnhill Fire Chief Steve Kyle Emergency 911 Edward McManus City Engineer/Public Works Richard Murphy Planning Tammara Tracy Parks Services Mark Thompson Information Services Stephen Chino City Clerk Lindsay Parish Human Resources/Risk Manager Martin Russell Public Information Pam Spencer -9- Government Finance Officers Association Certificate of Achievement for Excellence in Financial Reporting Presented to City of Paducah Kentucky For its Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2017 Executive Director/CEO CITY OF PADUCAH, KENTUCKY FINANCIAL SECTION COMPREHENSIVE ANNUAL FINANCIAL REPORT YEAR ENDED JUNE 30, 2018 INDEPENDENT AUDITOR’S REPORT Honorable Brandi Harless, Mayor Members of the Board of Commissioners City of Paducah Paducah, Kentucky Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the business-type activities, the discretely presented component units, each major fund, and the aggregate remaining fund information of the City of Paducah, Kentucky, as of and for the year ended June 30, 2018, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements as listed in the table of contents. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We did not audit the financial statements of the following component unit: Paducah Water Works, which is presented as a discretely presented component unit in the statement of net position and statement of activities. These financial statements were audited by another auditor whose report has been furnished to us, and our opinions, insofar as it relates to the amounts included for Paducah Water Works, discretely presented component unit, is based solely on the reports of the other auditor. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, the discretely presented component unit, each major fund, and the aggregate remaining fund information of the City of Paducah, Kentucky, as of June 30, 2018, and the respective changes in financial position, and, where applicable, cash flows thereof and the respective budgetary comparison for the General Fund and the Special Revenue Investment Fund for the year then ended in accordance with accounting principles generally accepted in the United States of America. 100 South 4th Street Suite 300 Paducah, KY 42001 Phone: (270)443-4400 Fax: (270)443-0963 kempercpa.com Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis and pension and other post employment benefits trust fund schedules on pages 13-28 and 102-109 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City of Paducah, Kentucky’s basic financial statements. The introductory section on pages 1-10; budgetary comparison schedules, combining and individual nonmajor fund financial statements, budgetary comparison schedules for the nonmajor funds, nonmajor enterprise financial statements, internal service and fiduciary financial statements on pages 110-129; and statistical section on pages 130-149, are presented for purposes of additional analysis and are not a required part of the basic financial statements. The schedule of expenditures of federal awards on pages 150-151 is presented for purposes of additional analysis as required by Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, and is also not a required part of the basic financial statements. The budgetary comparison schedules, combining and individual nonmajor fund financial statements, budgetary comparison schedules for the nonmajor funds, nonmajor enterprise financial statements, internal service and fiduciary financial statements and the schedule of expenditures of federal awards are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the budgetary comparison schedules, combining and individual nonmajor fund, budgetary comparison for the nonmajor funds, nonmajor enterprise, internal service and fiduciary financial statements and the schedule of expenditures of federal awards are fairly stated in all material respects in relation to the basic financial statements as a whole. The introductory and statistical sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on them. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 21, 2018, on our consideration of the City of Paducah, Kentucky’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering City of Paducah, Kentucky’s internal control over financial reporting and compliance. Certified Public Accountants and Consultants Paducah, Kentucky December 21, 2018 -12- CITY OF PADUCAH, KENTUCKY REQUIRED SUPPLEMENTARY INFORMATION COMPREHENSIVE ANNUAL FINANCIAL REPORT YEAR ENDED JUNE 30, 2018 - 13 - CITY OF PADUCAH, KENTUCKY MANAGEMENT’S DISCUSSION AND ANALYSIS JUNE 30, 2018 The City of Paducah (“City”) offers Management’s Discussion and Analysis to provide a narrative overview and analysis of City financial activities for fiscal year ended June 30, 2018. To fully understand the entire scope of the City’s financial activities, this information should be read in conjunction with the letter of transmittal (pages 1-7) and the basic financial statements (pages 29-101) provided in this document. The City first implemented Government Accounting Standards Board Statement 34, Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments, for fiscal year 2003. I. Financial Highlights Assets exceeded liabilities by $26 million at the close of the 2017-2018 fiscal year. Total net position decreased $3,128,450. At fiscal year end, City governmental funds reported a combined ending fund balance of $29.7 million. Approximately 15% of this total amount, $4.4 million, is restricted or committed for highways/streets and capital improvements. Assigned fund balance comprises 24% of combined fund balance; the majority of which is set aside for capital improvements. At the end of the current fiscal year, unassigned General Fund balance was $17.7 million and is available for spending at the City’s discretion. Cash makes up approximately $12.6 million. When compared to final total appropriations, the General Fund cash balance is 36%. II. Overview of Financial Statements This discussion and analysis serves as an introduction to the City’s basic financial statements, which consist of four components: 1) government-wide financial statements, 2) fund financial statements, 3) component unit financial statements, and 4) notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements. A. Government-Wide Financial Statements Government-wide financial statements are designed to provide readers with a broad overview of City finances in a manner similar to private-sector business. The Statement of Net Position presents information on all City assets and liabilities, with the difference between assets and liabilities reported as net position. Monitoring increases and/or decreases in net position over time may serve as a useful indicator of whether the financial position of the City is improving, stagnating, or deteriorating. The Statement of Activities presents information showing how the City’s net position changed during the fiscal year. All net position changes are reported as soon as the underlying event giving rise to the change occurs regardless of the timing of related cash flows. Revenues and expenses are reported in the Statement of Activities for some items that will only result in cash flows in the future. Both of the government-wide financial statements distinguish City functions that are primarily supported by taxes and intergovernmental revenues (governmental activities) from other City functions that are intended to recover all or a significant portion of their costs through user fees and charges (business-type activities). City governmental activities include general government, public safety, public service, park and recreation, planning and development, and interest on long-term debt. Business-type activities of the City include Solid Waste, Section Eight Housing, Civic Center, and the Transient Boat Dock. - 14 - Government-wide financial statements include not only the City (the primary government), but also a legally separate Paducah Water Works (component unit) for which the City is financially accountable. Financial information for the component unit is reported separately from the financial information presented for the primary government itself. The government-wide financial statements can be found on pages 29-32 of this report. B. Fund Financial Statements A fund is a grouping of related accounts that is used to maintain control over segregated resources for specific activities or objectives. The City of Paducah, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. City funds can be divided into three categories: 1) Governmental Funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. Unlike government-wide financial statements, however, governmental fund financial statements focus on current sources and uses of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. This information may be useful in evaluating a city’s near- term financing requirements. The City maintains nine (9) individual governmental funds. 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, General Capital Improvements, Special Revenue Investment, and Debt Service Funds, all of which are considered to be major funds. Data from the other five (5) funds are combined into a single, aggregated presentation. Individual fund data for each of these non-major governmental funds is provided in the form of combining and individual fund statements elsewhere in this report on pages 110-120. Readers may better understand the long-term impact of the City’s near-term financing decisions by comparing the narrow-focus governmental funds financial statements with governmental activities in the government-wide financial statements. Exhibit 4 (pages 35-36) and Exhibit 6 (pages 39-40) provide a reconciliation to ease comparison between the fund financial statements and the government-wide statements. The basic governmental fund financial statements can be found on pages 33-40 of this report. 2) Proprietary Funds. The City maintains two types of proprietary funds: a. Enterprise Funds. Enterprise funds are used to report the same functions presented as business-type activities in the government-wide financial statements and are used to account for operations: That are financed and operated in a manner similar to private business enterprises where the intent of the governing body is that the costs of providing goods and services to the general public on a continuing basis be financed or recovered primarily through user charges; or Where the governing body has decided that periodic determination of revenues earned, expenses incurred, and/or net income is appropriate for capital maintenance, public policy, management control, accountability or other purposes. The City uses four enterprise funds to account for Solid Waste, Section Eight Housing, Civic Center, and Transient Boat Dock. Civic Center receives subsidy from the General Fund. - 15 - The City’s component unit enterprise is the Paducah Water Works. This component unit, which has its own board of directors, is also an enterprise fund and is shown on pages 29-32. b. Internal Service Funds are used to accumulate and allocate costs internally among the City’s various functions. The City uses internal service funds to account for fleet services, fleet replacement, risk management (insurance) and employee health programs. Internal service funds have been allocated between governmental activities and business-type activities in the government-wide financial statements based on revenue earned. Proprietary funds provide the same kind of information as government-wide financial statements, but in greater detail. Individual data for the nonmajor proprietary funds is presented in the form of combining statements on pages 121-123 of this report. Individual data for the internal service funds is likewise presented in the form of combining statements on pages 124- 126 of this report. 3) Fiduciary Funds. Fiduciary funds are used to account for resources held for the benefit of parties outside the government and are not reflected in government-wide financial statements because those resources are not available to support City programs. Individual data for the City’s three (3) fiduciary funds (Appointive Employees’ Pension, Police and Firefighters’ Retirement, and Cemetery and Parks Trusts Funds) are presented in the form of combining statements on pages 90-91 and 127-128 of this report. C. Notes to the Financial Statements The notes provide additional information that is essential to fully understanding data provided in the government-wide and fund financial statements. Notes to the financial statements can be found on pages 51-101 of this report. D. Other Information In addition to basic financial statements and accompanying notes, this report also presents certain required supplementary information concerning City funding of its pension obligation to its employees as well budgetary comparison schedules for the general and major special revenue funds. The combining statements referred to earlier in connection with nonmajor governmental funds, nonmajor proprietary funds, internal service funds and fiduciary funds are presented immediately following the required supplementary information on pensions and budgetary comparisons. Combining fund statements and schedules can be found on pages 112-129 of this report. III. Government-Wide Financial Analysis As noted earlier, net position may serve over time as a useful indicator of the City’s financial position. City assets exceeded liabilities by $26 million as of June 30, 2018. For FY2018, the largest portion of the City’s net position ($58 million) reflects its investment in capital assets (i.e., land, buildings, machinery, equipment and infrastructure) less outstanding related debt used to acquire those assets. The City uses these capital assets to provide service to citizens and, as a result, these assets are not available for future spending. The City’s capital assets investment is reported net of related debt, but the resources to pay this debt must be provided from other sources since the capital assets cannot be used to liquidate the liabilities. An additional portion of City net position ($2.1 million) represents resources that are subject to external restrictions on how they may be used. - 16 - In FY2015 the City implemented Government Accounting Standards Board (GASB) Statement No. 68. It requires that the City report and fully disclose its share of net pension liability, which is $58.9 million as of June 30, 2018. In FY2018 the City implemented GASB 75, which requires that the City report and fully disclose its share of other post-employment benefit liabilities. This generated a $20 million liability as of June 30, 2018. Disclosing the City’s participation in the County Employee Retirement System (CERS) for pension and other post-employment benefits has been the primary factor in driving the City’s unrestricted net position to a negative $34.1 million in FY2018. As of June 30, 2018, the City reports positive balances of total net position, both for the government as a whole, as well as for its separate governmental and business-type activities. City of Paducah, Kentucky Net Position June 30 Governmental Activities Business-Type Activities Total Primary Government 2018* 2017 2018* 2017 2018* 2017 Current Assets $ 45,870,249 $ 44,454,697 $ 5,041,448 $ 5,849,858 $50,911,697 $ 50,304,555 Capital Assets 62,624,050 61,316,723 2,876,483 2,152,827 65,500,533 63,469,550 Other noncurrent assets 6,139,409 6,643,477 - - 6,139,409 6,643,477 Total Assets 114,633,708 112,414,897 7,917,931 8,002,685 122,551,639 120,417,582 Deferred Outflows of Resources 23,668,245 9,544,779 906,016 454,939 24,574,261 9,999,718 Current Liabilities 7,899,284 7,145,085 348,052 501,801 8,247,336 7,646,886 Noncurrent liabilities 99,937,794 70,805,403 5,308,427 4,227,219 105,246,221 75,032,622 Total liabilities 107,837,078 77,950,488 5,656,479 4,729,020 113,493,557 82,679,508 Deferred Inflows of Resources 7,580,389 6,676,017 131,138 62,496 7,711,527 6,738,513 Net position: Net Invested in Capital Assets 55,031,812 52,898,618 2,876,483 2,152,827 57,908,295 55,051,445 Restricted 2,088,652 2,268,705 - - 2,088,652 2,268,705 Unrestricted (34,235,978) (17,834,152) 159,847 1,513,281 (34,076,131) (16,320,871) TOTAL NET POSITION $ 22,884,486 $ 37,333,171 $ 3,036,330 $ 3,666,108 $ 25,920,816 $ 40,999,279 *Beginning net position as of July 1, 2017 was restated for implementation of GASB 75. Prior year has not been restated on this chart. - 17 - The exhibit below charts the City’s total net position for the past ten years (as previously mentioned, prior years have not been restated for implementation of GASB 68 and 75 in this discussion). After several years of keeping a level net position, the City has experienced significant fluctuations over the past six years. Substantial increases occurred in fiscal years 2013, 2014, 2016, and 2017, which resulted from heavy capital development that was funded primarily with grant funding. Projects during these fiscal years included the completion of the boat launch, Riverfront Development Phases 1A & 1B, the Olivet Church Road project, and Phase 1 of the Jim & Pat Brockenborough Rotary Health Park. The City’s net position decreased significantly in FY2015 due to the implementation of GASB 68. The City’s participation in the County Employee Retirement System (CERS) led to the inclusion of an initial noncurrent liability in excess of $30 million. Net position took another hit in FY2018 due to the implementation of GASB 75. The City’s participation in the Kentucky Retirement Systems Insurance Fund has generated a noncurrent liability for other post-employment benefits in the amount of $20 million FY2018. A. Analysis of the City’s Operations The following table provides a summary of the City’s operations for the years ended June 30, 2018 and 2017. Governmental activities decreased the City’s net position by $3,092,434 and business- type activities decreased the City’s net position by $36,016. - 18 - City of Paducah, Kentucky Changes in Net Position June 30 Governmental Activities Business-Type Activities Total Primary Government Revenues: 2018* 2017 2018* 2017 2018* 2017 Program revenues: Charges for services $ 2,937,204 $ 3,080,186 $ 4,634,692 $ 4,604,117 $ 7,571,896 $ 7,684,303 Operating grants/contributions 2,441,864 7,509,005 1,965,868 1,962,125 4,407,732 9,471,130 Capital grants/contributions 542,980 3,702,428 - - 542,980 3,702,428 General Revenues: Property taxes 5,248,369 4,996,242 - - 5,248,369 4,996,242 Franchise taxes 267,846 235,512 - - 267,846 235,512 Telecommunications tax 626,303 677,478 - - 626,303 677,478 Insurance premium tax 4,592,834 4,331,956 - - 4,592,834 4,331,956 Vehicle tax 746,963 747,384 - - 746,963 747,384 Bank tax 290,262 242,931 - - 290,262 242,931 Gross receipts license tax 4,631,352 4,721,657 - - 4,631,352 4,721,657 Employee license tax 21,054,644 20,803,763 - - 21,054,644 20,803,763 Other taxes 693,831 665,384 - - 693,831 665,384 Intergovernmental revenue 418,998 364,718 - - 418,998 364,718 Unrestricted investment earnings 428,721 188,097 54,139 37,644 482,860 225,741 Gain on sale of capital assets - - - - - - Miscellaneous 14,190 51,922 (13,063) 374,244 1,127 426,166 Total revenues 44,936,361 52,318,663 6,641,636 6,978,130 51,577,997 59,296,793 Expenses: General Government 9,590,575 8,652,987 - - 9,590,575 8,652,987 Public safety 25,602,852 20,176,070 - - 25,602,852 20,176,070 Public service 7,511,063 7,771,335 - - 7,511,063 7,771,335 Park & recreation 3,397,087 3,059,447 - - 3,397,087 3,059,447 Planning & development 1,455,677 1,077,265 - - 1,455,677 1,077,265 Interest on long-term debt 861,589 885,380 - - 861,589 885,380 Solid Waste - - 4,096,022 3,902,907 4,096,022 3,902,907 Section Eight Housing - - 2,064,408 1,952,441 2,064,408 1,952,441 Civic Center - - 76,639 92,471 76,639 92,471 Transient Boat Dock - - 50,535 1,031 50,535 1,031 Total expenses 48,418,843 41,622,484 6,287,604 5,948,850 54,706,447 47,571,334 Increase (decrease) in Net position before transfers (3,482,482) 10,696,179 354,032 1,029,280 (3,128,450) 11,725,459 Transfers 390,048 2,274,377 (390,048) (2,274,377) - - Change in net position (3,092,434) 12,970,556 (36,016) (1,245,097) (3,128,450) 11,725,459 Net position, July 1, restated 25,976,920 24,362,615 3,072,346 4,911,205 29,049,266 29,273,820 NET POSITION, JUNE 30 $22,884,486 $ 37,333,171 $ 3,036,330 $ 3,666,108 $ 25,920,816 $ 40,999,279 *Beginning net position as of July 1, 2017 was restated for implementation of GASB 75. Prior year has not been restated in this chart. - 19 - B. Governmental Activities As with most municipalities, the City’s governmental activities are heavily subsidized by taxes, with little or no program revenue for each function. The chart below demonstrates the importance of tax revenue to essential functions of the City. The graph below depicts the breakdown of revenue by source for fiscal year 2018. - 20 - In fiscal year 2018, the City derived approximately 85% of its revenue from taxes/licenses. Occupational licenses, which include payroll withholding tax, business licenses, and insurance premium tax is the largest source of income to the City, totaling $30 million. This category of revenue increased 1.4% from fiscal year 2017. Insurance premium tax carried the majority of the increase, growing individually by 6%. Payroll tax remained fairly flat, increasing by just over 1%. Business licenses, which were flat last year, decreased by nearly 2% in FY2018. None of these changes appear to be the result of one significant taxpayer’s activity, but the result of multiple entities having modest increases/decreases. Property taxes continue to be a stable source of revenue, comprising nearly 12% of total revenue in FY2018. C. Business-Type Activities The chart below shows the year’s revenues and expenses for each of the City’s business-type activities. These activities should break-even; that is, the charges for services should be large enough to sustain operations. Only one of the business-type activities reflected these results for FY2018 – the Solid Waste Fund, with income before contributions and transfers of $609,346. For fiscal year 2018, business-type activities as a whole had a decrease in net position of $36,016. Beginning in FY2012, an annual transfer is made from Solid Waste to the General Fund. The Phase II Storm Water Act requires that the City make an effort to curb solid waste from the landfill/sewer system. As a result, three full time street sweepers and eighteen right of way maintenance employees (one day a week) have been assigned to this program. Because these are General Fund employees, the Solid Waste Fund is making monthly interfund transfers to the General Fund to compensate for their use. The total amount transferred for FY2018 was $360,000. Analysis of the remaining business-type activities is included in Section IV-B of this report. - 21 - IV. Financial Analysis of the City’s Funds A. Governmental Funds The focus of the City’s governmental funds is to provide information on near-term inflows, outflows and balances of spendable resources. Such information is useful in determining the City’s financing requirements. Unreserved fund balance serves as a useful measure of the City’s net resources available for spending at the end of the fiscal year. At the end of the fiscal year, the City governmental funds reported combined ending fund balances of $29.7 million. In FY2011, the City implemented GASB Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions. The redefined categories of fund balance are described below: Nonspendable fund balance includes amounts that are not in a spendable form or are required to be maintained intact indefinitely. For example, at the end of the fiscal year, the City had $471,135 of real property held in inventory for urban development. Restricted fund balance has external limitations on use that may be imposed by creditors, grantors, contributors, or laws and regulations. For example, at the end of the fiscal year, the City had $629,440 of municipal aid funds, which are restricted in use for paving by the State of Kentucky Committed fund balance has self-imposed limitations enacted by the highest level of decision making that requires formal action at the same level to remove the limitations. The City had $2,310,621 in fund balance committed for capital improvements in the Investment Fund. Assigned fund balance has limitations resulting from intended use; formal action is not required. Approximately 24% of the City’s fund balance is assigned for various purposes, including capital improvements, public safety, and debt service. Unassigned fund balance is the total fund balance in the General Fund in excess of the other fund balance categories. - 22 - Approximately 60% of total fund balance, $17.7 million is unassigned General Fund fund balance, which is available for spending at the government’s discretion but only up to the amount represented by cash. At year-end there was $12.6 million available as General Fund cash; the balance is tied up in other assets including accounts receivable and property taxes collectible. City fiscal policy (Ordinance 2017-06-8487) requires that an amount not less than 10% of the General Fund’s budgeted expenditures remain undesignated in the fund balance, or $3.5 million, which leaves $9.1 million as unreserved for fiscal year 2018. As a measure of General Fund liquidity, readers may compare unassigned (formerly reported as “unreserved”) fund balance to total General Fund expenditures. Unassigned General Fund fund balance ($17.7 million) represents 51% of expenditures and transfers out ($34.7 million). This has remained stable for the last ten years, as illustrated in the table below. The Investment Fund had a fund balance of $2.3 million, all of which is committed for capital projects. The Investment Fund was authorized by the City Commission in fiscal year 2005-2006 as a special revenue fund whose use is restricted to property tax reduction, economic development, community redevelopment and capital and infrastructure projects. The Investment Fund captures all manner of financial activities related to revenue from the ½ cent payroll tax increase, effective October 1, 2005. For FY2018, the fund was originally budgeted at a $250 thousand deficit to spend down accumulated unreserved fund balance. The actual decrease in fund balance of $77 thousand was due to a budgeted debt service expenditure for a bond issue that was delayed until FY2019. Fund balance in the General Capital Improvements fund decreased by approximately $1.6 million from the prior year to $6.3 million. The decrease is due to the completion of capital projects in FY2018 for which funds were set aside in prior years. Capital improvement projects for the year are discussed in Section VI-A of this report. B. Proprietary Funds The City’s proprietary funds provide the same information found in the government-wide financial statements but in more detail. - 23 - Net position of the respective proprietary funds are: Solid Waste $2,613,594 Section Eight Housing (247,369) Civic Center 105,305 Transient Boat Dock 12,019 Combined total net asset change for the four funds was a decrease of $16 thousand, broken down as follows: Solid Waste ($212 thousand increase), Section Eight Housing ($150 thousand decrease), Civic Center ($86 thousand decrease), and Transient Boat Dock ($8 thousand increase). The largest proprietary fund, Solid Waste, was discussed under Business Type Activities (Section III-C). FY2018 was the first year (partial) of operations for the Transient Boat Dock Fund. The 340 foot transient boat dock opened for business in the fall of 2017. This new facility allows for the mooring of several transient and local recreational boats with full City services, including power, water, and sewer pump out. It also has the capacity to supply gasoline and diesel for refueling vessels. V. General Fund Budgetary Highlights Differences between the original budget and the final budget resulted in a $530 thousand decrease in appropriations. This was largely due to an interfund transfer for $900 thousand that was appropriated for the E911 CAD replacement project. This project was delayed until FY2019 and subsequently funded through debt proceeds. This decrease was netted with an increase in appropriations for a General Fund reserve transfers to the Capital Improvements Fund for renovation of City Hall in the amount of $256,220. Final appropriations (including operating transfers out) exceeded total actual expenditures by $821 thousand. Nearly half of that ($390 thousand) was due to salary slippage in various departments from unfilled positions. Additionally, two funds that the General Fund operationally contributes to – E911 and Fleet Maintenance – required less funding than anticipated. Intergovernmental Expense of $331 thousand accounts for the pass-through of property taxes to the Paducah Junior College. The College is technically not a taxing district, and the City levies this tax on their behalf. The City does not include this account in its budgeting process. VI. Capital Asset and Debt Administration A. Capital Assets The City’s investment in capital assets for governmental and business-type activities as of June 30, 2018, is $66 million (net of accumulated depreciation). This investment in capital assets includes land, buildings and improvements, vehicles and equipment, park facilities, roads, highways, and bridges, and construction in progress. Capital improvements are included in each department budget until improvements are completed. At the end of the fiscal year, completed projects are capitalized in the Government-wide Statements. During fiscal year 2018, project and equipment additions totaled over $26.4 million, with $3.6 million of that attributed to Construction in Progress at year-end. Two very large projects that have comprised Construction in Progress for multiple years were officially placed into service in FY2018 – Olivet Church Road and Riverfront Phase 1B. Those projects, along with some of the other largest capital-type project additions, in terms of dollars in fiscal year 2018, are shown in the following table: - 24 - Olivet Church Road Construction $9,663,647 Riverfront Phase 1B 8,602,026 Jim & Pat Brockenborough Rotary Health Park 763,461 City Hall Renovations – Phase 1 (Construction in Progress) 1,650,498 Storm Water Study (Construction in Progress) 733,825 E911 CAD Upgrade (Construction in Progress) 400,601 Refuse trucks & equipment 1,249,928 In the upcoming years, several street, economic development, riverfront development, and drainage projects will continue and are estimated to cost several million dollars. Capital improvement projects including infrastructure, City-owned facility improvements, continued neighborhood revitalization, and street and sidewalk rehabilitation are among the projects to be addressed. City of Paducah, Kentucky Capital Assets (Net of Accumulated Depreciation) June 30 Governmental Activities Business-Type Activities Total Primary Government 2018 2017 2018 2017 2018 2017 Land $ 10,393,199 $ 10,376,832 $ 62,152 $ 62,152 $ 10,455,351 $ 10,438,984 Land improvements 18,179,636 9,411,107 - - 18,179,636 9,411,107 Construction in progress 3,518,902 20,009,381 - - 3,518,902 20,009,381 Buildings and improvements 6,272,221 5,926,065 238,669 254,997 6,510,890 6,181,062 Infrastructure 18,712,536 9,930,281 - - 18,712,536 9,930,281 Equipment 1,883,726 1,895,804 609,579 364,870 2,493,305 2,260,674 Furnishings and fixtures 58,578 22,338 - - 58,578 22,338 Vehicles 3,605,252 3,744,915 1,966,083 1,470,808 5,571,335 5,215,723 TOTALS $ 62,624,050 $ 61,316,723 $ 2,876,483 $ 2,152,827 $ 65,500,533 $63,469,550 Additional information on City capital assets can be found in Note 3 in the notes to financial statements on pages 69-71. B. Long-Term Debt At year-end, the City had $25,799,195 in outstanding bonds and notes payable, compared to $28,034,113 at June 30, 2017 with maturities extending through 2032. Governmental Activities 2018 2017 Kentucky League of Cities – 2003 $1,113,319 $1,309,616 Floodwall Rehabilitation – 2008 1,729,992 1,862,123 Convention Center Renovation – 2008 1,744,320 1,751,666 Refinanced Convention Center – 2010 4,065,000 4,515,000 Margaret Hank Agreement – 2011 - 47,934 Refinanced Rental Building – 2011 1,920,000 2,230,000 Murray State University Agreement – 2011 1,991,487 2,109,088 - 25 - Public Pool Renovations – 2013 860,000 925,000 Economic Development – 2013 1,895,000 2,040,000 Refinanced Public Projects – 2014 4,195,000 4,505,000 Refinanced Police/Firefighter Pension Fund Liability - 2014 3,255,000 3,660,000 CFSB Agreement - 2017 2,957,575 3,000,000 Net Premiums/Discounts 72,502 78,686 TOTALS $25,799,195 $28,034,113 The City had no new debt issues during FY2018. Debt issues prior to July 1, 2017 are described below: Julian Carroll Convention Center Improvements. In January 2017, the City entered into an agreement with Community Financial Services Bank in the amount of $3 million on behalf of McCracken County to finance improvements to the Julian Carroll Convention Center. Police/Firefighter Pension Fund Liability – Refinance. In November 2014, a $4.225 million general obligation was issued to advance refund $3.845 of outstanding 2005 series bonds. The 2005 bonds were issued to finance the police and firefighters’ pension fund estimated pension liability. Public Improvement Projects – Refinance. In May 2014, a $5.46 million general obligation was issued to refund $5.545 million of outstanding 2010 series bonds. The 2010 bonds were issued to finance several public improvement projects including a major park parking lot renovation and several resurfacing projects, sports park property acquisition, pavilion acquisition, greenway trail development, and the public portion of a hotel purchase. Economic Development. In September 2013, $2.475 million in general obligation taxable bonds were issued to finance a portion of construction of 1) improvements to a speculative building and 2) an approximately 30,000 square foot building (TeleTech). Each of these buildings are being utilized for separate economic development projects. Public Pool Renovations. In September 2013, $1.12 million in general obligation bonds were issued to finance Noble Park’s pool renovation project. Murray State University (MSU) Agreement. In November 2011, the City entered into a general obligation note in the amount of $2,674,093 with McCracken