Fiscal Year 2025 Audit

CITY OF EAST RIDGE, TENNESSEE FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION FOR THE FISCAL YEAR ENDED JUNE 30, 2025 INTRODUCTORY SECTION CITY OF EAST RIDGE, TENNESSEE TABLE OF CONTENTS JUNE 30, 2025 PAGE INTRODUCTORY SECTION Table of Contents i-iii City Officials iv FINANCIAL SECTION Independent Auditor’s Report 1-3 Management’s Discussion and Analysis (Unaudited) 4-10 Basic Financial Statements Government-Wide Financial Statements – Statement of Net Position 11 Statement of Activities 12 Fund Financial Statements – Balance Sheet – Governmental Funds 13-14 Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Position 15 Statement of Revenues, Expenditures, and Changes in Fund Balances – Governmental Funds 16-17 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities 18 Statement of Revenues, Expenditures, and Changes in Fund Balance – Budget and Actual – General Fund 19 Statement of Revenues, Expenditures, and Changes in Fund Balance – Budget and Actual – Capital Projects Fund 20 Statement of Revenues, Expenditures, and Changes in Fund Balance – Budget and Actual – American Rescue Plan Act Fund 21 Statement of Revenues, Expenditures, and Changes in Fund Balance – Budget and Actual – TML Bond Fund 22 Notes to Financial Statements 23-42 (Continued) i CITY OF EAST RIDGE, TENNESSEE TABLE OF CONTENTS JUNE 30, 2025 (Continued) Required Supplementary Information (Unaudited) Schedule of Changes in City of East Ridge, Tennessee’s Net Pension Liability (Asset) and Related Ratios Based on Participation in the Public Employee Pension Plan of TCRS 43 Schedule of City of East Ridge, Tennessee’s Contributions Based on Participation in the Public Employee Pension Plan of TCRS 44 Notes to Pension Schedules 45 Schedule of Changes in the City of East Ridge, Tennessee’s Net OPEB Liability and Related Ratios 46 Schedule of City of East Ridge, Tennessee’s Contributions Based on Participation in the Other Post-Employment Benefit Plan 47 OTHER SUPPLEMENTARY INFORMATION Combining Financial Statements Nonmajor Governmental Funds – Combining Balance Sheet 48 Nonmajor Governmental Funds – Combining Schedule of Revenues, Expenditures, and Changes in Fund Balances 49 Budgetary Comparison Schedules Schedule of Revenues, Expenditures, and Changes in Fund Balance – Budget and Actual – General Fund 50-60 Schedule of Revenues, Expenditures, and Changes in Fund Balance – Budget and Actual – Drug Investigation Fund 61 Schedule of Revenues, Expenditures, and Changes in Fund Balance – Budget and Actual – State Street Aid Fund 62 Schedule of Revenues, Expenditures, and Changes in Fund Balance – Budget and Actual – Asset Forfeiture Fund 63 Schedule of Revenues, Expenditures, and Changes in Fund Balance – Budget and Actual – Grant Fund 64 Schedule of Revenues, Expenditures, and Changes in Fund Balance – Budget and Actual – Solid Waste Collection Fund 65 Schedule of Revenues, Expenditures, and Changes in Fund Balance – Budget and Actual – Economic Development Fund 66 (Continued) ii CITY OF EAST RIDGE, TENNESSEE TABLE OF CONTENTS JUNE 30, 2025 OTHER SUPPLEMENTARY INFORMATION (Continued) Financial Schedules Schedule of Property Tax Rates and Assessments 67 Schedule of Changes in Property Tax Receivable 68 Schedule of Debt Service Requirements – Governmental Activities 69 Schedule of Changes in Long-term Debt by Individual Issue 70 Schedule of Changes in Lease Obligations 71 Schedule of Lease Obligations, Principal, and Interest Requirements 72 COMPLIANCE SECTION Schedule of Expenditures of Federal and State Awards 73 Notes to the Schedule of Expenditures of Federal and State Awards 74 Independent Auditor's Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 75-76 Independent Auditor's Report on Compliance for Each Major Federal Program and Report on Internal Control over Compliance in Accordance with the Uniform Guidance 77-79 Schedule of Findings and Questioned Costs 80-82 Schedule of Prior Year Findings 83 Management’s Corrective Action Plan 84 Summary of Prior Year Findings 85 iii CITY OF EAST RIDGE, TENNESSEE CITY OFFICIALS JUNE 30, 2025 Mayor Brian Williams Vice-Mayor David Tyler Council Member Jeff Ezell Council Member Esther Helton Council Member Andrea Witt City Attorney Mark Litchford City Manager J Scott Miller Finance Director Diane Qualls* *Certified Municipal Finance Officer (CMFO) iv FINANCIAL SECTION INDEPENDENT AUDITOR’S REPORT To the Mayor and City Council City of East Ridge, Tennessee East Ridge, Tennessee Report on the Audit of the Financial Statements Opinions We have audited the financial statements of the governmental activities, each major fund, budgetary comparisons for the General Fund, Capital Projects Fund, American Rescue Plan Act Fund and TML Bond Fund, and the aggregate remaining fund information of the City of East Ridge, Tennessee (the City), as of and for the year ended June 30, 2025, and the related notes to the financial statements, which collectively comprise the City’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 respective financial position of the governmental activities, each major fund, and the aggregate remaining fund information of the City, as of June 30, 2025, and the respective changes in financial position and the respective budgetary comparisons for the General Fund, Capital Projects Fund, American Rescue Plan Act Fund, and TML Bond Fund for the year then ended in accordance with accounting principles generally accepted in the United States of America. Basis for Opinions 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 the City 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 opinions. Responsibilities of Management for the Financial Statements The City’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. 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 the City’s ability to continue as a going concern for 12 months beyond the financial statement date, including any currently known information that may raise substantial doubt shortly thereafter. 1200 Market Street, Chattanooga, TN 37402 | T 423.756.7771 | F 423.265.8125 AN INDEPENDENT MEMBER OF THE BDO ALLIANCE USA 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 and Government Auditing Standards, 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 and Governmental Auditing Standards, 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 the entity’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 the City’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 management’s discussion and analysis and required pension and OPEB schedules on pages 4-10 and pages 43-47, respectively, 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. Supplementary Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City’s basic financial statements. The combining financial statements, budgetary comparison schedules, financial schedules, and schedule of expenditures of federal and state awards, as required by Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) are presented for purposes of additional analysis and are not a required part of the basic financial statements. 2 The combining financial statements, budgetary comparison schedules, financial schedules, and schedule of expenditures of federal and state awards are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining financial statements, budgetary comparison schedules, financial schedules, and schedule of expenditures of federal and state awards are fairly stated, in all material respects, in relation to the basic financial statements as a whole. Other Information Management is responsible for the other information included in the annual report. The other information comprises the introductory section but does not include the basic financial statements and our auditor’s report thereon. Our opinions on the basic financial statements do not cover the other information, and we do not express an opinion or any form of assurance thereon. In connection with our audit of the basic financial statements, our responsibility is to read the other information and consider whether a material inconsistency exists between the other information and the basic financial statements, or the other information otherwise appears to be materially misstated. If, based on the work performed, we conclude that an uncorrected material misstatement of the other information exists, we are required to describe it in our report. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated February 27, 2026, on our consideration of the City’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 City’s internal control over financial reporting and compliance. Cleveland, Tennessee February 27, 2026 3 CITY OF EAST RIDGE, TENNESSEE MANAGEMENT'S DISCUSSION AND ANALYSIS (UNAUDITED) YEAR ENDED JUNE 30, 2025 As management of the City of East Ridge, Tennessee (the City), we offer readers of the financial statements this narrative overview and analysis of the financial activities of the City for the fiscal year ended June 30, 2025. We encourage readers to consider the information presented here. Financial Highlights • The assets and deferred outflows of resources of the City exceeded its liabilities and deferred inflows of resources at the close of the most recent fiscal year by $33,834,305 (net position). Of this amount, $11,987,237 is invested in capital assets (net of related debt) and $1,297,612 is restricted for specific purposes. • The City's overall net position increased by $465,301 (1.39%), for the current period. • As of the close of the current fiscal year, the City's governmental funds reported combined fund balances of $24,685,588, a decrease in overall fund balance of $2,483,835. Of this amount, $1,297,612 is restricted, $6,844,652 is committed, and $5,837,664 is assigned for specific uses. • At the end of the current fiscal year, fund balance for the General Fund was $13,705,660, or 65.46% of total General Fund expenditures including transfers out. This balance includes $3,000,000 in committed funds towards capital projects. • The City's total outstanding long-term liabilities increased by $315,283, or 1.10% as detailed on pages 33 through 34 of this report. Overview of the Financial Statements This narrative overview is intended to serve as an introduction to the City's basic financial statements. The City's basic financial statements are comprised of three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also includes supplementary information intended to furnish additional detail to support the basic financial statements themselves. Government-Wide Financial Statements. The government-wide financial statements are designed to provide readers with a broad overview of the City's finances, in a manner similar to a private-sector business. Emphasis is placed on the net position of governmental activities and the change in net position. The governmental activities of the City include general government, public safety, public works, public welfare, solid waste and other city services. The statement of net position presents financial information on all of the City's assets, liabilities, and deferred inflows/outflows of resources, with the difference reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the City is improving or deteriorating. The statement of activities presents information showing how the City's net position changed during the most recent fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes, etc.). The government-wide financial statements can be found on pages 11 through 12 of this report. 4 CITY OF EAST RIDGE, TENNESSEE MANAGEMENT'S DISCUSSION AND ANALYSIS (UNAUDITED) YEAR ENDED JUNE 30, 2025 Fund Financial Statements. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the City’s funds are considered governmental funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in assessing the City's near-term financing requirements. Because the focus of governmental funds is narrower than that of government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the City's near-term financing decisions. Both the governmental fund balance sheet and statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The City maintains 11 governmental funds, including the general operating fund, special revenue funds, debt service funds, and a capital projects fund. Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures, and changes in fund balances for the General Fund, Capital Projects Fund, Industrial Development Fund, and American Rescue Plan Act Fund which are considered to be major funds. Data from the other governmental funds are combined into a single aggregated presentation and summarized under the heading "Non-major Governmental Funds" in the governmental fund presentation. Individual fund data for each of these non-major governmental funds is provided in the form of combining statements and individual fund statements elsewhere in this report. The City adopts an annual appropriation budget for its general, special revenue, and debt service funds. A budgetary comparison schedule has been provided for these funds to demonstrate compliance with the budget. The basic governmental fund financial statements can be found on pages 13 through 22 of this report. Notes to the Financial Statements. The notes provide additional information that is necessary to acquire a full understanding of the data provided in the government-wide and fund financial statements. The notes to the financial statements can be found on pages 23 through 42 of this report. Other Information. In addition to the basic financial statements and accompanying notes, this report presents required supplementary information concerning the City's progress in funding its obligation to provide OPEB benefits to its employees and pension related information. Required supplementary information can be found on pages 43 through 47 of this report. The combining schedules, individual budgetary schedules, and other information as required by the Tennessee Comptroller of the Treasury referred to earlier in connection with nonmajor governmental funds, are presented immediately following the required supplementary information on pensions and OPEB. These schedules can be found on pages 48 through 77 of this report. 5 CITY OF EAST RIDGE, TENNESSEE MANAGEMENT'S DISCUSSION AND ANALYSIS (UNAUDITED) YEAR ENDED JUNE 30, 2025 Government-wide Overall Financial Analysis As noted earlier, net position over time may serve as a useful indicator of a government's financial position. In the case of the City, assets and deferred outflows of resources exceeded liabilities and deferred inflows of resources by $33,834,305, at the close of the June 30, 2025 fiscal year. City of East Ridge’s Net Position Governmental Activities June 30, 2025 June 30, 2024 Current and other assets $ 34,398,743 $ 37,327,434 Capital assets 39,335,212 34,906,442 Total assets 73,733,955 72,233,876 Deferred charge on refunding 87,723 93,989 Deferred pension outflows 3,020,004 2,430,002 Deferred OPEB outflows 280,799 286,543 Total deferred outflows of resources 3,388,526 2,810,534 Other liabilities 6,697,588 5,366,204 Long-term liabilities 27,980,576 27,665,293 Total liabilities 34,678,164 33,031,497 Deferred revenue – property taxes 6,912,791 6,703,247 Deferred OPEB inflows 1,166,000 1,601,000 Deferred pension inflows 531,221 339,662 Total deferred inflows of resources 8,610,012 8,643,909 Net position Net investment in capital assets 11,987,237 8,022,357 Restricted 1,297,612 644,333 Unrestricted 20,549,456 24,702,314 Total net position $ 33,834,305 $ 33,369,004 Net Position The largest portion of the City's net position (35.43%) reflects its investment in capital assets (e.g. land, buildings, equipment, vehicles, and infrastructure) less any related outstanding debt that was used to acquire those assets. The City uses these capital assets to provide a variety of services to its citizens. Consequently, these assets are not available for future spending. Although the City's investment in capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. 6 CITY OF EAST RIDGE, TENNESSEE MANAGEMENT'S DISCUSSION AND ANALYSIS (UNAUDITED) YEAR ENDED JUNE 30, 2025 An additional portion of the City's net position (3.84%) represents resources that are subject to external restrictions on how they may be used. The remaining 60.73% is unrestricted and may be used to meet the government's ongoing obligations to its citizens and creditors. At the end of the current fiscal year, the City reports positive balances in all categories of net position for the government as a whole. The City's overall net position increased by $465,301 from the prior fiscal year, representing a 1.39% increase in the City’s net position. City of East Ridge’s Statement of Activities Governmental Activities June 30, 2025 June 30, 2024 Revenues Charges for services $ 3,569,156 $ 3,386,509 Grants & contributions 1,769,287 6,164,403 General revenues Property taxes 7,035,842 6,857,575 Local option sales tax 12,656,997 12,053,738 Other taxes 6,307,878 6,153,477 Interest 490,746 126,921 Other 287,518 19,771 Total revenues 32,117,424 34,762,394 Expenses General government 8,789,680 7,056,164 Public safety 12,245,376 9,804,969 Public works 5,035,341 7,210,819 Public welfare 564,585 465,684 Culture and recreation 4,119,808 2,444,689 Interest 897,333 617,519 Total expenses 31,652,123 27,599,844 Change in net position 465,301 7,162,550 Beginning net position 33,369,004 26,206,454 Ending net position $ 33,834,305 $ 33,369,004 Financial Analysis of the City's Funds As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. 