Attachment C NKCC FY22 Audit Report.pdf

REPORT OF THE AUDIT OF THE

NORTHERN KENTUCKY CONVENTION CENTER CORPORATION

For The Fiscal Year Ended

June 30, 2022

MIKE HARMON

AUDITOR OF PUBLIC ACCOUNTS

auditor.ky.gov

209 ST. CLAIR STREET

FRANKFORT, KY 40601-1817

(502) 564-5841

CONTENTS PAGE

INDEPENDENT AUDITOR’S REPORT

STATEMENT OF NET POSITION

STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION

STATEMENT OF CASH FLOWS

NOTES TO THE FINANCIAL STATEMENTS

REQUIRED SUPPLEMENTARY INFORMATION

REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND

ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF THE FINANCIAL

STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS

SCHEDULE OF FINANCIAL STATEMENT FINDINGS

Independent Auditor’s Report

Gretchen Landrum, Executive Director Northern Kentucky Convention Center Corporation 1 W Rivercenter Blvd Covington, KY 41011

Report on the Audit of the Financial Statements

Opinion

We have audited the accompanying basic financial statements of the Northern Kentucky Convention Center Corporation (NKCC) as of and for the year ended June 30, 2022, and the related notes to the financial statements, which collectively comprise NKCC’s basic financial statements as listed in the table of contents.

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of NKCC, as of June 30, 2022, and the changes in financial position and cash flows, thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America.

Basis for Opinion

We conducted our audit in accordance with auditing standards generally accepted in the United States of America (GAAS) and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of NKCC and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Responsibilities of Management for the Financial Statements

NKCC’s management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for 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.

Northern Kentucky Convention Center Corporation

In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about NKCC’s ability to continue as a going concern for twelve months beyond the financial statement date, including any currently known information that may raise substantial doubt shortly thereafter.

Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinions. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.

In performing an audit in accordance with GAAS, we:

• Exercise professional judgment and maintain professional skepticism throughout the audit.

• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

• Obtain an understanding of internal control relevant to the audit 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 NKCC’s internal control. Accordingly, no such opinion is expressed.

• Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements.

• Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about NKCC’s ability to continue as a going concern for a reasonable period of time.

We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control–related matters that we identified during the audit.

Required Supplementary Information

Accounting principles generally accepted in the United States of America require that the Schedule of Proportionate Share of the Net Pension Liability and Schedule of Contributions on page 35 and the Schedule of Proportionate Share of the Net OPEB Liability and Schedule of Contributions on page 36 be presented to supplement the basic financial statements. Such information is the responsibility of management and, 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 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.

NKCC management has omitted management’s discussion and analysis and budgetary comparison information that accounting principles generally accepted in the United States of America require to be presented to supplement the basic financial statements. Such missing 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. Our opinion on the basic financial statements is not affected by this missing information.

Other Reporting Required by Government Auditing Standards

In accordance with Government Auditing Standards, we have also issued our report dated June 9, 2023 on our consideration of NKCC’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is solely to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the effectiveness of internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the NKCC’s internal control over financial reporting and compliance.

Respectfully submitted, Farrah Petter, CPA Assistant Auditor of Public Accounts Frankfort, KY

June 9, 2023

FINANCIAL STATEMENTS

The accompanying notes are an integral part of the financial statements.

STATEMENT OF NET POSITION

Assets Current Assets:

Cash and Cash Equivalents (Note 3) 2,357,410$ Accounts Receivable 542,829 Other Receivable 102,700 Prepaid Expenses 74,583 Total Current Assets 3,077,522

Noncurrent Assets:

Investments (Note 3) 473,135 Restricted Cash (Note 2) 139,518 Accounts Receivable 419,450 Leased Asset, Net (Note 4) 12,277 Property and Equipment, Net (Note 4) 20,541,281 Total Noncurrent Assets 21,585,661 Total Assets 24,663,183

Deferred Outflows of Resources Related to Pensions (Note 9) 310,494 Deferred Outflows of Resources Related to OPEB (Note 10) 335,670

Liabilities Current Liabilities:

Accounts Payable 148,787 Unearned Revenue (Note 6) 50,000 Event Deposits 817,010 Lease Liabilty (Note 5) 4,079 Total Current Liabilities 1,019,876

Noncurrent Liabilities:

Note Payable (Note 7) 1,100,000 Lease Liability (Note 5) 8,198 Unearned Revenue (Note 6) 75,000 Net Pension Liability (Note 9) 1,892,269 Net OPEB Liability (Note 10) 568,056 Total Noncurrent Liabilities 3,643,523 Total Liabilities 4,663,399

Deferred Inflows of Resources Related to Pensions (Note 9) 1,137,283 Deferred Inflows of Resources Related to OPEB (Note 10) 571,074

Net Position:

Net Investment in Capital Assets (Note 4) 20,553,558 Restricted Cash (Note 2) 139,518 Unrestricted (1,755,485) Total Net Position 18,937,591$

STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION

For The Year Ended June 30, 2022

Operating Revenues:

Room Tax Revenue 2,069,852$ Rental Income 787,059 Concession Revenue 654,207 Other Income 207,310 Total Operating Revenues 3,718,428

Operating Expenses:

Advertising and Promotion 152,695 Amortization 334 Bank Charges 5,619 Depreciation 1,244,061 Dues and Subscriptions 16,752 Employee Benefits (67,493) Event Security 10,602 Insurance 100,597 Miscellaneous 13,978 Office Expense 1,518 Parking 11,006 Payroll Taxes 100,738 Postage and Shipping 664 Professional Fees 64,308 Repairs and Maintenance 332,569 Salaries and Wages 1,348,943 Security 228,247 Supplies 48,366 Telephone 55,069 Travel and Lodging 4,045 Uniforms 11,386 Utilities 315,932 Total Operating Expenses 3,999,936

Operating Income (Loss) (281,508)

Nonoperating Revenues (Expenses):

Interest Income 1,112 Interest Expense (37,630) Net Increase (Decrease) In Fair Value Of Investments (78,889) PPP Grant Revenue 412,500 Total Nonoperating Revenues (Expenses) 297,093

Income (Loss) 15,585

Net Position at July 1, 2021 18,972,006 Prior Period Adjustment (50,000) Net Position at June 30, 2022 18,937,591$

STATEMENT OF CASH FLOWS

For The Year Ended June 30, 2022

Cash Flows from Operating Activities:

Cash received from clients 1,368,451$ Cash received from room tax 2,069,852 Cash paid for goods and services (1,391,009) Cash paid for salaries and benefits (1,995,050) Cash received from other sources 207,310 Cash paid to other sources (116,678)

Net Cash Provided (Used) by Operating Activities 142,876

Cash Flows from Capital and Related Financing Activities:

Acquisition and construction of capital assets (214,369) Principal payment on lease (334) Interest paid on debt (37,630)

Net Cash Provided (Used) for Capital and Related Financing Activities (252,333)

Cash Flows from Investing Activities:

Interest received on investments 1,112

Net Cash Provided (Used) in Investing Activities 1,112

Net Increase (Decrease) in Cash and Cash Equivalents (108,345) Cash and Cash Equivalents at July 1 2,605,273 Cash and Cash Equivalents at June 30 2,496,928$

Reconciliation of Operating Income to Net Cash Provided by Operating Activities:

Operating income (loss) (281,508)$ Adjustments to reconcile operating income to net cash provided (used) by operating activities:

Depreciation 1,244,061 Amortization 334

Change in Assets, Deferred Outflows, Liabilities, and Deferred Inflows:

(Increase) decrease in assets and deferred outflows:

Receivables 117,698 Prepaid Expenses 28,266 Deferred Outflows 416,774

Increase (decrease) in liabilities and deferred inflows:

Accounts Payable and Accrued Expenditures (9,900) Unearned Revenue (50,000) Event Deposits (293,213) Net Pension Liability (1,677,094) Net OPEB Liability (555,381) Deferred Inflows 1,202,839

Net Cash Provided (Used) by Operating Activities 142,876$

Noncash Investing, Capital, and Financing Activities:

PPP Grant Revenue 412,500$ Leased asset (12,277) Lease liability 12,277 Change in fair value of investments (78,889) Total Noncash Investing, Capital, and Financing Activities 333,611$

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NOTES TO THE FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS

Note 1 – Summary of Significant Accounting Policies

This summary of significant accounting policies of the Northern Kentucky Convention Center Corporation (Convention Center) is presented to assist in understanding the Convention Center’s financial statements. The financial statements and notes are the representation of the Convention Center’s management who is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the financial statements.

Nature of Organization

The Convention Center was created through the enactment of House Bill No. 700 by the General Assembly of the Commonwealth of Kentucky (Commonwealth), effective July 14, 1992, to develop and manage the Convention Center.

All revenues derived from the use of the Convention Center, or contributions to the Convention Center from other sources as authorized in KRS 154.90-015, shall be used solely to defray the expenses of the Convention Center, including payment on debt, the cost of management and operation of its facilities, the creation of an adequate reserve for repair, replacement, and capital improvements, the procurement of insurance, and promotional activities. Any additional revenues derived by the corporation from any other source shall similarly be used for the purposes mentioned above.

The counties of Boone, Campbell, and Kenton passed ordinances imposing an additional 1% room tax on hotels effective June 1, 1995 to help defray the cost of managing and operating the Convention Center.

Basis of Accounting

The activities of the Convention Center are accounted for as an enterprise fund. The financial statements are prepared on the accrual basis of accounting using the economic resources measurement focus. The Convention Center has elected to apply all applicable Governmental Accounting Standards Board (GASB) pronouncements.