County and MSU to finance the construction of an educational facility to be occupied by Murray State University. Rental Building – Refinance. In August 2011, a $3.91 million bond obligation was issued to advance refund $3.78 million of outstanding 2004 series bonds. The 2004 bonds were issued to finance the construction of a rental building in the Paducah Industrial Park West. The previous agreement with McCracken County was renewed: 50% of the principal amount of the bonds was issued on behalf of McCracken County, Kentucky. Margaret Hank Building Agreement. In June 2011, the City entered into an agreement in the amount of $188,533 with Margaret Hank Memorial Cumberland Presbyterian Church to finance the acquisition of real property to be used for the development of an indoor recreational facility. Convention and Performing Arts Center – Refinance. In August 2010, a $7.165 million general obligation was issued to advance refund $6.725 million of outstanding 2001 series bonds. The 2001 bonds were issued to finance construction of the Luther F. Carson Four Rivers Center for the Performing Arts and the expansion of the Julian Carroll Convention Center. The previous agreement with McCracken County was renewed: 50% of the principal amount of the bond was issued on - 26 - behalf of McCracken County, Kentucky, and the County has issued the City a general obligation note in a principal amount equal to 50% of the principal amount of the bonds. Convention Center Renovation. In March 2009, McCracken County entered into an agreement in the amount $5,000,000 with the Kentucky Association of Counties to finance renovations to the Julian Carroll Convention Center. The note was issued by McCracken County; however, the City is obligated for 50% of the principal amount through an Interlocal Cooperative Agreement between the City and McCracken County. Floodwall Rehabilitation. In March 2009, a $2.8 million general obligation was issued to finance significant repairs to the City’s 60-year-old floodwall. The first stage of a $6 million project, this money was used to fund the relining of the pipes, which have deteriorated with age. Kentucky League of Cities. In fiscal year 2003, the City borrowed $3.5 million to fund a variety of capital projects, including park improvements ($1.0 million), downtown infrastructure improvements in conjunction with the FRC ($1.5 million), and City Hall, Police and other City-owned facility improvements ($1.0 million). The City’s legal debt limit under §158 of the Kentucky Constitution is 10% of total assessed value of taxable property in Paducah; therefore, the debt limit is $269,774,088. The City’s latest bond rating by Standard & Poor’s is AA-. The City has a relatively low amount of general obligation debt, which explains our large legal debt margin. The City of Paducah, Kentucky, issues and incurs debt in order to fund capital improvement projects, purchase major capital equipment and facilities, and respond to other special funding needs. In fiscal year 2018, just over 1% of the General Fund budget was expended for debt service, and thus has minimal impact on current and future operations. Additional information on the City’s long-term debt can be found in Note 3 in the notes to financial statements on pages 72-77. VII. Other Potentially Significant Matters. A. Post-employment Benefits. Over the years, the City’s contribution to the Kentucky Retirement System (CERS) has seen a substantial rise in costs that has significantly impacted the City’s operating budget. The table and graph below show the actual cost of the City’s contributions to CERS for both Non-Hazardous and Hazardous employees for selected fiscal years 1998, 2008, and 2018. CERS Employer Contributions Non-Hazardous Hazardous FY Rate Amount % Chg Rate Amount % Chg 1998 8.65% $489,327 18.69% $1,002,398 2008 16.17% $1,217,525 149% 33.87% $2,361,399 136% 2018 19.18% $1,668,320 37% 31.55% $2,914,035 23% - 27 - In early spring 2013, the State of Kentucky passed a pension reform bill (Senate Bill 2) to prevent pension costs from escalating even higher. This legislation established a hybrid cash balance plan for participants entering the plan after January 1, 2014, that provides a retirement benefit based on an individual’s accumulated account balance. It also reset the amortization period to a new 30-year period beginning with FY2015. Other highlights include the elimination of automatic cost of living increases for retirees and provisions for retirement “spiking.” However, employer contribution rates will not differ for employees beginning participation after January 1, 2014. The contribution rates will be determined based on all CERS membership, and any excess funds contributed on new employees will be used to pay down the system’s unfunded liability. During the 2018 Regular Session of the General Assembly, Senate Bill 151 was passed in an attempt to further reduce the State’s pension liability. Some of the changes include adjusting retirement formulas, creating an optional 401(a) defined contribution plan for future employees, and implementing additional anti-spiking provisions. Prior to this legislation being passed, the KRS board set FY2019 contribution rates at 28.05% for non-hazardous and 47.86% for hazardous employees. Because SB 151 did not include the strong measures necessary to bring the retirement system to a healthy position, the rates set by KRS remained unchanged, and participants in the plan were faced with substantial budget crises – for some smaller entities it even presented going concern issues. In order to provide rate relief for the employers participating in CERS, House Bill 362 was passed. This Bill states that the employer contribution rates established by the board for CERS payable on or after July 1, 2018 and until June 30, 2028, for the pension and health insurance funds shall not increase more than 12% per year. This resulted in adjusted contribution rate of 21.48% and 35.34% for non-hazardous and hazardous employees, respectively, for FY2019. Although HB 362 and the reduced rates for FY2019 provided some much needed relief for the City, the future of the plan and long-term effects on the City’s operations are of utmost concern. As indicated in the chart above, the City paid $4.6 million in contributions for FY2018. Should the future rates be set to result in the capped 12% increase each year, the City will be contributing $7.4 million annually by FY2023. An additional provision of SB 151 requires the Public Pension Oversight Board (PPOB) to establish an advisory committee to study the benefits and drawbacks of separating CERS from KRS or restructuring the administration of the systems within KRS. This advisory committee shall submit recommendations to PPOB on or before December 1, 2019. Along with the uncertainty of the committee’s findings and potential actions that follow, in June 2018, Franklin Circuit Judge Shepherd ruled that Senate Bill 151 is unenforceable because the legislative process violated certain provisions of the Kentucky Constitution. This ruling has been appealed to the Kentucky Supreme Court. - 28 - B. Police & Fire Pension Fund (PFPF) Unfunded Liability. In fiscal year 2006, the City issued $6.1 million in general obligation bonds to eliminate the unfunded pension liability. With the sharp decline in value of the national stock market in 2009, the PFPF’s equity investment dropped accordingly. PFPF net assets dropped in 2009 by nearly $3.5 million, or 28.5% of the beginning net assets (July 1, 2008). The Fund still remains in an unfunded position due to these events. The July 2018 actuary study shows that the PFPF unfunded pension liability is approximately $3.3 million as the following chart displays. Since the 2009 drop, the City has contributed approximately $400,000 annually to meet the actuary’s recommended amount toward the unfunded pension liability. The valuation as of July 1, 2018, indicates the minimum actuarially sound contribution for FY2019 will be $368,373. VIII. Requests for Information This financial report is designed to provide a general financial overview for those interested in the City of Paducah government finances. Questions or requests for additional financial information may be addressed to Jonathan Perkins, Finance Director, City of Paducah, 300 South 5th Street, Paducah, KY 42003. CITY OF PADUCAH, KENTUCKY BASIC FINANCIAL STATEMENTS COMPREHENSIVE ANNUAL FINANCIAL REPORT YEAR ENDED JUNE 30, 2018 Exhibit 1 Component Unit Paducah Governmental Business-type Water Works Current Assets: Activities Activities Total Authority Cash and cash equivalents 27,626,092$ 2,941,972$ 30,568,064$ 1,059,995$ Investments 4,000,000 1,000,000 5,000,000 - Receivables, net: Notes 1,362,334 - 1,362,334 - Accounts 7,147,819 526,903 7,674,722 628,643 Grants 31,630 - 31,630 - Interest 48,896 3,904 52,800 - Property tax 5,631,607 - 5,631,607 - Accrued unbilled revenues - - - 1,165,042 Internal balances (552,781) 552,781 - - Inventory 525,312 15,888 541,200 813,914 Other current assets 49,340 - 49,340 1,229,973 Total current assets 45,870,249 5,041,448 50,911,697 4,897,567 Noncurrent Assets: Notes receivable 6,139,409 - 6,139,409 - Capital assets: Land and construction in progress 13,912,101 62,152 13,974,253 1,471,143 Depreciable capital assets 48,711,949 2,814,331 51,526,280 54,218,511 Other assets - - - 7,449,346 Total noncurrent assets 68,763,459 2,876,483 71,639,942 63,139,000 Total assets 114,633,708 7,917,931 122,551,639 68,036,567 Deferred Outflows of Resources: Deferred pension related outflows 15,972,031 680,839 16,652,870 2,316,277 Deferred OPEB related outflows 7,378,375 225,177 7,603,552 680,337 Deferred charges on refunding 317,839 - 317,839 - Total deferred outflows of resources 23,668,245 906,016 24,574,261 2,996,614 See accompanying notes to the basic financial statements. CITY OF PADUCAH, KENTUCKY STATEMENT OF NET POSITION JUNE 30, 2018 ASSETS -29- Primary Government Component Unit Paducah Governmental Business-type Water Works Current Liabilities: Activities Activities Total Authority Voucher and accounts payable 3,452,183 186,792 3,638,975 625,899 Accrued payables 599,277 36,194 635,471 916,204 Due to other taxing agencies 90,801 - 90,801 - Unearned revenue 44,417 25,500 69,917 - Accrued compensated absences 1,236,497 99,566 1,336,063 276,380 Accrued interest 103,719 - 103,719 - Notes payable due within one year 511,061 - 511,061 455,532 Bonds payable due within one year 1,861,329 - 1,861,329 - Other current liabilities - - - 293,694 Total current liabilities 7,899,284 348,052 8,247,336 2,567,709 Noncurrent Liabilities: Accrued compensated absences 818,959 48,097 867,056 - Landfill post-closure costs - 2,062,500 2,062,500 - Pensions obligation 56,497,145 2,380,304 58,877,449 6,871,607 Other post employment benefits (OPEB) 19,194,886 817,526 20,012,412 2,360,081 Notes payable 7,295,639 - 7,295,639 6,691,526 Bonds payable 16,131,165 - 16,131,165 - Total noncurrent liabilities 99,937,794 5,308,427 105,246,221 15,923,214 Total liabilities 107,837,078 5,656,479 113,493,557 18,490,923 Deferred Inflows of Resources Deferred revenues - property taxes 5,446,055 - 5,446,055 - Deferred pension related inflows 954,238 88,334 1,042,572 653,693 Deferred OPEB related inflows 1,180,096 42,804 1,222,900 123,567 Total deferred inflows of resources 7,580,389 131,138 7,711,527 777,260 Net invested in capital assets 55,031,812 2,876,483 57,908,295 48,542,596 Restricted for: Housing and development projects - - - - Capital projects & infrastructure 1,959,953 - 1,959,953 - Public safety 128,699 - 128,699 - Unrestricted (deficit) (34,235,978) 159,847 (34,076,131) 3,222,402 TOTAL NET POSITION 22,884,486$ 3,036,330$ 25,920,816$ 51,764,998$ -30- LIABILITIES NET POSITION Primary Government Exhibit 2 FUNCTIONS/PROGRAMS Operating Charges for Grants and Primary Government:Expenses Services Contributions Governmental activities: General government 9,590,575 1,276,959 556,126$ 16,865$ Public safety 25,602,852 571,427 768,918 442,707 Public service 7,511,063 962,822 655,320 - Parks and recreation 3,397,087 125,996 137,500 73,408 Planning and development 1,455,677 - 190,000 10,000 Interest on long-term debt 861,589 - 134,000 - Total governmental activities (See Note 1) 48,418,843 2,937,204 2,441,864 542,980 Business-type activities: Solid Waste 4,096,022 4,555,488 52,716 - Section Eight Housing 2,064,408 - 1,913,152 - Civic Center 76,639 35,670 - - Transient Boat Dock 50,535 43,534 - - Total business-type activities 6,287,604 4,634,692 1,965,868 - TOTAL PRIMARY GOVERNMENT 54,706,447$ 7,571,896$ 4,407,732$ 542,980$ Component Unit: Paducah Water Works Authority 10,679,251$ 11,152,288$ -$ 610,455$ TOTAL COMPONENT UNITS 10,679,251$ 11,152,288$ -$ 610,455$ General revenues: Taxes and licenses: Property taxes, levied for general purposes Franchise tax Telecommunications tax Insurance premium tax Vehicle tax Bank tax Gross receipts license tax Employee license tax Other taxes Transient room tax Unrestricted investment earnings Miscellaneous Total general revenues Transfers Total general revenues and transfers Change in net position Net position - beginning as restated (See Note 11) Net position - ending See accompanying notes to the basic financial statements. Program Revenues Capital -31- CITY OF PADUCAH, KENTUCKY Grants and Contributions FOR THE YEAR ENDED JUNE 30, 2018 STATEMENT OF ACTIVITIES Component Unit Governmental Business-type Paducah Water Activities Activities Total Works Authority (7,740,625)$ -$ (7,740,625)$ -$ (23,819,800) - (23,819,800) - (5,892,921) - (5,892,921) - (3,060,183) - (3,060,183) - (1,255,677) - (1,255,677) - (727,589) - (727,589) - (42,496,795) - (42,496,795) - - 512,182 512,182 - - (151,256) (151,256) - - (40,969) (40,969) - - (7,001) (7,001) - - 312,956 312,956 - (42,496,795) 312,956 (42,183,839) - - - - 1,083,492 - - - 1,083,492 5,248,369 - 5,248,369 - 267,846 - 267,846 - 626,303 - 626,303 - 4,592,834 - 4,592,834 - 746,963 - 746,963 - 290,262 - 290,262 - 4,631,352 - 4,631,352 - 21,054,644 - 21,054,644 - 693,831 - 693,831 - 418,998 - 418,998 - 428,721 54,139 482,860 38,410 14,190 (13,063) 1,127 142,315 39,014,313 41,076 39,055,389 180,725 390,048 (390,048) - - 39,404,361 (348,972) 39,055,389 180,725 (3,092,434) (36,016) (3,128,450) 1,264,217 25,976,920 3,072,346 29,049,266 50,500,781 22,884,486$ 3,036,330$ 25,920,816$ 51,764,998$ Net (Expense) Revenue and Changes in Net Position Primary Government -32- CITY OF PADUCAH, KENTUCKY BASIC FINANCIAL STATEMENTS FUND FINANCIAL STATEMENTS COMPREHENSIVE ANNUAL FINANCIAL REPORT YEAR ENDED JUNE 30, 2018 Exhibit 3 Special General Fund Assets Cash and cash equivalents 9,556,054$ 997,080$ 7,610,220$ Investments 3,000,000 - - Receivables: Accounts 7,822,284 - - Grants 3,792 - 27,838 Interest 15,616 - - Property taxes (net of allowances for uncollectibles)5,679,607 - - Inventory - - 471,135 Due from other funds 49,340 1,313,541 - Total Assets 26,126,693$ 2,310,621$ 8,109,193$ Liabilities Voucher and accounts payable 646,517$ -$ 1,786,429$ Accrued payroll and payroll taxes 548,074 - - Due to other funds 1,313,541 - - Due to other taxing agencies 90,801 - - Unearned revenue - other - - - Accrued compensated absences 169,903 - - Total liabilities 2,768,836 - 1,786,429 Deferred Inflows of Resources Unavailable revenue-property taxes 5,660,584 - - Fund Balances: Nonspendable Inventory - - 471,135 Restricted for: Highways and streets - - - Public safety - - - Capital improvements - - - Committed for: Capital improvements - 2,310,621 - Assigned for: Public safety - - - Debt service - - - Capital improvements - - 5,851,629 Unassigned: General Fund 17,697,273 - - Total fund balances 17,697,273 2,310,621 6,322,764 TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND FUND BALANCES 26,126,693$ 2,310,621$ 8,109,193$ See accompanying notes to the basic financial statements. General Capital CITY OF PADUCAH, KENTUCKY BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30, 2018 Revenue Investment -33- Fund Improvements Debt Service Fund 1,020,907$ 2,926,575$ 22,110,836$ - - 3,000,000 - 181,571 8,003,855 - - 31,630 - - 15,616 - - 5,679,607 - - 471,135 - - 1,362,881 1,020,907$ 3,108,146$ 40,675,560$ -$ 652,083$ 3,085,029$ - 40,294 588,368 - - 1,313,541 - - 90,801 24,083 - 24,083 - - 169,903 24,083 692,377 5,271,725 - - 5,660,584 - - 471,135 - 629,440 629,440 - 128,699 128,699 - 1,330,513 1,330,513 - - 2,310,621 - 327,117 327,117 996,824 - 996,824 - - 5,851,629 - - 17,697,273 996,824 2,415,769 29,743,251 1,020,907$ 3,108,146$ 40,675,560$ Nonmajor Governmental Funds Total Funds -34- Governmental Exhibit 4 Total fund balance - total governmental funds 29,743,251$ Amounts reported for governmental activities in the Statement of Net Position are different because: 166,529 5,950,075 33,280 62,624,050 317,839 (1,180,096) 7,378,375 (954,238) 15,972,031 21,533,911 See accompanying notes to the basic financial statements. (Continued) -35- Deferred refunding costs and deferred pension activity in governmentalactivities are not current financialresources or payables and, therefore, are not reported in the governmental funds balance sheet: Capital assets used in governmentalactivities are not current financial resources and, therefore, are not reported in the governmentalfunds balance sheet. This amount includescapital assets of Internal Service Funds. Deferred refunding costs Deferred pension related inflows Deferred OPEB related inflows Deferred OPEB related outflows Deferred pension related outflows CITY OF PADUCAH, KENTUCKY RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO STATEMENT OF NET POSITION Delinquent property taxes receivable are not reported in the governmental funds balance sheet since they are not considered "available" revenues. Interest receivableon the long-termnotes receivableis not reported on the governmentalfunds balance sheet since neither the note receivable nor the interest is available to pay current period expenditures. JUNE 30, 2018 The long-term notes receivable are not reported in the governmental funds balance sheet since they are not available to pay current period expenditures. Exhibit 4 (Continued) (1,841,113)$ (103,719) $ 2,372,391 99,118,835 (101,491,226) 7,265,064$ (442,835) (552,781) 6,269,448 NET POSITION OF GOVERNMENTAL ACTIVITIES 22,884,486$ See accompanying notes to the basic financial statements -36- Due within one year Due after one year Current assets Net amount allocated to Internal service funds are used by managementto charge the costs of certain activities, such as insurance and fleet management, to individual funds. The assets and liabilities of the Internal Service Funds (net of amount allocated to business-type activities) not included in other reconciling items are: Current liabilities business-type activities Long-term pensions, OPEB, bonds and notes of ($101,491,226) are not due and payable in the current period and, therefore, they are not reported in the governmental funds balance sheet. See Note 3 for detail. The long-term pensions, OPEB, bonds and notes are: CITY OF PADUCAH, KENTUCKY RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO STATEMENT OF NET POSITION The portion of accrued compensatedabsences not due and payable in the current period, and therefore, not reported in the governmental funds balance sheet. Accrued interest payments on debt are not due and payable in the current period and, therefore, are not reported in the governmental funds balance sheet. JUNE 30, 2018 Exhibit 5 Special Revenue General General Investment Capital Revenues:Fund Fund Improvements Taxes 7,212,282$ -$ -$ Licenses 25,647,130 5,170,377 - Charges for services 656,868 - - Intergovernmental - - - Grants 736,655 - 105,463 Interest 331,129 - - Property upkeep, rentals, sales and other 1,054,522 - 950,901 Total revenues 35,638,586 5,170,377 1,056,364 Expenditures: Current operations: General government 5,282,385 - - Public safety 17,961,731 - - Public service 5,335,126 - - Parks and recreation 3,129,032 - - Planning and development - 881,879 - Intergovernmental and other 441,674 - - Capital outlay - - 4,856,063 Debt service: Principal requirement - - - Interest requirement - - - Total expenditures 32,149,948 881,879 4,856,063 Excess (deficiency) of revenues over expenditures 3,488,638 4,288,498 (3,799,699) Other Financing Sources (Uses): Issuance of debt - - - Payment to refunded bond escrow agent - - - Premium on debt issued - - - Discount on debt issued - - - Capital lease - - - Transfers in 567,020 - 2,184,339 Transfers out (1,689,030) (4,365,799) (17,020) Total other financing sources (uses) (1,122,010) (4,365,799) 2,167,319 Net change in fund balances 2,366,628 (77,301) (1,632,380) Fund balances - beginning 15,330,645 2,387,922 7,955,144 Fund balances - ending 17,697,273$ 2,310,621$ 6,322,764$ See accompanying notes to the basic financial statements. -37- CITY OF PADUCAH, KENTUCKY STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2018 Debt Service Fund -$ 529,712$ 7,741,994$ - - 30,817,507 - 380,800 1,037,668 737,886 505,970 1,243,856 - 214,569 1,056,687 - 33,846 364,975 289,000 451,888 2,746,311 1,026,886 2,116,785 45,008,998 - - 5,282,385 - 1,793,436 19,755,167 - 1,521,079 6,856,205 - - 3,129,032 - 190,000 1,071,879 - - 441,674 - 220,954 5,077,017 2,357,542 - 2,357,542 804,620 - 804,620 3,162,162 3,725,469 44,775,521 (2,135,276) (1,608,684) 233,477 - - - - - - - - - - - - - - - 2,133,276 1,446,131 6,330,766 - (17,500) (6,089,349) 2,133,276 1,428,631 241,417 (2,000) (180,053) 474,894 998,824 2,595,822 29,268,357 996,824$ 2,415,769$ 29,743,251$ -38- Governmental Total FundsFunds Nonmajor Governmental Exhibit 6 Net change in fund balances - total governmental funds 474,894$ Amounts reported for governmental activities in the Statement of Activities are different because: 4,871,811 (423,732) 2,546 (7,025,130) (17,504) (3,498,779)$ See accompanying notes to the basic financial statements. (Continued) -39- The payments of pension and OPEB contributions require the use of current financial resources and, therefore, are reported as expenditures in governmental funds. However,the current year payments are deferredoutflowsof resources in the government-widestatements and accrued pension and OPEB expenses are recorded when incurred. Payments on property taxes recognized as revenues when received in the governmentalfunds and as leviedin the government-widestatements. This is the amount of cash collections that exceeded accrued property tax revenues. Only the loss on the disposal of capital assets is reported in the Statement of Activities, whereas in the governmental funds, the proceeds from the sale increases financial resources. Thus, the change in net position differs by the net book value of capital assets disposed. CITY OF PADUCAH, KENTUCKY RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2018 Collections on long-term notes receivables and related interest receivable are revenues in the government funds when collected. Governmental funds report capital outlays as expenditures. However, in the Statement of Activities, the cost of those assets is allocated over their estimated useful lives as depreciation expense. This is the capitalized amount of capital outlays in the current period.This amountincludesInternalServiceFund's capital outlays of $876,166. Depreciation expense on capital assets is reported in the government-wide Statement of Activitiesand Changes in Net Position, but does not require the use of current financial resources. Therefore, depreciationexpenseis not reported as an expenditure in governmental funds. This amount includes Internal Service Funds' depreciation expense of $912,319. Exhibit 6 (Continued) 2,355,474 7,358 53,639 (64,260) 114,847$ 20,249 Capital Outlays (876,166) 912,319 171,249 CHANGE IN NET POSITION OF GOVERNMENTAL ACTIVITIES (3,092,434)$ See accompanying notes to the basic financial statements. RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND Governmentalfunds report the effect of bond premiums, discounts and refunding costs when debt is issued, whereas these amounts are deferred and amortized in the Statement of Activities. TO THE STATEMENT OF ACTIVITIES Long-term accrued compensated absences do not require the use of current financial resources and, therefore, are not reported as expenditures in governmental funds. Principal payments of debt require the use of current financial resources and, therefore, are reported as expenditures in governmental funds. However, principal payments of debt do not affect net position in the government-wide Statement of Activities. Accrued interest payments on debt do not require the use of current financial resources. Interest expense is reported net of the change in accrued interest payable in the government-wide Statement of Activities. CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2018 CITY OF PADUCAH, KENTUCKY -40- Internal service funds are used by management to charge the costs of certain activities, such as insurance and fleet management,to individualfunds. The net revenueof the Internal Service Funds is reported with governmentalactivitiesnet of the amount allocated to business-type activities and depreciation expense. These amounts are as follows: Change in net position business-type activities Depreciation expense Net of amount allocated to Exhibit 7 Variance with Final Budget Positive Original Final (Negative) Revenues: Taxes: Real and personal, current year 5,653,000$ 5,653,000$ 5,835,281$ 182,281$ Real and personal, prior year 110,000 110,000 125,061 15,061 Franchise 180,000 180,000 267,846 87,846 Bank taxes 243,000 243,000 290,262 47,262 In lieu of tax payment 285,000 302,595 310,085 7,490 Penalty, interest and advertising 55,000 55,000 53,163 (1,837) Paducah Junior College tax collections - - 330,584 330,584 Total taxes 6,526,000 6,543,595 7,212,282 668,687 Licenses: Business licenses 4,500,000 4,500,000 4,631,352 131,352 Employee earnings 15,725,000 15,725,000 15,884,266 159,266 Cable franchise fees 300,000 300,000 297,818 (2,182) Penalties 200,000 200,000 263,210 63,210 Alcoholic beverages 130,000 130,000 157,760 27,760 Insurance premium tax 4,150,000 4,150,000 4,592,834 442,834 Building permits 153,000 153,000 141,359 (11,641) Electrical permits 40,000 40,000 31,757 (8,243) Zoning change fees 7,000 7,000 7,166 166 Miscellaneous building and electrical fees 5,000 5,000 7,000 2,000 Payroll tax sharing with County (315,500) (315,500) (367,392) (51,892) Total licenses 24,894,500 24,894,500 25,647,130 752,630 Charges for services: Tax collection fee 186,000 186,000 195,017 9,017 Administrative charge 290,200 290,200 300,200 10,000 Base court revenue 40,000 40,000 35,655 (4,345) Recreation fees 100,000 100,000 125,996 25,996 Total charges for services 616,200 616,200 656,868 40,668 See accompanying notes to the basic financial statements. (Continued) ActualBudgeted Amounts -41- CITY OF PADUCAH, KENTUCKY GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2018 Amounts STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL Exhibit 7 (Continued) Variance with Final Budget Actual Positive Original Final Amounts (Negative) Grants: Police State Incentive 369,000$ 369,000$ 356,987$ (12,013)$ Fire State Incentive 336,000 336,000 342,616 6,616 Police supplemental grants 30,000 30,000 31,741 1,741 Other grants - 6,220 5,311 (909) Total grants 735,000 741,220 736,655 (4,565) Interest 97,000 97,000 331,129 234,129 Other: Property rent and sales 675,535 675,535 682,563 7,028 Property upkeep and maintenance 110,050 110,050 114,322 4,272 Contractual programs 4,000 4,000 2,520 (1,480) E911 - GIS 30,260 30,260 30,260 - Miscellaneous 133,000 137,865 224,857 86,992 Total other 952,845 957,710 1,054,522 96,812 Total revenues 33,821,545 33,850,225 35,638,586 1,788,361 Expenditures: General government: General administration: Mayor and Commissioners 194,965 200,570 200,273 297 City Manager 569,045 765,680 765,539 141 City Clerk 146,245 189,145 188,553 592 Corporate Counsel 227,155 284,350 281,552 2,798 Non-departmental 951,855 878,285 863,811 14,474 Memberships and contingency 22,800 21,970 21,963 7 Total general administration 2,112,065 2,340,000 2,321,691 18,309 Finance: Finance administration 273,960 274,360 272,092 2,268 Accounting and payroll 379,660 384,445 381,194 3,251 Revenue collection 424,385 437,335 432,631 4,704 Total finance 1,078,005 1,096,140 1,085,917 10,223 See accompanying notes to the basic financial statements.(Continued) CITY OF PADUCAH, KENTUCKY STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN Budgeted Amounts GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2018 FUND BALANCE - BUDGET AND ACTUAL -42- Exhibit 7 (Continued) Variance with Final Budget Actual Positive General government:Original Final Amounts (Negative) Planning: Administration 306,325$ 300,225$ 276,522$ 23,703$ Planning 489,745 478,290 449,003 29,287 Total planning 796,070 778,515 725,525 52,990 Radio and rental property 165,640 165,640 108,903 56,737 Human rights 41,680 41,620 33,662 7,958 Information systems 680,980 680,175 619,546 60,629 Human resources/risk management 334,460 401,030 387,141 13,889 Total general government 5,208,900 5,503,120 5,282,385 220,735 Public safety: Police: Police administration 1,251,835 1,313,070 1,257,929 55,141 Patrol 6,379,100 6,421,635 6,361,691 59,944 Investigations 2,171,640 1,994,275 1,858,193 136,082 Total police 9,802,575 9,728,980 9,477,813 251,167 Fire: Fire administration 678,510 615,300 612,889 2,411 Suppression 6,640,075 6,727,000 6,723,444 3,556 Prevention and inspection 1,085,585 1,018,318 992,689 25,629 Training 154,645 155,275 154,896 379 Total fire 8,558,815 8,515,893 8,483,918 31,975 Total public safety 18,361,390 18,244,873 17,961,731 283,142 Public service: Public works: Street maintenance 2,192,190$ 2,028,015$ 1,979,251$ 48,764$ Street lighting 785,000 785,000 774,796 10,204 Facility maintenance 1,209,270 1,201,875 1,140,708 61,167 Total public works 4,186,460 4,014,890 3,894,755 120,135 See accompanying notes to the basic financial statements. (Continued) STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL CITY OF PADUCAH, KENTUCKY Budgeted Amounts GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2018 -43- Exhibit 7 (Continued) Variance with Final Budget Actual Positive Public service:Original Final Amounts (Negative) Engineering services: Engineering services 526,905$ 561,500$ 537,393$ 24,107$ Flood control 702,590 963,325 902,978 60,347 Total engineering services 1,229,495 1,524,825 1,440,371 84,454 Total public service 5,415,955 5,539,715 5,335,126 204,589 Parks and recreation: Parks and recreation administration 856,090 889,370 863,433 25,937 Grounds maintenance 1,751,460 1,654,745 1,533,071 121,674 Pools and recreation programs 762,655 773,865 732,528 41,337 Total parks and recreation 3,370,205 3,317,980 3,129,032 188,948 Intergovernmental and other: Cable authority 100,670 113,285 111,090 2,195 Intergovernmental expense - - 330,584 (330,584) Total intergovernmental and other 100,670 113,285 441,674 (328,389) Total expenditures 32,457,120 32,718,973 32,149,948 569,025 Excess (deficiency) of revenues over expenditures 1,364,425 1,131,252 3,488,638 2,357,386 Other financing sources (uses): Transfers in 550,000 554,468 567,020 12,552 Transfers out (2,733,905) (1,941,420) (1,689,030) 252,390 Total other financing sources (uses) (2,183,905) (1,386,952) (1,122,010) 264,942 Net change in fund balance (819,480) (255,700) 2,366,628 2,622,328 Fund balance - beginning 15,330,645 15,330,645 15,330,645 - Fund balance - ending 14,511,165$ 15,074,945$ 17,697,273$ 2,622,328$ See accompanying notes to the basic financial statements. STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL -44- CITY OF PADUCAH, KENTUCKY Budgeted Amounts GENERAL FUND FOR THE YEAR ENDED JUNE 30, 2018 Exhibit 8 Variance with Final Budget Positive Original Final (Negative) Revenues: Licenses: Employee earnings 5,200,000$ 5,200,000$ 5,170,377$ (29,623)$ Total licenses 5,200,000 5,200,000 5,170,377 (29,623) Other: Miscellaneous - - - - Total other - - - - Total revenues 5,200,000 5,200,000 5,170,377 (29,623) Expenditures: General government: Planning and development: Economic development 971,250 971,250 881,879 89,371 Total expenditures 971,250 971,250 881,879 89,371 Excess (deficiency) of revenues over expenditures 4,228,750 4,228,750 4,288,498 59,748 Other financing sources (uses): Transfers in - - - - Transfers out (4,476,290) (4,476,290) (4,365,799) 110,491 Total other financing sources (uses) (4,476,290) (4,476,290) (4,365,799) 110,491 Net change in fund balance (247,540) (247,540) (77,301) 170,239 Fund balance - beginning 2,387,922 2,387,922 2,387,922 - Fund balance - ending 2,140,382$ 2,140,382$ 2,310,621$ 170,239$ See accompanying notes to the basic financial statements. ActualBudgeted Amounts -45- Amounts CITY OF PADUCAH, KENTUCKY SPECIAL REVENUE INVESTMENT FUND FOR THE YEAR ENDED JUNE 30, 2018 STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL Exhibit 9 Nonmajor Solid Enterprise Current Assets: Waste Funds Totals Cash and cash equivalents 2,737,318$ 204,655$ 2,941,973$ 5,515,255$ Investments 1,000,000 - 1,000,000 1,000,000 Accounts receivable 526,903 - 526,903 695,632 Interest receivable 3,904 - 3,904 - Inventory - 15,888 15,888 54,177 Total current assets 4,268,125 220,543 4,488,668 7,265,064 Noncurrent Assets: Net capital assets: Land 62,152 - 62,152 - Depreciable capital assets 2,704,841 109,490 2,814,331 3,952,305 Total noncurrent assets 2,766,993 109,490 2,876,483 3,952,305 Total assets 7,035,118 330,033 7,365,151 11,217,369 Deferred Outflows of Resources: Deferred pension related outflows 569,184 111,655 680,839 229,816 Deferred OPEB related outflows 188,279 36,898 225,177 76,062 Total deferred outflows of resources 757,463 148,553 906,016 305,878 Current Liabilities: Voucher and accounts payable 107,037 30,415 137,452 367,153 Accrued payroll and payroll taxes 35,406 788 36,194 10,909 Accrued compensated absences 98,972 595 99,567 33,503 Unearned revenue 25,500 - 25,500 20,334 Due to other funds - 49,340 49,340 - Total current liabilities 266,915 81,138 348,053 431,899 Noncurrent Liabilities: Pensions obligation 2,006,960 373,344 2,380,304 834,119 Other post employment benefits (OPEB) 689,299 128,227 817,526 286,482 Landfill post-closure costs 2,062,500 - 2,062,500 - Accrued compensated absences 42,744 5,353 48,097 10,936 Total noncurrent liabilities 4,801,503 506,924 5,308,427 1,131,537 Total liabilities 5,068,418 588,062 5,656,480 1,563,436 Deferred Inflows of Resources Deferred pension related