Annual Comprehensive Financial Reports ACFR-2008

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City of Muskegon,
Michigan



Comprehensive Annual
Financial Report




For The Year Ended December 31, 2008


                    www.shorelinecity.com
                                           CITY OF MUSKEGON,
                                                MICHIGAN




                                         COMPREHENSIVE
                                     ANNUAL FINANCIAL REPORT
                                       FOR THE YEAR ENDED
                                        DECEMBER 31, 2008




                                                 Prepared By

                                    FINANCIAL SERVICES DIVISION

                                                Timothy Paul
                                             Director of Finance


        Elizabeth Lewis                                                    Derrick Smith
        Assistant Finance Director                                         City Treasurer

        Kenneth Grant                                                      James Maurer
        Income Tax Administrator                                           Information Systems Director

        Kathy Coleman                                                      Matt Lee
        Accounts Payable                                                   Payroll




Cover Photo: Cormorant resting at Heritage Landing in Downtown Muskegon (Courtesy of Donna Mayol)


                                             www.shorelinecity.com
                                                               City of Muskegon

                                                         TABLE OF CONTENTS


INTRODUCTORY SECTION

Letter of Transmittal .................................................................................................................................. 5
Certificate of Achievement for Excellence in Financial Reporting ......................................................... 12
Organization Chart ................................................................................................................................... 13
List of Principal Officials......................................................................................................................... 14


FINANCIAL SECTION

Independent Auditors’ Report.................................................................................................................. 17
Management’s Discussion and Analysis.................................................................................................. 19
Basic Financial Statements
 Government-wide Financial Statements
   Statement of Net Assets (Deficits) .................................................................................................... 32
   Statement of Activities ...................................................................................................................... 33
 Fund Financial Statements
   Governmental Funds
      Balance Sheet ................................................................................................................................. 34
      Reconciliation of the Governmental Funds Balance Sheet
        to the Statement of Net Assets .................................................................................................... 35
      Statement of Revenues, Expenditures and Changes
        in Fund Balances ......................................................................................................................... 36
      Reconciliation of the Governmental Funds Statement of Revenues,
        Expenditures and Changes in Fund Balances to the Statement of
        Activities ..................................................................................................................................... 37
   Proprietary Funds
      Statement of Net Assets ................................................................................................................. 38
      Statement of Revenues, Expenses and Changes in Fund Net Assets ............................................. 39
      Statement of Cash Flows ................................................................................................................ 40
   Fiduciary Funds
      Statement of Fiduciary Assets and Liabilities ................................................................................ 41
 Component Units
   Statement of Net Assets (Deficits) .................................................................................................... 42
   Statement of Activities ...................................................................................................................... 43
   Notes to Financial Statements .............................................................................................................. 44
Required Supplementary Information
 Budgetary Comparison Schedule—General Fund ................................................................................ 72
 Budgetary Comparison Schedule—Major Street and Trunkline Fund ................................................. 78
 Schedule of Funding Progress .............................................................................................................. 79




                                                                             1
                                                               City of Muskegon

                                                        TABLE OF CONTENTS


Other Supplemental Information
 Other Governmental Funds
   Description of Other Governmental Funds ....................................................................................... 82
   Combining Balance Sheet ................................................................................................................. 84
   Combining Statement of Revenues, Expenditures and Changes in
      Fund Balances ................................................................................................................................ 85
   Other Special Revenue Funds
      Combining Balance Sheet .............................................................................................................. 86
      Combining Statement of Revenues, Expenditures and Changes in
        Fund Balances ............................................................................................................................. 87
      Budgetary Comparison Schedule—Other Special Revenue Funds ............................................... 88
   Other Capital Projects Funds
      Combining Balance Sheet .............................................................................................................. 90
      Combining Statement of Revenues, Expenditures and Changes in
        Fund Balances (Deficit) .............................................................................................................. 91
 Internal Service Funds
   Description of Internal Service Funds ............................................................................................... 93
   Combining Statement of Net Assets.................................................................................................. 94
   Combining Statement of Revenues, Expenses and
      Changes in Fund Net Assets .......................................................................................................... 95
   Combining Statement of Cash Flows ................................................................................................ 96
 Fiduciary Funds
   Description of Fiduciary Funds ......................................................................................................... 97
   Agency Funds
      Combining Statement of Assets and Liabilities ............................................................................. 98
      Statement of Changes in Assets and Liabilities ............................................................................. 99
 Component Units
   Description of Component Units ..................................................................................................... 101
   Combining Balance Sheet ............................................................................................................... 102
   Reconciliation of the Governmental Funds Balance Sheet
      to the Statement of Net Assets (Deficits) ..................................................................................... 103
   Combining Statement of Revenues, Expenditures and Changes
      in Fund Balances (Deficit) ........................................................................................................... 104
   Reconciliation of the Governmental Funds Statement of Revenues,
      Expenditures and Changes in Fund Balances to the Statement of
      Activities ..................................................................................................................................... 105
 Schedule of Indebtedness ................................................................................................................... 107




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                                                             City of Muskegon

                                                      TABLE OF CONTENTS


STATISTICAL SECTION

Financial Trends
  Net Assets by Component .................................................................................................................. 114
  Changes in Net Assets ........................................................................................................................ 115
  Fund Balances of Governmental Funds .............................................................................................. 116
  Changes in Fund Balances of Governmental Funds ........................................................................... 117
Revenue Capacity
  Governmental Activities Revenues by Source ................................................................................... 118
  Taxable, Assessed and Equalized and Estimated Actual Valuation of Property ................................ 119
  Principal Property Taxpayers ............................................................................................................. 120
  Property Tax Rates – Direct and Overlapping Government Units ..................................................... 121
  Property Tax Levies and Collections .................................................................................................. 122
  Segmented Data on Income Tax Filers, Rates and Liability .............................................................. 123
Debt Capacity
  Ratio of Outstanding Debt by Type .................................................................................................... 124
  Direct and Overlapping Debt .............................................................................................................. 125
  Legal Debt Margin Information.......................................................................................................... 126
  Revenue Bond Coverage .................................................................................................................... 127
Demographic and Economic Information
  Demographic and Economic Statistics ............................................................................................... 128
  Principal Employers............................................................................................................................ 129
Operation Information
  Full-time Equivalent Government Employees ................................................................................... 130
  Operating Indicators by Function/Program ........................................................................................ 131
  Capital Asset Statistics by Function/Program .................................................................................... 132

SINGLE AUDIT OF FEDERAL FINANCIAL ASSISTANCE PROGRAMS

Independent Auditors’ 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 ..................................................................................................... 134
Independent Auditors’ Report on Compliance with Requirements Applicable
   to Each Major Program and Internal Control over Compliance in
   Accordance with OMB Circular A-133 .......................................................................................... 136
Schedule of Expenditures of Federal Awards ...................................................................................... 138
Schedule of Findings and Questioned Costs ........................................................................................ 141
Client Documents
   Summary Schedule of Prior Audit Findings ................................................................................... 144
   Corrective Action Plan .................................................................................................................... 145




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Affirmative
Action
(231)724-6703
FAX (231)722-
1214

Cemetery
(231)724-6783
FAX (231)726-
5617

City Manager
(231)724-6724
FAX (231)722-
1214
                   April 8, 2008
Civil Service
(231)724-6716
FAX (231)724-
4405
                   Honorable Mayor and Members of the
Clerk
(231)724-6705      City Commission
FAX (231)724-      City of Muskegon
4178
                   Muskegon, Michigan 49443
Comm. &
Neigh. Services
(231)724-6717
FAX (231)726-
2501
                   Ladies and Gentlemen:
Finance
(231)724-6713      We are pleased to present to you the Comprehensive Annual Financial Report (CAFR) for
FAX (231)724-      the City of Muskegon, Michigan, for the year ended December 31, 2008. This report
6768
                   includes the City’s audited financial statements in accordance with the requirements of
Fire Department    state law. The financial statements are presented in conformity with accounting principles
(231)724-6792
FAX (231)724-      generally accepted in the United States of America (GAAP), and audited in accordance
6985
                   with generally accepted auditing standards by a firm of licensed certified public
Income Tax         accountants. This annual report is formatted to comply with the financial reporting model
(231)724-6770
FAX (231)724-      developed by the Government Accounting Standards Board (GASB) Statement 34.
6768

Inspection         GAAP requires that management provide a narrative introduction, overview, and analysis
Services           to accompany the basic financial statements in the form of Management’s Discussion and
(231)724-6715
FAX (231)728-      Analysis (MD&A). This letter of transmittal is designed to complement the MD&A and
4371
                   should be read in conjunction with the financial statements. The City of Muskegon’s
Leisure Services   MD&A can be found immediately following the independent auditor’s report.
(231)724-6704
FAX (231)724-
1196
                   The Comprehensive Annual Financial Report is prepared by the City’s Finance
Mayor’s Office
(231)724-6701      Department and responsibility for both the accuracy of the data presented and the
FAX (231)722-      completeness and fairness of the presentation, including all disclosures, rests with the
1214
                   City. We believe the data as presented is accurate in all material respects; that it is
Planning/Zoning
(231)724-6702
                   presented in a manner designed to set forth fairly the financial position and results of
FAX (231)724-      operation of the City as measured by the financial activity of its various funds and
6790
                   component units; and that all disclosures necessary to enable the reader to gain the
Police             maximum understanding of the City’s finances have been included. Brickley DeLong,
Department
(231)724-6750      P.C., Certified Public Accountants, performed the independent audit of all accounts of the
FAX (231)722-      City as required by state law and their report and unqualified opinion is presented as the
5140
                   first component of the financial section of this report.
Public Works
(231)724-4100
FAX (231)722-
4188

Treasurer
(231)724-6720
FAX (231)724-
6768
                          City of Muskegon, 933 Terrace Street, P.O. Box 536, Muskegon, MI 49443-0536
                                                 http://www.shorelinecity.com
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THE CITY AND THE REGION
The City of Muskegon is located in Western Michigan on the shores of Lake Michigan. The City covers
eighteen square miles and, with a population of approximately 40,000, is the largest city on the eastern
shore of Lake Michigan. The City is located in Muskegon County and is part of the Muskegon-Norton
Shores MSA.
Muskegon is home to many outstanding sports, recreation and cultural activities:
   • Michigan Adventure Amusement Park, located north of the city, is the largest amusement park in
   Michigan. The recent extension of City water to the amusement park is expected to spur further
   development in and around the amusement park.
   • Muskegon is home to both a professional hockey team (UHL Muskegon Lumberjacks) and a
   professional arena football team (Muskegon Thunder). Both teams play in the 5,000 seat L. C.
   Walker Arena in downtown Muskegon.
   • Muskegon is the eastern terminus for the high speed cross-lake ferry. Connecting Muskegon
   with Milwaukee, Wisconsin, the service ferries 100,000-plus passengers each season between the
   two cities.
   •   Muskegon is home to the annual Miss Michigan pageant.
   • Pere Marquette beach is nationally recognized as one of the best beaches in the nation and is
   the only beach in Michigan to receive and maintain the Blue Wave Certification by the Clean
   Beaches Council. The Blue Wave certification identifies the nation's cleanest, safest and most
   environmentally well-managed beaches.
   • Muskegon is home to successful summertime festivals that attract tens of thousands of visitors to
   the community. These include Muskegon Summer Celebration which brings top name musical
   groups to town for 11 days of waterfront music celebration and the Bike Time festival which attracts
   thousands of motorcycle enthusiasts to the city each July.
   • Muskegon is the cultural hub for West Michigan with numerous museums and live performances.
   The Muskegon Museum of Art has one of the best art collections in the Midwest, and the Muskegon
   County Museum provides insight into the area’s history. The former residences of Muskegon’s
   lumber barons, Charles H. Hackley and Thomas Hume, proudly display the glory of the Victorian
   ages. The Fire Barn Museum takes visitors back to a 1890s Muskegon Fire Station. The West Shore
   Symphony and Muskegon Civic Theater bring the stage of The Frauenthal Center for the Performing
   Arts to life throughout the year.
   •   Muskegon is home to three historic museum ships that attract thousands of visitors each year:
       •   USS Silversides, a rare surviving World War II submarine maintained in pristine condition;
       •   LST-393, a landing craft used in the D-day invasion and one of only two such vessels
           remaining in existence; and the


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      •   Milwaukee Clipper, a Great Lakes passenger ship built before the Titanic that for many years
          served as a cross-lake ferry between Muskegon and Milwaukee.


