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9. RISK MANAGEMENT The Town is exposed to various risks of loss related to damage and destruction of assets, vehicle liability, injuries to employees, health insurance, workers’ compensation, and unemployment insurance. The Town purchases commercial insurance to cover such potential risks. There have not been any settlements which have exceeded commercial insurance coverage in the past three fiscal years. The Town purchases insurance for: general property and liability, municipal crime, automobile, public officials liability, law enforcement liability, contractor’s protective liability, excess catastrophe liability, inland marine, ground pollution relating to fuel storage tanks, and cyber coverage. General property is insured at a full replacement cost agreed upon at $14,434,575. General liability insurance is limited to $1 million per occurrence, with a general aggregate $3 million limit. General liability had an add on rider for Builder’s Risk at the North Boston shelter valued at $450,000. Municipal crime coverage ranges from $25,000 to $200,000 per occurrence. Automobile insurance is limited to $1 million per accident. Public Officials Liability, Law Enforcement Liability, and Contractor’s Protective Liability are all limited to $1 million per occurrence and $2 million in the aggregate. Excess liability is limited to $1 million per occurrence and $3 million in the aggregate. Inland marine has various limits for each individually scheduled property and equipment with the largest limit being $905,100. Fuel storage tanks have a ground pollution liability of $1 million. A separate cyber policy was added in 2024 with various limits ranging from $50,000 to $1 million per incident. 10. LEASES Lease Receivable—The Town is a lessor for a noncancellable lease of buildings. The Town recognizes a lease receivable and a deferred inflow of resources in the government-wide and governmental fund financial statements. At the commencement of a lease, the Town initially measures the lease receivable at the present value of payments expected to be received during the lease term. Subsequently, the lease receivable is reduced by the principal portion of lease payments received. The deferred inflow of resources is initially measured as the initial amount of the lease receivable, adjusted for lease payments received at or before the lease commencement date. Subsequently, the deferred inflow of resources is recognized as revenue over the life of the lease term. Key estimates and judgments related to leases include how the Town determines (1) the discount rate it uses to discount the expected lease receipts to present value, (2) lease term, and (3) lease receipts. • The Town uses its estimated incremental borrowing rate as the discount rate for leases. • The lease terms include the noncancellable period of the lease. • Lease receipts included in the measurement of the lease receivable is composed of fixed payments from the lessee. The Town monitors changes in circumstances that would require a remeasurement of its leases and will remeasure the lease receivable and deferred inflows of resources if certain changes occur that are expected to significantly affect the amount of the lease receivable. As the lessor, the Town recognizes a long-term lease receivable and deferred inflow of resources for the use of the Trooper Barracks Building by the state police. The lease agreement runs for 20 years starting December 1, 2009 and ending November 30, 2029 with a five year renewal option beginning on December 1, 2029 and ending November 30, 2034. The agreement states that the remaining monthly payments will be $8,247 per month through November 30, 2029, and then if the renewal is - 104 -