VILLAGE OF EAST PALESTINE - Ohio Auditor

VILLAGE OF EAST PALESTINE, OHIO Management’s Discussion and Analysis For the Year Ended December 31, 2019 Unaudited Government-wide Statements The government-wide statements report information about the Village as a whole using accounting methods similar to those used by private-sector companies. The statement of net position includes all of the government’s assets, liabilities, and deferred outflows/inflows of resources. All of the current year’s revenues and expenses are accounted for in the statement of activities regardless of when cash is received or paid. The two government-wide statements report the Village’s net position and how it has changed. Net position is one way to measure the Village’s financial health. Over time, increases or decreases in the Village’s net position is an indicator of whether its financial health is improving or deteriorating, respectively. To assess the overall health of the Village you need to consider additional nonfinancial factors such as the Village’s tax base and the condition of the Village’s capital assets. The government-wide financial statements of the Village are divided into two categories: Governmental Activities – Most of the Village’s program’s and services are reported here including security of persons and property, public health and welfare services, leisure time activities, community environment, transportation and general government. Business-Type Activities – These services are provided on a charge for goods or services basis to recover all of the expenses of the goods or services provided. The Village’s water and wastewater services are reported as business-type activities. Fund Financial Statements Funds are accounting devices that the Village uses to keep track of specific sources of funding and spending for particular purposes. The fund financial statements provide more detailed information about the Village’s most significant funds, not the Village as a whole. Governmental Funds – Most of the Village’s activities are reported in governmental funds, which focus on how money flows into and out of those funds and the balances left at year-end available for spending in future periods. These funds are reported using an accounting method called modified accrual accounting, which measures cash and all other financial assets that can readily be converted to cash. The governmental fund statements provide a detailed short-term view of the Village’s general government operations and the basic services it provides. Governmental fund information helps you determine whether there are more or fewer financial resources that can be spent in the near future to finance programs. The relationship (or differences) between governmental activities (reported in the Statement of Net Position and the Statement of Activities) and governmental funds is reconciled in the financial statements. DRAFT -4- 8/26/2020

VILLAGE OF EAST PALESTINE, OHIO Management’s Discussion and Analysis For the Year Ended December 31, 2019 Unaudited Proprietary Funds – Proprietary funds use the same basis of accounting as business-type activities; therefore, these statements will essentially match. The proprietary fund financial statements provide separate information for the Water and Wastewater funds, both of which are considered major funds. FINANCIAL ANALYSIS OF THE VILLAGE AS A WHOLE The following table provides a summary of the Village’s net position for 2019 compared to 2018. Current and Other Assets Capital Assets, Net Total Assets Deferred Outflows of Resources Net Pension Liability Net OPEB Liability Other Long-term Liabilities Other Liabilities Total Liabilities Deferred Inflows of Resources Net Position Net Investment in Capital Assets Restricted Unrestricted (Deficit) Total Net Position Governmental Activities 2019 2018 2,930,011 2,751,916 7,285,378 7,484,954 10,215,389 10,236,870 Business-type Activities 2019 1,125,352 10,175,143 11,300,495 2018 1,064,749 9,177,024 10,241,773 T otal 2019 2018 4,055,363 3,816,665 17,460,521 16,661,978 21,515,884 20,478,643 887,970 497,222 299,562 151,735 1,187,532 648,957 2,675,754 737,932 598,557 87,402 4,099,645 1,771,524 1,429,809 824,961 127,425 4,153,719 922,704 408,996 5,971,293 83,839 7,386,832 520,666 336,248 5,253,570 70,473 6,180,957 3,598,458 1,146,928 6,569,850 171,241 11,486,477 2,292,190 1,766,057 6,078,531 197,898 10,334,676 783,695 991,803 19,101 158,789 802,796 1,150,592 6,774,689 857,161 (1,411,831) 6,220,019 6,777,659 733,082 (1,922,171) 5,588,570 4,723,427 0 (529,303) 4,194,124 4,599,857 0 (546,095) 4,053,762 11,498,116 857,161 (1,941,134) 10,414,143 11,377,516 733,082 (2,468,266) 9,642,332 The net pension liability (NPL) is reported by the Village pursuant to GASB Statement 68, “Accounting and Financial Reporting for Pensions—an Amendment of GASB Statement 27.” The net OPEB liability (NOL) is reported by the Village pursuant to GASB Statement 75, “Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions,” which significantly revises accounting for costs and liabilities related to other postemployment benefits (OPEB). For reasons discussed below, many end users of this financial statement will gain a clearer understanding of the Village’s actual financial condition by adding deferred inflows related to pension and OPEB, the net pension liability and the net OPEB liability to the reported net position and subtracting deferred outflows related to pension and OPEB. Governmental Accounting Standards Board standards are national and apply to all government financial reports prepared in accordance with generally accepted accounting principles. Prior accounting for pensions (GASB 27) and postemployment benefits (GASB 45) focused on a funding approach. This approach limited pension and OPEB costs to contributions annually required by law, which may or may not be sufficient to fully fund each plan’s net pension liability or net OPEB liability. DRAFT -5- 8/26/2020

