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HomeMy WebLinkAbout2018 CERTIFIED PUBLIC ACCOUNTANTS RECEIVED OCT 1 6 2019 ' Southold Town Clerk TOWN OF SOUTHOLD FINANCIAL STATEMENTS Year Ended December 31, 2018 RECEIVED OCT 1 6 2019 Southold Torn Clerk FINANCIAL SECTION IndependentAuditors' Report.................................................................................................................... 1-3 REQUIRED SUPPLEMENTARY INFORMATION Management's Discussion and Analysis................................................................................................... 4-15 BASIC FINANCIAL STATEMENTS Government-Wide Financial Statements Statementof Net Position....................................................................................................................... 16 Statementof Activities............................................................................................................................ 17 Fund Financial Statements Governmental Fund Financial Statements Balance Sheet and Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Position....................................................................................... 18-19 Statement of Revenues, Expenditures, and Changes in Fund Balances and Reconciliation of the Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances to the Statement of Activities........................................................ 20-21 Fiduciary Fund Financial Statements Statement of Fiduciary Assets and Liabilities......................................................................................... 22 Y Notes to Financial Statements.................................................................................................................. 23-57 REQUIRED SUPPLEMENTARY INFORMATION OTHER THAN MANAGEMENT DISCUSSION AND ANALYSIS Schedule of Revenues, Expenditures,and Changes in Fund Balance-Budget and Actual GeneralFund.......................................................................................................................................... 58 HighwayFund......................................................................................................................................... 59 Community Preservation Fund.......................................................................................... 60 Schedule of Changes in the Town's Other Postemployment Benefits Liability and Related Ratios....... 61 Schedule of Pension Contributions....................................................................................... 62 Schedule of Proportionate Share of the Net Pension Liability...................................................... 63 OTHER SUPPLEMENTARY INFORMATION Combining Fund Statements: Nonmajor Governmental Funds CombiningBalance Sheet...................................................................................................................... 64 Combining Statement of Revenues, Expenditures,and Changes in Fund Balances........................... 65 OTHER REPORTS Independent Auditors' Report on Internal Control over Financial Reporting and on Compliance and Other Matters based on an audit of Financial Statements Performed in Accordance with Governmental Auditing Standards............................................................ 66-67 FINANCIAL SECTION 0 CERTIFIED PUBLIC ACCOUNTANTS INDEPENDENT AUDITORS' REPORT { j Honorable Supervisor and Town Board Town of Southold Southold, New York We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of the Town of Southold, New York (the "Town"), as of and for the year ended December 31, 2018, and the related notes to the financial statements which collectively comprise L the Town's basic financial statements as listed in the table of contents. We were not engaged to audit the financial statements of the aggregate discretely presented component units. 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. Auditors' Responsibility Our responsibility is to express opinions on these financial statements based on our audit.We did not audit the financial statements of the component units. Fishers Island Ferry District and Fishers Island Waste Management District, which represent 74.1%, 67.6%, and 83.6%, respectively, of the assets and deferred outflows, net position, and revenues of the aggregate discretely presented component units.Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for those two component units, is based solely on the reports of the other auditors. The remaining five component units have not been audited. 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. The financial statements of the Fishers Island Waste Management District were not audited in accordance with Government Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. Because of the matter described in the "Basis for Disclaimer of Opinion" paragraph, however, we were not able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on the aggregate discretely presented component units. _ An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors'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 Town'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 Town'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. Except for the matter described in the "Basis for Disclaimer of Opinion on the Aggregate Discretely Presented Component Units" paragraph, we believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. BEYOND THE NUMBERS... ALBRECHT,VIGGIANO,ZURECK&COMPANY, PC 245 PARK AVENUE,39TH FLOOR 25 SUFFOLK COURT NEW YORK, NY 10167 HAUPPAUGE, NY 11788-3715 T.212.792.4075 T 631.434 9500 F:631 434.9518 www avz.com INDEPENDENT MEMBER OF BKR INTERNATIONAL Basis for Disclaimer of Opinion on the Aggregate Discretely Presented Component Units The financial statements of five of the component units, Cutchogue-New Suffolk Park District, Southold Park District, Orient-East Marion Park District, Mattituck Park District and Orient Mosquito District have not been audited, and we were not engaged to audit these financial statements as part of our audit of the Town of Southold, New York's basic financial statements. These financial activities are included in the Town's basic financial statements as discretely presented component units and represent 25.9%, 32.4%, and 16.4%, respectively, of the assets, net position, and revenues of the Town's aggregate discretely presented component units. Disclaimer of Opinion Because of the significance of the matter described in the "Basis for Disclaimer of Opinion on the Aggregate Discretely Presented Component Units" paragraph, we have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on the financial statements of the aggregate discretely presented component units of the Town of Southold, New York. Accordingly, we do not express an opinion on these discretely presented component units'financial statements. Unmodified Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, each major fund and the aggregate remaining fund information of the Town of Southold, New York as of December 31, 2018, and the respective changes in financial position for the year then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matter As described in Note A.7 and Note G to the basic financial statements, the Town adopted the provisions of Governmental Accounting Standards Statement No. 75, "Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions" Our opinion is not modified with respect to this matter. Accordingly,the unrestricted net position as of January 1, 2018 has been restated. Other Matters Required Supplementary Information J Accounting principles generally accepted in the United States of America require that the management's discussion and analysis, schedule of changes in the Town's other postemployment benefit liability and related ratios, schedule of pension contributions, schedule of proportionate share of the net pension liability and the budgetary comparison information 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 and other auditors 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 Town of Southold, New York's basic financial statements. The combining nonmajor fund financial statements are presented for purposes of additional analysis and are not a required part of the basic financial �. statements. -2- Other Matters (continued) Other Information(continued) (� The combining nonmajor fund financial statements 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 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, based on our audit, the procedures performed as described above, the combining nonmajor fund financial statements are fairly stated, in all material respects, in relation to the basic financial statements as a whole. :VAWI Hauppauge, New York September 23,2019 r� r , r r� \ J -3- REQUIRED SUPPLEMENTARY INFORMATION Management's Discussion and Analysis TOWN OF SOUTHOLD MANAGEMENT'S DISCUSSION AND ANALYSIS December 31, 2018 As management of the Town of Southold, New York(the"Town"), we offer readers of the financial statements r; this narrative overview and analysis of the financial activities for the year ended December 31, 2018. FINANCIAL HIGHLIGHTS • The assets and deferred outflows of the primary governmental activities of the Town exceeded its liabilities and deferred inflows at the close of 2018 by$93,016,689 (net position). • The Town's primary governmental activities net position increased by$6,295,045. • As of the close of 2018, the Town's governmental funds reported combined ending fund balances of $29,842,500. Of this amount, $951,454 is not in spendable form or is required to remain intact. The remaining $28,891,046 or approximately 96.8% of total fund balance is in spendable form with various levels of spending constraint: restricted, committed, assigned, or unassigned (see Note B.2). • At the end of 2018, the Town's total fund balance for the General Fund was $11,321,588, an increase of $602,779 or 5.6% from the prior year. The assigned and unassigned fund balance for the General Fund was$10,555,899 or 34.2%of total General Fund expenditures and other uses. • The Town's total bonded debt was $29,075,000, excluding premiums of $2,135,090, a decrease of 8.7%from the prior year. OVERVIEW OF THE FINANCIAL STATEMENTS The discussion and analysis is intended to serve as an introduction to the Town's basic financial statements. The Town's basic financial statements comprise these components: (1) government-wide financial statements, (2) fund financial statements, and (3) notes to basic financial statements. This report also contains supplementary information in addition to the basic financial statements themselves. Government-wide Financial Statements The government-wide financial statements are designed to provide readers with a broad overview of the Town's finances, in a manner similar to a private-sector business. The intent of the government-wide financial statements is to give the reader a long-term view of the Town's financial condition. The Statement of Net Position presents financial information on all of the Town's assets, deferred outflows of resources, liabilities, and deferred inflows of resources with the difference between the four reported as net position. This statement combines and consolidates the Town's current financial resources with capital assets and long-term obligations. Over time, increases or decreases in the Town's net position is one indicator of whether its financial health is improving or deteriorating. You will need to consider other nonfinancial factors, however, such as changes in the Town's property tax base and the condition of the Town's buildings, roads, drainage and other assets to assess the overall health of the Town. The Statement of Activities presents information showing how the Town's net position changed during the most recent year. Revenues and expenses are reported by activity to give the reader an understanding of how each of the Town's activities are being supported. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future periods. This method is known as the accrual basis of accounting and is different from the modified accrual basis of accounting used in the Town's fund financial statements. r; The Town's government-wide financial statements include both the governmental activities of the Town itself (known as the primary government) and of its legally separate component units for which the Town is financially accountable. Financial information for all component units is reported separately (discretely presented)from the financial information presented for the primary government. -4- TOWN OF SOUTHOLD MANAGEMENT'S DISCUSSION AND ANALYSIS December 31,2018 OVERVIEW OF THE FINANCIAL STATEMENTS (continued) Government-wide Financial Statements (continued) Governmental Activities - The Town's basic services are reported here, including: general government support; public safety; public health; transportation; economic assistance and opportunity; culture and recreation and home and community services. Property taxes, mortgage taxes, franchise fees, fines, and state and federal grants finance these activities. The Town also charges fees to help cover the cost of certain services it provides. Component Units- Component units are legally separate organizations for which the Town is either financially accountable, or the nature and significance of their relationship with the Town is such that exclusion would cause the Town's financial statements to be misleading or incomplete. All of these entities are reported in a separate column in the government-wide statements as discretely presented. r Information on separately issued financial statements is shown in Note E to the financial statements. Fund Financial Statements The fund financial statements focus on current available resources and are organized and operated on the _ basis of funds, each of which is defined as an accounting entity with a self-balancing set of accounts established for the purpose of carrying on specific or attaining certain objectives in accordance with special regulations, restriction or limitations. The Town, like other governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the Town can be divided into two categories: governmental funds and fiduciary funds. Governmental Funds The Town's ,activities are reported in governmental funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the year. Such information may be useful in evaluating a government's near-term financial requirements. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term effect of the Town's near-term financial decisions. Both the governmental fund balance sheet and governmental fund statement of revenues, expenditures, and change in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The Town maintains ten (10) 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 four (4) major funds. The General Fund, Highway Fund, Capital Projects Fund, and the Community Preservation Fund are reported as major funds. Data from the six (6) other governmental funds are combined into a single, aggregated presentation. The Town adopts an annual appropriated budget for its general and special revenue funds, except for the Capital Projects Fund, and special grant fund. A budgetary comparison schedule for the general fund, highway fund, and community preservation fund can be found in the section labeled "Required Supplementary Information Other Than Management's Discussion and Analysis". Fiduciary Funds All of the Town's fiduciary activities are reported in a separate Statement of Fiduciary Assets and Liabilities. We exclude these activities from the Town's other financial statements because the Town cannot use these assets to finance its operations. The Town is responsible for ensuring that the assets reported in these funds are used for their intended purposes. -5- TOWN OF SOUTHOLD MANAGEMENT'S DISCUSSION AND ANALYSIS December 31, 2018 OVERVIEW OF THE FINANCIAL STATEMENTS (continued) Notes to the financial statements The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. The notes to the financial statements can be found following the basic financial statements. i Other information In addition to the basic financial statements this report contains supplementary information immediately following the required supplementary information other than the management's discussion and analysis. GOVERNMENT-WIDE FINANCIAL ANALYSIS As noted earlier, net position may serve over time as a useful indicator of a government's financial position. In the case of the Town, assets and deferred outflows of resources exceeded liabilities and deferred inflows by $93,016,689 at the close of the most recent year. Condensed Statement of Net Position Primary Governmental Activities December 31, 2018 2017 As s ets Current and other assets $ 48,314,948 $ 44,970,965 Capital assets 177,891,265 169,093,587 Total Assets 226,206,213 214,064,552 Deferred Outflows of Resources 13,355,877 9,837,942 Liabilities Current and other liabilities 13,901,909 6,518,438 Long-term liabilities 120,650,921 97,396,718 Total Liabilities 134,552,830 103,915,156 Deferred Inflows of Resources 11,992,571 11,327,698 Net Position Net investment in capital assets 142,631,153 134,651,075 Restricted 17,781,986 17,427,433 Unrestricted (67,396,450) (43,418,868) Total Net Position $ 93,016,689 $ 108,659,640 Total assets and deferred outflows of resources of the primary government as of December 31, 2018 were $239,562,090, an increase of $15,659,596 from December 31, 2017. Total liabilities and deferred inflows of resources as of December 31, 2018 were $146,545,401, which represents an increase of $31,302,547 from December 31, 2017. This resulted in a net position of $93,016,689, an increase of $6,295,045 from restated net position of $86,721,644. Of the Town's net position, $142,631,153 was invested in capital assets and $17,781,986 was restricted for future land acquisition, leaving a$67,396,450 unrestricted deficit. By far, the largest portion of the Town's net position is $142,631,153 which reflects its investment in capital assets (i.e. land, buildings, machinery and equipment, intangibles, and infrastructure) less any related debt used to acquire those assets that is still outstanding. The Town uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the Town's investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves will not be used to liquidate these liabilities. -6- �1 TOWN OF SOUTHOLD MANAGEMENT'S DISCUSSION AND ANALYSIS December 31, 2018 GOVERNMENT-WIDE FINANCIAL ANALYSIS (continued) The deficit in the unrestricted net position does not necessarily indicate fiscal stress. At the end of the current year, the Town is able to report a positive balance in the categories of investment in capital assets, and restricted net position. The same situation held true for the prior year. The deficit balance in unrestricted arose primarily due to long-term liabilities, which includes other postemployment benefits, net pension liability, compensated absences, and landfill closure and postclosure costs that will be funded through future budgetary appropriations when they become payable in future periods. Changes in Net Position Primary Governmental Activities For the years ended December 31, 2018 2017 Program Revenues Charges for services $ 4,409,830 $ 4,620,268 Operating grants and contributions 737,687 516,720 Capital grants and contributions 1,068,978 890,994 6,216,495 6,027,982 General Revenues Real property taxes 35,745,326 34,943,409 Other real property tax items 68,631 87,812 Non-property tax items 10,082,325 9,765,162 Interest earnings 474,320 316,702 State aid - unrestricted 1,422,685 1,552,227 Other 819,300 504,979 48,612,587 47,170,291 Total Revenues 54,829,082 53,198,273 Program Expenses General government support 11,943,924 11,235,899 Public safety 19,914,484 20,017,741 Public health 43,300 33,300 Transportation 6,610,839 6,487,587 Economic assistance and opportunity 2,196,932 2,161,725 Culture and recreation 570,143 524,709 Home and community services 6,208,546 5,846,049 Interest on debt 1,045,869 1,197,195 Total Expenses 48,534,037 47,504,205 Increase in Net Position $ 6,295,045 $ 5,694,068 Net Position, beginning of year, as reported 108,659,640 102,965,572 Cumulative effect of change in accounting principle" (21,937,996) -0- Net Position, beginning of year 86,721,644 102,965,572 Net Position, end of year $ 93,016,689 $ 108,659,640 "The Town's financial statements presented herein are for the year ended December 31, 2018 and the cumulative effect of applying Governmental Accounting Standards Board Statements ("GASB") No. 75, "Accounting and Financial Reporting for Postemployment Benefits Other than Pensions",shows as an adjustment to the beginning net position of fiscal year 2018.The condensed information for the year ended December 31,2017 was not restated as the information was not available. r- -7- TOWN OF SOUTHOLD MANAGEMENT'S DISCUSSION AND ANALYSIS December 31,2018 GOVERNMENT-WIDE FINANCIAL ANALYSIS(continued) C� Net position,from all government