Audit 307772

Title: NOTE 1: ORGANIZATION Accounting Policies: Hays County ESD6 uses the accrual basis of accounting, which recognizes revenue when earned and expenses when incurred. This is regardless of when cash is paid or received for services. De Minimis Rate Used: N Rate Explanation: HCESD#6 did not elect to use the de minimis cost rate. The Northwest Hays County Rural Fire Prevention District #4 was confirmed by election in July 1984 and effectively began operations on July 1, 1985. On July 28, 2001 the District converted the Northwest Hays County Rural Fire Prevention District #4 to the Northwest Hays County Emergency Services District #5 and then on October 1, 2006, the District was renamed as the Hays County Emergency Services District #6 (the District) and is operating under the provisions of Chapter 775 of the Health and Safety Code. The District was established to arrange for fire and rescue protection services within its boundaries. The District handles all financial matters for the fire departments. The District is not included in any other governmental reporting entity. On October 13, 2004, Hays County Fire & Rescue (HCFR) was incorporated under section 501(c)(3) of the Internal Revenue code. As of October 1, 2007 the HCFR was dissolved and all assets and liabilities of became the responsibility of the District.

Title: NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Accounting Policies: Hays County ESD6 uses the accrual basis of accounting, which recognizes revenue when earned and expenses when incurred. This is regardless of when cash is paid or received for services. De Minimis Rate Used: N Rate Explanation: HCESD#6 did not elect to use the de minimis cost rate. The accounting policies of the District conform to U.S. generally accepted accounting principles applicable to governments promulgated by the Governmental Accounting Standards Board (GASB) and the American Institute of Certified Public Accountants (AICPA). The following is a summary of the significant accounting policies. GOVERNMENT-WIDE AND FUND FINANCIAL STATEMENTS The District is considered a special purpose government under GASB Statement No. 34. This allows the District to present the required fund and government-wide statements in a single schedule. The requirement for fund financial statements to be prepared on the modified accrual basis of accounting is met with the “General Fund” column. An adjustment column includes those entries needed to convert to the full accrual basis government-wide statements. The Statement of Net Position and the Statement of Activities are government-wide financial statements. They report information on all of the District’s activities. The District services are supported primarily by ad valorem taxes. The Statement of Activities demonstrates how the District used revenue. Expenses are grouped into four categories: labor and benefits, fire department operations, district expenses and debt service. MEASUREMENT FOCUS, BASIS OF ACCOUNTING AND FINANCIAL STATEMENT PRESENTATION The government-wide financial statements are presented using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are considered to be available when they are collectible within the current period, or soon enough thereafter, to pay liabilities of the current period. For this purpose, the District considers all revenues available if they are collectible within 31 days after year- end. Expenditures are recognized in the accounting period in which the liability is incurred. Interest and tax revenues associated with the current fiscal year are considered susceptible to accrual and have been recognized as revenues in the current fiscal year. All other revenue is considered measurable and available only when cash is received. NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES MEASUREMENT FOCUS, BASIS OF ACCOUNTING AND FINANCIAL STATEMENT PRESENTATION COMPENSATED ABSENCES Full-time regular employees work a 40 hour per week schedule. Firefighters are scheduled based on either a day shift or 48/96 hour shift schedule. Accruals for leave are based on length of service and the schedule worked. Employees may accrue up to 288 hours of paid leave. If unused, the leave will be paid to the employee. ESTIMATES The preparation of 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 and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. NET POSITION Net position represents the difference between assets, deferred outflows, liabilities and deferred inflows. Net position invested in capital assets consists of capital assets, net of accumulated depreciation, reduced by the outstanding balances of any borrowing used for the acquisition, construction or improvements of those assets. Net position is reported as restricted when there are limitations imposed on its use either through the enabling legislation adopted by the District or through external restrictions imposed by creditors, grantors or laws or regulations of other governments. When both restricted and unrestricted resources are available for use, it is the District’s policy to use restricted resources first and then unrestricted resources as they are needed. FUND BALANCES Fund balance of governmental funds is reported in various categories based on the nature of any limitations requiring the use of resources for specific purposes. The District can establish limitations on the use of resources through either a commitment or an assignment. When both unassigned and committed or assigned funds are available for expenditure, committed or assigned funds are used first. Committed