inflows 74,479 13,855 88,334 30,955 Deferred OPEB related inflows 36,090 6,714 42,804 15,000 Total deferred inflows of resources 110,569 20,569 131,138 45,955 Net invested in capital assets 2,766,993 109,490 2,876,483 3,952,305 Unrestricted (153,399) (239,535) (392,934) 5,961,551 TOTAL NET POSITION 2,613,594$ (130,045)$ 2,483,549 9,913,856$ Reconciliation to government-wide statements of net position: Adjustment to reflect the consolidation of Internal Service Funds' activities related to Enterprise Funds 552,781 NET POSITION OF BUSINESS-TYPE ACTIVITIES 3,036,330$ See accompanying notes to the basic financial statements. Governmental Activities CITY OF PADUCAH, KENTUCKY STATEMENT OF NET POSITION PROPRIETARY FUNDS JUNE 30, 2018 -46- Business-type Activities ASSETS LIABILITIES NET POSITION Funds Service Internal Exhibit 10 Nonmajor Solid Enterprise Operating Revenues: Waste Funds Totals Charges for services - internal -$ 79,204$ 79,204$ 5,860,010$ Charges for services - external 4,555,488 - 4,555,488 261,896 Miscellaneous 915 1,236 2,151 - Total operating revenues 4,556,403 80,440 4,636,843 6,121,906 Operating Expenses: Cost of sales and service 3,566,387 2,181,417 5,747,804 5,346,301 Depreciation and amortization 492,488 10,164 502,652 912,319 Total operating expenses 4,058,875 2,191,581 6,250,456 6,258,620 Operating income (loss)497,528 (2,111,141) (1,613,613) (136,714) Nonoperating Revenues (Expenses): Grants - program purpose 52,716 1,913,152 1,965,868 - Interest and investment income 54,067 71 54,138 63,745 Gain (loss) on disposal of property and equipment 5,035 - 5,035 2,036 Total nonoperating revenues (expenses)111,818 1,913,223 2,025,041 65,781 Income (loss) before contributions and transfers 609,346 (197,918) 411,428 (70,933) Contributions and Transfers: Transfers in - 58,562 58,562 185,780 Transfers out (397,149) (88,610) (485,759) - Total contributions and transfers (397,149) (30,048) (427,197) 185,780 Change in net position 212,197 (227,966) (15,769) 114,847 Net position - beginning as restated (See Note 13) 2,401,397 97,921 9,799,009 Net position - ending 2,613,594$ (130,045)$ 9,913,856$ Reconciliation to government-wide statements of net position: Adjustment to reflect the consolidation of Internal Service Funds' activities related to Enterprise Funds (20,249) CHANGE IN NET POSITION OF BUSINESS-TYPE ACTIVITIES (36,018)$ See accompanying notes to the basic financial statements. CITY OF PADUCAH, KENTUCKY STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION PROPRIETARY FUNDS FOR THE YEAR ENDED JUNE 30, 2018 Governmental Internal Service Funds -47- ActivitiesBusiness-type Activities Exhibit 11 Nonmajor Solid Enterprise Cash Flows from Operating Activities: Waste Funds Totals Cash received from customers 4,597,961$ 79,204$ 4,677,165$ -$ Cash received from interfund services provided - - - 6,207,905 Payments to suppliers (2,288,967) - (2,288,967) (452,584) Payments to employees (847,071) (210,937) (1,058,008) (97,455) Claims paid - - - (4,007,130) Payments to internal service funds (497,345) (2,301) (499,646) - Other receipts 915 1,236 2,151 - Other payments - (1,965,806) (1,965,806) (295,544) Net cash provided (used) by operating activities 965,493 (2,098,604) (1,133,111) 1,355,192 Cash Flows from Noncapital Financing Activities: Grants - program purpose 52,716 1,913,152 1,965,868 - Transfers from other funds - 58,562 58,562 185,780 Transfers to other funds (397,149) (88,610) (485,759) - Net cash provided (used) by noncapital financing activities (344,433) 1,883,104 1,538,671 185,780 Cash Flows from Capital and Related Financing Activities: Purchase of capital assets (1,226,308) - (1,226,308) (876,166) Proceeds from sale of capital assets 5,035 - 5,035 50,237 Net cash provided (used) by capital and related financing activities (1,221,273) - (1,221,273) (825,929) Cash Flows from Investing Activities: Proceeds from sale of investment securities 1,000,000 - 1,000,000 2,000,000 Interest on cash and investments 54,430 71 54,501 63,745 Net cash provided (used) by investing activities 1,054,430 71 1,054,501 2,063,745 Net increase (decrease) in cash and cash equivalents 454,217 (215,429) 238,788 2,778,788 Cash and cash equivalents, July 1, 2017 2,283,101 420,084 2,703,185 2,736,467 CASH AND CASH EQUIVALENTS, JUNE 30, 2018 2,737,318$ 204,655$ 2,941,973$ 5,515,255$ Reconciliation of Operating Income (Loss) to Net Cash Provided by Operating Activities: Operating income (loss) 497,528$ (2,111,141)$ (1,613,613)$ (136,714)$ Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation and amortization 492,488 10,164 502,652 912,319 Change in assets and liabilities: Receivables 42,473 - 42,473 87,817 Inventories - (15,888) (15,888) 11,498 OPEB obligation and related deferrals 53,381 4,880 58,261 14,492 Pension obligation and related deferrals 34,891 42,001 76,892 217,485 Account and accrued payables (155,268) (28,620) (183,888) 248,295 NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 965,493$ (2,098,604)$ (1,133,111)$ 1,355,192$ See accompanying notes to the basic financial statements. Business-type Activities Funds CITY OF PADUCAH, KENTUCKY STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE YEAR ENDED JUNE 30, 2018 -48- Governmental Activities Internal Service Exhibit 12 Private- Pension purpose Agency Funds Trusts Funds Cash and cash equivalents 9,532$ 112,502$ 858,399$ Receivables: Interest 6,973 - - Investments at fair value Money market funds 28,171 - - Common stock 2,467,389 - - Mutual funds 2,804,587 1,107,066 - Total assets 5,316,652 1,219,568 858,399$ Voucher and accounts payable 21 2,500 - Payroll taxes and withholdings payable - - 858,399$ Total liabilities 21 2,500 858,399$ Net position restricted for pensions 5,316,631$ Held in trust for other purposes 1,217,068$ See accompanying notes to the basic financial statements NET POSITION Primary Government -49- ASSETS LIABILITIES CITY OF PADUCAH, KENTUCKY STATEMENT OF NET POSITION FIDUCIARY FUNDS JUNE 30, 2018 Exhibit 13 Private- Pension purpose Additions: Funds Trusts Contributions: Employer 394,180$ -$ Plan members 6,325 - Private donations - 3,680 Total contributions 400,505 3,680 Investment income: Net increase (decrease) in fair value of investments 374,161 (1,262) Interest and dividends 118,114 93,428 Net investment income 492,275 92,166 Total additions 892,780 95,846 Deductions: Benefits 1,111,573 - Capital outlay - 47,501 Administrative expenses 48,059 14,238 Total deductions 1,159,632 61,739 Change in net position (266,852) 34,107 Net position - beginning 5,583,483 1,182,961 Net position - ending 5,316,631$ 1,217,068$ See accompanying notes to the basic financial statements. -50- STATEMENT OF CHANGES IN NET POSITION CITY OF PADUCAH, KENTUCKY FIDUCIARY FUNDS FOR THE YEAR ENDED JUNE 30, 2018 CITY OF PADUCAH, KENTUCKY NOTES TO THE FINANCIAL STATEMENTS COMPREHENSIVE ANNUAL FINANCIAL REPORT YEAR ENDED JUNE 30, 2018 - 51 - CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2018 Note 1 - Summary of Significant Accounting Policies: General Statement The City of Paducah (City) complies with generally accepted accounting principles (GAAP) as applied to governmental units. This requires the use of the accrual basis of accounting for government-wide financial statements and proprietary funds financial statements and a modified accrual basis of accounting for the governmental funds financial statements. The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. The financial reporting entity, basis of accounting, and other significant policies employed by the City are summarized as follows: Financial Reporting Entity The City operates under a City Manager form of government. The Board of Commissioners consists of a Mayor and four Commissioners elected at large by the citizens on a non-partisan basis. As required by generally accepted accounting principles, the financial statements of the reporting entity include those of the City of Paducah (the primary government) and its component units. The component units discussed below are included in the City’s reporting entity because of the significance of their operational or financial relationships with the City. Blended Component Units Police and Firefighters’ Pension Fund – This retirement fund was established for the benefit of the police and firemen of the City. It is administered by a Board of Trustees consisting of the Mayor, City Finance Director and representatives of the Police and Fire Departments. The Board is authorized to establish benefit levels and to approve actuarial assumptions used in the determination of contribution levels. The pension fund is reported as a fiduciary fund and does not issue separate financial statements. Discretely Presented Component Units The component unit column in the basic financial statements includes the financial data of the City’s other component unit. It is reported in a separate column to emphasize that it is legally separate from the City. The following component unit is included in the reporting entity because of its financial relationship with the City; and, the City is able to impose its will on the organization. Paducah Water Works – The City of Paducah Water Works Commission is appointed by the Mayor and City Commission. The rates for user charges and bond issuance authorizations are subject to approval by the City Commission of the City of Paducah. Complete financial statements of the individual component unit can be obtained from its respective administrative office at the following location: Paducah Water Works 1801 N. 8th Street Paducah, Kentucky 42003 (Continued) - 52 - CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2018 Note 1 - Summary of Significant Accounting Policies: Related Organizations City officials are also responsible for appointing the members of boards of other organizations; but, the City’s accountability for these organizations do not extend beyond appointing authority. The organizations listed below are notable related organizations which have not been included as component units in the City’s report. Transit Authority of the City of Paducah – The Transit Authority is a legally separate entity that provides for transit operations both within and outside the City. The Transit Authority is not financially accountable to the City. Paducah Housing Authority – The Paducah Housing Authority (PHA) is a legally separate entity that provides for construction, operation, and management of low income housing projects within the City. PHA is a legally separate entity and is not financially accountable to the City. Paducah Power System – The Paducah Power System (PPS) is a legally separate entity that provides electric utilities to residents in the Paducah area. PPS is not financially accountable to the City. Joint Sewer Agency – As of July 1, 1999, the assets and liabilities of the Wastewater/Stormwater Fund were transferred to the Paducah-McCracken County Joint Sewer Agency pursuant to a municipal order dated June 29, 1999. The Paducah-McCracken County Joint Sewer Agency is a legally separate entity and is not financially accountable to the City. Forest Hills Village, Inc. – The Corporation’s purpose is to manage City of Paducah properties known as “Forest Hills Housing Development”. The City and Corporation have a lease agreement detailing the terms and conditions of operations. Forest Hills Village, Inc. is a legally separate entity and is not financially accountable to the City. Paducah Junior College, Incorporated (PJC) – The College is a part of the University of Kentucky’s Community College System which is now administered by the Kentucky Community and Technical College System. Under this system, the Community College System receives the monies from student tuition, fees and other related income and provides the financing for the operational budget of the College. A tax levied and collected by the City is a primary revenue source for the College. These funds, as well as gifts and grants made to the College, may be used for the acquisition or improvement of property or to finance programs beyond the level of those normally provided by community colleges in the University of Kentucky system. PJC is a legally separate entity and is not financially accountable to the City. Mainstreet – Mainstreet is a 501(c)3 established for the promotion of cultural and economic growth in Downtown Paducah. Mainstreet is a legally separate entity and is not financially accountable to the City. (Continued) - 53 - CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2018 Note 1 - Summary of Significant Account Policies: Basis of Presentation Government-wide Financial Statements The Statement of Net Position and Statement of Activities display information about the reporting government as a whole. They include all funds of the reporting entity except for fiduciary funds. The statements distinguish between governmental and business-type activities. Governmental activities generally are financed through taxes, intergovernmental revenues, and other nonexchange revenues. Business-type activities are financed in whole or in part by fees charged to external parties for goods or services. Fund Financial Statements Fund financial statements of the reporting entity are organized into funds, each of which is considered to be separate accounting entities. Each fund is accounted for by providing a separate set of self-balancing accounts that constitute its assets, deferred outflows of resources, liabilities, deferred inflows of resources, fund equity, revenues, and expenditure or expenses. Funds are organized into three major categories: governmental, proprietary, and fiduciary. An emphasis is placed on major funds within the governmental and proprietary categories. A fund is considered major if it is the primary operating fund of the City or meets the following criteria: a. Total assets, liabilities, revenues, or expenditures/expenses of that individual governmental or enterprise fund are at least ten percent of the corresponding total for all funds of that category or type; and b. Total assets, liabilities, revenues, or expenditures/expenses of the individual governmental fund or enterprise fund are at least five percent of the corresponding total for all governmental and enterprise funds combined. The funds of the financial reporting entity are described below: Governmental funds are those funds through which most governmental functions typically are financed. The measurement focus of governmental funds is on the sources, uses and balance of current financial resources. The City has presented the following major governmental funds: General Fund – To account for resources traditionally associated with governments which are not required to be accounted for in another fund. Special Revenue Investment Fund – To account for restricted funds from employee license fee used for economic development, community redevelopment and infrastructure capital investments within Paducah. General Capital Improvements – To account for the acquisition or construction of major capital projects other than those financed by proprietary fund operations and special assessments. Debt Service Fund – To account for the accumulation of resources and payment of bond and note principal and interest, and capital lease activity. The City has presented the following major proprietary fund: Solid Waste Fund – To account for the provision of refuse services to the residents of the City. (Continued) - 54 - CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2018 Note 1 - Summary of Significant Account Policies: Basis of Presentation Fund Financial Statements Additionally, the City reports the internal service funds which are used to account for the fleet management services, property and casualty insurance, and self-funded health insurance provided to departments of the City. Fiduciary funds report resources held in trust. Two of these funds are single-employer defined benefit funds and are administered by the City. These funds are Police and Firefighters' Pension Fund (PFPF) and Appointive Employees' Pension Fund (AEPF). Pension trust funds report the receipt, investment, and distribution of retirement contributions. The remaining funds are private-purpose trust funds which report the receipt and distribution in accordance with maintenance trust agreements. The Agency Fund accounts for the City's payroll wages, taxes and related withholdings. Measurement Focus Measurement focus is a term used to describe “which” transactions are recorded within the various financial statements. Basis of accounting refers to “when” transactions are recorded regardless of the measurement focus applied. On the government-wide Statement of Net Position and the Statement of Activities, both governmental and business-like activities are presented using the economic resources measurement focus as defined in item b. below. In the fund financial statements, the “current financial resources” measurement focus or the “economic resources” measurement focus is used as appropriate: a. All governmental funds utilize a “current financial resources” measurement focus. Only current financial assets and liabilities are generally included on their balance sheets. Their operating statements present sources and uses of available spendable financial resources during a given period. These funds use fund balance as their measure of available spendable financial resources at the end of the period. b. The proprietary, pension, and private-purpose trust funds and financial statements of City component units utilize an "economic resources" measurement focus. The accounting objectives of this measurement focus are the determination of operating income, changes in net position (or cost recovery), financial position, and cash flows. All assets and liabilities (whether current or noncurrent) associated with their activities are reported. Proprietary, pension, and private-purpose trust fund equity is classified as net position. c. Agency funds are not involved in the measurement of results of operations; therefore, measurement focus is not applicable to them. Basis of Accounting In the government-wide Statement of Net Position and Statement of Activities, both governmental and business-type activities are presented using the accrual basis of accounting generally including the reclassification or elimination of internal activity (between or within funds). Under the accrual basis of accounting, revenues are recognized when earned and expenses are recorded when the liability is incurred or economic asset used. (Continued) - 55 - CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2018 Note 1 - Summary of Significant Account Policies: Basis of Accounting In the fund financial statements, governmental funds are presented on the modified accrual basis of accounting. Under this modified accrual basis of accounting, revenues are recognized when “measurable and available.” Measurable means knowing or being able to reasonably estimate the amount. Available means collectible within the current period or within sixty days after year end. Expenditures (including capital outlay) are recorded when the related fund liability is incurred, except for general obligation bond principal and interest which are reported when due. Agency funds are presented using the accrual basis of accounting. All proprietary, pension, and private-purpose funds utilize the accrual basis of accounting. Under the accrual basis of accounting, revenues are recognized when earned and expenses are recorded when the liability is incurred or economic asset used. Revenues – Exchange and Non-Exchange Transactions Revenue resulting from exchange transactions, in which each party gives and receives essentially equal value, is recorded on the accrual basis when the exchange takes place. On a modified accrual basis, revenue is recorded in the fiscal year in which the resources are measurable and become available. Available means that the resources will be collected within the current fiscal year or are expected to be collected soon enough thereafter to be used to pay liabilities of the current fiscal year. For the City, available means expected to be received within sixty days of year end. Non-exchange transactions, in which the City receives value without directly giving equal value in return, include employee license taxes, property taxes, grants, entitlements, and donations. The City considers property taxes as available if they are collected within sixty days after year end. Revenue from grants, entitlements, and donations is recognized in the year in which all eligibility requirements have been satisfied. Eligibility requirements include timing requirements, which specify the year when the resources are required to be used or the year when use is first permitted, matching requirements, in which the City must provide local resources to be used for a specified purpose, and expenditure requirements, in which the resources are provided to the City on a reimbursement basis. On a modified accrual basis, revenue from non-exchange transactions must also be available before it can be recognized. The revenues susceptible to accrual are taxes, intergovernmental, employer and employees’ contributions to trust funds, interest revenue, and charges for services. Permit revenues are not susceptible to accrual because generally they are not measurable until received in cash. Unearned revenue The City reports unearned revenue on its government-wide statement of net position and the fund financial statements. Unearned revenues arise when potential revenue does not meet both the "measurable” and “available” criteria for recognition in the current period. Unearned revenues also arise when resources are received by the City before it has a legal claim to them, as when grant monies are received prior to the incurrence of qualifying expenditures. In subsequent periods, when both revenue recognition criteria are met, or when the City has a legal claim to the resources, the liability for unearned revenue is removed and revenue is recognized. Allocation of Indirect Expenses The City allocates indirect expenses primarily comprised of fleet management services and various self- funded insurance coverage provided to departments and employees of the City. Allocations are charged to functions based on use by weighted-average methodology. (Continued) - 56 - CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2018 Note 1 - Summary of Significant Accounting Policies: Budgets and Budgetary Accounting The City legally adopts annual budgets for all governmental and proprietary funds except for Section Eight Housing Fund. The City follows these procedures in establishing the budgetary data reflected in these financial statements: 1. Prior to July, the City Manager submits to the City Commission a proposed operating budget for the fiscal year commencing on July 1. The operating budget includes proposed expenditures and the means of financing those. 2. Public hearings are conducted by the City to obtain taxpayer comments. 3. Prior to July, the budget is legally enacted through passage of an ordinance. 4. The City Manager is authorized to transfer budgeted amounts between departments and their line items; however, any revisions that alter the total expenditures must be approved by the City Commission. 5. Formal budgetary integration is employed as a management control device during the year; and, the budget is legally adopted. Budget amendments are also legally adopted. 6. The budget is adopted on the modified accrued basis of accounting. Encumbrance accounting, under which purchase orders, contracts, and other commitments for expenditures are recorded in order to reserve that portion of the applicable appropriation, is employed as an extension of formal budgetary integration in the General Fund, Special Revenue Funds, Debt Service Fund, and Capital Projects Funds. In accordance with generally accepted accounting principles (GAAP), encumbrances outstanding at year end are reported as reservations of fund balances since they do not constitute expenditures or liabilities. There are no encumbrances at June 30, 2018. Cash and Investments The City Commission adopted formal deposit and investment policies in January 2001. These policies apply to all City funds not contained in public trusts. The pension trust fund has investment policies separately approved by their oversight board. The private purpose trust has not adopted a deposit and investment policy. For the purpose of the Statement of Net Position, “cash and cash equivalents” includes all demand and savings accounts of the City. For the purpose of the proprietary fund Statement of Cash Flows, “cash and cash equivalents” include all demand and savings accounts and certificates of deposit, or short-term investments with an original maturity of three months or less. Investments are reported at fair value which is determined using selected bases. Short-term investments are reported at cost, which approximates fair value. Securities traded on a national or international exchange are valued at the last reported sales price at current exchange rates. Managed funds, related to the pension and private purpose trust funds not listed on an established market, are reported at estimated fair value as determined by the respective fund managers based on quoted sales prices of the underlying securities. Cash deposits and certificates of deposit are reported at carrying amount which reasonably estimates fair value. Additional cash and investment disclosures are presented in Note 3. (Continued) - 57 - CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2018 Note 1 - Summary of Significant Accounting Policies: Receivables Major receivable balances for the governmental activities include property taxes, employee earnings taxes, business licenses, insurance premiums taxes, franchise taxes, grant revenue, and interlocal note receivables. Business-type activities report utilities and interest earnings as their major receivables. Interlocal note receivables include an outstanding loan of $911,375 at the end of the fiscal year due from the Greater Paducah Economic Development Council, Inc. related to development and construction of an intermodal industrial park. The note is non-interest bearing, secured by real property within the industrial park, and due on demand. The City expects full collection of the receivable. The government-wide statements also include general obligation notes receivable related to the general obligation bonds outstanding as described in Note 3. In the fund financial statements, receivables in governmental funds include revenue accruals such as franchise tax, employee earnings taxes, business licenses, insurance and grants, and other similar intergovernmental revenues since they are usually both measurable and available. Nonexchange transactions collectible but not available are deferred. Interest and investment earnings are recorded when earned only if paid within sixty days since they would be considered both measurable and available. Proprietary fund receivables include revenues earned at year end and not yet received. Utility accounts receivable and interest earnings compose the majority of proprietary fund receivables. Allowances for uncollectible accounts receivable are based upon historical trends and the periodic aging of accounts receivable. Interfund Receivables and Payables During the course of operations, numerous transactions occur between individual funds that may result in amounts owed between funds. Those related to goods and services type transactions are classified as “due to and from other funds.” Short-term interfund loans are reported as “interfund receivables and payables.” Long-term interfund loans (noncurrent portion) are reported as “advances from and to other funds.” Interfund receivables and payables between funds within governmental activities are eliminated in the Statement of Net Position. See Note 3 for details of interfund transactions, including receivables and payables, at year end. Inventories Inventories are stated at cost on a first-in, first-out basis. Inventory consists of expendable supplies and fuel of $70,065 held for consumption and re-sell and real property of $471,135 held for urban development. The cost is recorded as an expenditure at the time individual items are consumed or sold for urban development rather than when purchased. Capital Assets The accounting treatment of property, plant and equipment (capital assets) depends on whether the assets are used in governmental fund operations or proprietary fund operations and whether they are reported in the government-wide or fund financial statements. (Continued) - 58 - CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2018 Note 1 - Summary of Significant Accounting Policies: Capital Assets Government-wide Statement In the government-wide financial statements, property, plant and equipment are accounted for as capital assets. All capital assets are valued at historical cost or estimated historical cost if actual is unavailable, except for donated capital assets and work of art capital assets received in a service concession arrangement which are recorded at their acquisition value at the date of donation. Estimated historical cost was used to value the majority of the assets acquired prior to June 30, 2004. Assets capitalized have an original cost of $500 or more prior to July 1, 1999, $2,500 or more after July 1, 1999, $3,000 or more after June 24, 2009 and $5,000 or more after June 30, 2016. Prior to July 1, 2002, governmental funds’ infrastructure assets were not capitalized. These assets have been valued at estimated historical cost. Capital assets of the primary government are depreciated over the estimated useful lives using the straight- line method. The estimated useful lives are as follows: Land improvements 10-30 Years Buildings 30 Years Building improvements 10-30 Years Infrastructure 10-30 Years Equipment 3-10 Years Furnishings and fixtures 5-7 Years Vehicles 7-10 Years Fund Financial Statements In the fund financial statements, capital assets used in governmental fund operations are accounted for as capital outlay expenditures of the governmental fund upon acquisition. Capital assets used in proprietary fund operations are accounted for the same as in the government-wide statements. Deferred Outflows/Inflows of Resources Government-wide Statement In addition to assets, the statement of net position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents the consumption of net position that applies to a future period(s) and will not be recognized as an outflow of resources (expense/expenditure) until then. The government has two items that qualify for reporting in the category. These are the deferred charge on refunding and deferred pension and other post- employment benefits (OPEB) related outflows reported in the statements of net position. A deferred charge on refunding results from the difference in the carrying value of refunded debt and its reacquisition price. This amount is deferred and amortized over the shorter of the life of the refunded or refunding debt. The deferred pension and OPEB related outflows result from pension and OPEB contributions subsequent to the measurement date of the pension and OPEB plans and various changes resulting from actuarial pension and OPEB measurement. The pension and OPEB contribution amounts are deferred and recognized as a component of the change in pension plan liability in the next measurement period. The various changes resulting from actuarial pension and OPEB measurements are deferred and amortized in future periods as a component of the pension and OPEB expense. (Continued) - 59 - CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2018 Note 1 - Summary of Significant Accounting Policies: Deferred Outflows/Inflows of Resources In addition to liabilities, the statement of net position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period(s) and will not be recognized as an inflow of resources (revenue) until that time. The City has two type of items reported in this category. These are property taxes levied during the fiscal year for the next fiscal year and inflows related to the City’s pension and OPEB plans that qualify for reporting in this category – deferred pension and OPEB related inflows. The various changes resulting from actuarial pension and OPEB measurements are deferred and amortized in future periods as a component of the pension and OPEB expense. A summary of change in deferred outflows/inflows of resources is as follows: Balance July 1, 2017 Additions Reductions Balance June 30, 2018 Governmental Activities Deferred outflows of resources Deferred charge on refunding $ 261,542 $ 126,741 $ (70,444) $ 317,839 Pensions: Deferred pension contributions $ 2,913,960 $ 2,960,195 $ (2,913,960) $ 2,960,195 Changes in proportion and differences between employer contributions and proportionate share of contributions 81,418 773,409 (81,418) 773,409 Differences between expected and actual experience 456,439 1,518,683 (608,762) 1,366,360 Change of assumptions 2,275,835 12,695,780 (4,623,681) 10,347,934 Difference between projected and actuarial earnings 3,555,585 - (3,031,452) 524,133 Pension related deferred outflows $ 9,283,237 $ 17,948,067 $ (11,259,273) $ 15,972,031 Deferred inflows of resources Changes in proportion and differences between employer contributions and proportionate share of contributions $ 633,144 $ 328,276 $ (633,144) $ 328,276 Differences between expected and actual experience - 583,101 (166,600) 416,501 Difference between projected and actuarial earnings 196,751 112,014 (99,304) 209,461 Pension related deferred inflows $ 829,895 $ 1,023,391 $ (899,048) $ 954,238 Other post-employment benefits (OPEB): Deferred outflows of resources Deferred OPEB contributions $ 1,166,254 $ 1,150,612 $ (1,166,254) $ 1,150,612 Change of assumptions - 7,872,867 (1,645,104) 6,227,763 OPEB related deferred outflows $ 1,166,254 $ 9,023,479 $ (2,811,358) $ 7,378,375 Deferred inflows of resources Differences between expected and actual experience $ - $ 59,139 $ (11,889) $ 47,250 Difference between projected and actuarial earnings - 1,396,342 (279,269) 1,117,073 Changes in proportion and differences between employer contributions and proportionate share of contributions - 19,021 (3,248) 15,773 OPEB related deferred inflows $ - $ 1,474,502 $ (294,406) $ 1,180,096 Deferred inflows of resources Unavailable revenues – property