Classification of Revenues and Expenses

As an enterprise fund, the Convention Center distinguishes operating revenues and expenses from non-operating items. Operating revenues generally result from the rental of space within the facilities, providing services in connection with the Convention Center’s ongoing operations, and a room tax imposed and levied for the sole purpose of meeting the operating expenses of the Convention Center.

Operating expenses include the costs of operation and maintenance of the facilities, services, selling and administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses. The Convention Center allowed discounts related to event rentals and other services which totaled $1,558,601 in fiscal year 2022.

NOTES TO THE FINANCIAL STATEMENTS

(Continued)

Note 1 – Summary of Significant Accounting Policies (Continued)

Use of Estimates

Management uses estimates and assumptions in preparing the financial statements. These estimates and assumptions affect the reported amounts of assets, deferred outflows of resources, liabilities, deferred inflows of resources, the disclosure of contingent assets and liabilities at the date of the financial statements, and reported revenues and expenses during the reporting period. Actual results could differ from those estimates.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation computed on the straight-line method over the estimated useful lives of the assets, ranging from five to 50 years. The Convention Center's capitalization policy is to capitalize all expenditures of $1,000 or greater when the asset has a life in excess of one year.

Compensated Absences

The Convention Center awards sick and vacation leave time to employees annually, but the time must be used within one year of the award or it is removed. The Convention Center does not allow employees to accrue leave time of any form. Upon separation from employment, vacation leave time is paid, but sick leave time is not paid.

Employee Benefits Expense

Employee benefits are operating expenses for compensation benefits to employees other than salaries and wages. During FY 2022, employee benefit expenses were reported as negative due to the recognition of negative pension and OPEB expenses as determined by the retirement plan’s actuary.

Before the recognition of pension and OPEB expenses, NKCC incurred $545,432 in expenses paid as retirement system contributions and for various employee insurance programs.

New Accounting Pronouncement

On July 1, 2021, the Convention Center implemented Governmental Accounting Standards Board (GASB) Statement No. 87, Leases. GASB Statement No. 87 enhances the relevance and consistency of information of the Convention Center’s leasing activities. It establishes requirements for lease accounting based on the principle that leases are financings of the right to use an underlying asset. A lessee is required to recognize a lease liability and an intangible right to use leased asset, while a lessor is required to recognize a lease receivable and a deferred inflow of resources. As a result of adopting this standard, the Convention Center recorded a right of use leased asset of $12,611, a lease payable of $12,277, and amortization of $334.

NOTES TO THE FINANCIAL STATEMENTS

Note 2 – Restricted Cash - Noncurrent Asset

The Convention Center has agreements with one vendor where specified dollar amounts are set aside for the advertising and promotion of the sale of food and beverages. The specified dollar amounts are also used for certain replacements and capital improvements. Upon termination of these agreements, any remaining balances will be paid over to the Convention Center. The amount of restricted cash as of June 30, 2022 was $139,518.

Note 3 – Cash, Cash Equivalents, and Investments

Cash and cash equivalents consist of cash and highly liquid investments having a maturity at the date of acquisition of three months or less. Custodial credit risk is the risk that in the event of a bank failure, the Convention Center’s deposits are not insured. As of June 30, 2022, the Convention Center had deposits with financial institutions of $2,357,410. $250,000 of those deposits are fully insured by the FDIC while the additional balance is collateralized by government securities owned by Central Bank and held on deposit with the Federal Reserve.

The framework for measuring fair value provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1) and the lowest priority to unobservable inputs (level 3). The three levels of the fair value hierarchy are described as follows:

• Level 1: Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the entity has the ability to access.

• Level 2: Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in inactive markets;

inputs other than quoted prices that are observable for the asset or liability; inputs that are derived principally from or corroborated by observable market data by correlation or other means. If the asset or liability has a specified (contractual) term, the level 2 input must be observable for substantially the full term of the asset or liability.

• Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

The asset or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques maximize the use of relevant observable inputs and minimize the use of unobservable inputs.

In May 2013, the Convention Center invested $1,000,000 in four index-linked certificates of deposits (CDs), held at the Depository Trust Company. The principal for each of the index CDs is backed by the Federal Deposit Insurance Corporation (FDIC), within the applicable FDIC limits. Funds in the deposit account are covered by FDIC insurance. During FY 2020, three of the CDs matured. The Convention Center withdrew $501,033 and reinvested the remaining funds in similar CDs. As of June 30, 2022, the market value for the total investment was $473,135. These index-linked CDs are classified as Level 1 within the fair value hierarchy.