fund balances include amounts that can only be used for specific purposes determined by a formal action of the Board or adoption of an ordinance. Limitations imposed by commitments remain in place until formal Board action is taken to remove the limitation. Amounts in the assigned fund balances are intended to be used by the District for specific purposes but do not meet the criteria to be committed. Assignments are generally temporary and do not require Board action to be taken to remove the assignment. CAPITAL ASSETS All capital assets are recorded at historical cost (or estimated historical cost) and updated for additions and retirements during the year. The District maintains a capitalization threshold of $2,500 for assets with a useful life of two years or more. The District does not possess any infrastructure. Improvements are capitalized. The cost of normal repairs and maintenance that do NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES not add to the value of the asset or materially extend the asset’s life are recorded as expenses. Depreciation is calculated on a straight-line basis. Estimated useful lives are as follows: Trucks and equipment 10 years Furniture and equipment 10 years Building 25-40 years DEFERRED OUTFLOWS/INFLOWS OF RESOURCES The statement of net position and governmental funds balance sheet report a separate section for deferred outflows of resources representing a consumption of net position that applies to a future period and is not recognized as an outflow of resources in the current period. The District’s pension related items qualify for reporting in this category in the government-wide financial statements. See Note 10 for more information. The statement of financial position and governmental funds balance sheet report a separate section for deferred inflows of resources representing an acquisition of net position that applies to a future period and is not recognized as an inflow of resources or revenue until that time. The District has two types of items which qualify for reporting in this category. Unavailable revenue is reported only in the governmental funds balance sheet. The governmental funds report unavailable revenue from property taxes. These amounts are deferred and recognized as an inflow in the period that they become available. The other item is pension related items reported in the government-wide financial statements. See Note 11 for more information. PENSIONS For purposes of measuring the net pension liability and deferred outflows/inflows of resources related to pensions, and the pension expense, information about the pension plan’s fiduciary net position of the Texas County & District Retirement System (TCDRS) and the Texas Emergency Services Retirement System (TESRS) and additions to/deductions from those plans’ fiduciary net position have been determined on the same basis as they are reported by TCDRS and TESRS. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments of TCDRS and TESRS are reported at fair value.

Title: NOTE 3: DEPOSITS Accounting Policies: Hays County ESD6 uses the accrual basis of accounting, which recognizes revenue when earned and expenses when incurred. This is regardless of when cash is paid or received for services. De Minimis Rate Used: N Rate Explanation: HCESD#6 did not elect to use the de minimis cost rate. At September 30, 2023, the carrying amount of the District’s cash deposits was $730,851 and the bank balance was $743,505. $568,520 of the District’s deposits were fully collateralized with securities held by the pledging financial institution and FDIC, and $174,985 were uninsured at year-end.

Title: NOTE 4: INVESTMENTS Accounting Policies: Hays County ESD6 uses the accrual basis of accounting, which recognizes revenue when earned and expenses when incurred. This is regardless of when cash is paid or received for services. De Minimis Rate Used: N Rate Explanation: HCESD#6 did not elect to use the de minimis cost rate. The Board of Fire Commissioners has authorized the District under a written investment policy to invest funds in compliance with V.A.T.C.S Government Code, Title 10, Chapter 2256 (the Public Funds Investment Act of 1993). Investment vehicles authorized by Chapter 2256 include, but are not limited to, certificates of deposit, obligations backed by the U.S. and state governments, and public fund investment pools. All investments at year end were held in the Texas Local Government Investment Pool (TexPool). TexPool investments are carried at amortized cost, which approximates fair value. The State Comptroller oversees TexPool, with Federated Investors managing the daily operations of the pool under a contract with the State Comptroller. TexPool is a 2(a)7 like fund, which means that it is structured similar to a money market mutual fund. It allows shareholders the ability to deposit or withdraw funds on a daily basis. Such funds seek to maintain a constant net asset value of $1.00, although this cannot be fully guaranteed. TexPool is rated AAAm (the highest rating a local government investment pool can achieve) and must maintain a dollar weighted average maturity not to exceed 60 days, which is the limit. At September 30, 2023, the TexPool portfolio and the TexPool Prime portfolio had weighted average maturities of 28 and 46 days, respectively. However, the District considers the holdings in these funds to have a one day weighted average maturity because the share position can usually be redeemed each day at the discretion of the shareholder, unless there has been a significant change in value.