7 CITY OF EAST RIDGE, TENNESSEE MANAGEMENT'S DISCUSSION AND ANALYSIS (UNAUDITED) YEAR ENDED JUNE 30, 2025 Governmental funds. The focus of the City's governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the City's financing requirements. In particular, it is useful to review the various classifications of fund balance in measuring the City's net resources available for spending at the end of the fiscal year. As of the end of the current fiscal year, the City's governmental funds reported combined ending fund balances of $24,685,588, a current year decrease of $2,483,835. Restricted fund balance of $1,297,612 includes amounts legally constrained for law enforcement ($261,899), state street aid ($886,860), industrial development ($1,003), economic development ($3,348), grant projects ($10,762), and solid waste operations ($133,740). Funds committed for debt service total $3,844,652 and capital projects total $3,000,000. Funds assigned for a particular purpose total $5,837,664. Assigned funds include funds for capital projects ($5,837,664). The remaining unassigned balance of $10,705,660 represents funds available for spending at the government's discretion. The General Fund is the chief operating fund of the City. At the end of the current fiscal year, total fund balance was $13,705,660. $3,000,000 of the fund balance was committed to capital projects and the remaining $10,705,660 was reported as unassigned. As a measure of the General Fund's liquidity, it may be useful to compare both unassigned fund balance and total fund balance to total fund expenditures and transfers out. Unassigned fund balance represents approximately 38.7% of total general fund expenditures and transfers out. It is important to consider that the City has maintained a relatively high ratio of unassigned fund balance in the General Fund to operating expenditures and other financing uses, which ensures that the City is able to meet and exceed three (3) months of general fund expenditures, in accordance with sound budgeting and financial management practices. Additionally, the ratio of unrestricted funds also allows the City to meet any emergent or unanticipated needs should these arise. The fund balance of the City's General Fund decreased by $795,279. Proprietary funds. The City has no proprietary funds at this time. Budgetary Highlights Final Amended Budget and Actual Amounts. The City’s General Fund operated within its final amended budget, which resulted in a positive variance of $1,068,453. Capital Asset and Debt Administration Capital Assets. The City's investment in capital assets for its governmental activities as of June 30, 2025, amounted to $39,335,212 (net of accumulated depreciation). This investment in capital assets includes land, buildings and improvements, plant in service, equipment and vehicles, paving, garbage containers, and infrastructure. 8 CITY OF EAST RIDGE, TENNESSEE MANAGEMENT'S DISCUSSION AND ANALYSIS (UNAUDITED) YEAR ENDED JUNE 30, 2025 Major capital asset additions during the year included the purchase of multiple municipal vehicles and additional infrastructure. City of East Ridge’s Capital Assets, net Governmental Activities June 30, 2025 June 30, 2024 Land $ 1,822,177 $ 1,947,177 Construction in process 12,306,497 14,448,554 Buildings 11,417,606 11,393,258 Infrastructure 32,963,151 24,138,961 Equipment/vehicles 13,203,829 12,650,095 Right to use assets 250,849 250,849 71,964,109 64,828,894 Less accumulated depreciation 32,628,897 29,922,452 Total capital assets, net $ 39,335,212 $ 34,906,442 Additional information on the City's capital assets can be found in Note 6 on page 32 of this report. Long-term Liabilities. At the end of the current fiscal year, the City had total long-term liabilities, including bonds, notes, leases, financed purchases, premiums, and compensated absences, of $27,980,576. The City’s bonded debt and notes payable are backed by the full faith and credit of the government. City of East Ridge’s Long-Term Liabilities Governmental Activities June 30, 2025 June 30, 2024 General obligation bonds $ 16,340,000 $ 17,215,000 Notes payable 9,891,819 8,560,827 Lease liability 101,909 150,400 Financed purchases 111,160 188,537 Bond: Premium 903,087 957,858 Compensated absences 632,601 592,671 Total long-term liabilities $ 27,980,576 $ 27,665,293 The City maintains ‘Aa3' rating from Moody's Investors Service for its debt. Additional information on the City's long-term liabilities can be found in Note 7 on pages 33 and 34 of this report. Economic Factors and Next Year's Budget and Rates • Camp Jordan continues to draw large crowds for sporting and other miscellaneous events, which helps bring more tourist dollars into our new retail restaurants and establishments. • Other businesses are coming to the City thanks to the Border Region incentives. 9 CITY OF EAST RIDGE, TENNESSEE MANAGEMENT'S DISCUSSION AND ANALYSIS (UNAUDITED) YEAR ENDED JUNE 30, 2025 Requests for Information This financial report is designed to provide a general overview of the City's finances for all those with an interest in it. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the City of East Ridge, 1517 Tombras Avenue, East Ridge, Tennessee 37412. 10 CITY OF EAST RIDGE, TENNESSEE STATEMENT OF NET POSITION JUNE 30, 2025 Governmental Activities ASSETS Cash and cash equivalents $ 21,720,431 Investments 3,624,100 Property taxes receivable 7,536,797 Grants receivable 12,521 Accounts receivable 1,439,929 Prepaid expenses 64,965 Capital assets: Land and other non depreciable assets 14,128,674 Capital assets, net of accumulated depreciation 25,206,538 Total assets 73,733,955 DEFERRED OUTFLOWS OF RESOURCES Deferred charge on refunding 87,723 Deferred pension outflows 3,020,004 Deferred OPEB outflows 280,799 Total deferred outflows of resources 3,388,526 LIABILITIES Accounts payable 1,503,452 Accrued liabilities 436,665 Deferred revenue 471,492 OPEB obligation 1,645,000 Net pension liability 2,640,979 Long-term liabilities: Due within one year 2,133,977 Due in more than one year 25,846,599 Total liabilities 34,678,164 DEFERRED INFLOWS OF RESOURCES Deferred revenue - property taxes 6,912,791 Deferred OPEB inflows 1,166,000 Deferred pension inflows 531,221 Total deferred inflows of resources 8,610,012 NET POSITION Net investment in capital assets 11,987,237 Restricted: Law enforcement 261,899 State approved street aid 886,860 Industrial development 1,003 Economic development 3,348 Grant projects 10,762 Solid waste operations 133,740 Unrestricted 20,549,456 Total net position $ 33,834,305 The accompanying notes are an integral part of the financial statements. 11 CITY OF EAST RIDGE, TENNESSEE STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30, 2025 Program Revenues Operating Capital Total Charges for Grants and Grants and Governmental Functions/Programs Expenses Services Contributions Contributions Activities (Net) PRIMARY GOVERNMENT Governmental activities: General government $ 8,789,680 $ 296,942 $ 326,000 $ - $ (8,166,738) Public safety 12,245,376 567,600 89,786 - (11,587,990) Public works 5,035,341 1,584,280 991,012 360,589 (2,099,460) Public welfare 564,585 - - - (564,585) Culture and recreation 4,119,808 1,120,334 1,900 - (2,997,574) Interest 897,333 - - - (897,333) Total primary government $ 31,652,123 $ 3,569,156 $ 1,408,698 $ 360,589 (26,313,680) GENERAL REVENUES Property taxes 7,035,842 Local sales taxes 12,656,997 Local beer taxes 705,345 State shared taxes 4,510,925 Other taxes 923,727 Franchise fees 167,881 Other revenues 287,518 Interest 490,746 Total general revenues 26,778,981 Change in net position 465,301 NET POSITION Beginning 33,369,004 Ending $ 33,834,305 The accompanying notes are an integral part of the financial statements. 12 CITY OF EAST RIDGE, TENNESSEE BALANCE SHEET GOVERNMENTAL FUNDS JUNE 30, 2025 American Capital Industrial Rescue Plan General Projects Development Act ASSETS Cash and cash equivalents $ 9,260,812 $ 7,016,427 $ 1,003 $ 471,507 Investments 3,624,100 - - - Property taxes receivable 7,536,797 - - - Grant funds receivable - - - - Accounts receivable 1,113,284 - - - Other assets 64,965 - - - Total assets $ 21,599,958 $ 7,016,427 $ 1,003 $ 471,507 LIABILITIES Accounts payable $ 166,275 $ 1,178,763 $ - $ 15 Accrued liabilities 285,699 - - - Deferred revenue - - - 471,492 Total liabilities 451,974 1,178,763 - 471,507 DEFERRED INFLOWS OF RESOURCES Deferred revenue - property taxes 7,442,324 - - - Total deferred inflows of resources 7,442,324 - - - FUND BALANCES Restricted: Law enforcement - - - - State approved street aid - - - - Industrial development - - 1,003 - Economic development - - - - Grant projects - - - - Solid waste operations - - - - Committed: Debt service - - - - Capital projects 3,000,000 - - - Assigned: Capital projects - 5,837,664 - - Unassigned 10,705,660 - - - Total fund balances 13,705,660 5,837,664 1,003 - Total liabilities, deferred inflows of resources, and fund balances $ 21,599,958 $ 7,016,427 $ 1,003 $ 471,507 The accompanying notes are an integral part of the financial statements. 13 Formerly Nonmajor Fund Nonmajor Total TML Governmental Governmental Bond Fund Funds Funds $ 3,759,782 $ 1,210,900 $ 21,720,431 - - 3,624,100 - - 7,536,797 - 12,521 12,521 84,870 241,775 1,439,929 - - 64,965 $ 3,844,652 $ 1,465,196 $ 34,398,743 $ - $ 158,399 $ 1,503,452 - 10,188 295,887 - - 471,492 - 168,587 2,270,831 - - 7,442,324 - - 7,442,324 - 261,899 261,899 - 886,860 886,860 - - 1,003 - 3,348 3,348 - 10,762 10,762 - 133,740 133,740 3,844,652 - 3,844,652 - - 3,000,000 - - 5,837,664 - - 10,705,660 3,844,652 1,296,609 24,685,588 $ 3,844,652 $ 1,465,196 $ 34,398,743 The accompanying notes are an integral part of the financial statements. 14 CITY OF EAST RIDGE, TENNESSEE RECONCILIATION OF THE BALANCE SHEET OF GOVERNMENTAL FUNDS TO THE STATEMENT OF NET POSITION JUNE 30, 2025 Differences in amounts reported for governmental activities in the statement of net position on page 11: Fund balances – total governmental funds $ 24,685,588 Amounts reported for governmental activities in the statement of net position are different because: Capital assets used in governmental activities are not financial resources and therefore are not reported in the funds. 39,335,212 Certain revenues will be collected after year end but are not available soon enough to pay for the current period’s expenditures and therefore are deferred or not reported in the funds. 529,533 Deferred results and contributions to pension and OPEB plans made after the measurement date are recorded as expenditures in the governmental funds but must be deferred in the statement of net position. 1,603,582 The net pension liability is not due and payable in the current period and therefore is not reported in the funds. (2,640,979) Long-term liabilities are not due and payable in the current period and are not reported in the funds. Interest on long-term debt is not accrued in governmental funds but rather is recognized as an expenditure when due. All liabilities, both due in one year and due in more than one year, are reported in the statement of net assets. This item consists of: Bonds payable $ (16,340,000) Net bond issue premiums (903,087) Deferred refunding 87,723 Notes payable (9,891,819) Lease liability (101,909) Financed purchases (111,160) Compensated absences (632,601) Accrued interest payable (140,778) (28,033,631) The City's OPEB plan has not been funded. The OPEB obligation is considered a long-term obligation and is not reported in the funds. (1,645,000) Net position of governmental activities $ 33,834,305 The accompanying notes are an integral part of the financial statements. 15 CITY OF EAST RIDGE, TENNESSEE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS YEAR ENDED JUNE 30, 2025 American Capital Industrial Rescue Plan General Projects Development Act REVENUES Taxes $ 21,021,433 $ - $ - $ - Licenses and permits 228,660 - - - Intergovernmental 3,696,333 360,589 - 969,251 Charges for services 1,329,604 - - - Fines and forfeitures 369,069 - - - Miscellaneous 175,099 424,847 50 - Total revenues 26,820,198 785,436 50 969,251 EXPENDITURES Current: General government 4,237,687 1,227,765 - - Public safety 11,620,366 - - - Public works 784,960 - - - Incentive payments - - 5,484,610 - Public welfare 284,488 - - 969,251 Culture and recreation 2,114,423 - - - Capital outlay 9,495 5,195,056 - - Debt service: Principal - - - - Interest and other costs - - - - Total expenditures 19,051,419 6,422,821 5,484,610 969,251 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES 7,768,779 (5,637,385) (5,484,560) - OTHER FINANCING SOURCES (USES) Transfers from other funds - 514,657 6,000,000 - Transfers to other funds (8,586,157) - (514,657) - Note proceeds - 1,887,992 - - Proceeds from sale of assets 22,099 - - - Total other financing sources (uses) (8,564,058) 2,402,649 5,485,343 - EXCESS (DEFICIENCY) OF REVENUES AND OTHER SOURCES OVER EXPENDITURES AND OTHER USES (795,279) (3,234,736) 783 - FUND BALANCE Beginning, as previously reported 14,500,939 9,072,400 220 - Change within financial reporting entity (nonmajor to major fund) - - - - Beginning, as restated 14,500,939 9,072,400 220 - Ending $ 13,705,660 $ 5,837,664 $ 1,003 $ - The accompanying notes are an integral part of the financial statements. 16 Formerly Nonmajor Fund Nonmajor Total TML Governmental Governmental Bond Fund Funds Funds $ 917,700 $ - $ 21,939,133 - - 228,660 - 844,934 5,871,107 - 1,580,771 2,910,375 - 45,737 414,806 103,946 27,425 731,367 1,021,646 2,498,867 32,095,448 - - 5,465,452 - 94,988 11,715,354 - 2,001,383 2,786,343 - - 5,484,610 - - 1,253,739 - - 2,114,423 - - 5,204,551 - 1,529,325 - 1,529,325 935,577 - 935,577 2,464,902 2,096,371 36,489,374 (1,443,256) 402,496 (4,393,926) 2,336,157 7,726,086 16,576,900 - (7,476,086) (16,576,900) - - 1,887,992 - - 22,099 2,336,157 250,000 1,910,091 892,901 652,496 (2,483,835) - 3,595,864 27,169,423 2,951,751 (2,951,751) - 2,951,751 644,113 27,169,423 $ 3,844,652 $ 1,296,609 $ 24,685,588 The accompanying notes are an integral part of the financial statements. 17 CITY OF EAST RIDGE, TENNESSEE RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30, 2025 Differences in amounts reported for governmental activities in the statement of activities on page 12: Net change in fund balances – total governmental funds $ (2,483,835) Amounts reported for governmental activities in the statement of activities are different because: Capital outlay reported as expenditures in the governmental funds that meet the capitalization threshold are shown as capital assets in the statement of net position. 7,588,116 Depreciation expense on governmental capital assets are included in the statement of activities. (3,026,496) Net book value of disposed capital assets. (132,850) The issuance of long-term debt provides current financial resources to governmental funds, while the repayment of principal of long-term debt consumes the current financial resources of governmental funds. The transaction has no effect on net position. The governmental funds report the effect of premiums and discounts on bonds when debt is first issued; these amounts are deferred and amortized in the statement of activities. This amount is the net effect of these differences in the treatment of long-term debt. Principal repayments $ 1,432,000 Principal paid - Leases 48,491 Deferred refunding loss on 2021 TML Bond refunding (6,266) Change in accrued interest 9,686 Amortization 54,771 Financed purchases 77,377 Notes issued (1,887,992) (271,933) Certain items reported in the statement of activities do not require the use of current financial resources and are not reported as expenditures in the governmental funds. This item consists of: Change in compensated absences (39,930) Change in net pension liability and related deferred items (1,412,027) Change in net OPEB liability and related deferral item 244,256 (1,207,701) Change in net position of governmental activities $ 465,301 The accompanying notes are an integral part of the financial statements. 18 CITY OF EAST RIDGE, TENNESSEE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL GENERAL FUND YEAR ENDED JUNE 30, 2025 Variance Budget Amounts with Final Original Final Actual Budget REVENUES Taxes $ 21,712,515 $ 21,712,515 $ 21,021,433 $ (691,082) Licenses and permits 352,850 353,350 228,660 (124,690) Intergovernmental 3,593,149 3,647,549 3,696,333 48,784 Charges for services 1,124,058 1,263,726 1,329,604 65,878 Fines and forfeitures 350,000 350,000 369,069 19,069 Miscellaneous 123,025 168,025 175,099 7,074 Total revenue 27,255,597 27,495,165 26,820,198 (674,967) EXPENDITURES Current: General government 4,408,013 4,443,151 4,234,568 208,583 Public safety 10,729,586 11,957,586 11,620,366 337,220 Public works 838,298 838,298 784,960 53,338 Public welfare 307,466 312,966 284,488 28,478 Culture and recreation 2,149,624 2,208,624 2,114,423 94,201 Capital outlay - - 9,495 (9,495) Total expenditures 18,432,987 19,760,625 19,048,300 712,325 EXCESS OF REVENUES OVER EXPENDITURES 8,822,610 7,734,540 7,771,898 37,358 OTHER FINANCING SOURCES (USES) Transfers to other funds (8,796,187) (9,660,511) (8,586,157) 1,074,354 Proceeds from sale of assets 10,000 28,000 22,099 (5,901) Total other financing sources (uses) (8,786,187) (9,632,511) (8,564,058) 1,068,453 EXCESS (DEFICIENCY) OF REVENUES AND OTHER SOURCES OVER EXPENDITURES AND OTHER USES $ 36,423 $ (1,897,971) (792,160) $ 1,105,811 FUND BALANCE Beginning 14,500,939 Ending $ 13,708,779 The accompanying notes are an integral part of the financial statements. 19 CITY OF EAST RIDGE, TENNESSEE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL CAPITAL PROJECTS FUND YEAR ENDED JUNE 30, 2025 Variance Budget Amounts with Final Original Final Actual Budget REVENUES Intergovernmental $ 600,000 $ 600,000 $ 360,589 $ (239,411) Miscellaneous 1,000,000 1,180,810 424,847 (755,963) Total revenues 1,600,000 1,949,620 785,436 (1,164,184) EXPENDITURES Current General government 6,097,976 6,278,781 1,227,765 5,051,016 Capital outlay 7,355,000 8,988,005 5,195,056 3,792,949 TOTAL EXPENDITURES 13,452,976 15,266,786 6,422,821 8,843,965 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES (11,852,976) (13,317,166) (5,637,385) 7,679,781 OTHER FINANCING SOURCES (USES) Transfers from other funds 276,657 276,657 514,657 238,000 Note proceeds 12,000,000 12,000,000 1,887,992 (10,112,008) Total other financing sources (uses) 12,276,657 12,276,657 2,402,649 (9,874,008) EXCESS (DEFICIENCY) OF REVENUES AND OTHER SOURCES OVER EXPENDITURES AND OTHER USES $ 423,681 $ (1,040,509) (3,234,736) $ (2,194,227) FUND BALANCE Beginning 9,072,400 Ending $ 5,837,664 The accompanying notes are an integral part of the financial statements. 20 CITY OF EAST RIDGE, TENNESSEE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL AMERICAN RESCUE PLAN ACT FUND YEAR ENDED JUNE 30, 2025 Variance Budget Amounts with Final Original Final Actual Budget REVENUES Intergovernmental $ - $ - $ 969,251 $ 969,251 Total revenues - - 969,251 969,251 EXPENDITURES Current Public welfare 436,171 969,251 969,251 - TOTAL EXPENDITURES 436,171 969,251 969,251 - EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES $ (436,171) $ (969,251) - $ 969,251 FUND BALANCE Beginning - Ending $ - The accompanying notes are an integral part of the financial statements. 