VILLAGE OF EAST PALESTINE, OHIO Management’s Discussion and Analysis For the Year Ended December 31, 2019 Unaudited GASB 68 and GASB 75 take an earnings approach to pension and OPEB accounting; however, the nature of Ohio’s statewide pension/OPEB plans and state law governing those systems requires additional explanation in order to properly understand the information presented in these statements. GASB 68 and GASB 75 require the net pension liability and the net OPEB liability to equal the Village’s proportionate share of each plan’s collective: 1. Present value of estimated future pension/OPEB benefits attributable to active and inactive employees’ past service 2. Minus plan assets available to pay these benefits GASB notes that pension and OPEB obligations, whether funded or unfunded, are part of the “employment exchange” – that is, the employee is trading his or her labor in exchange for wages, benefits, and the promise of a future pension and other postemployment benefits. GASB noted that the unfunded portion of this promise is a present obligation of the government, part of a bargained-for benefit to the employee, and should accordingly be reported by the government as a liability since they received the benefit of the exchange. However, the Village is not responsible for certain key factors affecting the balance of these liabilities. In Ohio, the employee shares the obligation of funding pension benefits with the employer. Both employer and employee contribution rates are capped by State statute. A change in these caps requires action of both Houses of the General Assembly and approval of the Governor. Benefit provisions are also determined by State statute. The Ohio revised Code permits, but does not require the retirement systems to provide healthcare to eligible benefit recipients. The retirement systems may allocate a portion of the employer contributions to provide for these OPEB benefits. The employee enters the employment exchange with the knowledge that the employer’s promise is limited not by contract but by law. The employer enters the exchange also knowing that there is a specific, legal limit to its contribution to the retirement system. In Ohio, there is no legal means to enforce the unfunded liability of the pension/OPEB plan as against the public employer. State law operates to mitigate/lessen the moral obligation of the public employer to the employee, because all parties enter the employment exchange with notice as to the law. The retirement system is responsible for the administration of the pension and OPEB plans. Most long-term liabilities have set repayment schedules or, in the case of compensated absences (i.e. sick and vacation leave), are satisfied through paid time-off or termination payments. There is no repayment schedule for the net pension liability or the net OPEB liability. As explained above, changes in benefits, contribution rates, and return on investments affect the balance of these liabilities, but are outside the control of the local government. In the event that contributions, investment returns, and other changes are insufficient to keep up with required payments, State statute does not assign/identify the responsible party for the unfunded portion. Due to the unique nature of how the net pension liability and the net OPEB liability are satisfied, these liabilities are separately identified within the long-term liability section of the statement of net position. In accordance with GASB 68 and GASB 75, the Village’s statements prepared on an accrual basis of accounting include an annual pension expense and an annual OPEB expense for their proportionate share of each plan’s change in net pension liability and net OPEB liability, respectively, not accounted for as deferred inflows/outflows. DRAFT -6- 8/26/2020