Title: NOTE 5: CAPITAL ASSETS Accounting Policies: Hays County ESD6 uses the accrual basis of accounting, which recognizes revenue when earned and expenses when incurred. This is regardless of when cash is paid or received for services. De Minimis Rate Used: N Rate Explanation: HCESD#6 did not elect to use the de minimis cost rate. Beginning Balance Additions Deletions Ending Balance Capital assets not being depreciated: Land $3,871,239 $1,189,443 $0 $5,060,682 Construction work in progress 126,108 1,209,725 (126,108) 1,209,725 3,997,347 2,399,168 (126,108) 6,270,407 Capital assets being depreciated: Trucks and equipment 10,503,190 407,744 0 10,910,934 Furniture and equipment 1,665,278 223,891 0 1,889,169 Buildings 10,742,630 1,284,298 0 12,026,928 22,911,098 1,915,933 0 24,827,031 Accumulated depreciation: Trucks and equipment (6,169,251) (752,286) 0 (6,921,537) Furniture and equipment (787,740) (158,166) 0 (945,906) Buildings (1,490,810) (302,598) 0 (1,793,408) Total accumulated depreciation (8,447,801) (1,213,050) 0 (9,660,851) Total capital assets $18,460,644 $3,102,051 ($126,108) $21,436,587

Title: NOTE 6: BUDGET VARIANCES Accounting Policies: Hays County ESD6 uses the accrual basis of accounting, which recognizes revenue when earned and expenses when incurred. This is regardless of when cash is paid or received for services. De Minimis Rate Used: N Rate Explanation: HCESD#6 did not elect to use the de minimis cost rate. The District adopts an annual budget for the General Fund. The District amends the budget as needed during the year. There were no current year amendments. Certain revenue and expenses were different than budgeted, resulting in a higher than budgeted fund balance. Sales tax revenues, interest and other income were higher than budgeted, which was offset by some by lower than anticipated operating grant revenues. Operations expenditures were more than anticipated, and capital outlay and debt service were less than anticipated. Anticipated proceeds from debt were not received.

Title: NOTE 7: PROPERTY TAXES Accounting Policies: Hays County ESD6 uses the accrual basis of accounting, which recognizes revenue when earned and expenses when incurred. This is regardless of when cash is paid or received for services. De Minimis Rate Used: N Rate Explanation: HCESD#6 did not elect to use the de minimis cost rate. The District has the authority to levy a tax to a maximum of $0.10 per $100 of value. Ad valorem taxes are levied each October 1 on the assessed valuation of all taxable property in the District. The tax rate for the October 1, 2022 levy was $0.07020 per $100 of value. Taxes are due upon receipt of the bill and are delinquent if not paid before the first day of February in the year following levy. On January 1 of each year, a tax lien attaches to the property to secure the payment of all taxes, penalties and interest ultimately imposed. Taxes are billed and collected by the Hays County Tax Assessor-Collector

Title: NOTE 8: LONG-TERM LIABILITIES Accounting Policies: Hays County ESD6 uses the accrual basis of accounting, which recognizes revenue when earned and expenses when incurred. This is regardless of when cash is paid or received for services. De Minimis Rate Used: N Rate Explanation: HCESD#6 did not elect to use the de minimis cost rate. Beginning Balance Additions Deletions TotalAccrued leave $258,766 $350,917 ($271,718) $337,965 Loans Original Issue Maturity Interest Rate Beginning Balance Additions Payments Ending Balance 8385 $650,000 2025 3.80% $391,950 $0 $92,650 $299,300 2928 870,000 2028 2.79% 665,715 0 103,837 561,878 8862 580,662 2024 2.85% 