21 CITY OF EAST RIDGE, TENNESSEE SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL TML BOND FUND YEAR ENDED JUNE 30, 2025 Variance Budget Amounts with Final Original Final Actual Budget REVENUES Room occupancy tax $ 750,000 $ 750,000 $ 917,700 $ 167,700 Interest 50,000 50,000 103,946 53,946 Total revenues 800,000 800,000 1,021,646 221,646 DEBT SERVICE Principal 1,254,325 2,281,745 1,529,325 752,420 Interest 707,526 1,010,147 935,577 74,570 Total debt service 1,961,851 3,291,892 2,464,902 826,990 TOTAL EXPENDITURES 1,961,851 3,291,892 2,464,902 826,990 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES (1,161,851) (2,491,892) (1,443,256) 1,048,636 OTHER FINANCING SOURCES (USES) Transfers from other funds 2,336,157 2,336,157 2,336,157 - EXCESS (DEFICIENCY) OF REVENUES AND OTHER SOURCES OVER EXPENDITURES AND OTHER USES $ 1,174,306 $ (155,735) 892,901 $ 1,048,636 FUND BALANCE Beginning 2,951,751 Ending $ 3,844,652 The accompanying notes are an integral part of the financial statements. 22 CITY OF EAST RIDGE, TENNESSEE NOTES TO FINANCIAL STATEMENTS JUNE 30, 2025 PAGE Note 1 Summary of Significant Accounting Policies 23 Note 2 Stewardship, Compliance and Accountability 30 Note 3 Cash Deposits and Investments 30 Note 4 Receivables 31 Note 5 Interfund Transfers and Balances 31 Note 6 Capital Assets 32 Note 7 Long-term Liabilities 33 Note 8 Employee Retirement Systems and Other Postemployment Benefit Plans 34 Note 9 Restrictions and Contingencies 41 Note 10 Risk Management and Litigation 41 Note 11 Leases 42 Note 12 Change Within Financial Reporting Entity 42 Note 13 Subsequent Events 42 CITY OF EAST RIDGE, TENNESSEE NOTES TO FINANCIAL STATEMENTS JUNE 30, 2025 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Reporting Entity The City of East Ridge, Tennessee (the City) was incorporated in 1954 under Tennessee law. The City is governed by the elected Mayor and four elected City Councilmen and provides services to the citizens of the City including police and fire protection, animal control, solid waste and garbage services, parks and recreation facilities, maintenance of streets and highways, and general administrative services. As required by accounting principles generally accepted in the United States of America (GAAP), the accompanying basic financial statements include all the funds and the account groups relevant to the operations of the City. The Industrial Development Board of the City of East Ridge, Tennessee The Industrial Development Board (the Board) was formed on November 19, 1979, and serves all citizens of the government. The Board was formed to promote industry and to develop trade by attracting manufacturing, industrial, and commercial enterprises to the City. The organization is governed by a board as appointed by City Council. Debt issuance authorizations are approved by City Council, and the City is legally obligated in case there are deficiencies in debt service payments and resources are not available from any other remedies. As of June 30, 2025, the Board has no long-term obligations. The Board is reported as a special revenue fund as a blended component unit. Basic Financial Statements The Basic Financial Statements consist of the following: 1) Government-wide financial statements; 2) Fund financial statements; 3) Notes to the basic financial statements. Government-wide Financial Statements The government-wide financial statements consist of the statement of net position and the statement of activities and report information on all of the nonfiduciary activities of the primary government (governmental activities). The City reports capital assets in the government-wide statement of net position and reports depreciation expense - the cost of “using up” capital assets - in the statement of activities. As a general rule, the effect of interfund activity has been eliminated from these statements. Governmental activities are normally supported by taxes and intergovernmental revenues. The governmental activities of the City include general government, public safety (police, fire, and animal control), public works, public welfare, culture and recreation, and general administrative support services. The statement of activities reports expenses and revenues in a format that focuses on the cost of each of the City’s functions, e.g., public safety, public works, etc. The expense of individual functions is compared to the revenue generated directly by the function. Direct expenses are those that are clearly identifiable with a specific function. (Continued) 23 CITY OF EAST RIDGE, TENNESSEE NOTES TO FINANCIAL STATEMENTS JUNE 30, 2025 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Government-wide Financial Statements (Continued) The types of transactions reported as program revenues for the City are reported in three specific categories: 1) charges for services, 2) operating grants and contributions, and 3) capital grants and contributions. Charges for services include revenues from customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function. Grants and contributions include revenues restricted to meeting the operational or capital requirements of a particular function. Taxes and other items not included among program revenues are reported instead as general revenues. Fund Financial Statements The fund financial statements provide information about the government’s funds. Separate statements for each governmental fund are presented. The emphasis of fund financial statements is on major governmental funds, each displayed in a separate column. All remaining governmental funds are aggregated and reported as nonmajor funds. The City reports the following major governmental funds: The General Fund is the government’s primary operating fund. It accounts for all financial resources of the City, except those required to be accounted for in another fund. The Capital Projects Fund is used to account for and report financial resources that are restricted, committed, or assigned to expenditure for capital outlays, including the acquisition or construction of capital facilities, city- wide repair and maintenance projects, and other capital assets. The capital projects fund excludes those types of capital related outflows financed for assets that will be held in trust for individuals, private organizations, or other governments. The Industrial Development Fund is used to account for revenues and costs associated with development ongoing within the City. The American Rescue Plan Act Fund is used to account for the activity associated with the American Rescue Plan Act (ARPA) funds that the City has received. The TML Bond Fund is used to account for principal and interest payments made on debt. Additionally, the City reports the following other fund types: Special Revenue Funds: These funds are used to account for and report the proceeds of specific revenue sources that are restricted or committed to expenditure for specified purposes other than debt service or capital projects. During the course of normal operations, the City has activity between funds for various purposes. Any residual balances outstanding at year end are reported as due from/to other funds. While these balances are reported in the fund financial statements, certain eliminations are made in preparation of the government-wide financial statements. Balances between the funds included in governmental activities are eliminated so that only the net amount is included in internal balances in the governmental activities’ columns. Further, certain activity occurs during the year involving transfers of resources between funds. In fund financial statements, these amounts are reported at gross amounts as transfers in/out. While reported in fund financial statements, certain eliminations are made in the preparation of the government-wide financial statements. Transfers between the funds included in governmental activities are eliminated. (Continued) 24 CITY OF EAST RIDGE, TENNESSEE NOTES TO FINANCIAL STATEMENTS JUNE 30, 2025 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Measurement Focus, Basis of Accounting, and Financial Statement Presentation The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Under the accrual basis, revenue is recognized when earned and expenses are recognized when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenue in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. The governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Under the modified accrual basis, revenue is recognized as soon as it is both measurable and available. Revenue is considered to be available if it is collected within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the City considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures and expenditures relating to claims and judgments are recognized only when payment is due. Property taxes, state-shared revenue, licenses, and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. Only the portion of special assessments receivable within the current fiscal period are considered to be susceptible to accrual as revenue of the current period. All other revenue items are considered to be available only when cash is received by the City. Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles 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 those estimates. Budgets and Budgetary Accounting Formal budgets are adopted by the Mayor and City Council as a management control device during the year for the governmental type funds, special revenue funds, and debt service fund. The capital projects fund is subject to budgetary control on the project basis. Providing budgetary information on an annual basis does not provide meaningful information because projects extend over more than one reporting period. Expenditures may not legally exceed budgeted appropriations at the fund level. Budgetary integration is employed as a management tool during the fiscal year, and the budget is amended, as necessary, to meet changing needs. City Council approves departmental budgets. Transfers between departments and any revisions in the total appropriations must be approved by the Mayor and City Council. Unused appropriations for any of the annually budgeted funds lapse at the end of the year. Cash and Cash Equivalents For purposes of reporting cash flows, the City considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Investments The City follows state investment policy guidelines for types of allowable investments. (Continued) 25 CITY OF EAST RIDGE, TENNESSEE NOTES TO FINANCIAL STATEMENTS JUNE 30, 2025 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Inventories and Prepaid Items Inventories are recorded at the lower of cost and net realizable value. The cost of such inventories is recorded as expenditures/expenses when consumed rather than purchased. Certain payments to vendors reflect costs applicable to future reporting periods and are recorded as prepaid items in both the government-wide and fund financial statements. The cost of prepaid items is recorded as expenditures/expenses when consumed rather than when purchased. Accounts Receivable With respect to the accounts receivable for solid waste collection fees, the City uses the allowance method to estimate uncollectible accounts based on a projection of balances unlikely to be collected. Individual accounts are written off only when they are determined to be uncollectible. Receivables for the solid waste collection fund are reported net of allowance of $11,591. Other receivable amounts are considered collectible in all material respects. Capital Assets Capital assets, including public domain infrastructure (e.g., roads, bridges, streetlights, traffic lights, sidewalks, and other assets that are immovable and of value only to the City) are defined as assets with an initial, individual cost of more than $5,000 and an estimated useful life greater than one year. Capital assets are recorded at historical cost. Donated capital assets are recorded at estimated fair market value at the date of donation. The cost of normal maintenance and repairs that does not add to the value of the asset or materially extend the assets’ lives is not capitalized. In the case of the initial capitalization of general infrastructure assets (i.e., those reported by governmental activities), the government chose to include all such items regardless of their acquisition date or amount. The government was able to estimate the historical cost for the initial reporting of these assets through back trending (i.e., estimating the current replacement cost of the infrastructure to be capitalized and using an appropriate price- level index to deflate the cost to the acquisition year or estimated acquisition year). Major outlays for capital assets and improvements are capitalized as projects are constructed. Capital assets of the City are depreciated using the straight-line method over the following estimated useful lives of the assets: Useful Life Buildings and improvements 20-50 years Infrastructure 15-50 years Vehicles 5 years Machinery and equipment 5-10 years Furniture and fixtures 7-10 years (Continued) 26 CITY OF EAST RIDGE, TENNESSEE NOTES TO FINANCIAL STATEMENTS JUNE 30, 2025 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Deferred Outflows/Inflows of Resources In addition to assets, the statement of net position will sometimes report a separate section for deferred outflows of resources. This represents a consumption of net position that applies to a future period(s) and will not be recognized as an outflow of resources (as either an expense or expenditure) until that period. The City reports deferred contributions on pension and OPEB plans and certain amounts related to pensions and OPEB, as detailed as (2) below. Deferred contributions for the pension and OPEB plans were made during the fiscal year but are after the measurement date of the actuarial report. These amounts will be recognized during the next measurement period. In addition to liabilities, the statement of financial position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until that time. The government has two types of items which arise under a modified accrual basis of accounting and full accrual basis of accounting that qualifies for reporting in this category. Accordingly, the item, deferred revenue, is reported in the governmental funds balance sheet and government-wide statement of net position. (1) The governmental funds and governmental activities report unavailable revenues from property taxes. These amounts are deferred and recognized as an inflow of resources in the period that the amounts become available. (2) Certain amounts related to pensions and OPEB must be deferred. Differences between projected and actual earnings on pension and OPEB plan investments are deferred and amortized over five years. Changes in pension and OPEB plan assumptions are deferred and amortized over the expected remaining service lives of employees. Net Position Flow Assumption Sometimes the government will fund outlays for a particular purpose from both restricted (e.g., restricted bond or grant proceeds) and unrestricted resources. In order to calculate the amounts to report as restricted net position and unrestricted net position in the government-wide and proprietary fund financial statements, a flow assumption must be made about the order in which the resources are considered to be applied. It is the government’s policy to consider restricted net position to have been depleted before unrestricted net position is applied. Fund Balance Flow Assumptions Sometimes the government will fund outlays for a particular purpose from both restricted and unrestricted resources (the total of committed, assigned, and unassigned fund balance). In order to calculate the amounts to report as restricted, committed, assigned, and unassigned fund balance in the governmental fund financial statements, a flow assumption must be made about the order in which the resources are considered to be applied. It is the government’s policy to consider restricted fund balance to have been depleted before using any of the components of unassigned fund balance. Further, when the components of unassigned fund balance can be used for the same purpose, committed fund balance is depleted first, followed by assigned fund balance. Unassigned fund balance is applied last. (Continued) 27 CITY OF EAST RIDGE, TENNESSEE NOTES TO FINANCIAL STATEMENTS JUNE 30, 2025 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Compensated Absences The City has a policy of compensated annual leave up to 33 days based on years of service. Employees hired before June 30, 2012, accumulate leave and vest to a maximum of 320 hours, the excess payable at the employee’s anniversary date. Employees hired after July 1, 2012, do not receive the excess each year but rather continue to accumulate leave hours. The liability for compensated absences of the governmental funds is recorded in the government-wide financial statements. No liability is recorded in the governmental funds because any payments, even those which would be paid in the next 12 months, if susceptible to a reasonable estimate, are expected to be liquidated with future resources. Long-term Obligations In the government-wide financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities statement of net position. Similarly, long-term debt and other obligations of the City are recorded as liabilities in the appropriate fund. Bond premiums and discounts are deferred and amortized over the life of the bonds using the effective interest method. Bond issuance costs are reported as expenses when incurred. In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. Net Position The government-wide financial statements utilize a net position presentation. Net position is categorized as net investment in capital assets, restricted, and unrestricted. Net Investment in Capital Assets is intended to reflect the net position associated with non-liquid capital assets less outstanding capital asset related debt. Restricted Net Position represents net position that has third-party (statutory, bond covenant or granting agency) limitations on its use. Unrestricted Net Position represents net position that is not restricted for any project or other purpose. While management may have categorized and segmented portions for various purposes, the City has the unrestricted authority to revisit or alter these managerial decisions. Fund Balance Governmental funds utilize a fund balance presentation for equity. Fund balance is