taxes $ 5,846,122 $ 5,446,055 $ (5,846,122) $ 5,446,055 (Continued) - 60 - CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2018 Note 1 - Summary of Significant Accounting Policies: Deferred Outflows/Inflows of Resources A summary of change in deferred outflows/inflows of resources is as follows (continued): Business-Type Activities Pensions: Deferred outflows of resources Deferred pension contributions $ 139,148 $ 145,690 $ (139,148) $ 145,690 Changes in proportion and differences between employer contributions and proportionate share of contributions - 88,935 (25,410) 63,525 Differences between expected and actual experience 9,109 - (6,157) 2,952 Change of assumptions 110,531 564,768 (236,068) 439,231 Difference between projected and actuarial earnings 196,151 - (166,710) 29,441 Pension related deferred outflows $ 454,939 $ 799,393 $ (573,493) $ 680,839 Deferred inflows of resources Differences between expected and actual experience $ - 84,591 (24,169) 60,422 Changes in proportion and differences between employer contributions and proportionate share of contributions 62,496 - (34,584) 27,912 Pension related deferred inflows $ 62,496 $ 84,591 $ (58,753) $ 88,334 Other post-employment benefits (OPEB) Deferred outflows of resources Deferred OPEB contributions $ 47,480 $ 47,289 $ (47,480) $ 47,289 Change of assumptions - 211,580 (33,692) 177,888 OPEB related deferred outflows $ 47,480 $ 258,869 $ (81,172) $ 225,177 Deferred inflows of resources Differences between expected and actual experience $ - $ 2,701 $ (430) $ 2,271 Difference between projected and actuarial earnings - 48,295 (9,659) 38,636 Changes in proportion and differences between employer contributions and proportionate share of contributions - 2,256 (359) 1,897 OPEB related deferred inflows $ - $ 53,252 $ (10,448) $ 42,804 Fund Financial Statements The government has only one type of item, which arises only under a modified accrual basis of account, which qualifies for reporting as deferred inflows of resources. Accordingly, the item, unavailable revenue, is reported only in the governmental funds balance sheet. The governmental funds report unavailable revenues for one source: property taxes. This amount is deferred and recognized as an inflow of resources in the period that the amount becomes available. Restricted Assets Certain proceeds of enterprise fund revenue bonds, as well as certain resources set aside for their repayment, are classified as restricted assets on the balance sheet because their use is limited by applicable bond covenants. (Continued) - 61 - CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2018 Note 1 - Summary of Significant Accounting Policies: Accrued Leave Accumulated unpaid vacation, sick pay, and other employee benefit amounts are recorded as long-term debt in the government-wide statements. The current portion of accrued compensated absences is estimated based on historical trends. In the fund financial statements, governmental funds report only the matured compensated absence liability payable from expendable available financial resources, while the proprietary funds report the liability as it is incurred. Accumulations for vacation pay are restricted to a maximum of 50 days and provide vesting rights upon completion of six months service. Accumulations for sick pay are restricted to a maximum of 150 days and provide payment to employees or beneficiaries for accumulations in excess of 50 days and up to 120 days upon death or retirement from City service. Qualified participants in the County Employees’ Retirement System, under certain circumstances, are eligible to convert accrued sick pay benefits into additional credit for years of service upon retirement. Long-Term Debt The accounting treatment of long-term debt depends on whether the assets are used in governmental fund operations or proprietary fund operations and whether they are reported in the government-wide or fund financial statements. All long-term debt to be repaid from governmental and business-type resources is reported as liabilities in the government-wide statements. The long-term debt consists primarily of bonds payable, notes payable, and accrued compensated absences. Long-term debt for governmental funds is not reported as liabilities in the fund financial statements. The debt proceeds are reported as other financing sources and payment of principal and interest as expenditures. The accounting for proprietary funds is the same in the fund statements as it is in the government-wide statements. Equity Classifications Government-wide Statements Equity is classified as net position and displayed in three components: a. Net invested in capital assets – Consists of capital assets including restricted capital assets, net of accumulated depreciation and reduced by the outstanding balances of any bonds, mortgages, notes, or other borrowings that are attributable to the acquisition, construction, or improvement of those assets. b. Restricted net position – Consists of net assets with constraints placed on the use either by (1) external groups such as creditors, grantors, contributors, or laws or regulations of other governments; or (2) law through constitutional provisions or enabling legislation. c. Unrestricted net position – All other net assets that do not meet the definition of “restricted” or “net invested in capital assets.” (Continued) - 62 - CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2018 Note 1 - Summary of Significant Accounting Policies: Fund Statements Governmental fund equity is classified as fund balance and displayed in five components: a. Nonspendable fund balance includes amounts that are not in a spendable form or are required to be maintained intact indefinitely. b. Restricted fund balance includes amounts that can be spent only for the specific purpose stipulated by creditors, grantors, contributors, or laws or regulations of other governments. c. Committed fund balance includes amounts that can be used only for the specific purposes determined by the City Commissioners through the approval of City ordinances. Commitments may be changed or lifted only by the City Commissioners making the same formal action that imposed the constraint originally. d. Assigned fund balance comprises the amounts intended to be used for a specific purpose. Intent can be expressed by the City Commissioners or the City Finance Officer, as stated in the Finance Department Accounting Policy (FIN-20). No formal action is required. e. Unassigned fund balance is the residual balance not contained in nonspendable fund balance or restricted fund balance or committed fund balance or assigned fund balance. The General Fund is the only governmental fund which reports an unassigned fund balance. When both restricted and unrestricted fund balances are available for use, it is the City's policy to use restricted fund balance first, then unrestricted fund balance. Furthermore, committed fund balances are reduced first, followed by assigned amounts, and then unassigned amounts when expenditures are incurred for purposes for which amounts in any of those unrestricted fund balance classifications can be used. Proprietary fund equity is classified the same as in the government-wide statements. Interfund Transactions Interfund services provided and used are accounted for as revenues, expenditures, or expenses. Transactions that constitute reimbursements to a fund for expenditures/expenses initially made from it that are properly applicable to another fund, are recorded as expenditures/expenses in the reimbursing fund and as reductions of expenditures/expenses in the fund that is reimbursed. All other interfund transactions are reported as transfers. Program Revenues Amounts reported as program revenues include 1) charges to customers or applicants for goods, services, or privileges provided, 2) operating grants and contributions, and 3) capital grants and contributions, including special assessments. Internally dedicated resources are reported as general revenues rather than as program revenues. Likewise, general revenues include all taxes. (Continued) - 63 - CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2018 Note 1 - Summary of Significant Accounting Policies: Operating and Non-Operating Revenues and Expenses – Proprietary Funds Operating revenues and expenses for proprietary funds are those that result from providing services and producing and delivering goods and/or services. It also includes all revenue and expenses not related to capital and related financing, noncapital financing, or investing activities. Operating expenses for the enterprise and internal service funds include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. Expenditures/Expenses In the government-wide financial statements, expenses are classified by function for both governmental and business-type activities. In the fund financial statements, expenditures are classified as follows: Governmental Funds – by function: Current (further classified by character) Debt Service Capital Outlay Proprietary Fund – by operating and nonoperating In the fund financial statements, governmental funds report expenditures of financial resources. Proprietary funds report expenses relating to use of economic resources. Interfund Transfers Permanent reallocation of resources between funds of the reporting entity are classified as interfund transfers. For the purposes of the Statement of Activities, all interfund transfers between individual governmental funds have been eliminated. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make assumptions that affect reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Stewardship, Compliance, and Accountability By its nature as a local government unit, the City and its component units are subject to various federal, state, and local laws and contractual regulations. An analysis of the City’s compliance with significant laws and regulations and demonstration of its stewardship over City resources follows. Fund Accounting Requirements The City complies with all state and local laws and regulations requiring the use of separate funds. (Continued) - 64 - CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2018 Note 1 - Summary of Significant Accounting Policies: Revenue Restrictions The City has various restrictions placed over certain revenue sources from state or local requirements or contractual agreements. The primary restricted revenue sources include: Revenue Source Legal Restrictions of Use Section Eight Housing Choice Voucher Program Subsidize Rental Costs for Low- Income Families FEMA - Disaster Grants Debris Removal and Disaster Recovery HOME Investment Partnerships Grant Construction of Low-income Rental Units Emergency Communication Revenue E-911 Emergency Services Transient Room Tax Debt Obligations Homeland Security Grant Program Homeland Security Enhancement Kentucky Housing Corporation Façade Loans Other Grants Grant Program Expenditures Bond Proceeds Defeasance of debt and Capital Projects 25% of Employee Earning Tax Economic, Community and Capital Development For the year ended June 30, 2018, the City complied in all material respects with these revenue restrictions. Debt Restrictions and Covenants The City may not incur any indebtedness that would require payment from resources beyond the current fiscal year revenue without first obtaining voter approval. Pensions For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the County Employees Retirement System (CERS) and additions to/deductions from fiduciary net position have been determined on the same basis as they are reported by the pensions. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. Other Post-employment Benefits (OPEB) For purposes of measuring the liability, deferred outflows of resources and deferred inflows of resources related to OPEB, and OPEB expense, information about the fiduciary net position of the County Employees Retirement System (CERS) and additions to/deductions from CERS’s fiduciary net position have been determined on the same basis as they are reported by CERS. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value, except for money market investments and participating interest-earning investment contracts that have a maturity at the time of purchase of one year or less, which are reported at cost. (Continued) - 65 - CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2018 Note 1 - Summary of Significant Accounting Policies: Subsequent Events In preparing these financial statements, management has evaluated events and transactions for potential recognition or disclosure through December 21, 2018, the date financial statements were available to be issued. Note 2 - Property Taxes: The City bills and collects its own property taxes. The City elects to use the annual property assessment prepared by McCracken County as its base to apply the property tax rate. According to Kentucky Revised Statutes, the assessment date for the City must conform to the assessment date of McCracken County and the annual increase in the property tax levy cannot exceed 4%. City property tax revenues are recorded as a receivable when assessed because the City has an enforceable legal claim to the resources. At this time, the receivable is offset by unearned revenue. Property tax revenues are recognized during the period for which they are levied. The due dates and collection period for all property taxes, exclusive of vehicle taxes, for the fiscal year ended June 30, 2018, are as follows: Description Date Assessment and enforceable lien January 1, 2017 Levy September 26, 2017 Face value amount payment dates 1st half by November 1, 2017 2nd half by February 1, 2018 Delinquent date - 10% penalty plus 1/2% per month 1st half - November 30, 2017 2nd half - February 28, 2018 Note 3 - Detail Notes on Transaction Classes/Accounts: The following notes present detail information to support the amounts reported in the basic financial statements for its various assets, liabilities, equity, revenues, and expenditures/expenses. Deposits Custodial credit risk for deposits is the risk that in the event of a bank failure, the City's deposits may not be returned or the City will not be able to recover collateral securities in the possession of an outside party. The City's investment policy requires all investments be made in accordance with applicable legal requirements with consideration of investment safety. Accordingly, the City maintains collateral agreements with its financial institutions. Deposits are 101% secured with collateral valued at market or par, whichever is lower, less the amount of the Federal Deposit Insurance Corporation insurance (FDIC). The City Commission approves and designates a list of authorized depository institutions based on evaluation of solicited responses and certifications provided by financial institutions and recommendations of an evaluation committee and/or Finance Director. Deposits of the City's reporting entity are insured or collateralized with securities held by the City, its agent, or by the pledging financial institution's trust department or agent in the name of City. During the year ended June 30, 2018, the City's only cash and cash equivalents were demand deposits. At year end, the carrying amount and the bank balance of the City's cash and cash equivalents were $31,548,497 and $32,528,646, respectively. (Continued) - 66 - CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2018 Note 3 - Detail Notes on Transaction Classes/Accounts: Investment Policies City Policy Credit Risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. Generally, the City's investing activities are managed under the custody of the City's Finance Director. Investing is performed in accordance with investment policies adopted by the City Commission complying with State Statutes. In accordance with the City's investment policy and the State Statutes, the City may invest funds temporarily in excess of operating needs in the following: Kentucky Revised Statutes (KRS 66.480) authorize the City to invest in: 1. Obligations of the U.S. Treasury, agencies, and instrumentalities, including obligations subject to repurchase agreements, provided delivery of obligations subject to repurchase agreements are held by the City or through an authorized agent; 2. Obligations and contracts for future delivery or purchase of obligations backed by the full faith and credit of the United States or a United States government agency; 3. Obligations of any corporation of the United States government; 4. Bonds or certificates of indebtedness of the Commonwealth of Kentucky and of its agencies and instrumentalities; 5. Certificates of deposit or other interest-bearing accounts of any bank or savings and loan institution which are insured by the Federal Deposit Insurance Corporation or similar entity or which are collateralized, to the extent uninsured, by any obligations permitted by section 41.240(4) of the Kentucky Revised Statutes; 6. Securities issued by a state or local government, or any instrumentality or agency thereof, in the United States, and rated in one of the three highest categories by a national recognized rating agency. The City categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. The three levels of the fair value hierarchy are as follows: Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2: Inputs (other than quoted prices included within Level 1) that are observable for the asset or liability – either directly or indirectly. Level 3: Unobservable inputs – market data are not available and are developed using the best information available about the assumptions that market participants would use when pricing an asset or liability. The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. (Continued) - 67 - CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2018 Note 3 - Detail Notes on Transaction Classes/Accounts: The City has the following fair value measurements as of June 30, 2018 : Weighted Fair Value/ Average Average Carrying Credit Quality/ Fair Value Maturity Types of Investments Amount Rating (1) Level 1 Level 2 Level 3 Years (2) Governmental and Business Funds Certificates of deposits $ 5,000,000 NR - $5,000,000 - 0.90 Fiduciary and Private Purpose Trust Funds Cash equivalents $ 35,144 NR $ 35,144 $ - $ - NA Common stock 2,439,218 NR 2,439,218 - - NA Real estate investment trust 226,000 NR - - 226,000 NA Mutual funds Bond 1,595,767 NR 1,595,767 - - 7.86 Equity 1,753,398 NR 1,753,398 - - NA International 364,659 NR 364,659 - NA TOTAL FIDUCIARY AND PRIVATE PURPOSE TRUST FUNDS $ 6,414,186 (1) Ratings are provided where applicable to indicate associated Credit Risk. NA indicates not applicable. NR indicates that instrument is not rated. (2) Maturities are provided for debt instruments with maturity dates. NA indicates not applicable. Interest Rate Risk is the risk that changes in interest rates will adversely affect the fair value of an investment. The City policy provides that, to the extent practicable, investments are matched with anticipated cash flows. Investments are diversified to minimize the risk of loss resulting from overconcentration of assets in a specific maturity period, a single issuer, or an individual class of securities. Unless matched to a specific cash flow, investments are not, in general, made in securities maturing more than five years from the date of purchase. Surplus cash may be invested in securities exceeding five years if the maturity of such investments is made to coincide as nearly as practicable with the expected use of the investment. Concentration of credit risk is the risk of loss attributed to the magnitude of the City's investment in a single issuer. The City policy does not specifically address concentration of credit risk. Pension Trust Policy The City's pension trust is the Police and Firefighters' Pension Fund (PFPF). Investment policy provides for investment manager(s) who have full discretion of assets allocated to them subject to the overall investment guidelines set out in the policy. Overall investment guidelines provide for diversification and allow investment in domestic and international common stocks, fixed income securities, and cash equivalents. Custodial credit risk is addressed by the policy providing for the engagement of a custodian who accepts possession of securities for safekeeping; collects and disburses income; collects principal of sold, matured, or called items; and provides periodic accounting to the pension board. (Continued) - 68 - CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2018 Note 3 - Detail Notes on Transaction Classes/Accounts: Pension Trust Policy Asset allocation guideline for the plan is as follows: PFPF Retirement Plan Minimum Target Maximum Equities 45% 55% 65% Fixed income 35% 45% 55% The retirement plan addresses credit risk and concentration of credit risk with a policy that prohibits investment of more than 5% of its assets in the securities of any one issuer with the exception of U.S. government. Policy further prohibits investment of more than 20% in any one market sector. No more than 10% of corporate debt securities in the fixed income portfolio may be rated below-investment grade. Commercial paper must be rated A1, P1. Interest rate risk is addressed by the policy requiring the plan manager(s) to maintain both diversification and a predictable and dependent source of current income. Fixed income investments are flexibly allocated among maturities of different lengths. Private Purpose Trust The private purpose trust does not have a formal investment policy. The City established the trust in accordance with Kentucky Revised Statutes. The trust provides for an investment manager who has full discretion of assets allocated to him subject to the provisions of the trust agreement. The trust invests in domestic and international mutual funds, fixed income securities, U.S. treasury securities, and cash and equivalents. (Continued) - 69 - CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2018 Note 3 - Detail Notes on Transaction Classes/Accounts: Capital Assets Capital asset activity for the year ended June 30, 2018, was as follows: Balance Balance Primary Government: July 1, 2017 Additions Deductions June 30, 2018 Capital assets, not being depreciated: Land $10,376,832 $ 16,367 $ - $10,393,199 Construction-in-progress 20,009,381 3,642,950 20,133,429 3,518,902 Total capital assets, not being depreciated 30,386,213 3,659,317 20,133,429 13,912,101 Capital assets, being depreciated: Land improvements 13,323,851 9,676,979 - 23,000,830 Buildings and improvements 19,386,737 750,675 - 20,137,412 Infrastructure 41,757,073 9,663,646 - 51,420,719 Equipment 8,841,781 538,426 440,883 8,939,324 Furnishings and fixtures 221,341 49,537 18,258 252,620 Vehicles 9,334,694 769,159 354,147 9,749,706 Totals at historical cost 92,865,477 21,448,422 813,288 113,500,611 Less accumulated depreciation: Land improvements 3,912,744 908,450 - 4,821,194 Buildings and improvements 13,460,672 404,519 - 13,865,191 Infrastructure 31,826,792 881,391 - 32,708,183 Equipment 6,945,977 530,287 420,666 7,055,598 Furnishings and fixtures 199,003 9,512 14,473 194,042 Vehicles 5,589,779 867,120 312,445 6,144,454 Total accumulated depreciation 61,934,967 3,601,279 747,584 64,788,662 Total capital assets, being depreciated, net 30,930,510 17,847,143 65,704 48,711,949 PRIMARY GOVERNMENT ACTIVITIES CAPITAL ASSETS, NET $61,316,723 $21,506,460 $20,199,133 $62,624,050 During the year, fully depreciated assets were transferred between governmental and business type activities. Assets with historical cost of $23,619 were transferred from governmental activities to business activities and assets with historical cost of $102,500 were transferred from business activities to governmental activities. Additions and disposals reflect these transfers between activities. (Continued) - 70 - CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2018 Note 3 - Detail Notes on Transaction Classes/Accounts: Capital Assets Depreciation expense was charged to governmental activities as follows: General government: General administration $ 278,761 Planning 19,922 Information systems 8,207 Fleet maintenance 6,844 Total general government 313,734 Public safety: Police 253,978 Fire 92,791 Grants - Emergency 911 26,009 Court awards 3,214 Fleet Lease Trust 905,475 Total public safety 1,281,467 Public service: Public works 45,413 Engineering 23,532 Total public service 68,945 Parks and recreation 880,955 Planning and development: Infrastructure 952,120 Grants 1,558 Total planning and development 953,678 TOTAL DEPRECIATION EXPENSE – GOVERNMENTAL ACTIVITIES $3,498,779 Depreciation expense was charged to business-type activities as follows: Solid Waste Fund $ 492,488 Section Eight Housing 143 Civic Center 10,021 TOTAL DEPRECIATION EXPENSE – BUSINESS-TYPE ACTIVITIES $ 502,652 (Continued) - 71 - CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2018 Note 3 - Detail Notes on Transaction Classes/Accounts: Capital Assets Balance Balance Business-type Activities: July 1, 2017 Increases Decreases June 30, 2018 Capital assets, not being depreciated: Land $ 62,152 $ - $ - $ 62,152 Total capital assets, not being depreciated 62,152 - - 62,152 Capital assets, being depreciated: Buildings and improvements 571,759 - 4,247 567,511 Equipment 1,563,372 397,120 347,151 1,613,341 Vehicles 2,992,753 852,809 - 3,845,562 Totals at historical cost 5,127,884 1,249,928 351,398 6,026,414 Less accumulated depreciation: Buildings and improvements 316,762 16,327 4,247 328,842 Equipment 1,198,501 152,412 347,151 1,003,762 Vehicles 1,521,945 357,534 - 1,879,479 Total accumulated depreciation 3,037,208 526,273 351,398 3,212,083 Total capital assets, being depreciated, net 2,090,676 723,655 - 2,814,331 BUSINESS-TYPE ACTIVITIES CAPITAL ASSETS, NET $ 2,152,828 $ 723,655 $ - $ 2,876,483 Balance Balance Discretely Presented July 1, 2017 Increases Decreases June 30, 2018 Component Units: Capital assets, not being depreciated: Land & construction in progress $ 4,809,862 $ - $3,338,719 $ 1,471,143 Capital assets, being depreciated: Utility plant 88,314,371 6,031,912 383,324 93,962,959 Less accumulated depreciation: Utility plant 37,834,026 2,244,001 333,579 39,744,448 Total capital assets, being depreciated, net 50,480,345 3,787,911 49,745 54,218,511 COMPONENT UNIT CAPITAL ASSETS, NET $ 55,290,207 $ 3,787,911 $3,388,464 $ 55,689,654 Depreciation expense, charged to functions/programs of discretely presented major component units as follows: Paducah Water Works $ 2,244,001 (Continued) - 72 - CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2018 Note 3 - Detail Notes on Transaction Classes/Accounts: Accounts Payable Payables in the governmental and proprietary funds are composed of payables to vendors and accrued expenditures. Long-Term Liabilities The City’s long-term liabilities are segregated between the amounts to be repaid from governmental activities and amounts to be repaid from business-type activities. Governmental Activities As of June 30, 2018, the governmental long-term liabilities consisted of the following: General obligation bonds: Current portion $ 1,861,329 Noncurrent portion 16,131,165 TOTAL GENERAL OBLIGATION BOND COSTS, NET OF PREMIUMS AND DISCOUNTS $ 17,992,494 Note payable: Current portion $ 511,061 Noncurrent portion 7,295,639 TOTAL NOTE PAYABLE PAYMENTS $ 7,806,700 Accrued compensated absences: Current portion $ 1,236,497 Noncurrent portion 818,959 TOTAL ACCRUED COMPENSATED ABSENCES $ 2,055,456 Pension obligations: County Employee Retirement System $ 53,104,979 Appointive Employee’s Pension Fund 70,279 Police and Firefighters Pension Plan 3,321,887 TOTAL PENSION OBLIGATIONS $ 56,497,145 Other post-employment benefit (OPEB) obligations: County Employee Retirement System $ 19,194,886 TOTAL OPEB OBLIGATIONS $ 19,194,886 (Continued) - 73 - CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2018 Note 3 - Detail Notes on Transaction Classes/Accounts: Long-Term Liabilities Business-type Activities As of June 30, 2018, the long-term liabilities payable from proprietary fund resources consisted of the following: Accrued compensated absences: Current portion $ 99,566 Noncurrent portion 48,097 TOTAL ACCRUED COMPENSATED ABSENCES $ 147,663 Pension obligations: County Employee Retirement System $ 2,380,304 TOTAL PENSION OBLIGATIONS $ 2,380,304 Other post-employment benefit (OPEB) obligations: County Employee Retirement System $ 817,526 TOTAL OPEB OBLIGATIONS $ 817,526 General Obligation Bonds Series 2008 Bond Issue – The City of Paducah issued general obligation bonds of $2,800,000 in March 2009, to finance the Floodwall Rehabilitation. Interest rates are variable ranging between 2% and 3.7%. These bonds are required to be fully paid within 20 years from the date of issue and are backed by the full faith and credit of the City. Series 2010B Bond Issue – The City of Paducah issued general obligation bonds of $7,165,000 in August 2010 with interest rates ranging between 1% and 3.25%, to advance refund $6,725,000 of outstanding 2001 series bonds with interest rates ranging between 4.5% and 5%. The 2001 series bonds were issued to finance construction of the Performing Arts Center and Convention Center expansion. These bonds are required to be fully paid within 16 years from the date of issue and are backed by the full faith and credit of the City. While these 2010B series bonds are issued by the City, 50% of the principal amount of the bonds was issued on behalf of the County of McCracken, Kentucky which intends to participate on an equal basis with the City in financing the projects and has issued the City a general obligation note in a principal amount equal to 50% of the principal amount of the bonds and bearing interest at the same rates as the City’s bonds in order to secure the County’s obligations to the City. This note receivable is reflected in the government-wide Statement of Net Position. In accordance with an Interlocal Cooperation Agreement between the City, McCracken County, Kentucky (the County), and the Paducah-McCracken County Tourist and Convention Commission (the Bureau), principal and interest payments on the bonds are being made from an additional 2% transient room tax collected by the County with the remaining payments split evenly between the City, the County, and the Bureau. (Continued) - 74 - CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2018 Note 3 - Detail Notes on Transaction Classes/Accounts: Long-Term Liabilities General Obligation Bonds Series 2011 Bond Issue – The City of Paducah issued general obligation taxable refunding bonds of $3,910,000 in August 2011 with an interest rate of 3.68%, to refund $3,780,000 of outstanding 2004 series bonds issued for an economic development project in the Industrial Park West with interest rates ranging from 2.25% to 6%. These bonds are required to be fully paid within 13 years from the date of issue and are backed by the full faith and credit of the City. While these bonds are issued by the City, 50% of the principal amount of the bonds was issued on behalf of the County of McCracken, Kentucky which intends to participate on an equal basis with the City and has guaranteed 50% of the principal amount of the bonds. This note receivable is reflected in the government-wide Statement of Net Position. In accordance with an Interlocal Cooperation Agreement between the City and McCracken County, Kentucky (the County), principal and interest payments on the bonds are supported by an operating lease collected by the City. The rental revenues collected from the lease during the current year cover $289,000 of the bond and interest payments due with the remaining amount of $108,080 shared equally by the City and County. Series 2013A Bond Issue – The City of Paducah issued general obligation bonds of $1,120,000 in September 2013, to finance the municipality pool renovations. Interest rates range from 0.70% to 3.60%. These bonds are required to be fully paid within 15 years from the date of issue and are backed by the full faith and credit of the City. Series 2013B Bond Issue – The City of Paducah issued general obligation taxable bonds of $2,475,000 in September 2013, to finance a portion of the costs of the construction of improvements to an industrial/distribution facility and a portion of the costs of the acquisition, construction, installation and equipping of an approximately 30,000 square foot building for the economic development. Interest rates range from 0.60% to 4.00%. These bonds are required to be fully paid within 15 years from the date of issue and are backed by the full faith and credit of the City. Series 2014A Bond Issue – The City of Paducah issued general obligation refunding bonds of $5,460,000 in May 2014 with interest rates ranging from 2.00% to 3.50%, to refund $5,545,000 of outstanding 2010 series bonds issued to finance several public improvement projects with interest rates ranging from 1.00% to 5.50%. These bonds are required to be fully paid within 16 years from the date of issue and are backed by the full faith and credit of the City. Series 2014B Bond Issue – The City of Paducah issued general obligation refunding bonds of $4,225,000 in November 2014 with interest rate of 2.55%, to advance refund $3,845,000 of outstanding 2005 series bonds issued to finance the police and firefighter's pension fund estimated actuary liability. These bonds are required to be fully paid within 10 years from the date of issue and are backed by the full faith and credit of the City. (Continued) - 75 - CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2018 Note 3 - Detail Notes on Transaction Classes/Accounts: Long-Term Liabilities Notes Payable Kentucky League of Cities – On July 1, 2003, the City entered into an agreement in the amount of $3,500,000 with the Kentucky League of Cities to finance the acquisition and installation of various public capital projects. Interest is charged at a rate of approximately 2.98%. The note is required to be fully paid within 20 years from the date of issue and is backed by the full faith and credit of the City. Kentucky Association of Counties – The County of McCracken, Kentucky entered into an agreement in the amount of $5,000,000 in March 2009, with the Kentucky Association of Counties to assist with the Julian Carroll Convention Center. The interest rate is variable. The note is required to be fully paid within 20 years from the date of issue and is backed