358,094 0 116,096 241,998 362912 6,500,000 2040 2.85% 5,850,000 0 325,000 5,525,000 369668 1,800,000 2032 3.12% 1,800,000 0 66,990 1,733,010 369666 1,090,000 2026 2.50% 1,090,000 0 262,768 827,232 $11,490,662 $10,155,759 $0 $967,341 $9,188,418 All loans are secured by Ad Valorem tax revenues. The loan agreements have provisions that change the timing of repayment of outstanding amounts to become immediately due if the District defaults on its required payments. Maturities of long-term debt as of September 30, 2023 are as follows: NOTE 8: LONG-TERM LIABILITIES Principal Interest Total 2024 $984,002 $270,430 $1,254,432 2025 1,003,191 241,313 1,244,504 2026 895,288 212,315 1,107,603 2027 515,740 186,338 702,078 2028 510,018 171,771 681,789 2029-2033 3,005,179 628,120 3,633,299 2034-2039 1,625,000 234,907 1,859,907 2040 650,000 28,199 678,199 $9,188,418 $1,973,393 $11,161,811

Title: NOTE 9: ADJUSTMENTS TO CONVERT FUND STATEMENTS TO GOVERNMENT-WIDE Accounting Policies: Hays County ESD6 uses the accrual basis of accounting, which recognizes revenue when earned and expenses when incurred. This is regardless of when cash is paid or received for services. De Minimis Rate Used: N Rate Explanation: HCESD#6 did not elect to use the de minimis cost rate. Net change in fund balance - governmental fund $783,331Change in taxes receivable deferred in the fund financial statements 26,916 Change in long-term grants receivable deferred in the fund financial statements 369,348 Depreciation expense not recognized in the fund financial statements (1,213,050) Long-term debt principal payments recognized as expenditures in the fund financial statements 967,341 Change in accrued interest expense on long-term debt not reported in the fund financial statements 20,323 Change in accrued leave not reported in the fund financial statements (79,199) Pension contributions are reported as expenditures in the governmental fund when made. Adjustments to the net pension liability and pension expense resulting from changes in deferred outflows and inflows of resources are not recognized in the fund financial statements. 217,061 Capital outlays recognized as expenditures in the fund financial statements 4,188,993 Change in net position - governmental activities $5,281,064 NOTE 9: ADJUSTMENTS TO CONVERT FUND STATEMENTS TO GOVERNMENT-WIDE Fund balance - general fund $12,930,332 Increase net position for capital assets not reported in the fund financial statements 21,436,587 Taxes receivable deferred in the fund financial statements and not in the government-wide financial statements 127,903 Grants receivable deferred in the fund financial statements and not in the government-wide financial statements 736,847 Long-term liabilities not reported in the fund financial statements (10,372,835) Accrued interest expense on long-term debt not reported in the fund financial statements (132,767) Deferred outflows and inflows of resources related to pensions, net, are applicable to future reporting periods and are not reported in the fund financial statements 1,141,191 Net position - governmental activities $25,867,258

Title: NOTE 10: RISK MANAGEMENT Accounting Policies: Hays County ESD6 uses the accrual basis of accounting, which recognizes revenue when earned and expenses when incurred. This is regardless of when cash is paid or received for services. De Minimis Rate Used: N Rate Explanation: HCESD#6 did not elect to use the de minimis cost rate. The District is exposed to various risks of loss including general liability, property damage, and worker’s compensation. The District purchases insurance to provide coverage for these risks.