VILLAGE OF EAST PALESTINE, OHIO Management’s Discussion and Analysis For the Year Ended December 31, 2019 Unaudited Changes in Net Position – The following table shows the changes in net position for 2019 compared to 2018: Governmental Activities 2019 2018 2019 2018 398,988 317,598 266,127 982,713 1,905,766 0 0 1,905,766 1,893,015 0 0 1,893,015 2,320,286 440,078 15,250 2,775,614 2,292,003 317,598 266,127 2,875,728 699,035 1,115,048 539 187,427 32,993 110,276 2,145,318 3,015,166 688,242 1,031,750 502 166,372 24,441 147,430 2,058,737 3,041,450 0 0 0 0 0 0 0 1,905,766 0 0 0 0 0 0 0 1,893,015 699,035 1,115,048 539 187,427 32,993 110,276 2,145,318 4,920,932 688,242 1,031,750 502 166,372 24,441 147,430 2,058,737 4,934,465 748,820 326,737 336 35,803 663,983 579,646 23,395 0 0 2,378,720 636,446 (4,997) 1,382,649 258,037 0 33,924 610,581 611,883 28,811 0 0 2,925,885 115,565 10,000 0 0 0 0 0 0 0 673,908 1,096,493 1,770,401 135,365 4,997 0 0 0 0 0 0 0 653,853 948,673 1,602,526 290,489 (10,000) 748,820 326,737 336 35,803 663,983 579,646 23,395 673,908 1,096,493 4,149,121 771,811 0 1,382,649 258,037 0 33,924 610,581 611,883 28,811 653,853 948,673 4,528,411 406,054 0 414,520 440,078 15,250 869,848 Program Expenses Security of Persons and Property Leisure Time Activities Community Environment Public Health and Welfare Transportation General Government Interest and Fiscal Charges Water Wastewater Total Expenses Change in Net Position Before Transfers Transfers Total Change in Net Position Beginning Net Position Ending Net Position Total 2019 Revenues Program Revenues: Charges for Services and Sales Operating Grants and Contributions Capital Grants and Contributions Total Program Revenues General Revenues: Property Taxes Income Taxes Other Local Taxes Intergovernmental Revenues, Unrestricted Investment Earnings M iscellaneous Total General Revenues Total Revenues 2018 Business-type Activities 631,449 125,565 140,362 280,489 771,811 406,054 5,588,570 6,220,019 5,463,005 5,588,570 4,053,762 4,194,124 3,773,273 4,053,762 9,642,332 10,414,143 9,236,278 9,642,332 Governmental Activities Governmental Activities net position increased 631,449, or 11%. An increase in operating grants was due to an increase in gas tax revenue, which can be attributed to an increase in the tax rate. A significant decrease in security of persons and property can be attributed to a decrease in the police and fire OPEB liability. DRAFT -7- 8/26/2020

VILLAGE OF EAST PALESTINE, OHIO Management’s Discussion and Analysis For the Year Ended December 31, 2019 Unaudited The Village receives an income tax, which is based on 1% of all salaries, wages, commissions and other compensation and on net profits earned from residents living within the Village. Income taxes and property taxes made up 37% and 23% respectively of revenues for governmental activities in 2019. The Village’s reliance upon tax revenues is demonstrated by the following graph indicating 60% of total revenues from general tax revenues: 60.18% Percent Revenue Sources General Tax Revenues Intergovernmental Revenues, Unrestricted Program Revenues General Other Total Revenue 2019 of Total 1,814,622 187,427 869,848 143,269 60.18% 6.22% 28.85% 4.75% 3,015,166 100.00% 4.75% 6.22% 28.85% Business-Type Activities Net position of the business-type activities increased 140,362. This was a 3% increase from the previous year. Revenues remained consistent with the prior year. An increase in expenses was due to changes in the net pension liability. FINANCIAL ANALYSIS OF THE VILLAGE’S FUNDS The Village’s governmental funds reported a combined fund balance of 1,414,964, which is an increase from last year’s balance of 1,237,881. The schedule below indicates the fund balance and the total change in fund balance as of December 31, 2019 and 2018: Fund Balance December 31, 2019 General Street Construction, Maintenance, and Repair Street Levy Capital Replacement Other Governmental Total Increase (Decrease) 720,475 2,812,816 ( 2,092,341) 176,794 85,209 432,486 121,454 64,529 (1,760,918) 55,340 20,680 2,193,404 1,237,881 177,083 1,414,964 DRAFT Fund Balance/Deficit December 31, 2018 -8- 8/26/2020

