2019 finances for city of HS get clean audit
The city presented its 2019 financial statement fairly and accurately, according to the statutorily mandated audit presented to the Hot Springs Board of Directors last week.
Local accounting firm JWCK Ltd. told the board the city’s 2019 comprehensive annual financial report, or CAFR, accurately reflected its financial position. The net position of the city’s enterprise funds, such as water, wastewater, stormwater and the airport, increased by $5.7 million compared to 2018, but large liabilities in closed police and fire pension plans decreased the net position of governmental accounts by $516,014.
Changes to accounting rules require pen
sions to be included in financial statements instead of only being listed in the statements’ notes, the city has said. Generally accepted accounting rules don’t require the total debt obligation of the water and wastewater funds to be included in the city’s financial statement, the city said.
It reported $48.5 million in water fund debt and $63.9 million in wastewater fund debt at the end of last year. The totals don’t include the total debt service, which, according to the pricing sheet presented to the board last month in advance of it approving a $109 million bond issue for the Lake Ouachita water supply project, is $229 million.
The pricing sheet presented in advance of last month’s issuance of $18 million in new debt for wastewater improvements listed a $124 million debt service obligation for the wastewater fund. The pricing sheets reflect principal and interest payments over the
30-year life of the two funds’ indebtedness. The financial report reflects only principal amounts owed, the city said.
The 2019 financial statement doesn’t include water and wastewater debt authorized last month.
The closed police and fire pension plans ended last year with unfunded liabilities of
$10.3 million and $25.9 million, respectively. The liabilities come from imbalances between funds the city held in reserve for retirees when it joined the Arkansas Local Police and Fire Retirement System in 1983 and pension costs the retirees added to the system.
The city contributed $849,480 last year to pay down the closed police plan, a sum representing 14.07% of the police fund’s 2019 recurring salary costs, and $1,420,368 to the closed fire pension plan. The latter sum represented 31.41% of the fire fund’s recurring 2019 salary costs.
The obligation to the closed fire pension plan decreased by more than $1.5 million from 2018. The closed police plan’s increased by almost $1.4 million. The fire plan had 60 beneficiaries at the end of last year, and the police plan had 64. Eighteen years remain on the amortization schedule that’s paying down the closed plans.
JWCK Partner Gary Welch told the board the total liability calculated for all present and future retirees is based on annually adjusted actuarial assumptions informed by the number of participants, interest rates and return on investments.
“It’s one of those things that runs on its own,” he said.
“It’s not in your control.”
The city’s retirement contribution to police and firefighters is 21.56% of their salaries. Police and firefighters contribute 8.5% of their salaries. The city doesn’t contribute to police and firefighters’ Social Security benefits.
The general fund ended 2019 with an $8.2 million balance, or 105% more than the reserve requirement stipulated in the city code. In 2012 the board established a reserve requirement of 16.5% of the general fund’s operating expenses, which were $24.4 million last year. Most of that went to transfers subsidizing the police, fire and parking funds.
Mayor Pat McCabe said JWCK’s endorsement of the financial statement allows the city to secure favorable borrowing terms when issuing debt for capital improvements or refinancing existing debt.
“The fact that we have a strong city and a well reported financial statement that those evaluating our credit worthiness can take that home,” he told the board. “In many communities they don’t have that type of report. It gives us the ability to borrow money at a better interest rate than many communities across the state.”
The 2019 CAFR is available on the city’s website.