Title: NOTE 11: PENSION PLANS Accounting Policies: Hays County ESD6 uses the accrual basis of accounting, which recognizes revenue when earned and expenses when incurred. This is regardless of when cash is paid or received for services. De Minimis Rate Used: N Rate Explanation: HCESD#6 did not elect to use the de minimis cost rate. NOTE 11: PENSION PLANS TEXAS COUNTY & DISTRICT RETIREMENT SYSTEM (TCDRS) Plan Description The District provides pension benefits for all of its eligible employees through a non-traditional, joint contributory, hybrid defined benefit plan in the state-wide TCDRS, an agent multiple-employer public employee retirement system. TCDRS issues a publicly available comprehensive annual financial report that includes financial statements and required supplementary information (RSI) for TCDRS; the report also provides detailed explanations of the contributions, benefits and actuarial methods and assumptions used by TCDRS. This report may be obtained by calling TCDRS at 800-823-7782; in addition, the report is available on TCDRS’website at www.tcdrs.org. Plan provisions are as follows: Benefits Provided The plan provisions that have been adopted by the Board of the District are within the options available in the governing state statutes of TCDRS. TCDRS provides retirement benefits that are calculated based on age, average compensation and service credit as follows: Employee deposit rate 7% District contribution rate 10.27% Years required for vesting 10 Service retirement eligibility (expressed as age/years of service) 60/10, any/20, rule of 80 NOTE 11: PENSION PLANS Employees Covered As of the December 31, 2022 valuation and measurement date, the following employees were covered by the benefit terms: Inactive employees or beneficiaries receiving benefits 0 Inactive employees entitled to but not yet receiving benefits 25 Active employees 46 Contributions Under the state law governing TCDRS, the contribution rate for each District is determined annually by the actuary, using the Entry Age actuarial cost method. The actuarially determined rate is the estimated amount necessary to finance the cost of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. Employees of the District were required to contribute 7% of their annual salary during the year, and the District was required to contribute at the actuarially determined rate of 10.27%. The District’s contributions to TCDRS for the year ended September 30, 2023 were $375,092, which equaled the required contribution. Net Pension Liability/(Asset) The District’s net pension liability (asset) of $655,556 for TCDRS at September 30, 2023 was measured as of December 31, 2022. The total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. Pension Actuarial Assumptions The significant actuarial assumptions used to measure the total pension liability are as follows: Actuarial valuation date: 12/31/2022 Actuarial cost method: Entry age normal Investment rate of return (7.50% rate of return plus 0.10% adjustment gross of administrative expenses): 7.60% Inflation: 2.50% Projected Salary Increases: 4.70% average Mortality rates 135% and 120% of Pub-2010 General Retirees Table for males and females, respectively, both projected with 100% of MP-2021 Ultimate Scale after 2010 Actuarial assumptions used in the December 31, 2022 valuation were based on the results of an actuarial experience study for the years 2017 through 2020. NOTE 11: PENSION PLANS Discount Rate The discount rate used to measure the total TCDRS pension liability was 7.60%. The projection of cash flows used to determine the discount rate assumed that contributions will be made at the rates specified in the funding policy. Based on that assumption, the plan’s fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. The discount rate for calculating the total pension liability is equal to the long-term expected rate of return on pension plan investments applied to all periods of projected benefit payments to determine the total pension liability. The long-term expected rate of return on the TCDRS pension plan investments was determined to be 7.60% using a building-block method in which the best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. These real rates of return 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. The target asset allocation and best estimates of geometric real rates of return for each major asset class are summarized in the following table: Asset Class Target Allocation Geometric Real Rate of Return U.S. Equities 11.50% 4.95% Private Equity 25.00% 7.95% Global Equities 2.50% 4.95% International Equities-Developed 5.00% 4.95% International Equities-Emerging 6.00% 4.95% Investment-Grade Bonds 3.00% 2.40% Strategic Credit 9.00% 3.89% Direct Lending 16.00% 6.95% Distressed Debt 4.00% 7.60% REIT Equities 2.00% 4.15% Master Limited Partnerships 2.00% 5.30% Private Real Estate Partnerships 6.00% 5.70% Hedge Funds 6.00% 2.90% Cash Equivalents 2.00% 