The City operates under a Commission-Manager form of government and provides a full range of
traditional municipal services. These include police and fire protection, parks and recreation activities,
public works operations, water and sewer services, solid waste collection, community development and
general administrative support services. The City also provides treated water to several surrounding
communities on a wholesale basis.


COMPONENT UNITS
The City has four discretely presented component unit types. These entities are discretely presented in
the financial statements as the governing boards of the component units are appointed and approved
by the City’s governing board:
   • The Downtown Development Authority (DDA) which exists primarily for the purpose of financing
   redevelopment activities in the City’s downtown area. The DDA has issued bonds that are repaid
   through tax increment revenues generated by development within the Authority’s boundaries.
   • The Tax Increment Finance Authority (TIFA), which exists primarily for the purpose of financing
   redevelopment activities in a sub-section of the City’s downtown area. The TIFA generates tax
   increment revenues through development within the Authority’s boundaries.
   • The Local Development Finance Authority issues bonds for development activities in the City’s
   industrial park and high-tech park areas. Bonds are repaid through tax increment revenues
   generated by development within the Authority’s boundaries. The City has created four separate
   local development finance authority districts under the aegis of the Local Development Finance
   Authority (LDFA). Only one of these four districts has debt outstanding at this time.
   • The Brownfield Redevelopment Authority (BRA), which exists primarily for the purpose of
   financing redevelopment of designated environmental brownfields. The BRA generates tax
   increment revenues through development within the it’s boundaries.


LOCAL ECONOMIC CONDITION AND OUTLOOK
Muskegon is fortunate to have a diverse local economy. The manufacturing sector is strong in the
areas of aerospace, chemicals, plastics, paper products, metals and castings, office furniture and
automotive parts. The City of Muskegon also benefits from being home to large government,
corrections, healthcare, and educational employers. Local income tax withholdings remitted by these
employers provide stability to City finances in times of economic weakness.
The current economic crisis has impacted Muskegon, but not to the extent it has other Michigan
communities. According to the W.E. Upjohn Institute’s local economic forecast for 2009-10:


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   •   Muskegon County’s employment trends have deteriorated slightly in the last two years but are
       still above the state’s;
   •   Muskegon’s manufacturing sector is doing better than the nation’s and well above the state’s
       trend;
   •   Muskegon MSA’s private services employment growth is above the nation’s and the state’s.



MAJOR INITIATIVES AND ACCOMPLISHMENTS
Among the City's major initiatives and accomplishments in 2008 were the following:

   • Development activity in the City’s downtown was very active with several major projects reaching
   completion:
      • Construction was completed on the new $3.0 million headquarters building for the Muskegon
         Area Chamber of Commerce;
      • Construction was completed on a $3.5 million office building anchored by a local engineering
         and architectural firm;
      • The $2.0 million renovation of the former National City Bank Building was substantially
         completed with the opening of a new bar/restaurant;
      • Work progressed on construction of Baker College’s new $11.0 million culinary arts training
         facility which is to open for students in June 2009;
      • Two condominiums in the Heritage Square “live-work” development were completed. A total
         of twenty-two units are planned for this downtown development;
      • Plans were unveiled for the $5.0 million renovation of the 8-story former Comerica Bank
         building into residential condominium units.

   • A major West Michigan auto dealership began work on a $12 million expansion of its facilities
   encompassing GM, Honda and Hyundai brands. The City is assisted in this project with the creation
   of a Brownfield Redevelopment Authority and securing a low-interest state loan to help finance
   environmental work.
   • A new 50,000 square foot distribution center was completed by a local plastics company.


OTHER INFORMATION
INTERNAL ACCOUNTING CONTROLS
The City’s management is responsible for establishing and maintaining an internal control structure that
is designed to ensure adequate protection of the City’s assets from loss, theft, or misuse, and adequate
accounting data to allow for preparation of financial statements in conformity with generally accepted
accounting principles. The internal control structure is designed to provide reasonable, but not absolute
assurance that these objectives are met. The concept of reasonable assurance recognizes that (1) the
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costs of a control should not exceed the benefits likely to be derived; and (2) the valuation of costs and
benefits requires estimates and judgments by management.
All internal control evaluations occur within the above framework. We believe that the City’s internal
accounting controls adequately safeguard assets and provide reasonable assurances of proper
recording of financial transactions.


BUDGETARY CONTROL
Budgetary control is maintained through an annual budget resolution passed by the City Commission.
Budgetary control at the functional level is maintained by review of estimated expenditures prior to
making purchases. Encumbrances are not recorded in the City’s funds. The City does, however, utilize
an informal monitoring system to facilitate budgetary control over proposed purchases. Essentially, this
system entails the use of on-line budgetary information that details year-to-date “actual versus
budgeted” expenditure comparisons by budget category. This information is accessible to appropriate
personnel to enable them to ascertain the budget status of an expenditure category prior to authorizing
additional purchases.


DEBT ADMINISTRATION
At December 31, 2008, the total of City bonds and contractual debt outstanding (including discretely
presented component unit debt) was $37,542,753. During 2008, the City agreed to a $500,000 long
term loan from the State of Michigan to help fund environmental cleanup work. The loan will be repaid
by developers of brownfield sites located within the City. No other long term debt was issued in 2008.
Standard & Poor’s has affirmed the City’s general obligation debt rating of A. Also, during the year the
City was notified that the rating on it’s water system debt was upgraded by Standard & Poor’s from A-
to AA-.


CASH MANAGEMENT AND INVESTMENTS
Temporarily idle cash from the City’s various funds is invested through management of a common
pooled cash and investments system. Maturity of investments are timed to meet the City’s cash needs.
Investment instruments generally consisted of U.S. Treasury Bills and Notes, government agency
securities, high quality commercial paper and liquid money-market funds. Daily liquidity needs are
managed by investments in liquid short-term funds of all cash not needed in the common checking
account to cover checks and other debits presented to the bank for payment that day. The City has
contracted with MBIA Municipal Investors Service Corporation to provide full-time, non-discretionary
management of the City’s operating funds portfolio.




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PENSIONS AND OTHER POST-EMPLOYMENT BENEFITS
The City has transferred administrative responsibility for defined benefit pensions to the statewide
Municipal Employees Retirement System (MERS) of Michigan. This was done to achieve the
economies of scale and investment diversification that the $6 billion MERS program offers. A parallel
effort has been to reduce the City’s retirement funding liabilities and volatility by replacing defined
benefit pensions with a defined contribution model. This goal has been achieved and, all new
employees hired by the City are now covered by a defined contribution retirement program.
The City also provides post-retirement healthcare benefits for retirees and their dependents. Since
1987, the City has had an actuarial valuation of its post employment healthcare obligation prepared
annually and has followed a program of prefunding the obligation in the same manner as its pension
obligations. In 2005, the City implemented the requirements of GASB statements 43 and 45 –
“Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions.”


RISK MANAGEMENT
During 2008, the City continued participation in the Michigan Municipal Risk Management Authority
(MMRMA), an intergovernmental cooperative self-insurance program. The MMRMA offers secure
liability and property insurance coverage with premium stability and broad coverage at a competitive
price. The City is insured up to $15 million with a $100,000 deductible per occurrence for general, auto,
public official and law enforcement liability. During 2008, the City incurred losses of $393,983
(including reserves). Since the City began participating in the MMRMA program in March 1986, total
losses paid (including expenses but excluding reinsurance recoveries) have been $8,245,336.


SINGLE AUDIT
The City is required to have an annual single audit in conformity with the provisions of the Single Audit
Act Amendments of 1996 and U.S. Office of Management and Budget Circular A-133, “Audits of State,
Local Governments and Non-Profit Organizations”. Information related to the single audit, including the
schedule of federal awards, findings and questioned costs, and auditors’ reports on internal control over
financial reporting and compliance with certain laws, regulations and grants are included herein. The
financial activities related to the single audit requirements, such as the Community Development Block
Grant Program, are also included in this financial report.


AWARDS
The Government Finance Officers Association of the United States and Canada (GFOA) awarded a
Certificate of Achievement for Excellence in Financial Reporting to the City of Muskegon for its
Comprehensive Annual Financial Report for the year ended December 31, 2007. This marked the
twenty-third consecutive year that the City has received this prestigious award. In order to be awarded
a Certificate of Achievement, a governmental unit must publish an easily readable and efficiently

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organized Comprehensive Annual Financial Report, whose contents conform to program standards.
Such reports must satisfy both generally accepted accounting principles and applicable legal
requirements.
A Certificate of Achievement is valid for a period of one year only. We believe our current report
continues to conform to the Certificate of Achievement Program requirements, and we are submitting it
to the GFOA to determine its eligibility for another certificate.


ACKNOWLEDGEMENTS
We would like to thank the members of the City Commission for their continued interest and support in
conducting the financial affairs of the City in a responsible and progressive manner and for their efforts
in working for the betterment of the Muskegon community. We would also like to thank the many City
employees who participate in the preparation of this report.



Respectfully submitted,




Bryon L. Mazade                                         Timothy J. Paul
City Manager                                            Director of Finance




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                                        Citizens of Muskegon
           The 7-member
           Commission
                                                               The Citizens of                      The 7-member
           appoints various
                                                               Muskegon elect                       Commission
           Boards and
                                                               this Commission                      appoints the City
           Commissions
                                                                                                    Attorney


Various Boards &                           7-Member City
                                                                                         City Attorney
 Commissions                                Commission

                                                               The 7-member
                                                               Commission
                                                               appoints the City
                                                               Manager


                                           City Manager




              Administrative Services                             Financial Services
                     Division                                          Division




                                                                   Leisure Services
               Public Safety Division
                                                                       Division




              Community & Economic
                                                                 Public Works Division
               Development Division




                                                  13
                      COMPREHENSIVE ANNUAL FINANCIAL REPORT
                           CITY OF MUSKEGON, MICHIGAN
                            LIST OF PRINCIPAL OFFICIALS

                                            December 31, 2008




                                          ELECTED OFFICIALS


Mayor-Commissioner. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Steve Warmington
At Large

Vice Mayor-Commissioner. . . . . . . . . . . . . . . . . . . . . . . . . . . . .Stephen J. Gawron
At Large

Commissioner. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Chris Carter
Ward 1

Commissioner. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Clara Shepherd
Ward 2

Commissioner. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lawrence O. Spataro
Ward 3

Commissioner. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Steve Wisneski
Ward 4

Commissioner. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sue Wierengo
At Large

                                        APPOINTED OFFICIALS




City Manager. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bryon L. Mazade

City Attorney. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . John C. Schrier

Director of Finance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Timothy J. Paul



                                                      14
FINANCIAL SECTION




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                                          BRICKLEY DELONG
                                                 CERTIFIED PUBLIC ACCOUNTANTS




                                             INDEPENDENT AUDITORS’ REPORT


  April 8, 2009



  City Commission
  City of Muskegon
  Muskegon, Michigan


  We have audited the accompanying financial statements of the governmental activities, the business-type
  activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining
  fund information of the City of Muskegon as of and for the year ended December 31, 2008, which
  collectively comprise the City's basic financial statements as listed in the table of contents. These financial
  statements are the responsibility of the City of Muskegon's management. Our responsibility is to express
  opinions on these financial statements based on our audit.

  We conducted our audit in accordance with 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. Those standards require that we plan and perform the audit
  to obtain reasonable assurance about whether the financial statements are free of material misstatement. An
  audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
  statements. An audit also includes assessing the accounting principles used and significant estimates made by
  management, as well as evaluating the overall financial statement presentation. We believe that our audit
  provides a reasonable basis for our opinions.

  In our opinion, the financial statements referred to above present fairly, in all material respects, the respective
  financial position of the governmental activities, the business-type activities, the aggregate discretely
  presented component units, each major fund, and the aggregate remaining fund information of the City of
  Muskegon, as of December 31, 2008, and the respective changes in financial position, and cash flows, where
  applicable, thereof for the year then ended in conformity with accounting principles generally accepted in the
  United States of America.

  The management's discussion and analysis and budgetary comparison information on pages 19 -30 and 72 -
  79 are not a required part of the basic financial statements but are supplementary information required by
  accounting principles generally accepted in the United States of America. We have applied certain limited
  procedures, which consisted principally of inquiries of management regarding the methods of measurement
  and presentation of the required supplementary information. However, we did not audit the information and
  express no opinion on it.