activities, increased by$6,295,045 in the current year. Key elements of the governmental activities are: • Overall program revenues increased by $188,513 from the prior year. Capital grants and contributions increased $177,984 from the prior year due to the Town receiving new grants and contributions in the current year that were not received in 2017 for the following: $51,761 for Town Hall AV Improvements, $30,106 in NYS DEC Grant for EFC Pump Out Boat project, $25,000 from NYSERDA for Animal Shelter Solar Project, $188,417 from DASNY for the various town projects, $78,147 from the Department of State for the Bay to Sound Project and$60,180 from Suffolk County for the Pike Street Parking lot project.This was offset by decreases mainly due to a $250,000 non-recurring transportation grant from DASNY in the prior year. Operating grants and contributions also increased $220,967 in the current year due to the Town receiving $87,650 for the Police Communication Room, $50,454 in SEMO aid, and $43,205 in additional Community Development Block Grant aid. Charges for services decreased $210,438 which was due to housing fund fees assessed during the prior year for affordable housing of$424,750 offset by departmental income in the funds including an increase in tipping fees of$99,096, an increase in licenses and permits in the highway fund for$66,110 and increase in building inspection fees of$62,102. • General revenues increased $1,442,296 from the prior year. This was due to the increase in property taxes of$801,917 and an increase in non-property tax items of $317,163 which is due to the increase in revenue from the 2% transfer tax in the Community Preservation Fund. In addition, other revenues increased$314,321 due to insurance recoveries received in the current year. • Overall expenses increased by $1,029,832. General government support expenses increased $708,025 due to increase in personal costs of approximately $403,000 and $343,000 for building repairs and maintenance. Increases in home and community services of$362,497 due to increases in personal costs of approximately$96,000 and an increase of contractual expenses primary due to solid waste disposal of $132,000. In addition, transportation expenses increased $123,252 due to the increase in personal costs of $274,000 offset by the decrease in compensated absences. This was offset by decreases in public safety of$103,257 due to decreases in compensated absences and the net pension liability for the PFRS. In addition,decreases in interest is due to the payment and amortization of the outstanding bonds. Total Revenue(Cost)of Services Net Cost of Services for Governmental Activities For the years ended December 31, Total Cost of Services Program Revenues Net Revenue(Cost)of Senrices 2018 2017 2018 2017 2018 2017 General govemment support $ 11,943,924 $ 11,235,899 $ 700,611 $ 399,567 $ (11,243,313) $ (10,836,332) Public safety 19,914,484 20,017,741 977,419 879,280 (18,937,065) (19,138,461) Public health 43,300 33,300 8,157 8,157 (35,143) (25,143) Transportation 6,610,839 6,487,587 758,762 869,779 (5,852,077) (5,617,808) Economic assistance and opportunity 2,196,932 2,161,725 443,414 867,860 (1,753,518) (1,293,865) Culture and recreation 570,143 524,709 373,144 544,081 (196,999) 19,372 Home and community services 6,208,546 5,846,049 2,954,988 2,459,258 (3,253,558) (3,386,791) Interest on debt 1,045,869 1,197,195 (1,045,869) (1,197,195) $ 48,534,037 $ 47,504,205 $ 6,216,495 $ 6,027,982 $ (42,317,542) $ (41,476,223) J The total cost of all governmental activities this year was $48,534,037. The net cost of these services after being subsidized by program revenues of$6,216,495 was$42,317,542. -8- TOWN OF SOUTHOLD MANAGEMENT'S DISCUSSION AND ANALYSIS December 31, 2018 GOVERNMENT-WIDE FINANCIAL ANALYSIS (continued) Expenses and Program Revenues -Governmental Activities for the Year Ended December 31, 2018 $25,000,000 Expenses and Program Revenues Governmental Activities $20,000,000 °E"penses ■Program Revenues $15,000,000 $10,000,000 $5,000,000 L L $0 Geral govemment wpport Pudic safety PULiic near, Tratsportabm Economc assistance and CJtum and mcmation Home ad co-ty Interest an debt oppoitun&y seas Revenues by Source- Governmental Activities for the Year Ended December 31, 2018 Capital grants and Operating grants and contributions contributions 1% Oth e r ge ne ral reve nues 1% 2% Non-property tax items 18% iAL Charges for services 9% State aid -J Real property taxes unrestricted 66% 3% -9- I TOWN OF SOUTHOLD MANAGEMENT'S DISCUSSION AND ANALYSIS December 31,2018 FINANCIAL ANALYSIS OF THE TOWN'S FUNDS Governmental Funds The focus of the Town's governmental funds is to provide information on near term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the Town's financing requirements. In particular, spendable fund balance may serve as a useful measure of a government's net resources available for spending at the end of the year. I ; • Nonspendable fund balance - $951,454 (inherently nonspendable) includes the portion of net resources that cannot be spent because they must be maintained intact. • Restricted fund balance - $17,775,237 (externally enforceable limitations on use) includes amounts subject to limitations imposed by creditors, grantors, contributors, or laws and regulations of other governments. I , • Committed fund balance -$518,873 includes amounts subject to constraints placed on the use of its own resources by the Town's highest level of decision-making authority. • Assigned fund balance - $5,191,913 (limitation resulting from intended use) consists of amounts where the intended use is established by the Town Board, but do not meet the criteria to be classified as restricted or committed. r • Unassigned fund balance - $5,405,023 (residual net resources) is the total fund balance in the general fund in excess of nonspendable, restricted, committed and assigned fund balance and negative fund balances in funds other than the general fund. The following schedule presents a summary of the Governmental Funds - (general, special revenue, and capital projects) revenues and expenditures for the year ended December 31, 2018, and the amount of ® change in relation to the prior year. Increase 2018 2017 (Decrease) Revenues Real propertytaxes $ 35,745,326 $ 34,943,409 $ 801,917 Other real property tax items 68,631 87,812 (19,181) Non-property tax items 10,082,325 9,765,162 317,163 Departmental income 3,084,522 3,379,264 (294,742) Intergovernmental charges 209,138 92,746 116,392 Use of money and property 490,817 285,095 205,722 Licenses and permits 645,509 580,004 65,505 Fines and forfeitures 323,547 342,835 (19,288) Sale of property and compensation for loss 884,785 551,281 333,504 Miscellaneous local sources 210,682 247,197 (36,515) Interfund revenues 94,221 32,450 61,771 State aid 2,488,544 2,687,641 (199,097) Federal aid 309,180 170,068 139,112 Total Governmental Fund Revenues $ 54,637,227 $ 53,164,964 $ 1,472,263 Expenditures General government support $ 7,623,121 $ 6,790,925 $ 832,196 Public safety 11,898,725 11,335,177 563,548 Public health 43,300 33,300 10,000 Transportation 4,206,697 3,975,642 231,055 Economic assistance and opportunity 1,331,918 1,310,983 20,935 Culture and recreation 334,143 314,957 19,186 Home and com m unity services 9,468,004 7,464,985 2,003,019 Employee benefits 12,880,784 12,229,150 651,634 Capital Outlay 5,279,628 2,357,731 2,921,897 Debt service principal and interest 3,766,570 3,759,435 7,135 Total Governmental Fund Expenditures $ 56,832,890 $ 49,572,285 $ 7,260,605 -10- l L/ TOWN OF SOUTHOLD MANAGEMENT'S DISCUSSION AND ANALYSIS December 31, 2018 FINANCIAL ANALYSIS OF THE TOWN'S FUNDS (continued) Governmental Funds(continued) • Although the Town appropriated $11,225,000 (which includes $9,930,000 of appropriated fund balance from the Community Preservation Fund) of prior year fund balance to finance the 2018 operations, excluding open purchase orders brought forward, the total fund balance decreased $2,195,663. J Governmental revenues increased by$1,472,263. The increase is due to the following: increases in real property taxes of$801,917, increases in non-property tax items of$317,163 which is mainly attributable to an additional revenue from the 2%transfer tax, increases in sales of property and compensation for loss of $333,504 and increases in use of money and property of $205,722. This was offset by decreases in departmental income of $294,742 due to $424,750 in housing fund donations received in the prior year that did not recur in the current year offset by increases in tipping fees of $99,096 in the current year. State aid also decreased due to the Town receiving a one-time$250,000 DASNY grant in the prior year. �1 • Overall, governmental expenditures increased $7,260,605. The increase is due to the following: increases in general government support and public safety of $832,196 and $563,548, respectively, is due to retroactive payment of salaries due to contract negotiations. Home and community increased $2,003,019 due to more land acquisitions made during 2018 in the Community Preservation Fund. Increases in employee benefits of $651,634 due to an increase in medical benefits from premium increases of approximately 7%to 9% and the increase in the 207C benefits as well. Increases in capital outlay of$2,921,897 related to an increase of new projects starting in 2018. General Fund The General Fund is the chief operating fund of the Town. At the end of the current year, the total fund balance of the General Fund was $11,321,588, increasing by $602,779 or 5.6% from the prior year. Of this 0 amount, $671,566 is not in spendable form (i.e. inventory and prepaid items). The committed fund balance of $94,123 represents park and recreation subdivision fees assessed through Town Code which can only be expended on park, playground, or other recreational purposes. The remaining $10,555,899 of the fund balance is in spendable form as follows: $373,307 is assigned for insurance claims; $985,000 has been assigned by the Town Board for the subsequent year's budget and $272,086 has been assigned for encumbrances resulting from open purchase orders, and the remaining $8,925,506 represents unassigned fund balance. As a measure of the general funds' liquidity, it may be useful to compare spendable fund balance and total fund balance to total fund expenditures and other financing uses. Spendable and total fund balance represents 34.5%and 36.7°/x, respectively, of total general fund expenditures and other financing uses. The key elements of the fund balance increase of$602,779 are as follows: • General government support was $519,432 under budget primarily due the delay of certain grant expenditures of $250,000, lower than expected contractual services of$130,000, unused contingency of $80,000, and various departments coming under budget in personal service costs, supplies and other expenditures. • Public safety was$640,183 less than budgeted which resulted mainly from the savings in personnel costs due to retirements as positions were unfilled. • Employee benefits were $686,985 under budget due to the Town conservatively budgeting for social security costs and retirement contributions which amounted to$208,000 and$378,000, respectively. Highway Fund At the end of the current year, the total fund balance of the highway fund was $1,430,196 increasing by$268,186 or 23.1%from the prior year. Of this amount, $177,077 is not in spendable form (i.e. prepaid and inventory items). The remaining $1,253,119 of the fund balance is in spendable form as follows: $75,000 has been assigned by the Town Board for the subsequent year's budget, $5,984 has been assigned for encumbrances resulting from open purchase orders,and the remaining$1,172,135 is assigned for highway purposes. -11- TOWN OF SOUTHOLD MANAGEMENT'S DISCUSSION AND ANALYSIS December 31, 2018 FINANCIAL ANALYSIS OF THE TOWN'S FUNDS (continued) 1 ' Governmental Funds(continued) Highway Fund (continued) The key elements of the fund balance increase of$268,186 are as follows: • State aid received was more than anticipated by$31,513 due to revenues received for the 10%portion of Sandy grants along with an increase in the Consolidated Highway Improvement Program revenue. • Licenses and permits revenue received was more than budgeted by$74,660 due to Highway Department implemented a permit fee which generated$66,000 in additional revenues. • Employee benefits savings of $113,673 resulted from conservative budgeting for retirement and health insurance costs. Capital Projects Fund At the end of the current year,the capital projects fund had a fund deficit of$3,520,483. The fund balance decreased in the capital projects fund by $3,705,634 from the prior year. This decrease resulted from the Town using short-term borrowings to finance the current year capital outlay. Community Preservation Fund The Community Preservation Fund's total fund balance, which is restricted for land preservation acquisitions, increased by $354,553 to $17,781,986. The increase in fund balance is attributable to an excess of the 2% transfer tax revenue over land acquisitions and related debt service costs. Nonmajor Governmental Funds At the end of the current year, the total fund balance of the nonmajor governmental funds was $2,829,213, increasing $284,453 from the prior year. Of this amount, $96,062 is not in spendable form (i.e. prepaids and inventory). The committed fund balance of $424,750 is related to housing fund fees assessed through Town Code which can only be expended on affordable housing projects in the Town. The remaining $2,308,401 of the fund balance is in spendable form as follows; $200,000 for subsequent year's budget, $56,962 assigned for encumbrances resulting from open purchase orders, and the remaining $2,051,439 of fund balance is assigned for nonmajor governmental fund purposes. The key elements of the fund balance increase of$284,453 are as follows: • The Part Town's fund balance is $1,949,257, an increase of $201,403 from the prior year which was due to lower than expected employee benefit costs of $70,000, increased department revenues of $86,000 and franchise fees of$22,000, supplemented by costs savings by various departments. • Solid Waste Management's District fund balance is $819,847, an increase of$91,058, which was due to revenues exceeding budgeted amounts by$145,000, mainly driven by increased tip fees collected, offset by expenditures being higher than anticipated for disposals costs associated with the increased revenue. General Fund Budgetary Highlights The Town appropriated expenditures in the original general fund budget in excess of estimated revenues in the amounts of$1,297,046, inclusive of$272,046 of encumbrances, by assigning fund balance from the prior year. Actual revenues were less than anticipated by $224,033. Actual expenditures and other uses in all budgetary line items were less than the budgetary appropriation by$2,159,775. -12- '^l ` J TOWN OF SOUTHOLD MANAGEMENT'S DISCUSSION AND ANALYSIS December 31, 2018 FINANCIAL ANALYSIS OF THE TOWN'S FUNDS (continued) Governmental Funds(continued) General Fund Budgetary Highlights (continued) Over the course of the year,the Town Board revises the budget as needed so that expenditures do not exceed appropriations. In all Town funds, various transfers between appropriations were approved for this purpose. The following are the main components of the increase in appropriations: • The Town increased the departmental revenues budget by $51,000 due to additional projects funded by park and recreation revenue being authorized. • Increase to sale of property and compensation for loss of $291,886 was due to amounts added for reimbursements for cost of property damage of over$300,000 that occurred at Town Hall. • Miscellaneous local sources increased appropriations of$61,997 due to amounts received for the PEG grant of$51,651. • The Town increased their appropriations by $382,375 in public safety to account for employee separation payments made. CAPITAL ASSET AND DEBT ADMINISTRATION Capital Assets As of December 31, 2018, the primary government had $177,891,265 in net capital assets including land and land development rights, buildings, improvements, machinery and equipment, and infrastructure. The Town's component units had $13,888,204 in net capital assets including land, buildings, improvements, machinery and equipment, and infrastructure. Capital Assets at December 31, Primary Government 2018 2017 Land $ 11,519,469 $ 8,686,728 Land development rights 128,533,182 125,268,886 Construction in progress 346,440 228,536 Buildings 20,510,301 17,129,926 Improvements other than buildings 16,697,956 16,376,677 Machineryand equipment 13,108,448 13,036,054 Software 1,153,366 1,144,497 Infrastructure 84,054,426 82,798,533 Total Capital Assets 275,923,588 264,669,837 Less:accumulated depreciation 98,032,323 95,576,250 Primary Government-Total Net Capital Assets $ 177,891,265 $ 169,093,587 Component Units J Land $ 2,103,162 $ 2,103,162 Construction in progress 203,403 66,323 Buildings 14,162,781 14,145,321 Improvements otherthan buildings 2,565,954 2,557,294 Machineryand equipment 4,131,751 4,117,286 Infrastructure 4,739,093 4,739,093 Total Capital Assets 27,906,144 27,728,479 Less:accumulated depreciation 14,017,940 13,239,392 Component Units -Total Net Capital Assets $ 13,888,204 $ 14,489,087 -13- TOWN OF SOUTHOLD MANAGEMENT'S DISCUSSION AND ANALYSIS December 31, 2018 CAPITAL ASSET AND DEBT ADMINISTRATION (continued) Capital Assets(continued) In 2018, the primary government's major capital asset acquisitions were as follows: • Land and land development rights of$6,097,037. • Buildings of$3,380,375. r • Infrastructure of$1,255,893. The capital program is a long-range financing guide and not a definitive plan. Each appropriation must be authorized by Town Board resolution before being undertaken. Each may be financed by issuance of general obligation bonds, which, at times, are preceded by issuance of bond anticipation notes for various periods of time depending on the period of probable usefulness of the purpose of expenditure. The Town's three-year capital plan is summarized below: 2019 2020 2021 Machinery and Equipment General Fund $ 207,500 $ 161,000 $ -0- Highway Fund -0- 22,500 64,000 Solid Waste District Fund 20,000 20,000 -0- Building and Improvements General Fund 510,000 35,000 -0- Infrastructure General Fund 80,000 90,000 -0- Highway Fund 400,000 430,000 400,000 Totals $ 1,217,500 $ 758,500 $ 464,000 Additional information on the Town's capital assets can be found in Note C.3 to the financial statements. Debt At December 31, 2018, the Town had approximately $36.3 million in long-term general obligation bonds and bond anticipation notes outstanding. Outstanding Debt Governmental Activities 2018 2017 General obligation bonds payable* $ 29,075,000 $ 31,850,000 Bond anticipation notes 7,210,000 760,000 $ 36,285,000 $ 32,610,000 *This did not include the bond premium as presented in the Statement of Net Position. The Town of Southold's bond credit rating from Moody's Investors Services was Aa1 as of December 31,2018. Debt Limit - The Town has the power to contract indebtedness for any Town purpose so long as the principal amount thereof, subject to certain limited exceptions, shall not exceed seven percent of the average full valuation of taxable real estate of the Town, and subject to certain enumerated exclusions and deductions such as water and certain sewer facilities and cash or appropriations for current debt service. -14- TOWN OF SOUTHOLD MANAGEMENT'S DISCUSSION AND ANALYSIS December 31, 2018 CAPITAL ASSET AND DEBT ADMINISTRATION (continued) Debt(continued) The constitutional method for determining full valuation is calculated by taking the assessed valuation of taxable real estate as shown upon the latest completed assessment roll and dividing the same by the equalization rate as determined by the State Board of Equalization and Assessment. The State Legislature is required to prescribe the manner by which such ratio shall be determined. Average full valuation is determined by taking the sum of the full valuation of the last completed assessment roll and the four preceding assessment rolls and dividing such sum by five. The percentage of debt contracting power exhausted at December 31, 2018 was 5.56%. Additional information on the Town's debt activity can be found in Note CA to the financial statements. ECONOMIC FACTORS AND NEXT YEAR'S BUDGETS AND RATES Property Tax The Town has adopted a budget for the 2019 fiscal year which factors in inflation and other adjustments to revenues and expenditures as well as prior year positive and negative fund balances. The 2019 budget includes an overall increase in real property tax revenues from the prior year of approximately 3.73% for the general Town governmental activities. In June 2011, New York State enacted Chapter 97, Laws of 2011 Real Property Tax Levy Cap and Mandate Relief Provisions, which includes a 2% property tax cap for municipalities that affects the Town and its