0.20% Pension Plan Fiduciary Net Position Detailed information about the pension plan’s fiduciary net position is available in the separately issued TCDRS financial report. NOTE 11: PENSION PLANS Sensitivity of the Net Pension Liability/(Asset) to Changes in the Discount Rate The following presents the net pension liability (asset) of the District, calculated using the discount rate of 7.60%, as well as what the District’s net pension liability would be if it were calculated using a discount rate that is 1 percentage point lower or 1 percentage point higher than the current rate: 1% Decrease (6.60%) Discount Rate (7.60%) 1% Increase (8.60%) District’s net pension liability (asset) $1,667,638 $655,556 ($143,793) Changes in Net Pension Liability/(Asset) Total Pension Liability (a) Plan Fiduciary Net Position (b) Net Pension Liability/ (Asset) (a)-(b) Balance at December 31, 2021 $3,473,598 $3,274,067 $199,531 Changes for the year: Service cost 344,004 0 344,004 Interest on total pension liability 290,138 0 290,138 Effect of plan changes 0 0 0 Effect of economic/demographic gains or losses 251,930 0 251,930 Effect of assumption changes or inputs 0 0 0 Refunds of contributions 0 0 0 Benefit payments 0 0 0 Administrative expenses 0 (2,171) 2,171 Member contributions 0 238,628 (238,628) Net investment income 0 (242,137) 242,137 Employer contributions 0 350,102 (350,102) Other 0 85,625 (85,625) Balance at December 31, 2022 $4,359,670 $3,704,114 $655,556 Pension Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions For the year ended September 30, 2023, the District recognized pension expense of $145,971. At September 30, 2023, the District reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: NOTE 11: PENSION PLANS Deferred Inflows of Resources Deferred Outflows of Resources Differences between expected and actual experience $45,422 $465,955 Changes in actuarial assumptions $3,360 $215,291 Net difference between projected and actual earnings $0 $163,615 Contributions subsequent to the measurement date N/A $275,379 $275,379 reported as deferred outflows of resources related to pensions resulting from contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability for the District year ending September 30, 2024. Other amounts reported as deferred outflows of resources and deferred outflows of resources related to pensions will be recognized as pension expense as follows: For the plan year ended December 31: 2023 $106,063 2024 125,700 2025 146,096 2026 218,967 2027 109,446 Thereafter 89,807 $796,079 TEXAS EMERGENCY SERVICES RETIREMENT SYSTEM (TESRS) Plan Description The District provides pension benefits for eligible volunteer emergency services personnel who are members in good standing with the District. The Fire Fighters’ Pension Commissioner is the administrator of the TESRS, a cost-sharing multiple employer pension system established and administered by the State of Texas to provide pension benefits for emergency services personnel who serve without significant monetary remuneration. TESRS was created by Senate Bill 411, 65th Legislature, Regular Session (1977), and established the applicable benefit provisions. The 79th Legislature, Regular Session (2005), recodified the provisions and gave TESRS Board of Trustees authority to establish vesting requirements, contribution levels, benefit formulas and eligibility requirements by board rule. TESRS issues a publicly available annual financial report that includes financial statements and RSI for TESRS, as well as detailed explanations of the contributions, benefits and actuarial methods and assumptions used by the plan. This report may be obtained by calling 800-919-3372. The report is also available on TESRS’ website at www.tesrs.texas.gov. NOTE 11: PENSION PLANS Benefits Provided The benefit provisions include retirement benefits as well as death and disability benefits. Members are 50% vested after the tenth year of service, with the vesting percent increased 10% for each of the next five years of service so that a member becomes 100% vested within 15 years of service. Upon reaching age 55, a vested member may retire and receive a monthly pension equal to his vested percentage multiplied by six times the governing body’s average monthly contribution over the member’s years of qualified service. For each year of service in excess of 15 years, this monthly benefit is increased at the rate of 6.2% compounded annually. In addition, member districts may purchase prior service credit for service with the participating department before the department began participating in the plan that is not buyback service and that does not count as qualified service. There is a separate benefit formula for this prior service. On and off duty death and on duty disability benefits are dependent on whether or not the member was engaged in the performance of duties at the time of death or disability. Death benefits include a lump-sum amount and continuing