316 Morris Ave., Suite 500 • P.O. Box 999 • Muskegon, MI 49443                 907 S. State Street • P.O. Box 331 • Hart, MI 49420

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       PHONE (231) 726-5800 • FAX (231) 722-0260                               PHONE (231) 873-1040 • FAX (231) 873-0602
BRICKLEY DELONG

  City Commission
  April 8, 2009
  Page 2


  Our audit was conducted for the purpose of forming opinions on the financial statements that collectively
  comprise the City of Muskegon’s basic financial statements. The introductory section, combining and
  individual nonmajor fund financial statements, and statistical section are presented for purposes of additional
  analysis and are not a required part of the basic financial statements. The accompanying schedule of
  expenditures of federal awards is presented for purposes of additional analysis as required by U.S. Office of
  Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit
  Organizations, and is also not a required part of the basic financial statements of the City of Muskegon. The
  combining and individual nonmajor fund financial statements and the schedule of expenditures of federal
  awards have been subjected to the auditing procedures applied in the audit of the basic financial statements
  and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken
  as a whole. The introductory and statistical sections have not been subjected to the auditing procedures
  applied in the audit of the basic financial statements and, accordingly, we express no opinion on them.




                                                        18
                   MANAGEMENT’S DISCUSSION AND ANALYSIS

This section of the City of Muskegon’s annual financial report presents our discussion
and analysis of the City’s financial performance during the fiscal year ended December
31, 2008. Please read it in conjunction with the City’s financial statements, which follow
this section.

FINANCIAL HIGHLIGHTS

  •   The assets of the City of Muskegon exceeded its liabilities by $132,305,830 as of
      December 31, 2008.        Of the total net assets, $17,484,037 (13.2%) was
      unrestricted and may be used to meet the City’s ongoing obligations to citizens
      and creditors.

  •   The City’s total combined net assets increased $437,728 during 2008. This
      increase is primarily the result of higher property tax and income tax revenues.

  •   The City’s governmental funds reported combined ending fund balance of
      $10,271,440, a decrease of $1,962,291 from the      Figure A-1, Required Components of the
      prior year. Most of the change results from capital     City’s Annual Financial Report
      spending for street improvements.

  •   The City’s General Fund reported a total fund
      balance of $2,383,725, a decrease of $536,907 from
      the prior year. The decrease is attributed to higher
      operating costs for public safety functions and
      additional general fund transfers made to fund street
      improvements.

  •   The City also maintains a Budget Stabilization (or
      “rainy day”) Fund that reported a $2.0 million fund
      balance of at December 31, 2008, an increase of
      $250,000 from 2007.

OVERVIEW OF THE FINANCIAL STATEMENTS

This annual report consists of three parts—management’s
discussion and analysis (this section), the basic financial
statements, and required supplementary information. The
basic financial statements include two kinds of statements that present different views of
the City.

  •   The first two statements are government-wide financial statements that provide
      both long-term and short-term information about the City’s overall financial status.




                                            19
   •     The remaining statements are fund financial statements that focus on individual
         parts of the government, reporting individual City operations in greater detail than
         the government-wide statements.

         •     The governmental funds statements tell how general government services
               were financed in the short-term as well as what remains available for future
               spending.

         •     Proprietary fund statements offer short- and long-term financial information
               about activities the City operates like private businesses.

         •     Fiduciary fund statements provide information about the financial relationships
               in which the City acts solely as a trustee or agent for the benefit of others, to
               whom the resources in question belong.

The financial statements also include detailed notes that explain some of the
information    in    the        Figure A-2. Major Features of the City's Government-Wide and Fund Financial Statements

financial    statements                                                                                    Fund Statements

and provide additional Type of Statements EntireGovernment-Wide
                                                   City government
                                                                             Governmental Funds
                                                                         The activities of the City
                                                                                                          Proprietary Funds
                                                                                                     Activities the City
                                                                                                                                        Fiduciary Funds
                                                                                                                                 Instances in which the
data. The statements                         (except fiduciary funds)
                                             and the City's component
                                                                         that are not proprietary or
                                                                         fiduciary
                                                                                                     operates similar to private
                                                                                                     businesses.
                                                                                                                                 City is the trustee or
                                                                                                                                 agent for someone else's
                         Scope
are followed by a                            units                                                                               resources

section of required
                                              Š Statement of net assets   Š Balance sheet             ŠStatement of net assets    ŠStatement of fiduciary
supplementary                                                                                                                     net assets
                                              Š                           Š                           ŠStatement                  ŠStatement of changes
information that further Required financial Statement of activities expenditures
                                                                            Statement of revenues,
                                                                                        & changes
                                                                                                                   of revenues,
                                                                                                      expenses and changes in     in fiduciary net assets
                         statements
explains and supports                                                     in fund balances            fund net assets
                                                                                                      ŠStatement of cash flows
the information in the Accounting basis Accrual accounting and Modified accrual                      Accrual accounting and      Accrual accounting and
financial   statements. and
                         focus
                              measurement    economic resources focus    accounting and current
                                                                         financial resources focus
                                                                                                     economic resources focus    economic resources focus

Figure A-1 shows how                         All assets and liabilities, Only assets expected to     All assets and liabilities, All assets and liabilities,
                                             both financial and capital, be used up and liabilities  both financial and capital, both short-term and long-
the required parts of asset/liability
                         Type  of
                                             short-term and long-term    that come due during the    and short-term and long-    term; the City's funds do
this annual report are information                                       year or soon thereafter;
                                                                         no capital assets included
                                                                                                     term                        not currently contain
                                                                                                                                 capital assets, although
arranged and related to                      All revenues and            Revenues for which cash     All revenues and expenses
                                                                                                                                 they can
                                                                                                                                 All revenues and
one another.                                 expenses during year,       is received during or soon  during year, regardless of  expenses during year,
                                                               regardless of when cash   after the end of the year;   when cash is received or   regardless of when cash
                                             Type of           is received or paid       expenditures when goods      paid                       is received or paid

Figure A-2 summarizes                        inflow/outflow
                                             information
                                                                                         or services have been
                                                                                         received and payment is
the major features of                                                                    due during the year or
                                                                                         soon thereafter
the   City’s   financial
statements, including the portion of the City government they cover and the types of
information they contain. The remainder of this overview section of management’s
discussion and analysis explains the structure and contents of each of the statements.


Government-Wide Statements

The government-wide statements report information about the City as a whole using
accounting methods similar to those used by private-sector companies. The statement
of net assets includes all of the government’s assets and liabilities. All of the current




                                                                            20
year’s revenues and expenses are accounted for in the statement of activities
regardless of when cash is received or paid.

The two government-wide statements report the City’s net assets and how they have
changed. Net assets—the difference between the City’s assets and liabilities—is one
way to measure the City’s overall financial health or position. Over time, increases or
decreases in the City’s net assets are an indicator of whether its financial health is
improving or deteriorating, respectively. However, to assess the overall health of the
City, one needs to consider additional nonfinancial factors such as changes in the City’s
tax base.

The government-wide financial statements include not only the City of Muskegon itself
(known as the primary government), but also legally separate component units for which
the City is financially accountable. Financial information for these component units is
reported separately from the financial information presented for the primary government
itself.

The government-wide financial statements of the City include the governmental
activities. Most of the City’s basic services are included here, such as general
government, public safety, highways and streets, sanitation, economic development,
parks and recreation, and interest on long-term debt. Income taxes, federal grants,
property taxes and revenues from the State of Michigan finance most of these activities.

Also included in the government-wide statements are the City’s business-type activities:
water, sewer and marina operations.


Fund Financial Statements

The fund financial statements provide more detailed information about the City’s major
funds—not the City as a whole. Funds are accounting devices that the City uses to
keep track of specific sources of funding and spending for particular purposes.

  •   Some funds are required by State law or other legal requirements.

  •   The City Commission establishes other funds to control and manage money for
      particular purposes or to show that it is properly using certain taxes and grants.

The City has the following kinds of funds:

  •   Governmental funds—Most of the City’s basic services are included in
      governmental funds, which focus on (1) how cash and other financial assets that
      can readily be converted to cash flow in and out and (2) the balances left at year-
      end that are available for spending. Consequently, the governmental fund
      statements provide a detailed short-term view that helps the user determine
      whether there are more or fewer financial resources that can be spent in the near
      future to finance the City’s programs. Because this information does not




                                             21
      encompass the additional long-term focus of the government-wide statements, we
      provide additional information on the subsequent page of the governmental funds
      statements that explain the relationship (or differences) between them.

  •   Proprietary funds—Services for which the City charges customers a fee are
      generally reported in proprietary funds. The City uses three proprietary funds:
      water, sewer, and marina.        Proprietary funds, like the government-wide
      statements, provide both long-term and short-term financial information.

  •   We use internal service funds to report activities that provide supplies and services
      for the City’s other programs and activities.

  •   Fiduciary funds—The City is the trustee, or fiduciary, for certain funds. It is also
      responsible for other assets that—because of a trust arrangement—can be used
      only for the trust beneficiaries. The City is responsible for ensuring that the assets
      reported in these funds are used for their intended purposes. All of the City’s
      fiduciary activities are reported in a separate statement of fiduciary net assets and
      a statement of changes in fiduciary net assets. We exclude these activities from
      the City’s government-wide financial statements because the City cannot use
      these assets to finance its operations.

  •   Component units – Finally, the City of Muskegon’s Comprehensive Annual
      Financial report includes six component units: the Downtown Development
      Authority (DDA), the Tax Increment Finance Authority (TIFA), three Local
      Development Finance Authorities (LDFAs) and, the newly created Brownfield
      Redevelopment Authority (BRA). Component units are separate legal entities for
      which the City of Muskegon has some level of financial accountability. The
      component units of the City exist primarily for the issuance and repayment of debt
      to finance projects in specific areas of the City. Accordingly, they are discussed
      below under the Capital Assets and Debt Administration heading.


FINANCIAL ANALYSIS OF THE CITY AS A WHOLE

Net assets. The Statement of Net Assets provides an overview of the City’s assets,
liabilities and net assets. Over time this can provide a good indicator of the City’s fiscal
health. The total net assets of the City were $132,305,830 as of December 31, 2008.
This is an increase of $437,728 over reported net assets for the prior year. A summary
of the City’s net assets follows:




                                            22
                                           City's Net Assets
                                           (In Thousands of Dollars)
                                Governmental                     Business-Type                                    Percentage
                                   Activities                      Activities                  Total               Change
                                 2008            2007           2008            2007       2008           2007    2008-2007


Current and other assets       $26,501      $27,904            $8,824      $10,603       $35,325        $38,507         -8.26%
Capital assets                  77,490          76,350         60,002       59,933       137,492        136,283          0.89%
Total Assets                   103,991      104,254            68,826       70,536       172,817        174,790         -1.13%


Long-term liabilities            9,000           9,083         18,240       19,337        27,240         28,420         -4.15%
Other liabilities               11,160          11,463          2,111           3,039     13,271         14,502         -8.49%
Total Liabilities               20,160          20,546         20,351       22,376        40,511         42,922         -5.62%


Net Assets
Invested in capital assets,
  net of related debt           69,565          68,060         40,877       39,357       110,442        107,417          2.82%
Restricted                       3,557           5,485           822             822       4,379          6,307        -30.57%
Unrestricted                    10,709          10,163          6,776           7,981     17,485         18,144         -3.63%
Total Net Assets               $83,831      $83,708           $48,475      $48,160      $132,306       $131,868          0.33%




The bulk of the City’s net assets ($110,441,556 or 83%) represent investments in
capital infrastructure assets, less the remaining balance of debt issued to acquire those
assets. Infrastructure assets are used to provide public services to citizens and are not
available for spending. Another 3.3% ($4,380,237) of the City’s net assets are legally
restricted as to use. The remaining net assets ($17,484,037) are unrestricted and may
be used to meet the City’s operating needs and ongoing obligations.

Changes in net assets. The City’s total revenues were $47,088,679, up 0.7% from
2007. One-third of the City’s revenue stream came from charges to users of specific
services such as water or sewer. Another nineteen percent came from grants from the
state and federal governments and thirty-five percent was from local property and
income taxes. The remainder was comprised of state revenues and other sources such
as investment income.

The total cost of all City programs and services during 2008 was $46,650,951, an
increase of $2,229,460 from 2007. Seventy-five percent of these costs were for
governmental activities such as police and fire protection, streets, parks, and general
administration. The remaining twenty-five percent represents the costs of the City’s
business-type activities, specifically, water, sewer and marina operations.

