Finance Committee Page 2
March 2, 2016
through a system and inputted into this comprehensive annual financial report. Each one of these numbers
can be drilled down into and you can actually see the specific general ledger of accounts from your financial
management system. A couple of other quick things in the governance letter and again they are required
communications so | need to take a moment to relay them to you. There were no disagreements in how to
apply generally accepted accounting principles; those are the rules that you use to complete your accounting
and financial reporting. In terms of accounting estimates, there were definitely a couple of significant estimates
in these financial statements and one | suspect will get a fair amount of conversation tonight. The two most
significant estimates in there are the city's net GAAP obligation and the city’s net pension liability. East of
those are actuary determined so there are certain actuarial standards that go into and they are professionally
calculated and they are now require to be presented in your long-term prospective financial statements. With
that overview, | would like to start with our opinion of your financial statements which is on pages 15-17.
Everything else is in this document is directly traceable back to the books and records here in Nashua. In
summary it says that after following the various audit standards that we did, in our opinion, your financial
statements are totally in accordance with generally accepted accounting principles for local governmental
entities here in the United States of America which is no different than prior year but certainly a key highlight
and a key take away from the audit. Following that on pages 18-32 are your management discussion and
analysis. It's a great resource to go back to at a later point in time to understand why certain key account
balances change. I’m going to talk orally about some of those and that’s why | think the MD&A is a great
resource to go back to at a later point in time. That brings us to page 33 and that’s where I'll start looking at
some of the key accounts on the balance sheets and the operating statements or the income statement,
although that’s really not a term that used in the governmental financial world. Before | do that, there are two
very distinct financial statements in here and that’s the model that you folks are required to follow by the GASB
or the Governmental Accounting Standards Board. One model is the long-term perspective financial
statements and that begins on page 33. The second model is what | would refer to as the short-term
perspective which begins on page 36. | learned a long time ago that when | say there is a long-term
perspective and a short-term perspective that | need to follow-up by saying that it’s not as if the city has two
sets of books, it’s just a long-term perspective way of looking at those with certain accrual-based entries
associated with them and in the short-term basis financial statement are not quite a cash basis but quite
similar; there are more definitions in the notes to the financial statement should you choose. The long-term
perspectives again, beginning on page 33, a significant portion of any exit communication that | have had with
my audit clients for the year ending June 30, 2015, have focused on long-term perspective financial
statements. That’s because for this year end, June 30, 2015, it is the first year that you and all of the cities and
towns in the state and throughout the country were required to implement a new accounting standard called
GASB 68. Essentially this standard required that for local governments to reach out to... you are contributing
employer to the New Hampshire Retirement System and that system has a piece that is unfunded. There is an
unfunded liability with that particular retirement system. Essentially what this new accounting standard is
saying is that while it’s not a liability of the system it is a liability of the underlying employers because the
contributions that have gone into the system don’t yet match the expected benefits to be paid out to the
retirees. This new standard requires the NPL or the net pension liability that you as a contributing employer,
you are about a 5% member of the New Hampshire Retirement System. That translates to, as you see on
page 33, and it’s a couple of inches up from the bottom in the first column of numbers, you see an account
description called the net pension liability. In that first column of numbers it’s about $185 million. That is a
very large number and as a result | think it’s important to talk about it tonight. A couple of the things that |
would like to point out to the group here is while this balance sheet here as of June 30, 2015, it’s the first time
it's present on this page. It’s not as if, in our opinion, and in the opinion of rating agencies that it’s a new
liability; rating agencies have always known that the pension system not only here in this state but throughout
the country have an unfunded piece. They have always known that the unfunded piece of the liability is
attributable to the underlying employer’s, the City of Nashua. While it’s the first time you see it here on this
particular page, and of course as your liabilities goes up your equity or net position goes down and you can
see that in the first column of numbers; the second number up from the bottom that’s in parentheses, while it’s
the first time being present here, again it’s been a known liability to the credit rating agency communities and to
the financial institutions. | was speaking with Mr. Griffin earlier tonight and he reminded me that the credit