NOTES TO THE FINANCIAL STATEMENTS

Note 4 – Capital Assets and Leased Assets

Capital and leased asset activity for the year ended June 30, 2022 was as follows:

Beginning Balance Increases Decreases

Ending Balance

Capital assets, not being depreciated:

Land 3,190,584$ $ $ 3,190,584$ Project in Progress 63,329 (63,329) Construction in Progress 100,000 100,000

Total capital assets, not being depreciated 3,253,913 100,000 (63,329) 3,290,584

Capital assets, being depreciated:

Building 26,199,466 26,199,466 Equipment 2,164,765 115,973 2,280,738 Improvements 5,316,189 20,289 5,336,478 Furniture and Fixtures 2,223,897 41,437 (2,148) 2,263,186 Parking Lot 43,770 43,770

Total capital assets, being depreciated 35,948,087 177,699 (2,148) 36,123,638

Less Accumulated Depreciation:

Building (11,702,427) (523,989) (12,226,416) Equipment (1,221,835) (256,866) (1,478,701) Improvements (3,300,885) (331,080) (3,631,965) Furniture and Fixtures (1,381,443) (131,033) 2,148 (1,510,328) Parking Lot (24,437) (1,094) (25,531)

Total Accumulated Depreciation (17,631,027) (1,244,062) 2,148 (18,872,941)

Leased assets, being amortized:

Equipment 12,611 12,611

Total leased assets, being amortized 12,611 12,611

Less leased assets accumulated amortization:

Equipment (334) (334)

Total leased assets accumulated amortization (334) (334)

Total capital assets and leased assets, being depreciated and amortized, net 18,317,060 (1,054,086) 17,262,974 Total capital assets and leased assets, net 21,570,973$ (954,086)$ (63,329)$ 20,553,558$

NOTES TO THE FINANCIAL STATEMENTS

Note 5 – Lease Payments

In July 2019, the Convention Center entered into a lease agreement with Millennium Capital for the use of copiers and printers for the purpose of daily administrative operations. The terms are for 36 months at a rate of $368 per month. A purchase option exists for the Convention Center to purchase all of the equipment at fair market value at the end of the lease term. If not purchased at the end of the lease term, the Center will return the equipment to Millennium Capital. The following is a schedule, by years, of the future minimum lease payments required under non-cancelable operating leases as of June 30, 2022:

Fiscal Year Principal Interest Requirements 2023 4,079$ 339$ 4,418$ 2024 4,214 204 4,418 2025 3,984 65 4,049 Total Future Minimum Lease Payments 12,277$ 608$ 12,885$

The Convention Center has recorded right to use leased assets for the copiers. The right to use leased assets are amortized on a straight-line basis over the terms of the related lease.

Note 6 – Unearned Revenue

Unearned revenue represents an agreed upon payment of a $250,000 contract extension from the concession operator for costs incurred by the Convention Center for the furnishing of various food service equipment, small wares, and other improvements. The terms of the agreements require that each of the payments be recognized over a five-year period, whereby the Convention Center separately amortizes the amounts on a straight-line basis over a 60 month period. The payment commenced on January 1, 2019 and terminates December 31, 2024, due to the contract being suspended in 2020 and extending the term so that it expires in 2024. The balance at June 30, 2022 is $125,000.

Note 7 – Note Payable

In October 2019, the Convention Center was provided a loan commitment with a local financial institution as a revolving line of credit for the Convention Center's planned updates during fiscal years 2020 and 2021. The terms permit the Convention Center to draw up to $2,000,000 for the updates, with interest only quarterly payments through the 24-month period, at Central Bank’s index floating rate.

Upon expiration, the note terms require payment. The Convention Center's loan is collaterally secured by an account held at Central Bank and Trust. During FY 2022, the Convention Center paid a total of $37,583 in interest payments. As of June 30, 2022, the balance of the note payable totaled $1,100,000.

The Convention Center plans on renewing the line of credit for an additional 24 months and will continue to make interest payments throughout the term. The Convention Center has not begun to make principal payments on the loan.

NOTES TO THE FINANCIAL STATEMENTS

Note 8 – Payroll Protection Program Payable

On May 13, 2020, the Convention Center received loan proceeds in the amount of approximately $412,500 under the Paycheck Protection Program (PPP). The PPP, established as part of the Coronavirus Aid, Relief and Economic Security (CARES) Act, provides loans to qualifying businesses for amounts up to 2.5 times the average monthly payroll expenses of the qualifying business. The loans and accrued interest are forgivable after eight weeks as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the eight-week period.

The Convention Center had the PPP loan forgiven in April 2021.

The Convention Center then received a second PPP loan in the amount of $412,500 on April 29, 2021 under the same parameters listed above. This second PPP loan was forgiven on November 10, 2021.