jointly by the full faith and credit of the City and the County. While the note is issued by the County, 50% of the principal amount of the note was issued on behalf of the City which intends to participate on an equal basis with the County in accordance with an Interlocal Cooperation Agreement between the City and McCracken County, Kentucky on February 23, 2009. Margaret Hank Cumberland Presbyterian Church Agreement – On June 16, 2011, the City entered into an agreement in the amount of $188,533 with Margaret Hank Cumberland Presbyterian Church to finance the acquisition of real property to be used for the development of an indoor recreational facility. The note matures on July 1, 2019 and has an imputed interest rate of 3.25%. Murray State University Paducah Agreement – On November 22, 2011, the City entered into a general obligation note in the amount of $2,674,093 with McCracken County to finance the construction of an educational facility to be occupied by Murray State University. The note matures on December 1, 2031 and has interest rates ranging from 1.0% to 3.5%. Community Financial Services Bank – On January 24, 2017, the city entered into an agreement in the amount of $3,000,000 on behalf of the County of McCracken, Kentucky to finance improvements to the Julian Carroll Convention Center. The agreement matures on January 24, 2032 with interest rate of 1.98%. (Continued) - 76 - CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2018 Note 3 - Detail Notes on Transaction Classes/Accounts: Long-Term Liabilities Changes in Long-Term Liabilities The following is a summary of changes in long-term debt for the year ended June 30, 2018: Beginning Ending Due within Type of Liability: Balance Additions Reductions Balance One Year Governmental activities: General obligation bonds: Floodwall Rehabilitation $ 1,862,123 $ - $ (132,131) $ 1,729,992 $ 136,329 Refinanced Pension 3,660,000 - (405,000) 3,255,000 410,000 Refinanced Convention Center 4,515,000 - (450,000) 4,065,000 455,000 Refinanced Rental Building 2,230,000 - (310,000) 1,920,000 320,000 Public Pool Renovations 925,000 - (65,000) 860,000 70,000 Economic Development 2,040,000 - (145,000) 1,895,000 145,000 Refinancing Public Projects 4,505,000 - (310,000) 4,195,000 325,000 Premiums 156,808 - (21,286) 135,522 - Discounts (78,122) - 15,102 (63,020) - Total bonds payable 19,815,809 - (1,823,315) 17,992,494 1,861,329 Notes payable: Kentucky League of Cities 1,309,616 - (196,297) 1,113,319 202,261 Kentucky Association of Counties 1,751,666 126,742 (134,088) 1,744,320 140,768 Margaret Hank Agreement 47,934 - (47,934) - - Murray State University Agreement 2,109,088 - (117,601) 1,991,487 119,828 CFSB Agreement 3,000,000 - (42,425) 2,957,575 48,204 Total notes payable 8,218,304 126,742 (538,345) 7,806,701 511,061 Pension Obligations 44,315,943 15,095,162 (2,913,960) 56,497,145 - OPEB Obligations 12,522,515 7,788,635 (1,116,264) 19,194,886 - Accrued Compensated Absences 2,114,779 1,301,106 (1,360,430) 2,055,455 1,236,497 TOTAL GENERAL LONG- TERM LIABILITIES $86,987,350 $24,311,645 $ (7,752,314) $103,546,681 $ 3,608,887 Business-type activities: Pension Obligations $ 2,086,480 $ 432,972 $ (139,148) $ 2,380,304 - OPEB Obligations 641,242 223,764 (47,480) 817,526 - Accrued compensated Absences 193,522 93,588 (139,446) 147,664 99,566 TOTAL BUSINESS LONG- TERM LIABILITIES $ 2,921,244 $ 750,324 $ (326,074) $ 3,345,494 $ 99,566 (Continued) - 77 - CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2018 Note 3 - Detail Notes on Transaction Classes/Accounts: Long-Term Liabilities Changes in Long-Term Liabilities (1) The calculation to reconcile amounts in this schedule to the "net investment in capital assets" for governmental activities is: Net Capital Assets $62,624,051 Less: 19.75% of the outstanding 2010B general obligation bonds $ (802,838) 100% of the outstanding 2011 General obligation bonds (1,920,000) Net of the County's portion 1,361,419 (1,361,419) 78% of the outstanding 2014A general obligation bonds (3,272,100) 100% of the outstanding 2013A general obligation bonds (860,000) 52% of the outstanding 2013B general obligation bonds (985,400) 100% of the outstanding Kentucky League of Cities' note payable (1,113,319) Net investment in capital assets $55,031,813 Annual Debt Service Requirements The annual debt service requirements to maturity for bonds and notes as of June 30, 2018, are as follows: Year Ending June 30 Principal Interest 2019 $ 2,372,390 $ 759,911 2020 2,432,467 687,597 2021 2,503,386 610,270 2022 2,579,621 531,456 2023 2,664,292 452,136 2024-2028 9,509,575 1,229,706 2029-2032 3,737,463 172,524 TOTALS $25,799,194 $ 4,443,600 (Continued) - 78 - CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2018 Note 3 - Detail Notes on Transaction Classes/Accounts: Accrued Compensated Absences Compensated absence obligations arise from amounts due to City employees for vested amounts of vacation pay and sick pay which will be payable in the future. Typically, the compensated absence obligations have been paid by the General Fund, Emergency Communication Service Fund, Section Eight Housing Fund, Solid Waste Fund, and Fleet Maintenance Fund. Amounts accrued at June 30, 2018, are as follows: Accrued Compensated Absences Governmental Business-type Activities Activities Accrued sick leave $ 636,865 $ 69,478 Accrued vacation leave 1,418,591 78,185 Totals 2,055,456 147,663 Less current portion 1,236,497 99,566 LONG-TERM PORTION $ 818,959 $ 48,097 Termination Benefits Thirteen employees, through employment contracts, are entitled to certain termination benefits upon involuntary termination of employment by the City Commission. These benefits include provision for salary payments for three to six months, as well as, certain health, life, dental, and disability insurance coverage for same period of time. As these benefits are only provided for involuntary termination of employment, no provision has been made for these benefits. The City funds these benefits on a pay-as- you-go basis in the period incurred. Termination benefits of $281,108 were paid for the year ended June 30, 2018. In addition, qualified participants in the County Employee's Retirement System (CERS), under certain circumstances are eligible to convert accrued sick pay benefits into additional credit for years of service upon retirement. Costs and notification of payment for these benefits are not calculated by the CERS actuary until a qualified participant submits an application for retirement benefits. Accordingly, no provision has been made for these benefits; and, the City funds these benefits in the period of notification for payment by the CERS. For the year ended June 30, 2018, $201,357 of payments was made for these benefits. Landfill Closure and Post-Closure Costs The County of McCracken, Kentucky (County) closed the local landfill to the public on June 30, 1995. The County must comply with established state and federal landfill closure procedures and must perform maintenance and monitoring procedures at the site for thirty years after closure. The 30-year period will begin upon approval from the Commonwealth of Kentucky regarding the environmental condition of the landfill site. As of June 30, 2018, approval had not yet been granted. The County estimated post-closure care costs totaling $4,125,000 or $125,000 per year plus 10% for inflation. Actual costs may be higher due to inflation, changes in technology, or changes in regulations. In the year ending June 30, 2001, the City entered into an inter-local agreement to share equally the costs for post-closure costs and, accordingly, has recorded a long-term liability for 50% of the estimated closure expense. It is anticipated that post-closure costs will be paid out of the Solid Waste Fund to the extent that funds are available with any excess costs being funded using long-term borrowing. (Continued) - 79 - CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2018 Note 3 - Detail Notes on Transaction Classes/Accounts: Interfund Transactions and Balances Interfund transfers during the year ended June 30, 2018, were as follows: Interfund Interfund Governmental Funds: Transfers In Transfers Out General Fund $ 567,020 $1,689,030 Special Revenue Investment Fund - 4,365,799 Capital Project Fund 2,184,339 17,020 Debt Service Fund 2,133,276 - Nonmajor Governmental Funds 1,446,131 17,500 Internal Service Funds 185,780 - Proprietary Funds: Solid Waste - 485,759 Nonmajor Proprietary Funds 58,562 - TOTALS $ 6,575,108 $ 6,575,108 Transfers are used to (a) move revenues from the fund that statute or budget requires to collect them to the fund that statute or budget requires to expend them and to (b) use unrestricted revenues collected in the general fund to finance various programs accounted for in other funds in accordance with budgetary authorizations. Significant transfers from the general fund transfers includes $414,781 for E911 support; $493,147 for debt service; and $573,909 for capital projects. Significant transfers from the special revenue investment fund includes $1,031,350 for municipal aid street resurfacing program; $1,640,129 for debt service; and $1,504,320 for capital projects. Significant transfers from solid waste fund include $360,000 for general fund operations support. Due To/From Balances Due to/from balances used to cover current operating expenses were as follows as of June 30, 2018: Due From Due To General Fund $ 49,340 $1,313,541 Special Revenue Investment Fund 1,313,541 - General Capital Improvements Fund - - Nonmajor Proprietary Funds - 49,340 Internal Service Funds - - TOTALS $1,362,881 $1,362,881 Note 4 - Pension Plans - City of Paducah: The City provides retirement benefits to its employees through three pension funds. Two of these funds are single-employer defined benefit funds and are administered by the City. These funds are Police and Firefighters’ Pension Fund (PFPF) and Appointive Employees’ Pension Fund (AEPF). The other pension is a multi-employer public employee retirement fund administered by the Kentucky County Employees Retirement System (CERS). The City also participates in three deferred compensation plans. Information regarding these plans follows: (Continued) - 80 - CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2018 Note 4 - Pension Plans - City of Paducah: Cost-Sharing Multiple-Employer Defined Benefit Plan County Employees’ Retirement System Plan description - The City is a participant in the County Employees Retirement System (CERS), a cost-sharing multiple-employer defined benefit pension plan administered by the Kentucky Retirement System, an agency of the Commonwealth of Kentucky. Under the provisions of the Kentucky Revised Statute (“KRS”) Section 61.645, the Board of Trustees of the Kentucky Retirement System administers CERS and has the authority to establish and amend benefit provisions. The Kentucky Retirement System issues a publicly available financial report that includes financial statements and required supplementary information for CERS. That report may be obtained from http://kyret.ky.gov/. Benefits provided - CERS provides retirement, health insurance, death and disability benefits to Plan employees and beneficiaries. Employees are vested in the plan after five years’ service. For retirement purposes, non-hazardous and hazardous employees are grouped into three tiers, based on hire date: Non-hazardous members: Tier 1 Participation date Prior to September 1, 2008 Unreduced retirement 27 years of service or 65 years old Reduced retirement Minimum 5 years of service and 55 years old Minimum 25 years of service and any age Tier 2 Participation date September 1, 2008 to December 31, 2013 Unreduced retirement Minimum 5 years of service and 65 years old Age of 57 or older and sum of service years plus age equal 87 Reduced retirement Minimum 10 years of service and 60 years old Tier 3 Participation date After December 31, 2013 Unreduced retirement Minimum 5 years of service and 65 years old Age of 57 or older and sum of service years plus age equal 87 Reduced retirement Not available Hazardous members: Tier 1 Participation date Prior to September 1, 2008 Unreduced retirement 20 years of service and any age Minimum 5 years of service and 55 years old Reduced retirement Minimum 15 years of service and 50 years old Tier 2 Participation date September 1, 2008 to December 31, 2013 Unreduced retirement Minimum 5 years of service and 60 years old 25 years of service and any age Reduced retirement Minimum 15 years of service and 50 years old Tier 3 Participation date After December 31, 2013 Unreduced retirement Minimum 5 years of service and 60 years old 25 years of service and any age Reduced retirement Not available (Continued) - 81 - CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2018 Note 4 - Pension Plans - City of Paducah: Cost-Sharing Multiple-Employer Defined Benefit Plan County Employees’ Retirement System Cost of living adjustments are provided at the discretion of the General Assembly. Retirements is based on a factor of the number of years’ service and hire date multiplied by the average of the highest five years’ earnings. Reduced benefits are based on factors of both of these components. Participating employees become eligible to receive the health insurance benefit after at least 180 months of service. Death benefits are provided for both death after retirement and death prior to retirement. Death benefits after retirement are $5,000 in lump sum. Five years’ service is required for death benefits prior to retirement and the employee must have suffered a duty-related death. The decedent’s beneficiary will receive the higher of the normal death benefit and $10,000 plus 25% of the decedent’s monthly final rate of pay and any dependent child will receive 10% of the decedent’s monthly final rate of pay up to 40% for all dependent children. Five years’ service is required for non-service related disability benefits. Plan Funding – State statute requires active members to contribute % of creditable compensation based on the tier: Non-hazardous Hazardous Required Contribution Required Contribution Tier 1 5% Tier 1 8% Tier 2 5% plus 1% for insurance Tier 2 8% plus 1% for insurance Tier 3 5% plus 1% for insurance Tier 3 8% plus 1% for insurance Employers contribute at the rate determined by the CERS Board to be necessary for the actuarial soundness of the system, as required by KRS 61.565 and 61.752. The City’s required contribution rate was 19.18% for non-hazardous employees and 31.55% for hazardous employees for the year ended June 30, 2018. Non-hazardous and hazardous employee plans are administered separately. Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions At June 30, 2018, the City reported a liability for its proportionate share of the net pension liability for CERS. The amount recognized by the City as its proportionate share of the net pension liability that was associated with the City was as follows: City’s non-hazardous proportionate share of the CERS net pension liability $ 18,788,122 City’s hazardous proportionate share of the CERS net pension liability 36,697,162 Total CERS net pension liability associated with the City $ 55,485,284 The net pension liability for each plan was measured as of June 30, 2017, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. (Continued) - 82 - CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2018 Note 4 - Pension Plans - City of Paducah: Cost-Sharing Multiple-Employer Defined Benefit Plan County Employees’ Retirement System The City’s proportion of the net pension liability for CERS was based on the actual liability of the employees and former employees relative to the total liability of the System as determined by the actuary. At June 30, 2018, the City’s non-hazardous proportion was 0.320983% percent and hazardous proportion was 1.640259% percent. For the year ended June 30, 2018, the City recognized non-hazardous and hazardous pension expense of $3,172,633 and $5,893,729, respectively, related to CERS pension plans. At June 30, 2018, the City reported deferred outflows of resources and deferred inflows of resources related to the CERS pension plans from the following sources: Non-hazardous Hazardous Deferred Outflows of Resources Deferred Inflows of Resources Deferred Outflows of Resources Deferred Inflows of Resources Difference between expected and actual experience $ 23,303 $ 476,923 $ 1,346,009 $ - Changes in assumptions 3,466,917 - 7,320,247 - Net difference between projected and actual earnings on pension plan investments 232,388 - 320,682 - Changes in proportion and differences between City contributions and proportionate share of contributions 501,411 220,311 335,523 135,878 City contributions subsequent to the measurement date 1,141,041 - 1,964,844 - Total $ 5,365,060 $ 697,234 $ 11,287,305 $ 135,878 The City reported $3,105,885 as deferred outflows of resources related to pensions resulting from City’s non-hazardous and hazardous contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended June 30, 2019. Other amounts reported as deferred outflows of resources and deferred inflows related to pensions will be recognized in pension expense as follows: Fiscal Year Ending June 30 Non- Hazardous Hazardous 2019 $ 1,463,478 $ 3,759,946 2020 1,574,004 4,242,089 2021 730,553 1,584,964 2022 (241,250) (400,417) (Continued) - 83 - CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2018 Note 4 - Pension Plans - City of Paducah: Cost-Sharing Multiple-Employer Defined Benefit Plan County Employees’ Retirement System Actuarial assumptions - The total pension liability in the June 30, 2018 actuarial valuation was determined using the following actuarial assumptions, applied to all periods included in the measurement: Non-Hazardous Hazardous Inflation 2.30% 2.30% Projected salary increases 2.00% 2.00% Investment rate of return, net of investment expense & inflation 6.25% 6.25% For CERS, Mortality rates for the period after service retirement are according to the RP-2000 Combined Mortality Table projected with Scale BB to 2013 for all active and retired employees and beneficiaries. The RP-2000 Combined Mortality Table projected with Scale BB to 2013 set back four years for males is used for the period after disability retirement. The actuarial assumptions used were based on the results of an actuarial experience study for the period July 1, 2008 – June 30, 2013. For CERS, the long-term expected return on plan assets is reviewed as part of the regular experience studies prepared every five years. The most recent analysis, performed for the period covering fiscal years 2008 through 2013, is outlined in a report dated April 30, 2014. Several factors are considered in evaluating the long-term rate of return assumption including long-term historical data, estimates inherent in current market data, and a log-normal distribution analysis in which best-estimate ranges of expected future real rates of return (expected return, net of investment expense and inflation) were developed by the investment consultant for each major asset class. These ranges were combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and then adding expected inflation. The capital market assumptions developed by the investment consultant are intended for use over a 10-year horizon and may not be useful in setting the long-term rate of return for funding pension plans which covers a longer timeframe. The assumption is intended to be a long-term assumption and is not expected to change absent a significant change in the asset allocation, a change in the inflation assumption, or a fundamental change in the market that alters expected returns in future years. (Continued) - 84 - CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2018 Note 4 - Pension Plans - City of Paducah: Cost-Sharing Multiple-Employer Defined Benefit Plan County Employees’ Retirement System The target allocation and best estimates of arithmetic real rates of return for each major asset class, as provided by CERS’s investment consultant, are summarized in the following table: Asset Class Target Allocation Long-Term Expected Real Rate of Return Combined Equity 50.8% 5.9%-7.8% Combined Fixed Income 14.0% 2.6%-3.6% Real Estate 5.0% 5.5% Private Equity 10.0% 7.6% Real Return (Diversified Inflation Strategies) 8.0% 8.2% Absolute Return (Diversified Hedge Funds) 10.0% 5.8% Cash 2.2% 1.9% Total 100.0% Discount rate - The discount rate used to measure the total pension liability was 6.25%. The projection of cash flows used to determine the discount rate assumed that contributions from plan employees and employers will be made at statutory contribution rates. Projected inflows from investment earnings were calculated using the long-term assumed investment return of 6.25%. The long-term investment rate of return was applied to all periods of projected benefit payments to determine the total pension liability. Sensitivity of CERS proportionate share of net pension liability to changes in the discount rate - The following table presents the net pension liability of the City, calculated using the discount rates selected by the pension system, as well as what the City’s net pension liability would be if it were calculated using a discount rate that is 1-percentage-point lower or 1-percentage-point higher than the current rate: 1% Decrease Current Discount Rate 1% Increase CERS 5.25% 6.25% 7.25% Non-hazardous’ proportionate share of net pension liability $23,695,883 $18,788,122 $14,682,817 Hazardous’ proportionate share of net pension liability $46,140,033 $36,697,162 $28,898,731 (Continued) - 85 - CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2018 Note 4 - Pension Plans - City of Paducah: Cost-Sharing Multiple-Employer Defined Benefit Plan County Employees’ Retirement System Pension plan fiduciary net position - Detailed information about the pension plan’s fiduciary net position is available in the separately issued financial report of the CERS. Single Employer Defined Benefit Funds - Police and Firefighters' Pension Fund (PFPF) and Appointive Employees’ Pension Fund (AEPF) Basis of Accounting – The financial statements are prepared using the accrual basis of accounting. Plan member and employer contributions are recognized in the period in which the contributions are due, pursuant to formal commitments. Benefits and refunds are recognized when due and payable in accordance with the terms of each plan. Administration – The Appointive Employees’ Pension Fund Board and the City of Paducah Police and Firefighters’ Pension Fund Board are responsible for establishing or amending contribution rates and requirements for their respective plans. Administrative Costs – Administrative costs are funded from investment earnings. Valuation of Investments – Investments are reported at fair value. Investments are composed of securities valued at current market prices. See investment policies in Note 3 for the pension trusts. Plan Administration – Management of the PFPF, as authorized by Kentucky Revised Statute 95.869, is vested in the PFPF Board of Trustees, which consist of the Mayor, City Treasurer, an active firefighter, a retired firefighter and a retired police officer. Management of the AEPF, as authorized by Kentucky Revised Statute 90.400, is vested in the AEPF Board of Trustees, which consists of the Mayor, City Manager and an elected retired employee. Plan Description: PFPF is a single-employer defined benefit plan. On August 1, 1988, the plan was closed to new entrants and current active duty police and firemen of the City were given a choice of remaining in this plan or transferring into the CERS. Effective August 1, 1988, the PFPF covered 21 active duty members. All other active duty members elected coverage under CERS. PFPF does not issue a separate, stand-alone report. Accordingly, the plan financial statements are included in this audit report. AEPF is a single-employer defined benefit plan which covers past appointed employees of the City. In 1975, the City froze admission of new entrants into the plan. There are no active participants in the plan at June 30, 2018. AEPF does not issue a separate, stand-alone report. Accordingly, the plan financial statements are included in this audit report. (Continued) - 86 - CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2018 Note 4 - Pension Plans - City of Paducah: Single Employer Defined Benefit Funds - Police and Firefighters' Pension Fund (PFPF) and Appointive Employees’ Pension Fund (AEPF) Membership Information: Membership of each plan consisted of the following at June 30, 2018: PFPF AEPF Active participants 1 0 Beneficiaries 26 2 Retired participants 19 0 TOTAL PARTICIPANTS 46 2 These plans are closed to new members. Benefits provided: PFPF provides retirement, disability, and death benefits. These benefits are determined by Kentucky Revised Statutes (KRS) sections 95.851 to 95.884. Retirement benefits for general plan members are 2½% of average salary times years of service up to and including 30 years. The maximum is 75% of average salary. Average salary is the highest average salary of the member for any 3 consecutive years of service. Retirement allowed any time after attainment of age 50, provided that at least 20 years of service have been completed. Occupational disability benefits equal to 70% of the members’ final rate of pay. Non-occupational disability benefits are available after completing 10 years of service and are determined in a similar manner as retirement benefits subject to a maximum of 50% of average salary. Surviving beneficiaries may receive death benefits per the terms of the plan. Benefit terms provide for an annual cost-of-living adjustment up to 5% a year provided the adjustment is supportable on an actuarially sound basis. Kentucky Revised Statute 95.859(2) provides that the widow’s minimum benefit shall be increased by the same percentage as the increase in Social Security benefits, not to exceed 5%. AEPF provides retirement, disability, and death benefits. Retirement allowed any time after attainment of age 60, provided that at least 20 years of service have been completed. Retirement benefits for general plan members are 50% of monthly salary at the time of retirement. Occupational disability benefits equal to 50% of the members’ final rate of pay. Surviving beneficiaries may receive death benefits per the terms of the plan. Effective January 1, 1998, all persons receiving benefits received a one-time increase of 10%. Funding policy: PFPF - Plan members are required to contribute 8% of their annual covered salary. A member reserve is established for member contributions, less amounts transferred to reserves for retirement and disability and amounts refunded to terminated employees. AEPF - Since there are only retired employees and beneficiaries receiving benefits, the City expects little or no additional pension obligation. The City has pledged to maintain benefits and the financial soundness of the plan by appropriations from the General Fund, as necessary. (Continued) - 87 - CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2018 Note 4 - Pension Plans - City of Paducah: Single Employer Defined Benefit Funds - Police and Firefighters' Pension Fund (PFPF) and Appointive Employees’ Pension Fund (AEPF) Changes in PFPF and AEPF’s Net Pension Liability is as follows: PFPF Total Pension Liability Plan Net Position Net Pension Liability (a) (b) (a) – (b) Balance – June 30, 2017 $ 9,174,261 $ 5,583,482 $ 3,590,779 Service cost 7,678 - 7,678 Interest expense 560,538 - 560,538 Experience losses (gains) (2,758) - (2,758) Change in assumptions - - - Contributions – City - 380,168 (380,168) Contributions – Members - 6,325 (6,325) Investment income - 492,276 (492,276) Benefits paid (1,101,201) (1,101,201) - Plan administrative expenses - (44,419) 44,419 Net change (535,743) (266,851) (268,892) Balance – June 30, 2018 $ 8,638,518 $ 5,316,631 $ 3,321,887 AEPF Total Pension Liability Plan Net Position Net Pension Liability (a) (b) (a) – (b) Balance – June 30, 2017 $ 73,259 $ - $ 73,259 Service cost - - - Interest expense 4,084 - 4,084 Experience losses (gains) 3,308 - 3,308 Change in assumptions - - - Contributions – City - 14,012 (14,012) Contributions – Members - - - Investment income - - - Benefits paid (10,372) (10,372) - Plan administrative expenses - (3,640) 3,640 Net change (2,980) - (2,980) Balance – June 30, 2018 $ 70,279 $ - $ 70,279 For the year ended June 30, 2018, the City recognized pension expense of $123,986 and $12,128 related to PFPF and AEPF pension plans, respectively. (Continued) - 88 - CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2018 Note 4 - Pension Plans - City of Paducah: Single Employer Defined Benefit Funds - Police and Firefighters' Pension Fund (PFPF) and Appointive Employees’ Pension Fund (AEPF) At June 30, 2018, the City reported deferred outflows of resources and deferred inflows of resources related to the PFPF and AEPF pension plans from the following sources: PFPF AEPF Deferred Outflows of Resources Deferred Inflows of Resources Deferred Outflows of Resources Deferred Inflows of Resources Difference between expected and actual experience $ - $ - $ - $ - Changes in assumptions - - - - Net difference between projected and actual earnings on pension plan investments - 209,460 505 - Total $ - $ 209,460 $ 505 $ - Amounts reported as deferred outflows of resources and deferred inflows related to pensions will be recognized in pension expense as follows: Fiscal Year Ending June 30 PFPF AEPF 2019 $ (18,497) $ 431 2020 (55,544) 74 2021 (107,416) - 2022 (28,003) - The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing relative to the actuarial accrued liability for benefits. Actuarial assumption PFPF AEPF Valuation date 7/1/18 7/1/18 Actuarial cost method Entry age normal Aggregate (1) Amortization method Level dollar closed Level dollar closed Remaining amortization period 16 Years 10 Years Asset valuation method Market value Market value (Continued) - 89 - CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2018 Note 4 - Pension Plans - City of Paducah: Single Employer Defined Benefit Funds - Police and Firefighters' Pension Fund (PFPF) and Appointive Employees’ Pension Fund (AEPF) Actuarial assumptions: Investment rate of return 6.50% (3) 6.0% Projected salary increases 4.00% (2) Inflation rates adjustments 3.00% (2) (1) The Aggregate Method does not identify or separately amortize the unfunded actuarial liabilities. Information about funded status and funding progress is presented using the entry age actuarial cost method for that purpose; and, that information presented is intended to serve as a surrogate for the funding progress of the plan. (2) The plan has no active participants. The pension cost for each year is determined as an amortization of the unfunded actuarial accrued liability over the lesser of 10 years or the weighted average of expected term of payment of plan benefits. (3) 6.50% Effective July 1, 2018 Post-retirement mortality – The mortality rates for the plans were based as follows: PFPF 1971 Group annuity mortality (GAM) table UP-1984 table set forward 5 years for participants retiring due to disability AEPF GAM 1983 Male GAM 1983 Female Rate of return – Investment return is anticipated to be the major source of additional funds for payment of benefits. The assumed rate of return is a long-term average. The fund’s rate of return is determined primarily by the asset allocation – the classes in which it is invested, and the performance of the associated markets. For the July 1, 2018 PFPF plan year, the assumed rate of return was 6.50%. For the AEPF July 1, 2018 plan year, the assumed rate of return was 6%. Discount Rate – The projection of cash flows used to determine the discount rate assumed that the plan member contributions will be made at the current contribution rate and that City contributions will be made equal to the difference between actuarially determined contribution and the member contribution. The pension plans’ fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plans investment was applied to all periods of projected benefit payments to determine the total pension liability. The discount rate used to measure the total pension liability as of July 1, 2018 was as follows: PFPF 6.50% AEPF 6.00% (Continued) - 90 - CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2018 Note 4 - Pension Plans - City of Paducah: Single Employer Defined Benefit Funds - Police and Firefighters' Pension Fund (PFPF) and Appointive Employees’ Pension Fund (AEPF) Sensitivity of the net pension liability to changes in the discount rate – The following presents the net pension liability of the City’s plans would be if it were calculated using a discount rate that is 1% point lower or 1% point higher than the current rate: 1% Current 1% Decrease Rate Increase PFPF Net Pension Liability $ 3,929,942 $ 3,321,887 $ 2,786,595 AEPF Net Pension Liability $ 74,110 $ 70,279 $ 66,812 Financial Reports The Police and Firefighters' Pension Fund (PFPF) and Appointive Employees’ Pension Fund (AEPF) plans do not issue stand-alone financial reports. The Plans financial statements are as follows: COMBINING STATEMENT OF FIDUCIARY NET POSITION PENSION TRUST FUNDS JUNE 30, 2018 PFPF AEPF Total Assets Cash and cash equivalents $ 9,532 $ - $ 9,532 Receivables: Interest 6,973 - 6,973 Investments at fair value Money market accounts 28,171 - 28,171 Common stock 2,439,218 - 2,439,218 Real estate investment trust 226,000 - 226,000 Mutual funds 2,606,758 - 2,606,758 Total assets 5,316,652 - 5,316,652 Liabilities Vouchers and accounts payable 21 - 21 Net Position Held in trust for pension benefits $ 5,316,631 $ - $ 5,316,631 (Continued) - 91 - CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2018 Note 4 - Pension Plans - City of Paducah: Single Employer Defined Benefit Funds - Police and Firefighters' Pension Fund (PFPF) and Appointive Employees’ Pension Fund (AEPF) COMBINING STATEMENT OF CHANGES IN NET POSITION PENSION TRUST FUNDS JUNE 30, 2018 PFPF AEPF Total Additions: Contributions Employer $ 380,168 $ 14,012 $ 394,180 Plan members 6,325 - 6,325 Total contributions 386,493 14,012 400,505 Investments earnings: Net change in fair value of investments 374,161 - 374,161 Interest and dividends 118,114 - 118,114 Net investment earnings 492,275 - 492,275 Total additions 878,768 14,012 892,780 Deductions: Benefits 1,101,201 10,372 1,111,573 Administrative expenses 44,419 3,640 48,059 Total deductions 1,145,620 