The difference between the City’s total revenues and expenses ($437,728) represents
the increase in total net assets for 2008. The following table (Changes in City’s Net
Assets) further breaks down the change in total net assets into year-to-year changes in
individual revenue and expense categories:




                                                         23
                                          Changes in City’s Net Assets
                                                   (In thousands of dollars)
                                           Governmental                  Business-Type                                        Percentage
                                             Activities                    Activities                       Total              Change
                                          2008            2007           2008            2007       2008              2007    2008-2007

Program revenues
 Charges for services                    $3,877      $4,109            $11,817     $12,030        $15,694           $16,139         -2.76%
 Operating grants and contributions       5,367           5,229                -             -      5,367             5,229          2.64%
 Capital grants and contributions         3,445           3,348                -             -      3,445             3,348          2.90%
General revenues
 Property taxes                           8,349           8,014                -             -      8,349             8,014          4.18%
 Income taxes                             8,118           7,758                -             -      8,118             7,758          4.64%
 State shared revenues                    4,488           4,475                -             -      4,488             4,475          0.29%
 All other                                1,519           1,634           109             170       1,628             1,804         -9.76%
Total revenues                           35,163      34,567             11,926          12,200     47,089            46,767          0.69%


Governmental activities expenses
 Public representation                     987             925                 -             -       987               925           6.70%
 Administrative services                   783             784                 -             -       783               784          -0.13%
 Financial services                       2,292           2,205                -             -      2,292             2,205          3.95%
 Public safety                           13,956      12,802                    -             -     13,956            12,802          9.01%
 Public works                             3,019           2,989                -             -      3,019             2,989          1.00%
 Highways, streets and bridges            7,265           7,272                -             -      7,265             7,272         -0.10%
 Community and economic development       3,175           3,054                -             -      3,175             3,054          3.96%
 Culture and recreation                   2,624           2,433                -             -      2,624             2,433          7.85%
 General administration                    575             358                 -             -       575               358          60.61%
 Interest on long-term debt                324             343                 -             -       324               343          -5.54%
Business-type activities expenses
 Water                                        -               -          5,801           5,795      5,801             5,795          0.10%
 Sewer                                        -               -          5,503           5,067      5,503             5,067          8.60%
 Marina and Launch Ramp                       -               -           347             393        347               393         -11.70%
Total expenses                           35,000      33,165             11,651          11,255     46,651            44,420          5.02%


Change in net assets before transfers      163            1,402           275             945        438              2,347        -81.34%
Transfers                                  (40)            (40)            40              40           -                 -                -
Change in net assets                       123            1,362           315             985        438              2,347        -81.34%


Net assets at beginning of year          83,708      82,346             48,160          47,175    131,868           129,521          1.81%

Net assets at end of year               $83,831     $83,708            $48,475      $48,160      $132,306       $131,868             0.33%



Net assets for governmental activities increased slightly ($123,388) as economic
conditions slowed income tax and other revenue growth. Business-type activities saw
an increase in net assets of $314,340, down from last year’s increase of $985,630.

Governmental Activities
The following table (Net Cost of Selected City Functions) presents the cost of each of
the City’s largest functions as well as each function’s net cost (total cost less fees
generated by the activities and intergovernmental aid specifically related to the
function). The net cost reflects the portion of costs funded by local tax dollars and other
general resources.

   •         The operational cost of all governmental activities during 2008 was $34,999,188.
   •         The net cost that City taxpayers paid for these activities through local taxes was
             $16,466,907, or 47% of the total.




                                                                  24
  •   The remaining cost was paid by user charges to those who directly benefit from
      the programs or by state and federal grants and contributions


                                      Net Cost of Selected City Functions
                                             (in thousands of dollars)

                                          Total Cost of                            Net Cost of
                                             Services             % Change          Services         % Change
                                        2008          2007                       2008       2007     2008-2007
Governmental activities
 Public safety                          $13,956      $12,802              9.0%   $12,670   $11,476       10.4%
 Community and economic development       3,175        3,054              4.0%       742       620       19.7%
 Culture and recreation                   2,624        2,433              7.9%     2,157     1,801       19.8%
 Highways, streets and bridges            7,265        7,272             -0.1%       495       773      -36.0%
 Public works                             3,019        2,989              1.0%     2,610     2,554        2.2%
 All other                                4,961        4,615              7.5%     3,636     3,257       11.6%
Total governmental activities           $35,000      $33,165              5.5%   $22,310   $20,481        8.9%


Business-Type Activities

The financial goal of the City’s business-type activities (i.e. water, sewer and marina
operations) is to operate on a more or less “break-even” basis without making
significant profit or needing general tax subsidies. For 2008, the City’s total business-
type activities realized an overall increase in net assets of $314,340.

Most of the increase is attributable to Water Fund operations. Despite a decline in
water sales, operating costs in this fund were lower than anticipated resulting in
increased net assets. Sewer Fund net assets decreased $185,902 due both to higher
wastewater treatment costs and the aforementioned drop in metered water sales.
Marina and Launch Ramp Fund net assets decreased $57,217 primarily due to
depreciation charges on state-funded dock improvements.


FINANCIAL ANALYSIS OF THE CITY’S FUNDS

The fund financial statements provide detailed information about the major City funds,
not the City as a whole. The City’s major funds for 2008 were the General Fund and the
Major Street and Trunkline Fund.

General Fund Highlights

The General Fund receives the most public attention since it is where local tax revenues
are accounted for and where the most visible municipal services such as police, fire and
parks are funded. The City reforecasts its General Fund budget on a quarterly basis to
take into account changing economic conditions and policy priorities. The following
table shows the General Fund year-end fund balance for the last five years.




                                                       25
                                                                      Fund Balance as a % of
                 Year-End Fund   Year-to-Year %      Prior Year’s     Prior Year Expenditures
   Year             Balance         Change         Expenditures and    (Policy Target = 10%)
                                                     Other Uses
   2008             $2,383,725      -18.4%             $ 24,800,810           9.61%
   2007              2,920,632      +8.6%                24,498,778          11.92%
   2006              2,690,039      +6.8%                23,658,227          11.37%
   2005              2,519,605      +3.0%                23,388,020          10.77%
   2004              2,445,191      +0.5%                23,705,334          10.31%

Actual 2008 General Fund expenditures were $85,266 more than the final amended
budget amount. Most of this variance resulted from higher than anticipated public
safety costs. Significant budget amendments made during the year included:

   •   Police and Fire – amended to account for higher costs resulting from labor
       contract settlements and the completion of a revised actuarial valuation of retiree
       healthcare costs.
   •   Parks Maintenance – amended to reflect increased costs for maintaining bike
       trail system and Shoreline Drive landscaping.
   •   Transfers to Other Funds – amended to account for year-end transfers of
       resources to the Budget Stabilization ($250,000), Major Streets ($200,000),
       Sidewalk Replacement ($150,000) funds.

General Fund revenues for 2008 were $86,130 lower than the final amended budget.
This variance is primarily attributable to a six-month delay in the payment of two large
invoices for city services. The national economic crisis that emerged in the fourth
quarter of 2008 impacted the City’s General Fund. Income tax collections, which had
been strong for most of the year, fell off in the fourth quarter and came in under the
amended budget projection. Finally, the City made a $250,000 year-end transfer to it’s
Budget Stabilization (“rainy day”) Fund in anticipation of further national economic
troubles.

As a result, the City’s General Fund ended 2008 with a fund balance that decreased
from the prior year and fell slightly short of the policy target (10% of prior year
expenditures).

Major Street and Trunkline Fund Highlights

The Major Street and Trunkline Fund accounts for all of the City’s street construction
and maintenance activities on its primary road system. Primary funding comes from the
State of Michigan. During 2008, the fund balance of the Major Street and Trunkline
Fund decreased $884,222 as a result of an aggressive street construction program
using local dollars to leverage state and federal highway grants.




                                              26
  CAPITAL ASSETS AND DEBT ADMINISTRATION

  Capital Assets

  At the end of 2008, the City and its component units had invested $140,810,959 in a
  variety of capital assets, including land, streets, equipment, buildings, water and sewer
  lines, and vehicles. Note D of the notes to the basic financial statements provides
  detailed information on the City’s capital asset investment.

  The City’s largest capital asset projects during 2008 were for street improvement
  projects.

  Long-Term Debt
                                                                                            Bond Ratings
  At year-end 2008, the City had $29,288,465 in bonds and
  other long-term obligations outstanding. This represents a                                The City’s limited full faith and
  decrease of 8.4% from the prior year. During 2008 the City                                credit bonds (i.e. bonds
                                                                                            guaranteed by the City’s
  agreed to a $500,000 loan from the State of Michigan to fund                              taxing powers) presently carry
  environmental cleanup work on Brownfield redevelopment                                    a Standard & Poors rating of
  sites. The debt will be repaid by developers who elect to                                 “A”. Water System bonds are
                                                                                            rated “AA-“.
  access the funds through the City. No other new debt was
  issued during 2008.

  Additional information concerning the City’s long-term debt is presented in Note I to the
  basic financial statements.

                                      City’s Long Term Debt – Bonds and Other Obligations
                                                       (In thousands of dollars)

                                                                                                                      Total
                                         Governmental                 Business-Type                                Percentage
                                           Activities                   Activities                 Total            Change
                                       2008         2007             2008         2007      2008           2007    2008-2007

Due within one year               $  909         $1,224           $1,139       $2,330     $2,048       $3,554           -42.4%
Due in more than one year          9,000          9,083           18,241       19,337     27,241       28,420            -4.1%
Total bonds & other obligations   $9,909        $10,307          $19,380      $21,667    $29,289      $31,974            -8.4%




  In addition to direct City debt, component units such as the Downtown Development
  Authority (DDA) and Local Development Finance Authority (LDFA) had outstanding debt
  totaling $8,254,288 at year-end as shown in the table below. Debt issued by these
  component units typically is secured by the limited full faith and credit of the City and so
  is an important consideration in assessing the City’s overall fiscal health. Additional
  information concerning component units’ long-term debt is presented in Note I to the
  basic financial statements and is summarized as follows:




                                                                27
                                  Component Unit Long Term Debt – Bonds and Other Obligations
                                                        (In thousands of dollars)
                                                                                                                    Total
                                       Downtown                  Local Development                               Percentage
                                    Finance Authority             Finance Authority             Total             Change
                                    2008        2007             2008         2007       2008           2007     2008-2007

Due within one year                    $220        $210               $80         $80     $ 300          $ 290         3.4%
Due in more than one year             3,475       3,695             4,479        4,559    7,954          8,254        -3.6%
Total bonds & other obligations      $3,695      $3,905            $4,559       $4,639   $8,254         $8,544        -3.4%




  ECONOMIC FACTORS AND NEXT YEAR’S BUDGETS AND RATES

  The City’s fiscal year 2009 capital budget anticipates spending $7,744,155 for capital
  projects, principally street improvements, water and sewer system improvements, and
  scheduled equipment replacements. These improvements will be funded through grants
  and revenues generated by operations. No new debt issuance is anticipated in 2009.

  From an operations standpoint, the City’s 2009 budget plan is to maintain current
  service levels with no new major expenditure initiatives.

  To fund operations, the City depends on five major sources of revenue: local income
  taxes, local property taxes, state-shared revenues, state street funds, and water and
  sewer utility fees. Together, these five income sources account for about three-quarters
  of the City’s total revenues. Meaningful discussion of the City’s financial outlook needs
  to center on these major income sources.


  Local Income Tax

  The City income tax was approved by voters in 1993 and now is the primary source of
  funding for police, fire, parks and other general operations. The income tax rate is 1%
  on City residents and ½ of 1% on non-residents working in the City. The income tax
  provides key advantages for core cities such as Muskegon. First, it allows the City to
  regionalize its tax structure by taxing non-residents who work here and use City
  services. Second, it allows the City to benefit from development occurring outside City
  limits because City residents employed by non-City employers pay income taxes.
  Finally, the income tax generates revenue from employees working at hospitals,
  churches, government agencies, colleges and other institutions traditionally exempt
  from paying property taxes. This is particularly important for Muskegon since six of the
  ten largest income tax sources are such institutions.