municipal component units. Beginning in 2012, no local government is authorized to increase its property tax levy by more than 2% or the rate of inflation (whichever is less). Local governments can exceed the tax levy limit by a 60% vote of the governing body, or local law. There are permitted exceptions and adjustments. The Town is currently evaluating the effect of the cap on future year's budgets. State Aid and Local Assistance The Town receives financial assistance from New York State and from Suffolk County. During 2018, financial assistance included state aid consisting of mortgage tax of $1,231,024,and consolidated highway aid of $597,017. State aid per capita was $88,328, County sales tax of $1,288,673 and local government assistance was $149,998. Additionally, if the State should not adopt its budget in a timely manner, municipalities and school districts in the State, including the Town, may be affected by a delay in the payment of state aid. The State is not constitutionally obligated to maintain or continue state aid to the Town. The Town's 2019 budget included similar amounts for this financial assistance. CONTACTING THE TOWN'S FINANCIAL MANAGEMENT This financial report is designed to provide our citizens, taxpayers, customers, and creditors with a general overview of the Town's finances and to show the Town's accountability for the money it receives. If you have questions about this report or need additional financial information, contact the Town of Southold, Office of the Town Comptroller, Southold, New York. -15- BASIC FINANCIAL STATEMENTS TOWN OF SOUTHOLD GOVERNMENT-WIDE FINANCIAL STATEMENT STATEMENT OF NET POSITION December 31, 2018 Primary Nonmaior Governmental Component Activities Units ASSETS Current Assets: Cash and investments $ 42,753,883 $ 3,041,473 Accounts receivable 318,298 48,307 State and federal aid receivables 406,199 23,211 Due from other governments 3,885,114 390 Due from primary government 515,662 Inventory of material and supplies 127,779 Prepaids 823,675 102,688 Total Current Assets 48,314,948 3,731,731 Noncurrent Assets: Non-depreciable capital assets 140,399,091 2,306,565 Depreciable capital assets,net of depreciation 37,492,174 11,581,639 Total Noncurrent Assets 177,891,265 13,888,204 Total Assets 226,206,213 17,619,935 DEFERRED OUTFLOWS OF RESOURCES Deferred charges on refundings 1,501,872 Pensions 6,302,707 524,441 Other postemployment benefits 5,551,298 201,394 Total Deferred Outflows of Resources 13,355,877 725,835 LIABILITIES Current Liabilities: Accounts payable and accrued liabilities 1,965,393 309,740 Accrued interest payable 349,864 8,387 Bond anticipation notes payable 7,210,000 970,000 Due to component units 515,662 Due to other governments 29,911 Unearned revenue 896,262 Noncurrent liabilities due within one year: General obligation bonds payable 2,350,000 320,000 Compensated absences 463,203 55,790 Claims and judgments payable 105,000 Estimated liability for landfill closure and post closure care costs 16,614 Total Current Liabilities 13,901,909 1,663,917 Noncurrent Liabilities, General obligation bonds payable 28,860,090 530,000 Compensated absences 8,800,858 167,369 Claims and judgments payable 475,707 Estimated liability for landfill closure and postclosure care costs 376,432 Net pension liability 3,279,855 158,365 Other postemployment benefits payable 78,857,979 694,599 Total Noncurrent Liabilities 120,650,921 1,550,333 Total Liabilities 134,552,830 3,214,250 DEFERRED INFLOWS OF RESOURCES Unearned revenue from real property taxes 7,406,785 515,662 Pensions 4,585,786 507,931 Total Deferred Inflows of Resources 11,992,571 1,023,593 NET POSITION Net Investment in capital assets 142,631,153 12,208,204 Restricted-Community Preservation 17,781,986 Unrestricted (67,396,450) 1,899,723 Total Net Position $ 93,016,689 $ 14,107,927 See notes to the financial statements. -16- TOWN OF SOUTHOLD GOVERNMENT-WIDE FINANCIAL STATEMENT STATEMENT OF ACTIVITIES Year Ended December 31,2018 Net Revenues(Expenses)and Program Revenues Change in Net Position Operating Capital Charges for Grants and Grants and Primary Component Function/Program Expenses Services Contributions Contributions Government Units PRIMARY GOVERNMENT Government Activities: General government support $ 11,943,924 $ 388,277 $ 9,266 $ 303,068 $ (11,243,313) Public safety 19,914,484 816,718 160,701 (18,937,065) Public health 43,300 8,157 (35,143) Transportation 6,610,839 111,291 50,454 597,017 (5,852,077) Economic assistance and opportunity 2,196,932 184,800 258,614 (1,753,518) Culture and recreation 570,143 373,144 (196,999) Home and community services 6,208,546 2,535,600 250,495 168,893 (3,253,558) Interest on debt 1,045,869 (1,045,869) Total Primary Government $48,534,037 $ 4,409,830 $ 737,687 $ 1,068,978 (42,317,542) COMPONENT UNITS General government support $ 188,959 $ (188,959) Public health 65,337 (65,337) Transportation 3,937,147 $ 3,074,007 $ 178,737 (684,403) Culture and recreation 1,071,888 26,055 (1,045,833) Home and community services 1,038,081 53,850 (984,231) Interest on debt 47,461 (47,461) Total Component Units $ 6,348,873 $ 3,153,912 $ 178,737 $ -0- (3,016,224) GENERAL REVENUES Real property taxes 35,745,326 2,556,903 Other real property tax items 68,631 Non-property tax items 10,082,325 Interest earnings 474,320 64,644 State aid-unrestricted 1,422,685 Other 819,300 172,248 Total General Revenues 48,612,587 2,793,795 Change in Net Position 6,295,045 (222,429) Net Position at Beginning of Year 108,659,640 14,553,002 Cumulative Effect of Change in Accounting Principle (21,937,996) (222,646) Net Position at Beginning of Year,as restated 86,721,644 14,330,356 Net Position at End of Year $ 93,016,689 $ 14,107,927 See notes to financial statements. -17- TOWN OF SOUTHOLD BALANCE SHEET GOVERNMENTAL FUNDS December 31, 2018 MAJOR GOVERNMENTAL FUNDS Non-Major Capital Community Governmental General Highway Projects Preservation Funds Totals ASSETS Cash and investments $ 18,097,558 $ 1,156,594 $ 3,610,598 $ 16,972,519 $ 2,916,614 $ 42,753,883 Accounts receivable 35,367 1,033 2,357 4,044 275,497 318,298 Due from other funds 463,026 1,197,185 491,894 3,833 792,053 2,947,991 State and federal aid receivable 52,076 434 258,498 40,147 55,044 406,199 Due from other governments 1,979,051 597,017 59,371 794,694 454,981 3,885,114 Inventory of material and supplies 7,165 101,830 18,784 127,779 Prepaids 664,401 75,247 6,749 77,278 823,675 Total Assets $ 21,298,644 $ 3,129,340 $ 4,422,718 $ 17,821,986 $ 4,590,251 $ 51,262,939 LIABILITIES Accounts payable and accrued liabilities $ 897,463 $ 230,202 $ 272,752 $ 24,947 $ 540,029 $ 1;965,393 Judgments and claims 39,762 39,762 Bond anticipation notes payable 7,210,000 7,210,000 Due to other funds 2,223,482 279,055 329,124 15,053 101,277 2,947,991 Due to component units 515,662 515,662 Due to other governments 29,751 160 29,911 Unearned revenue 336,778 6,375 131,325 421,784 896,262 Total Liabilities' 4,042,898 515,792 7,943,201 40,000 1,063,090 13,604,981 DEFERRED INFLOWS OF RESOURCES Unavailable revenue 408,673 408,673 Unearned revenue from real property taxes 5,525,485 1,183,352 697,948 7,406,785 Total Deferred Inflows of Resources 5,934,158 1,183,352 -0- -0- 697,948 7,815,458 FUND BALANCES Nonspendable 671,566 177,077 6,749 96,062 951,454 Restricted 179775,237 17,775,237 Committed 94,123 424,750 518,873 Assigned 1,630,393 1,253,119 2,308,401 5,191,913 Unassigned 8,925,506 (3,520,483) 5,405,023 Total Fund Balances 11,321,588 1,430,196 (3,520,483) 17,781,986 2,829,213 29,842,500 Total Liabilities,Deferred Inflows of r Resources and Fund Balances $ 21,298,644 $ 39129,340 $ 4,422,718 $ 17,821,986 $ 4,590,251 $ 51,262,939 See notes to the financial statements. -18- TOWN OF SOUTHOLD RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION December 31, 2018 Total Fund Balances -Governmental Funds $ 29,842,500 Amounts reported for governmental activities in the Statement of Net Position are different because: Capital assets less accumulated depreciation are included in the Statement of Net Position: Capital assets- non-depreciable $ 140,399,091 Capital assets-depreciable 135,524,497 Accumulated depreciation (98,032,323) 177,891,265 Deferred outflows of resources are included in the Statement of Net Position 13,355,877 Long-term liabilities applicable to the Town's governmental activities are not due and payable in the current period, and accordingly, are not reported in the funds. However, these liabilities are included in the Statement of Net Position: General obligation bonds payable (31,210,090) Compensated absences (9,264,061) Claims and judgments payable (540,945) Estimated liability for landfill closure and postclosure care costs (393,046) Net pension liability (3,279,855) Other postemployment benefits payable (78,857,979) (123,545,976) Revenues in the Statement of Activities that do not provide current financial resources are not reported as revenues in the funds. 408,673 Deferred inflows of resources are included in the Statement of Net Position (4,585,786) Interest payable applicable to the Town's governmental activities are not due and payable in the current period, and accordingly, are not reported in the funds. However, these liabilities are included in the Statement of Net Position. (349,864) Net Position of Governmental Activities $ 93,016,689 See notes to financial statements. -19- TOWN OF SOUTHOLD STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS For the Year Ended December 31, 2018 MAJOR GOVERNMENTAL FUNDS Non-Major Capital Community Governmental General Highway Projects Preservation Funds Totals REVENUES Real property taxes $ 26,156,931 $ 6,088,491 $ 3,499,904 $ 35,745,326 Other real property tax items 64,466 3,695 470 68,631 Non-property tax items 1,288,673 $ 8,097,019 696,633 10,082,325 Departmental income 395,994 2,688,528 3,084,522 Intergovernmental charges 209,138 209,138 Use of money and property 278,608 22,445 $ 53,640 99,012 37,112 490,817 Licenses and permits 400,141 86,660 158,708 645,509 Fines and forfeitures 323,547 323,547 Sale of property and compensation for loss 605,983 25,374 253,428 884,785 Miscellaneous local sources 121,827 88,855 210,682 interfundrevenues 94,221 94,221 State aid 1,304,499 628,541 281,522 40,147 233,835 2,488,544 Federal aid 227,635 81,545 309,180 Total Revenues 31,471,663 6,855,206 424,017 8,236,178 7,650,163 54,637,227 EXPENDITURES Current: General government support 7,110,370 50,294 38,300 424,157 7,623,121 Public safety 10,538,901 1,359,824 11,898,725 Public health 43,300 43,300 Transportation 518,881 3,687,816 4,206,697 Economic assistance and opportunity 1,331,918 1,331,918 Culture and recreation 334,143 334,143 Home and community services 364,169 5,574,681 3,529,154 9,468,004 Employee benefits 9,535,870 1,860,902 86,728 1,397,284 12,880,784 Capital Outlay 5,279,628 5,279,628 Debt Service: Principal 615,070 117,923 1,473,913 568,094 2,775,000 Interest 162,269 34,101 708,003 87,197 991,570 Total Expenditures 30,554,891 5,751,036 5,279,628 7,881,625 7,365,710 56,832,890 Excess(Deficiency)of Revenues Over(Under)Expenditures 916,772 1,104,170 (4,855,611) 354,553 284,453 (2,195,663) OTHER FINANCING SOURCES(USES): Transfers in 1,149,977 1,149,977 Transfers out (313,993) (835,984) (1,149,977) Total Other Financing Sources(Uses) (313,993) (835,984) 1,149,977 -0- -0- -0- Net Change in Fund Balance 602,779 268,186 (3,705,634) 354,553 284,453 (2,195,663) Fund Balances at Beginning of Year 10,718,809 1,162,010 185,151 17,427,433 2,544,760 32,038,163 Fund Balances at End of Year $ 11,321,588 $ 1,430,196 $ (3,520,483) $ 17,781,986 $ 2,829,213 $ 29,842,500 See notes to the financial statements. -20- TOWN OF SOUTHOLD RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES For the Year Ended December 31, 2018 Net Change in Fund Balance $ (2,195,663) 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 and reported as depreciation expense.The amount by which capital outlay exceeds depreciation in the current period is: Capital asset additions $ 11,653,188 Depreciation expense (2,841,533) Loss on dispositions (13,977) 8,797,678 Revenues in the Statement of Activities that do not provide current financial resources are not reported as revenues in the funds. 103,332 Net change in deferred outflows of resources not reported in the governmental fund statements: Deferred charges on refundings (127,882) Pension related amounts (1,905,481) Other postemployment benefits 3,679,951 1,646,588 Net change in deferred inflows of resources related to pensions. (3,075,970) Premiums on bond issuances recognized in governmental fund statements when issued and capitalized and amortized in the Statement of Activities. 182,744 Long-term liabilities applicable to the Town's governmental activities are not due and payable in the current period and accordingly are not reported in the funds. However, these liabilities are included in the Statement of Net Position: Repayment of bond principal 2,775,000 Compensated absences 11,903 Claims and judgments payable 2,200 Estimated liability for landfill closure and postclosure care costs 16,614 Net pension liability 4,792,789 Other postemployment benefits payable (6,835,753) Accrued interest payable 73,583 836,336 Change in Net Position of Governmental Activities $ 6,295,045 See notes to financial statements. -21- • TOWN OF SOUTHOLD STATEMENT OF FIDUCIARY ASSETS AND LIABILITIES December 31,2018 • Totals ASSETS Cash and investments $ 20,487,247 Other receivables 28,235 • Total Assets $ 20,515,482 LIABILITIES Due to other governments $ 20,289,533 Other liabilities 51,486 • Deposits held 174,463 Total Liabilities $ 20,515,482 See notes to financial statements. -22- TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES t The Town of Southold (the `Town"), which was established in 1640, is governed by Town Law and other general laws of the State of New York and various local laws. The Town Board is the legislative body responsible for overall operations.The Town Board consists of the Supervisor who is elected for a term of four years and five council members who are elected for terms of four years.The Town Board appoints the Town Attorney and Town Comptroller. The Town Clerk, Receiver of Taxes, Superintendent of Highways, Justices and Town Trustees are all elected and serve for four years, respectively. The Town provides a full range of municipal services, including public safety, transportation, home and community services, public works and road maintenance, recreation and parks, and general and administrative services. The financial statements of the Town of Southold have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) as applied to governmental units. The Governmental Accounting Standards Board (GASB) is the accepted standard setting body for establishing governmental accounting and financial reporting principles. The more significant of the government's accounting policies are described below. 1. REPORTING ENTITY The financial reporting entity consists of: (a) the primary government, which is the Town of Southold; (b) organizations for which the primary government is financially accountable; and (c) other organizations for which the nature and significance of their relationship with the primary government are such that exclusion would cause the reporting entity's financial statements to be misleading or incomplete. The decision to include a potential component unit in the Town of Southold reporting entity is based on several criteria including legal standing, dependency and financial accountability. The current guidance also clarifies the status as a major or nonmajor component unit. Based on the application of these criteria, the following is a summary of certain entities considered in determining the Town's reporting entity. Discretely Presented Component Units: The following entities are discretely presented component units of the Town of Southold: a) Fishers Island Ferry District was established in 1947 by a special act of legislation within the State of New York, known as the Ferry District Enabling Act. The Board of Commissioners is the legislative body responsible for the overall operations. The Board of Commissioners consists of five members, all of whom are elected by the residents of the District. The primary function of the District is to provide ferry operations and services to District residents. Special districts cannot issue bonded debt without the approval and the backing of the full faith and credit of the Town. The Town issues indebtedness on behalf of the District which is responsible for the payment of annual debt service on the obligations. Budgets and tax rates are not approved by the Town. Tax levies of the District are collected by the Town Receiver of Taxes.This District is included in the Town's reporting entity since the primary government issues debt on behalf of the District as these districts cannot issue bonded debt without the approval and the backing of the full faith and credit of the Town. b) Fishers Island Waste Management District was established in 1952 and is governed by the laws of New York State. The Board of Commissioners is the legislative body responsible for the overall operations. The Board of Commissioners consists of five members, all of whom are elected by the residents of the District. The primary function of the District is to provide waste management and disposal services to District residents. Special districts cannot issue bonded debt without the approval _ and the backing of the full faith and credit of the Town. The Town issues indebtedness on behalf of the District which is responsible for the payment of annual debt service on the obligations.Tax levies of the District are collected by the Town Receiver of Taxes. This District is included in the Town's reporting entity since the primary government issues debt on behalf of the District as these districts cannot issue bonded debt without the approval and the backing of the full faith and credit of the Town. -23- TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) r 1. REPORTING ENTITY(continued) Discretely Presented Component Units(continued): c) Cutchogue-New Suffolk Park District was established in 1953 and is governed by the laws of New York State.The Board of Commissioners is the legislative body responsible for the overall operations. • The Board of Commissioners consists of three members, all of whom are elected by the residents of the District.The primary function of the District is to maintain and operate the specific private beaches of residents who reside within the park district. Special districts cannot issue bonded debt without the approval and the backing of the full faith and credit of the Town. The Town issues indebtedness on behalf of the District which is responsible for the payment of annual debt service on the obligations. Tax levies of the District are collected by the Town Receiver of Taxes. This District is included in the Town's reporting entity since the primary government issues debt on behalf of the District as these districts cannot issue bonded debt without the approval and the backing of the full faith and credit of the Town. d) Southold Park District was established in 1907 and is governed by the laws of New York State. The Board of Commissioners is the legislative body responsible for the overall operations. The Board of Commissioners consists of three members, all of whom are elected by the residents of the District. The primary function of the District is to maintain and operate the specific private beaches of residents who reside within the park district. Special districts cannot issue bonded debt without the approval and the backing of the full faith and credit of the Town. The Town issues indebtedness on behalf of the District which is responsible for the payment of annual debt service on the obligations. Tax levies of the District are collected by the Town Receiver of Taxes. This District is included in the Town's reporting entity since the primary government issues debt on behalf of the District as these districts Ak cannot issue bonded debt without the approval and the backing of the full faith and credit of the Town. e) Orient-East Marion Park District was established in 1969 and is governed by the laws of New York State. The Board of Commissioners is the legislative body responsible for the overall operations.The Board of Commissioners consists of three members, all of whom are elected by the residents of the District. The primary function of the District is to maintain and operate the specific private beaches of residents who reside within the park district. Special districts cannot issue bonded debt without the iD approval and the backing of the full faith and credit of the Town. The Town issues indebtedness on behalf of the District which is responsible for the payment of annual debt service on the obligations. Tax levies of the District are collected by the Town Receiver of Taxes. This District is included in the Town's reporting entity since the primary government issues debt on behalf of the District as these districts cannot issue bonded debt without the approval and the backing of the full faith and credit of the Town. f) Mattituck Park District was established in 1941 and is governed by the laws of New York State. The Board of Commissioners is the legislative body responsible for the overall operations. The Board of Commissioners consists of three members, all of whom are elected by the residents of the District. The primary function of the District is to maintain and operate the specific private beaches of residents who reside within the park district. Special districts cannot issue bonded debt without the approval and the backing of the full faith and credit of the Town. The Town issues indebtedness on behalf of the District which is responsible for the payment of annual debt service on the obligations.Tax levies of the District are collected by the Town Receiver of Taxes. This District is included in the Town's reporting entity since the primary government issues debt on behalf of the District as these districts cannot issue bonded debt without the approval and the backing of the full faith and credit of the Town. -24- TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 1. REPORTING ENTITY(continued) Discretely Presented Component Units(continued): g) Orient Mosquito District was established in 1916 and is governed by the laws of New York State.The Board of Commissioners is the legislative body responsible for the overall operations. The Board of Commissioners consists of five members, all of whom are elected by the residents of the District.The primary function of the District is to provide pest control services to District residents. Special districts cannot issue bonded debt without the approval and the backing of the full faith and credit of the Town. The Town issues indebtedness on behalf of the District which is responsible for the payment of annual debt service on the obligations.Tax levies of the District are collected by the Town Receiver of Taxes. This District is included in the Town's reporting entity since the primary government issues debt on behalf of the District as these districts cannot issue bonded debt without the approval and the backing of the full faith and credit of the Town. All of the Town of Southold's discretely presented component units are considered nonmajor. 2. GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS The Town's basic financial statements include both government-wide (reporting the Town as a whole) and fund financial statements (reporting the Town's major funds). Government-wide Financial Statements The government-wide financial statements (i.e. the Statement of Net Position and the Statement of Activities) report information on all of the non-fiduciary activities of the Town as a whole with separate columns for the primary governmental activities, as well as the discretely presented component units. For the most part, the effect of interfund activity has been eliminated from the government-wide financial statements, except for interfund services provided and used. The government-wide Statement of Activities demonstrates the degree to which the direct expenses of a given function are offset by program revenue. Direct expenses are those that are clearly identifiable with a specific function. Program revenues include (1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function, (2) grants and contributions that are restricted to meeting the operation and capital requirements of a particular function, or (3) interest earned on grants or capital projects that is required to be used to support a particular program or project. Taxes and other items not properly included among program revenues are reported as general revenues. The Town does not allocate indirect expenses to specific functions in the Statement of Activities. Fund Financial Statements Separate financial statements are provided for governmental funds and fiduciary funds, even though the fiduciary funds are excluded from the government-wide financial statements. Major individual governmental funds are reported as separate columns in the fund financial statements. The accounts of the Town are organized on the basis of funds, each of which is considered a separate accounting entity. The operations of each fund are accounted for with a separate set of self-balancing accounts that comprise its assets, liabilities, deferred inflows of resources, fund balances, revenues, and expenditures, which are segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions or limitations. The various funds are presented by type in the fund financial statements. Certain funds of the Town are utilized to account for resources derived from and/or expenditures applicable to an area less than the entire Town. The focus of the governmental funds financial statements is on the major funds. Accordingly, the Town maintains the following fund types: -25- TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(continued) r; 2. GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS (continued) Fund Financial Statements(continued) Governmental Funds - Governmental funds are those through which most governmental functions are financed. The acquisition, use and balances of expendable financial resources and the related liabilities are accounted for through governmental funds. The measurement focus of the governmental funds is upon the determination of financial position and changes in financial position. Governmental funds are further classified as major and nonmajor funds. The Town reports the following major governmental funds: General Fund - is the principal operating fund of the Town. This fund is used to account for all financial resources not accounted for and reported in another fund. Special Revenue Funds - are used to account for and report the proceeds of specific revenue sources that are restricted or committed to expenditures for specified purposes other than debt service or capital projects. Highway Fund - is a Special Revenue Fund used to account for revenues and expenditures for highway purposes provided to the Town and to the area of the Town located outside of the Village of Greenport. The major areas of expenditures are repairs and improvements to roadways, machinery, and snow removal.The major source of revenue is real property taxes. Community Preservation Fund - is used to account for and report financial resources that are restricted for the purchase of land and land development rights. The major source of revenue is the transfer tax. See Note F. Capital Proiects Fund - used to account for and report financial resources that are restricted, committed, or assigned to expenditures for capital outlays, including the acquisition or construction of major capital facilities and other capital assets. Additionally,the Town accounts for and reports the following nonmajor funds: Special Revenue funds include the following: General Fund Part Town - is used to account for revenues and expenditures for certain services provided to the area of the Town located outside of the Village of Greenport. The major source of revenue is real property taxes, non-property tax items and building permits. Special Grant Fund - is used to account for federal aid for the Community Development Block Grant Program. Special District Funds - are used to account for taxes or other revenues, which are raised or received to provide special services to areas that encompass less than the whole town. The Special District Funds consist of a number of separate districts, which are administered by the Town Board as follows: East-West Fire Protection District, Southold Wastewater District, Fishers Island Sewer District, and the Solid Waste Management District. Fiduciary Funds - Fiduciary Funds are used to account for assets held by the Town in a trustee or custodial capacity. Agency Fund - is used to account for money (and/or property) received and held in the capacity of trustee,custodian or agent. -26- TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(continued) 3. MEASUREMENT FOCUS, BASIS OF ACCOUNTING, AND FINANCIAL STATEMENT PRESENTATION The accounting and financial reporting treatment is determined by the applicable measurement focus and basis of accounting. Measurement focus refers to what is being measured, whereas the basis of accounting refers to when revenues and expenditures are recognized in the accounts and reported in the financial statements. Basis of accounting relates to the timing of the measurement made, regardless of the measurement focus applied. The government-wide statements are reported using the economic resources measurement focus and 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, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the Town generally considers revenues to be available if they are collected within 60 days after the year end. In certain circumstances this application of the Town's normal availability period for a given revenue source might distort revenue trends from one year to the next. In such unusual circumstances, revenues may be considered available if received beyond 60 days. However,to the extent the revenue remains uncollected after one year the Town would classify the fund balance as nonspendable. �J Revenues susceptible to accrual include Suffolk County local assistance at year end on behalf of the Town, franchise fees, mortgage taxes and certain charges for services and intergovernmental revenues. Permits, fees, and other similar revenues are not susceptible to accrual because generally they are not measurable until they are received in cash. In those instances where expenditures are the prime factor in determining eligibility for state and federal grants, revenues are recognized when the expenditure is incurred. In the governmental funds,the issuance of long-term debt is reported as other financing sources upon receipt of the proceeds. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences, claims and judgments, landfill closure and postclosure care costs, other postemployment benefits payable and the proportionate share of the net pension liability are recorded when payment is due. General capital asset acquisitions are reported as expenditures in governmental funds. Because governmental fund statements are presented using a measurement focus and a basis of accounting different from that used in the government-wide statements governmental column, a reconciliation is presented that briefly explains the adjustment necessary to reconcile ending net position and the change in net position. 4. ASSETS, LIABILITIES, DEFERRED OUTFLOWS/INFLOWS OF RESOURCES, AND NET POSITION/FUND BALANCE CASH AND INVESTMENTS Cash consists of funds deposited in demand accounts, time deposit accounts and certificates of deposit with maturities of less than three months. -27- TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(continued) 4. ASSETS, LIABILITIES, DEFERRED OUTFLOWS/INFLOWS OF RESOURCES, AND NET POSITION/FUND BALANCE(continued) CASH AND INVESTMENTS (continued) State statutes govern the Town's investment policies.The Town's investments are governed by a formal • investment policy. The Town's monies must be deposited in FDIC-insured commercial banks or trust companies located within the State. The Town is authorized to use demand accounts and certificates of deposit. Permissible investments include obligations of the U.S. Treasury, U.S. Agencies and investments made by the Cooperative Liquid Asset Security System (CLASS). Collateral is required for demand deposits and time deposit accounts at 100%of all deposits not covered by federal deposit insurance. Obligations that may be pledged as collateral include obligations of the United States and its agencies, obligations of the State and its municipalities, and school districts. The Town's collateral agreements are based on the Town's available balance. RECEIVABLES Receivables include amounts due from Federal, State and other governments or entities for services W provided by the Town. Receivables are recorded, and revenues recognized as earned or as specific program expenditures are incurred. DUE FROM/TO OTHER FUNDS During the course of operations, the government has activity between funds for various purposes. Any residual balance outstanding at year-end is reported as due from/due to other funds. While these balances are reported in fund financial statements, certain eliminations are made in the preparation of the government-wide financial statements. INVENTORY AND PREPAID ITEMS Inventory in the General and Special Revenue Funds is valued at cost, using weighted average cost method. Inventory in these funds is accounted for under the consumption method. Certain payments to vendors reflect costs applicable to future accounting periods and are reported as prepaid items in both the government-wide and fund financial statements. Prepaids represent health insurance and retirement benefits that will benefit a future period. In governmental funds, amounts reported as inventories and prepaid items are equally offset by nonspendable fund balance amounts, indicating that they do not constitute "available spendable resources"even though they are a component of assets. CAPITAL ASSETS Capital assets purchased or acquired with an original cost of $5,000 or more are reported at historical cost or estimated historical cost. Contributed assets are reported at acquisition value as of the date of donation. Additions, improvements and other capital outlays that significantly extend the useful life of an asset are capitalized. Other costs incurred for repairs and maintenance are expensed as incurred. Depreciation and amortization on all assets is provided on the straight-line basis over the following estimated useful lives: Buildings 10-40 years Improvements other than buildings 20 years Machinery and equipment 5-10 years Software 5-10 years Infrastructure 20-30 years -28- tJ TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(continued) 4. ASSETS, LIABILITIES, DEFERRED OUTFLOWSANFLOWS OF RESOURCES, AND NET/POSITION/FUND BALANCE (continued) CAPITAL ASSETS(continued) Infrastructure assets, consisting of certain improvements other than buildings including roads, curbs, sidewalks, bridges, drainage and street lighting are capitalized along with other capital assets. Intangible assets lack physical substance, are nonfinancial in nature, and have an estimated useful life extending beyond a single reporting period. The term depreciation, as used in these footnotes, includes amortization of intangible assets. In the fund financial statements, capital assets are recorded as capital outlay expenditures in the governmental fund upon acquisition. DEFERRED OUTFLOWS/INFLOWS OF RESOURCES In addition to assets, the Statement of Net Position will sometimes report a separate section for deferred outflows of resources. Deferred outflows of resources represent a consumption of net position that applies to a future period(s) and so will not be recognized as an outflow of resources (expenditure/expense) until that time. Deferred outflows of resources consist of deferred charges on refundings, pension related amounts, and other postemployment benefits related amounts.The deferred charges on refundings stem from advanced refunding of debt. The difference between the cost of securities placed in a trust for future payment of refunded debt and the net carrying value of that debt is deferred and amortized as a component of interest expense over the shorter of the term of the refunding issue or the original term of the refunded debt. The amounts related to pensions consists of contributions made subsequent to the measurement date, changes in proportion and differences between employer contribution and proportionate share of contributions, changes of assumptions, and differences between the pension plans expected and actual experience. The amounts related to other postemployment benefits consists of changes in assumptions and contributions made subsequent to the measurement date. In addition to liabilities, the Statement of Net Position and balance sheet 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 so will not be recognized as an inflow of resources (revenue) until that time. The Town's deferred inflows of resources consists of the following: unavailable revenue, unearned revenue from real property taxes and pension related amounts. In the governmental funds, unavailable revenue represents amounts that do not meet the availability criteria applicable to revenue recognition under the modified accrual basis of accounting. These amounts are deferred and recognized as an inflow of resources in the period the amounts become available. The unavailable revenue includes amounts for mortgage tax that relate to the current year that do not meet the availability criteria.The unearned revenue relates to the collection of real estate taxes for a future period and are accordingly reported as a deferred inflow in the government-wide Statement of Net Position as well as the governmental Balance Sheet. In the Statement of Net Position, the Town reports deferred inflows of resources associated with its pension and the amounts are derived from the changes in proportion and differences between the Town's contributions and proportionate share of contributions, the differences between expected and actual experience and net difference between projected and actual investment earnings on pension plan investments. UNEARNED REVENUE Unearned revenues, reported as liabilities in the fund and government-wide financial statements, are those which asset recognition criteria have been met, but which revenue recognition criteria have not been met for exchange type transactions. Such amounts include collections in advance for fee income relating to 2019. Ank -29- TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(continued) 4. ASSETS, LIABILITIES, DEFERRED OUTFLOWSANFLOWS OF RESOURCES, AND NET POSITIONIFUND BALANCE (continued) PREMIUMS OF DEBT ISSUANCE Premiums related to the issuance of long-term debt are amortized on a straight-line basis over the life of the issue and are presented as part of the general obligation bonds payable in the non-current liabilities. LONG-TERM OBLIGATIONS In the government-wide financial statements, liabilities for long-term obligations consisting of general obligation bonds, compensated absences, claims and judgments, liability for landfill closure and postclosure costs, net pension liability, and other postemployment benefits payable are recognized in the Statement of Net Position. Bond premiums or discounts are deferred and amortized on a straight-line basis over the life of the bonds. Bonds payable are reported net of applicable bond premium or discount. Bond issuance costs are expensed as incurred. In the fund financial statements, long-term obligations are not reported as liabilities. Governmental funds recognize bond premiums and discounts, as well as bond issuance costs, during the current period.The face amount of the debt issued is reported as other financing sources and the payment of principal and interest is reported as expenditures. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from actual debt proceeds received, are reported as debt service expenditures. INTERFUND TRANSACTIONS Interfund transactions, exclusive of interfund services provided and used, have been eliminated from the government-wide financial statements. In the funds statements, interfund transactions include: a) Interfund Revenues In the general fund, interfund revenues,which are quasi-external transactions, represent amounts charged for services or facilities provided by the general fund. The amount paid by the fund receiving the benefit of the service or facilities is reflected as an expenditure of that fund. b) Transfers Transfers primarily represent payments to the capital projects fund from the other funds for their appropriate share of the capital project costs or related BAN debt service amounts. NET POSITION AND FUND EQUITY CLASSIFICATIONS In the government-wide statements, equity is classified as net position and displayed in three components: a) Net investment in capital assets - Consists of capital assets including restricted capital assets, net of accumulated depreciation and reduced by the outstanding balances of any bonds, notes, or other borrowings that are attributable to the acquisition, construction, or improvement of those assets. Accounts payable in the capital projects fund is considered capital related debt and is used in the calculation of net investment in capital assets. b) Restricted - Consists of net position 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 - All other net position that does not meet the definition of "restricted" or "net investment in capital assets". -30- TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(continued) 4. ASSETS, LIABILITIES, DEFERRED OUTFLOWSANFLOWS OF RESOURCES, AND NET POSITIOWFUND BALANCE (continued) NET POSITION AND FUND EQUITY CLASSIFICATIONS (continued) In the fund financial statements, governmental funds report aggregate amounts for five classifications of fund balances based on the constraints imposed on the use of these resources; they are (1) nonspendable, (2) restricted, (3) committed, (4) assigned, or(5) unassigned. 