categorized as non-spendable, restricted, committed, assigned, or unassigned. Non-spendable Fund Balance represents amounts that cannot be spent because they are either not in spendable form (such as inventory or prepaids) or legally required to remain intact (such as notes receivable or principal of a permanent fund). (Continued) 28 CITY OF EAST RIDGE, TENNESSEE NOTES TO FINANCIAL STATEMENTS JUNE 30, 2025 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Fund Balance (Continued) Restricted Fund Balance represents amounts with external constraints placed on the use of these resources (such as debt covenants, grantors, other governments, etc.) or imposed by enabling legislation. Committed Fund Balance represents amounts that can only be used for specific purposes as pursuant to official action by City Council prior to the end of the reporting period. Committed resources cannot be used for any other purpose unless the City Council removes or changes the specified use by ordinance. Assigned Fund Balance represents amounts the City intends to use for specific purposes as expressed by the City Council or an official delegated the authority to assign amounts. This is the residual classification for all governmental funds other than the general fund. Assignment of amounts to a specific purpose as part of the annual budget ordinance may be made by resolution of the City Council. Unassigned Fund Balance represents fund balance that has not been assigned to other funds and has not been restricted, committed, or assigned to specific purposes within the general fund. Property Tax Information Property taxes are billed and collected for the City by the Hamilton County Trustee, and collections are remitted to the City monthly. Property taxes attach as an enforceable lien on the property as of January 1 and are levied for the calendar year in September. They are payable immediately and become past due March 1 of the succeeding year to avoid penalties and interest. On February 1 of the following year, the delinquent property taxes are filed with the office of the Hamilton County Clerk and Master by the Trustee’s office. Property taxes are recognized when they become available. Available includes those property taxes receivable which are expected to be collected within 60 days after year end. Property taxes levied for 2025 are recorded as receivables. No allowance has been made for uncollectible taxes; based on historical collection data, uncollectible amounts are considered immaterial. Interfund Transactions During the course of normal operations, transactions occur between individual funds for goods provided or services rendered. Short-term interfund loans are classified as “due to/from other funds.” Long-term loans between funds are classified as “loans to/from other funds.” All short-term interfund receivables and payables at year end are planned to be eliminated in the subsequent year. Pensions For purposes of measuring the net pension liability or asset, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the City’s participation in the Public Employee Retirement Plan of the Tennessee Consolidated Retirement System (TCRS), and additions to/deductions from fiduciary net position have been determined on the same basis as they are reported by the TCRS for the Public Employee Retirement Plan. For this purpose, benefits (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms of the Public Employee Retirement Plan of TCRS. Investments are reported at fair value. (Continued) 29 CITY OF EAST RIDGE, TENNESSEE NOTES TO FINANCIAL STATEMENTS JUNE 30, 2025 NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Leases Right-to-use assets and lease liabilities are recognized upon the commencement of the lease term in relation to leases in which the City has acquired the right to use a leased asset. These are measured at the present value of payments expected to be made by the City during the lease term in addition to certain direct costs. The interest rate utilized to calculate the present value of lease payments is calculated annually and represents the weighted cost of debt. Reclassifications Certain amounts in the prior periods have been reclassified to conform to the current period financial statement presentation. These reclassifications have no effect on previously reported change in net position. Implementation of New Accounting Standard During the year ended June 30, 2025, the City implemented Governmental Accounting Standards Board (GASB) Statement No. 101, Compensated Absences. This Statement provides guidance for the recognition and measurement of compensated absences, including the use of a unified recognition and measurement model. The adoption of this Statement did not have a significant impact on the City’s financial statements. As a result, no restatement of beginning balances was required. Certain Risk Disclosures (GASB Statement No. 102) The City has adopted the requirements of GASB Statement No. 102, Certain Risk Disclosures, for the fiscal year ended June 30, 2025. This Statement requires disclosure of risks and uncertainties related to concentrations or constraints that could significantly affect the City’s financial position or ability to provide services. Management has evaluated the City’s operations and financial arrangements and determined that no such material concentrations or constraints exist as of June 30, 2025. Accordingly, the implementation of GASB Statement No. 102 did not have a material impact on the City’s financial statements or related disclosures. NOTE 2 – STEWARDSHIP, COMPLIANCE, AND ACCOUNTABILITY Compliance with Finance Related Legal and Contractual Provisions The City incurred no material violations of finance related legal and contractual provisions. NOTE 3 – CASH DEPOSITS AND INVESTMENTS Cash Deposits The City reports its cash and other investments under GASB Statement No. 40, Deposit and Investment Risk Disclosures, which is designed to improve financial reporting of deposit and investment risks. The City’s investments are carried at fair value (level 2) and consist of certificates of deposit totaling $3,624,100. (Continued) 30 CITY OF EAST RIDGE, TENNESSEE NOTES TO FINANCIAL STATEMENTS JUNE 30, 2025 NOTE 3 – CASH DEPOSITS AND INVESTMENTS (Continued) Interest Rate Risk As a means of limiting its exposure to losses resulting from rising interest rates, the City’s usual policy is to invest in certificates of three years or less. The exposure to interest rate changes is presented using the weighted average maturity method. Its policy is to limit exposure to interest rate risk by requiring sufficient liquidity in the investment portfolio. The City’s investments experienced no significant fluctuations in fair value during the year. Custodial Credit Risk The City’s policies limit deposits and investments to those instruments allowed by applicable state laws. State statutes require that deposits with financial institutions must be collateralized by securities whose market value is equal to 105% of the value of the uninsured deposits. The deposits must be covered by the Federal Deposit Insurance Corporation or the Tennessee Bank Collateral Pool, by collateral held in the City’s agent in the City’s name, or by Federal Reserve Banks acting as third-party agents. State statutes also authorize the types of investments in which the City may participate. The City limits its investments to certificates of deposit, savings accounts and money market accounts with local banks. The City could also invest with the State of Tennessee local government pooled investment fund but has not chosen to do so. Credit Risk The City’s policies are designed to maximize its earnings, while protecting the security and providing maximum liquidity, in accordance with all applicable state laws. NOTE 4 – RECEIVABLES Receivables as of June 30, 2025, consisted of the following: Taxes Gross (Less) Receivables Grant Funds Accounts Receivables Allowance Net Governmental Funds General $ 7,536,797 $ - $ 1,113,284 $ 8,650,081 $ - $ 8,650,081 TML Bond Fund - - 84,870 84,870 - 84,870 Nonmajor Governmental - 12,521 753,366 765,887 (511,591) 254,296 Total Governmental $ 7,165,596 $ 12,521 $ 1,866,650 $ 9,044,767 $ (511,591) $ 8,989,247 NOTE 5 – INTERFUND TRANSFERS AND BALANCES Transfers within the City are substantially for the purpose of subsidizing industrial/economic development, operating, and debt service functions. Resources are accumulated in a fund to support and simplify the administration of various projects or programs. Interfund transfers are transactions between transferring funds out of one fund to support the operations of another fund. (Continued) 31 CITY OF EAST RIDGE, TENNESSEE NOTES TO FINANCIAL STATEMENTS JUNE 30, 2025 NOTE 5 – INTERFUND TRANSFERS AND BALANCES (Continued) Transfers to/from other funds during the year ended June 30, 2025, were as follows: Transfers In Industrial Capital TML Nonmajor Development Projects Bond Governmental Total Transfers Out: General Fund $ 515,410 $ - $ 344,661 $ 7,726,086 $ 8,586,157 Industrial Development - 514,657 - - 514,657 Nonmajor Governmental 5,484,590 - 1,991,496 - 7,476,086 $ 6,000,000 $ 514,657 $ 2,336,157 $ 7,726,086 $ 16,576,900 Interfund balances result from the time lag between the dates that interfund goods and services are provided or reimbursable expenditures occur, transactions are recorded in the accounting system, and payments between funds are made. No interfund balances existed as of June 30, 2025. NOTE 6 – CAPITAL ASSETS The following is a summary of changes in capital assets and accumulated depreciation: Beginning Ending Balance Additions Retirements Balance Non-depreciable capital assets: Land $ 1,947,177 $ - $ 125,000 $ 1,822,177 Construction in process 14,448,554 6,682,133 8,824,190 12,306,497 Total non-depreciable assets 16,395,731 6,682,133 8,949,190 14,128,674 Depreciable capital assets: Buildings 11,393,258 24,348 - 11,417,606 Infrastructure 24,138,961 8,824,190 - 32,963,151 Equipment/Vehicles 12,650,095 881,635 327,901 13,203,829 Right to use assets 250,849 - - 250,849 48,433,163 9,730,173 327,901 57,835,435 Less accumulated depreciation: Buildings 8,708,438 217,040 - 8,925,478 Infrastructure 12,461,292 1,534,076 - 13,995,368 Equipment/Vehicles 8,660,744 1,225,210 320,051 9,565,903 Right to use assets 91,978 50,170 - 142,148 29,922,452 3,026,496 320,051 32,628,897 Total depreciable assets, net 18,510,711 6,703,677 7,850 25,206,538 Total capital assets, net $ 34,906,442 $ 13,385,810 $ 8,957,040 $ 39,335,212 Depreciation expense is charged to functions as follows: General $ 272,385 Public safety 1,150,068 Public works 756,624 Culture and recreation 847,419 Total $ 3,026,496 32 CITY OF EAST RIDGE, TENNESSEE NOTES TO FINANCIAL STATEMENTS JUNE 30, 2025 NOTE 7 – LONG-TERM LIABILITIES In the government-wide financial statements, long-term debt and other long-term obligations relative to governmental activities are reported as liabilities of the entity. Debt reported in the government-wide financial statements is expected to be liquidated with general government resources. The debt represents amounts not expected to be paid with expendable, available resources, and bonds, notes payable, and lease liability consisted of the following as of June 30, 2025: General obligation bonds: Series 2015 for $3,085,000 with installments, plus interest at a rate of 5%, through March 2045 $ 2,595,000 Series 2021 for $8,495,000 with semi-annual interest payments between 1.75 - 4.00% beginning December 2021 and additional interest and principal due through June 2039 6,020,000 Series 2024 for $8,000,000 with annual interest payments between 4.00-5.00% and principal due through June 2044 7,725,000 $ 16,340,000 Notes: Note of $1,800,000 to Tennessee Municipal League Bond Fund, with semi-annual interest payments at 2.54% beginning May 2021 and additional interest and principal due through November 2035 $ 1,384,000 Note of $696,079 to Tennessee Municipal League Bond Fund, with semiannual interest payments at 1.65% beginning December 2021 and additional interest and principal due through December 2028 406,000 Note of $6,842,827 to Tennessee Municipal Bond Fund, with semiannual interest payments at 3.95% beginning October 2022 and additional interest and principal due through September 2042 8,101,819 $ 9,891,819 Financed purchases: Motorola Solutions Financed Purchase $ 111,160 Lease liability: On August 1, 2022, the City entered into a lease agreement with Axon Enterprises to lease equipment for 5 years with annual payments of $53,530. A discount rate of 3.30% was used in calculating the lease liability. $ 101,909 (Continued) 33 CITY OF EAST RIDGE, TENNESSEE NOTES TO FINANCIAL STATEMENTS JUNE 30, 2025 NOTE 7 – LONG-TERM LIABILITIES (Continued) Maturities of general long-term debt are as follows: For the General year ending Financed Lease Obligation June 30, Purchases Liability Bonds Notes Total 2026 $ 35,261 $ 50,115 $ 840,000 $ 576,000 $ 1,501,376 2027 37,024 51,794 850,000 594,000 1,532,818 2028 38,875 - 875,000 612,000 1,525,875 2029 - - 885,000 632,000 1,517,000 2030 855,000 548,000 1,403,000 2031-2035 - - 4,620,000 3,055,000 7,675,000 2036-2040 - - 4,325,000 3,049,000 7,374,000 2041-2045 - - 3,090,000 825,819 3,915,819 $ 111,160 $ 101,909 $ 16,340,000 $ 9,891,819 $ 26,444,888 During the year ended June 30, 2025, changes in long-term liabilities were as follows: Amount Beginning Ending Due Within Balance Additions Retirements Balance One Year Bonds payable $ 17,215,000 $ - $ 875,000 $ 16,340,000 $ 840,000 Notes payable 8,560,827 1,887,992 557,000 9,891,819 576,000 Lease liability 150,400 - 48,491 101,909 50,115 Financed purchases 188,537 - 77,377 111,160 35,261 Bond: Premium 957,858 - 54,771 903,087 - Compensated absences 592,671 39,930 - 632,601 632,601 $ 27,665,293 $ 1,927,922 $ 1,612,639 $ 27,980,576 $ 2,133,977 NOTE 8 – EMPLOYEE RETIREMENT SYSTEMS AND OTHER POSTEMPLOYMENT BENEFIT PLANS Tennessee Consolidated Retirement System General Information about the Pension Plan Plan description. Employees of East Ridge are provided a defined benefit pension plan through the Public Employee Retirement Plan, an agent multiple-employer pension plan administered by the TCRS. The TCRS was created by state statute under Tennessee Code Annotated Title 8, Chapters 34-37. The TCRS Board of Trustees is responsible for the proper operation and administration of the TCRS. The Tennessee Treasury Department, an agency in the legislative branch of state government, administers the plans of the TCRS. The TCRS issues a publicly available financial report that can be obtained at www.treasury.tn.gov/tcrs. (Continued) 34 CITY OF EAST RIDGE, TENNESSEE NOTES TO FINANCIAL STATEMENTS JUNE 30, 2025 NOTE 8 – EMPLOYEE RETIREMENT SYSTEMS AND OTHER POSTEMPLOYMENT BENEFIT PLANS (Continued) General Information about the Pension Plan (Continued) Benefits provided. Tennessee Code Annotated Title 8, Chapters 34-37 establishes the benefit terms and can be amended only by the Tennessee General Assembly. The chief legislative body may adopt the benefit terms permitted by statute. Members are eligible to retire with an unreduced benefit at age 60 with five years of service credit or after 30 years of service credit regardless of age. Benefits are determined by a formula using the member’s highest five consecutive year average compensation and the member’s years of service credit. Reduced benefits for early retirement are available at age 55 and vested. Members vest with five years of service credit. Service-related disability benefits are provided regardless of length of service. Five years of service is required for non-service- related disability eligibility. The service related and non-service-related disability benefits are determined in the same manner as a service retirement benefit but are reduced 10% and include projected service credits. A variety of death benefits are available under various eligibility criteria. Member and beneficiary annuitants are entitled to automatic cost of living adjustments (COLAs) after retirement. A COLA is granted each July for annuitants retired prior to the second of July of the previous year. The COLA is based on the change in the consumer price index (CPI) during the prior calendar year, capped at 3% and applied to the current benefit. No COLA is granted if the change in the CPI is less than one-half percent. A one percent COLA is granted if the CPI change is between one-half percent and one percent. A member who leaves employment may withdraw their employee contributions, plus any accumulated interest. Employees covered by benefit terms. As of the measurement date of June 30, 2024, the following employees were covered by the benefit terms: Inactive employees or beneficiaries currently receiving benefits 77 Inactive employees entitled to but not yet receiving benefits 141 Active employees 149 367 Contributions. Contributions for employees are established in the statutes governing the TCRS and may only be changed by the Tennessee General Assembly. Employees contribute 5% of salary. The City makes employer contributions at the rate set by the Board of Trustees as determined by an actuarial valuation. For the year ended June 30, 2025, employer contributions for East Ridge were $1,023,235 based on a rate of 10.00% of covered payroll. By law, employer contributions are required to be paid. The TCRS may intercept the City’s state shared taxes if required employer contributions are not remitted. The employer’s actuarially determined contribution (ADC) and member contributions are expected to finance the costs of benefits earned by members during the year, the cost of administration, as well as an amortized portion of any unfunded liability. Net Pension Liability (Asset) The City’s net pension liability (asset) was measured as of June 30, 2024, and the total pension liability used to calculate net pension liability (asset) was determined by an actuarial valuation as of that date. Actuarial assumptions. The total pension liability as of June 30, 2024, actuarial valuation was determined using the following actuarial assumptions, applied to all periods included in the measurement: Inflation 2.25% Salary increases Graded salary ranges from 8.72 to 3.44% based on age, including inflation, averaging 4.00% Investment rate of return 6.75%, net of pension plan investment expenses, including inflation Cost-of-Living Adjustment 2.125% (Continued) 35 CITY OF EAST RIDGE, TENNESSEE NOTES TO FINANCIAL