monthly payments to a member’s surviving spouse and dependent children. Contributions Contributions are not required by individual members of participating departments. The governing bodies of participating departments are required to contribute at least the minimum prescribed amount per month for each active member and may contribute more. The contribution requirement per active emergency services personnel member per month is not actuarially determined. Rather, the minimum contribution provisions were set by the Board. Additional contributions may be made by a governing body to pay for granting credit for service before the department began participating in TESRS (prior service). The State may also be required to make annual contributions up to a limited amount to make the TESRS actuarially sound. The expected contributions from the state are appropriations equal to (1) the maximum annual contribution (one-third of all contributions to the System by governing bodies of participating departments in a year) as needed in accordance with state law governing the System, and (2) approximately $675,000 each year to pay for part of the System’s administrative expenses. For the fiscal year ended September 30, 2023, the District’s contributions to TESRS were $22,450. Pension Liability At September 30, 2023, the District reported a liability of $190,896 for its proportionate share of the TESRS net pension liability. The net pension liability was measured as of August 31, 2023, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of August 31, 2022. The District’s proportionate share of the net pension liability for the plan as of August 31, 2023 was .441%. Pension Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions For the year ended September 30, 2023, the District recognized pension expense of $33,060. At September 30, 2023, the District reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: NOTE 11: PENSION PLANS Deferred Inflows of Resources Deferred Outflows of Resources Differences between expected and actual experience $0 $2,788 Changes in actuarial assumptions $368 $0 Net difference between projected and actual earnings $0 $57,113 Contributions subsequent to the measurement date N/A $10,200 $10,200 reported as deferred outflows of resources related to pensions resulting from contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability for the District year ending September 30, 2024. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized as pension expense as follows: For the plan year ended August 31: 2024 $14,975 2025 15,549 2026 27,058 2027 1,951 $59,533 Actuarial Assumptions The significant actuarial assumptions used to measure the total pension liability are as follows: Valuation Date: 8/31/2022 Measurement Date: 8/31/2023 Actuarial Cost Method: Entry Age Normal Investment Rate of Return 7.5% Inflation 3.00% Projected Salary Increases: N/A Mortality Rates: PubS-2010 mortality tables using projection scale MP-2019 The long-term expected rate of return on the TESRS pension plan investments was determined to be 7.5% using a building-block method in which the expected future net real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. These components 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 NOTE 11: PENSION PLANS expected inflation. The target asset allocation and expected arithmetic real rates of return for each major asset class are summarized in the following table: Asset Class Target Allocation Long-term Expected Real Rate of Return Equities Large cap domestic 20% 5.83% Small cap domestic 10% 5.94% Developed international 15% 6.17% Emerging markets 5% 7.36% Global infrastructure 5% 6.61% Real estate 10% 4.48% Multi asset income 5% 3.86% Fixed income 30% 1.95% Discount Rate The discount rate used to measure the total TESRS pension liability was 7.5%. No projection of cash flows was used to determine the discount rate because the August 31, 2022 actuarial valuation showed that expected contributions would pay the normal cost and amortize the unfunded actuarial accrued liability in 30 years using the level dollar amortization method. Because of those assumptions, the plan’s fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. Sensitivity of the Proportionate Share of Net Pension Liability to Changes in the Discount Rate The following presents the District’s proportionate share of the net pension liability calculated using the discount rate noted above, as well as what the District’s proportionate share of the net pension liability would be if it were calculated using a discount rate that is 1 percentage point lower or 1 percentage point higher than the current rate: 1% Decrease (6.5%) Discount Rate (7.5%) 1% Increase (8.5%) Proportionate share of net pension liability $295,588 $190,896 $105,980 Pension Plan Fiduciary Net Position Detailed information about the pension plan’s fiduciary net position is available in the separately issued TESRS financial report.