1) Nonspendable fund balance includes amounts that cannot be spent because they are either (a) not in spendable form (i.e. prepaid items or inventories), or (b) will not convert to cash within the current period (i.e. long-term receivables and financial assets held for resale), or (c) legally or contractually required to be maintained intact (i.e. the principal of a permanent fund). The spendable portion of the fund balance comprises the remaining four classifications: restricted, committed, assigned, and unassigned. 2) Restricted fund balance reflects the constraints imposed on resources either (a) externally by creditors, grantors, contributors, or laws or regulation of other governments; or (b) imposed by law through constitutional provisions or enabling legislation. 3) Committed fund balance reflects amounts that can only be used for specific purposes by a government using its highest and most binding level of decision making authority. The Town's highest decision-making authority is the Town Board, who by adoption of a Town ordinance prior to year-end, can commit fund balance. Those committed amounts cannot be used for r any other purpose unless the Town Board removes or changes the specified use by taking the same type of action imposing the commitment. 4) Assigned fund balance reflects the amounts constrained by the Town's "intent" to be used for specific purposes but are neither restricted nor committed. The Town Board has the authority to assign amounts to be used for specific purposes. Assigned fund balances include all remaining amounts (except negative balances) that are reported in governmental funds, other than the general fund, that are not classified as nonspendable and are neither restricted nor committed. 5) Unassigned fund balance is the residual classification for the general fund. It is also used to report negative fund balances in other governmental funds. NET POSITION AND FUND BALANCE FLOW ASSUMPTIONS When outlays for a particular purpose can be funded from both restricted and unrestricted net position resources it is the Town's policy to consider restricted - net position to have been depleted before unrestricted - net position is applied. When both restricted and unrestricted resources are available for use, it is the Town's default policy to use restricted resources first, and then unrestricted resources- committed, assigned and unassigned - in order as needed. FUND BALANCE POLICIES The Town has, by resolution, adopted a fund balance policy that states the Town must maintain a minimum unassigned fund balance in the general fund equal to 10% of general fund expenditures. In the event that the balance drops below the established minimum level, the Town's Board will develop a plan to replenish the fund balance to the established minimum level within the current or ensuing fiscal year. ~l -31- d E A + TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 5. REVENUES AND EXPENDITURES REAL PROPERTY TAX ASSESSMENT AND COLLECTION PROCEDURES Real property taxes are levied annually no later than December 1st and are recognized as revenue January 1St of the year for which they were levied. The Town has its own Assessor's Office whose responsibilities are independent and distinct from those of the Receiver of Taxes ("Receiver"). The Town ' assessment rolls are used for the levy of property taxes by the Town and the school districts,as well as by the County of Suffolk, New York("County")and by special districts based upon a single tax bill. The Town of Southold Receiver of Taxes collects all real property taxes for the Town, Suffolk County, Town Special Districts and School Districts. These taxes are levied on December 1, and are due in two installments, 50% on December 1 and 50% on May 10, payable without penalty to January 10 and May 31, respectively. Penalties are imposed thereafter at the rate of one-twelfth of the rate of interest determined by the State Commissioner of Taxation and Finance, after which taxes are payable to the County Treasurer.The Town retains the total amount of Town, Highway and Town Special Districts levies from the amount collected, and forwards the balance collected to the County which assumes collection responsibility. The Town and Town's Special Districts therefore realize annually the 100% collection of real property taxes. OTHER POSTEMPLOYMENT BENEFITS In addition to providing pension benefits, the Town provides health insurance coverage and survivor benefits for retired employees. Substantially all of the Town's employees may become eligible for these benefits if they reach normal retirement age while working for the Town. rJ Health care benefits in accordance with New York State Health Insurance Rules and Regulations (administered by the New York State Department,of Civil Service), are provided through the New York State Empire Plan (the "Empire Plan") whose premiums are based on the benefits paid throughout the State during the year. The Town recognizes the cost of providing benefits by recording its share of insurance premiums as an expenditure in the year paid. The Town's union contracts and ordinances require that it provide its eligible enrollees with Empire Plan benefit coverage, or if another provider is utilized, the equivalent coverage. Under the provisions of the Empire Plan, premiums are adjusted on a prospective basis for any losses experienced by the Empire Plan.The Town has the option to terminate its participation in the Empire Plan at any time without liability for its respective share of any previously incurred loss. The liability for other postemployment benefits payable is recorded as a non-current liability in the government-wide statements.The current year increase in the liability is based on the most recent actuarial valuation. COMPENSATED ABSENCES The liability for vested or accumulated vacation or sick leave (compensated absences) is recorded as current and non-current obligations in the government-wide statements. The current portion of this debt is estimated based on historical trends and currently known facts. Compensated absence liabilities and expenditures are reported in governmental funds only if they have matured, for example, as a result of employee resignations, terminations, and retirements. The amount that is expected to be liquidated with expendable available financial resources is reported as expenditures and a liability in the funds statement in the respective fund that will pay the liability. -32- A i + TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 5. REVENUES AND EXPENDITURES (continued) PENSIONS The Town, as a participant in the New York State and Local Employees' Retirement System and Local Police and Fireman Retirement System, recognizes the proportionate share of the net pension liability, deferred outflows of resources, and deferred inflows of resources in the government-wide financial statements, using the accrual basis of accounting, regardless of the amount recognized as pension expenditures in the fund financial statements. The amounts recognized have been determined on the same basis as reported by the Systems, utilizing the year end of March 31 st. ENCUMBRANCES Encumbrance accounting, under which purchase orders, contracts and other commitments for the expenditures of monies are recorded for budgetary control purposes, is employed in the governmental funds. Encumbrances are reported as restrictions, commitments, or assignments of fund balances since they do not constitute expenditures or liabilities. Expenditures for such commitments are recorded in the period in which the liability is incurred. 6. USE OF ESTIMATES The preparation of basic financial statements, in conformity with accounting principles generally accepted in the United States of America, requires management to make estimates and assumptions that affect the reported amounts of assets, deferred outflows of resources, liabilities and deferred inflows of resources and, disclosure of contingent amounts, at the date of the financial statements, and the reported amounts of revenues and expenditures during the reporting period.Actual results could differ from those estimates. 7. NEW ACCOUNTING PRINCIPLES The Town has adopted all of the current Statements of the Governmental Accounting Standards Board (GASB) that are applicable. During the year ended December 31, 2018, the Town adopted Statement No. 75, "Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions", which outlines reporting by governments that provide OPEB to their employees and for governments that finance OPEB for employees of other governments. The implementation of this statement resulted in a restatement of net position as a result of the cumulative effect of the accounting change and changes to footnote disclosure and required supplementary schedules. Statement No. 82, "Pension Issues - an Amendment of Statements No. 67, 68, and 73", the objective of which is to address issues regarding (a) the presentation of payroll-related measures in required supplementary information, (b) the selection of assumptions and the treatment of deviations from the guidance in an Actuarial Standard of Practice for financial reporting purposes, and (c) the classification of payments made by employers to satisfy employee (plan member) contribution requirements. The requirements of the Statement were effective for reporting beginning after June 15, 2016, except for the requirements for selection of assumptions in a certain circumstance in which an employer's pension liability is measured as of a date other than the employer's most recent fiscal year end. The implementation of this Statement has no impact on the Town's financial statements. Statement No. 85, "Omnibus 2017", the objective of which is to address practice issues that have been identified during implementation and application of certain GASB Statements. This Statement specifically addresses issues related to blending component units, goodwill, fair value measurement i" and application and postemployment benefits (pensions and OPEB). The implementation of this Statement has no impact on the Town's financial statements. r -33- TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 7. NEW ACCOUNTING PRINCIPLES(continued) Statement No. 86, "Certain Debt Extinguishment Issues", the objective of which is to is to improve consistency in accounting and financial reporting for in-substance defeasance of debt by providing guidance for transactions in which cash and other monetary assets acquired with only existing resources (resources other than the proceeds of refunding debt) are placed in an irrevocable trust for the sole purpose of extinguishing debt. This Statement also improves accounting and financial L reporting for prepaid insurance on debt that is extinguished and notes to financial statements for debt that is defeased in substance. The implementation of this Statement has no impact on the Town's financial statements. 8. SUBSEQUENT EVENTS Management has evaluated subsequent events for disclosure and/or recognition in the financial statements through the date of the financial statements. B. STEWARDSHIP,COMPLIANCE AND ACCOUNTABILITY 1. BUDGETARY INFORMATION Budgets are adopted annually on a basis consistent with generally accepted accounting principles. Appropriations authorized for the current year are increased by the amount of encumbrances carried forward from the prior year. Budgets for the general and special revenue funds, exclusive of the special grant fund, are legally adopted for each year. The budgets are adopted on a basis of accounting consistent with GAAP, except that appropriations authorized for the current year are increased by the amount of encumbrances carried forward from the prior years. In the event that unanticipated revenues are received (i.e. specific grant revenues) and exceed budgeted amounts, additional budgetary appropriations may be made. The capital projects and special grant funds are budgeted on a project or grant basis. _. The Town follows the procedures enumerated below in establishing the budgetary data reflected in the financial statements: a) No later than October 1, the Supervisor submits a tentative budget to the Town Board for the fiscal year commencing the following fiscal year. The tentative budget includes the proposed means of financing for all funds. b) After public hearings are conducted to obtain taxpayer comments, no later than November 20, the Town Board adopts the budget. c) The Town Board must approve all modifications of the budget. However, the Comptroller is authorized to transfer certain budgeted amounts within departments. d) In June 2011, New York State enacted Chapter 97, Laws of 2011 Real Property Tax Levy Cap and Mandate Relief Provisions, which includes a 2% property tax cap for municipalities. Beginning in 2012, no local government is authorized to increase its property tax levy by more than 2% or the rate of inflation (whichever is less); however, local governments can exceed the tax levy limit by a 60%vote of the governing body and annually adopting a local law. -34- TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS B. STEWARDSHIP,COMPLIANCE AND ACCOUNTABILITY(continued) 2. FUND BALANCE The following table provides the detail regarding fund balance categories and classifications for the governmental funds which show components of nonspendable fund balances, as well as the purposes for restricted and assigned fund balance.The unassigned fund balance is also shown. Capital ConTrundy Other General Hghway Projects Preservation Governmental Fund Fund Fund Fund Funds Total Fund Balances: %nspendable: Inventory $ 7,165 $ 101,830 $ 18,784 $ 127,779 Prepaids 664,401 75,247 $ 6,749 77,278 823,675 Total Nonspendable 671,566 177,077 $ -0- 6,749 96,062 951,454 Restricted for. LandlLand right purchases 17,775,237 17,775,237 Total Restricted -0- -0- -0- 17,775,237 -0- 17,775,237 Committedfor. r Parks and Recreation 94,123 94,123 Affordable Housing 424,750 424,750 Total Committed 94,123 -0- 4 -0- 424,750 518,873 Assigned to: Subsequent year's budget 985,000 75,000 200,000 1,260,000 Purchases on order r or contractual obligations 272,086 5,984 56,962 335,032 Special revenue funds 1,172,135 2,051,439 3,223,574 Judgments and claims 373,307 373,307 Total Assigned 1,630,393 1,253,119 -0- -0- 2,308,401 5,191,913 Unassigned,reported in General Fund 8,925,506 8,925,506 Capital Projects (3,520,483) (3,520,483) Total Unrestricted 8,925,506 0- (3,520,483) -0- -0- 5,405,023 Total Fund Balances $ 11,321,588 $ 1,430,196 $ (3,520,483) $ 17,781,986 $ 2,829,213 $ 29,842,500 C. DETAILED NOTES ON ALL FUNDS 1. CASH AND INVESTMENTS Custodial Credit Risk- Deposits/Investments - Custodial credit risk for deposits exists when, in the event of the failure of a depository financial institution, a government may be unable to recover deposits, or recover collateral securities that are in possession of an outside agency. Custodial credit risk for investments exists when, in the event of the failure of the counterparty, a government will not be able to recover the value of its investments or collateral securities that are in possession of an outside party. -35- I \ TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS C. DETAILED NOTES ON ALL FUNDS (continued) 1. CASH AND INVESTMENTS(continued) The Town's investments policy defines permissible investments, limits the amount of deposits at any time at any one bank or trust company, requires that bank balances in excess of the Federal Deposit Insurance Corporation insurance limits of $250,000 be protected with custodial agreements which requires that balances are fully collateralized in accordance with New York State General Municipal Law (GML) and limits the form of acceptable collateralization. Credit Risk - The Town's written investment guidelines and policies are designed to protect principal by limiting risk.State and Town law limit investments to those authorized by State statutes. Interest-Rate Risk- Interest-rate risk arises because potential purchasers of debt securities will not agree to pay face value for those securities if interest rates substantially increase, thereby affording potential purchasers more favorable rates on essentially equivalent securities. Accordingly, such investments would have to be held to maturity to avoid a potential loss. Concentration of Credit Risk - Credit risk can arise as a result of failure to adequately diversify investments. Concentration risk disclosure is required for positions of 5 percent or more in securities of a _ single issuer. Financial institutions can satisfy collateral requirements by furnishing an eligible letter of credit, an eligible surety bond, by pledging eligible securities as specified in Section 10 of GML or participating in a deposit placement program pursuant to section 9-r of the banking law. Irrevocable letters of credit issued as collateral in certain situations may require a threshold of up to 140% of aggregate deposits. Eligible securities that may be pledged as collateral includes but is not limited to obligations of the United States or its agencies, obligations of New York State and obligations of municipalities of New York State. The use of available daily balances to determine collateral requirements may result in the available balance being under-collateralized at various times during the year. At December 31, 2018, the Town's cash book balance was $63,239,846. This amount is inclusive of fiduciary fund deposits of$20,487,247 but exclusive of petty cash of$1,283 and CLASS of$55,333.The available bank balance was$63,370,327 exclusive of CLASS deposits. Of the bank balance,$12,167,300 was covered by Federal deposit insurance, and $51,203,027 was covered by collateral held by the Town's agents,third-party financial institutions, in the Town's name. External Investment Pool The Town participates in the Cooperative Liquid Assets Securities System - New York (CLASS), a multi- municipal cooperative investment pool consisting of U.S. Treasury Obligations and repurchase agreements relating to treasury obligations. Investments are stated at cost, which approximates market value. CLASS was established as a cooperative investment arrangement organized under the CLASS Municipal Cooperation Agreement made pursuant to New York General Municipal Law, Article 3A and 5-G. The pool is not registered with the SEC and is overseen by an elected Governing Board. The ? District's fair value of its position in the pool is the same as the value of pool shares. In accordance with FASB guidance, CLASS utilizes ASC 820, "Fair Value Measurement and Disclosure"to define fair value, establish a framework for measuring fair value, and expand disclosure requirements regarding fair value measurements. ASC 820 does not require new fair value measurements but is applied to the extent that other accounting pronouncements require or permit fair value measurements. This standard emphasizes that fair value is a market-based measurement that should be determined based on the assumptions that market participants would use in pricing an asset or liability. Various inputs are used in determining the value of CLASS's portfolio investments defined pursuant to this standard. -36- TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS C. DETAILED NOTES ON ALL FUNDS(continued) 1. CASH AND INVESTMENTS(continued) Securities, other than repurchase agreements, are valued at the most recent market bid price as obtained from one or more market makers for such securities. Repurchase agreements are recorded at cost, which approximates market value. There have been no significant changes in valuation techniques used in valuing any such positions held by CLASS since the beginning of their fiscal year. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The Town's $55,333 CLASS investment consists of U.S Treasury Obligations and repurchase agreements relating to Treasury obligations and is not subject to risk categorization. The above amounts represent the cost of the investment pool shares and are considered to approximate market value. Additional information concerning the cooperative is presented in the annual report of the New York CLASS,which can be found on its website at www.newyorkclass.org. As of December 31, 2018, the Town did not have any investments subject to credit risk, interest-rate risk or concentration of credit risk. 2. INTERFUND RECEIVABLES, PAYABLES AND TRANSFERS ' Interfund receivable and payable balances for the primary government at December 31, 2018 are expected to be paid currently. These balances represent various temporary loans, recharges, and reimbursements between funds for operating and capital expenditures and are stated as follows: Amount Amount Receivable Payable Major Governmental Funds: General Fund-Town wide $ 463,026 $ 2,223,482 Highway Fund 1,197,185 279,055 Capital Projects Fund 491,894 329,124 Community Preservation Fund 3,833 15,053 Major Funds 2,155,938 2,846,714 Nonmajor Governmental Funds: General Fund- Part Town 221,140 100,117 Special Grant 955 East-West Fire Protection District 165,312 Southold Wastewater District 110 Fishers Island Sewer District 15,535 Solid Waste Management District Fund 389.956 205 Nonmajor Funds 792,053 101,277 Total $ 2947.991 $ 2,947,991 Interfund transfer balances for the primary government at December 31, 2018 represent capital project transfers and are stated as follows: Transfers Transfers In Out Major Governmental Funds: General Fund-Town wide $ 313,993 Highway Fund 835,984 Capital Projects Fund $ 1,149,977 Total $ 1,149,977 $ 1,149,977 -37- TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS C. DETAILED NOTES ON ALL FUNDS(continued) 3. CAPITAL ASSETS Balance Deletions/ Balance Primary Government 1/112018 Additions Reclassifications 12131/2018 Capital assets not being depreciated: Land $ 8,686,728 $ 2,832,741 $ 11,519,469 Land development rights 125,268,886 3,264,296 128,533,182 Construction in progress 228,536 141,281 $ 23,377 346,440 Total Capital Assets Not Being Depreciated 134,184,150 6,238,318 23,377 140,399,091 Depreciable capital assets: Buildings 17,129,926 3,380,375 20,510,301 laproverrents other than buildings 16,376,677 321,279 16,697,956 Machinery and equipment 13,036,054 471,831 399,437 13,108,448 Software 1,144,497 8,869 1,153,366 Infrastructure 82,798,533 1,255,893 84,054,426 Total Depreciable Capital Assets 130,485,687 5,438,247 399,437 135,524,497 Less accumulated depreciation: Buildings 6,032,705 499,577 6,532,282 Improvements other than buildings 8,725,810 719,592 9,445,402 Machinery and equipment 9,441,104 774,767 385,460 9,830,411 Software 1,131,934 1,131,934 Infrastructure 70,244,697 847,597 71,092,294 Total Accumulated Depreciation $ 95,576,250 $ 2,841,533 $ 385,460 98,032,323 Total Net Depreciable Capital Assets 37,492,174 Total Net Capital Assets $ 177,891,265 Depreciation expense was charged to governmental functions as follows: General government support $ 694,561 Public safety 418,336 Transportation 1,138,371 Eocnomc assistance and opportunity 31,958 Culture and recreation 42,811 Home and community services 515,476 $ - 2,841,533 -38- TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS C. DETAILED NOTES ON ALL FUNDS (continued) c^ 3. CAPITAL ASSETS (continued) The Town evaluates prominent events or changes in circumstances affecting capital assets to determine whether impairment of a capital asset has occurred. The Town's policy is to record an impairment loss in the period when the Town determines that the carrying amount of the asset will not be recoverable. At December 31, 2018,the Town has not recorded any such impairment losses. Balance Balance Nonmajor Component Units 1/1/2018 Additions Deletions 12/31/2018 Capital assets not being depreciated: Land $ 2,103,162 $ 2,103,162 f_ Construction in progress 66,323 $ 137,080 203,403 Total Capital Assets Not Being Depreciated 2,169,485 137,080 $ -0- 2,306,565 Depreciable capital assets: Buildings 14,145,321 17,460 14,162,781 Irrprovements other than buildings 2,557,294 8,660 2,565,954 - Machinery and equipment 4,117,286 28,898 14,433 4,131,751 Infrastructure 4,739,093 4,739,093 Total Depreciable Capital Assets 25,558,994 55,018 14,433 25,599,579 Less accumulated depreciation: Buildings 5,763,148 449,005 6,212,153 Improvements other than buildings 1,047,329 88,524 1,135,853 Machinery and equipment 3,704,039 75,942 14,433 3,765,546 Infrastructure 2,724,876 179,510 2,904,386 Total Accumulated Depreciation $ 13,239,392 $ 792,981 $ 14,433 14,017,940 Total Net Depreciable Capital Assets 11,581,639 Total Net Capital Assets $ 13,888,204 Depreciation expense was charged to governmental functions as follows- Transportation $ 550,850 Culture and recreation 103,240 Fbrre and connunily services 138,891 $ 792,981 -39- TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS C. DETAILED NOTES ON ALL FUNDS(continued) 4. INDEBTEDNESS SHORT-TERM DEBT Bond Anticipation Notes (BANs) - Bond anticipation notes (BANs) are used as a temporary means of financing capital expenditures in the Capital Projects Fund. State law requires that BANs issued for capital purposes be converted to long-term obligations within five years after the original issue date.The notes or renewal thereof may not extend more than two years beyond the original date of issue unless a portion is redeemed within two years and within each 12-month period thereafter. Liabilities for BANs are generally accounted for in the Capital Projects Fund. BANs are expected to be paid from the proceeds of future bond issues after renewal of these notes. The Town issued $8,180,000 of bond anticipation notes, of which $970,000 relate to Fishers Island Ferry District, in December 2018. These BANs bear interest at 3.0%and will mature in September 2019. A summary of changes in BANs for the year ended December 31,2018 is as follows: Balance Balance 1/1/18 Increases Reductions 12/31/18 Primary Government $ 760,000 $ 7,210,000 $ 760,000 $ 7,210,000 Component Units 680.000 970,000 680,000 970,000 $ 1,440,000 $ 8,180,000 $ 1.440.000 $ 8,180,000 Revenue Anticipation Notes (RANs) - Revenue Anticipation Notes (BANs) were used as a temporary means of financing cash flow deficit for Fishers Island Ferry District for 2017. This RAN, with an interest rate of 2.25%was redeemed on February 7,2018 from federal aid. This note is summarized as follows: Balance Balance 1/1/18 Increases Reductions 12/31/18 Component Units $ 400,000 $ $ 400.000 $ -0- LONG-TERM DEBT General Obligation Bonds -The Town borrows money in order to acquire land, equipment or construct buildings and improvements.This enables the cost of these capital assets to be borne by the present and future taxpayers receiving the benefit of the capital assets. These long-term liabilities are backed by the full faith and credit of the Town which are payable from tax revenues of the General Fund and Special Revenue Funds. Interest rates on these bonds vary from 2.00%to 5.00%and have maturity dates in 2019 through 2034. -40- TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS C. DETAILED NOTES ON ALL FUNDS(continued) 4. INDEBTEDNESS (continued) LONG-TERM DEBT(continued) Future principal and interest payments to maturity for both the primary government and the component units are as follows: Primary Government Component Units Years Ending December3l, Principal Interest Totals Principal Interest Totals 2019 $ 2,350,000 $ 918,901 $ 3,268,901 $ 320,000 $ 22,424 $ 342,424 2020 2,245,000 829,663 3,074,663 265,000 14,299 279,299 2021 2,310,000 740,713 3,050,713 265,000 4,999 269,999 2022 2,340,000 650,763 2,990,763 2023 2,435,000 556,313 2,991,313 f 2024-2028 11,845,000 1,458,063 13,303,063 2029-2033 5,315,000 200,897 5,515,897 2034 235,000 5,288 240,288 Total $ 29,075,000 $ 5,360,601 $ 34,435,601 $ 850,000 $ 41,722 $ 891,722 CHANGES IN LONG-TERM LIABILITIES Long-term liability activity for the year ended December 31,2018 is as follows: Noncurrent Balance Balance Liabilities Due Noncurrent 1/1/2018 Increases Reductions 12131/2018 Within One Year Liabilities Primary Government: General obligation bonds $ 31,850,000 $ $ 2,775,000 $ 29,075,000 $ 2,350,000 $ 26,725,000 Add:premuns on obligations 2,317,834 182,744 2,135,090 2,135,090 Total general obligation bonds payable 34,167,834 2,957,744 31,210,090 2,350,000 28,860,090 Compensated absences 9,275,964 569,059 580,962 9,264,061 463,203 8,800,858 General claims and judgments liability 543,145 102,562 65,000 580,707 105,000 475,707 Estimated liability for landfill closure and postclosure care costs 409,660 16,614 393,046 16,614 376,432 Net pension liability 8,072,644 3,617,796 8,410,585 3,279,855 3,279,855 Other posterrployment benefits payable,as restated* 72,022,226 8,707,100 1,871,347 78,857,979 78,857,979 -41- TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS C. DETAILED NOTES ON ALL FUNDS (continued) 4. INDEBTEDNESS(continued) CHANGES IN LONG-TERM LIABILITIES(continued) Noncurrent Balance Balance Liabilities Due Noncurrent 1/1/2018 Increases Reductions 12131/2018 Within One Year Liabilities Component Units: General obligation bonds $ 1,170,000 $ 320,000 $ 850,000 $ 320,000 $ 530,000 Compensated absences 203,777 $ 19,382 223,159 55,790 167,369 Net pension liability 437,306 278,941 158,365 158,365 Other postemployment benefits payable,as restated' 536,259 158,340 694,599 694,599 *1/1/2018 other postemployment benefits balance was restated for the cumulative effect of implementation of GASB Statement No.75 as described in Note G. The liabilities for compensated absences, net pension liability and other postemployment benefits payable will be liquidated through future budgetary appropriations in the funds that gave rise to the liability. In most instances, these amounts will be liquidated from the general fund, highway fund, and certain special revenue funds. Payments for estimated claims and judgments will be liquidated primarily from the general fund. The estimated liability for landfill closure and postclosure costs will be liquidated by the solid waste management fund. 5. RETIREMENT SYSTEM Plan Description The Town of Southold participates in the New York State and Local Employees' Retirement System (NYSERS)and Local Police and Fire Retirement System (PFRS),which are collectively referred to as the New York State and Local Retirement System (the "System"). These are cost-sharing multiple-employer defined benefit pension plans. The net position of the System is held in the New York Common Retirement Fund (the "Fund"), which was established to hold all net assets and record changes in fiduciary net position allocated to the System. The Comptroller of the State of New York serves as the trustee of the Fund and is the administrative head of the System. The Comptroller is an elected official determined in a direct statewide election and serves a four year term. System benefits are established under the provisions of the New York State Retirement and Social Security Law ("RSSL"). Once a public employer elects to participate in the System,the election is irrevocable. The New York State Constitution provides that pension membership is a contractual relationship and plan benefits cannot be diminished or impaired. Benefits can be changed for future members only by enactment of a State statute. The Town also participates in the Public Employees' Group Life Insurance Plan ("GLIP"), which provides death benefits in the form of life insurance. The System is included in the State's financial report as a pension trust fund. That report may be found at hftp://www.osc.state.ny.us/ retire/publications/index.php or obtained by writing to the New York State and Local Retirement System, 110 State Street, Albany, New York 12244-0001. Benefits Provided The System provides retirement benefits as well as death and disability benefits. Tiers 1 and 2 Eligibility: Tier 1 members, with the exception of those retiring under special retirement plans, must be at least age 55 to be eligible to collect a retirement benefit, there is no minimum service requirement.Tier 2 members, with the exception of those retiring under special retirement plans, must have five years of service and be at least age 55 to be eligible to collect a retirement benefit. The age at which full benefits may be collected for Tier 1 and Tier 2, is 55 and 62, respectively. -42- TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS C. DETAILED NOTES ON ALL FUNDS (continued) 5. RETIREMENT SYSTEM (continued) Benefits Provided (continued) Benefit calculation: Generally, the benefit is 1.67% of final average salary for each year of service if the member retires with less than 20 years. If the member retires with 20 or more years of service,the benefit is 2% of final average salary for each year of service. Tier 2 members with five or more years of service can retire as early as age 55 with reduced benefits.Tier 2 members age 55 or older with 30 or more years of service can retire with no reduction in benefits. As a result of Article 19 of the RSSL, Tiers 1 and 2 members who worked continuously from April 1, 1999 through October 1, 2000 received an additional month of service credit for each year of credited service they have at retirement, up to a maximum of 24 additional months. Final average salary is the average of the wages earned in the three highest consecutive years of employment. For Tier 1 members who joined on or after June 17, 1971, each year's compensation used in the final average salary calculation is limited to no more than 20% greater than the previous year. For Tier 2 members, each year of final average salary is limited to no more than 20%than the average of the previous two years. Tiers 3, 4 and 5 Eligibility:Tiers 3 and 4 members,with the exception of those retiring under special retirement plans, must have five years of service and be at least age 55 to be eligible to collect a retirement benefit. Tier 5 members, with the exception of those retiring under special retirement plans, must have ten years of service and be at least 55 to be eligible to collect a retirement benefit. The full benefit age for Tiers 3, 4 and 5 is 62. Benefit calculation: Generally, the benefit is 1.67% of final average salary for each year of service if the member retires with less than 20 years. If a member retires with between 20 and 30 years of service,the benefit is 2%of final average salary for each year of service. If a member retires with more than 30 years of service, an additional benefit of 1.5%of final average salary is applied for each year of service over 30 years. Tiers 3 and 4 members with five or more years of service and Tier 5 members with ten or more years of service can retire as early as age 55 with reduced benefits. Tiers 3 and 4 members age 55 or older with 30 or more years of service can retire with no reduction in benefits. Final average salary is the average of the wages earned in the three highest consecutive years of employment. For Tiers 3, 4 and 5 members, each year's compensation used in the final average salary calculation is limited to no more than 10%greater than the average of the previous two years. Tier 6 Eligibility: Tier 6 members, with the exception of those retiring under special retirement plans, must have ten years of service and be at least age 55 to be eligible to collect a retirement benefit.The full benefit age for Tier 6 members is age 63 for ERS members and 62 for PFRS members. Benefit calculation: Generally, the benefit is 1.67% of final average salary for each year of service if the member retires with less than 20 years. If a member retires with 20 years of service,the benefit is 1.75% of final average salary for each year of service. If a member retires with more than 20 years of service, an additional benefit of 2% of final average salary is applied for each year of service over 20 years. Tier 6 members with ten or more years of service can retire as early as age 55 with reduced benefits. Final average salary is the average of the wages earned in the five highest consecutive years of employment. For Tier 6 members, each year's compensation used in the final average salary calculation is limited to no more than 10%greater than the average of the previous four years. -43- TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS C. DETAILED NOTES ON ALL FUNDS(continued) _ry 5. RETIREMENT SYSTEM (continued) Benefits Provided (continued) Special Plans The 25-Year Plan allows a retirement after 25 years of service with a benefit of one-half of final average salary, and the 20-Year Plan allows a retirement after 20 years of service with a benefit of one-half of final average salary.These plans are available to certain PFRS members,sheriffs, and correction officers. Disability Retirement Benefits Disability retirement benefits are available to members unable to perform their job duties because of permanent physical or mental capacity. There are three general types of disability benefits: ordinary, performance of duty and accidental disability benefits. Eligibility, benefit amounts, and other rules such as any offsets of other benefits depend on a member's tier,years of service,and plan. Ordinary Death Benefits Death benefits are payable upon the death, before retirement, of a member who meets eligibility requirements as set forth by law.The first$50,000 of an ordinary death benefit is paid in the form of group life term life insurance. The benefit is generally three times the member's annual salary. For most members,there is also a reduced post-retirement ordinary death benefit available. Post-Retirement Benefit Increases A cost-of-living adjustment is provided annually to: (1) all pensioners who have attained age 62 and have been retired for five years; (2) all pensioners who have attained age 55 and have been retired for ten years; (3) all disability pensioners, regardless of age,who have been retired for five years; (4) recipients of an accidental death benefit, regardless of age, who have been receiving such benefit for five years; and (5) the spouse of a deceased retiree receiving a lifetime benefit under an option elected by the retiree at retirement. An eligible spouse is entitled to one-half the cost-of-living adjustment amount that would have been paid to the retiree when the retiree would have met the eligibility criteria. This cost-of-living adjustment is a percentage of the annual retirement benefit of the eligible member as computed on a base benefit amount not to exceed $18,000 of the annual retirement benefit.The cost-of-living percentage shall be 50%of the annual consumer price index as published by the U.S. Bureau of Labor but cannot be less than 1%or exceed 3%. Contributions Plan members who joined the system before July 27, 1976 are not required to make contributions. Those joining after July 27, 1976 and before January 1, 2010 with less than ten years of membership are required to contribute 3% of their annual salary. Those joining on or after January 1, 2010 and before April 1, 2012 are required to contribute 3% of their salary for NYSERS members throughout active membership. Those joining on or after April 1, 2012 are required to contribute between 3% and 6%, depending upon their salary,throughout active membership. Under the authority of the NYSRSSL, the Comptroller shall certify annually the actuarially determined rates expressly used in computing the employers' contributions based on salaries paid during the System's year ended March 31. The actual contributions were equal to 100% of the actuarially required amounts. The required contributions as billed by the Plan,for the Town,for the current year is: ERS PFRS _ $ 1,702,061 $ 1,573,263 -44- TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS C. DETAILED NOTES ON ALL FUNDS(continued) 5. RETIREMENT SYSTEM (continued) Pension Liabilities Pension Expense, Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pension At December 31, 2018, the Town reported a liability of $1,380,222 and $1,899,633 for ERS and PFRS, respectively, for its proportionate share of the net pension liability for the Systems. The net pension liability was measured as of March 31, 2018 and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of April 1, 2017. The Town proportion of the net pension liability was based on a projected contribution of all participating members, actuarially determined. Below is the Town's proportionate share of the net pension liability of the System and its related employer allocation percentage as of March 31, 2018. Allocation of the Net Pension System's Total Measurement Date Liability Net Liability ERS March 31,2018 $ 1,380,222 0.0414581% PFRS March 31,2018 $ 1,899,633 0.1879416% There was no significant change in the Town's proportionate share from March 31, 2017 to March 31, 2018. For the year ended December 31, 2018, the Town recognized pension expense of $3,499,202, of which $1,693,303 relates to ERS and $1,805,899 relates to PFRS. At December 31, 2018, the Town reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: ` IERS PFRS Totals Deferred Outflows of Resources: Difference between expected and actual experience $ 478,500 $ 781,870 $ 1,260,370 Changes of assumptions 889,582 1,439,316 2,328,898 Changes in proportion and differences between employer contributions and proportionate share of contributions 123,779 137,869 261,648 Contributions made subsequent to the measurement date 1,271,844 1,179,947 2,451,791 Total Deferred Outflows of Resources-pension amounts $ 2,763,705 $ 3,539,002 $ 6,302,707 Deferred Inflows of Resources: Differences between expected and actual experience $ 395,415 $ 504,776 $ 900,191 Net difference between projected and actual investment earnings on pension plan investments 1,897,690 1,558,972 3,456,662 Changes in proportion and differences betw een the Tow n's contributions and proportionate share of contributions 61,272 167,661 228,933 Total Deferred Inflows of Resources-pension amounts $ 2,354,377 $ 2,231,409 $ 4,585,786 -45- TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS C. DETAILED NOTES ON ALL FUNDS(continued) 5. RETIREMENT SYSTEM (continued) Pension Liabilities, Pension Expense, Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pension (continued) Contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended December 31, 2019. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense as follows: ERS PERS Years ended December 31,2019 $ 309,660 $ 380,231 ` 2020 245,382 336,810 2021 (960,203) (383,358) 2022 (457,354) (285,809) 2023 79,771 $ (862,515) $ 127,645 Actuarial Assumptions The total pension liability as of the measurement date was determined by using an actuarial valuation as noted in the table below, with update procedures used to roll forward the total pension liability to the - measurement date. The actuarial valuations used the following actuarial assumptions: Annuitant mortality rates are based on the April 1, 2010 - March 31, 2015 System's experience with adjustments for mortality improvements based on the Society of Actuaries' Scale MP-2014. The actuarial assumptions used in the April 1, 2017 valuation are based on the results of an actuarial experience study for the period April 1, 2010- March 31,2015. EAS PFRS Actuarial Valuation Date April 1,2017 April 1,2017 Investment rate of return (net of investment expenses) 7.00% 7.00% Inflation rate 2.50% 2.50% Salary increases 3.80% 4.50% Cost of living adjustments 1.30% 1.30% -46- TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS C. DETAILED NOTES ON ALL FUNDS(continued) 5. RETIREMENT SYSTEM (continued) Actuarial Assumptions (continued) The long-term rate of return on pension plan investments was determined using a building-block method in which best estimate ranges of expected future real rates of return (expected returns net of investment expenses 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. Best estimates of the arithmetic real rates of return for each major asset class included in the target asset allocation as of March 31, 2018 are summarized below: Long-term Target Expected Real Asset Type: Allocation Rate of Return Equity: Domestic equity 36.00% 4.55% International equity 14.00% 6.35% Private equity 10.00% 7.75% Real estate 10.00% 5.80% Absolute return strategies* 2.00% 4.00% Opportunistic portfolio 3.00% 5.89% Real assets 3.00% 5.54% Bonds and mortgages 17.00% 1.31% Cash 1.00% -0.25% Inflation indexed bonds 4.00% 1.50% 100.00% The real rate of return is net of the long-term inflation assumption of 2.50%. *Excludes equity-oriented long-only global funds. For investment management purposes,these,funds are included in domestic equity and international equity. The discount rate used to calculate the total pension liability was 7.0%for the System. The projection of cash flows used to determine the discount rate assumes that contributions from plan members will be made at the current contribution rates and that contributions from employers will be made at statutorily required rates, actuarially. Based upon the assumptions, the Systems'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 plan investments was applied to all periods of projected benefit payments to determine the total pension liability. -47- TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS C. DETAILED NOTES ON ALL FUNDS (continued) 5. RETIREMENT SYSTEM (continued) Sensitivity of the Proportionate Share of the Net Pension Liability to the Discount Rate Assumption The following presents the Town's proportionate share of the net pension liability calculated using the discount rate of 7.0%, as well as what the Town's proportionate share of the net pension liability would - be if it were calculated using a discount rate that is 1-percentage point lower (6.0%) or 1-percentage point higher(8.0%)than the current rate: 1.00% Current 1.00% Decrease Assumption Increase 6.00% 7.00% 8.00% Town's proportionate share of the collective net pension'liability/(asset) ERS $ 10,150,801 $ 1,380,222 $ (6,110,658) PFRS 9,304,917 1,899,633 (4,311,663) Pension Plan Fiduciary Net Position The components of the current-year net employees' retirement system pension liability of the employers as of the respective valuation date of April 1, 2017 were as follows: ERS PFRS (Dollars in thousands) (Dollars in thousands) Employers'total pension liability $ (183,400,590) $ (32,914,423) Plan net position 180,173,145 31,903,666 Employers' net pension liability $ (3,227,445) $ (1,010,757) .J Ratio of plan net position to the Employers'total pension liability 98.24% 96.93% Detailed information about the System pension plan's fiduciary net position is available in the System's separately issued financial statements. r -48- r"• TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS C. DETAILED NOTES ON ALL FUNDS(continued) '._ 6. OTHER POSTEMPLOYMENT BENEFITS(OBLIGATIONS FOR HEALTH INSURANCE) Plan Description The Town established and administers a single-employer defined benefit OPEB plan for its employees. Article 11 of the State Compiled Statutes grants the authority to establish and amend the . benefit terms and financial requirements to the Town Board. No assets are accumulated in a trust that meets the criteria in paragraph 4 of GASB Statement No. 75. The Town, as a single-employer defined benefit OPEB plan, per its contracts with employees, will pay full premium costs for medical insurance coverage (currently provided by the Empire Plan) at retirement with the exception of PBA members hired after 2013 who pay 15% while active and into retirement. Employees are eligible for retiree health insurance provided that the employee has been eligible for coverage under the Town's health insurance plan for at least 10 consecutive years and is employed by the Town on the last date immediately prior to retirement. The retiree and spouse are eligible for full Medicare premium reimbursement. Healthcare benefits for non-union employees are similar to those of union employees. Surviving spouses of deceased employees may continue coverage by paying the premium equivalent for participants. Employees Covered by Benefit Terms The number of participants as of January 1,2018,the effective date of the OPEB valuation is as follows: Active employees 190 Retirees and dependents 118 Total 308 There have been no significant changes in the number or type of coverage since that date. Total OPEB Liability The Town's total OPEB liability of$78,857,979 was measured as of January 1,2018 and was determined by an actuarial valuation as of January 1, 2018 with updated procedures used to rollforward the OPEB liability to the reporting date of December 31,2018. Funding Policy The Town currently pays for other postemployment health care benefits on a pay-as-you-go basis. Actuarial Assumptions and Other Inputs The projection of future benefits for an ongoing plan involves estimates of the value of reported amounts and assumptions about the probability of occurrence of future events far into the future. Amounts determined regarding the funded status of a plan and the employer's annual required contributions are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are ri designed to reduce'the effects of short-term liability in actuarial accrued liabilities, consistent with the long-term perspective of the calculations. -49- TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS C. DETAILED NOTES ON ALL FUNDS(continued) 6. OTHER POSTEMPLOYMENT BENEFITS(OBLIGATIONS FOR HEALTH INSURANCE) (continued) Actuarial Assumptions and Other Inputs(continued) The total OPEB liability in the January 1, 2018 valuation was determined using the following actuarial assumptions and other inputs: Discount Rate 3.44% Healthcare cost trend rates 10%for 2018 followed by 9%, 8%,7%and 6%for the next four years and 5%per annum after 5 years. The discount rate was based on the January 1,2018 Bond Buyer GO-20 municipal bond index rate. Mortality rates were based on the RP-2014 mortality table with projected mortality. The decrement tables used for this valuation are based on the New York State Employees' Retirement System and New York State Police and Fire Retirement System. ` The actuarial assumptions used in the January 1, 2018 valuation were based on standard tables modified for certain plan features such as eligibility for full and early retirement where applicable. Changes in the Total OPEB Liability Balance at December 31,2017, as reported $ 48,212,882 Cumulative Effect of implementation of GASB No.75 23,809.343 Balance at December 31,2017, as restated 72,022.225 Changes for the year: Service cost 1,822,695 Interest 2,721,521 Changes in assumptions and other inputs 4,162,885 Benefit payments (1.871,347) Balance at December 31,2018 $ 78,857,979 Sensitivity of the Total OPEB Liability to Changes in the Discount Rate The following presents the total OPEB liability of the Town, as well as what the Town's total OPEB liability would be if it were calculated using a discount rate that is 1-percentage-point lower (2.44%) or 1-percentage-point higher(4.44%)than the discount rate. 1.00% Discount 1.00% Decrease Rate Increase 2.44% 3.44% 4.44% $ 95,796,010 $ 78,857,979 $ 66,112,015 -50- r� TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS C. DETAILED NOTES ON ALL FUNDS (continued) 6. OTHER POSTEMPLOYMENT BENEFITS (OBLIGATIONS FOR HEALTH INSURANCE) (continued) Sensitivity of the Total OPEB Liability to Changes in the Healthcare Cost Trend Rate The following presents the total OPEB liability of the Town, as well as what the Town's total OPEB liability would be if it were calculated using a healthcare cost trend rate that is 1-percentage-point lower or 1-percentage-point higher than the healthcare cost trend rate. 1.00% Trend 1.00% Decrease Rate Increase (starts at 9%) (starts at 10%) (starts at 11%) $ 66,240,702 $ 78,857,979 $ 92,540,355 For the year ended December 31, 2018, the Town recognized OPEB expense of $4,999,531. At December 31, 2018, the Town reported deferred outflows or inflows of resources related to OPEB from the following sources. Deferred Outflows of Resources: Changes of assumptions $ 3,642,524 Contributions made subsequent to the measurement date 1,908,774 Total Deferred Outflows of Resources-OPEB $ 5,551,298 jJ The amounts reported as deferred inflows of resources related to OPEB will be recognized in OPEB expense as follows: J Years ending December 31,2019 $ 520,361 2020 520,361 2021 520,361 2022 520,361 2023 520,361 ` 2024-2025 1,040,719 $ 3,642,524 7. COMPENSATED ABSENCES Town employees are granted vacation and sick leave and earn compensatory absences in varying amounts. In the event of termination or upon retirement, an employee is entitled to payment for accumulated vacation and sick leave and unused compensatory absences at various rates subject to certain maximum limitations. Estimated vacation, sick leave and compensatory absences accumulated by governmental fund type employees have been recorded in the Statement of Net Position. Payment of vacation time and sick leave is dependent upon many factors; therefore, timing of future payments is not readily determinable. However, management believes that sufficient resources will be made available for the payments of vacation, sick leave and compensatory absences when such payments become due. As of December 31, 2018, the value of the accumulated vacation time and sick leave was$9,264,061 for the primary government. r -51- TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS D. COMMITMENTS AND CONTINGENCIES Risk Management In common with other municipalities, the Town receives numerous notices of claims.The Town established a self-insurance risk management program for general liability insurance which is accounted for in the general fund. Although the eventual outcome of these claims cannot be presently determined, the Town has estimated unsettled claims and litigation to be$540,945 which is included as claims and judgments payable in the government-wide financial statements and $39,762 is included as judgments and claims payable as a current liability in the fund financial statements. The Town is of the opinion that the ultimate settlement of the outstanding claims will not result in a material adverse effect on the Town's financial position. For the year ended December 31, 2018, the Town has a deductible liability exposure of $50,000 per claim for general liability, $25,000 per claim for automobile liability, police liability and employee benefits, and $10,000 per claim for public officials and employment practices. Any liability exposure above the deductible amounts is covered by primary insurance policies up to $1,000,000 per claim for general liability, public officials, police and employment practices, and employee benefits. Aggregate exposures are $1,000,000 per claim for public officials, police and employment practices, $3,000,000 for employee benefits and general liability. After primary policy limits are exhausted, the excess exposure above the per claim or aggregate limits is covered by an umbrella liability policy of $10,000,000 per claim and $10,000,000 in the aggregate. There have been no significant reductions in insurance coverage as compared to the prior year and there were no settlements in excess of insurance coverage over the last three years. The Town liability for general liability claims is determined and reported by a third-party administrator and is reported when it is probable that a loss has occurred, and the amount of that loss can be reasonably estimated. Claims reserves for general liability claims are re-evaluated periodically to take into consideration recently settled claims and any new developments and changes. The Town's discretely presented component units are not included in the Town's self-insurance risk management program for any claims. Fund balance is assigned for future catastrophic losses. Changes in the long-term liability for claims and judgments for the year ended December 31, 2018 and 2017 are as follows: General Liability 2018 2017 Unpaid Claims as of December 31St, prior year $ 543,145 $ 405,105 Incurred Claims: Provision for insured events of the current fiscal year 173,262 183,145 Increase(decrease) in net provision for insured events of prior fiscal years (70,700) (3,119) Total incurred claims and claim adjustments 645,707 585,131 Payments of: Claims during the year 65,000 41,986 Unpaid Claims as of December 31St, $ 580,707 $ 543,145 c -52- TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS D. COMMITMENTS AND CONTINGENCIES(continued) Contingent Liabilities Amounts received or receivable from grant agencies are subject to audit and adjustment by grantor agencies, principally the federal and state government. Any disallowed claims, including amounts already collected, may constitute a liability of the applicable funds. The amount, if any, of expenditures that may be disallowed by the grantor cannot be determined at this time, although the Town expects such amounts, if any, to be immaterial. Landfill Closure and Post-Closure Care Costs State and federal laws and regulations required the Town to place a final cover on its landfill sites and to perform certain maintenance and monitoring functions at the sites for thirty years after closure. The Town ceased accepting waste at its Cutchogue landfill as of October 8, 1993. Accordingly, as of December 31, 2018 the Town has recorded a liability of $393,046, in the government-wide financial statements which represents the provision to be made in future budgets for unfunded closure and postclosure landfill costs. As the liability is based on 100% of capacity there are no estimated costs of closure or postclosure remaining to be recognized. Actual costs may vary due to inflation or deflation, changes in technology, or changes in regulations or applicable laws Construction and Other Capital Acquisition Commitments The Town is committed to capital improvements to its various facilities and infrastructure. At December 31, 2018,these commitments amounted to$709,389 in the capital projects fund. Animal Shelter Agreement In May 2011, the Town entered into an agreement with the North Fork Animal Welfare League to operate and manage the Town of Southold Animal Shelter. The agreement is for a term of four years commencing on June 1, 2011. The agreement was renewed in March 2015 with the lease to begin March 2016 expiring in February 2026.The future minimum payments associated with this agreement are as follows: For years ending December 31, 2019 $ 232,484 2020 232,484 2021 232,484 2022 232,484 2023 232,484 2024-2026 503,715 Total $ 1,666,135 Lease Commitments and Leased Assets The Town leases property and equipment under operating leases. Total rental expenditures on such leases for the year ended December 31,2018 were$154,295. Future obligations over the primary terms of the Town's leases as of December 31, 2018 are as follows: For years ending December 31, 2019 $ 142,893 2020 133,182 2021 127,994 2022 57,941 2023 22,183 2024 7,845 Total $ 492,038 -53- • TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS E. CONDENSED FINANCIAL STATEMENTS FOR THE DISCRETELY PRESENTED COMPONENT UNITS • The following represents condensed financial statements for the discretely presented component units as of and for the year ended December 31,2018: Condensed Statement of Net Position: Due from Capital Assets Deferred Other Deferred Current Primary Net of Ouff lows Current Long-Term Inflows Net • Assets Government Depreciation of Resources Liabilities Liabilities of Resources Position Fishers Island Ferry Ustrict $ 1,263,406 $ 168,323 $ 8,557,262 $ 725,835 $ 1,636,355 $ 1,550,333 $ 676,254 $ 6,851,884 Fishers island Waste Management District 351,981 172,611 2,354,288 26,292 172,611 2,679,977 Cutchogue•New Suffolk Park District' 158,801 25,967 129,852 25,967 288,653 Southold Park District* 269,674 65,464 765,460 65,464 1,035,134 Odent•East Marion Park District* 26,247 8,190 455,807 8,190 482,054 tkdtuckParkDistricC 1,056,695 56,530 1,625,535 390 56,530 2,681,840 Orient Mosquito District* 89,265 18,577 880 18,577 88,385 $ 3,216,069 $ 515,662 $ 13,888,204 $ 725,835 $ 1,663,917 $ 1,550,333 $ 1,023,593 $ 14,107,927 'Unaudited component units. • Condensed Statement of Activities: Program General Revenue Net Position Property Expenses Revenue Net Expense Tax Other Change 1/l/2018** 1213112018 Fishers Island Ferry District $ 4,231,579 $ 3,252,744 $ 978,835 $ 826,150 $ 127,280 $ (25,405) $ 6,877,289 $ 6,851,884 Fishers Island Waste Management District 1,038,081 53,850 984,231 855,586 7,717 (120,928) 2,800,905 2,679,977 Alk Cutchogue•New Suffolk Park District' 122,637 122,637 130,441 7,804 280,849 288,653 Southold Nrk District' 369,119 369,119 327,726 52,803 11,410 1,023,724 1,035,134 Orient-East Marion Park District' 49,292 49,292 41,000 200 (8,092) 490,146 482,054 Mattituck Park District' 472,828 26,055 446,773 283,000 48,860 (114,913) 2,796,753 2,681,840 Orient Mosquito District' 65,337 65,337 93,000 32 27,695 60,690 88,385 $ 6,348,873 $ 3,332,649 $ 3,016,224 $ 2,556,903 $ 236,892 $ (222,429) $ 14,330,356 $ 14,107,927 *Unaudited component units. "11112018 net position balance w as restated for the cumulative effect of implementation of GASB Statement No.75 as described in Note G. -54- • TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS E. CONDENSED FINANCIAL STATEMENTS FOR THE DISCRETELY PRESENTED COMPONENT UNITS (continued) • Complete financial statements and financial records of these component units can be obtained from their respective administrative offices: Orient Mosquito District Fishers Island Waste 145 Platt Road Management District Orient, NY 11957 Fishers Island, NY 06390 Ilb Cutchogue-New Suffolk Orient-East Marion Park District Park District P.O. Box 311 P.O. Box 12 Cutchogue, NY 11935 Orient, NY 11957 Southold Park District Mattituck Park District # P.O. Box 959 P.O. Box 1413 Southold, NY 11971 Mattituck, NY 11952 Fishers Island Ferry District P.O. Box H Fishers Island, NY 06390 AL F. 2%TRANSFER TAX Transfer tax receipts are recorded in the Community Preservation Fund and are used for the purchase and/or preservation of agricultural land, open space, parks, or historic preservation sites. The tax applies to sales of vacant land amounts in excess of $100,000 or sales of improved land in excess of$250,000. Conveyance of real property for open space, parks or historic preservation purposes and certain first-time home buyers are exempt from this tax. G. CHANGE IN ACCOUNTING PRINCIPLE For the year ended December 31, 2018, the Town implemented GASB Statement No. 75, `Accounting and Financial Reporting for Postemployment Benefits other than Pensions': The implementation of the Statement resulted in the retroactive reporting of the total other postemployment benefits (OPEB) liabilities and the A reporting of the current year expenses, in the Town's government wide statements. The Town's net position has been restated as follows: Governmental Non-Major Activities Component Unit 1W Net position beginning of year,as reported $ 