STATEMENTS JUNE 30, 2025 NOTE 8 – EMPLOYEE RETIREMENT SYSTEMS AND OTHER POSTEMPLOYMENT BENEFIT PLANS (Continued) Net Pension Liability (Asset) (Continued) Mortality rates were based on actual experience including an adjustment for some anticipated improvement. The actuarial assumptions used in the June 30, 2024, actuarial valuation were based on the results of an actuarial experience study performed for the period July 1, 2016, through June 30, 2020. The long-term expected rate of return on pension plan investments was established by the TCRS Board of Trustees in conjunction with the June 30, 2020, actuarial experience study. A blend of future capital market projections and historical market returns was used in a building-block method in which a best-estimate of expected future real rates of return is developed for each major asset class. These best estimates 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 of 2.25%. The best-estimates of geometric real rates of return and the TCRS investment policy target asset allocation for each major asset class is summarized in the following table: Long-Term Expected Asset Class Real Rate of Return Target Allocation U.S. equity 4.88% 31% Developed market international equity 5.37% 14% Emerging market international equity 6.09% 4% Private equity and strategic lending 6.57% 20% U.S. fixed income 1.20% 20% Real estate 4.38% 10% Short-term securities 0.00% 1% 100% The long-term expected rate of return on pension plan investments was established by the TCRS Board of Trustees as 6.75% based on a blending of the factors described above. Discount rate. The discount rate used to measure the total pension liability was 6.75 percent. The projection of cash flows used to determine the discount rate assumed that employee contributions will be made at the current rate and that contributions from the City will be made at the actuarially determined contribution rate pursuant to an actuarial valuation in accordance with the funding policy of the TCRS Board of Trustees and as required to be paid by state statute. Based on those assumptions, the pension plan’s fiduciary net position was projected to be available to make projected future benefit payments of current active and inactive members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. (Continued) 36 CITY OF EAST RIDGE, TENNESSEE NOTES TO FINANCIAL STATEMENTS JUNE 30, 2025 NOTE 8 – EMPLOYEE RETIREMENT SYSTEMS AND OTHER POSTEMPLOYMENT BENEFIT PLANS (Continued) Changes in the Net Pension Liability (Asset) Increase (Decrease) Total Pension Plan Fiduciary Net Position Liability Net Pension Liability (Asset) (a) (b) (a) – (b) Balance as of 06/30/23 $ 27,941,815 $ 27,111,306 $ 830,509 Changes for the year: Service cost 700,593 - 700,593 Interest 1,889,881 - 1,889,881 Changes of benefit terms 1,856,829 - 1,856,829 Differences between expected and actual experience 1,224,049 - 1,224,049 Contributions – employer - 833,698 (833,698) Contributions – employees - 400,006 (400,006) Net investment income - 2,643,251 (2,643,251) Benefit payments, including refund of employee contributions (1,288,332) (1,288,332) - Administrative expense - (16,073) 16,073 Net changes 4,383,020 2,572,550 1,810,470 Balance as of 06/30/24 $ 32,324,835 $ 29,683,856 $ 2,640,979 Sensitivity of the net pension liability (asset) to changes in the discount rate. The following presents the net pension liability (asset) of the City calculated using the discount rate of 6.75%, as well as what the net pension liability (asset) would be if it were calculated using a discount rate that is one-percentage-point lower (5.75%) or one-percentage- point higher (7.75%) than the current rate: 1% Current 1% Decrease Discount Rate Increase (5.75%) (6.75%) (7.75%) Net pension liability (asset) $ 7,152,800 $ 2,640,979 $ (1,040,949) Pension Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions Pension expense. For the year ended June 30, 2025, the City recognized pension expense of $2,457,073. Deferred outflows of resources and deferred inflows of resources. For the year ended June 30, 2025, the City reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: (Continued) 37 CITY OF EAST RIDGE, TENNESSEE NOTES TO FINANCIAL STATEMENTS JUNE 30, 2025 NOTE 8 – EMPLOYEE RETIREMENT SYSTEMS AND OTHER POSTEMPLOYMENT BENEFIT PLANS (Continued) Pension Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions (Continued) Deferred Deferred Outflows of Inflows of Resources Resources Differences between expected and actual experience $ 1,341,129 $ 219,812 Change of assumptions 655,640 - Net difference between projected and actual earnings of pension plan investments - 311,409 Employer contributions after Measurement Date but prior to fiscal year end 1,023,235 - Total $ 3,020,004 $ 531,221 The amount shown for “Employer contributions after Measurement Date but prior to fiscal year end” will be recognized as a reduction (increase) to net pension liability in the following measurement period. Amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense as follows: Year Ended June 30: 2026 $ 167,794 2027 944,589 2028 38,375 2029 (34,939) 2030 174,864 Thereafter 174,865 $ 1,465,548 In the table shown above, positive amounts will increase pension expense while negative amounts will decrease pension expense. Payable to the Pension Plan As of June 30, 2025, the City did not report a payable for the outstanding amount of contributions to the plan. City of East Ridge Other Postemployment Benefits Plan Plan Description The City's OPEB plan is a single employer plan. Under this plan covered employees include all full-time employees with 10 or more years of service with the city and hired prior to July 1, 2012. The City Council has the authority to establish and amend benefit provisions of the Plan. Employees covered by benefit terms. As of July 1, 2024 (the valuation date) the following employees were covered by the benefit terms: Count Inactive employees or beneficiaries currently receiving benefits 8 Active employees 44 52 (Continued) 38 CITY OF EAST RIDGE, TENNESSEE NOTES TO FINANCIAL STATEMENTS JUNE 30, 2025 NOTE 8 – EMPLOYEE RETIREMENT SYSTEMS AND OTHER POSTEMPLOYMENT BENEFIT PLANS (Continued) Employer Contributions The funding policy of the plan sponsor is to contribute annually an amount sufficient to satisfy benefit payment requirements to participants. Employee Contributions None. Net OPEB Liability The employer’s net OPEB liability is reported herein as of June 30, 2025, for the employer fiscal year and reporting period of July 1, 2024, to June 30, 2025. The values shown for this fiscal year and reporting period are based on a measurement date of July 1, 2024, and the corresponding measurement period of July 1, 2023, to July 1, 2024. The measurement of the total OPEB liability is based on a valuation date of July 1, 2023. Actuarial Assumptions and Actuarial Methods The total OPEB liability in the July 1, 2024 actuarial valuation was determined using the following key actuarial assumptions, applied to all periods included in the measurement: Discount Rate: 4.09% Salary Scale: By age Healthcare Cost Trend Rates: 10.70% for fiscal year end 2024, then 7.00% for the fiscal year end 2025, decreasing 0.25% per year to an ultimate rate of 5.00%. Mortality: Employees: PUB – 2010 Amount-Weighted General Mortality Table –Employees with MP- 2021 Projection Scale Fully Generational Retirees: PUB – 2010 Amount-Weighted General Mortality Table – Retiree with MP- 2021 Projection Scale Fully Generational Surviving Spouse: PUB – 2010 Amount-Weighted Mortality Table – Contingent Survivor with MP-2021 Projection Scale Fully Generational Disabled Retiree: PUB – 2010 Amount-Weighted Non-Safety Mortality Table – Disabled Retiree with MP-2021 Projection Scale Fully Generational Actuarial Cost Method: Entry Age Actuarial Cost Method Expected Return on Assets None. (Continued) 39 CITY OF EAST RIDGE, TENNESSEE NOTES TO FINANCIAL STATEMENTS JUNE 30, 2025 NOTE 8 – EMPLOYEE RETIREMENT SYSTEMS AND OTHER POSTEMPLOYMENT BENEFIT PLANS (Continued) Discount Rate The discount rate has been set equal to 4.09% and represents the Municipal AA 20-year yield curve rate as of July 1, 2024. Changes in the Net OPEB Liability Increase (Decrease) Total OPEB Plan Fiduciary Net OPEB Liability Net Pension Liability (Asset) (a) (b) (a) – (b) Balance as of July 1, 2024 $ 1,460,000 $ - $ 1,460,000 Changes for the year: Service cost 135,000 - 135,000 Interest 60,000 - 60,000 Differences between expected and actual experience 59,000 - 59,000 Contributions – employer - 89,000 (89,000) Benefit payments (89,000) (89,000) - Change in benefit terms (1,000) - (1,000) Other changes 21,000 - 21,000 Net changes 185,000 - 185,000 Balance as of June 30, 2025 $ 1,645,000 $ - $ 1,645,000 Sensitivity of the net OPEB liability to changes in the discount rate. The following presents the net OPEB liability/(asset) of the employer as of the measurement date calculated using the discount rate, as well as what the employer’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 than the current rate: 1% Current 1% Decrease Discount Rate Increase Employer’s Net OPEB Liability $ 1,693,000 $ 1,645,000 $ 1,589,000 Sensitivity of the net OPEB liability to changes in the Trend rate. The following presents the net OPEB liability/(asset) of the employer as of the measurement date calculated using the trend rate, as well as what the employer’s net OPEB liability would be if it were calculated using a trend rate that is one-percentage-point lower or one-percentage-point higher than the current rate: 1% Current 1% Decrease Trend Rate Increase Employer’s Net OPEB Liability $ 1,453,000 $ 1,645,000 $ 1,867,000 (Continued) 40 CITY OF EAST RIDGE, TENNESSEE NOTES TO FINANCIAL STATEMENTS JUNE 30, 2025 NOTE 8 – EMPLOYEE RETIREMENT SYSTEMS AND OTHER POSTEMPLOYMENT BENEFIT PLANS (Continued) OPEB Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to OPEB For the year ended June 30, 2025, under GASB 75 the employer OPEB expense is $(131,000). The Deferred Outflows of Resources and Deferred Inflows of Resources related to OPEB as of June 30, 2025 from various sources are as follows: Deferred Deferred Outflows of Inflows of Resources Resources Differences between expected and actual experience $ 49,000 $ 712,000 Changes of assumptions 177,000 454,000 Net difference between projected and actual earnings on OPEB plan investments - - Employer contributions after Measurement Date but prior to fiscal year end 54,799 - Total $ 280,799 $ 1,166,000 Amounts reported as deferred outflows of resources and deferred inflows of resources related to OPEB will be recognized in OPEB expense as follows: Year ended June 30: 2026 $ (298,000) 2027 (276,000) 2028 (233,000) 2029 (143,000) 2030 10,000 $ (940,000) NOTE 9 – RESTRICTIONS AND CONTINGENCIES Federal and State Grants The City has received funds from federal and state grants for specific purposes which are subject to review by the grantor agencies. Such reviews could lead to a request for reimbursement to the grantor agencies for any expenditure disallowed under the terms of the grants. Management believes that such disallowed costs, if any, would be immaterial. NOTE 10 – RISK MANAGEMENT AND LITIGATION The City is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The City participates in the Tennessee Municipal League Risk Management Pool (TML-RMP) to provide workers’ compensation coverage and general liability and property insurance. The City, along with other participating entities, contributes annual amounts determined by TML-RMP management. As claims arise, they are submitted to and paid by TMP-RMP. The amount contributed to the plan during fiscal year 2025 was $718,057. There were no significant reductions in insurance coverage from the prior year. Settled claims have not exceeded this insurance coverage in any of the past three years. (Continued) 41 CITY OF EAST RIDGE, TENNESSEE NOTES TO FINANCIAL STATEMENTS JUNE 30, 2025 NOTE 10 – RISK MANAGEMENT AND LITIGATION (Continued) As of June 30, 2025, the City was involved in several lawsuits as defendant. Additionally, the City is exposed to several unasserted claims. Management feels that uninsured exposure if any would not be material to the financial statements. NOTE 11 – LEASES The City has recorded right to use lease assets as a result of implementing Governmental Accounting Standards Board Statement No. 87, Leases (GASB 87). The right to use assets are initially measured at an amount equal to the initial measurement of the related lease liability plus any lease payments made prior to the lease term, less lease incentives and plus ancillary charges necessary to place the lease into service. The assets are right to use assets for leased police equipment. The right to use assets are amortized on a straight-line basis over the life of the related lease. See Notes 6 and 7 for more information related to the right to use asset and lease liability. NOTE 12 – CHANGE WITHIN FINANCIAL REPORTING ENTITY During the fiscal year, the TML Bond Fund qualified to be reported as a major fund, due to the increase in the fund`s total assets and deferred outflows of resources. NOTE 13 – SUBSEQUENT EVENTS Management has evaluated events and transactions subsequent to the statement of net position date through February 27, 2026 (the date the financial statements were available to be issued) for potential recognition or disclosure in the financial statements. Management has not identified any items requiring recognition or disclosure. 42 REQUIRED SUPPLEMENTARY INFORMATION CITY OF EAST RIDGE, TENNESSEE SCHEDULE OF CHANGES IN CITY OF EAST RIDGE, TENNESSEE'S NET PENSION LIABILITY (ASSET) AND RELATED RATIOS BASED ON PARTICIPATION IN THE PUBLIC EMPLOYEE PENSION PLAN OF TCRS LAST TEN FISCAL YEARS ENDING 2024 2023 2022 2021 2020 2019 2018 2017 2016 2015 Total Pension Liability (Asset) Service cost $ 700,593 $ 674,792 $ 591,986 $ 499,971 $ 486,199 $ 466,527 $ 436,698 $ 401,914 $ 387,433 $ 378,218 Interest 1,889,881 1,823,426 1,711,781 1,609,380 1,520,358 1,472,828 1,430,710 1,366,825 1,292,399 1,246,302 Changes in benefit terms 1,856,829 - - - - - - - - - Differences between actual and expected experience 1,224,049 (280,069) 431,285 93,894 270,034 (231,693) (280,511) 163,918 208,110 (178,441) Change in assumptions - - - 1,966,916 - - - 468,974 - - Benefit payments, including refunds of employee contributions (1,288,332) (1,230,517) (1,097,202) (1,104,398) (1,020,544) (1,122,949) (948,647) (904,986) (915,163) (766,168) Net change in total pension liability 4,383,020 987,632 1,637,850 3,065,763 1,256,047 584,713 638,250 1,496,645 972,779 679,911 Total pension liability - beginning 27,941,815 26,954,183 25,316,333 22,250,570 20,994,523 20,409,810 19,771,560 18,274,915 17,302,136 16,622,225 Total pension liability - ending (a) $ 32,324,835 $ 27,941,815 $ 26,954,183 $ 25,316,333 $ 22,250,570 $ 20,994,523 $ 20,409,810 $ 19,771,560 $ 18,274,915 $ 17,302,136 Plan Fiduciary Net Position Contributions - employer $ 833,698 $ 721,795 $ 701,710 $ 593,744 $ 583,981 $ 551,838 $ 531,711 $ 487,590 $ 414,430 $ 413,814 Contributions - employee 400,006 360,897 350,857 296,873 291,992 275,919 265,857 243,796 224,017 223,684 Net investment income 2,643,251 1,712,654 (1,017,837) 5,485,033 1,013,806 1,432,467 1,492,501 1,847,817 427,408 487,732 Benefit payments, including refunds of employee contributions (1,288,332) (1,230,517) (1,097,202) (1,104,398) (1,020,544) (1,122,949) (948,647) (904,986) (915,163) (766,168) Administrative expense (16,073) (12,535) (13,278) (11,526) (11,503) (11,475) (12,243) (10,331) (8,744) (5,714) Net change in plan fiduciary net position 2,572,550 1,552,294 (1,075,750) 5,259,726 857,732 1,125,800 1,329,179 1,663,886 141,948 353,348 Plan fiduciary net position - beginning 27,111,306 25,559,012 26,634,762 21,375,036 20,517,304 19,391,504 18,062,325 16,398,439 16,256,491 15,903,143 Plan fiduciary net position - ending (b) $ 29,683,856 $ 27,111,306 $ 25,559,012 $ 26,634,762 $ 21,375,036 $ 20,517,304 $ 19,391,504 $ 18,062,325 $ 16,398,439 $ 16,256,491 Net pension liability (asset) - ending (a) - (b) $ 2,640,979 $ 830,509 $ 1,395,171 $ (1,318,429) $ 875,534 $ 477,219 $ 1,018,306 $ 1,709,235 $ 1,876,476 $ 1,045,645 Plan fiduciary net position as a percentage of total pension liability 91.83% 97.03% 94.82% 105.21% 96.07% 97.73% 95.01% 91.36% 89.73% 93.96% Covered - employee payroll $ 7,942,602 $ 7,217,943 $ 7,017,097 $ 5,937,433 $ 5,839,802 $ 5,518,376 $ 5,317,111 $ 4,875,894 $ 4,480,329 $ 4,473,661 Net pension liability (asset) as a percentage of covered payroll 33.25% 11.51% 19.88% -22.21% 14.99% 8.65% 19.15% 35.05% 41.88% 23.37% Notes to Schedule: Changes of assumptions. In 2021, amounts reported as changes of assumptions resulted from changes to the inflation rate, investment rate of return, cost-of-living adjustment, and mortality improvements. In 2017, amount reported as changes of assumptions resulted from changes to the inflation rate, investment rate of return, cost-of-living adjustment, salary growth and mortality improvements. See independent auditor's report. 43 CITY OF EAST RIDGE, TENNESSEE SCHEDULE OF CITY OF EAST RIDGE, TENNESSEE'S CONTRIBUTIONS BASED ON PARTICIPATION IN THE PUBLIC EMPLOYEE PENSION PLAN OF TCRS LAST TEN FISCAL YEARS ENDING 2025 2024 2023 2022 2021 2020 2019 2018 2017 2016 Actuarially determined contribution $ 1,023,235 $ 749,697 $ 646,006 $ 627,329 $ 530,213 $ 521,495 $ 551,838 $ 531,711 $ 451,020 $ 414,431 Contributions in relation to the actuarially determined contribution 1,023,235 833,698 721,795 701,710 593,744 583,981 551,838 531,711 487,590 414,431 Contribution deficiency (excess) $ - $ (84,001) $ (75,789) $ (74,381) $ (63,531) $ (62,486) $ - $ - $ (36,570) $ - Covered-employee payroll $ 10,232,350 $ 7,942,602 $ 7,217,943 $ 7,017,097 $ 5,937,433 $ 5,839,802 $ 5,518,376 $ 5,317,111 $ 4,875,894 $ 4,480,329 Contributions as a percentage covered-employee payroll 10.00% 10.50% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 9.25% Note: GASB 68 requires a 10-year schedule for this data to be presented starting with the implementation of GASB 68. The information in this schedule is not required to be presented retroactively prior to the implementation date. See independent auditor's report. 