14,012 1,159,632 Change in net position (266,852) - (266,852) Net position - beginning 5,583,483 - 5,583,483 Net position - ending $ 5,316,631 $ - $ 5,316,631 Note 6 – Other Postemployment Benefits (OPEB): CERS Medical Insurance Plan Plan description – the City contributes to the Kentucky Retirement Systems Insurance fund (Insurance Fund), a cost-sharing multiple-employer defined benefit post-employment health care plan administered by the Kentucky Retirement Systems (KRS). The Insurance Fund was established to provide hospital and medical insurance for members for receiving benefits from the Kentucky Employees Retirement Systems (KERS), the County Employees Retirement System (CERS), and the State Police Retirement System (SPRS). The City participates in the County Employees Retirement System (CERS). CERS non-hazardous and hazardous employee plans are administered separately. Benefits provided – the Insurance Fund pays a prescribed contribution for whole or partial payments of required premiums to purchase hospital and medical insurance, based on years of service, for retirees and certain eligible beneficiaries. The authority to establish and amend benefit provisions rests with the Kentucky General Assembly. KRS issues a publicly available financial report that can obtained at www.kyret.ky.gov. (Continued) - 92 - CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2018 Note 6 – Other Postemployment Benefits (OPEB): OPEB Liabilities, OPEB Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to OPEBs Contributions – per Kentucky Revised Statues 78.545 (33), contribution requirements are established and may be amended by the KRS Board. The City was required to contribute at actuarially determined rates of 4.73% of non-hazardous covered payroll and 9.35% of hazardous covered payroll for the fiscal years ended June 30, 2018. At June 30, 2018, the City reported a liability for its proportionate share of the net OPEB liability for the CERS Insurance Trust. The collective net OPEB liability was measured as of June 30, 2017, and the total OPEB liability used to calculate the collective net OPEB liability was based on a projection of the City’s long-term share of contributions to the OPEB plan relative to the projected contributions of all participating employers, actuarially determined. At June 30, 2017, the City’s non-hazardous proportion was 0.320983 percent and hazardous proportion was 1.640259 percent. The amount recognized by the City as its proportionate share of the OPEB liability that was associated with the District was as follows: City’s non-hazardous proportionate share of the CERS medical insurance liability $ 6,452,856 City’s hazardous proportionate share of the CERS medical insurance liability 13,559,555 Total CERS medical insurance liability associated with the City $ 20,012,412 For the year ended June 30, 2018, the City recognized non-hazardous and hazardous OPEB expense of $735,326 and $2,064,308, respectively. At June 30, 2018, the City reported deferred outflows of resources and deferred inflows of resources related to OPEBs from the following sources: Non-hazardous Hazardous Deferred Outflows of Resources Deferred Inflows of Resources Deferred Outflows of Resources Deferred Inflows of Resources Difference between expected and actual experience $ - $ 17,923 $ - $ 31,597 Changes in assumptions 1,404,101 - 5,001,550 - Net difference between projected and actual earnings on pension plan investments - 304,959 - 850,750 Changes in proportion and differences between City contributions and proportionate share of contributions - 14,973 - 2,697 City contributions subsequent to the measurement date 370,365 - 827,536 - Total $ 1,774,466 $ 337,855 $ 5,829,086 $ 885,044 (Continued) - 93 - CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2018 Note 6 – Other Postemployment Benefits (OPEB): $1,197,901 reported as deferred outflows of resources related to OPEB resulting from City non-hazardous and hazardous contributions subsequent to the measurement date will be recognized as a reduction of the net OPEB liability in the year ended June 30, 2019. Other amounts reported as deferred outflows of resources and deferred inflows related to pensions will be recognized in pension expense as follows: Fiscal Year Ending June 30 Non- Hazardous Hazardous 2019 $ 183,458 $ 1,190,492 2020 183,458 1,190,492 2021 183,458 1,192,492 2022 183,458 545,030 2023 259,698 2024 72,715 Actuarial assumptions – The total OPEB liability in the June 30, 2017 actuarial valuation was determined using the following actuarial assumptions, applied to all periods included in the measurement: Investment rate of return 6.25%, net of OPEB plan investment expense, including inflation. Projected salary increases 3.05% Inflation rate 2.30% Real Wage Growth 0.50% Wage Inflation 2.00% Healthcare cost trend rates Under 65 7.25% for FY 2017 decreasing to an ultimate rate of 4.05% by FY 2031 Ages 65 and Older 5.10% for FY 2017 decreasing to an ultimate rate of 4.05% by FY 2029 Municipal Bond Index Rate 3.56% Discount Rate 5.84% Single Equivalent Interest Rate 5.84%, net of OPEB plan investment expense, including inflation. Mortality rates used for active members is RP-2000 Combined Mortality Table projected with scale BB to 2013 (multiplied by 50% for males and 30% for females). For healthy retired members and beneficiaries, the mortality table used is RP-2000 Combined Mortality Table projected with scale BB to 2013 (set-back for one year for females). The RP-2000 Disabled Mortality Table projected with scale BB to 2013 (set- back four years for males) is used for the period after disability retirement. The long-term expected rate of return on OPEB plan investments was determined using a log-normal distribution analysis in which best-estimate ranges of expected future real rates of return (expected returns, net of OPEB plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. (Continued) - 94 - CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2018 Note 6 – Other Postemployment Benefits (OPEB): The target allocation and best estimates of arithmetic real rates of return for each major asset class, as provided by TRS’s investment consultant, are summarized in the following table: Asset Class Target Allocation Long-Term Expected Real Rate of Return Global Equity 53.0% 5.9%-7.8% Fixed Income 12.0% 2.6%-3.6% Additional Categories* 10.0% 5.5% Real Estate 5.0% 7.6% Private Equity 10.0% 8.2% High Yield 8.0% 5.8% Cash 2.0% 1.9% Total 100.0% *Modeled as 50% High Yield and 50% bank Loans. Discount rate - The discount rate used to measure the total OPEB liability was 5.84%. The projection of cash flows used to determine the discount rate assumed that plan member contributions will be made at the current contribution rates and the employer contributions will be made at statutorily required rates. Based on those assumptions, the OPEB plan’s fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on OPEB plan investments was applied to all periods of projected benefit payments to determine the total OPEB liability. The following table presents the City’s proportionate share of the collective net OPEB liability of the System, calculated using the discount rate of 5.84%, as well as what the City’s proportionate share of the collective net OPEB liability would be if it were calculated using a discount rate that is 1-percentage-point lower (4.84%) or 1-percentage-point higher (6.84%) than the current rate: 1% Decrease Current Discount Rate 1% Increase CERS 4.84% 5.84% 6.84% Non-hazardous’ proportionate share of net OPEB liability $ 8,210,902 $ 6,452,856 $ 4,989,886 Hazardous’ proportionate share of net pension liability $18,171,662 $13,559,555 $ 9,786,093 (Continued) - 95 - CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2018 Note 6 – Other Postemployment Benefits (OPEB): Sensitivity of the City’s proportionate share of the collective net OPEB liability to changes in the healthcare cost trend rates – The following presents the City’s proportionate share of the collective net OPEB liability, as well as what the City’s proportionate share of the collective net OPEB liability would be if it were calculated using healthcare cost trend rates that were 1-percentage-point lower or 1- percentage-point higher than the current healthcare cost trend rates: 1% Decrease Current Discount Rate 1% Increase Non-hazardous’ proportionate share of net OPEB liability $ 4,949,673 $ 6,452,856 $ 8,406,906 Hazardous’ proportionate share of net pension liability $ 9,598,601 $13,559,555 $18,461,837 Note 7 - Component Unit Long-Term Liabilities: Long-term liabilities of the discretely presented component units consist of the following at June 30, 2018: Note Payable, Kentucky Infrastructure Authority (KIA) – Paducah Water Works In connection with a merger with Reidland Water District, Paducah Water Works assumed a loan from the KIA. Interest rate is 1.00%, with a .25% annual service fee. The annual requirements to amortize the outstanding debt as of June 30, 2018, are as follows: .25% Year Ending Service R & M June 30 Principal Interest Fee Reserve Total 2018 $ 455,532 $ 86,971 $ 17,584 $ 29,950 $ 590,037 2019 460,856 81,646 16,442 29,950 588,894 2020 466,250 76,252 15,287 29,950 587,739 2021 471,709 70,793 14,117 11,200 567,819 2022 477,236 65,266 12,934 11,200 566,636 2023-2027 2,471,573 240,937 46,437 44,800 2,803,747 2028-2032 1,808,096 97,967 16,234 - 1,922,297 2033-2037 535,806 21,312 3,046 - 560,164 TOTALS $7,147,058 $741,144 $142,081 $157,050 $8,187,333 Note 8 - Appropriations Deficit: No departments that adopted budgets annually had excess expenditures over appropriations for the fiscal year ended June 30, 2018. (Continued) - 96 - CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2018 Note 9 - Commitments and Contingencies: Grant Contingencies Amounts received from grantor agencies are subject to audit and adjustment by grantor agencies, principally the federal government. Any disallowed claims, including amounts already collected, may constitute a liability of the applicable funds. The amount, if any, of expenditures which may be disallowed by the grantor cannot be determined at this time although the government expects such amounts, if any, to be immaterial. Construction Commitments The City has various on-going contracts for construction, renovations, paving materials, equipment, and labor. As of June 30, 2018, the most significant construction commitment were as follows: Cumulative Estimated Costs Incurred Total Costs Comprehensive Stormwater Master Plan Study $ 751,028 $ 986,446 Floodwall Rehab 431,496 5,305,162 City Hall Improvement – Phase I 1,701,048 4,630,781 $ 2,883,572 $10,922,389 Note 10 - Risk Management and Litigation: The City is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The City obtains coverage from commercial insurance companies to handle the risk of loss. There have been no decreases in insurance coverage from the prior year. There have been no settlements in excess of insurance coverage during the prior three years. An analysis of claims activity is presented below: Current Year Beginning of Claims and Actual Balance at Fiscal Year Changes in Claim Fiscal Liability Estimates Payments Year End 2015 - 2016 $ - $ 95,720 $ 95,720 $ - 2016 - 2017 - 110,570 110,570 - 2017 - 2018 - 99,033 99,033 - During fiscal year 1999, the City established the Health Insurance Fund (an internal service fund) to account for and finance employee medical costs relating to the City’s employee self-insured medical benefit plan that went into effect as of July 1, 1999. The health insurance provides coverage for up to $175,000 for each covered individual. The City purchases commercial insurance (reinsurance) for claims in excess of the coverage provided per individual or in excess of the maximum aggregate limit, which is based on a formula that considers group census and anticipated claims. As of June 30, 2018, that amount was $2,810,972. Self-insurance costs are accrued based on claims reported within 90 days of the balance sheet date as well as an estimated liability for claims incurred but not reported. The total accrued liability for self-insurance costs was $108,812 at June 30, 2018. (Continued) - 97 - CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2018 Note 10 - Risk Management and Litigation: The analysis of claims activity is presented below: Current Year Beginning of Claims and Actual Balance at Fiscal Year Changes in Claim Fiscal Liability Estimates Payments Year End 2015 - 2016 $ 263,484 $ 2,596,080 $2,657,199 $ 202,365 2016 - 2017 202,365 1,792,627 1,894,220 100,772 2017 - 2018 100,772 2,088,594 2,080,554 108,812 Several lawsuits are pending involving citizens’ complaints and the City of Paducah. Various allegations have been made seeking damages which the legal counsel of the City, along with its management, has determined to be immaterial to the City’s financial position. Note 11 - Lease Agreements: Operating Leases The City is leasing land and building to the Luther F. Carson Four Rivers Center for the Performing Arts (Center) for a primary term of 99 years. No rental revenue is being collected from this lease. The rental for the primary term of the lease is the construction of the performing arts center. The building is deemed the property of the City; however, for financial reporting, the building is reported with the Luther F. Carson Four Rivers Center financial records. In December 2003, with the authorization of the City, the Center secured financing of $6.5 million subject to a mortgage against the leasehold and real property on which the performing arts center is located. The City also consented to an assignment of the lease as security for the loan. The City also leases certain other property to various lessees under non-cancelable agreements that have various expiration dates through June 30, 2024. Rental revenue received from leased property during 2018 totaled $752,149. The following is an analysis of property leased under these leases at June 30, 2018: Land $ 480,000 Buildings 3,422,261 Equipment 110,126 Total 4,012,387 Less: accumulated depreciation (1,326,859) NET BOOK VALUE $2,685,528 Depreciation expense for the year ended June 30, 2018, on leased property was $81,466. (Continued) - 98 - CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2018 Note 11 - Lease Agreements: Operating Leases The following is a schedule of future minimum rental income from operating leases at June 30, 2018: Lease Income 2019 $ 757,549 2020 749,215 2021 540,835 2022 304,031 2023 289,000 2024 289,000 TOTAL MINIMUM LEASE RECEIPTS $2,929,630 Note 12 – Tax Abatements: Developer Residential Property Tax Abatements – The City of Paducah is authorized by Kentucky Revised Statues Chapter 81A and City Ordinance 2002- 10-6989 to enter into property tax abatement agreements for the purpose of subsidizing developers for their cost of infrastructure improvements associated with residential infill and annexation development. Tax reimbursements cannot exceed the cost of City-approved infrastructure associated with the development over the life of the agreement. The abatement is limited to the actual City of Paducah real estate property taxes collected in any given year attributed to a specific development area as outlined in the individual agreement with the City. For the year ended June 30, 2018, the City abated property taxes totaling $32,442 under this program, including the following tax abatement agreements: Recipient Development Agreement Ordinance Abatement Amount Current Year Inception to Date Signature Homes of Paducah, LLC Westwood Subdivision In-fill 2010-12-7768 $13,111 $75,247 Greenway Village, LLC Greenway Village In- fill 2011-2-7789 $19,331 $46,664 Kentucky Business Investment (KBI) Program, KRS 154.32 – The KBI Program provides income tax credits and wage assessments to new and existing manufacturing companies, and non-retail service companies that locate or expand operations in Kentucky. The Program can be set to last up to 10 years. (Continued) - 99 - CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2018 Note 12 – Tax Abatements: For the year ended June 30, 2018, the City rebated employee local payroll taxes totaling $10,227 under this program, including the following resolutions: Recipient Start Date Term Authority Payroll Tax Rebate Amount Current Year Inception to Date Dippin’ Dots, LLC 12-11-2016 10 yrs. Resolution - 2014 $10,227 $13,193 Industrial Park West (IPW) – Ordinance 1997-2-5642 authorized the joint development of the IPW, for economic development purposes, as well as an inter-local agreement authorizing the city to share 50% of all payroll tax revenue generated in the Park. This agreement is good for 10 years after 97% of the park property is developed or 25 years (March 6, 2022), whichever is first. For the year ended June 30, 2018, the City shared payroll tax revenue totaling $150,400 under this agreement with McCracken County (“County”), as follows: Payroll Tax Remitter Start Date Payroll Tax Revenue Shared Current Year Inception to Date Coca Cola September 2005 $11,240 $306,066 Genova September 2014 $30,466 $65,719 H.T. Hackney March 2012 $24,020 $140,258 Whitehall December 2014 $84,674 $159,925 Information Age Park (IAP) – Ordinance 2005-11-7046 authorized an inter-local agreement between the City and County relating to payroll tax revenue generated in the Park. If the City invites the County to participate in the cost of an economic development project, the City will share 50% of all payroll tax revenue generated through the term of the agreement which expires February 13, 2021. For the year ended June 30, 2018, the City shared payroll tax revenue totaling $194,499 under this agreement with the County, as follows: Payroll Tax Remitter Start Date Payroll Tax Revenue Shared Current Year Inception to Date Lynx March 2006 $61,098 $681,891 Ulrich March 2006 $13,964 $166,903 Pepsi December 2007 $3,385 $75,382 Marquette March 2008 $81,571 $814,349 Teletech December 2014 $34,481 $156,361 (Continued) - 100 - CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2018 Note 12 – Tax Abatements: AAA (Pebco) – Ordinance 2004-6-6824 authorized an inter-local agreement between the City and County relating to payroll tax revenue generated by the AAA Company on Coleman Road. The City and County partnered on an economic development project which calls for the City to share 50% of all payroll tax revenue generated at the AAA facility on Coleman Road for 25 years, through 2029. For the year ended June 30, 2018, the City shared payroll tax revenue totaling $12,265 under this agreement with the County, as follows: Payroll Tax Remitter Start Date Payroll Tax Revenue Shared Current Year Inception to Date AAA (Pebco) July 2005 $12,265 $153,079 Other Local Economic Development Programs – In order to attract certain companies to the Paducah area, the City and County partnered together to construct facilities to house corporate operations in the Information Age Park (IAP) and the Industrial Park West (IPW). For the year ended June 30, 2018, the City and County provided reduced rent for the following corporate recipients, totaling $466,000: Recipient Location Bldg. Size Agreement Ordinance FMV Rent Rent Paid Genova 5400 Commerce Drive 100,000 sf 2014-7-8162 $425,000 $289,000 Teletech 2301 McCracken Blvd. 30,000 sf 2012-11-7986 $330,000 None Note 13 – Restatement of Net Position: Effective July 1, 2017, the City was required to adopt Governmental Accounting Standards Board (GASB) Statement No. 75, “Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions” (GASB 75). GASB 75 replaced the requirements of GASB 45, “Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions” and GASB 57, “OPEB Measurements by Agent Employers and Agent Multiple-Employer Plans”, as they relate to governments that provide other postemployment benefits (OPEB) through plans administered as trusts or similar arrangements that meet certain criteria. GASB 75 requires governments providing defined benefit OPEB to recognize their long- term obligation for OPEB benefits as a liability to more comprehensively and comparably measure the annual costs of OPEB benefits. Cost-sharing governmental employers, such as the City, are required to report a net OPEB liability, OPEB expense and OPEB-related assets and liabilities based on their proportionate share of the collective amounts for all governments in the plan. (Continued) - 101 - CITY OF PADUCAH, KENTUCKY NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2018 Note 13 – Restatement of Net Position: GASB 75 required retrospective application. Since the City only presents one year of financial information, the beginning net OPEB liability was adjusted to reflect the retrospective application. The adjustment resulted in a $11,950,013 reduction in beginning net position on the Statement of Activities due to an increase of $1,213,744 of deferred outflows of resources - City contributions subsequent to the measurement date and an increase of $13,163,757 OPEB obligation as of July 1, 2017. Beginning net position restatement by type is as follows: Business Type Activities Governmental Type Activities Solid Waste Section Eight Housing Net position – as previously stated $ 37,333,171 $ 2,903,616 $ (5,831) GASB 75 implementation (11,356,251) (502,219) (91,543) Net position – as restated $ 25,976,920 $ 2,401,397 $ (97,374) CITY OF PADUCAH, KENTUCKY REQUIRED SUPPLEMENTARY INFORMATION COMPREHENSIVE ANNUAL FINANCIAL REPORT YEAR ENDED JUNE 30, 2018 2018 2017 2016 2015 2014 Total pension liability Service cost 7,678$ 7,038$ 7,183$ 5,576$ 4,871$ Interest 560,538 626,531 686,614 744,910 792,267 Changes in benefit terms - - - - - Differences between expected and actual experience (2,758) (278,063) (111,824) (43,965) 150,977 Changes in assumptions - 148,359 156,880 166,753 175,893 Benefit payments/refunds (1,101,201) (1,223,078) (1,308,290) (1,386,273) (1,445,080) Net change in total pension liability (535,743) (719,213) (569,437) (512,999) (321,072) Total pension liability - beginning 9,174,261 9,893,474 10,462,911 10,975,910 11,296,982 Total pension liability - ending (a)8,638,518$ 9,174,261$ 9,893,474$ 10,462,911$ 10,975,910$ Plan fiduciary net position Contributions - employer 380,168$ 436,575$ 420,352$ 391,468$ 420,834$ Contributions - member 6,325 4,001 4,494 6,088 5,354 Net investment income 492,276 766,509 165,489 310,681 1,057,726 Benefit payments/refunds (1,101,201) (1,223,078) (1,308,290) (1,386,273) (1,445,080) Administrative expenses (44,419) (44,786) (46,422) (49,115) (48,406) Other - - - - - Net change in plan fiduciary net position (266,851) (60,779) (764,377) (727,151) (9,572) Plan fiduciary net position - beginning 5,583,482 5,644,261 6,408,638 7,135,789 7,145,361 Plan fiduciary net position - ending (b)5,316,631$ 5,583,482$ 5,644,261$ 6,408,638$ 7,135,789$ Net pension liability ending (a) - (b)3,321,887$ 3,590,779$ 4,249,213$ 4,054,273$ 3,840,121$ Plan fiduciary net position as a percentage of total pension liability 62%61%57%61%65% Covered payroll 79,064$ 50,009$ 56,175$ 76,102$ 66,928$ Net pension liability as a percentage of covered-employee payroll 4202% 7180% 7564% 5327% 5738% (1) -102- Exhibit A-1 CITY OF PADUCAH, KENTUCKY REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF CHANGES IN THE POLICE AND FIREFIGHTERS' PENSION Last Five Fiscal Years Ending June 30 (1) TRUST FUND'S NET PENSION LIABILITY AND RELATED RATIOS Schedule is intended to show information for 10 years. Additional years of supplementary information will be provided as this information becomes available. 2018 2017 2016 2015 2014 Total pension liability Service cost -$ -$ -$ -$ -$ Interest 4,084 5,308 5,400 5,687 8,258 Changes in benefit terms - - - - - Differences between expected and actual experience 3,308 (13,742) 9,751 9,391 (30,605) Changes in assumptions - - - - - Benefit payments/refunds (10,372) (13,533) (19,856) (19,856) (21,152) Net change in total pension liability (2,980) (21,967) (4,705) (4,778) (43,499) Total pension liability - beginning 73,259 95,226 99,931 104,709 148,208 Total pension liability - ending (a)70,279$ 73,259$ 95,226$ 99,931$ 104,709$ Plan fiduciary net position Contributions - employer 14,012$ 21,062$ 6,599$ -$ -$ Contributions - member - - - - - Net investment income - - 53 264 598 Benefit payments/refunds (10,372) (13,533) (19,856) (19,856) (21,152) Administrative expenses (3,640) (7,529) (7,539) (7,533) (7,483) Other - - - - - Net change in plan fiduciary net position - - (20,743) (27,125) (28,037) Plan fiduciary net position - beginning - - 20,743 47,868 75,905 Plan fiduciary net position - ending (b)-$ -$ -$ 20,743$ 47,868$ Net pension liability ending (a) - (b)70,279$ 73,259$ 95,226$ 79,188$ 56,841$ Plan fiduciary net position as a percentage of total pension liability 0.0% 0.0% 0.0% 20.8% 45.7% Covered payroll n/a n/a n/a n/a n/a Net pension liability as a percentage of covered-employee payroll n/a n/a n/a n/a n/a (1) -103- Exhibit A-2 CITY OF PADUCAH, KENTUCKY REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF CHANGES IN THE APPOINTIVE EMPLOYEES' PENSION TRUST FUND'S NET PENSION LIABILITY AND RELATED RATIOS Last Five Fiscal Years Ending June 30 (1) Schedule is intended to show information for 10 years. Additional years of supplementary information will be provided as this information becomes available. 2018 2017 2016 2015 2014 Actuarially determined contribution 380,168$ 434,758$ 416,844$ 391,468$ 421,933$ Contributions in relation to the actuarially determined contribution 376,148 436,575 420,352 391,468 420,834 Contribution deficiency (excess)4,020$ (1,817)$ (3,508)$ -$ 1,099$ Covered payroll 79,064$ 50,009$ 56,175$ 76,102$ 66,928$ Contributions as a percentage of covered-employee payroll 476% 873% 748% 514% 629% 2018 2017 2016 2015 2014 Annual money-weighted rate of return, net of investment expense 15.95% 14.61% 2.78% 4.69% 15.95% (1) Exhibit A-3 CITY OF PADUCAH, KENTUCKY REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF POLICE AND FIREFIGHTERS' PENSION TRUST FUND CONTRIBUTIONS AND INVESTMENT RETURNS Last Five Fiscal Years Ending June 30 (1) Schedule of Contributions Schedule of Investment Returns -104- Schedule is intended to show information for 10 years. Additional years of supplementary information will be provided as this information becomes available. 2018 2017 2016 2015 2014 Actuarially determined contribution 10,372$ 19,856$ 19,856$ 15,734$ 10,779$ Contributions in relation to the actuarially determined contribution 14,012 21,062 6,599 - - Contribution deficiency (excess)(3,640)$ (1,206)$ 13,257$ 15,734$ 10,779$ Covered payroll n/a n/a n/a n/a n/a Contributions as a percentage of covered-employee payroll n/a n/a n/a n/a n/a 2018 2017 2016 2015 2014 Annual money-weighted rate of return, net of investment expens 0.00% 0.00% 0.47% 0.75% 0.97% (1) Last Five Fiscal Years Ending June 30 (1) Exhibit A-4 CITY OF PADUCAH, KENTUCKY REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF APPOINTIVE EMPLOYEES' PENSION TRUST FUNDS CONTRIBUTIONS AND INVESTMENT RETURNS -105- Schedule of Contributions Schedule of Investment Returns Schedule is intended to show information for 10 years. Additional years of supplementary information will be provided as this information becomes available. Year Ended June 30 City's proportion of the net pension liability City's proportionate share of the net pension liability (asset) City's covered payroll City's share of the net pension liability (asset) as a percentage of its covered payroll Plan fiduciary net position as a percentage of the total pension liability CERS Nonhazardous 2018 0.3210% 18,788,122$ 7,861,744$ 238.9816% 53.3249% 2017 0.3047% 14,999,862$ 7,266,510$ 206.4246% 55.5028% 2016 0.3150% 13,543,354$ 7,349,249$ 184.2821% 59.9684% 2015 0.3261% 10,579,475$ 7,477,608$ 141.4821% 66.8010% 2014 0.3261% 11,970,884$ 7,466,979$ 160.3176% 61.2209% CERS Hazardous 2018 1.6403% 36,697,162$ 9,004,106$ 407.5603% 50.2164% 2017 1.6165% 27,738,524$ 8,404,139$ 330.0579% 53.9483% 2016 1.6428% 25,218,200$ 8,402,943$ 300.1115% 57.5152% 2015 1.6323% 19,617,569$ 8,267,598$ 237.2826% 63.4574% 2014 1.6323% 21,907,757$ 8,016,505$ 273.2831% 65.7178% *The amounts presented were determined as of the measurement date June 30 of the prior year. * Exhibit A-5 -106- CITY OF PADUCAH, KENTUCKY SCHEDULE OF CITY'S PROPORTIONATE SHARE OF THE NET PENSION LIABILITY COUNTY EMPLOYEES' RETIREMENT SYSTEM LAST FIVE FISCAL YEARS* Schedule is intended to show information for 10 years. Additional years of supplementary information will be provided as this information becomes available. REQUIRED SUPPLEMENTARY INFORMATION Year Ended June 30 Contractually required penson contribution Contributions relative to contractually required contribution Contribution deficiency (excess) City's covered payroll Contributions as a percentage of covered payroll CERS Nonhazardous 2018 1,141,041$ 1,141,041$ -$ 7,880,115$ 14.4800% 2017 1,098,317$ 1,098,317$ -$ 7,861,744$ 13.9704% 2016 902,501$ 902,501$ -$ 7,266,510$ 12.4200% 2015 937,029$ 937,029$ -$ 7,349,249$ 12.7500% 2014 1,027,423$ 1,027,423$ -$ 7,477,608$ 13.7400% CERS Hazardous 2018 1,964,844$ 1,964,844$ -$ 8,850,650$ 22.2000% 2017 1,954,791$ 1,954,791$ -$ 9,004,106$ 21.7100% 2016 1,702,679$ 1,702,679$ -$ 8,404,139$ 20.2600% 2015 1,741,930$ 1,741,930$ -$ 8,402,943$ 20.7300% 2014 1,799,856$ 1,799,856$ -$ 8,267,598$ 21.7700% * Changes of Benefit Terms: A cash balance plan was introduced for member whose participation date is on or after January 1, 2014. Changes of assumptions: The assumptions were updated as of result of an experience study for the three year period ending June 30, 2008. The discount rate changed from 7.50% to 6.25% from the prior measurement date. The inflation rate changed from 3.25% to 2.30% from the prior measurment date. Projected salary increases changed from 4.00% to 2.00% from the prior measurement date. Exhibit A-6 -107- Notes to Required Supplementary Information For the Year Ended June 30, 2018 The amortization period of the unfunded accrued liability was reset to a closed 30 year period for the year ended June 30, 2013. Schedule is intended to show information for 10 years. Additional years of supplementary information will be provided as this information becomes available. CITY OF PADUCAH, KENTUCKY SCHEDULE OF CITY'S CONTRIBUTIONS COUNTY EMPLOYEES' RETIREMENT SYSTEM LAST FIVE FISCAL YEARS* REQUIRED SUPPLEMENTARY INFORMATION Year Ended June 30 City's proportion of the net pension liability City's proportionate share of the net pension liability (asset) City's covered payroll City's share of the net pension liability (asset) as a percentage of its covered payroll Plan fiduciary net position as a percentage of the total pension liability CERS Nonhazardous 2018 0.3210% 6,452,856 7,861,744 82.0792% 52.3940% CERS Hazardous 2018 1.6403% 13,559,555$ 9,004,106$ 150.5930% 58.9878% *The amounts presented were determined as of the measurement date June 30 of the prior year. *Schedule is intended to show information for 10 years. Additional years of supplementary information will be provided as this information becomes available. -108- Exhibit A-7 CITY OF PADUCAH, KENTUCKY REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF CITY'S PROPORTIONATE SHARE OF THE NET MEDICAL INSURANCE LIABILITY COUNTY EMPLOYEES' RETIREMENT SYSTEM LAST FISCAL YEARS* Year Ended June 30 Contractually required penson contribution Contributions relative to contractually required contribution Contribution deficiency (excess) City's covered payroll Contributions as a percentage of covered payroll CERS Nonhazardous 2018 370,365$ 370,365$ -$ 7,880,115$ 4.7000% 2017 371,860$ 371,860$ -$ 7,861,744$ 4.7300% CERS Hazardous 2018 1,954,791$ 1,954,791$ -$ 8,850,650$ 22.0864% 2017 841,884$ 841,884$ -$ 9,004,106$ 9.3500% * Changes of Benefit Terms: A cash balance plan was introduced for member whose participation date is on or after January 1, 2014. Changes of assumptions: Valuation date June 30, 2017 Actuarial cost method Entry Age Normal Amortization method Level Precent of Payroll Amortization period 28 years, Closed Asset valuation method Payroll growth rate 2.00%; decrease from 4.00%. Investment Return 6.25%; decrease from 7.50% Inflation 2.30%; decrease from 3.25%. Single discount rate 5.84%; decrease from 6.89% Mortalitly Healthcare trend rates (Pre-65) Healthcare trend rates (Post-65) LAST TWO FISCAL YEARS* Exhibit A-8 CITY OF PADUCAH, KENTUCKY REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF CITY'S CONTRIBUTIONS - MEDICAL INSURANCE PLAN COUNTY EMPLOYEES' RETIREMENT SYSTEM Schedule is intended to show information for 10 years. Additional years of supplementary information will be provided as this information becomes available. Notes to Required Supplementary Information For the Year Ended June 30, 2018 -109- The actuarially determined contribution rates, as a percentage of payroll, used to determine the actuarially determined contribution amounts in the Schedule of Employer Contributions are calculated as the of the indicated valuation date. The following actuarial methods and assumptions (from the indicated actuarial valuations) were used to determine contribution rates reported in that schedule for the year ending June 30, 2017: Initial trend starting at 7.50% and gradually decreasing to an ultimate trend rate of 5.00% over a period of 5 years. RP-2000 Combined Mortality Table, projected to 2013 with Scale BB (set back 1 year for females). Initial trend starting at 5.50% and gradually decreasing to an ultimate trend rate of 5.00% over a period of 2 years. 