Note 9 – Retirement Plan

Plan Description

All full time employees of the Convention Center who work more than 100 hours per month participate in a multiple-employer cost sharing defined benefit pension plan, the County Employees Retirement System (CERS). On April 1, 2021 House Bill 484 became effective, changing the Kentucky Retirement Systems to the Kentucky Public Pensions Authority. This Authority is governed by a 9 member board, made up of three (3) Elected Trustees and six (6) appointed by the Governor. The CERS Non-Hazardous Pension Plan is administered by the CERS Board of Trustees. The plan provides retirement, health, disability, and death benefits to plan participants. Cost-of-living adjustments are provided at the discretion of the State Legislature. Employees contribute 5% if the participants are in tier one and 5% for all other tiers of creditable compensation. The Board of Trustees determines employer contribution rates necessary for the actuarial soundness of the retirement system. The employer contribution is subject to approval by the Kentucky General Assembly through the adoption of the Biennial Executive Branch Budget. For fiscal year 2022 the required contribution rate for the Convention Center was 21.17%. As of June 30, 2022, CERS recognized contributions of $256,100 by the Convention Center during the reporting period.

At June 30, 2022, the Convention Center reported a liability of $1,892,269 for its proportionate share of the collective net pension liability. The total and net pension liability for CERS was actuarially measured as of June 30, 2020. As of June 30, 2022, the Convention Center’s proportionate share percentage was 0.029679%. This percentage is based on the long-term share of contributions by the Convention Center in relation to all other participating employers in CERS. KRS 78.510 through KRS

78.880 establishes and governs the plan. CERS information is available in the publicly issued financial report issued by the Kentucky Public Pensions Authority. This report can be obtained at kyret.ky.gov.

NOTES TO THE FINANCIAL STATEMENTS

Note 9 – Retirement Plan (Continued)

Plan Description (Continued)

Tier 1 Tier 2 Tier 3 Participation Prior to Participation Participation on or after

9/1/2008 9/1/2008 through 12/31/2013 1/1/2014

Covered Employees:

Benefit Formula: Cash Balance Plan

Final Compensation: Average of the highest 5 fiscal years (must contain at least 48 months). Includes lump-sum compensation payments (before and at retirement).

5 complete fiscal years immediately preceding retirement; each year must contain 12 months. Lump-sum compensation payments (before and at retirement) are not to be included in creditable compensation.

No Final Compensation

Benefit Factor: 2.2% if the Participation Date was before 8/1/2004 or 2.0% if Participation Date was after 8/1/2004.

10 years or less = 1.10%. Greater than 10 years, but no more than 20 years = 1.30%. Greater than 20 years, but no more than 26 years = 1.50%. Greater than 26 years, but no more than 30 years = 1.75%.

Additional years above 30 = 2.00% (2.00% benefit factor only applies to service earned in excess of 30 years).

No benefit factor. A life annuity can be calculated in accordance with actuarial assumptions and methods adopted by the board based on member’s accumulated account balance.

Cost of Living Adjustment (COLA):

Unreduced Retirement Benefit:

Any age with 27 years of service.

Age 65 with 48 months of service. Money Purchase for age 65 with less than 48 months based on contributions and interest.

Any age with 25 years of service.

Age 55 with 5 years of service.

Age 60 with 10 years of service.

Excludes purchased service (exception: refunds, omitted, free military).

No reduced retirement benefit

Rule of 87: Member must be at least age 57 and age plus earned service must equal 87 years at retirement to retire under this provision. Age 65 with 5 years of earned service. No Money Purchase calculations.

Reduced Retirement Benefit:

Substantially all regular full-time members employed in non-hazardous duty positions of any state department, board, or any agency directed by Executive Order to participate in the system.

Final Compensation x Benefit Factor x Years of Service

No COLA unless authorized by the Legislature with specific criteria. This impacts all retirees regardless of Tier.

NOTES TO THE FINANCIAL STATEMENTS

Actuarial Valuation

Employer Contribution 21.17%

Member Contribution 5% Tier 1, 2, and 3

Actuarial Valuation Date

Actuarial Cost Method Entry Age Normal

Amortization Method Level Percent of Pay

Remaining amortization period Amortize the unfunded accrued liability as of June 30, 2019 over a closed 30-year amortization period.

Asset valuation method

Actuarial assumptions:

Investment rate of return 6.25% Inflation Rate 2.30% Projected salary increases 3.30% to 10.30%, varies by service

Mortality Tables

Date of Experience Study July 1, 2013 - June 30, 2018

June 30, 2020 with roll-forward procedures to the measurement date of June 30, 2021

20% of the difference between the market value of assets and the expected actuarial value of assets is recognized.

The mortaility table used for active members was a PUB-2010 General Mortality table, projected with the ultimate rates from the MP-2014 mortality improvement scale using a base year of 2010. The mortality table used for non-disabled retired members was a system-specific mortality table based on mortality experience from 2013-2018, projected with the ultimate rates from MP-2014 mortality improvement scale using a base year of 2019. The mortality table used for the disabled members was PUB-2010 Disabled Mortality table, with a 4-year set-forward for both male and female rates, projected with the ultimate rates from the MP-2014 mortality improvement scale using a base year of 2010.