  Income tax revenues increased from $7,618,461 in 2007 to $7,694,780 for 2008
  (+1.0%). For 2009, the City has revised the income tax revenue estimate at
  $7,100,000. The following table shows the makeup of the City’s income tax base:




                                                                 28
                                                                     Average                 Average
     Category         Number of       2008           Percent of     Amount Paid             Amount Paid
                       Payers      Amount Paid            Total       2008                    2007

     City Resident        7,266      $ 2,905,997          38%          $ 400                   $397
     Non-Resident        13,482        3,551,774          46%            263                    254
     Corporate            1,850        1,237,009          16%            669                    631
       Total             22,598      $7,694,780          100%          $ 341                   $329


Local Property Tax

The City’s 2008 property tax millage consisted of 11 mills: 8.5 mills for general
operations and 2.5 mills levied for sanitation. City charter authorizes a general
operating millage up to 10 mills and state law permits a maximum sanitation millage of 3
mills. Millage rates are applied to the taxable value of property in the City to arrive at
the City’s property tax levy. As shown below, the City’s property values have grown
modestly over the last few years. For 2009, the City is projecting $7,787,372 in property
taxes, a 1.6% increase over the $7,666,645 collected in 2008.

                                       Total            Percent           Estimated
                     Year          Assessed Value       Change         Actual Value
                     2008              $890,119,700      1.26%            $1,780,239,400
                     2007               879,002,488      4.81%              1,758,004,976
                     2006               838,661,200      2.53%              1,677,322,400
                     2005               817,933,079      0.22%              1,635,866,158
                     2004               816,137,300     -0.99%              1,632,274,600



State Shared Revenues

State shared sales tax revenues represent about twenty-percent of total General Fund
revenue. The City’s state shared revenue allocation is made up of two approximately
equal parts. The constitutional component is a fixed percentage of total state sales tax
collections that is allocated to cities on a per capita basis and that cannot be reduced by
the legislature. The statutory component is determined by a complex formula and is
subject to adjustment through the State’s budget process. Both constitutional and
statutory components depend, of course, on overall state sales tax collections. The
City’s recent state shared revenue history is summarized below:
                                      State Shared                Percent
                            Year       Revenues                   Change

                         2008             $4,487,698              +0.3%
                         2007              4,475,462              -1.8%
                         2006              4,556,801              -0.1%
                         2005              4,592,852              -1.1%
                         2004              4,645,348              -5.9%

Continued erosion of the state shared revenue component constitutes the single biggest
threat to the stability of City finances at this time. Due to the local income tax,




                                                   29
Muskegon is somewhat less dependent on this revenue source than most Michigan
cities.

For 2009, the City projects $4,450,000 based on current information available from the
state. This is little changed from the $4,487,698 received during 2008.

Street Funds

The State also returns to the City a share of gasoline tax revenues to help fund
maintenance and construction of major and local streets within the City. These
revenues have not suffered to the extent that general state sales tax revenues have:
                                Street Revenues     Percent
                        Year       from State       Change

                        2008      $3,199,930         -2.7%
                        2007       3,288,098         -0.2%
                        2006       3,297,183         -0.7%
                        2005       3,319,131         -4.1%
                        2004       3,459,503         +9.2%

For 2009, the City is projecting no material change in street funds from the State of
Michigan.

Water and Sewer Fees

From a government-wide entity perspective, combined water and sewer fees represent
the City’s largest income stream totaling $11,268,140 in 2008. Charges to customers
are based on the amount of metered services used times rates periodically set by the
City Commission. During 2008, sewer rates were increased (to be effective January 1,
2009) as result of higher wastewater treatment and debt service charges enacted by
Muskegon County. Further sewer rate increases may be needed in 2009 due to the
potential shutdown of a major industrial sewer customer.


CONTACTING THE CITY’S FINANCIAL MANAGEMENT
This financial report is designed to provide our citizens, taxpayers, customers, and
investors and creditors with a general overview of the City’s finances and to
demonstrate the City’s accountability for the money it receives. If you have questions
about this report, need additional financial information, or wish to obtain separate
financial statements for the City’s component units, contact the City’s Finance
Department at (231) 724-6713 or by e-mail (finance@shorelinecity.com).




                                           30
FINANCIAL STATEMENTS




         31
                                                                                 City of Muskegon
                                                                       STATEMENT OF NET ASSETS (DEFICITS)
                                                                                December 31, 2008

                                                                                     ASSETS

                                                                                                        Governmental        Business-type                         Component
                                                                                                          activities          activities          Total             units
     CURRENT ASSETS
       Cash and investments                                                                         $     12,259,062    $       3,318,190   $    15,577,252   $      62,794
       Receivables                                                                                        10,306,820            3,103,040        13,409,860         645,170
       Due from other governmental units                                                                   2,627,630               71,019         2,698,649             -
       Internal balances                                                                                  (1,286,178)           1,286,178               -               -
       Due from component units                                                                               17,863                  -              17,863             -
       Inventories                                                                                            11,552              116,710           128,262             -
       Prepaid items                                                                                         405,476               35,074           440,550             -
                  Total current assets                                                                    24,342,225            7,930,211        32,272,436         707,964

     NONCURRENT ASSETS
       Restricted assets                                                                                          -              822,559           822,559               -
       Capital assets, net
          Nondepreciable                                                                                  19,450,718           2,731,783         22,182,501          400,000
          Depreciable                                                                                     58,038,888          57,268,940        115,307,828        2,920,630
       Bond issuance costs, net                                                                              132,596              72,698            205,294          104,931
       Special assessments receivable                                                                      1,834,821                 -            1,834,821              -
       Notes receivable                                                                                      192,199                 -              192,199              -
                  Total noncurrent assets                                                                 79,649,222          60,895,980        140,545,202        3,425,561
                  Total assets                                                                           103,991,447          68,826,191        172,817,638        4,133,525




32
                                                                       LIABILITIES AND NET ASSETS (DEFICITS)
     CURRENT LIABILITIES
       Accounts payable and accrued liabilities                                                             1,711,569             572,619         2,284,188          43,700
       Due to other governmental units                                                                            -               399,226           399,226             -
       Due to primary government                                                                                  -                   -                 -            17,863
       Unearned revenue                                                                                     8,539,929                 -           8,539,929         645,170
       Bonds and other obligations, due within one year                                                       909,000           1,139,000         2,048,000         300,000
                  Total current liabilities                                                               11,160,498            2,110,845        13,271,343        1,006,733

     NONCURRENT LIABILITIES
       Bonds and other obligations, less amounts due within one year                                        8,999,807         18,240,658         27,240,465        7,954,288
                  Total liabilities                                                                       20,160,305          20,351,503         40,511,808        8,961,021

     NET ASSETS (DEFICITS)
       Invested in capital assets, net of related debt                                                    69,564,935          40,876,621        110,441,556       (1,133,727)
       Restricted for:
          Streets and highways                                                                              2,216,393                -            2,216,393              -
          Debt service                                                                                            -              822,559            822,559              -
          Perpetual care
             Expendable                                                                                       60,813                  -              60,813              -
             Non-expendable                                                                                1,280,472                  -           1,280,472              -
       Unrestricted                                                                                       10,708,529            6,775,508        17,484,037       (3,693,769)
                  Total net assets (deficits)                                                       $     83,831,142    $     48,474,688    $   132,305,830   $   (4,827,496)



     The accompanying notes are an integral part of this statement.
                                                                                                          City of Muskegon
                                                                                                   STATEMENT OF ACTIVITIES
                                                                                                  For the year ended December 31, 2008

                                                                                                                                                                       Net (Expense) Revenue and Changes in Net Assets
                                                                                                             Program Revenue                                              Primary Government
                                                                                            Charges for     Operating grants        Capital grants        Governmental        Business-type                            Component
     Functions/Programs                                                    Expenses          services       and contributions     and contributions         activities          activities           Total               units
     Primary government
        Governmental activities
           Public representation services                              $      986,696   $       188,467     $         -          $             -      $       (798,229)    $           -       $      (798,229)   $           -
           Administrative services                                            782,362           257,850             1,500                      -              (523,012)                -              (523,012)               -
           Financial services                                               2,292,430           726,572            50,000                      -            (1,515,858)                -            (1,515,858)               -
           Public safety                                                   13,955,811         1,217,616            68,323                      -           (12,669,872)                -           (12,669,872)               -
           Public works                                                     3,019,411           382,072               -                     27,646          (2,609,693)                -            (2,609,693)               -
           Highways, streets and bridges                                    7,265,438           301,955         3,167,741                3,300,831            (494,911)                -              (494,911)               -
           Community and economic development                               3,174,508           297,854         2,018,321                  116,480            (741,853)                -              (741,853)               -
           Culture and recreation                                           2,623,501           405,520            61,267                      -            (2,156,714)                -            (2,156,714)               -
           General administration                                             574,955            99,494               -                        -              (475,461)                -              (475,461)               -
           Interest on long-term debt                                         324,076               -                 -                        -              (324,076)                -              (324,076)               -
              Total governmental activities                                34,999,188         3,877,400         5,367,152                3,444,957         (22,309,679)                -           (22,309,679)               -

        Business-type activities
          Sewer                                                             5,503,144         5,326,787               -                        -                   -              (176,357)           (176,357)               -
          Water                                                             5,800,977         6,240,060               -                        -                   -               439,083             439,083                -
          Marina and Launch Ramp                                              347,642           250,266               -                        -                   -               (97,376)            (97,376)               -
               Total business-type activities                              11,651,763       11,817,113                -                        -                   -              165,350             165,350                 -
                     Total primary government                          $   46,650,951   $   15,694,513      $   5,367,152        $       3,444,957         (22,309,679)           165,350          (22,144,329)               -




33
     Component units
       Local Development Finance Authority I                           $         -      $           -       $         -          $            -                    -                   -                   -                 -
       Local Development Finance Authority II                                    -                  -                 -                       -                    -                   -                   -                 -
       Local Development Finance Authority III                               381,787                -                 -                   225,000                  -                   -                   -            (156,787)
       Downtown Development Authority                                        607,483                -                 -                       -                    -                   -                   -            (607,483)
       Tax Increment Finance Authority                                        50,000                -                 -                       -                    -                   -                   -             (50,000)
       Brownfield Redevelopment Authority                                     17,863                -                 -                       -                    -                   -                   -             (17,863)
                     Total component units                             $    1,057,133   $           -       $         -          $        225,000                  -                   -                   -            (832,133)

     General revenues
        Property taxes                                                                                                                                       8,349,341                -              8,349,341           601,404
        Income taxes                                                                                                                                         8,117,566                -              8,117,566               -
        Cable franchises                                                                                                                                       304,812                -                304,812               -
        Grants and contributions not restricted to specific programs                                                                                         4,487,698                -              4,487,698               -
        Unrestricted investment earnings                                                                                                                       730,142            108,990              839,132             2,936
        Miscellaneous                                                                                                                                          160,460                -                160,460               -
        Gain on sale of capital asset                                                                                                                          323,048                -                323,048           384,787
     Transfers                                                                                                                                                 (40,000)            40,000                  -                 -
               Total general revenues and transfers                                                                                                         22,433,067            148,990           22,582,057           989,127

                  Change in net assets                                                                                                                         123,388            314,340             437,728            156,994

     Net assets (deficit) at January 1, 2008                                                                                                                83,707,754          48,160,348         131,868,102         (4,984,490)

     Net assets (deficit) at December 31, 2008                                                                                                        $     83,831,142     $    48,474,688     $ 132,305,830      $    (4,827,496)



     The accompanying notes are an integral part of this statement.
                                                                      City of Muskegon
                                                                      BALANCE SHEET
                                                                      Governmental Funds
                                                                       December 31, 2008


                                                                                                    Major Street          Other              Total
                                                                                   General         and Trunkline       governmental       governmental
                                                                                    Fund               Fund                funds              funds
     ASSETS
       Cash and investments                                                   $    3,498,120   $            -      $     5,355,891    $     8,854,011
       Receivables
          Accounts and loans                                                         425,302             28,194            628,619          1,082,115
          Property taxes                                                           5,841,950                -                  -            5,841,950
          Income taxes                                                             1,008,725                -                  -            1,008,725
          Special assessments                                                            -            1,114,182          1,059,199          2,173,381
       Due from other governmental units                                             820,181            438,612          1,352,318          2,611,111
       Due from other funds                                                              -                  -            1,722,200          1,722,200
       Due from component units                                                          -                  -               17,863             17,863
       Prepaid items                                                                 204,819             14,870              7,025            226,714
              Total assets                                                    $   11,799,097   $      1,595,858    $    10,143,115    $    23,538,070