108,659,640 $ 14,553,002 GASB Statement No.75 implementation: Effect in change in Total OPEB Liability (23,809,343) (222,646) Beginning deferred outflow of resources for contributions subsequent to the measurement date 1,871,347 (21,937,996) (222,646) Net position beginning of year,as restated $ 86,721,644 $ 14,330,356 -55- TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS H. SUBSEQUENT EVENTS In June 2019, the Town agreed to extend the Police Benevolent Association ("PBA") contract through December 31,2021 at a 2%contractual increase for each of the two years. In September 2019, the Town issued $9,279,117 Bond Anticipation Notes with an annual interest rate of 2% which mature on September 24,2019. I. NEW PRONOUNCEMENTS Statement No. 83, "Certain Assets Retirement Obligations" establishes criteria for determining the timing and pattern of recognizing a liability and corresponding deferred outflow of resources for asset retirement obligations. It also addresses that the measurement of both the asset retirement obligation and deferred outflows of resources should be based on the estimate of the current value of expected outlays. The requirements of this Statement are effective for financial statements for periods beginning after June 15, 2018. Statement No. 84, "Fiduciary Activities" establishes criteria for identifying fiduciary activities for accounting and financial reporting purposes and how those activities should be reported. The focus of the criteria generally is on (1) whether a government is controlling the assets of the fiduciary activity, and (2) the beneficiaries with whom a fiduciary relationship exists. Separate criteria are included to identify fiduciary O component units and postemployment benefit arrangements that are fiduciary activities. This Statement describes four fiduciary funds that should be reported, if applicable: (1) pension (and other employee benefit) trust funds, (2) investment trust funds, (3) private-purpose trust funds, and (4) custodial funds. Custodial funds generally should report fiduciary activities that are not held in a trust or equivalent arrangement that meets specific criteria. The requirements of this Statement are effective for financial statements for periods beginning after December 15,2018. Statement No. 87, "Leases" requires the recognition of certain lease assets and liabilities for leases that previously were classified as operating leases and the recognition of inflows of resources or outflows of resources based on the payment provisions of the contract. It establishes a single model for lease accounting based on the principle that leases are financings of the right to use an underlying asset. Under this Statement, a lessee is required to recognize a lease liability and an intangible right-to-use lease asset, and a lessor is required to recognize a lease receivable and a deferred inflow of resources, thereby enhancing the relevance and consistency of information about governments' leasing activities. The requirements of this Statement are effective for financial statements for periods beginning after December 15,2019. Statement No. 88, "Certain Disclosures Related to Debt, Including Direct Borrowings and Direct Placements", the objective of which is to improve the information that is disclosed in notes to government financial statements related to debt, including direct borrowings and direct placements. This Statement (1) defines debt for purposes of disclosure in notes to financial statements as a liability that arises from a contractual obligation to pay cash (or other assets that may be used in lieu of cash) in one or more payments to settle an amount that is fixed at the date the contractual obligation is established, (2) requires that additional information related to debt be disclosed, including unused lines of credit; assets pledged as collateral for the debt; and terms specified in debt agreements related to significant events of default with finance-related consequences, significant termination events with finance-related consequences, and significant subjective acceleration clauses, and (3) requires that existing and additional information be provided for direct borrowings and direct placements of debt separately from other debt.The requirements of this Statement are effective for financial statements for periods beginning after June 15, 2018. -56- TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS I. NEW PRONOUNCEMENTS (continued) Statement No. 89, "Accounting for Interest Cost Incurred Before the End of a Construction Period", the objectives of which are to enhance the relevance and comparability of information about capital assets and the cost of borrowing for a reporting period and to simplify accounting for interest cost incurred before the end of a construction period. This Statement requires that interest cost incurred before the end of a construction period be recognized as an expense in the period in which the cost is incurred for financial statements prepared using the economic resources measurement focus. The requirements of this Statement are effective for financial statements for periods beginning after December 15, 2019. Statement No. 90, "Majority Equity Interests - an Amendment of GASB Statements No, 14 and 61 provides guidance regarding the accounting and financial reporting of a government's majority equity interests in a legally separate organization. The requirements of this Statements are effective for financial statements for periods beginning after December 15,2019. The Town is currently evaluating the impact of the above pronouncements. -57- REQUIRED SUPPLEMENTARY INFORMATION OTHER THAN MANAGEMENT DISCUSSION AND ANALYSIS Schedules of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual Major Governmental Funds and Schedule NOTES TO REQUIRED SUPPLEMENTARY INFORMATION The budgets are adopted on a basis of accounting consistent with GAAP. In the event that actual revenues received exceed budgeted amounts, additional budgetary appropriations are made. The Capital Projects and Special Grant Funds are budgeted on a project or grant basis. TOWN OF SOUTHOLD GENERALFUND SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL Year Ended December 31,2018 Variance Original Final Positive Budget Budget Actual Encumbrances (Negative) REVENUES Real property taxes $ 26,156,931 $ 26,156,931 $ 26,156,931 $ -0- Other real property tax items 83,500 83,500 64,466 (19,034) Non-property tax items 1,288,673 1,288,673 1,288,673 -0- Departmental income 484,700 535,700 395,994 (139,706) Intergovernmental charges 272,015 272,015 209,138 (62,877) Use of money and property 213,000 213,000 278,608 65,608 Licenses and permits 406,160 406,160 400,141 (6,019) Fines and forfeitures 218,100 218,100 323,547 105,447 Sale of property and compensation for loss 127,500 419,386 605,983 186,597 Miscellaneous local sources 317,908 379,905 121,827 (258,078) Interfund revenues 158,000 158,000 94,221 (63,779) State aid 1,510,000 1,510,000 1,304,499 (205,501) Federal aid 54,326 54,326 227,635 173,309 Total Revenues 31,290,813 31,695,696 31,471,663 (224,033) EXPENDITURES Current: General government support 7,665,266 7,739,614 7,110,370 $ 109,812 519,432 Public safety 10,950,235 11,332,610 10,538,901 153,526 640,183 Public health 43,000 43,300 43,300 -0- Transportation 529,265 529,606 518,881 1,442 9,283 Economic assistance and opportunity 1,423,775 1,445,971 1,331,918 5,588 108,465 Culture and recreation 406,425 406,425 334,143 1,718 70,564 Home and community services 394,601 394,601 364,169 30,432 Employee benefits 10,222,855 10,222,855 9,535,870 686,985 Debt service. Principal 616,000 616,000 615,070 930 Interest 162,707 162,707 162,269 438 Total Expenditures 32,414,129 32,893,689 30,554,891 272,086 2,066,712 Excess(Deficiency)of Revenues Over(Under)Expenditures (1,123,316) (1,197,993) 916,772 (272,086) 1,842,679 OTHER FINANCING USES Transfers out (173,730) (407,056) (313,993) 93,063 Total Other Financing Uses (173,730) (407,056) (313,993) -0- 93,063 Net Change in Fund Balance $ (1,297,046) $ (1,605,049) 602,779 $ (272,086) $ 1,935,742 Fund Balance at Beginning of Year 10,718,809 Fund Balance at End of Year $ 11,321,588 c -58- TOWN OF SOUTHOLD HIGHWAY FUND SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE- BUDGET AND ACTUAL Year Ended December 31, 2018 Variance Original Final Positive Budget Budget Actual Encumbrances (Negative) REVENUES Real property taxes $ 6,088,491 $ 6,088,491 $ 6,088,491 $ -0- Other real property tax items 2,275 2,275 3,695 1,420 Use of money and property 5,500 5,500 22,445 16,945 Licenses and permits 12,000 12,000 86,660 74,660 Sale of property and compensation for loss 500 500 25,374 24,874 State aid 516,559 597,028 628,541 31,513 Total Revenues 6,625,325 6,705,794 6,855,206 149,412 EXPENDITURES Current: General government support 58,359 58,359 50,294 8,065 Transportation 3,662,018 3,738,503 3,687,816 $ 5,984 44,703 Employee benefits 1,974,575 1,974,575 1,860,902 113,673 Debt Service: Principal 124,000 124,000 117,923 6,077 Interest 36,000 36,000 34,101 1,899 Total Expenditures 5,854,952 5,931,437 5,751,036 5,984 174,417 Excess(Deficiency)of Revenues Over(Under)Expenditures 770,373 774,357 1,104,170 (5,984) 323,829 OTHER FINANCING USES Transfers out (832,000) (835,984) (835,984) -0- Total Other Financing Uses (832,000) (835,984) (835,984) -0- -0- Net Change in Fund Balance $ (61,627) $ (61,627) 268,186 $ (5,984) $ 323,829 Fund Balance at Beginning of Year 1,162,010 _ Fund Balance at End of Year $ 1,430,196 l -59- TOWN OF SOUTHOLD COMMUNITY PRESERVATION FUND SCHEDULE OF REVENUES, EXPENDITURES,AND CHANGES IN FUND BALANCE- BUDGET AND ACTUAL Year Ended December 31, 2018 Variance Original Final Positive Budget Budget Actual (Negative) REVENUES Non-property tax items $ 7,100,000 $ 7,100,000 $ 8,097,019 $ 997,019 Use of money and property 30,000 30,000 99,012 69,012 State aid 40,147 40,147 Total Revenues 7,130,000 7,130,000 8,236,178 1,106,178 EXPENDITURES Current: General government support 82,384 82,384 38,300 44,084 Home and community services 14,701,403 14,701,403 5,574,681 9,126,722 Employee benefits 94,297 94,297 86,728 7,569 Debt service: Principal 1,473,913 1,473,913 1,473,913 -0- Interest 708,003 708,003 708,003 -0- Total Expenditures 17,060,000 17,060,000 7,881,625 9,178,375 Excess(Deficiency)of Revenues Over(Under)Expenditures (9,930,000) (9,930,000) 354,553 10,284,553 Net Change in Fund Balance $ (9,930,000) $ (9,930,000) 354,553 $ 10,284,553 Fund Balance at Beginning of Year 17,427,433 Fund Balance at End of Year $ 17,781,986 -60- TOWN OF SOUTHOLD SCHEDULE OF CHANGES IN THE TOWN'S TOTAL OTHER POSTEMPLOYMENT BENEFIT LIABILITY AND RELATED RATIOS Year Ended December 31, 2018 2018 Total OPEB Liability Service Cost $ 1,822,695 Interest 2,721,521 Changes in Assumptions 4,162,884 Benefit Payments (1,871,347) Net Change in Total OPEB Liability 6,835,753 Total OPEB Liability-Beginning 72,022,226 Total OPEB Liability-Ending $ 78,857,979 Covered employee payroll $ 17,995,841 Total OPEB liability as a percentage of covered payroll 438.20% Note: *This schedule is intended to show information for 10 years.Since 2018 is the first year for this presentation,no other date prior to 2018 is available.However,additional years will be included as they become available. Notes to Schedule: No assets are accumulated in a trust that meets the criteria in GASB Statement No.75,paragraph 4,to pay other postemployment benefits(OPEB). The Town currently contributed enough money to the plan to satisfy current obligations on a pay-as-you-go basis. Changes of Benefit Terms None Changes of Assumptions Changes of assumptions and other inputs reflect the effects of changes in the discount rate each period. The following are the discount rates used in each period. Discount rate January 1,2018 3.44% January 1,2017 3.78% -61- TOWN OF SOUTHOLD SCHEDULE OF PENSION CONTRIBUTIONS For the Year Ended December 31, 2018 Contributions Recognized by the Plan Contribution Contractually in Relation to the Contribution as a Percentage Years Ended Required Contractually Required Deficiency Covered of Covered December 31, Contributions Contributions (excess) Payroll Payroll ERS 2018 $ 1,709,862 $ 1,709,862 $ -0- $ 12,081,905 14.15% 2017 1,740,156 1,740,156 -0- 11,706,859 14.86% 2016 1,783,174 1,783,174 -0- 11,594,297 15.38% 2015 1,981,226 1,981,226 -0- 11,429,154 17.33% _ 2014 2,053,052 2,053,052 -0- 11,076,674 18.53% 2013 2,362,280 2,362,280 -0- 10,713,710 22.05% 2012 1,915,070 1,915,070 -0- 10,813,507 17.71% 2011 1,649,526 1,649,526 -0- 10,343,478 15.95% 2010 1,145,410 1,145,410 -0- 10,193,620 11.24% 2009 718,918 718,918 -0- 10,502,285 6.85% PFRS 2018 $ 1,606,947 $ 1,606,947 $ -0- $ 6,943,972 23.14% 2017 1,677,894 1,677,894 -0- 6,971,643 24.07% 2016 1,587,581 1,587,581 -0- 7,139,568 22.24% 2015 1,762,500 1,762,500 -0- 6,769,147 26.04% 2014 1,455,243 1,455,243 -0- 6,737,987 21.60% 2013 2,073,878 2,073,878 -0- 6,127,253 33.85% 2012 1,209,715 1,209,715 -0- 6,410,344 18.87% 2011 1,308,331 1,308,331 -0- 6,057,237 21.60% 2010 957,407 957,407 -0- 5,999,280 15.96% 2009 861,865 861,865 -0- 6,222,524 13.85% Note-Amounts presented for each year were determined as of December 31 st and the contractually required contributions are based on the amounts invoiced by the New York State Local Retirement System. 1 -62- TOWN OF SOUTHOLD SCHEDULE OF PROPORTIONATE SHARE OF THE NET PENSION LIABILITY For the Year Ended December 31,2018 2018 2017 2016 2015 2014 ERS Town's proportion of the net pension liability 0.4157% 0.4316% 0.4164% 0.4180% 0.4180% Town's proportionate share of the net collective pension liability $ 1,380,222 $ 4,073,415 $ 6,686,629 $ 1,412,260 $ 1,889,088 Town's covered-employee payroll $11,793,423 $11,677,075 $11,791,354 $11,043,895 $10,637,657 Town's proportionate share of the net pension liability as a percentage of its covered-employee payroll 11.70% 34.88% 56.71% 12.79% 17.76% Plan net position as a percentage of the total pension liability coming from plan 98.24% 94.70% 90.70% 97.90% 97.20% PFRS Town's proportion of the net pension liability 0.18794% 0.19295% 0.24967% 0.18691% 0.18691% Town's proportionate share of the net collective pension liability $ 1,899,633 $ 3,999,229 $ 6,068,632 $ 514,888 $ 778,124 Town's covered-employee payroll $ 6,934,979 $ 6,887,011 $ 6,750,958 $ 6,168,230 $ 6,519,957 Town's proportionate share of the net pension liability as a percentage of its covered-employee payroll 27.39% 58.07% 89.89% 8.35% 11.93% Plan net position as a percentage of the total pension liability coming from plan 96.93% 93.50% 90.20% 99.90% 98.50% -63- OTHER SUPPLEMENTARY INFORMATION TOWN OF SOUTHOLD COMBINING BALANCE SHEET NON-MAJOR GOVERNMENTAL FUNDS December 31, 2018 Special Revenue Funds East-West Fire Southold Fishers Solid Waste Total General Fund Special Protection Wastewater Island Sewer Management Non-Major Part Town Grant District District District District Funds ASSETS Cash and investments $ 1,567,936 $ 161,805 $ 25,566 $ 2,995 $ 46,279 $ 1,112,033 $ 2,916,614 Accounts receivable 178,772 6 10 96,709 275,497 Due from other funds 221,140 165,312 110 15,535 389,956 792,053 Due from other governments 424,750 30,231 454,981 State and federal aid receivables 23,091 31,953 55,044 Inventory of materials and supplies 18,784 18,784 Prepaids 39,330 37,948 77,278 Total Assets $ 2,455,019 $ 192,036 $ 190,884 $ 3,105 $ 61,824 $ 1,687,383 $ 4,590,251 LIABILITIES Accounts payable and accrued liabilities $ 138,910 $ 37,193 $ 13,137 $ 1,733 $ 349,056 $ 540,029 Due to other funds 100,117 955 205 101,277 Unearned revenue 122,066 153,888 15,525 130,305 421,784 Total Liabilities 361,093 192,036 13,137 $ -0- 17,258 479,566 1,063,090 DEFERRED INFLOWS OF RESOURCES Unearned revenue from real property taxes 144,669 165,309 387,970 697,948 FUND BALANCES Nonspendable 39,330 56,732 96,062 Committed 424,750 424,750 Assigned 1,485,177 12,438 3,105 44,566 763,115 2,308,401 Total Fund Balances 1,949,257 -0- 12,438 3,105 44,566 819,847 2,829,213 Total Liabilities,Deferred Inflows of of Resources and Fund Balances $ 2,455,019 $ 192,036 $ 190,884 $ 3,105 $ 61,824 $ 1,687,383 $ 4,590,251 -64- TOWN OF SOUTHOLD COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - NON-MAJOR GOVERNMENTAL FUNDS For the Year Ended December 31, 2018 Special Revenue Funds East-West Fire Southold Fishers Solid Waste Total General Fund Special Protection Wastewater Island Sewer Management Non-Major Part Town Grant District District District District Funds REVENUES Real property taxes $ 715,988 $ 785,267 $ 1,998,649 $ 3,499,904 Other real property tax items 435 10 25 470 Non-property tax items 696,633 696,633 Departmental income 939,685 $ 1,545 $ 32,148 1,715,150 2,688,528 Use of money and property 10,532 500 38 26,042 37,112 Licenses and permits 17,070 141,638 158,708 Sales of property and compensation for loss 253,428 253,428 State aid 111,419 $ 83,861 38,555 233,835 Federal aid 81,545 81,545 Total Revenues 2,491,762 165,406 785,777 1,545 32,186 4,173,487 7,650,163 EXPENDITURES Current: General government support 198,945 5,019 220,193 424,157 Public safety 580,134 779,690 1,359,824 Home and community services 787,319 165,406 33,796 2,542,633 3,529,154 Employee benefits 723,961 385 672,938 1,397,284 Debt service: Principal 6,267 561,827 568,094 Interest 2,359 84,838 87,197 Total Expenditures 2,290,359 165,406 779,690 -0- 47,826 4,082,429 7,365,710 Excess(Deficiency)of Revenues Over Expenditures 201,403 -0- 6,087 1,545 (15,640) 91,058 284,453 Net Change in Fund Balance 201,403 -0- 6,087 1,545 (15,640) 91,058 284,453 Fund Balances at Beginning of Year 1,747,854 -0- 6,351 1,560 60,206 728,789 2,544,760 Fund Balances at End of Year $ 1,949,257 $ -0- $ 12,438 $ 3,105 $ 44,566 $ 819,847 $ 2,829,213 -65- OTHER REPORTS CERTIFIED PUBLIC ACCOUNTANTS INDEPENDENT AUDITORS' 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 Supervisor and Town Board Town of Southold Southold, New York We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to the financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the governmental activities, the aggregate discretely presented component units, each major fund and the aggregate remaining fund information of the Town of Southold, New York as of and for the year ended December 31, 2018, and the related notes to the financial statements, which collectively comprise the Town of Southold, New York's basic financial statements and have issued our report thereon dated September 23, 2019. Our report includes a reference to other auditors who audited the financial statements of Fishers Island Ferry District and the Fishers Island Waste Management District, as described in our report on the Town of Southold, New York's financial statements. This report does not include the results of the other auditors' testing of internal control over financial reporting or compliance and other matters that are reported on separately by those auditors. The financial statements of the Fishers Island Waste Management were not audited in accordance with 1 Governmental Auditing Standards. The financial statements of the Town of Southold's discretely presented component units with the exception of the two referenced above were not audited as of the report date, nor were we able to satisfy ourselves as to those financial activities by other auditing procedures. The unaudited discretely presented component units represent 25.9°/x, 32.4%, and 16.4%, respectively, of the assets, net position, and revenues of the aggregate discretely presented component units. L Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the Town of Southold, New York'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 the Town of Southold, New York's internal control. Accordingly, we do not express an opinion on the effectiveness of the Town of Southold, New York'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 Town of Southold, New York's financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or 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. BEYOND THE NUMBERS... �— ALBRECHT,VIGGIANO,ZURECK&COMPANY,P.C. 245 PARK AVENUE,39TH FLOOR 25 SUFFOLK COURT NEW YORK, NY 10167 HAUPPAUGE, NY 11788-3715 J I T.212.792.4075 T 631 434 9500 F:631 434.9518 -66- www.avz.com INDEPENDENT MEMBER OF BKR INTERNATIONAL Internal Control Over Financial Reporting (continued) 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. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. Compliance and Other Matters l As part of obtaining reasonable assurance about whether the Town of Southold, New York'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 no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of 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 Town of Southold, New York's internal control or on compliance. This report is an integral part of an audit performed in accordance t, with Government Auditing Standards in considering the Town of Southold, New York's internal control and compliance. Accordingly,this communication is not suitable for any other purpose. vl � ��. Hauppauge, New York September 23, 2019 -67-