NOTES TO THE FINANCIAL STATEMENTS

Actuarial Valuation (Continued)

The long-term expected return on plan assets is reviewed as part of the regular experience studies prepared every five years for CERS. Several factors are considered in evaluating the long-term rate of return assumption, including long-term historical data, estimates inherent in current market data, and a log-normal distribution analysis in which best estimate ranges of expected future real rates of return (expected return, net of investment expense and inflation) were developed by the investment consultant for each major asset class. These ranges were 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 then adding expected inflation. The capital market assumptions developed by the investment consultant are intended for use over a ten year horizon and may not be useful in setting the long-term rate of return for funding pension plans which covers a longer timeframe. The assumption is intended to be a long-term assumption and is not expected to change absent a significant change in the asset allocation, a change in the inflation assumption, or a fundamental change in the market that alters expected returns in future years.

The target asset allocation and best estimates of arithmetic nominal 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

US Equity 21.75% 5.70% International Equity 21.75% 6.35% Private Equity 10.00% 9.70% Special Credit/High Yield 15.00% 2.80% Core Bonds 10.00% 0.00% Cash 1.50% -0.60% Real Estate 10.00% 5.40% Real Return 10.00% 4.55%

Total 100.00%

County Employees Retirement System

NOTES TO THE FINANCIAL STATEMENTS

The projection of cash flows used to determine the discount rate assumed that local employers would contribute the actuarially determined contribution rate of projected compensation over the remaining 24 year amortization period of the unfunded actuarial accrued liability. The actuarial determined contribution rate is adjusted to reflect the phase in of anticipated gains on actuarial value of assets over the first four years of the projection period.

June 30, 2020 is the actuarial valuation date upon which the total pension liability is based. An expected total pension liability is determined as of June 30, 2021 using standard roll forward procedures. The discount rate is defined as the single rate of return that, when applied to all projected payments, results in an actuarial value of projected benefit payments. The long-term expected rate of return on pension plan investments was applied to all periods of the projected benefit payments to determine the total pension liability for each system.

The following table presents the net pension liability of the Convention Center, calculated using the discount rate of 6.25%, as well as what the Convention Center’s net position liability would be if it were calculated using a discount rate that is one percentage point lower (5.25%) or one percentage point higher (7.25%):

1% Decrease Current 1% Increase

5.25% 6.25% 7.25% 2,426,125$ 1,892,269$ 1,449,854$

NOTES TO THE FINANCIAL STATEMENTS

Deferred Inflows/Outflows of Resources

For the year ended June 30, 2022, the Convention Center recognized a negative pension expense of $267,561 and deferred outflows and deferred inflows related to pensions from the following sources:

Deferred Outflows of Resources Deferred Inflows of Resources Differences between expected and actual experience 21,729$ 18,366$

Changes in assumptions 25,397

Net difference between projected and actual earnings on investments 252,208

Change in proportionate share 7,268 866,709

Contributions subsequent to the measurement date 256,100 Total 310,494$ 1,137,283$

The $256,100 of the total deferred outflows of resources resulted from pension contributions made subsequent to the measurement date and will be recognized as a reduction of the pension liability in the year ended June 30, 2022. Other amounts reported as deferred outflows and deferred inflows related to pensions will be recognized in pension expense as follows:

Fiscal Year

Ending Amortization 2023 (469,072) 2024 (451,398) 2025 (83,441) 2026 (78,978)

NOTES TO THE FINANCIAL STATEMENTS

Deferred Inflows/Outflows of Resources (Continued)

The Board of Trustees for CERS, in consultation with the actuary, sets the actuarial assumptions and methods used in the actuarial valuation. An experience study was conducted after the June 30, 2018 actuarial valuation and the Board adopted updated assumptions for use in the June 30, 2019 actuarial valuation. The assumed increase in future healthcare costs, or trend assumption, is reviewed on an annual basis and was updated since the June 30, 2019 valuation to better reflect the plan’s anticipated long-term healthcare cost increases. There were no other changes in actuarial assumptions since the prior valuation.

Membership

Active Plan Members 81,250 Retired & Beneficiaries Receiving Benefits 65,414 Inactive Plan Members 95,692

Total Members 242,356

Number of Members Non-Hazardous CERS

Pension Plan Fiduciary Net Position

The Convention Center’s fiduciary net position, net pension liability, deferred inflows and outflows of resources related to pensions, and pension expense have been determined on the same basis used by CERS. CERS’ combining financial statements are prepared using the accrual basis of accounting. Plan member contributions are recognized in the period in which contributions are due. Employer contributions to the plan are recognized when due and the employer has made a formal commitment to provide the contributions. Benefits and refunds are recognized when due and payable in accordance with terms of the plan. Premium payments are recognized when due and payable in accordance with terms of the plan. Administrative and investment expenses are recognized when incurred.