VILLAGE OF EAST PALESTINE, OHIO Management’s Discussion and Analysis For the Year Ended December 31, 2019 Unaudited General Fund – The Village’s General Fund balance change is due to several factors. The tables that follow assist in illustrating the financial activities of the General Fund: Taxes Intergovernmental Revenues Charges for Services Licenses and Permits Investment Earnings Fines and Forfeitures All Other Revenue Total 2019 Revenues 2018 Revenues Increase (Decrease) 1,239,249 112,727 192,206 73,641 32,326 8,401 87,287 1,136,560 70,520 188,970 74,591 24,108 10,822 108,911 102,689 42,207 3,236 (950) 8,218 (2,421) (21,624) 1,745,837 1,614,482 131,355 General Fund revenues increased 131,355, or approximately 8% from the prior year, which can mostly be attributed to an increase in income taxes. An increase in intergovernmental revenues was mostly due to an EMS grant and drug safety grant. Current: Security of Persons and Property Leisure Time Activities Transportation General Government Debt Service: Principal Retirement Interest and Fiscal Charges Total 2019 Expenditures 2018 Expenditures Increase (Decrease) 1,071,374 10,000 7,843 472,814 980,303 0 0 489,666 91,071 10,000 7,843 (16,852) 15,527 6,962 15,105 7,670 422 (708) 1,584,520 1,492,744 91,776 General Fund expenditures increased 91,776, or 6%. An increase in security of persons and property can mostly be attributed to demolition costs for fire damaged properties. Leisure time activities expenditures consisted of accrued sick and vacation time payouts to park employees that left the Village. Street Construction, Maintenance, and Repair Fund – The Street Construction, Maintenance, and Repair Fund balance increased 55,340, or 46%. This increase was the result of an increase in gas tax revenue, which can be attributed to an increase in the tax rate. Street Levy Capital Replacement Fund - The Street Levy Capital Replacement Fund reported an increase in fund balance of 20,680. This change was consistent with the prior year. DRAFT -9- 8/26/2020

VILLAGE OF EAST PALESTINE, OHIO Management’s Discussion and Analysis For the Year Ended December 31, 2019 Unaudited The Village’s budget is prepared according to Ohio law and is based on accounting for certain transactions on a basis of cash receipts, disbursements and encumbrances. The most significant budgeted fund is the General Fund. During the course of 2019 the Village amended its General Fund budget several times. For the General Fund, final estimated and actual revenues were approximately 18% higher than original estimated revenues, due mostly to an increase in tax revenues. Original budgeted, final budgeted, and actual budget basis expenditures were not materially different. The General Fund had an adequate fund balance to cover expenditures. CAPITAL ASSETS AND DEBT ADMINISTRATION Capital Assets At the end of 2019 the Village had 17,460,521 net of accumulated depreciation invested in land, construction in progress, buildings, improvements, machinery, equipment, and infrastructure. Of this total, 7,285,378 was related to governmental activities and 10,175,143 to the business-type activities. The following tables show fiscal year 2019 and 2018 balances: Governmental Activities Land Buildings Improvements Other than Buildings Machinery and Equipment Infrastructure Less: Accumulated Depreciation Totals Increase (Decrease) 2019 2018 295,074 839,024 321,241 3,647,357 7,451,013 (5,268,331) 295,074 839,024 308,628 3,631,698 7,212,996 (4,802,466) 0 0 12,613 15,659 238,017 (465,865) 7,285,378 7,484,954 ( 199,576) Governmental activities capital asset additions included the purchase of a salt spreader, and various playground equipment. The increase in infrastructure can be attributed to routine street maintenance. DRAFT

VILLAGE OF EAST PALESTINE COLUMBIANA COUNTY DECEMBER 31, 2019 TABLE OF CONTENTS (Continued) TITLE PAGE Schedule of the Village's Proportionate Share of the Net Other Postemployment Benefits (OPEB) Liability (OPERS and OP&F).88 Schedule of the Village's Other Postemployment Benefit (OPEB)