2018 financials get clean audit

The city presented its 2018 financial statements fairly and accurately, according to the statutorily mandated audit presented to the Hot Springs Board of Directors earlier this week.

Local accounting firm JWCK Ltd. told the board the city’s 2018 comprehensive annual financial report, or CAFR, accurately reflected its financial position. The net position of the city’s enterprise funds, which include water, wastewater and solid waste, improved by almost $6 million compared 2017, but large liabilities in closed police and fire pension plans decreased the net position of governmental accounts by $3.7 million.

Changes to accounting rules require pensions to be included in financial statements instead of being disclosed in the statement’s notes, the city has said.

The closed police and fire

plans finished the year with unfunded liabilities of $8.9 million and $27.5 million, respectively, according to the CAFR, increasing by $1 million and $1.3 million compared to 2017. The liabilities stem from the imbalance between funds the city held in reserve for retirees when it joined the Arkansas Local Police and Fire Retirement system, or LOPFI, in 1983 and pension costs the retirees added to the system.

The CAFR showed, as of Jan.

1, the city had 19 years left on the amortization schedule it’s using to pay down the liability. Police and fire budgets the city adopted for 2019 included

$2.1 million and $2.4 million in retirement contributions, with

35.63 percent of police contributions paying down the liability from the closed police plan and

53.66 percent of fire contributions paying down the closed fire plan’s liability.

Obligations to the closed plans represent 5.5 percent of the police department’s $13.8 million budget and 13.7 percent of the fire department’s $9.5 million budget.

The liabilities are fluid, adjusting according to actuarial assumptions such as rate of return on LOPFI investments, life expectancy and the rate of disability retirements. The reduction in the rate of return the LOPFI board set for the system’s investments in December required the city to increase its contribution rate to 21.56 percent of employee salary. Employees contribute 8.5 percent of their salary.

The employer contribution is somewhat offset by the city not making the 6.25 percent contribution to Social Security for police officers and firefighters.

The city said the closed police plan has 66 active beneficiaries, including surviving spouses, and the closed fire plan has 62. One person on the closed plans was still employed by the city when the 2018 CAFR was developed, but the city said that employee has since retired. Cities can levy up to 1 mill for police and fire pensions, but current and past city boards have declined to impose pension millages.

The city’s general fund finished the year with reserves of almost $2 million more than what the city code requires. The

$5.8 million balance exceeded the required reserve by almost

50 percent. In 2012, the city board set the requirement at 16.5 percent of general fund expenses, which were $23.3 million last year. The previous requirement was $2.5 million or two months operating expenses.

The city’s bonded debt grew by $17.3 million compared to

2017 as a result of the $20 million debt issue for water system improvements, including engineering and design of the $100 million project to tap the city’s 23 million-gallon a day allocation from Lake Ouachita.

The $112.4 million in outstanding bond debt at the end of last year included $68 million in wastewater bonds and $42 million in water bonds. Rates paid by water and sewer customers secure the debt.

The city plans on floating a $30 million bond issue next year to finance construction of a new water treatment plant on Little Mazarn Road. Subsequent bond issues of $30 million in 2021 and 2022 would complete financing of the supply project, paying for an intake structure on Lake Ouachita, 17-mile long raw waterline and a potable line leading from the plant.