NOTES TO THE FINANCIAL STATEMENTS

Pension Plan Fiduciary Net Position (Continued)

Investments are reported at fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Short-term investments are reported at cost, which approximates fair value. Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the dividend date. Gain (loss) on investments includes CERS gains and losses on investments bought and sold as well as held during the fiscal year.

Note 10 – Other Post-Employment Benefits

Plan Description

All full-time employees of the Convention Center who work more than 100 hours per month participate in a multiple-employer cost sharing defined benefit Other Post-Employment Benefits (OPEB) plan through the County Employees Retirement System (CERS). On April 1, 2021 House Bill 484 became effective changing the Kentucky Retirement Systems to the Kentucky Public Pensions Authority. This Authority is governed by a 9-member board, made up of three (3) Elected Trustees and six (6) appointed by the Governor. The CERS Non-Hazardous OPEB Plan is administered by the CERS Board of Trustees. The plan provides hospital and medical insurance benefits to plan participants. Employees hired on or after September 1, 2008 contribute 1% of creditable compensation. The Board of Trustees determines employer contribution rates necessary for the actuarial soundness of the retirement system.

For fiscal year 2022 the required contribution rate for the Convention Center was 5.78%. As of June 30, 2022, CERS recognized contributions of $69,922 by NKCC during the reporting period.

At June 30, 2022, the Convention Center reported a liability of $568,056 for its proportionate share of the collective net OPEB liability. The total and net OPEB liability for CERS was actuarially measured as of June 30, 2020. As of June 30, 2022, the Convention Center’s proportionate share percentage was 0.029672%. This percentage is based on the long-term share of contributions by the Convention Center in relation to all other participating employers in CERS. KRS 78.510 through KRS 78.880 establishes and governs the plan. CERS information is available in the publicly issued financial report issued by the Kentucky Public Pensions Authority. This report can be obtained at www.kyret.ky.gov.

http://www.kyret.ky.gov/

NOTES TO THE FINANCIAL STATEMENTS

Note 10 – Other Post-Employment Benefits (Continued)

Plan Description (Continued)

Participation Prior to Participation on or after Participation on or after 7/1/2003 7/1/2003 9/1/2008

Plan Administrator: The plan is administered by the Kentucky Employees Retirement System.

Covered Employees:

Benefit Formula: Based on years of service. KRS pays a percentage of the monthly contribution rate.

10 yrs of earned service at retirement to be eligible for insurance benefits.

Benefit of $10 per month for each year of earned service without regard to a maximum dollar amount.

15 years for eligibility. Benefit of $10 per month for each year of earned service without regard to maximum dollar amount.

Cost of Living Adjustment (COLA):

Members participating after 2008 receive 1.5% increase annually.

Contribution Rate: Contribution rates for the employer are actuarially determined. No member contribution.

Contribution rates for the employer are actuarially determined. No member contribution.

Contribution rates for the employer are actuarially determined. Member contribution is 1% of salary.

County Employees Retirement System Governance KRS 78.510 through KRS 78.880

Non-Hazardous

Substantially all regular full-time members employed in non-hazardous duty positions of any state department, board, or any agency directed by Executive Order to participate in the system.

NOTES TO THE FINANCIAL STATEMENTS

Actuarial Valuation

Employer Contribution 5.78%

Member Contribution

Actuarial Valuation Date

Actuarial Cost Method Entry Age Normal

Amortization Method Level Percent of Pay

Remaining Amortization Period

Actuarial assumptions:

Investment rate of return 6.25% Inflation Rate 2.30% Payroll Growth 2.00% Projected salary increases 3.30% to 10.30%, varies by service

Mortality Tables

Healthcare Trend Rates:

Pre-65

Post-65

Date of Experience Study July 1, 2013 - June 30, 2018

June 30, 2020 with roll-forward procedures to the measurement date of June 30, 2021

For active members, the mortality tables used were the PUB-2010 General Mortality table, projected with the ultimate rates from the MP-2014 mortality improvement scale using a base year of 2010. For non-disabled retired members, the table used was a system-specific mortality table based on mortality experience from 2013-2018, projected with the ultimate rates from MP-2014 mortality improvement scale using a base year of 2019. For disabled retirees, the PUB-2010 Disabled Mortality table was used, with a 4-year set-forward for both male and female rates, projected with the ultimate rates from the MP-2014 mortality improvement scale using a base year of 2010.

Initial trend starting at 6.25% at January 1, 2021 and gradually decreasing to an ultimate trend rate of 4.05% over a period of 13 years. The 2020 premiums were known at the time of the valuation and were incorportated into the liability measurement.

Participation prior to 9/1/2008 make no contribution. Participation on or after 9/1/2008 contribute 1%.

