Finance Committee - 4/4/2018 Page 3
on. Previously, it was probably disclosed on or around Page 100, it was kind of buried in the footnotes of your
financial statements.
A few years ago the accounting standards changed and essentially what happened is they didn’t look at it as
an unfunded liability of the system; they looked it as an unfunded liability of the underlying employers. Nashua
is approximately a 5% contributor to the plan, it’s a little bit more complicated than this, so essentially 5% of the
overall unfunded liability is required to be presented on your financial statement. A little more complicated than
that but hopefully that at least outlines how the amount is determined. That amount fluctuates significantly, for
example, that $267 million dollar liability, it is up about $70 million dollars over the prior year. So because
investment returns and assumption changes can be made, that liability can fluctuate significantly.
As an illustration, | just mentioned the assumption changes. Prior to this fiscal year, it was assumed that there
would be a 7.5% discount rate or return on the investments and the plan lowered that down to 7.25%. We
think that was probably a good idea but as those investment returns are projected to be lower, liability is going
to go up. When that liability goes up, if you look at the second number up from the bottom in this first column
of numbers, you see that unrestricted net position. It is in parenthesis, indicating that the liability and other
restricted net positions components outweigh the assets. Again, | want to make sure that | stress that this is
not the General Fund perspective. This is the long-term perspective balance sheet. So that negative or deficit
of $172 million is really driven by the Net Pension Liability that we saw about two-thirds of the way down the
page.
Right above that Net Pension Liability is net your OPEB, OPEB again standing for Other Post Employment
Benefits and “other” means things other than pension. An example would be certain retiree health care. You
will note that has a June 30, 2017 actuarially determined liability of almost $27 million dollars. That’s
incrementally being brought on to your balance sheet. There are going to be some changes with respect to
how that is reported effective June 20, 2018 but | did want to point out that liability as well.
Over to the General Fund which really is on Page 35 and it really represents the first place that most readers of
your financial statements are going to turn to. The Net Pension Liability and the OPED, that gathers a lot of
attention, but really most readers in some respects, rating agencies and financial institutions as well, are really
going to focus on the short-term perspective or the City’s General Fund which is the first column of numbers on
Page 35. When | say “short-term perspective” the basis of accounting for your General Fund Balance Sheet
technically it’s called Modified Accrual Basis, but it’s really much more similar to a cash basis. There are some
differences that are outlined in the footnotes and | can speak to them, but it’s very similar to a cash basis
balance sheet. Again, on Page 35 the focus here on the short-term perspective is on your unassigned fund
balance, which is the third number up from the bottom on that first column of numbers on Page 35.
As of June 30, 2017 it had an account balance of $28,339,000.00. It is virtually unchanged from the prior year,
it was just over, literally just over $28 million in the prior year. So it’s virtually unchanged showing a nice
stability in that key account balance. There is not a lot of fluctuation and it also represents about 10.8% of your
expenditures. Now the City does have a fund balance policy which requires a minimum of that 10% for liquidity
purposes, for cash flow funding and things like that. So you close June 30, 2017 just slightly above that
minimum level and certainly the $28 million dollars in that unassigned fund balance represents a solid general
fund balance sheet as of June 30, 2017.
There are a couple of other accounts | would want to point out on this page. Right above the Unassigned
Balance you have an Assigned Fund Balance of slightly more than $13 million. The majority of that represents
fund balance that the City is using towards its Fiscal Year 18 Budget. Above that you have the Committed
Fund Balance of about $8.7 million dollars. That includes essentially two things; some escrowed funds and the
Capital Reserve Funds. They may be tracked separately in the City’s general ledger outside the General
Fund, but for formal reporting purposes your Capital Reserve Funds are combined with your General Fund and
shown as Committed Fund Balance.
On Page 35 the first place that almost all readers are going to turn to and look at is that Unassigned Fund
Balance, again the $28.3 million is virtually unchanged from the prior year and represents a solid balance