44 CITY OF EAST RIDGE, TENNESSEE NOTES TO PENSION SCHEDULES LAST FISCAL YEAR ENDING JUNE 30, 2025 Valuation date: Actuarially determined contribution rates for 2025 were calculated based on the June 30, 2023, actuarial valuation. Methods and assumptions used to determine contribution rates: Actuarial cost method Entry age normal Amortization method Level dollar, closed (not to exceed 20 years) Remaining amortization period Varies by year Asset valuation 10-year smoothed within a 20% corridor to market value Inflation 2.25% Salary increases Graded salary ranges from 8.72 to 3.44% based on age, including inflation averaging 4.00% Investment Rate of Return 6.75%, net of investment expense, including inflation Retirement age Pattern of retirement determined by experience study Mortality Customized table based on actual experience including an adjustment for some anticipated improvement Cost of Living Adjustments 2.13% Changes of assumptions. In 2021, the following assumptions were changed: decreased inflation rate from 2.50% to 2.25%; decreased the investment rate of return from 7.25% to 6.75%; decrease the cost-of-living adjustment from 2.25% to 2.125%; and modifiedmortality assumptions. In 2017 the following assumptions were changed: decreased inflation rate from 3.00% to 2.50%; decrease the investment rate of return from 7.5% to 7.25%; decrease the cost-of-living adjustment from 2.50% to 2.25 decreased %; salary growth graded ranges from an average of 4.25% to an average of 4.00%; and modified mortality assumptions. See independent auditor's report. 45 CITY OF EAST RIDGE, TENNESSEE SCHEDULE OF CHANGES IN THE CITY OF EAST RIDGE, TENNESSEE'S NET OPEB LIABILITY AND RELATED RATIOS LAST TEN FISCAL YEARS (as information becomes available) 2025 2024 2023 2022 2021 2020 2019 2018 Total OPEB Liability (Asset) Service cost $ 135,000 $ 113,000 $ 155,000 $ 348,000 $ 309,000 $ 233,000 $ 250,000 $ 244,000 Interest 60,000 89,000 56,000 99,000 114,000 119,000 118,000 108,000 Changes in benefit terms (1,000) (42,000) (14,000) (960,000) - - - - Differences between actual and expected experience 59,000 (529,000) (209,000) (565,000) (164,000) (156,000) (287,000) - Change in assumptions 21,000 (436,000) (326,000) 225,000 223,000 139,000 (20,000) - Benefit payments, including refunds of employee contributions (89,000) (92,000) (89,000) (143,000) (64,000) (67,000) (67,000) (102,000) Net change in total OPEB liability 185,000 (897,000) (427,000) (996,000) 418,000 268,000 (6,000) 250,000 Total OPEB liability - beginning 1,460,000 2,357,000 2,784,000 3,780,000 3,362,000 3,094,000 3,100,000 2,850,000 Total OPEB liability - ending (a) $ 1,645,000 $ 1,460,000 $ 2,357,000 $ 2,784,000 $ 3,780,000 $ 3,362,000 $ 3,094,000 $ 3,100,000 Plan Fiduciary Net Position Contributions - employer $ 89,000 $ 92,000 $ 89,000 $ 143,000 $ 64,000 $ 67,000 $ 67,000 $ 102,000 Contributions - employee - - - - - - - - Net investment income - - - - - - - - Benefit payments, including refunds of employee contributions (89,000) (92,000) (89,000) (143,000) (64,000) (67,000) (67,000) (102,000) Administrative expense - - - - - - - - Net change in plan fiduciary net position - - - - - - - - Plan fiduciary net position - beginning - - - - - - - - Plan fiduciary net position - ending (b) $ - $ - $ - $ - $ - $ - $ - $ - Net OPEB liability (asset) - ending (a) - (b) $ 1,645,000 $ 1,460,000 $ 2,357,000 $ 2,784,000 $ 3,780,000 $ 3,362,000 $ 3,094,000 $ 3,100,000 Plan fiduciary net position as a percentage of total OPEB liability 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Covered - employee payroll $ 2,667,000 $ 2,667,000 $ 2,989,000 $ 2,989,000 $ 5,785,000 $ 5,785,000 $ 4,665,000 $ 4,665,000 Net OPEB liability (asset) as a percentage of covered payroll 61.68% 54.74% 78.86% 93.14% 65.34% 58.12% 66.32% 66.45% Notes to Schedule: None. See independent auditor's report. 46 CITY OF EAST RIDGE, TENNESSEE SCHEDULE OF CITY OF EAST RIDGE, TENNESSEE'S CONTRIBUTIONS BASED ON PARTICIPATION IN THE OTHER POST-EMPLOYMENT BENEFIT PLAN LAST TEN FISCAL YEARS (as information becomes available) 2025 2024 2023 2022 2021 2020 2019 2018 Actuarially determined contribution $ 89,000 $ 92,000 $ 89,000 $ 143,000 $ 64,000 $ 67,000 $ 67,000 $ 102,000 Contributions in relation to the actuarially determined contribution 54,799 37,543 89,000 143,000 64,000 67,000 67,000 102,000 Contribution deficiency (excess) $ 34,201 $ 54,457 $ - $ - $ - $ - $ - $ - Covered-employee payroll $ 2,667,000 $ 2,667,000 $ 2,989,000 $ 2,989,000 $ 5,785,000 $ 5,785,000 $ 4,665,000 $ 4,665,000 Contributions as a percentage covered-employee payroll 2.05% 1.41% 2.98% 4.78% 1.11% 1.16% 1.44% 2.19% Notes to Schedule: The employer has elected to make an annual contribution equal to the benefit payments. The employer share of net benefits is the difference between the expected benefit payments and the retiree contributions. It is sometimes referred to as “pay-as-you-go". The expected benefit payments are actuarially determined to reflect the age difference between the overall covered group and the retiree group. Actuarially determined contributions, which are based on the expected “pay-as-you-go” cost, and actual contributions are from the measurement periods ending June 30 of the year prior to the year-end of the reporting periods shown. See independent auditor's report. 47 OTHER SUPPLEMENTARY INFORMATION CITY OF EAST RIDGE, TENNESSEE NONMAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEET JUNE 30, 2025 Total Special Revenue Nonmajor Drug State TML Bond Asset Grant Solid Waste Economic Governmental Investigation Street Aid Fund Forfeiture Fund Collection Development Funds ASSETS Cash and cash equivalents $ 222,294 $ 745,379 $ - $ 4,355 $ 10,528 $ 224,996 $ 3,348 $ 1,210,900 Grant funds receivables 12,287 - - - 234 - - 12,521 Accounts receivables 5,211 144,284 - 17,752 - 74,528 - 241,775 Total assets $ 239,792 $ 889,663 $ - $ 22,107 $ 10,762 $ 299,524 $ 3,348 $ 1,465,196 LIABILITIES AND FUND BALANCES Liabilities Accounts payable $ - $ 2,803 $ - $ - $ - $ 155,596 $ - $ 158,399 Accrued liabilities - - - - - 10,188 - 10,188 Total liabilities - 2,803 - - - 165,784 - 168,587 Fund balances Restricted: Law enforcement 239,792 - - 22,107 - - - 261,899 State approved street aid - 886,860 - - - - - 886,860 Economic development - - - - - - 3,348 3,348 Grant projects - - - - 10,762 - - 10,762 Solid waste operations - - - - - 133,740 - 133,740 Total fund balances 239,792 886,860 - 22,107 10,762 133,740 3,348 1,296,609 Total liabilities and fund balances $ 239,792 $ 889,663 $ - $ 22,107 $ 10,762 $ 299,524 $ 3,348 $ 1,465,196 See independent auditor's report. 48 CITY OF EAST RIDGE, TENNESSEE NONMAJOR GOVERNMENTAL FUNDS COMBINING SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES YEAR ENDED JUNE 30, 2025 Total Special Revenue Nonmajor Drug State TML Bond Asset Grant Solid Waste Economic Governmental Investigation Street Aid Fund Forfeiture Fund Collection Development Funds REVENUES Intergovernmental $ 31,919 $ 794,606 $ - $ - $ 18,409 $ - $ - $ 844,934 Charges for services - - - - - 1,580,771 - 1,580,771 Fines and forfeitures 45,737 - - - - - - 45,737 Miscellaneous 5,276 41 - 22,107 1 - - 27,425 Total revenues 82,932 794,647 - 22,107 18,410 1,580,771 - 2,498,867 EXPENDITURES Current: Public safety 94,988 - - - - - - 94,988 Public works - 259,006 - - 26,791 1,715,586 - 2,001,383 Total expenditures 94,988 259,006 - - 26,791 1,715,586 - 2,096,371 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES (12,056) 535,641 - 22,107 (8,381) (134,815) - 402,496 OTHER FINANCING SOURCES Transfers from other funds - - - - - 250,000 7,476,086 7,726,086 Transfers to other funds - - - - - - (7,476,086) (7,476,086) Total other financing sources (uses) - - - - - 250,000 - 250,000 EXCESS (DEFICIENCY) OF REVENUES AND OTHER SOURCES OVER EXPENDITURES (12,056) 535,641 - 22,107 (8,381) 115,185 - 652,496 FUND BALANCES Beginning, as previously reported 251,848 351,219 2,951,751 - 19,143 18,555 3,348 3,595,864 Change within financial reporting entity (nonmajor to major fund) - - (2,951,751) - - - - (2,951,751) Beginning, as restated 251,848 351,219 - - 19,143 18,555 3,348 644,113 Ending $ 239,792 $ 886,860 $ - $ 22,107 $ 10,762 $ 133,740 $ 3,348 $ 1,296,609 See independent auditor's report. 49 CITY OF EAST RIDGE, TENNESSEE SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL GENERAL FUND YEAR ENDED JUNE 30, 2025 Variance Budget Amounts with Final Original Final Actual Budget TAXES Local sales tax $ 4,740,000 $ 4,740,000 $ 4,750,245 $ 10,245 Property taxes 7,157,579 7,157,579 7,035,842 (121,737) Business taxes 10,000 10,000 4,208 (5,792) Local beer taxes 440,000 440,000 475,877 35,877 Gross receipts taxes 9,168,936 9,168,936 8,587,380 (581,556) Franchise taxes 196,000 196,000 167,881 (28,119) Total taxes 21,712,515 21,712,515 21,021,433 (691,082) LICENSES AND PERMITS Building permits 225,000 225,000 129,016 (95,984) Plumbing permits 15,000 15,000 15,399 399 Electrical permits 30,000 30,000 21,927 (8,073) Other permits and licenses 82,850 83,350 62,318 (21,032) Total licenses and permits 352,850 353,350 228,660 (124,690) INTERGOVERNMENTAL State sales tax 2,754,000 2,754,000 2,790,167 36,167 State beer tax 10,680 10,680 9,329 (1,351) State telecommunications tax 500 500 1 (499) State mixed drink tax 110,000 110,000 135,466 25,466 State income and excise tax 6,000 6,000 833 (5,167) Interstate sales tax 5,000 5,000 4,740 (260) Sports betting 38,000 38,000 48,432 10,432 City streets and transportation 40,565 40,565 40,481 (84) TVA in lieu of tax 266,004 266,004 269,302 3,298 State and other grants 362,400 416,800 397,582 (19,218) Total intergovernmental 3,593,149 3,647,549 3,696,333 48,784 CHARGES FOR SERVICES Fire service contract 121,268 121,268 121,268 - Recreation fees 980,990 1,120,658 1,177,530 56,872 Mowing charges 9,800 9,800 9,800 - Other 12,000 12,000 21,006 9,006 Total charges for services 1,124,058 1,263,726 1,329,604 65,878 FINES AND FORFEITS City court fines and fees 350,000 350,000 369,069 19,069 Total fines and forfeits 350,000 350,000 369,069 19,069 (Continued) See independent auditor's report. 50 CITY OF EAST RIDGE, TENNESSEE SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL GENERAL FUND YEAR ENDED JUNE 30, 2025 (Continued) Variance Budget Amounts with Final Original Final Actual Budget MISCELLANEOUS Insurance recoveries 50,000 50,000 64,562 14,562 Interest 6,500 51,500 73,991 22,491 Other 66,525 66,525 36,546 (29,979) Total miscellaneous 123,025 168,025 175,099 7,074 Total revenues 27,255,597 27,495,165 26,820,198 (674,967) GENERAL GOVERNMENT General Government Health insurance 55,000 93,361 89,017 4,344 Pension 1,500 1,500 - 1,500 Workers' compensation 275,390 275,390 274,649 741 Dues and memberships 17,000 20,000 20,589 (589) Data processing services 100,000 100,000 93,690 6,310 Insurance 820,000 879,604 875,827 3,777 Professional fees 197,875 197,875 203,078 (5,203) 1,466,765 1,567,730 1,556,850 10,880 Administration Salaries 781,260 700,295 684,437 15,858 Payroll taxes 52,712 52,712 51,946 766 Health insurance 85,147 85,147 78,158 6,989 Pension 68,904 68,904 53,062 15,842 Unemployment insurance 300 300 316 (16) Employee training and testing 10,150 10,150 5,708 4,442 Printing and duplicating 18,500 18,500 14,229 4,271 Dues and memberships 5,000 5,000 2,703 2,297 Telephone 25,000 25,000 22,524 2,476 Public relations 11,500 11,500 9,531 1,969 Travel 10,000 10,000 14,313 (4,313) Operating supplies 119,900 119,900 106,926 12,974 Equipment operations and maintenance 7,600 7,600 8,619 (1,019) Professional fees 55,000 55,000 59,083 (4,083) Other 16,500 16,500 19,183 (2,683) 1,267,473 1,186,508 1,130,738 55,770 (Continued) See independent auditor's report. 51 CITY OF EAST RIDGE, TENNESSEE SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL GENERAL FUND YEAR ENDED JUNE 30, 2025 (Continued) Variance Budget Amounts with Final Original Final Actual Budget City Council Salaries 40,800 40,800 40,800 - Payroll taxes 3,121 3,121 3,102 19 Health insurance 6,846 6,846 2,859 3,987 Employee training and testing 12,000 12,000 12,715 (715) Printing and duplicating 400 400 400 - Dues and memberships 850 850 150 700 Telephone 3,000 3,000 2,081 919 Council meeting 13,500 13,500 1,445 12,055 Travel 10,000 10,000 10,638 (638) Special events 25,000 25,000 14,475 10,525 Operating supplies 3,600 3,600 547 3,053 119,117 119,117 89,212 29,905 Municipal Court Salaries 206,040 206,040 204,031 2,009 Payroll taxes 15,022 15,022 15,414 (392) Health insurance 27,675 27,675 20,914 6,761 Employee training and testing 650 650 - 650 Pension 10,262 10,262 10,341 (79) Unemployment insurance 100 100 84 16 Printing and duplicating 1,000 1,000 1,143 (143) Subscriptions 175 175 - 175 Telephone 2,500 2,500 3,090 (590) Travel 500 500 682 (182) Operating supplies 74,650 74,650 51,659 22,991 Child restraint 15,000 15,000 29,290 (14,290) Litigation fees 60,000 60,000 61,880 (1,880) Other 16,500 16,500 14,289 2,211 430,074 430,074 412,817 17,257 Economic Development Professional services 50,000 50,000 38,563 11,437 50,000 50,000 38,563 11,437 City Hall Complex Utilities 40,500 40,500 38,005 2,495 Operating supplies 16,000 23,569 18,875 4,694 General purpose machinery and equipment - (7,431) 6,253 (13,684) 56,500 56,638 63,133 (6,495) (Continued) See independent auditor's report. 52 CITY OF EAST RIDGE, TENNESSEE SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL GENERAL FUND YEAR ENDED JUNE 30, 2025 (Continued) Variance Budget Amounts with Final Original Final Actual Budget Inspection Salaries 287,708 287,708 279,005 8,703 Payroll taxes 21,034 21,034 20,633 401 Health insurance 71,100 71,100 63,203 7,897 Pension 27,496 27,496 27,315 181 Unemployment insurance 336 336 168 168 Employee training and testing 4,250 4,250 3,405 845 Printing and duplicating 4,000 4,000 1,849 2,151 Dues and memberships 800 800 585 215 Telephone 6,250 6,250 5,768 482 Travel 3,000 3,000 100 2,900 Contract services 94,000 94,000 50,574 43,426 Operating supplies 36,500 36,500 32,244 4,256 Equipment operations and maintenance 17,300 17,300 12,942 4,358 Uniform 2,000 2,000 1,345 655 Other 87,625 87,625 78,894 8,731 663,399 663,399 578,030 85,369 City Garage Telephone 1,650 1,650 1,258 392 Utilities 5,800 5,800 6,779 (979) Equipment operations and maintenance 4,650 21,650 20,928 722 12,100 29,100 28,965 135 Building Maintenance Salaries 173,403 173,403 178,571 (5,168) Payroll taxes 12,898 12,898 13,367 (469) Health insurance 45,743 45,743 39,791 5,952 Employee education and training 2,000 2,000 - 2,000 Pension 16,861 16,861 17,708 (847) Unemployment insurance 280 280 115 165 Printing and duplicating 200 200 - 200 Telephone 4,000 4,000 4,104 (104) Utilities 9,500 9,500 7,349 2,151 Medical 100 100 - 100 Operating supplies 25,600 25,600 43,466 (17,866) Custodial services 8,000 8,000 - 8,000 Equipment operations and maintenance 4,000 4,000 9,032 (5,032) Building maintenance 40,000 38,000 22,757 15,243 (Continued) See independent auditor's report. 53 CITY OF EAST RIDGE, TENNESSEE SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL GENERAL FUND YEAR ENDED JUNE 30, 2025 (Continued) Variance Budget Amounts with Final Original Final Actual Budget Building Maintenance (Continued) Grounds maintenance 12,000 12,000 3,119 8,881 342,585 340,585 336,260 4,325 TOTAL GENERAL GOVERNMENT 4,408,013 4,443,151 4,234,568 208,583 DEPARTMENT OF PUBLIC SAFETY Police Salaries 858,699 828,699 708,468 120,231 Payroll taxes 57,199 57,199 50,831 6,368 Health insurance 168,281 118,281 117,676 605 Pension 90,888 90,888 69,861 21,027 Unemployment insurance 616 616 253 363 Employee training and testing 50,500 46,500 47,028 (528) Contract services 35,000 35,000 39,057 (4,057) Printing and duplicating 6,500 6,500 3,308 3,192 Dues and memberships 4,000 4,000 9,245 (5,245) Subscriptions 200 200 597 (397) Telephone 40,000 40,000 42,183 (2,183) Utilities 17,880 17,880 23,797 (5,917) Medical 6,400 3,400 3,195 205 Travel 35,500 35,500 39,166 (3,666) Operating supplies 50,600 46,600 46,244 356 Contracts with other governments 423,000 423,000 425,219 (2,219) Supplies and small equipment 212,600 262,600 290,542 (27,942) Equipment operations and maintenance 451,240 435,240 529,671 (94,431) Building maintenance 2,500 2,500 371 2,129 Uniforms 8,500 8,500 14,287 (5,787) Insurance 10,000 6,000 5,928 72 2,530,103 2,469,103 2,466,927 2,176 Criminal Investigation Salaries 654,867 674,867 676,929 (2,062) Payroll taxes 48,912 50,912 50,696 216 Health insurance 142,170 156,170 155,538 632 Pension 86,316 91,316 90,855 461 Unemployment insurance 560 560 280 280 Operating supplies 29,500 54,500 53,706 794 962,325 1,028,325 1,028,004 321 (Continued) See independent auditor's report. 54 CITY OF EAST RIDGE, TENNESSEE SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL GENERAL FUND YEAR ENDED JUNE 30, 2025 (Continued) Variance Budget Amounts with Final Original Final Actual Budget Patrol Salaries 2,381,097 2,471,097 2,402,965 68,132 Payroll taxes 170,938 170,938 178,406 (7,468) Health insurance 343,541 348,541 367,262 (18,721) Pension 293,596 293,596 311,299 (17,703) Unemployment insurance 1,929 1,929 1,204 725 Operating supplies 244,323 244,323 172,090 72,233 3,435,424 3,530,424 3,433,226 97,198 Fire Salaries 1,920,312 1,965,312 1,975,234 (9,922) Payroll taxes 132,174 132,174 147,125 (14,951) Health insurance 410,406 410,406 375,269 35,137 Pension 233,248 233,248 251,487 (18,239) Workers' compensation 1,288 1,288 972 316 Employee training and testing 23,000 23,000 6,362 16,638 Printing and duplicating 3,500 3,500 1,786 1,714 Dues and memberships 1,200 1,200 1,991 (791) Subscriptions 1,200 1,200 1,519 (319) Telephone 21,000 21,000 21,951 (951) Utilities 44,000 44,000 42,002 1,998 Medical 1,400 1,400 563 837 Travel 11,000 11,000 11,667 (667) Rent 25,700 25,700 25,137 563 Operating supplies 61,500 61,500 51,628 9,872 Contracts with other governments 330,097 330,097 219,589 110,508 Supplies and small equipment 34,000 34,000 25,872 8,128 Equipment operations and maintenance 101,000 1,101,000 1,072,131 28,869 Building maintenance 5,000 5,000 5,050 (50) Uniforms 63,000 63,000 54,155 8,845 Insurance 2,000 2,000 1,876 124 3,426,025 4,471,025 4,293,366 177,659 Animal Control Salaries 186,398 186,398 179,592 6,806 Payroll taxes 13,647 13,647 13,530 117 Health insurance 27,600 42,600 13,290 29,310 Pension 17,840 17,840 16,443 1,397 Contract services 2,500 2,500 2,582 (82) (Continued) See independent auditor's report. 