     LIABILITIES AND FUND BALANCES
       Liabilities
          Accounts payable                                                    $      549,184   $         41,477    $        88,118    $       678,779
          Accrued liabilities                                                        536,698             44,212             46,312            627,222




34
          Due to other funds                                                             -              288,986          1,183,827          1,472,813
          Deferred revenue                                                         8,329,490            936,271          1,222,055         10,487,816
              Total liabilities                                                    9,415,372          1,310,946          2,540,312         13,266,630

        Fund balances
          Reserved for:
              Prepaid items                                                          204,819             14,870              7,025            226,714
              Long-term loans receivable                                                 -                  -              192,199            192,199
              Capital projects                                                           -                  -            2,580,714          2,580,714
              Perpetual care                                                          10,000                -            1,270,472          1,280,472
          Unreserved
              Designated, reported in capital projects funds                               -                -              992,736            992,736
              Undesignated, reported in
                 General Fund                                                      2,168,906                -                  -            2,168,906
                 Special revenue funds                                                   -              270,042          2,498,844          2,768,886
                 Permanent funds                                                         -                  -               60,813             60,813
              Total fund balances                                                  2,383,725            284,912          7,602,803         10,271,440
              Total liabilities and fund balances                             $   11,799,097   $      1,595,858    $    10,143,115    $    23,538,070




     The accompanying notes are an integral part of this statement.
                                                                        City of Muskegon
                                      RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET
                                                   TO THE STATEMENT OF NET ASSETS
                                                            December 31, 2008


     Total fund balance—governmental funds                                                                              $   10,271,440

     Amounts reported for governmental activities in the Statement of Net Assets
     are different because:

        Capital assets used in governmental activities are not financial resources and
        are not reported in the governmental funds.
           Cost of capital assets                                                                    $   120,701,318
           Accumulated depreciation                                                                      (45,427,826)       75,273,492

        Bond issuance costs are not capitalized and amortized in the governmental funds.
          Bond issuance costs                                                                               210,974
          Accumulated amortization                                                                          (78,378)          132,596

        Other receivables in governmental activities are not reported in the
        governmental funds.                                                                                                   748,066




35
        Accrued interest in governmental activities is not reported in the
        governmental funds.                                                                                                    (63,600)

        Special assessment revenue is not recognized until it is receivable in the current
        period and therefore is shown as deferred revenue in the governmental funds.                                         1,834,821

        Long-term liabilities in governmental activities are not due and payable in the
        current period and are not reported in the governmental funds.
           Bonds and notes payable                                                                        (8,461,227)
           Compensated absences                                                                           (1,349,324)       (9,810,551)

        Internal service funds are used by management to charge the costs of certain activities
        to individual funds. The assets and liabilities of the internal service funds are reported
        with governmental activities in the Statement of Net Assets.                                                         5,444,878
           Net assets of governmental activities in the Statement of Net Assets                                         $   83,831,142



     The accompanying notes are an integral part of this statement.
                                                                                City of Muskegon
                                                       STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES
                                                                                   Governmental Funds
                                                                          For the year ended December 31, 2008


                                                                                                             Major Street          Other               Total
                                                                                          General           and Trunkline       governmental        governmental
                                                                                           Fund                 Fund               funds               funds
     REVENUES
       Taxes                                                                          $   15,728,859    $            -      $            -      $    15,728,859
       Licenses and permits                                                                1,089,187                 -                   -            1,089,187
       Intergovernmental revenues
          Federal                                                                             40,622           1,662,437          2,744,798           4,447,857
          State                                                                            4,515,399           3,002,489            996,290           8,514,178
          Local                                                                               50,000                 -                  -                50,000
       Charges for services                                                                2,239,607              87,620            136,748           2,463,975
       Fines and forfeitures                                                                 559,686                 -               10,840             570,526
       Interest and rental income                                                            569,937              70,691            220,887             861,515
       Other                                                                                 526,431             248,582            328,338           1,103,351
              Total revenues                                                              25,319,728           5,071,819          4,437,901          34,829,448

     EXPENDITURES
       Current
         Public representation services                                                      987,229                 -                  -               987,229
         Administrative services                                                             632,513                 -                  -               632,513
         Financial services                                                                2,298,830                 -                  -             2,298,830
         Public safety                                                                    13,683,731                 -               70,663          13,754,394
         Public works                                                                      2,831,177                 -                  -             2,831,177




36
         Highways, streets and bridges                                                           -             5,756,135          3,312,558           9,068,693
         Community and economic development                                                1,077,312                 -                  -             1,077,312
         Culture and recreation                                                            2,378,772                 -               15,259           2,394,031
         Other governmental functions                                                        462,341                 -              100,000             562,341
       Debt service
         Principal                                                                           45,000             390,000             564,148             999,148
         Interest and fees                                                                  230,833               6,093              73,506             310,432
       Capital outlay                                                                       174,755                 -             2,644,833           2,819,588
              Total expenditures                                                          24,802,493           6,152,228          6,780,967          37,735,688

     Excess of revenues over (under) expenditures                                           517,235           (1,080,409)         (2,343,066)         (2,906,240)

     OTHER FINANCING SOURCES (USES)
       Proceeds from sale of capital assets                                                      -                  -               375,723              375,723
       Long-term debt issued                                                                     -                  -               500,000              500,000
       Transfers in                                                                          243,904            200,000           1,033,813            1,477,717
       Transfers out                                                                      (1,298,046)            (3,813)           (107,632)          (1,409,491)
              Total other financing sources (uses)                                        (1,054,142)           196,187           1,801,904             943,949

     Net change in fund balances                                                            (536,907)           (884,222)          (541,162)          (1,962,291)

     Fund balances at January 1, 2008                                                      2,920,632           1,169,134          8,143,965          12,233,731

     Fund balances at December 31, 2008                                               $    2,383,725    $       284,912     $     7,602,803     $    10,271,440




     The accompanying notes are an integral part of this statement.
                                                                           City of Muskegon
                         RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES
                                  AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES
                                                   For the year ended December 31, 2008


     Net change in fund balances—total governmental funds                                                                                  $   (1,962,291)

     Amounts reported for governmental activities in the Statement of Activities are
     different because:

        Governmental funds report outlays for capital assets and bond issuance costs as expenditures; in the Statement
        of Activities, these costs are depreciated and amortized over their estimated useful lives, respectively.
           Depreciation and amortization expense                                                                         $   (4,038,764)
           Capital outlay                                                                                                     5,473,828        1,435,064
        Debt proceeds are other financing source in the governmental funds, but the proceeds
        increase long-term debt in the Statement of Net Assets.                                                                                 (500,000)
        Revenue reported in the Statement of Activities that does not provide current
        financial resources are not reported as revenue in the governmental funds.                                                               223,066
        Repayment of principal on long-term debt is an expenditure in the governmental funds, but




37
        the repayment reduces long-term liabilities in the Statement of Net Assets.                                                              998,173
        Interest expense on long-term debt is recorded in the Statement of Activities
        when incurred, but is not reported in the governmental funds until paid.                                                                    (800)
        Compensated absences are reported on the accrual method in the Statement
        of Activities and reported as expenditures when financial resources are
        used in the governmental funds.                                                                                                          (91,832)
        Governmental funds recognize special assessments as revenue as they become current,
        however they are recognized in full when levied in the Statement of Net Assets.                                                         (167,108)
        The internal service funds are used by management to charge the costs of certain activities to
        individual funds. The net change of the internal service funds is reported with governmental
        activities.                                                                                                                              189,116
              Change in net assets of governmental activities                                                                              $     123,388




     The accompanying notes are an integral part of this statement.
                                                                                          City of Muskegon
                                                                                   STATEMENT OF NET ASSETS
                                                                                         Proprietary Funds
                                                                                        December 31, 2008

                                                                                              ASSETS
                                                                                                                                                                                      Governmental
                                                                                                                                                                                       Activities -
                                                                                                                 Business-type Activities - Enterprise Funds                            Internal
                                                                                                                                           Marina and                                   Service
                                                                                            Sewer                    Water                Launch Ramp                 Total              Funds
     CURRENT ASSETS
       Cash and investments                                                           $           -          $      3,232,652          $        85,538         $    3,318,190     $      3,405,050
       Accounts receivable                                                                  1,636,899               1,455,389                   10,752              3,103,040            1,592,669
       Due from other governmental units                                                          -                    66,674                    4,345                 71,019               16,519
       Inventories                                                                             25,694                  91,016                      -                  116,710               11,552
       Prepaid items                                                                           14,021                  20,090                      963                 35,074              178,762
                  Total current assets                                                      1,676,614               4,865,821                 101,598               6,644,033            5,204,552
     NONCURRENT ASSETS
       Restricted assets                                                                          -                   822,559                      -                  822,559                  -
       Capital assets
         Land                                                                                  16,188                 103,500                   22,562                 142,250              65,000
         Land improvements                                                                        -                       -                  1,888,965               1,888,965             121,648
         Buildings, improvements and systems                                               19,154,152              61,732,790                2,322,488              83,209,430           1,559,334
         Machinery and equipment                                                               39,722               1,563,598                      -                 1,603,320           7,417,363
         Construction in progress                                                             812,398               1,777,135                      -                 2,589,533                 -
             Less accumulated depreciation                                                 (6,565,912)            (20,812,342)              (2,054,521)            (29,432,775)         (6,947,231)
                  Net capital assets                                                       13,456,548              44,364,681                2,179,494             60,000,723            2,216,114
         Bond issuance costs, net                                                                 -                     72,698                     -                   72,698                  -




38
                  Total noncurrent assets                                                  13,456,548              45,259,938                2,179,494             60,895,980            2,216,114
                     Total assets                                                          15,133,162              50,125,759                2,281,092             67,540,013            7,420,666

                                                                                   LIABILITIES AND NET ASSETS
     CURRENT LIABILITIES
       Accounts payable                                                                       44,930                  326,498                    5,781                377,209             300,622
       Accrued liabilities                                                                    29,406                  165,211                      793                195,410              41,345
       Due to other governmental units                                                       373,751                   25,475                      -                  399,226                 -
       Due to other funds                                                                    249,387                      -                        -                  249,387                 -
       Bonds and other obligations, due within one year                                       11,600                1,127,000                      400              1,139,000              16,000
                  Total current liabilities                                                  709,074                1,644,184                    6,974              2,360,232             357,967

     NONCURRENT LIABILITIES
       Bonds and other obligations, less amounts due within one year                           66,923              18,172,019                    1,716             18,240,658               82,256
                     Total liabilities                                                       775,997               19,816,203                    8,690             20,600,890             440,223
     NET ASSETS
       Invested in capital assets, net of related debt                                     13,456,547              25,240,580                2,179,494             40,876,621            2,216,114
       Restricted for debt service                                                                -                   822,559                      -                  822,559                  -
       Unrestricted                                                                           900,618               4,246,417                   92,908              5,239,943            4,764,329
                     Total net assets                                                 $    14,357,165        $     30,309,556          $     2,272,402             46,939,123     $      6,980,443
     Adjustment to reflect the consolidation of internal service fund activities
       related to enterprise funds                                                                                                                                  1,535,565
     Net assets of business-type activities                                                                                                                    $   48,474,688


     The accompanying notes are an integral part of this statement.
                                                                                      City of Muskegon
                                                           STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS
                                                                                      Proprietary Funds
                                                                            For the year ended December 31, 2008

                                                                                                                                                                          Governmental
                                                                                                                                                                           Activities -
                                                                                                      Business-type Activities - Enterprise Funds                           Internal
                                                                                                                                 Marina and                                  Service
                                                                                         Sewer               Water              Launch Ramp               Total               Funds
     OPERATING REVENUES
       Charges for services                                                         $    5,201,800    $     6,066,340       $       242,787         $   11,510,927    $      7,803,575
       Other                                                                               124,987            173,720                 7,479                306,186              92,824
                Total operating revenues                                                 5,326,787          6,240,060               250,266             11,817,113           7,896,399