Initial trend starting at 5.50% at January 1, 2021 and gradually decreasing to an ultimate trend rate of 4.05% over a period of 14 years. The 2020 premiums were known at the time of the valuation and were incorportated into the liability measurement.

30 years, closed period at June 30, 2019, Gains/losses incurring after 2019 will be amortized over separate closed 20‐year amortization bases

NOTES TO THE FINANCIAL STATEMENTS

The long-term expected return on plan assets is reviewed as part of the regular experience studies prepared every five years for CERS. Several factors are considered in evaluating the long-term rate of return assumption, including long-term historical data, estimates inherent in current market data, and a log-normal distribution analysis in which best estimate ranges of expected future real rates of return (expected return, net of investment expense and inflation) were developed by the investment consultant for each major asset class. These ranges were 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 then adding expected inflation. The capital market assumptions developed by the investment consultant are intended for use over a ten year horizon and may not be useful in setting the long-term rate of return for funding pension plans which covers a longer timeframe. The assumption is intended to be a long-term assumption and is not expected to change absent a significant change in the asset allocation, a change in the inflation assumption, or a fundamental change in the market that alters expected returns in future years.

The target asset allocation and best estimates of arithmetic nominal 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

US Equity 21.75% 5.70% International Equity 21.75% 6.35% Private Equity 10.00% 9.70% Special Credit/High Yield 15.00% 2.80% Core Bonds 10.00% 0.00% Cash 1.50% -0.60% Real Estate 10.00% 5.40% Real Return 10.00% 4.55%

Total 100.00%

County Employees Retirement System

NOTES TO THE FINANCIAL STATEMENTS

The projection of cash flows used to determine the discount rate assumed that local employers would contribute the actuarially determined contribution rate of projected compensation over the remaining 29 year amortization period of the unfunded actuarial accrued liability. The actuarial determined contribution rate is adjusted to reflect the phase in of anticipated gains on actuarial value of assets over the first four years of the projection period.

June 30, 2019 is the actuarial valuation date upon which the total OPEB liability is based. An expected total OPEB liability is determined as of June 30, 2020 using standard roll forward procedures. The discount rate is defined as the single rate of return that, when applied to all projected payments, results in an actuarial value of projected benefit payments. Current assets, future contributions, and investment earnings are projected to be sufficient to pay the projected benefit payments from the retirement system.

A municipal bond rate of 1.92% was used.

The following table presents the net OPEB liability of the Convention Center, calculated using the discount rate of 5.20%, as well as what the Convention Center’s net OPEB liability would be if it were calculated using a discount rate that is one percentage point lower (4.20%) or one percentage point higher (6.20%):

1% Decrease Current 1% Increase 4.20% 5.20% 6.20%

779,936$ 568,056$ 394,173$

The following table presents the net OPEB liability of the Convention Center, calculated using the current healthcare trend rate, as well as what the Convention Center’s net OPEB liability would be if it were calculated using a discount rate that is one percentage point lower or one percentage point higher:

Current Healthcare 1% Decrease Cost Trend Rate 1% Increase

408,933$ 568,056$ 760,120$

The initial healthcare trend rate for the pre-65 category starts at 6.30% and gradually decreases to an ultimate trend rate of 4.05% over a period of 13 years.

The initial healthcare trend rate for the post-65 category starts at 6.30% and gradually decreases to an ultimate trend rate of 4.05% over a period of 13 years.

NOTES TO THE FINANCIAL STATEMENTS

Deferred Inflows/Outflows of Resources

For the year ended June 30, 2022, the Convention Center recognized a negative OPEB expense of $712 and deferred outflows and deferred inflows related to pensions from the following sources:

Deferred Outflows of Resources

Deferred Inflows of Resources

Differences between expected and actual experience 89,327$ 169,603$

Changes in assumptions 150,602 528

Net difference between projected and actual earnings on investments 88,865

Change in proportionate share 7,128 312,078

Contributions subsequent to the measurement date 88,613 Total 335,670$ 571,074$

The $88,613 of the total deferred outflows of resources resulted from OPEB contributions made subsequent to the measurement date and will be recognized as a reduction of the OPEB liability in the year ended June 30, 2022. Other amounts reported as deferred outflows and deferred inflows related to pensions will be recognized in pension expense as follows:

Fiscal Year Ending Amortization 2023 (69,005) 2024 (82,368) 2025 (78,984) 2026 (93,660)

Thereafter

NOTES TO THE FINANCIAL STATEMENTS

Deferred Inflows/Outflows of Resources (Continued)

The assumed increase in future healthcare costs, or trend assumption, is reviewed on an annual basis and was updated since the June 30, 2019 valuation to better reflect the plan’s anticipated long-term healthcare cost increases. There were no other changes in actuarial assumptions since the prior valuation.

Membership

Active Plan Members 80,745 Retired &…