55 CITY OF EAST RIDGE, TENNESSEE SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL GENERAL FUND YEAR ENDED JUNE 30, 2025 (Continued) Variance Budget Amounts with Final Original Final Actual Budget Animal Control (Continued) Workers' compensation 224 224 160 64 Employee training and testing 6,250 6,250 2,743 3,507 Printing and duplicating 1,000 1,000 1,065 (65) Dues and memberships 600 600 - 600 Telephone 2,200 2,200 3,173 (973) Utilities 18,000 18,000 33,009 (15,009) Medical 250 250 289 (39) Travel 3,600 3,600 51 3,549 Operating supplies 51,000 119,000 88,740 30,260 Equipment operations and maintenance 15,100 15,100 14,043 1,057 Building maintenance 2,500 2,500 3,470 (970) Uniforms 2,000 2,000 2,493 (493) Other 25,000 25,000 24,170 830 375,709 458,709 398,843 59,866 TOTAL DEPARTMENT OF PUBLIC SAFETY 10,729,586 11,957,586 11,620,366 337,220 DEPARTMENT OF PUBLIC WORKS Traffic Control and Street Markers Salaries $ 157,990 $ 157,990 $ 155,481 $ 2,509 Payroll taxes 11,440 11,440 11,396 44 Health insurance 51,296 51,296 51,424 (128) Pension 14,954 14,954 15,207 (253) Workers' compensation 168 168 84 84 Employee training and testing 2,750 2,750 40 2,710 Dues and memberships 750 750 560 190 Telephone 2,500 2,500 3,898 (1,398) Utilities 5,400 5,400 6,619 (1,219) Medical 250 250 - 250 Travel 1,000 1,000 - 1,000 Operating supplies 23,800 23,800 30,576 (6,776) Equipment operations and maintenance 13,700 13,700 7,178 6,522 Building maintenance 500 500 183 317 Uniforms 1,500 1,500 120 1,380 Other 2,100 2,100 10,264 (8,164) 290,098 290,098 293,030 (2,932) (Continued) See independent auditor's report. 56 CITY OF EAST RIDGE, TENNESSEE SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL GENERAL FUND YEAR ENDED JUNE 30, 2025 (Continued) Variance Budget Amounts with Final Original Final Actual Budget Streets Salaries 268,973 268,973 252,524 16,449 Payroll taxes 20,041 20,041 18,708 1,333 Health insurance 84,803 84,803 73,468 11,335 Pension 26,197 26,197 24,801 1,396 Workers' compensation 336 336 154 182 Employee training and testing 2,250 2,250 385 1,865 Dues and memberships - - 285 (285) Telephone 2,400 2,400 2,779 (379) Travel - - 178 (178) Utilities 8,100 8,100 8,127 (27) Medical 200 200 180 20 Professional and contract services 10,000 10,000 29,810 (19,810) Operating supplies 26,400 26,400 16,313 10,087 Equipment operations and maintenance 91,500 91,500 56,920 34,580 Building maintenance 3,000 3,000 4,191 (1,191) Uniforms 3,000 3,000 2,965 35 Damage claims 1,000 1,000 142 858 548,200 548,200 491,930 56,270 TOTAL DEPARTMENT OF PUBLIC WORKS 838,298 838,298 784,960 53,338 DEPARTMENT OF PUBLIC WELFARE Library Salaries 187,084 187,084 171,357 15,727 Payroll taxes 13,884 13,884 12,876 1,008 Health insurance 13,266 13,266 13,150 116 Pension 10,061 10,061 10,231 (170) Workers' compensation 280 280 186 94 Employee training and testing 500 500 190 310 Printing and duplicating 2,000 2,000 940 1,060 Subscriptions 1,900 1,900 1,920 (20) Telephone 5,000 5,000 4,257 743 Medical 250 250 - 250 Professional and contract services 10,000 10,000 8,199 1,801 Operating supplies 15,187 15,187 16,662 (1,475) Equipment/book operations and maintenance 36,994 36,994 32,072 4,922 Other 500 500 50 450 Building maintenance - - 41 (41) 296,906 296,906 272,131 24,775 (Continued) See independent auditor's report. 57 CITY OF EAST RIDGE, TENNESSEE SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL GENERAL FUND YEAR ENDED JUNE 30, 2025 (Continued) Variance Budget Amounts with Final Original Final Actual Budget Museum Telephone 200 400 362 38 Contract services 360 760 709 51 Machinery and maintenance - (100) 20 (120) 560 1,060 1,091 (31) Community Development Centers Transportation Assistance 10,000 15,000 11,266 3,734 TOTAL DEPARTMENT OF PUBLIC WELFARE 307,466 312,966 284,488 28,478 CULTURE AND RECREATION Arena Salaries 654,420 654,420 592,428 61,992 Payroll taxes 48,390 48,390 44,419 3,971 Health insurance 105,897 95,897 87,179 8,718 Pension 48,076 48,076 47,634 442 Workers' compensation 784 784 629 155 Employee training and testing 1,300 1,300 1,210 90 Printing and duplicating 700 700 - 700 Dues and subscriptions 1,500 1,500 315 1,185 Telephone 3,000 3,000 5,845 (2,845) Utilities 83,750 83,750 109,476 (25,726) Travel 1,000 1,000 390 610 Operating supplies 18,310 18,310 21,256 (2,946) Contracted services 21,000 21,000 52,852 (31,852) Equipment operations and maintenance 85,500 85,500 73,383 12,117 Building maintenance 2,000 2,000 2,888 (888) Grounds maintenance 88,450 88,450 93,913 (5,463) Uniforms 1,600 1,600 1,570 30 Medical 600 600 1,033 (433) Damage claims 2,000 2,000 1,243 757 Other 1,500 1,500 - 1,500 1,169,777 1,159,777 1,137,663 22,114 (Continued) See independent auditor's report. 58 CITY OF EAST RIDGE, TENNESSEE SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL GENERAL FUND YEAR ENDED JUNE 30, 2025 (Continued) Variance Budget Amounts with Final Original Final Actual Budget Maintenance of Recreational Facilities Salaries 103,411 103,411 113,283 (9,872) Payroll taxes 7,720 7,720 5,081 2,639 Health insurance 38,915 38,915 17,383 21,532 Pension 10,091 10,091 10,657 (566) Workers' compensation 112 112 84 28 Employee training and testing 500 500 - 500 Printing and duplicating 250 250 - 250 Dues and memberships 500 500 - 500 Telephone 4,000 4,000 3,776 224 Utilities 87,000 97,000 112,846 (15,846) Operating supplies 25,800 25,800 28,368 (2,568) Contracted services 24,000 24,000 24,629 (629) Equipment operations and maintenance 17,200 17,200 13,030 4,170 Grounds maintenance 2,000 2,000 4,205 (2,205) Travel 250 250 15 235 Park promotions 750 750 23 727 Uniforms 1,000 1,000 1,250 (250) Medical 150 150 - 150 Other 1,000 1,000 - 1,000 324,649 334,649 334,630 19 Community Center Salaries 153,061 153,061 132,588 20,473 Payroll taxes 11,403 11,403 9,960 1,443 Health insurance 19,583 19,583 19,847 (264) Pension 8,259 8,259 8,976 (717) Workers' compensation 392 392 168 224 Employee training and testing 800 800 - 800 Printing and duplicating 200 200 - 200 Dues and memberships 350 350 487 (137) Telephone 1,000 1,000 3,328 (2,328) Utilities 39,500 39,500 33,062 6,438 Medical 500 500 29 471 Operating supplies 36,500 36,500 37,683 (1,183) Contracted services 6,000 6,000 7,783 (1,783) Equipment operations and maintenance 15,000 15,000 1,094 13,906 Building maintenance 6,000 6,000 3,926 2,074 Liability insurance - - 1,363 (1,363) (Continued) See independent auditor's report. 59 CITY OF EAST RIDGE, TENNESSEE SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL GENERAL FUND YEAR ENDED JUNE 30, 2025 (Continued) Variance Budget Amounts with Final Original Final Actual Budget Community Center (Continued) Grounds maintenance 3,000 3,000 5,320 (2,320) Travel 500 500 - 500 Uniforms 500 500 1,086 (586) 302,548 302,548 266,700 35,848 McBrien School Utilities 800 8,800 5,148 3,652 Contracted services 400 400 360 40 Operating supplies - - 364 (364) Building maintenance - - 123 (123) 1,200 9,200 5,995 3,205 Recreational Sports Contracted services 19,500 19,500 12,019 7,481 Printing and duplicating 250 250 - 250 Equipment, supplies and uniforms 124,650 149,650 136,078 13,572 Tournament fees 19,050 17,050 15,926 1,124 Officials, referees and players fees 160,000 185,000 173,170 11,830 Insurance 28,000 31,000 32,242 (1,242) 351,450 402,450 369,435 33,015 TOTAL CULTURE AND RECREATION 2,149,624 2,208,624 2,114,423 94,201 CAPITAL OUTLAY General purpose machinery and equipment 20,023 20,023 9,495 10,528 TOTAL CAPITAL OUTLAY 20,023 20,023 9,495 10,528 TOTAL EXPENDITURES 18,453,010 19,780,648 19,048,300 732,348 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES 8,802,587 7,714,517 7,771,898 57,381 OTHER FINANCING SOURCES (USES) Transfers to other funds (8,796,187) (9,660,511) (8,586,157) 1,074,354 Proceeds from sale of assets 10,000 28,000 22,099 (5,901) Total other financing sources (uses) (8,786,187) (9,632,511) (8,564,058) 1,068,453 EXCESS (DEFICIENCY) OF REVENUES AND OTHER SOURCES OVER EXPENDITURES AND OTHER USES $ 16,400 $ (1,917,994) (792,160) $ 1,125,834 FUND BALANCE Beginning 14,500,939 Ending $ 13,708,779 See independent auditor's report. 60 CITY OF EAST RIDGE, TENNESSEE SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL DRUG INVESTIGATION FUND YEAR ENDED JUNE 30, 2025 Variance Budget Amounts with Final Original Final Actual Budget REVENUES Intergovernmental $ 45,000 $ 45,000 $ 31,919 $ (13,081) Drug related fines and forfeitures 20,000 20,000 45,737 25,737 Sale of confiscated property - - 5,276 5,276 Total revenues 65,000 65,000 82,932 17,932 EXPENDITURES Current Employee training and testing 1,000 1,000 - 1,000 Office supplies 26,500 26,500 - 26,500 Uniforms 22,000 22,000 23,211 (1,211) Travel 500 500 - 500 Equipment operations and maintenance 154,402 154,402 71,777 82,625 TOTAL EXPENDITURES 204,402 204,402 94,988 109,414 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES $ (139,402) $ (139,402) (12,056) $ 127,346 FUND BALANCE Beginning 251,848 Ending $ 239,792 See independent auditor's report. 61 CITY OF EAST RIDGE, TENNESSEE SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL STATE STREET AID FUND YEAR ENDED JUNE 30, 2025 Variance Budget Amounts with Final Original Final Actual Budget REVENUES Intergovernmental $ 1,005,000 $ 1,005,000 $ 794,606 $ (210,394) Interest 200 200 41 (159) Total revenues 1,005,200 1,005,200 794,647 (210,553) EXPENDITURES Current Utilities 225,000 225,000 242,437 (17,437) Professional services 60,000 60,000 6,802 53,198 Road paving and maintenance 1,014,238 1,014,238 9,747 1,004,491 Other - - 20 (20) TOTAL EXPENDITURES 1,299,238 1,299,238 259,006 1,040,232 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES $ (294,038) $ (294,038) 535,641 $ 829,679 FUND BALANCE Beginning 351,219 Ending $ 886,860 See independent auditor's report. 62 CITY OF EAST RIDGE, TENNESSEE SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL ASSET FORFEITURE FUND YEAR ENDED JUNE 30, 2025 Variance Budget Amounts with Final Original Final Actual Budget REVENUES Miscellaneous $ - $ - $ 22,107 $ 22,107 Total revenues - - 22,107 22,107 EXPENDITURES Public safety 20,000 20,000 - 20,000 Total expenditures 20,000 20,000 - 20,000 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES $ (20,000) $ (20,000) 22,107 $ 42,107 FUND BALANCE Beginning - Ending $ 22,107 See independent auditor's report. 63 CITY OF EAST RIDGE, TENNESSEE SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL GRANT FUND YEAR ENDED JUNE 30, 2025 Variance Budget Amounts with Final Original Final Actual Budget REVENUES Intergovernmental $ 22,425 $ 25,625 $ 18,409 $ (7,216) Interest - - 1 1 Total revenues 22,425 25,625 18,410 (7,215) EXPENDITURES Current Public works 19,000 42,200 26,791 15,409 TOTAL EXPENDITURES 19,000 42,200 26,791 15,409 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES $ 3,425 $ (16,575) (8,381) $ 8,194 FUND BALANCE Beginning 19,143 Ending $ 10,762 See independent auditor's report. 64 CITY OF EAST RIDGE, TENNESSEE SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL SOLID WASTE COLLECTION FUND YEAR ENDED JUNE 30, 2025 Variance Budget Amounts with Final Original Final Actual Budget REVENUES Charges for services $ 1,597,300 $ 1,597,300 $ 1,580,771 $ (16,529) Total revenues 1,597,300 1,597,300 1,580,771 (16,529) EXPENDITURES Current Salaries 577,649 577,649 578,439 (790) Payroll taxes 42,783 42,783 42,150 633 Health insurance 150,079 150,079 149,161 918 Pension 55,925 55,925 57,358 (1,433) Unemployment insurance 500 500 344 156 Employee training and testing 1,100 1,100 575 525 Printing and duplicating 400 400 1,339 (939) Dues and memberships 260 260 285 (25) Utilities 12,000 12,600 8,717 3,883 Contract services 342,500 422,500 423,446 (946) Operating supplies 383,400 552,800 451,952 100,848 Building and equipment maintenance 75,000 75,000 1,820 73,180 Total expenditures 1,641,596 1,891,596 1,715,586 176,010 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES (44,296) (294,296) (134,815) 159,481 OTHER FINANCING SOURCES (USES) Transfers from other funds - - 250,000 250,000 EXCESS (DEFICIENCY) OF REVENUES AND OTHER SOURCES OVER EXPENDITURES AND OTHER USES $ (44,296) $ (294,296) 115,185 $ 409,481 FUND BALANCE Beginning 18,555 Ending $ 133,740 See independent auditor's report. 65 CITY OF EAST RIDGE, TENNESSEE SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE - BUDGET AND ACTUAL ECONOMIC DEVELOPMENT FUND YEAR ENDED JUNE 30, 2025 Variance Budget Amounts with Final Original Final Actual Budget REVENUES Miscellaneous $ - $ - $ - $ - Total revenues - - - - EXPENDITURES Public safety - - - - Total expenditures - - - - EXCESS REVENUES OVER EXPENDITURES - - - - OTHER FINANCING SOURCES (USES) Transfers from other funds 8,779,193 8,779,193 7,476,086 (1,303,107) Transfers to other funds (8,174,869) (8,779,193) (7,476,086) 1,303,107 Total other financing sources (uses) 604,324 - - - EXCESS (DEFICIENCY) OF REVENUES AND OTHER SOURCES OVER EXPENDITURES AND OTHER USES $ 604,324 $ - - $ - FUND BALANCE Beginning 3,348 Ending $ 3,348 See independent auditor's report. 66 CITY OF EAST RIDGE, TENNESSEE SCHEDULE OF PROPERTY TAX RATES AND ASSESSMENTS JUNE 30, 2025 Year Tax Rate Assessment Levy 2015 1.4227 $ 330,771,069 $ 4,705,880 2016 1.4227 338,446,967 4,815,085 2017 1.3382 369,012,134 4,938,120 2018 1.3382 351,143,775 4,699,006 2019 1.3382 352,770,886 4,720,780 2020 1.3381 385,410,209 5,157,174 2021 1.2500 521,102,155 6,513,777 2022 1.2500 505,887,120 6,323,589 2023 1.2500 541,543,600 6,769,295 2024 1.2500 527,036,960 6,587,962 2025 1.2500 553,911,108 6,923,889 See independent auditor's report. 67 CITY OF EAST RIDGE, TENNESSEE SCHEDULE OF CHANGES IN PROPERTY TAX RECEIVABLE JUNE 30, 2025 Property Property Tax Tax Receivable Anticipated Abatements Receivable Tax Balance Property Property and Tax Balance Year June 30, 2024 Tax Levied Tax Levy Adjustments Collections June 30, 2025 2025 $ - $ - $ 6,923,889 $ - $ - $ 6,923,889 2024 6,587,962 - - (32,108) (6,298,592) 257,262 2023 338,523 - - - (219,496) 119,027 2022 134,431 - - - - 134,431 2021 45,814 - - - - 45,814 2020 12,213 - - - - 12,213 2019 10,987 - - - - 10,987 2018 1,053 - - 7,687 - 8,740 2017 8,245 - - - (153) 8,092 2016 6,826 - - - (20) 6,806 2015 9,568 - - - (32) 9,536 2014 9,974 - - - (9,974) - $ 7,165,596 $ - $ 6,923,889 $ (24,421) $ (6,528,267) $ 7,536,797 Note: All uncollected delinquent taxes have been filed in accordance with applicable laws. See independent auditor's report. 68 CITY OF EAST RIDGE, TENNESSEE SCHEDULE OF DEBT SERVICE REQUIREMENTS GOVERNMENTAL ACTIVITIES JUNE 30, 2025 General Obligation Fire Department Bonds TML Bond Fund General Obligation Refunding Capital Outlay Note TML Bond Fund General Obligation Bonds, Financed Purchase, Series 2015 Series 2020 Bonds, Series 2021 Series 2021 Series 2022 Series 2024 Motorola Solutions 2024 Total Year Ending June 30, Principal Interest Principal Interest Principal Interest Principal Interest Principal Interest Principal Interest Principal Interest Principal Interest 2026 $ 80,000 $ 129,750 $ 111,000 $ 33,744 $ 500,000 $ 141,213 $ 100,000 $ 5,874 $ 365,000 $ 320,022 $ 260,000 $ 386,250 $ 35,261 $ 5,558 $ 1,451,261 $ 1,022,411 2027 80,000 125,750 114,000 30,886 500,000 126,213 101,000 4,216 379,000 305,604 270,000 373,250 37,024 3,795 1,481,024 969,714 2028 85,000 121,750 116,000 27,965 505,000 111,213 102,000 2,541 394,000 290,634 285,000 359,750 38,875 1,945 1,525,875 915,798 2029 90,000 117,500 119,000 24,981 495,000 96,063 103,000 850 410,000 275,071 300,000 345,500 - - 1,517,000 859,965 2030 95,000 113,000 122,000 21,920 445,000 76,263 - - 426,000 258,876 315,000 330,500 - - 1,403,000 800,559 2031 100,000 108,250 125,000 18,783 445,000 67,363 - - 443,000 242,049 330,000 314,750 - - 1,443,000 751,195 2032 105,000 103,250 129,000 15,558 445,000 58,463 - - 460,000 224,550 345,000 298,250 - - 1,484,000 700,071 2033 110,000 98,000 132,000 12,243 450,000 49,563 - - 478,000 206,380 365,000 281,000 - - 1,535,000 647,186 2034 115,000 92,500 135,000 8,852 450,000 40,563 - - 497,000 187,499 385,000 262,750 - - 1,582,000 592,164 2035 120,000 86,750 139,000 5,372 455,000 31,563 - - 517,000 167,868 400,000 243,500 - - 1,631,000 535,053 2036 130,000 80,750 142,000 1,803 395,000 23,600 - - 537,000 147,446 420,000 178,800 - - 1,624,000 432,399 2037 135,000 74,250 - - 425,000 16,688 - - 559,000 126,235 440,000 162,000 - - 1,559,000 379,173 2038 140,000 67,500 - - 380,000 9,250 - - 581,000 104,154 455,000 144,400 - - 1,556,000 325,304 2039 150,000 60,500 - - 130,000 2,593 - - 603,000 81,205 475,000 126,200 - - 1,358,000 270,498 2040 155,000 53,000 - - - - - - 627,000 57,386 495,000 107,200 - - 1,277,000 217,586 2041 165,000 45,250 - - - - - - 652,000 32,620 515,000 87,400 - - 1,332,000 165,270 2042 170,000 37,000 - - - - - - 173,819 6,866 535,000 66,800 - - 878,819 110,666 2043 180,000 28,500 - - - - - - - - 555,000 45,400 - - 735,000 73,900 2044 190,000 19,500 - - - - - - - - 580,000 23,925 - - 770,000 43,425 2045 200,000 10,000 - - - - - - - - - - - - 200,000 10,000 Total $ 2,595,000 $ 1,572,750 $ 1,384,000 $ 202,107 $ 6,020,000 $ 850,611 $ 406,000 $ 13,481 $ 8,101,819 $ 3,034,466 $ 7,725,000 $ 4,137,625 $ 111,160 $ 11,298 $ 26,342,979 $ 9,822,338 See independent auditor's report. 69 CITY OF EAST RIDGE, TENNESSEE SCHEDULE OF CHANGES IN LONG-TERM DEBT BY INDIVIDUAL ISSUE JUNE 30, 2025 Original Issued Paid and/or Amount of Interest Date of Final Maturity Outstanding During Matured During Refunded Outstanding Description of Indebtedness Issue Rate Issue Date 7/1/2024 Period Period During Period 6/30/2025 BONDS PAYABLE Payable through TML Bond Fund General Obligation, Series 2015 $ 3,085,000 5.00% 9/1/2015 3/1/2045 $ 2,670,000 $ - $ 75,000 $ - $ 2,595,000 General Obligation Refunding Bonds, Series 2021 8,495,000 1.75 - 4.00% 6/15/2021 6/1/2039 6,545,000 - 525,000 - 6,020,000 General Obligation Bonds, Series 2024 8,000,000 4.00 - 5.00% 6/28/2024 6/1/2044 8,000,000 - 275,000 - 7,725,000 Total bonds payable through TML bond fund $ 19,580,000 $ 17,215,000 $ - $ 875,000 $ - $ 16,340,000 NOTES PAYABLE Payable through TML Bond Fund TML Bond, Series 2020 $ 1,800,000 2.54% 11/10/2020 11/1/2035 $ 1,492,000 $ - $ 108,000 $ - $ 1,384,000 Fire Department Capital Outlay Note, Series 2021 696,079 1.65% 12/14/2021 12/1/2028 504,000 - 98,000 - 406,000 TML Bond, Series 2022 10,000,000 3.95% 10/14/2022 9/1/2042 6,564,827 1,887,992 351,000 - 8,101,819 Total notes payable through debt service fund $ 12,684,616 $ 5,803,132 $ 3,415,417 $ 512,980 $ - $ 9,891,819 FINANCED PURCHASES Payable through Capital Projects Fund Motorola Solutions Financed Purchase $ 188,537 5.00% 2/8/2024 2/8/2028 $ 188,537 $ - $ 77,377 $ - $ 111,160 Total financed purchases through capital projects fund $ 188,537 $ 188,537 $ - $ 77,377 $ - $ 111,160 See independent auditor's report. 