     OPERATING EXPENSES
       Administration                                                                      330,080            490,694                22,440                843,214             300,360
       Insurance premiums and claims                                                           -                  -                     -                      -             3,832,770
       Wastewater treatment                                                              4,647,049                -                     -                4,647,049                 -
       Filtration plant operations                                                             -            1,383,957                   -                1,383,957                 -
       Water distribution                                                                      -            1,531,444                   -                1,531,444                 -
       Other operations                                                                        -                  -                 195,516                195,516           3,000,115
       Bad debts                                                                             2,214              1,808                   -                    4,022                 -
       Depreciation and amortization                                                       532,656          1,797,889               130,582              2,461,127             559,875
                Total operating expenses                                                 5,511,999          5,205,792               348,538             11,066,329           7,693,120

                Operating income (loss)                                                   (185,212)         1,034,268                (98,272)             750,784              203,279




39
     NONOPERATING REVENUES (EXPENSES)
       Investment earnings                                                                  11,860             96,075                  1,055               108,990             103,129
       Gain on sale of capital assets                                                          -                  -                      -                     -                28,529
       Interest expense                                                                    (12,550)          (610,479)                   -                (623,029)                -
                Total nonoperating revenue (expenses)                                         (690)          (514,404)                 1,055              (514,039)            131,658

                Income (loss) before transfers                                            (185,902)           519,864                (97,217)             236,745              334,937

     Transfers in                                                                              -                   -                 40,000                 40,000              28,046
     Transfers out                                                                             -                   -                    -                      -              (136,272)
                Change in net assets                                                      (185,902)           519,864                (57,217)             276,745              226,711

     Net assets at January 1, 2008                                                      14,543,067         29,789,692             2,329,619                                  6,753,732

     Net assets at December 31, 2008                                                $   14,357,165    $    30,309,556       $     2,272,402                           $      6,980,443

     Adjustments to reflect the consolidation of internal service fund activities
       related to enterprise funds                                                                                                                          37,595
     Change in net assets of business-type activities                                                                                               $     314,340



     The accompanying notes are an integral part of this statement.
                                                                                               City of Muskegon
                                                                                      STATEMENT OF CASH FLOWS
                                                                                               Proprietary Funds
                                                                                     For the year ended December 31, 2008

                                                                                                                                                                                      Governmental
                                                                                                                                                                                       Activities -
                                                                                                                  Business-type Activities - Enterprise Funds                           Internal
                                                                                                                                             Marina and                                 Service
                                                                                                    Sewer                Water               Launch Ramp              Total              Funds
     CASH FLOWS FROM OPERATING ACTIVITIES
       Receipts from customers                                                                $     4,949,503      $     5,890,410      $        243,754        $   11,083,667    $        161,274
       Receipts from interfund services provided                                                       34,868              165,605                   -                 200,473           7,803,575
       Payments to suppliers                                                                       (3,478,874)          (1,454,718)             (103,425)           (5,037,017)         (6,372,465)
       Payments to employees                                                                         (751,866)          (1,164,003)              (95,178)           (2,011,047)           (961,276)
       Payments for interfund services used                                                          (620,785)            (681,913)              (21,177)           (1,323,875)           (679,326)
              Net cash provided by (used for) operating activities                                    132,846               2,755,381             23,974             2,912,201             (48,218)
     CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES
       Transfers in                                                                                       -                       -               40,000               40,000               28,046
       Transfers out                                                                                      -                       -                  -                    -               (136,272)
       Interfund borrowing                                                                            249,387                     -                  -                249,387                  -
              Net cash provided by (used for) noncapital financing activities                         249,387                     -               40,000              289,387             (108,226)
     CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES
       Purchases of capital assets                                                                   (602,806)          (1,768,200)                   -             (2,371,006)           (259,430)
       Principal paid on capital debt                                                                (546,278)          (1,080,000)                   -             (1,626,278)                -
       Interest paid on capital debt                                                                  (12,550)            (600,377)                   -               (612,927)                -
       Proceeds from sale of capital assets                                                               -                    -                      -                    -                35,229
              Net cash used for capital and related financing activities                           (1,161,634)          (3,448,577)                   -             (4,610,211)           (224,201)




40
     CASH FLOW FROM INVESTING ACTIVITIES
       Investment earnings                                                                             11,860                 96,075               1,055              108,990              103,129
              Net increase (decrease) in cash and investments                                        (767,541)              (597,121)             65,029            (1,299,633)           (277,516)
     Cash and investments at January 1, 2008                                                          767,541               4,652,332             20,509             5,440,382           3,682,566
     Cash and investments at December 31, 2008                                                $           -        $        4,055,211   $         85,538        $    4,140,749    $      3,405,050
     Reconciliation of cash and investments to the statement of net assets
       Cash and investments                                                                   $           -        $        3,232,652   $         85,538        $    3,318,190    $      3,405,050
       Restricted cash and investments                                                                    -                   822,559                -                 822,559                 -
                                                                                              $           -        $        4,055,211   $         85,538        $    4,140,749    $      3,405,050
     Reconciliation of operating income (loss) to net cash provided by (used for)
       operating activities
          Operating income (loss)                                                             $      (185,212)     $        1,034,268   $        (98,272)       $     750,784     $        203,279
          Adjustments to reconcile operating income (loss) to net cash provided by
              (used for) operating activities
                  Depreciation and amortization expense                                               532,656               1,797,889            130,582             2,461,127             559,875
                  Bad debt expense                                                                      2,214                   1,808                -                   4,022                 -
              Change in assets and liabilities
                  Receivables, net                                                                   (382,477)              (209,527)              (6,512)            (598,516)           (958,397)
                  Inventories                                                                           3,007                 19,575                  -                 22,582              11,783
                  Prepaid items                                                                        (1,365)                (1,470)                (232)              (3,067)            (18,649)
                  Accounts payable                                                                    153,880                114,499                 (234)             268,145             138,205
                  Accrued liabilities                                                                  10,143                 (1,661)              (1,358)               7,124              15,686
                     Net cash provided by (used for) operating activities                     $       132,846      $        2,755,381   $         23,974        $    2,912,201    $        (48,218)



     The accompanying notes are an integral part of this statement.
                                                         City of Muskegon
                                  STATEMENT OF FIDUCIARY ASSETS AND LIABILITIES
                                                  Fiduciary Funds
                                                 December 31, 2008




                                                                                      Agency
                                                                                       Funds
     ASSETS
       Cash and investments                                                       $   11,120,832
       Receivables
         Accounts                                                                          2,767
         Property taxes                                                               14,393,066
              Total assets                                                        $   25,516,665

     LIABILITIES




41
       Accounts payable                                                           $      193,101
       Due to other governmental units                                                25,141,666
       Deposits held for others                                                          181,898
              Total liabilities                                                   $   25,516,665




     The accompanying notes are an integral part of this statement.
                                                                                           City of Muskegon
                                                                              STATEMENT OF NET ASSETS (DEFICITS)
                                                                                 Discretely Presented Component Units
                                                                                          December 31, 2008

                                                                                                     ASSETS

                                                                     Local                 Local               Local                                   Tax
                                                                  Development           Development         Development         Downtown           Increment     Brownfield
                                                                    Finance               Finance             Finance           Development          Finance    Redevelopment
                                                                   Authority I           Authority II       Authority III        Authority          Authority     Authority          Total
     CURRENT ASSETS
       Cash and investments                                   $           347       $         25,092    $          8,753    $       14,619     $      13,983    $       -       $      62,794
       Property taxes receivable                                          -                      -                68,380           518,996            53,773          4,021           645,170
                  Total current assets                                    347                 25,092              77,133           533,615            67,756          4,021           707,964

     NONCURRENT ASSETS
       Capital assets, net
         Nondepreciable                                                   -                      -               400,000                -                 -             -             400,000
         Depreciable                                                      -                      -             2,920,630                -                 -             -           2,920,630
                  Net capital assets                                      -                      -             3,320,630                -                 -             -           3,320,630

        Bond issuance costs, net                                          -                      -               104,931                -                 -             -             104,931
                  Total noncurrent assets                                 -                      -             3,425,561                -                 -             -           3,425,561




42
                     Total assets                                         347                 25,092           3,502,694           533,615            67,756          4,021         4,133,525

                                                                                 LIABILITIES AND NET ASSETS (DEFICITS)
     CURRENT LIABILITIES
       Accrued liabilities                                                -                      -                33,300            10,400               -              -              43,700
       Due to primary government                                          -                      -                   -                 -                 -           17,863            17,863
       Deferred revenue                                                   -                      -                68,380           518,996            53,773          4,021           645,170
       Bonds and other obligations, due within one year                   -                      -                80,000           220,000               -              -             300,000
                  Total current liabilities                               -                      -               181,680           749,396            53,773         21,884         1,006,733

     NONCURRENT LIABILITIES
       Bonds and other obligations, less amounts due
         within one year                                                  -                      -             4,479,288          3,475,000               -             -           7,954,288
                     Total liabilities                                    -                      -             4,660,968          4,224,396           53,773         21,884         8,961,021

     NET ASSETS (DEFICITS)
       Invested in capital assets, net of related debt                    -                      -            (1,133,727)               -                -              -           (1,133,727)
       Unrestricted                                                       347                 25,092             (24,547)        (3,690,781)          13,983        (17,863)        (3,693,769)
                     Total net assets (deficits)              $           347       $         25,092    $     (1,158,274)   $    (3,690,781)   $      13,983    $   (17,863)    $   (4,827,496)


     The accompanying notes are an integral part of this statement.
                                                                                                                 City of Muskegon
                                                                                                        STATEMENT OF ACTIVITIES
                                                                                                       Discretely Presented Component Units
                                                                                                       For the year ended December 31, 2008


                                                                                            Program
                                                                                            Revenue                                                    Net (Expense) Revenue and Changes in Net Assets
                                                                                                                   Local              Local               Local                                Tax
                                                                                          Capital grants        Development        Development         Development       Downtown          Increment      Brownfield
                                                                                               and                Finance            Finance             Finance        Development          Finance     Redevelopment
     Functions/Programs                                                   Expenses        contributions          Authority I        Authority II       Authority III      Authority         Authority      Authority          Total
     Local Development Finance Authority I
       Economic development                                           $         -     $            -        $           -      $            -      $            -      $          -      $        -      $       -       $            -

     Local Development Finance Authority II
       Economic development                                                     -                  -                    -                   -                   -                 -               -              -                    -

     Local Development Finance Authority III
       Economic development                                                 178,821               -                     -                   -              (178,821)              -               -              -            (178,821)
       Interest on long-term debt                                           202,966           225,000                   -                   -                22,034               -               -              -              22,034
           Total Local Development Finance Authority III                    381,787           225,000                   -                   -              (156,787)              -               -              -            (156,787)

     Downtown Development Authority
       Distributions to other taxing authorities                            468,641                -                    -                   -                   -           (468,641)             -              -            (468,641)
       Interest on long-term debt                                           138,842                -                    -                   -                   -           (138,842)             -              -            (138,842)
           Total Downtown Development Authority                             607,483                -                    -                   -                   -           (607,483)             -              -            (607,483)




43
     Tax Increment Finance Authority
       Economic development                                                  50,000                -                    -                   -                   -                 -           (50,000)           -             (50,000)

     Brownfield Redevelopment Authority
        Economic development                                                 17,863                -                    -                   -                   -                 -               -          (17,863)          (17,863)
           Total discretely presented component units                 $   1,057,133   $       225,000                   -                   -              (156,787)        (607,483)         (50,000)       (17,863)         (832,133)

     General revenues
       Property taxes                                                                                                   -                  -                38,249           505,697           57,458            -             601,404
       Unrestricted investment income                                                                                    12                699               1,126               926              173            -               2,936
       Miscellaneous                                                                                                    -                  -                   -             384,787              -              -             384,787
           Total general revenues                                                                                        12                699              39,375           891,410           57,631            -             989,127

                  Change in net assets                                                                                   12                699             (117,412)         283,927            7,631        (17,863)          156,994

     Net assets (deficits) at January 1, 2008                                                                           335             24,393           (1,040,862)       (3,974,708)          6,352            -           (4,984,490)

     Net assets (deficits) at December 31, 2008                                                             $           347    $        25,092     $     (1,158,274)   $   (3,690,781)   $     13,983    $   (17,863)    $   (4,827,496)




     The accompanying notes are an integral part of this statement.
                                             City of Muskegon
                                 NOTES TO FINANCIAL STATEMENTS
                                         December 31, 2008


NOTE A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  The financial statements of the City of Muskegon (City) have been prepared in conformity with accounting
  principles generally accepted in the United States of America (GAAP) as applied to government units. The
  Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing
  governmental accounting and financial reporting principles. The more significant of the City's accounting
  policies are described below.