20% of the difference between the market value of assets and the expected actuarial value of assets is recognized. CITY OF PADUCAH, KENTUCKY SUPPLEMENTARY INFORMATION COMPREHENSIVE ANNUAL FINANCIAL REPORT YEAR ENDED JUNE 30, 2018 Exhibit B-1 Variance with Final Budget Final Positive Budget (Negative) Revenues: Intergovernmental and grants Grants 2,133,863$ 105,463$ (2,028,400)$ Property upkeep, rentals, sales and other 952,192 950,901 (1,291) Total revenues 3,086,055 1,056,364 (2,029,691) Expenditures: Capital outlay 19,055,192 4,856,063 14,199,129 Excess (deficiency) of revenues over expenditures (15,969,137) (3,799,699) 12,169,438 Other Financing Sources (Uses): Long-term debt issued 3,500,000 - (3,500,000) Transfers in 4,967,837 2,184,339 (2,783,498) Transfers out (17,030) (17,020) 10 Total other financing sources 8,450,807 2,167,319 (6,283,488) Net change in fund balance (7,518,330)$ (1,632,380) 5,885,950$ Fund balance, July 1, 2017 7,955,144 FUND BALANCE, JUNE 30, 2018 6,322,764$ See auditors report on pages 11-12. -110- Actual CITY OF PADUCAH, KENTUCKY DETAIL SCHEDULE OF REVENUES, EXPENDITURES, AND GENERAL CAPITAL IMPROVEMENTS FUND FOR THE YEAR ENDED JUNE 30, 2018 CHANGES IN FUND BALANCE - BUDGET AND ACTUAL Exhibit B-2 Variance with Final Budget Final Positive Budget Actual (Negative) Revenues: Intergovernmental 737,965$ 737,886$ (79)$ Property upkeep, rentals, sales and other 289,000 289,000 - Total revenues 1,026,965 1,026,886 (79) Expenditures: Debt service: Principal requirement 2,365,065 2,357,542 7,523 Interest and fiscal requirement 905,685 804,620 101,065 Total expenditures 3,270,750 3,162,162 108,588 Excess (deficiency) of revenues over expenditures (2,243,785) (2,135,276) 108,509 Other Financing Sources (Uses): Transfers in 2,243,785 2,133,276 (110,509) Total other financing sources 2,243,785 2,133,276 (110,509) Net change in fund balance -$ (2,000) (2,000)$ Fund balance, July 1, 2017 998,824 FUND BALANCE, JUNE 30, 2018 996,824$ See auditors report on pages 11-12. -111- FOR THE YEAR ENDED JUNE 30, 2018 CITY OF PADUCAH, KENTUCKY DEBT SERVICE FUND DETAIL SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL CITY OF PADUCAH, KENTUCKY SUPPLEMENTARY INFORMATION NONMAJOR GOVERNMENTAL FUNDS COMPREHENSIVE ANNUAL FINANCIAL REPORT YEAR ENDED JUNE 30, 2018 COMBINING FINANCIAL STATEMENTS NONMAJOR GOVERNMENTAL FUNDS Special Revenue Funds Municipal Aid Program – to account for revenues and expenditures of Kentucky gas tax refunds. Emergency Communication Service Fund - to account for revenues associated with 911 program. Court Awards Fund - to account for revenues associated with judicial system confiscations. Federal, State, and Local Grants - to account for the grant programs awarded to the City of Paducah from agencies of the Federal Government and the Commonwealth of Kentucky. Bond Fund – to account for revenues associated with bonds issued by the City. Exhibit B-3 Court Awards Fund Cash and cash equivalents 1,078,162$ 299,060$ 218,840$ Receivables, net: Accounts 48,010 133,561 - TOTAL ASSETS 1,126,172$ 432,621$ 218,840$ Liabilities: Voucher and accounts payable 496,732$ 65,210$ 90,141$ Accrued payroll and payroll taxes - 40,294 - Total liabilities 496,732 105,504 90,141 Fund Balances: Restricted for: Highway and streets 629,440 - - Public safet y - - 128,699 Capital Improvements - - - Assigned for: Public safet y - 327,117 - Total fund balances 629,440 327,117 128,699 TOTAL LIABILITIES AND FUND BALANCES 1,126,172$ 432,621$ 218,840$ See auditors report on pages 11-12. JUNE 30, 2018 FUND BALANCES Municipal Aid Program Special Revenue Funds CITY OF PADUCAH, KENTUCKY COMBINING BALANCE SHEET ASSETS -112- Emergency AND NONMAJOR GOVERNMENTAL FUNDS LIABILITIES Service Fund Communication CDBG Grant Bond Fund Fund -$ 1,330,513$ 2,926,575$ - - 181,571 -$ 1,330,513$ 3,108,146$ -$ -$ 652,083$ - - 40,294 - - 692,377 - - 629,440 - - 128,699 - 1,330,513 1,330,513 - - 327,117 - 1,330,513 2,415,769 -$ 1,330,513$ 3,108,146$ Funds Total Nonmajor Special Revenue Funds -113- Governmental Exhibit B-4 Court Awards Revenues: Fund Taxes -$ 529,712$ -$ Charges for services - 380,800 - Intergovernmental 505,970 - - Grants - - 24,569 Interest 7,793 4,295 2,535 Miscellaneous - 451,888 - Total revenues 513,763 1,366,695 27,104 Expenditures: Current operations: Public safety - 1,763,976 29,460 Public service 1,521,079 - - Planning and development - - - Capital Outlay - - - Total expenditures 1,521,079 1,763,976 29,460 Excess (deficiency) of revenues over expenditures (1,007,316) (397,281) (2,356) Other Financing Sources (Uses): Proceeds of debt - - - Transfers in 1,031,350 414,781 - Transfers out - (17,500) - Total other financing sources (uses) 1,031,350 397,281 - Net change in fund balances 24,034 - (2,356) Fund balances, July 1, 2017 605,406 327,117 131,055 FUND BALANCES, JUNE 30, 2018 629,440$ 327,117$ 128,699$ See auditors report on pages 11-12. NONMAJOR GOVERNMENTAL FUNDS FOR THE YEAR ENDED JUNE 30, 2018 Emergency Service Fund -114- Aid Program Municipal CITY OF PADUCAH, KENTUCKY COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES Special Revenue Funds Communication CDBG Grant Bond Fund Fund -$ -$ 529,712$ - - 380,800 - - 505,970 190,000 - 214,569 - 19,223 33,846 - - 451,888 190,000 19,223 2,116,785 - - 1,793,436 - - 1,521,079 190,000 - 190,000 - 220,954 220,954 190,000 220,954 3,725,469 - (201,731) (1,608,684) - - - - - 1,446,131 - - (17,500) - - 1,428,631 - (201,731) (180,053) - 1,532,244 2,595,822 -$ 1,330,513$ 2,415,769$ Total Nonmajor -115- Funds Special Revenue Funds Governmental Exhibit B-5 Variance with Final Budget Final Positive Budget Actual (Negative) Revenues: Intergovernmental 480,000$ 505,970$ 25,970$ Interest 3,000 7,793 4,793 Total revenues 483,000 513,763 30,763 Expenditures: Public service 1,829,350 1,521,079 308,271 Excess (deficiency) of revenues over expenditures (1,346,350) (1,007,316) 339,034 Other Financing Sources (Uses): Transfers in 1,031,350 1,031,350 - Transfers out - - - Total other financing sources (uses)1,031,350 1,031,350 - Net change in fund balance (315,000)$ 24,034 339,034$ Fund balance, July 1, 2017 605,406 FUND BALANCE, JUNE 30, 2018 629,440$ See auditors report on pages 11-12. -116- FOR THE YEAR ENDED JUNE 30, 2018 CITY OF PADUCAH, KENTUCKY MUNICIPAL AID PROGRAM FUND DETAIL SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL Exhibit B-6 Variance with Final Budget Final Positive Budget Actual (Negative) Revenues: Local contributions 400,000$ 529,712$ 129,712$ Telephone surcharges 310,000 380,800 70,800 Interest 900 4,295 3,395 Miscellaneous 509,800 451,888 (57,912) Total revenues 1,220,700 1,366,695 145,995 Expenditures: Public safety 1,771,190 1,763,976 7,214 Excess (deficiency) of revenues over expenditures (550,490) (397,281) 153,209 Other Financing Sources (Uses): Transfers in 567,990 414,781 (153,209) Transfers out (17,500) (17,500) - Total other financing sources (uses)550,490 397,281 (153,209) Net change in fund balance -$ - -$ Fund balance, July 1, 2017 327,117 FUND BALANCE, JUNE 30, 2018 327,117$ See auditors report on pages 11-12. -117- FOR THE YEAR ENDED JUNE 30, 2018 CITY OF PADUCAH, KENTUCKY EMERGENCY COMMUNICATION SERVICE FUND DETAIL SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL Exhibit B-7 Variance with Final Budget Final Positive Budget Actual (Negative) Revenues: Grants 25,000$ 24,569$ (431)$ Interest 1,200 2,535 1,335 Total revenues 26,200 27,104 904 Expenditures: Public safety 32,750 29,460 3,290 Excess (deficiency) of revenues over expenditures (6,550) (2,356) 4,194 Net change in fund balance (6,550)$ (2,356) 4,194$ Fund balance, July 1, 2017 131,055 FUND BALANCE, JUNE 30, 2018 128,699$ See auditors report on pages 11-12. -118- CITY OF PADUCAH, KENTUCKY COURT AWARDS FUND DETAIL SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL FOR THE YEAR ENDED JUNE 30, 2018 Exhibit B-8 Variance with Final Budget Final Positive Budget Actual (Negative) Revenues: Grants 1,190,000$ 190,000$ (1,000,000)$ Total revenues 1,190,000 190,000 (1,000,000) Expenditures: Planning and development 190,000 190,000 - Excess (deficiency) of revenues over expenditures 1,000,000 - (1,000,000) Other Financing Sources (Uses): Transfers in - - - Transfers out (1,000,000) - 1,000,000 Total other financing sources (uses)(1,000,000) - 1,000,000 Net change in fund balance -$ - -$ Fund balance, July 1, 2017 - FUND BALANCE, JUNE 30, 2018 -$ See auditors report on pages 11-12. -119- FOR THE YEAR ENDED JUNE 30, 2018 CITY OF PADUCAH, KENTUCKY CDBG FUND DETAIL SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL Exhibit B-9 Variance with Final Budget Final Positive Budget Actual (Negative) Revenues: Grants -$ -$ -$ Interest - 19,223 19,223 Total revenues - 19,223 19,223 Expenditures: Capital outlay 1,526,500 220,954 1,305,546 Total expenditures 1,526,500 220,954 1,305,546 Excess (deficiency) of revenues over expenditures (1,526,500) (201,731) 1,324,769 Other Financing Sources (Uses): Proceeds of debt 4,583,500 - (4,583,500) Transfers out (4,583,500) - 4,583,500 Total other financing sources (uses) - - - Net change in fund balance (1,526,500)$ (201,731) 1,324,769$ Fund balance, July 1, 2017 1,532,244 FUND BALANCE, JUNE 30, 2018 1,330,513$ See auditors report on pages 11-12. -120- FOR THE YEAR ENDED JUNE 30, 2018 CITY OF PADUCAH, KENTUCKY BOND FUND DETAIL SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL CITY OF PADUCAH, KENTUCKY SUPPLEMENTARY INFORMATION NONMAJOR PROPRIETARY FUNDS COMPREHENSIVE ANNUAL FINANCIAL REPORT YEAR ENDED JUNE 30, 2018 COMBINING FINANCIAL STATEMENTS NONMAJOR PROPRIETARY FUNDS Section Eight Housing Fund – to account for the housing choice voucher program grant governed by the United States Department of Housing and Urban Development. Civic Center Fund – to account for the operation of the Civic Center. Transient Dock Fund – to account for the operation of the Transient Dock. Exhibit C-1 Civic Transient Center Dock Current Assets: Fund Fund Cash and cash equivalents 204,048$ 232$ 375$ 204,655$ Receivables, net - - - - Prepaid expense - - - - Inventory - - 15,888 15,888 Total current assets 204,048 232 16,263 220,543 Noncurrent Assets: Net depreciable capital assets - 109,490 - 109,490 Total assets 204,048 109,722 16,263 330,033 Deferred Outflows of Resources: Deferred pension related outflows 111,655 - - 111,655 Deferred OPEB related outflows 36,898 - - 36,898 Total deferred outflows of resources 148,553 - - 148,553 Current Liabilities: Voucher and accounts payable 22,542 4,417 3,456 30,415 Accrued payroll - - 788 788 Accrued compensated absences 595 - - 595 Due to other funds 49,340 - - 49,340 Total current liabilities 72,477 4,417 4,244 81,138 Noncurrent Liabilities: Pensions obligation 373,344 - - 373,344 Other post employment benefits (OPEB) 128,227 - - 128,227 Accrued compensated absences 5,353 - - 5,353 Total noncurrent liabilities 506,924 - - 506,924 Total liabilities 579,401 4,417 4,244 588,062 Deferred Inflows of Resources Deferred pension related inflows 13,855 - - 13,855 Deferred OPEB related inflows 6,714 - - 6,714 Total deferred inflows of resources 20,569 - - 20,569 Net invested in capital assets - 109,490 - 109,490 Unrestricted (247,369) (4,185) 12,019 (239,535) TOTAL NET POSITION (247,369)$ 105,305$ 12,019$ (130,045)$ See auditors report on pages 11-12. NET POSITION -121- Total Nonmajor Enterprise Funds Section Eight Housing CITY OF PADUCAH, KENTUCKY COMBINING STATEMENT OF NET POSITION NONMAJOR PROPRIETARY FUNDS JUNE 30, 2018 ASSETS LIABILITIES Exhibit C-2 Civic Transient Center Dock Operating Revenues:Fund Fund Charges for services -$ 35,670$ 43,534$ 79,204$ Miscellaneous 1,236 - - 1,236 Total operating income 1,236 35,670 43,534 80,440 Operating Expenses: Cost of sales and service 2,064,265 66,617 50,535 2,181,417 Depreciation and amortization 143 10,021 - 10,164 Total operating expenses 2,064,408 76,638 50,535 2,191,581 Operating income (loss)(2,063,172) (40,968) (7,001) (2,111,141) Non-Operating Revenues (Expenses): Grants - program purpose 1,913,152 - - 1,913,152 Interest and investment income 25 - 46 71 Total nonoperating revenues (expenses)1,913,177 - 46 1,913,223 Income (loss) before contributions and transfers (149,995) (40,968) (6,955) (197,918) Contributions and Operating Transfers: Transfers in - 43,562 15,000 58,562 Transfers out - (88,610) - (88,610) Total contributions and operating transfers - (45,048) 15,000 (30,048) Change in net position (149,995) (86,016) 8,045 (227,966) Net position - beginning as restated (See Note 13) (97,374) 191,321 3,974 97,921 Net position - ending (247,369)$ 105,305$ 12,019$ (130,045)$ See auditors report on pages 11-12. -122- FOR THE YEAR ENDED JUNE 30, 2018 NONMAJOR PROPRIETARY FUNDS AND CHANGES IN NET POSITION Funds Section Eight Housing COMBINING STATEMENT OF REVENUES, EXPENSES CITY OF PADUCAH, KENTUCKY Total Nonmajor Enterprise Exhibit C-3 Civic Transient Center Dock Cash Flows from Operating Activities: Fund Fund Cash received from customers -$ 35,670$ 43,534$ 79,204$ Payments to employees (206,000) - (4,937) (210,937) Payments to internal service funds - (2,301) - (2,301) Other receipts 1,236 - - 1,236 Housing assistance and other payments (1,842,475) (66,089) (57,242) (1,965,806) Net cash provided (used) by operating activities (2,047,239) (32,720) (18,645) (2,098,604) Cash Flows from Noncapital Financing Activities: Grants - program purpose 1,913,152 - - 1,913,152 Transfers from other funds - 43,562 15,000 58,562 Transfers to other funds - (88,610) - (88,610) Net cash provided (used) by noncapital financing activities 1,913,152 (45,048) 15,000 1,883,104 Cash Flows from Investing Activities: Interest on cash and investments 25 - 46 71 Net increase (decrease) in cash and cash equivalents (134,062) (77,768) (3,599) (215,429) Cash and cash equivalents, July 1, 2017 338,110 78,000 3,974 420,084 CASH AND CASH EQUIVALENTS, JUNE 30, 2018 204,048$ 232$ 375$ 204,655$ Reconciliation of Operating Income (Loss) to Net Cash Provided by Operating Activities: Operating income (loss)(2,063,172)$ (40,968)$ (7,001)$ (2,111,141)$ Adjustments to reconcile operating income (loss) to net cash provided by operating activities: Depreciation and amortization 143 10,021 - 10,164 Change in assets and liabilities: Inventory - - (15,888) (15,888) OPEB obligation and related deferrals 4,880 - - 4,880 Pension obligation and related deferrals 42,001 - - 42,001 Accounts payable and accrued expenses (31,091) (1,773) 4,244 (28,620) NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (2,047,239)$ (32,720)$ (18,645)$ (2,098,604)$ See auditors report on pages 11-12. Enterprise Funds CITY OF PADUCAH, KENTUCKY COMBINING STATEMENT OF CASH FLOWS NONMAJOR PROPRIETARY FUNDS FOR THE YEAR ENDED JUNE 30, 2018 -123- Section Eight Housing Total Nonmajor CITY OF PADUCAH, KENTUCKY SUPPLEMENTARY INFORMATION INTERNAL SERVICE FUNDS COMPREHENSIVE ANNUAL FINANCIAL REPORT YEAR ENDED JUNE 30, 2018 COMBINING FINANCIAL STATEMENTS INTERNAL SERVICE FUNDS Fleet Maintenance – to account for costs of operating a maintenance facility for automotive equipment used by other City departments. Fleet Lease Trust – to account for the financing of vehicle acquisitions provided by one department or agency to other departments or agencies of the government and to other governmental units, on a cost reimbursement basis. Insurance Fund – to account for the costs of obtaining insurance for other City departments. Health Insurance Fund – to account for the costs associated with the City’s health insurance activities. The intent of the City of Paducah is that the cost of providing insurance coverage on a continuing basis be financed primarily through user charges. Exhibit D-1 Health Fleet Lease Insurance Insurance Combined Current Assets:Trust Fund Fund Total Cash and cash equivalents 300$ 3,322,180$ 540,449$ 1,652,326$ 5,515,255$ Investments - - - 1,000,000 1,000,000 Receivables, net 18 625,038 - 70,576 695,632 Inventories 54,177 - - - 54,177 Total current assets 54,495 3,947,218 540,449 2,722,902 7,265,064 Noncurrent Assets: Net depreciable capital assets 25,273 3,927,032 - - 3,952,305 Total assets 79,768 7,874,250 540,449 2,722,902 11,217,369 Deferred Outflows of Resources: Deferred pension related outflows 229,816 - - - 229,816 Deferred OPEB related outflows 76,062 - - - 76,062 Total deferred outflows of resources 305,878 - - - 305,878 Current Liabilities: Voucher and accounts payable 6,368 235,717 16,256 108,812 367,153 Accrued payroll and payroll taxes 10,909 - - - 10,909 Accrued compensated absences 33,503 - - - 33,503 Deferred revenue - - - 20,334 20,334 Total current liabilities 50,780 235,717 16,256 129,146 431,899 Noncurrent Liabilities: Pensions obligation 834,119 - - - 834,119 Other post employment benefits (OPEB) 286,482 - - - 286,482 Accrued compensated absences 10,936 - - - 10,936 Total noncurrent liabilities 1,131,537 - - - 1,131,537 Total liabilities 1,182,317 235,717 16,256 129,146 1,563,436 Deferred Inflows of Resources Deferred pension related inflows 30,955 - - - 30,955 Deferred OPEB related inflows 15,000 - - - 15,000 Total deferred inflows of resources 45,955 - - - 45,955 Net invested in capital assets 25,273 3,927,032 - - 3,952,305 Unrestricted (867,899) 3,711,501 524,193 2,593,756 5,961,551 TOTAL NET POSITION (842,626)$ 7,638,533$ 524,193$ 2,593,756$ 9,913,856$ See auditors report on pages 11-12. -124- CITY OF PADUCAH, KENTUCKY COMBINING STATEMENT OF NET POSITION INTERNAL SERVICE FUNDS JUNE 30, 2018 LIABILITIES ASSETS NET POSITION Fleet Maintenance Exhibit D-2 Health Fleet Lease Insurance Insurance Combined Trust Fund Fund Total Operating Revenues: Charges for services - internal 446,916$ 939,747$ 1,209,905$ 3,263,442$ 5,860,010$ Charges for services - external - - - 261,896 261,896 Total operating revenues 446,916 939,747 1,209,905 3,525,338 6,121,906 Operating Expenses: Vehicle maintenance 792,703 - - - 792,703 Administrative - 48,998 - 482,261 531,259 Insurance premium, claims and medical - - 1,215,447 2,806,892 4,022,339 Depreciation 6,844 905,475 - - 912,319 Total operating expenses 799,547 954,473 1,215,447 3,289,153 6,258,620 Operating income (loss)(352,631) (14,726) (5,542) 236,185 (136,714) Nonoperating Revenues and (Expenses): Interest and investment income - 63,745 - - 63,745 Gain (loss) on disposal of property and equipment 496 1,540 - - 2,036 Total nonoperating revenues (expenses)496 65,285 - - 65,781 Income (loss) before transfers (352,135) 50,559 (5,542) 236,185 (70,933) Contributions and Transfers: Transfers in 99,480 8,300 78,000 - 185,780 Transfers out - - - - - Total contributions and operating transfers 99,480 8,300 78,000 - 185,780 Change in net position (252,655) 58,859 72,458 236,185 114,847 Net position - beginning as restated (See Note 13)(589,971) 7,579,674 451,735 2,357,571 9,799,009 Net position - ending (842,626)$ 7,638,533$ 524,193$ 2,593,756$ 9,913,856$ See auditors report on pages 11-12. -125- Fleet Maintenance CITY OF PADUCAH, KENTUCKY COMBINING STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION INTERNAL SERVICE FUNDS FOR THE YEAR ENDED JUNE 30, 2018 Exhibit D-3 Health Fleet Lease Insurance Insurance Combined Cash Flows from Operating Activities: Trust Fund Fund Total Receipts from other funds for services 448,019$ 1,009,944$ 1,210,365$ 3,539,577$ 6,207,905$ Payments to suppliers (452,584) - - - (452,584) Payments to employees (97,455) - - - (97,455) Insurance premium, claims and medical - - (1,208,279) (2,798,851) (4,007,130) Other payments - 186,718 - (482,262) (295,544) Net cash provided (used) by operating activities (102,020) 1,196,662 2,086 258,464 1,355,192 Cash Flows from Noncapital Financing Activities: Transfers from other funds 99,480 8,300 78,000 - 185,780 Transfers to other funds - - - - - Net cash provided (used) by noncapital financing activities 99,480 8,300 78,000 - 185,780 Cash Flows from Capital and Related Financing Activities: Proceeds from sale of capital assets 495 49,742 - - 50,237 Purchase of capital assets - (876,166) - - (876,166) Net cash used by capital and related financing 495 (826,424) - - (825,929) Cash Flows from Investing Activities: Proceeds from sales and maturities of investments - 1,000,000 250,000 750,000 2,000,000 Interest and dividends - 63,745 - - 63,745 Net cash used by investing activities - 1,063,745 250,000 750,000 2,063,745 Net increase (decrease) in cash and cash equivalents (2,045) 1,442,283 330,086 1,008,464 2,778,788 Cash and cash equivalents, July 1, 2017 2,345 1,879,897 210,363 643,862 2,736,467 CASH AND CASH EQUIVALENTS, JUNE 30, 2018 300$ 3,322,180$ 540,449$ 1,652,326$ 5,515,255$ Reconciliation of Operating Income (Loss) to Net Cash Provided by Operating Activities: Operating income (loss)(352,631)$ (14,726)$ (5,542)$ 236,185$ (136,714)$ Adjustments to reconcile operating income (loss) to net cash provided (used) by operating activities: Depreciation and amortization 6,844 905,475 - - 912,319 Change in assets and liabilities: Receivables 1,103 70,197 460 16,057 87,817 Inventories 11,498 - - - 11,498 OPEB obligation and related deferrals 14,492 - - - 14,492 Pension obligation and related deferrals 217,485 - - - 217,485 Accounts payable and accrued expenses (811) 235,716 7,168 6,222 248,295 NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (102,020)$ 1,196,662$ 2,086$ 258,464$ 1,355,192$ See auditors report on pages 11-12. -126- Fleet Maintenance CITY OF PADUCAH, KENTUCKY COMBINING STATEMENT OF CASH FLOWS INTERNAL SERVICE FUNDS FOR THE YEAR ENDED JUNE 30, 2018 CITY OF PADUCAH, KENTUCKY SUPPLEMENTARY INFORMATION FIDUCIARY FUNDS COMPREHENSIVE ANNUAL FINANCIAL REPORT YEAR ENDED JUNE 30, 2018 COMBINING FINANCIAL STATEMENTS FIDUCIARY FUNDS Private-purpose Trust Funds Cemetery and Park Trusts - to account for assets held by the City in the capacity of trustee for specified purposes. Exhibit E-1 Cemetery and Park Trusts Cash and cash equivalents 112,502$ Investments at fair value Money market funds - Mutual funds 1,107,066 Total assets 1,219,568 Accounts payable 2,500 Held in trust for other purposes 1,217,068$ See auditors report on pages 11-12. -127- ASSETS LIABILITIES NET POSITION JUNE 30, 2018 FIDUCIARY FUNDS - PRIVATE-PURPOSE TRUST FUNDS STATEMENT OF NET POSITION CITY OF PADUCAH, KENTUCKY Exhibit E-2 Cemetery and Park Additions:Trusts Contributions: Intergovernmental revenues -$ Private donations 3,680 Total contributions 3,680 Investment earnings: Change in fair value of investments (1,262) Interest and dividends 93,428 Net investment earnings 92,166 Total additions 95,846 Deductions: Capital outlay 47,501 Administrative expenses 14,238 Total deductions 61,739 Change in net position 34,107 Net position - beginning 1,182,961 Net position - ending 1,217,068$ See auditors report on pages 11-12. STATEMENT OF CHANGES IN NET POSITION CITY OF PADUCAH, KENTUCKY -128- FOR THE YEAR ENDED JUNE 30, 2018 FIDUCIARY FUNDS - PRIVATE-PURPOSE TRUST FUNDS COMBINING FINANCIAL STATEMENTS FIDUCIARY FUNDS Agency Fund Payroll Agency Fund – to account for disbursements relative to the City payroll. The various City departments transfer amounts to this fund to cover routine payroll and the related benefits and taxes. All payroll disbursements are made from this fund. Exhibit E-3 Payroll Fund: Additions Deductions Assets: Cash and cash equivalents 882,529$ 13,745,248$ 13,769,378$ 858,399$ Liabilities: Payroll taxes and withholdings payable 882,529$ 13,745,248$ 13,769,378$ 858,399$ See auditors report on pages 11-12. CITY OF PADUCAH, KENTUCKY AGENCY FUND IN ASSETS AND LIABILITIES STATEMENT OF CHANGES -129- FOR THE YEAR ENDED JUNE 30, 2018 Balance Balance July 1, 2017 June 30, 2018 CITY OF PADUCAH, KENTUCKY STATISTICAL SECTION COMPREHENSIVE ANNUAL FINANCIAL REPORT YEAR ENDED JUNE 30, 2018 STATISTICAL SECTION Contents Page Financial Trends 130-134 Revenue Capacity 135-140 Debt Capacity 141-144 Economic and Demographic Information 145-146 Operating Information 147-149 These schedules offer economic and demographic indicators to help the reader understand the environment within which the City's financial activities take place. These schedules contain service and infrastructure data to help the reader understand how the information in the City's financial report relates to the services the City provides and the activities it performs. Sources:Unless otherwise noted, the information in these schedules is derived from the comprehensive annual financial reports for the relevant year. The City implemented the new reporting model in the fiscal year ending June 30, 2003. Schedules presenting government- wide information include information beginning in that year. This part of the City of Paducah'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 say about the City's overall financial health. These schedules contain trend information to help the reader understand how the City's financial performance and well-being changed over time. These schedules contain information to help the reader assess the factors affecting the City's ability to generate its property and employee taxes. 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. 2018 (1)20172016 2015 (2) 20142013201220112010 (3)2009Governmental activities:Net Invested in Capital Assets55,031,812$ 52,898,618$ 46,389,685$ 39,349,789$ 39,844,772$ 33,365,112$ 31,957,381$ 32,905,977$ 31,136,514$ 31,215,252$ Restricted for:Program purposes128,699 131,055 147,218 144,857 205,979 284,760 897,942 1,264,986 1,100,696 2,183,559 Capital projects1,959,953 2,137,650 1,148,789 2,427,218 2,168,201 1,301,421 4,105,639 5,987,399 5,077,026 4,363,913 Unrestricted(34,235,978) (17,834,152) (23,323,077) (22,209,537) 13,382,066 13,539,204 5,913,997 4,229,501 8,165,101 8,621,077 Total governmental activities net position 22,884,486$ 37,333,171$ 24,362,615$ 19,712,327$ 55,601,018$ 48,490,497$ 42,874,959$ 44,387,863$ 45,479,337$ 46,383,801$ Business-type activities:Net Invested in Capital Assets2,876,483 2,152,827 1,678,728 1,133,226 1,210,415 1,232,735 1,308,574 1,334,230 1,652,961 1,721,419 Restricted for:Program purposes- - 38,247 124,012 437,483 385,885 732,817 999,885 620,800 369,368 Unrestricted159,847 1,513,281 3,194,228 3,033,822 3,837,034 3,428,267 3,246,320 3,004,783 1,816,705 1,036,093 Total business-type activities net postion 3,036,330$ 3,666,108$ 4,911,203$ 4,291,060$ 5,484,932$ 5,046,887$ 5,287,711$ 5,338,898$ 4,090,466$ 3,126,880$ Primary government:Net Invested in Capital Assets57,908,295 55,051,445 48,068,413 40,483,015 41,055,187 34,597,847 33,265,955 34,240,207 32,789,475 32,936,671 Restricted for:Program purposes128,699 131,055 185,465 268,869 643,462 670,645 1,630,759 2,264,871 1,721,496 2,552,927 Capital projects1,959,953 2,137,650 1,148,789 2,427,218 2,168,201 1,301,421 4,105,639 5,987,399 5,077,026 4,363,913 Unrestricted(34,076,131) (16,320,871) (20,128,849) (19,175,715) 17,219,100 16,967,471 9,160,317 7,234,284 9,981,806 9,657,170 Total primary government net position25,920,816$ 40,999,279$ 29,273,818$ 24,003,387$ 61,085,950$ 53,537,384$ 48,162,670$ 49,726,761$ 49,569,803$ 49,510,681$ (1) Significant change in governmental and business-type net position due to implementation of GASB No. 75 - Accounting and Financial Reporting for Other Postemployment Benefits other than Pensions. (2) Significant change in governmental and business-type net position due to implementation of GASB No. 68 - Accounting and Financial Reporting for Pensions. (3) Significant change in governmental net position due to reclassification for prior year grant receivables. Fiscal YearTABLE 1CITY OF PADUCAH, KENTUCKYNET POSITION BY COMPONENTLast Ten Fiscal Years (accrual basis of accounting)-130- Pages 1 of 22018 (1) 2017 2016 2015 (2) 2014 2013 2012 2011 2010 (3) 2009ExpensesGovernmental activities:General government 9,590,575$ 8,652,987$ 9,777,876$ 9,801,489$ 8,005,619$ 7,843,140$ 12,937,997$ 9,786,052$ 9,763,178$ 12,148,118$ Public safety25,602,852 20,176,070 20,503,784 17,974,548 18,439,670 18,204,945 17,045,731 16,993,228 16,239,042 15,734,557 Public service7,511,063 7,771,335 10,266,856 6,855,234 6,982,536 6,167,510 6,163,602 7,328,806 7,669,729 12,849,566 Parks and recreation3,397,087 3,059,447 3,052,360 2,811,533 2,750,531 2,710,659 2,654,098 2,748,333 2,653,474 1,492,306 Planning and development1,455,677 1,077,265 911,830 1,000,020 1,805,379 1,463,659 1,192,952 1,212,103 970,022 708,827 Interest on long-term debt861,589 885,380 900,593 850,827 1,084,016 1,066,876 1,059,537 1,363,580 1,099,450 1,029,888 Total governmental activities expenses48,418,843 41,622,484 45,413,299 39,293,651 39,067,751 37,456,789 41,053,917 39,432,102 38,394,895 43,963,262 Business-type activities:Solid Waste4,096,022 3,902,907 3,815,476 3,843,081 3,985,233 3,967,490 3,900,264 3,832,130 3,797,097 4,037,845 Section Eight Housing2,064,408 1,952,441 1,874,074 1,819,328 1,855,869 2,032,843 1,921,004 1,956,728 2,061,370 2,154,360 Civic Center76,639 92,471 74,457 98,318 81,982 78,000 71,069 76,546 69,537 75,692 Transit Boat Dock50,535 1,031 - - - - - - - - TISA- - - - - - 173,708 183,546 206,798 162,848 Total business-type activities expenses6,287,604 5,948,850 5,764,007 5,760,727 5,923,084 6,078,333 6,066,045 6,048,950 6,134,802 6,430,745 Total primary government expenses54,706,447$ 47,571,334$ 51,177,306$ 45,054,378$ 44,990,835$ 43,535,122$ 47,119,962$ 45,481,052$ 44,529,697$ 50,394,007$ Program RevenuesGovernmental activities:Charges for services:General government 1,276,959$ 1,650,034$ 1,128,785$ 185,745$ 1,672,552$ 1,525,212$ 1,488,845$ 1,051,509$ 993,371$ 1,303,667$ Public safety571,427 340,705 237,641 237,222 264,143 354,829 509,297 790,650 484,754 602,262 Public service962,822 967,518 1,065,010 945,471 960,271 963,893 1,032,953 1,205,666 1,197,194 1,220,999 Parks and recreation125,996 121,929 132,909 108,307 105,248 106,183 97,896 129,790 152,890 180,420 Planning and development- - - - - - - - - 1,600 Operating grants and contributions2,441,864 7,509,005 6,179,709 3,360,731 5,419,715 3,067,581 2,215,247 2,086,625 1,813,019 2,119,845 Capital grants and contributions542,980 3,702,428 4,139,036 899,522 4,136,749 2,165,548 533,169 1,767,093 1,390,848 4,889,520 Total governmental activities program revenues 5,922,048 14,291,619 12,883,090 5,736,998 12,558,678 8,183,246 5,877,407 7,031,333 6,032,076 10,318,313 Business-type activities:Solid Waste4,555,488$ 4,567,392$ 4,520,084$ 4,453,865$ 4,410,059$ 4,372,060$ 4,437,341$ 4,476,139$ 4,436,540$ 4,547,959$ Section Eight Housing- - - - - - - - - - Civic Center35,670 36,725 40,148 43,486 41,266 38,265 34,038 33,766 32,455 38,577 Transit Boat Dock43,534 - - - - - - - - - TISA- - - - - - 99,603 138,797 148,158 148,291 Operating grants and contributions1,965,868 1,962,125 1,845,549 1,744,364 1,956,995 1,727,238 1,647,981 2,400,540 2,340,267 1,965,936 Capital grants and contributions- - - - - - 15,266 8,659 27,239 129,032 Total business-type activities program revenues 6,600,560 6,566,242 6,405,781 6,241,715 6,408,320 6,137,563 6,234,229 7,057,901 6,984,659 6,829,795 Total primary government program revenues 12,522,608$ 20,857,861$ 19,288,871$ 11,978,713$ 18,966,998$ 14,320,809$ 12,111,636$ 14,089,234$ 13,016,735$ 17,148,108$ TABLE 2CITY OF PADUCAH, KENTUCKYCHANGES IN NET POSITIONLast Ten Fiscal Years (accrual basis of accounting)Fiscal Year-131- Pages 2 of 22018 (1) 2017 2016 2015 (1) 2014 2013 2012 2011 2010 (3) 2009Net (Expense)/RevenueGovernmental activities(42,496,795)$ (27,330,865)$ (32,530,209)$ (33,556,653)$ (26,509,073)$ (29,273,543)$ (35,176,510)$ (32,400,769)$ (32,362,819)$ (33,644,949)$ Business-type activities312,956 617,392 641,774 480,988 485,236 59,230 168,184 1,008,951 849,857 399,050 Total primary government net (expense) (42,183,839)$ (26,713,473)$ (31,888,435)$ (33,075,665)$ (26,023,837)$ (29,214,313)$ (35,008,326)$ (31,391,818)$ (31,512,962)$ (33,245,899)$ General Revenues and Other Changesin Net PositionGovernmental activities:Taxes and licenses:Property taxes, levied for general purpose5,248,369 4,996,242 4,943,962 4,726,244 4,622,292 4,502,276 4,267,812 4,402,226 4,207,736 3,986,760$ Insurance premium tax4,592,834 4,331,956 4,170,381 3,786,514 3,831,792 3,863,464 3,690,806 3,476,309 3,797,347 4,055,228 Gross receipts license tax4,631,352 4,721,657 4,711,708 4,397,888 4,444,440 4,391,352 4,359,835 4,243,511 4,229,102 4,320,850 Employee license tax21,054,644 20,803,763 20,130,249 19,092,912 18,114,396 18,336,124 18,095,182 17,345,033 16,384,509 16,584,636 Other taxes3,044,203 2,933,407 2,759,902 2,964,685 2,785,333 2,799,043 2,711,924 2,712,817 2,844,154 2,776,407 Intergovernmental revenue- - - - - - - - - - Unrestricted investment earnings428,721 188,097 137,224 176,229 232,204 211,306 203,261 264,913 172,213 336,960 Miscellaneous14,190 51,922 189,489 16,870 (482,137) 300,378 36,718 62,539 64,620 68,530 Insurance recoveries- - - - - - 27,448 410,462 - - Litigation settlement- - - - - - - (1,482,743) - - Transfers in/out390,048 2,274,377 137,582 194,014 212,128 485,138 270,620 (125,772) (78,893) (110,838) Total governmental activities39,404,361 40,301,421 37,180,497 35,355,356 33,760,448 34,889,081 33,663,606 31,309,295 31,620,788 32,018,533 Business-type activities:Unrestricted investment earnings54,139 37,644 30,302 39,565 48,255 49,382 48,806 46,052 33,724 52,961 Miscellaneous(13,063) 374,244 85,649 8,339 116,682 135,702 2,443 67,657 1,112 98,369 Transfers(390,048) (2,274,377) (137,582) (194,014) (212,128) (485,138) (270,620) 125,772 78,893 110,838 Total business-type activities(348,972) (1,862,489) (21,631) (146,110) (47,191) (300,054) (219,371) 239,481 113,729 262,168 Change in Net PositionGovernmental activities:(3,092,434) 12,970,556 4,650,288 1,798,703 7,251,375 5,615,538 (1,512,904) (1,091,474) (742,031) (1,626,416) Business-type activities:(36,016) (1,245,097) 620,143 334,878 438,045 (240,824) (51,187) 1,248,432 963,586 661,218 Total primary government (3,128,450)$ 11,725,459$ 5,270,431$ 2,133,581$ 7,689,420$ 5,374,714$ (1,564,091)$ 156,958$ 221,555$ (965,198)$ (1) Significant change in governmental and business-type net position due to implementation of GASB No. 75 - Accounting and Financial Reporting for Other Postemployment Benefits other than Pensions. (2) Significant change in governmental and business-type net position due to implementation of GASB No. 68 - Accounting and Financial Reporting for Pensions. (3) Significant change in governmental net position due to reclassification for prior year grant receivables. TABLE 2(accrual basis of accounting)CHANGES IN NET POSITION-132-Fiscal YearCITY OF PADUCAH, KENTUCKYLast Ten Fiscal Years 20182017201620152014201320122011 2010 (1) 2009General FundUnassigned17,697,273$ 15,330,645$ 13,198,126$ 12,549,232$ 12,694,610$ 12,311,565$ 11,321,438$ 10,940,121$ 10,208,678$ #########Total general fund17,697,273$ 15,330,645$ 13,198,126$ 12,549,232$ 12,694,610$ 12,311,565$ 11,321,438$ 10,940,121$ 10,208,678$ #########All Other Governmental FundsNonspendable:Inventory471,135$ 525,732$ 623,735$ 828,419$ 1,497,659$ 1,336,234$ 1,098,304$ 1,253,953$ 1,416,130$ 2,019,630$ Restricted for:Program purposes758,139 736,461 1,296,007 1,303,030 205,979 284,760 1,236,780 - - - Capital improvements1,330,513 1,532,244 - 1,269,045 2,168,201 1,301,421 286,276 - - - Committed for:Capital improvements2,310,621 2,387,922 2,018,581 1,814,834 1,758,934 2,589,099 2,631,233 2,587,012 2,844,706 2,618,147 Assigned for:Program purposes1,323,941 1,325,941 1,049,802 951,296 802,692 752,691 472,235 683,578 1,402,731 1,634,547 Capital improvements5,851,629 7,429,412 5,179,330 4,665,475 3,206,412 3,055,250 1,487,938 2,133,786 5,151,791 1,745,766 Total all other governmental funds 12,045,978$ 13,937,712$ 10,167,455$ 10,832,099$ 9,639,877$ 9,319,455$ 7,212,766$ 6,658,329$ 10,815,358$ 8,018,090$ (1) Significant decrease in general fund balance due to restatement of prior year grant receivables-133-Fiscal YearTABLE 3CITY OF PADUCAH, KENTUCKYFund Balances, Governmental FundsLast Ten Fiscal Years (modified accrual basis of accounting) 2018201720162015201420132012201120102009Revenues:Taxes7,741,994$ 7,310,257$ 6,976,933$ 6,987,173$ 6,713,889$ 6,583,690$ 6,343,608$ 6,223,511$ 6,326,740$ 5,867,782$ Licenses30,817,507 30,360,825 29,606,552 27,804,759 26,987,110 27,197,290 26,753,432 25,704,849 24,979,768 25,411,112 Charges for services1,037,668 964,766 884,259 848,971 851,080 815,791 817,607 811,590 846,087 866,688 Intergovernmental1,243,856 1,140,622 1,132,852 1,244,417 2,624,363 1,240,312 1,191,835 1,148,362 1,091,324 1,086,377 Grants1,056,687 6,476,765 8,892,529 2,496,329 5,923,651 3,737,402 1,699,399 2,992,519 2,062,554 5,405,810 Interest364,975 144,079 115,922 148,411 199,583 175,371 162,580 205,837 121,246 225,251 Other2,746,311 2,389,230 2,085,412 2,408,193 3,271,860 2,743,698 1,902,075 1,790,890 2,653,382 2,250,344 Total revenues45,008,998 48,786,544 49,694,459 41,938,253 46,571,536 42,493,554 38,870,536 38,877,558 38,081,101 41,113,364 Expenditures:General government5,282,385 4,881,298 4,526,828 4,484,105 4,311,103 4,481,485 5,117,194 5,151,370 5,277,916 4,726,435 Public safety19,755,167 18,923,070 18,435,365 18,524,763 18,475,471 18,174,349 18,479,428 16,854,136 15,999,437 15,599,613 Public service6,856,203 6,515,997 6,106,773 6,165,664 6,323,481 5,710,018 5,596,702 6,446,503 5,984,115 7,855,846 Parks and recreation3,129,032 3,012,236 2,929,404 2,842,460 2,602,348 2,426,234 2,677,781 2,781,663 2,582,382 1,490,732 Planning and development1,071,878 936,855 910,379 950,297 2,086,527 1,776,897 2,372,314 1,842,474 2,471,869 1,000,202 Other441,674 393,812 441,742 247,878 640,452 766,847 516,534 486,239 847,188 514,488 Capital outlay5,077,017 10,287,203 13,305,919 4,708,663 11,926,435 4,324,821 2,104,993 5,121,682 8,324,312 8,580,910 Debt service:Principal requirement2,357,542 2,244,361 2,137,759 2,158,385 1,748,233 1,698,468 1,434,246 2,233,588 1,020,585 830,682 Debt issuance costs- - - 51,461 109,292 - - - - - Interest and fiscal requirement804,620 810,917 845,609 817,191 1,086,866 1,089,447 1,114,852 1,519,329 1,077,128 1,003,439 Total expenditures44,775,518 48,005,749 49,639,778 40,950,867 49,310,208 40,448,566 39,414,044 42,436,984 43,584,932 41,602,347 Other Financing Sources (Uses):Bonds issued- - - 4,225,000 9,055,000 - - - 6,645,000 1,718,605 Payment to bond escrow agent- - - (4,143,964) (5,627,447) - - - - - Premium on debt issued- - - - 220,683 - - - - - Discount on debt issued- - - (29,576) (53,529) - - - - - Long-term debt draws/issued- 3,000,000 - - - 308,112 101,983 366,039 1,480,781 69,032 Capital lease- - - - - 405,796 405,796 405,796 405,796 405,796 Transfers in6,330,766 10,377,609 10,034,851 7,785,410 9,148,761 7,462,944 5,888,847 8,455,433 9,722,852 5,928,413 Transfers out(6,089,352) (8,255,627) (10,105,282) (7,780,785) (9,199,119) (7,125,024) (5,809,539) (8,201,253) (9,893,709) (6,150,847) Total other financing sources (uses)241,414 5,121,982 (70,431) 56,085 3,544,349 1,051,828 587,087 1,026,015 8,360,720 1,970,999 Net change in fund balances474,894$ 5,902,777$ (15,750)$ 1,043,471$ 805,677$ 3,096,816$ 43,579$ (2,533,411)$ 2,856,889$ 1,482,016$ Capital outlay (1)3,995,645$ 8,180,134$ 9,718,561$ 1,481,948$ 10,843,726$ 4,034,424$ 2,156,290$ 4,833,547$ 8,763,073$ 2,850,717$ Debt service as a percentageof noncapital expenditures7.75%7.67%7.47%7.54%7.37%7.66%6.84%9.98%6.02%4.73%(1) Capital outlay is reported on the Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities.-134-Fiscal Year(modified accrual basis of accounting)TABLE 4CITY OF PADUCAH, KENTUCKYChanges in Fund Balances, Governmental FundsLast Ten Fiscal Years TotalEstimated DirectFiscal Personal Actual Tax Year Commercial Residential Property Franchise Total Value Rate Exemptions2009 776,876,510 645,672,462 526,966,182 56,333,800 2,005,848,954 2,069,450,607 0.288 96.9% 63,601,653 2010 797,902,456 659,381,375 495,273,730 57,459,000 2,010,016,561 2,076,961,686 0.286 96.8% 66,945,125 2011 780,357,859 670,841,459 536,894,082 46,722,282 2,034,815,682 2,103,120,249 0.288 96.8% 68,304,567 2012 781,685,815 685,984,380 524,400,400 48,227,212 2,040,297,807 2,108,802,723 0.287 96.8% 68,504,916 2013 787,762,105 731,842,861 564,154,697 60,279,730 2,144,039,393 2,214,978,356 0.288 96.8% 70,938,963 2014 826,805,152 743,249,074 585,142,381 41,487,586 2,196,684,193 2,270,597,754 0.292 96.7% 73,913,561 2015 851,731,625 751,761,832 582,368,709 73,944,847 2,259,807,013 2,333,746,718 0.291 96.8% 73,939,705 2016 902,687,182 783,886,570 573,896,954 57,561,993 2,318,032,699 2,394,834,871 0.289 96.8% 76,802,172 2017 900,450,880 802,111,012 603,335,847 66,110,416 2,372,008,155 2,448,169,297 0.290 96.9% 76,161,142 2018 945,354,526 842,349,240 746,891,857 81,951,770 2,616,547,393 2,697,740,881 0.295 97.0% 81,193,488 Source: McCracken County Property Valuation AdministratorNotes: Property in McCracken county is reassessed once every four years on average.-135-TABLE 5CITY OF PADUCAH, KENTUCKYASSESSED AND ESTIMATED ACTUAL VALUE OF TAXABLE PROPERTYLAST TEN FISCAL YEARSEstimatedValuePercentAssessedToAssessed ValueReal Estate TotalFiscal Real Direct Real Real Real RealYear Estate Personal Rate Estate Personal Estate Personal Estate Personal Estate Personal2009 0.250 0.390 0.288 0.489 0.491 0.672 0.678 0.018 0.018 0.096 0.106 2010 0.250 0.390 0.286 0.504 0.504 0.678 0.678 0.018 0.018 0.095 0.095 2011 0.250 0.390 0.288 0.504 0.504 0.711 0.711 0.018 0.018 0.095 0.098 2012 0.250 0.390 0.287 0.504 0.504 0.747 0.747 0.018 0.018 0.098 0.119 2013 0.250 0.390 0.288 0.504 0.504 0.747 0.747 0.017 0.017 0.096 0.102 2014 0.255 0.390 0.292 0.504 0.504 0.767 0.767 0.017 0.017 0.095 0.101 2015 0.255 0.390 0.291 0.495 0.495 0.771 0.771 0.017 0.017 0.094 0.095 2016 0.255 0.390 0.289 0.524 0.524 0.800 0.800 0.017 0.017 0.098 0.102 2017 0.255 0.390 0.290 0.516 0.516 0.799 0.799 0.017 0.017 0.096 0.098 2018 0.255 0.390 0.295 0.520 0.530 0.797 0.797 0.016 0.016 0.094 0.094 Source: McCracken County Property Valuation Administrator and City Tax Levy Ordinance.TABLE 6CITY OF PADUCAH, KENTUCKYPROPERTY TAX RATES - DIRECT AND OVERLAPPING GOVERNMENTS(PER $100 OF ASSESSED VALUE)LAST TEN FISCAL YEARSGeneral FundCity Direct RatesMcCracken Co. City of Paducah-136-McCracken PaducahSchool Districts School Districts Junior College County (1)(2) (1)(2) Assessed Assessed Taxpayer Valuation Valuation Kentucky Oaks Mall 50,900,262$ 1.95%50,900,262$ 2.54% Cpark Paducah LLC 20,111,900 0.77% Paducah Medical Investors 13,440,090 0.51%13,440,090 0.67% Ducmall LLC 13,119,800 0.50%14,374,800 0.72% Woodstone Enterprises LP 12,429,000 0.48% Wal Mart Real Estate Business 10,646,400 0.41%10,646,400 0.53% Superior Care Homes Properties 10,000,000 0.38% Paducah Hospitality Partners 9,600,000 0.37% Sams Real Estate Business Trust 9,222,955 0.35%9,222,955 0.46% Computer Service Inc 9,083,185 0.35%9,083,185 0.45% Wal Mart Store 9,000,000 0.45% Olivet Church 1031 LLC 10,245,400 0.51% Lourdes Medical Pavilion TOTALS 158,553,592$ 6.07%126,913,092$ 6.33% (1) Source - Property Valuation Administration; Assessed value as of January 1, 2017. (2) Source - Property Valuation Administration; Assessed value as of January 1, 2008. TABLE 7 CITY OF PADUCAH, KENTUCKY PRINCIPAL TAXPAYERS - PROPERTY TAX CURRENT YEAR AND NINE YEARS PRIOR 2018 2009 -137- Percentage of Percentage of Total Assessed Total Assessed Valuation Valuation Total Collections to Date (1) (1) Percent of Percent of Amount of Levy Total Levy Collections Collected Collections Collected 4,194,342 4,017,032 95.8% 169,087 4,186,119 99.8% 4,250,001 4,131,454 97.2% 109,542 4,240,996 99.8% 4,188,606 4,110,973 98.1% 67,967 4,178,940 99.8% 4,217,363 4,119,689 97.7% 88,494 4,208,183 99.8% 4,430,203 4,334,698 97.8% 84,956 4,419,654 99.8% 4,596,867 4,509,874 98.1% 74,125 4,583,999 99.7% 4,721,370 4,644,522 98.4% 59,973 4,704,495 99.6% 4,879,035 4,802,067 98.4% 52,222 4,854,289 99.5% 4,987,277 4,888,303 98.0% 59,686 4,947,989 99.2% 5,213,451 5,120,761 98.2%- 5,120,761 98.2% (1) Includes current year real and personal property tax. * Source - City of Paducah Finance Department. -138- TABLE 8 CITY OF PADUCAH, KENTUCKY SECURED TAX LEVIES AND COLLECTIONS* LAST TEN FISCAL YEARS June 30, Ended Year Fiscal Year Collections in Subsequent Years Collected within the Fiscal Year of the Levy Taxes Levied 2010 2009 2013 Fiscal for the 2018 2012 2011 2015 2014 2016 2017 (1)Direct Fiscal Taxes Tax Year Collected Rate 2009 16,584,618 2.00% 2010 16,384,509 2.00% 2011 17,345,034 2.00% 2012 18,095,182 2.00% 2013 18,336,124 2.00% 2014 18,114,396 2.00% 2015 19,092,911 2.00% 2016 20,130,158 2.00% 2017 20,803,763 2.00% 2018 21,054,644 2.00% 185,941,339 (1) Source - City of Paducah Finance Department - Actual collections during the fiscal year. -139- TABLE 9 CITY OF PADUCAH, KENTUCKY EMPLOYEE LICENSE TAX COLLECTIONS LAST TEN FISCAL YEARS (1)Percentage of Number of Percentage Taxes Total Employee Filers of Total Collected License Tax $0 - $50,000 2,497 97.62% 9,580,191 45.50% $50,001 - $100,000 38 1.49% 3,647,926 17.33% $100,001 - $500,000 20 0.78% 3,862,294 18.34% Greater than $500,000 3 0.12% 3,964,233 18.83% TOTALS 2,558 100.00% 21,054,644$ 100.00% (1) Percentage of Number of Percentage Taxes Total Employee Filers of Total Collected License Tax $0 - $50,000 2,012 99.26% 12,363,242 71.39% $50,001 - $100,000 11 0.54% 1,843,411 10.65% $100,001 - $500,000 4 0.20% 3,110,432 17.96% Greater than $500,000 0 0.00% - 0.00% TOTALS 2,027 100.00% 17,317,085$ 100.00% (1) Source - City of Paducah Finance Department - Actual collections during the fiscal year. 2018 2009 TABLE 10 CITY OF PADUCAH, KENTUCKY PRINCIPAL EMPLOYEE LICENSE TAXPAYERS CURRENT YEAR AND NINE YEARS PRIOR -140- Taxpayers By Range Taxpayers By Range (1)Ratio of (3)Reported Net Net Net Debt as (2)General Refunding Total Debt to Percentage NetFiscal Obligation Capital Revenue Primary Actual of Personal Debt PerYear Bonds Lease Bonds Government Value Income Capita2009 19,799,638 5,187,262 - - - 24,986,900 1.21 5.16% 950 2010 25,661,440 5,808,267 - - - 31,469,707 1.52 6.50% 1,196 2011 24,879,948 4,910,742 - - - 29,790,690 1.42 5.92% 1,190 2012 23,651,493 7,320,328 - - - 30,971,821 1.47 6.16% 1,238 2013 22,361,906 6,920,838 - - - 29,282,744 1.32 5.82% 1,170 2014 24,706,291 6,519,356 - - - 31,225,647 1.38 6.21% 1,248 2015 23,320,347 6,101,064 - - - 29,421,411 1.26 5.85% 1,176 2016 21,595,096 5,686,435 - - - 27,281,531 1.14 5.42% 1,090 2017 19,815,809 8,218,304 - - - 28,034,113 1.15 5.57% 1,120 2018 17,992,494 7,806,701 - - - 25,799,195 0.96 5.13% 1,031 Notes: Details regarding the City's outstanding debt can be found in the notes to the financial statements.(1) See Table 5 for estimated actual property value. This ratio is calculated using estimated property value for the prior year.(2) See Table 16 for population data.(3) See Table 16 for personal income data-141-ImprovementDebtNetPublicDebtImprovementTABLE 11CITY OF PADUCAH, KENTUCKYRATIO OF OUTSTANDING DEBT BY TYPELAST TEN FISCAL YEARSPublic (1)Ratio ofPublicNetConvention & Rental Floodwall ImprovementPublic PoolEconomicBonds toFiscal Art CenterBuildingRehabilitation ProjectRenovation DevelopmentActualYear Bonds Bonds Bonds Bonds Bonds Bonds Total Value2009 7,320,000 5,545,000 4,160,000 2,774,638 - - - - 19,799,638 0.96 753 2010 7,030,000 5,340,000 3,975,000 2,671,440 6,645,000 - - - 25,661,440 1.24 975 2011 7,040,000 5,125,000 3,780,000 2,564,948 6,370,000 - - - 24,879,948 1.18 994 2012 6,630,000 4,895,000 3,630,000 2,455,210 6,100,000 - - (58,717) 23,651,493 1.12 945 2013 6,220,000 4,655,000 3,370,000 2,341,790 5,825,000 - - (49,884) 22,361,906 1.01 894 2014 5,805,000 4,400,000 3,100,000 2,224,863 5,460,000 1,120,000 2,475,000 121,428 24,706,291 1.09 987 2015 5,385,000 4,435,000 2,820,000 2,104,212 5,100,000 1,055,000 2,330,000 91,135 23,320,347 1.00 932 2016 4,955,000 4,055,000 2,530,000 1,990,271 4,805,000 990,000 2,185,000 84,825 21,595,096 0.90 863 2017 4,515,000 3,660,000 2,230,000 1,862,123 4,505,000 925,000 2,040,000 78,686 19,815,809 0.81 792 2018 4,065,000 3,255,000 1,920,000 1,729,992 4,195,000 860,000 1,895,000 72,502 17,992,494 0.67 719 Notes: Details regarding the City's outstanding debt can be found in the notes to the financial statements(1) See Table 5 for estimated actual property value. This ratio is calculated using estimated property value for the prior yea(2) See Table 16 for population data.Police andFire PensionFundBonds-142-CapitaAmortizationof Discountsand Premiums(2)NetBonds PerTABLE 12CITY OF PADUCAH, KENTUCKYRATIO OF NET GENERAL BONDED DEBT OUTSTANDINGLAST TEN FISCAL YEARS Estimated (1) Share of Reported Percentage Direct and Debt Applicable Overlapping Outstanding to the City Debt City of Paducah 25,799,195$ 100.00% 25,799,195$ Paducah Independent School District 44,640,821 * 100.00% 44,640,821 McCracken County 19,007,463 * 46.20% 8,781,448 McCracken County Board of Education 54,905,000 * 32.40% 17,789,220 Overlapping debt 118,553,284 71,211,489 TOTAL DIRECT AND OVERLAPPING DEBT 144,352,479$ 97,010,684$ (1) Applicable percentage is determined by ratio of assessed valuation of property subject to taxation in overlapping unit to valuation of property subject to taxation in reporting unit. * Information from finance office at each location. -143- TABLE 13 CITY OF PADUCAH, KENTUCKY DIRECT AND OVERLAPPING GOVERNMENTAL ACTIVITIES DEBT AS OF JUNE 30, 2018 Net assessed value2,616,547,393$ Add exemption81,193,488 Total assessed value2,697,740,881$ Debt limit - 10% of total assessed (1)269,774,088$ Debt outstanding:General obligation bonds outstanding17,992,494$ Note payable7,806,701 Less debt not subject to limit- Gross bonded debt25,799,195 Less amount available in debt servicefunds1,020,907 Net bonded indebtedness subject tolimit24,778,288 LEGAL DEBT MARGIN244,995,800$ 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009Debt limit 269,774,088$ 244,792,901$ 239,483,487$ 233,374,672$ 227,059,775$ 221,497,836$ 212,207,634$ 210,312,025$ 207,696,169$ 206,945,061$ Total net debt applicable to limit 24,778,288 27,011,206 26,489,770 28,769,092 30,721,830 28,966,286 30,936,733 29,716,418 31,377,263 24,893,656 LEGAL DEBTMARGIN244,995,800$ 217,781,695$ 212,993,717$ 204,605,580$ 196,337,945$ 192,531,550$ 181,270,901$ 180,595,607$ 176,318,906$ 182,051,405$ Total net debtapplicable to thelimited as a percentage ofdebt limit 9.18% 11.03% 11.06% 12.33% 13.08% 14.58% 14.13% 15.11% 12.03% 10.44%(1) "Cities shall not be authorized or permitted to incur indebtedness to an amount, including existing indebtedness, in the aggregate exceeding the following names maximum percentages on the value of the taxable property therein, to be estimated by the assessment previous to the incurring of the indebtedness: Cities of the first and second classes, and of the third class having a population exceeding fifteen hundred, ten per centum."-144-Fiscal YearTABLE 14CITY OF PADUCAH, KENTUCKYLEGAL DEBT MARGIN INFORMATIONLAST TEN FISCAL YEARS (1)(1) Personal Income 26,307 484,469,019 18,417 39.9 2,774 9.3% 26,307 484,469,019 18,417 39.9 2,659 8.5% 25,024 503,179,300 20,430 41.4 2,789 8.7% 25,024 503,179,300 20,430 41.4 2,682 8.0% 25,024 503,179,300 20,430 41.4 2,744 8.4% 25,024 503,179,300 20,430 41.4 3,138 8.2% 25,024 503,179,300 20,430 41.4 2,843 5.6% 25,024 503,179,300 20,430 41.4 3,139 6.2% 25,024 503,179,300 20,430 41.4 3,132 6.8% 25,024 503,179,300 20,430 41.4 2,835 6.4% Sources: (1)Bureau of the Census Count - 2000, 2010 (2)Board of Education; represents elementary and secondary public schools. (3)Kentucky Cabinet for Human Resources, Department for Employment Services. Income 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013 2013-2014 Fiscal Year Population 2014-2015 2015-2016 2016-2017 2017-2018 -145- TABLE 15 CITY OF PADUCAH, KENTUCKY DEMOGRAPHIC AND ECONOMIC STATISTICS LAST TEN FISCAL YEARS (1) (1) (2)(3) Per Capita Median School Unemployment Enrollment RateAge Percentage ofPercentage ofTotalTotalEmployees (1) Employment (2) Employees (1) Employment (2)Baptist Healthcare Systems1,6115.73%Lourdes Hospital, Inc.1,1774.18%1,3654.67%Wal-Mart Associates, Inc.9653.43%1,1603.97%Paducah Board of Education5932.11%6002.05%Kentucky Community & Technical College4771.70%3751.28%Claims Services Group, LLC4181.49%City of Paducah3941.40%3501.20%Lowes Home Center, Inc. #24603651.30%Teletech Services Corporation3361.19%Credit Bureau Systems, Inc.2991.06%Western Baptist Hospital1,7556.00%State of Kentucky3801.30%Paxton Media Group2900.99%LYNX Services3601.23%NRE Acquisitions150 0.51%TOTALS 6,635 23.59% 6,785 23.20%(1) Source - City of Paducah Finance Department(2) State of Kentucky - Office of Employment and Training. Ratio based on employment within County of McCracken.-146-EmployerTABLE 16CITY OF PADUCAH, KENTUCKYPRINCIPAL EMPLOYERSCURRENT YEAR AND NINE YEARS PRIOR20092018 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009Governmental ActivitiesGeneral governmentGeneral administration12 12 11 11 11 12 12 12 12 12Finance11 11 11 11 11 11 11 14 14 17Inspection00000011111013Information systems5555566664Risk/Human resources3433333111Public safetyPolice87 87 87 87 87 88 90 90 90 93Fire77 76 76 76 76 74 64.5 64 65 69Public serviceStreets21.2 21.2 21 21 20 20 23 23 23 29Facilities12.8 12.8 12.5 12.5 13.5 13.5 11.5 14 34 36Engineering5.3 5.8 6.6 6.6 6.6 7.6 7.6758E911**22 2200000000Other5555555646Parks and recreation27 25 25 25 24 24 24 24 7 7Planning and development111110109999910OtherPaducah Riverfront Dev. Authority0011111000Renaissance0000334535Fleet maintenance6.5 6.5 6.5 6.5 6.5 6.5 6.5 6.5 8 6Business-type ActivitiesSolid waste26.2 25.7 25.4 25.4 25.4 25.4 25.4 26 27 27TOTAL PRIMARY GOVERNMENT332 330 306 306 307 309 314.5 318 318 343* Employee budget census.** E911 became a City department effective 7/1/16.-147-Fiscal YearTABLE 17CITY OF PADUCAH, KENTUCKYCITY FULL-TIME EMPLOYEES BY FUNCTION*Last Ten Fiscal Years 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009General governmentBuilding and electrical permits issued1,179 1,285 1,344 1,175 1,251 1,202 1,232 1,239 1,263 1,179 Business licenses issued4,240 4,234 3,826 3,729 3,717 3,966 3,956 3,254 3,397 3,691 Public safetyPoliceAdult arrests2,443 2,259 2,174 2,293 2,546 2,508 2,753 3,564 3,859 4,454 Murder6 1 2 2 3 - 3 3 1 5 Rape24 13 11 10 17 16 14 22 12 20 Robberies17 29 42 41 36 38 14 31 56 41 Burglary178 130 185 138 127 142 123 155 245 169 Auto theft101 89 59 49 60 41 47 54 62 57 Larceny1,064 1,027 1,173 1,138 1,090 1,110 1,005 1,013 1,092 1,106 Arson10 6 7 2 3 5 7 6 7 7 Traffic accidents1,770 1,826 1,936 1,722 1,664 1,573 1,666 1,762 1,774 1,368 Traffic violations3,723 4,663 4,231 5,501 6,821 10,168 8,573 7,701 7,240 9,143 FireEmergency responses3,320 3,275 3,201 2,956 2,935 3,054 3,164 3,181 2,603 3,305 Fires extinguished118 135 124 118 115 105 138 122 133 136 Structure fires39 36 42 42 35 33 53 37 49 57 Incidents with reportedlosses119 138 72 73 56 55 89 73 89 85 Medical/rescue2,295 2,308 2,259 2,150 2,080 2,151 2,270 2,133 1,690 1,616 Tours/in-services/carseats229 262 305 400 378 570 524 671 676 907 Training man hours10,755 8,378 10,589 10,860 8,959 9,155 7,232 7,033 8,493 7,716 Inspections709 2,126 2,060 1,324 1,710 1,157 1,417 1,063 985 1,183 Refuse collectionResidentialRefuse collected (tons36 36 41 34 36 36 34 34 38 32 per day)Customers served9,889 9,806 9,801 9,639 9,600 9,478 9,488 9,568 9,445 9,435 CommercialRefuse collected (tons70 70 61 64 61 65 71 71 70 75 per day)Customers served930 858 854 861 927 805 803 806 810 810 Public service911 dispatches94,187 94,053 85,380 83,465 83,614 92,786 79,333 82,268 79,768 81,525 Police53,522 53,896 46,660 44,337 43,877 51,131 43,686 44,794 42,496 40,921 Fire3,351 3,314 3,230 3,152 3,517 4,747 3,189 3,226 2,702 2,490 Other37,314 36,843 35,490 35,976 36,220 36,908 32,458 34,248 34,570 38,114 * Information not available.** Information from city departments-148-Fiscal YearTABLE 18CITY OF PADUCAH, KENTUCKYOPERATING INDICATORS BY FUNCTION**Last Ten Fiscal Years 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009Public safetyPoliceStations1111111111FireStations5555555555Refuse collectionCollection trucksResidential10 10 10 10 10 10 10997Commercial4444444454Other public worksStreets (miles paved)218 218 218 218 218 218 218 218 218 216Sidewalks (miles)47 47 47 47 47 47 47 47 47 45Traffic signals13 13 13 13 13 13 13 13 13 12Parks and recreationParks29 29 29 28 28 27 27 27 27 27Acreage960 960 960 960 960 960 1125 1125 1125 960Community centers2222222211Swimming pools1111111111Public tennis courts6666666666Public golf/disk golf courses4444433333* Information from city departments.-149-Fiscal YearTABLE 19CITY OF PADUCAH, KENTUCKYCAPITAL ASSET STATISTICS BY FUNCTION*Last Ten Fiscal Years CITY OF PADUCAH, KENTUCKY SINGLE AUDIT SECTION COMPREHENSIVE ANNUAL FINANCIAL REPORT YEAR ENDED JUNE 30, 2018 Federal CFDA Pass-Through Pass-Through Program Title: Number Grantor Number To Subrecipients Expenditures Department of Housing and Urban Development: Direct Programs: Section 8 Housing Choice Vouchers 14.871 N/A -$ 1,913,152$ Pass-through Kentucky Governors Office for Local Development: Community Development Block Grants 14.228 N/A 200,000 200,000 Total Department of Housing and Urban Development 200,000 2,113,152 Department of the Interior: Pass-through Kentucky Heritage Council Historic Preservation Fund Grants-In-Aid 15.904 KY-17-114 - 5,311 Passed-through Kentucky Governors Office for Local Development: 15.916 N/A - 5,348 Total Department of the Interior - 10,659 Department of Justice: Direct Programs: Bulletproof Vest Partnership Program 16.607 N/A - 2,294 Total Department of Justice - 2,294 Department of Homeland Security: Direct Programs: Assistance to Firefighters Grant 97.044 N/A - 5,084 Port Security Grant Program 97.056 N/A - 14,677 Total Department of Homeland Security - 19,761 National Endowment for the Arts Direct Programs: Promotion of the Arts - Grants to Organizations and Individuals 45.024 N/A - 10,000 Total National Endowment for the Arts - 10,000 Department of Transportation: Passed-through Kentucky Transportation Cabinet State and Community Highway Safety 20.600 PT-18-59 - 20,926 State and Community Highway Safety 20.600 PT-17-45 - 9,497 Highway Planning and Construction 20.205 N/A - 6,444 Highway Planning and Construction 20.205 N/A - 16,880 Highway Planning and Construction 20.205 N/A - 25,181 Total Department of Transportation - 78,928 TOTAL EXPENDITURES OF FEDERAL AWARDS 200,000$ 2,234,794$ See accompanying notes to schedule of expenditures of federal awards -150- CITY OF PADUCAH, KENTUCKY SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE YEAR ENDED JUNE 30, 2018 Federal Grantor/Pass-Through Grantor/ Outdoor Recreation, Acquisition, Development and Planning CITY OF PADUCAH, KENTUCKY NOTES TO THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS FOR THE YEAR ENDED JUNE 30, 2018 Note 1 - Basis of Presentation: The accompanying schedule of expenditures of federal awards includes the federal grant activity of the City of Paducah and is presented on the accrual basis of accounting. The information in this schedule is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles and Audit Requirements for Federal Award (Uniform Guidance). Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in the preparation of, the financial statements. Note 2 - Subrecipients: The City of Paducah provided federal awards to subrecipients as follows: Federal CFDA Amount Program Title Number Provided Four Rivers Recovery Center 14.228 $200,000 Note 3 – Indirect Cost Rate: The City of Paducah has not elected to use the 10% de minimis indirect cost rate as allowed under the Uniform Guidance. Note 4 – Reconciliation of Federal Awards to the Financial Statements: Total Federal Awards $ 2,234,794 Federal Awards by Fund General Fund $ 45,734 Capital Improvement Fund 85,908 Special Revenue Fund 190,000 Proprietary Fund 1,913,152 Total Federal Awards $ 2,234,794 -151- 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 Brandi Harless, Mayor Members of the Board of Commissioners City of Paducah Paducah, Kentucky We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City of Paducah, Kentucky, as of and for the year ended June 30, 2018, and the related notes to the financial statements, which collectively comprise City of Paducah, Kentucky’s basic financial statements, and have issued our report thereon dated December 21, 2018. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered City of Paducah, Kentucky’s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of City of Paducah, Kentucky’s internal control. Accordingly, we do not express an opinion on the effectiveness of City of Paducah, Kentucky’s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or, significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that have not been identified. We did identify one deficiency in internal control, described in the accompanying schedule of findings and questioned costs that we consider to be a significant deficiency (#2018-001). Compliance and Other Matters As part of obtaining reasonable assurance about whether City of Paducah, Kentucky’s financial statements are free from 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 one instance of noncompliance or other matters that is required to be reported under Government Auditing Standards and which is described in the accompanying schedule of findings and questioned costs as item #2018-002. 100 South 4th Street Suite 300 Paducah, KY 42001 Phone: (270)443-4400 Fax: (270)443-0963 kempercpa.com City of Paducah, KY Response to Findings City of Paducah, KY response to the finding identified in our audit is described in the accompany schedule of findings and questioned costs. City of Paducah, KY response was not subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on it. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Certified Public Accountants and Consultants Paducah, Kentucky December 21, 2018 -153- INDEPENDENT AUDITOR’S REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE Honorable Brandi Harless, Mayor Members of the Board of Commissioners City of Paducah Paducah, Kentucky Report on Compliance for Each Major Federal Program We have audited City of Paducah, Kentucky’s compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of City of Paducah, Kentucky’s major federal programs for the year ended June 30, 2018. City of Paducah, Kentucky’s major federal programs are identified in the summary of auditor’s results section of the accompanying schedule of findings and questioned costs. Management’s Responsibility Management is responsible for compliance with federal statutes, regulations, and the terms and conditions of its federal awards applicable to its federal programs. Auditor’s Responsibility Our responsibility is to express an opinion on compliance for each of City of Paducah, Kentucky’s major federal programs based on our audit of the types of compliance requirements referred to above. 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; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and Uniform Guidance 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 occurred. An audit includes examining, on a test basis, evidence about City of Paducah, Kentucky’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 on compliance for each major federal program. However, our audit does not provide a legal determination of City of Paducah, Kentucky’s compliance. Opinion on Each Major Federal Program In our opinion, City of Paducah, Kentucky, complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30, 2018. Report on Internal Control Over Compliance Management of City of Paducah, Kentucky, is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered City of Paducah, Kentucky’s internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with the Uniform Guidance, 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 City of Paducah, Kentucky’s internal control over compliance. 100 South 4th Street Suite 300 Paducah, KY 42001 Phone: (270)443-4400 Fax: (270)443-0963 kempercpa.com 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 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 will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. 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 material weaknesses or significant deficiencies. We identified one deficiency in internal control over compliance, as described in the accompanying schedule of findings and questioned costs as item #2018-002 that we consider to be a significant deficiency. City of Paducah, KY response to the internal control over compliance finding identified in our audit is described in the accompanying schedule of findings and questioned costs. City of Paducah, KY response was not subject to the auditing procedures applied in the audit of compliance and, accordingly, we express no opinion on the response. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose. Certified Public Accountants and Consultants Paducah, Kentucky December 21, 2018 -155- CITY OF PADUCAH, KENTUCKY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2018 Section I – Summary of Auditor’s Results 1. The independent auditor’s report expresses an unmodified opinion on the financial statements of the City of Paducah, Kentucky. 2. One significant deficiencies relating to the audit of the financial statements are reported. No material weaknesses relating to the audit of the financial statements are reported. 3. No instances of noncompliance material to the financial statements of the City of Paducah, Kentucky were disclosed during the audit. 4. One significant deficiency relating to the audit of major federal award programs is reported. No material weaknesses relating to the audit of major federal award programs are reported. 5. The auditor’s report on compliance for the major federal award programs for the City of Paducah, Kentucky expresses an unmodified opinion. 6. There is one findings to be reported in accordance with 2 CFR Section 200.516(a) in this schedule. 7. The programs tested as major programs included: Name CFDA Section 8 Housing Choice Vouchers 14.871 8. The threshold used for distinguishing Types A and B programs was $750,000. 9. The City of Paducah, Kentucky did qualify to be audited as a low-risk auditee. Section II – Findings – Financial Statements Audit Finding #2018-001 Criteria: Adequate personnel should be assigned for management of financial reporting and compliance of federal programs. Condition: During the fiscal year, we noted the Section 8 Program was primarily managed by one employee for part of the year. Cause: Due to administrative change and unforeseen retirement of personnel, the Section 8 Program only had one full-time employee assigned to the department during part of the year. -156- CITY OF PADUCAH, KENTUCKY SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2018 Effect: While the City’s planning department provided oversight assistance to the Section 8 Program and the Program’s detail financial accounting function is outsourced to a third-party accounting firm specializing in Section 8 Housing during this period, due to limited personnel actively involved in oversight of the program, errors in financial reporting and compliance requirements may occur and not be detected in a timely manner. Recommendation: We recommend the City hire additional personnel or contract management of the program to improve controls over the management of the Section 8 program. City Response: Management became aware of this issue during the fiscal year as a result of significant unanticipated staffing changes. At that time, additional staffing was provided by the Planning Department to assist in administrative functions. In conjunction with that staffing allocation, the City began negotiating with the Paducah Housing Authority to assume administration of the grant. Effective December 1, 2018, the City contracted with the Paducah Housing Authority to provide administrative management of the Section 8 voucher program. Section III – Findings and Questioned Costs – Major Federal Awards Programs Finding #2018-002 Criteria: Adequate personnel should be assigned for management of financial reporting and compliance of federal programs. Condition: During the fiscal year, we noted the Section 8 Program was primarily managed by one employee for part of the year. Cause: Due to administrative change and unforeseen retirement of personnel, the Section 8 Program only had one full-time employee assigned to the department during part of the year. Effect: While the City’s planning department provided oversight assistance to the Section 8 Program and the Program’s detail financial accounting function is outsourced to a third-party accounting firm specializing in Section 8 Housing during this period, due to limited personnel actively involved in oversight of the program, errors in financial reporting and compliance requirements may occur and not be detected in a timely manner. Recommendation: We recommend the City hire additional personnel or contract management of the program to improve controls over the management of the Section 8 program. City Response: Management became aware of this issue during the fiscal year as a result of significant unanticipated staffing changes. At that time, additional staffing was provided by the Planning Department to assist in administrative functions. In conjunction with that staffing allocation, the City began negotiating with the Paducah Housing Authority to assume administration of the grant. Effective December 1, 2018, the City contracted with the Paducah Housing Authority to provide administrative management of the Section 8 voucher program. -157- CITY OF PADUCAH, KENTUCKY SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS YEAR ENDED JUNE 30, 2017 Section II – Findings – Financial Statements Audit There were no findings related to the financial statements which are required to be reported in accordance with Government Auditing Standards. Section III – Findings and Questioned Costs – Major Federal Awards Programs There were no findings or questioned costs related to the major federal programs which are required to be reported in accordance with Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles and Audit Requirements for Federal Award (Uniform Guidance). -158-