70 CITY OF EAST RIDGE, TENNESSEE SCHEDULE OF CHANGES IN LEASE OBLIGATIONS JUNE 30, 2025 Original Issued Paid and/or Amount of Interest Date of Maturity Outstanding During Matured During Outstanding Description of Indebtedness Issue Rate Issue Date 7/1/2024 Period Period Remeasurements 6/30/2025 LEASES PAYABLE Axon taser lease $ 250,849 3.30% 8/1/2022 8/31/2027 $ 150,400 $ - $ 48,491 $ - $ 101,909 Total leases payable $ 250,849 $ 150,400 $ - $ 48,491 $ - $ 101,909 - governmental activities See independent auditor's report. 71 CITY OF EAST RIDGE, TENNESSEE SCHEDULE OF LEASE OBLIGATIONS, PRINCIPAL, AND INTEREST REQUIREMENTS JUNE 30, 2025 Year Ending June 30, Principal Interest Total 2026 $ 50,115 $ 3,414 $ 53,529 2027 51,794 1,735 53,529 Total $ 101,909 $ 5,149 $ 107,058 See independent auditor's report. 72 COMPLIANCE SECTION CITY OF EAST RIDGE, TENNESSEE SCHEDULE OF EXPENDITURES OF FEDERAL AND STATE AWARDS YEAR ENDED JUNE 30, 2025 Federal Pass-through Federal Agency/Pass-through Agency/ Assistance Entity Identifying State Grantor Program or Cluster Title Listing Number Number Expenditures FEDERAL AWARDS U.S. Department of Treasury Passed through TN Department of Revenue COVID-19 American Rescue Plan Act (ARPA) 21.027 N/A $ 969,251 Total U.S. Department of Treasury 969,251 Federal Bureau of Justice Bulletproof Vest Program 16.607 N/A 14,574 Total Federal Bureau of Justice 14,574 TOTAL FEDERAL AWARDS $ 983,825 STATE AWARDS Contract Number Tennessee Department of Transportation Transportation Multimodal Access Grant N/A 33LPLM-F3-213 $ 390,666 390,666 Tennessee Department of Environment and Conservation FY23 Local Parks and Recreation Fund Grant N/A N/A 170,380 170,380 Tennessee Department of Safety and Homeland Security FY24 Statewide School Resource Officer Endowment Grant N/A N/A 138,343 FY25 THSO High Visibility Grant N/A N/A 8,840 FY25 Statewide School Resource Officer Endowment Grant N/A N/A 300,000 447,183 TOTAL STATE AWARDS $ 1,008,229 TOTAL FEDERAL AND STATE AWARDS $ 1,992,054 See independent auditor's report. 73 CITY OF EAST RIDGE, TENNESSEE NOTES TO THE SCHEDULE OF EXPENDITURES OF FEDERAL AND STATE AWARDS JUNE 30, 2025 NOTE 1 – BASIS OF PRESENTATION The accompanying Schedule of Expenditures of Federal and State Awards (the Schedule) includes the federal and state grant activity of the City and is presented on the modified accrual basis of accounting. Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in the preparation of, the basic financial statements. NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Expenditures reported on the Schedule are reported on the modified accrual basis of accounting. Such expenditures are recognized following the cost principles contained in the Uniform Guidance for all awards with the exception of assistance listing number 21.027, which follow criteria determined by the Department of Treasury for allowability of costs. Under these principles, certain types of expenditures are not allowable or are limited as to reimbursement. NOTE 3 – INDIRECT COST RATE The City has elected not to use the 10-percent de minimis indirect cost rate allowed under the Uniform Guidance. NOTE 4 – SUBRECIPIENTS Of the federal expenditures presented in the Schedule, the City has not provided any federal awards to subrecipients. 74 INDEPENDENT AUDITOR’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS To the Mayor and City Council City of East Ridge, Tennessee East Ridge, Tennessee We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, the financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of the City as of and for the year ended June 30, 2025, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements, and have issued our report thereon dated February 27, 2026. Report on Internal Control over Financial Reporting In planning and performing our audit of the financial statements, we considered the City’s internal control over financial reporting (internal control) as a basis for determining the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses or significant deficiencies may exist that have not been identified. We identified certain deficiencies in internal control, described in the accompanying schedule of findings and questioned costs as items 2025- 001 and 2025-002 that we considered to be significant deficiencies. 1200 Market Street, Chattanooga, TN 37402 | T 423.756.7771 | F 423.265.8125 AN INDEPENDENT MEMBER OF THE BDO ALLIANCE USA Report on Compliance and Other Matters As part of obtaining reasonable assurance about whether the City’s financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. City of East Ridge’s Response to Findings Government Auditing Standards requires the auditor to perform limited procedures on the City’s responses to the findings identified in our audit and described in the accompanying schedule of findings and questioned costs. The City’s responses were not subjected to the other auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on the responses. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Cleveland, Tennessee February 27, 2026 76 INDEPENDENT AUDITOR’S REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM AND REPORT ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH THE UNIFORM GUIDANCE To the Mayor and City Council City of East Ridge, Tennessee East Ridge, Tennessee Report on Compliance for Each Major Federal Program Opinion on Each Major Federal Program We have audited the City’s compliance with the types of compliance requirements identified as subject to audit in the OMB Compliance Supplement that could have a direct and material effect on each of the City’s major federal programs for the year ended June 30, 2025. The City’s major federal programs are identified in the summary of auditor’s results section of the accompanying schedule of findings and questioned costs. In our opinion, the City complied, in all material respects, with the compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30, 2025. Basis for Opinion on Each Major Federal Program We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America (GAAS); the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States (Government Auditing Standards); and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Our responsibilities under those standards and the Uniform Guidance are further described in the Auditor’s Responsibilities for the Audit of Compliance section of our report. We are required to be independent of the City and to meet our other ethical responsibilities, in accordance with 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 opinion on compliance for each major federal program. Our audit does not provide a legal determination of the City’s compliance with the compliance requirements referred to above. 1200 Market Street, Chattanooga, TN 37402 | T 423.756.7771 | F 423.265.8125 AN INDEPENDENT MEMBER OF THE BDO ALLIANCE USA Responsibilities of Management for Compliance Management is responsible for compliance with the requirements referred to above and for the design, implementation, and maintenance of effective internal control over compliance with the requirements of laws, statutes, regulations, rules, and provisions of contracts or grant agreements applicable to the City’s federal programs. Auditor’s Responsibilities for the Audit of Compliance Our objectives are to obtain reasonable assurance about whether material noncompliance with the compliance requirements referred to above occurred, whether due to fraud or error, and express an opinion on the City’s compliance based on our audit. 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, Government Auditing Standards, and the Uniform Guidance will always detect material noncompliance when it exists. The risk of not detecting material noncompliance resulting from fraud is higher than for that resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Noncompliance with the compliance requirements referred to above is considered material if there is a substantial likelihood that, individually or in the aggregate, it would influence the judgment made by a reasonable user of the report on compliance about the City’s compliance with the requirements of each major federal program as a whole. In performing an audit in accordance with GAAS, Government Auditing Standards, and the Uniform Guidance, we: • Exercise professional judgment and maintain professional skepticism throughout the audit. • Identify and assess the risks of material noncompliance, 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 City’s compliance with the compliance requirements referred to above and performing such other procedures as we considered necessary in the circumstances. • Obtain an understanding of the City’s internal control over compliance relevant to the audit in order to design audit procedures that are appropriate in the circumstances and to test and report on internal control over compliance in accordance with the Uniform Guidance but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control over compliance. Accordingly, no such opinion is expressed. We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and any significant deficiencies and material weaknesses in internal control over compliance that we identified during the audit. Report on Internal Control Over Compliance A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. 78 Our consideration of internal control over compliance was for the limited purpose described in the Auditor’s Responsibilities for the Audit of Compliance section above and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies in internal control over compliance. Given these limitations, during our audit we did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above. However, material weaknesses or significant deficiencies in internal control over compliance may exist that were not identified. Our audit was not designed for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, no such opinion is expressed. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose. Cleveland, Tennessee February 27, 2026 79 CITY OF EAST RIDGE, TENNESSEE SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2025 SECTION 1 – SUMMARY OF AUDITOR’S RESULTS Financial Statements Type of auditor’s report issued: Unmodified Internal control over financial reporting: • Material weaknesses identified: ___yes x no • Significant deficiencies identified that are not considered to be material weaknesses? x yes ___none reported Noncompliance material to financial statements noted? ___yes x no Federal Awards Internal control over major programs: • Material weaknesses identified: ___yes x no • Significant deficiencies identified that are not considered to be material weaknesses? ___yes x none reported Type of auditor’s report issued on compliance for major programs: Unmodified Any audit findings disclosed under the Uniform Guidance? ___yes x no Identification of major programs: Assistance Listing Number Name of Federal Program or Cluster U.S. Department of Treasury 21.027 American Rescue Plan Act Dollar threshold used to distinguish between Type A and Type B programs: $ 750,000 Auditee qualified as low-risk auditee? ___yes x no 80 CITY OF EAST RIDGE, TENNESSEE SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2025 SECTION II - FINANCIAL STATEMENT FINDINGS Financial Statement Findings 2025-001: Preparation of Financial Statements and Schedule of Expenditures of Federal and State Awards Type of Finding: Significant Deficiency in Internal Control over Financial Reporting Criteria: Accounting standards dictate that management is responsible for preparation of the financial statements. An audit of the financial statements of an organization requires the evaluation of the internal control system's design of controls in generating and overseeing of the financial statements to be audited. The organization must have the ability to prepare and evaluate the financial statements' format, content, and disclosures in accordance with generally accepted accounting principles and recognize any material items missing in the financial statements through the organization's control system. This is true whether the organization prepares the financial statements or not. These controls can be established or achieved by use of a third-party organization or internally, but external auditors are never considered a control element. Condition: The City currently does not prepare financial statements under generally accepted accounting principles. The external auditors prepare the statements and disclosures, and management approves and takes responsibility for the statements after they are prepared. Context: During the year under audit, we noted that there were account balances that did not agree to supporting documentation. As a result, significant audit adjustments had to be made to correct the balances. These instances would have been discovered and corrected prior to the audit had a proper review system been followed. Cause: The City believes its current reporting meets all of the City's internal needs. While management knows their responsibility for understanding and presenting the annual financial statements, they do not believe it is currently cost beneficial to design and/or strengthen controls over the accounting department’s financial reporting process. Effect: The City does not have proper controls over financial statements preparation. Repeat Finding: Yes Recommendation: We recommend the City continue to monitor the need, costs, and benefits of developing a control structure to oversee the preparation of financial statements in accordance with generally accepted accounting principles. Views of responsible officials and planned corrective actions: There is no disagreement with the audit finding. Management has addressed their corrective action plan in a separately issued letter. (Continued) 81 CITY OF EAST RIDGE, TENNESSEE SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED JUNE 30, 2025 2025-002: Reconciliation of Account Balances Type of Finding: Significant Deficiency in Internal Control over Financial Reporting Criteria: Management is responsible for ensuring the accuracy of account balances. Condition: The City does not review all account balances for items that need to be removed or adjusted as of year-end. Context: During the year under audit, we noted that there were account balances that did not agree to supporting documentation. As a result, significant audit adjustments had to be made to correct the balances. These instances would have been discovered and corrected prior to the audit had a proper review system been followed. Cause: The City does not have proper controls in place to ensure all accounts are reconciled and accurately recorded as of year-end. Effect: Account balances can be misstated as of year-end. Repeat Finding: Yes Recommendation: We recommend that the City reviews account balances at year-end to ensure that the balances agree to the supporting schedules and that they are free of misstatements. Views of responsible officials and planned corrective actions: There is no disagreement with the audit finding. Management has addressed their corrective action plan in a separately issued letter. SECTION III - FINDINGS AND QUESTIONED COSTS – MAJOR FEDERAL PROGRAMS None noted. 82 CITY OF EAST RIDGE, TENNESSEE SCHEDULE OF PRIOR YEAR FINDINGS YEAR ENDED JUNE 30, 2025 See attached summary schedule of prior audit findings prepared by the City. 83 City of East Ridge 151 7 Tombras Avenue East Ridge, Tennessee 3 7 412 (423)867-7711 • www.eastridgetn.gov Management's Corrective Action Plan The City of East Ridge, Tennessee (the City) respectfully submits the following corrective action plan for the year ended June 30, 2025. Independent public accounting firm: Henderson, Hutcherson & McCullough, PLLC 266 Inman Street E Cleveland, Tennessee 37311 Responsible officials for corrective action for all findings noted below: Diane Qualls, Finance Director Audit Period: July 1, 2024 - June 30, 2025 2025-001: Preparation of Financial Statements and Schedule of Expenditures of Federal and State Awards: Recommendation: We recommend the City continue to monitor the need, costs, and benefits of developing a control structure to oversee the preparation of financial statements in accordance with generally accepted accounting principles. Action Taken: The City feels we meet our internal needs, and it is not cost beneficial to hire a third party to prepare the financial statements. We will continue to strive to be more involved and take more ownership of this process as our time and resources allow. This plan will be implemented as of June 30, 2026. 2025-002: Reconciliation of Account Balances Recommendation: We recommend that the City reviews account balances at year-end to ensure that the balances agree to the supporting schedules and that they are free of misstatements. Action Taken: The City has re-evaluated our internal controls related to reconciling year-end account balances. The updated controls will be implemented as of June 30, 2026. Brian Williams David Tyler Jacky Cagle Andrea Witt Jeff Ezell Mike Williams Mayor Vice Mayor Counci/member Councilmember Councilmember Interim City Manager City of East Ridge 1517 Tombras Avenue East Ridge, Tennessee 37412 (423)867-77 I I • www.eastridgetn.gov Summary of Prior Year Findings The City of East Ridge, Tennessee (the City) respectfully submits the following summary of prior year findings for the year ended June 30, 2024. Independent public accounting firm: Henderson, Hutcherson & McCullough, PLLC 266 Inman Street E Cleveland, Tennessee 3 7311 Responsible officials for all findings noted below: Diane Qualls, Finance Director Audit Period: July 1, 2024 - June 30, 2025 Finding 2024-001 (Initial finding 2023-001) Condition: The City currently does not prepare financial statements under generally accepted accounting principles. The external auditors prepare the statements and disclosures, and management approves and takes responsibility for the statements after they are prepared. Current Status: Current year finding. Finding 2024-002 (Initial finding 2023-002) Condition: The City does not review all account balances for items that need to be removed or adjusted as of year-end. Current Status: Current year finding. Diane Qualls, Financl Director Brian Williams David Tyler Jacky Cagle Andrea Witt Jeff Ezell Mike Williams Mayor Vice Mayor Councilmember Counciimember Councilmember Interim City Manager