  Reporting Entity
  The City of Muskegon was incorporated October 6, 1919, under the provisions of the Home Rule Act of the
  State of Michigan. The City is a municipal corporation governed by an elected mayor and six-member City
  Commission and is administered by a city manager appointed by the City Commission. The accompanying
  financial statements present the government and its component units, entities for which the government is
  considered to be financially accountable. Blended component units, although legally separate entities, are, in
  substance, part of the government's operations. Each discretely presented component unit is reported in a
  separate column in the government-wide financial statements (see note below for description) to emphasize
  that it is legally separate from the government. Each discretely presented component unit has a December 31
  fiscal year end.

  Blended Component Unit
  Building Authority. The Authority is governed by a three-member board comprised of the City Manager, City
  Attorney and City Finance Director. For financial reporting purposes, the Building Authority is reported as if
  it were part of the City’s operations since its sole purpose is to acquire and lease property to the City.
  Currently, there is no outstanding Building Authority indebtedness.

  Discretely Presented Component Units
  Downtown Development Authority (DDA). The Authority’s sole purpose is the collection of property
  tax incremental revenues, the issuance and repayment of debt and the construction of public facilities
  to promote and facilitate economic growth in the downtown district. Members of the DDA are
  appointed by the City Commission and the Authority is fiscally dependent on the City since the City
  Commission approves the DDA budget and must approve any debt issuance. The DDA is presented
  as a governmental fund type.

  Tax Increment Finance Authority (TIFA). The Authority’s sole purpose is the collection of property tax
  incremental revenues and promotion of economic development activities (including issuance of debt) in a
  sub-section of the downtown district. Members of the TIFA are appointed by the City Commission and the
  Authority is fiscally dependent on the City since the City Commission approves the TIFA budget and must
  approve any debt issuance. The TIFA is presented as a governmental fund type.

  Local Development Finance Authority (LDFA). The City has created three separate local development
  finance authority districts under the aegis of the LDFA to promote and facilitate economic growth in the Port
  City Industrial Park, the Medendorp Industrial Park, and the SmartZone Hi-Tech Park. The LDFA’s sole
  purpose is the collection of property tax incremental revenues and the construction of public facilities within
  the districts. Members of the LDFA are appointed by the City Commission and the Authority is fiscally
  dependent on the City since the City Commission approves budgets and must approve any debt issuance. The
  LDFA districts are presented as governmental fund types.




                                                      44
                                              City of Muskegon
                          NOTES TO FINANCIAL STATEMENTS—CONTINUED
                                        December 31, 2008


NOTE A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES—Continued

  Reporting Entity—Continued
  Discretely Presented Component Units—Continued
  Brownfield Redevelopment Authority (BRA). The Authority’s sole purpose is the collection of property tax
  incremental revenues and promotion of environmental remediation (including issuance of debt) in designated
  brownfield areas. Members of the BRA are appointed by the City Commission and the Authority is fiscally
  dependent on the City since the City Commission approves the BRA budget and must approve any debt
  issuance. The BRA is presented as a governmental fund type.

  Complete financial statements of the component units can be obtained from their administrative offices,
  933 Terrace Street, Muskegon, Michigan 49443.

  Related Organizations
  The following organizations are related to the City’s financial reporting entity:

  Muskegon Hospital Finance Authority. The Muskegon Hospital Finance Authority was created by the City of
  Muskegon in accordance with the laws of the State of Michigan. Members of the Hospital Finance Authority
  are appointed by the City but the City is not financially accountable for the Authority and therefore the
  Authority is excluded from the accompanying financial statements. The Hospital Finance Authority’s sole
  purpose is to issue tax-exempt debt for the benefit of Mercy Health Partners Hospital which is located within
  the City. The Authority has no assets or financial activity and does not prepare financial statements. The
  Hospital Finance Authority has no taxing power. As of December 31, 2008, there was no outstanding debt
  issued by the Hospital Finance Authority. The City is not obligated in any manner for repayment of debt
  issued by the Hospital Finance Authority, as any debt is payable solely from contractual payments from the
  hospitals.

  Muskegon Housing Commission. The Muskegon Housing Commission was created by the City of Muskegon
  in accordance with the laws of the State of Michigan. Members of the Housing Commission are appointed by
  the City but the City is not financially accountable for the Commission and therefore the Commission is
  excluded from the accompanying financial statements. The Housing Commission’s main purpose is to
  administer activities that provide adequate housing facilities for low-income families and the elimination of
  housing conditions that are detrimental to the public peace, health, safety, and welfare. The Commission’s
  policy is to prepare its financial statements on the basis prescribed by the Department of Housing and Urban
  Development. Accordingly, the summary information below (which is required by federal regulations), is not
  intended to present financial position and results of operations in conformity with generally accepted
  accounting principles. Summary financial information for the fiscal year ended September 30, 2007, the date
  of its latest audited financial statements is as follows:

      Total assets                                                                    $   5,205,916
      Total liabilities                                                                    (164,799)
      Total net assets                                                                $   5,041,117

      Total operating income                                                          $      325,031
      Total operating expenses                                                            (1,995,453)
      Total nonoperating revenues                                                          1,619,065
      Change in net assets                                                            $     (51,357)




                                                       45
                                              City of Muskegon
                        NOTES TO FINANCIAL STATEMENTS—CONTINUED
                                      December 31, 2008


NOTE A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES—Continued

  Government-Wide and Fund Financial Statements
  The government-wide financial statements (i.e., the statement of net assets and the statement of changes in net
  assets) report information on all of the nonfiduciary activities of the primary government and its component
  units. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are
  reported separately from business-type activities, which rely to a significant extent on fees and charges for
  support. Likewise, the primary government is reported separately from certain legally separate component
  units for which the primary government is financially accountable.

  The statement of activities demonstrates the degree to which the direct expenses of a given function or
  segment are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific
  function or segment. Program revenues include 1) charges to customers or applicants who purchase, use, or
  directly benefit from goods, services, or privileges provided by a given function or segment and 2) grants and
  contributions that are restricted to meeting the operational or capital requirement of a particular function or
  segment. Taxes and other items not properly included among program revenues are reported instead as
  general revenues.

  Separate financial statements are provided for governmental funds, proprietary funds, and fiduciary funds,
  even though the latter are excluded from the government-wide financial statements. Major individual
  governmental funds and major individual enterprise funds are reported as separate columns in the fund
  financial statements.

  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, as are the proprietary fund and fiduciary fund financial statements excepting
  agency funds which have no measurement focus. Revenues are recorded when earned and expenses are
  recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are
  recognized as revenues 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.

  Governmental fund financial statements are reported using the current financial resources measurement focus
  and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable
  and available. Revenues are considered to be available when they are collectible within the current period or
  soon enough thereafter to pay liabilities of the current period. For this purpose, the government considers
  revenues to be available if they are collected within 60 days of the end of the current fiscal period.
  Reimbursements due for expenditure-driven grants are accrued as revenue at the time the expenditures are
  made, or when received in advance, deferred until expenditures are made. Expenditures generally are
  recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as
  well as expenditures related to compensated absences and claims and judgments, are recorded only when
  payment is due.

  Income taxes, property taxes, franchise taxes, 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 due within 60 days of the end of the current fiscal
  period is considered to be susceptible to accrual as revenue of the current period. All other revenue items are
  considered to be measurable and available only when cash is received by the government.




                                                       46
                                             City of Muskegon
                       NOTES TO FINANCIAL STATEMENTS—CONTINUED
                                     December 31, 2008


NOTE A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES—Continued

  Measurement Focus, Basis of Accounting and Financial Statement Presentation—Continued
  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 general government, except those required to be accounted for in another fund.

      The Major Street and Trunkline Fund accounts for gas and weight tax allocations to the City by
      the Michigan Department of Transportation for construction and maintenance of major streets
      within the City.

  The City reports the following three major proprietary funds:

      The Sewer Fund accounts for user charges and for operating expenses and debt service of the
      City’s sewer system.
      The Water Fund accounts for user charges and for operating expenses and debt service of the
      City’s water system.
      The Marina and Launch Ramp Fund accounts for user fees collected and operating expenses for
      the Hartshorn Marina and boat launch ramp facilities.

  Additionally, the City reports the following fund types:

      Internal Service Funds account for internal engineering services for City projects; the purchase,
      operation, and depreciation of all City owned equipment; the payment of insurance claims and
      benefits; and the operation, maintenance, and depreciation of the City’s public service building to
      other funds of the government on a cost reimbursement basis.

      The Agency Funds are used to account for assets held by the City as an agent for another
      organization or individual.

  Private-sector standards of accounting and financial reporting issued prior to December 1, 1989, generally
  are followed in both the government-wide and proprietary fund financial statements to the extent that those
  standards do not conflict with or contradict guidance of the Government Accounting Standards Board.
  Governments also have the option of following subsequent private-sector guidance for their business-type
  activities and enterprise funds, subject to this same limitation. The City has elected not to follow
  subsequent private-sector guidance.

  As a general rule the effect of interfund activity has been eliminated from the government-wide financial
  statements. Exceptions to this general rule are payments-in-lieu of taxes and other charges between the City's
  water and sewer function and various other functions of the government. Elimination of these charges would
  distort the direct costs and program revenues reported for the various functions concerned.




                                                      47
                                              City of Muskegon
                        NOTES TO FINANCIAL STATEMENTS—CONTINUED
                                      December 31, 2008


NOTE A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES—Continued

  Measurement Focus, Basis of Accounting and Financial Statement Presentation—Continued
  Amounts reported as program revenues include 1) charges to customers or applicants for goods, services or
  privileges provided, 2) operating grants and contributions and 3) capital grants and contributions, including
  special assessments. Internally dedicated resources are reported as general revenues rather than as program
  revenues. Likewise, general revenues include all taxes.

  Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues
  and expenses generally result from providing services and producing and delivering goods in connection with
  a proprietary fund's principal ongoing operations. The principal operating revenues are charges to customers
  for sales and services. The enterprise funds also recognize as operating revenue the portion of tap fees
  intended to recover the cost of connecting new customers to the system. Operating expenses for proprietary
  funds include the cost of sales and services, administrative expenses and depreciation on capital assets. All
  revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses.

  When both restricted and unrestricted resources are available for use, it is the City's policy to use restricted
  resources first, then unrestricted resources as they are needed.

  Assets, Liabilities and Net Assets or Equity

  Deposits and Investments
  The City's cash and cash equivalents are considered to be cash on hand, demand deposits and short-term
  investments with original maturities of three months or less from the date of acquisition.

  The City reports its investments in accordance with GASB Statement No. 31, Accounting and Financial
  Reporting for Certain Investments and for External Investment Pools. Under this standard, certain
  investments are valued at fair value as determined by quoted market prices or by estimated fair values when
  quoted market prices are not available. The standard also provides that certain investments are valued at cost
  (or amortized cost) when they are of a short-term duration, the rate of return is fixed, and the City intends to
  hold the investment until maturity.

  The City has adopted an investment policy in compliance with State of Michigan statutes. Those statutes
  authorize the City to invest in obligations of the United States, certificates of deposit, prime commercial
  paper, securities guaranteed by United States agencies or instrumentalities, United States government or
  federal agency obligation repurchase agreements, bankers acceptances, state-approved investment pools and
  certain mutual funds.

  The City maintains a cash and investment pool that is available for use by all funds and component units.
  Each fund type’s or component unit’s portion of this pool is displayed on the combined balance sheet as “cash
  and investments”. Cash overdrafts represent a deficit position in the pooled account and have been classified
  as amounts due to other funds.




                                                        48
                                               City of Muskegon
                        NOTES TO FINANCIAL STATEMENTS—CONTINUED
                                      December 31, 2008


NOTE A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES—Continued

  Assets, Liabilities and Net Assets or Equity—Continued

  Deposits and Investments—Continued
  For the purpose of the statement of cash flows, the City considers all assets held in the cash and investment
  pool to be cash and cash equivalents because the investments are not identifiable to the specific funds and the
  assets can be withdrawn at any time, similar to a demand deposit account.

  In accordance with State law, interest earned in the Budget Stabilization Fund is recorded in the General
  Fund.

  Receivables and Payables
  Activity between funds that are representative of lending/borrowing arrangements outstanding at the end of
  the fiscal year are referred to as either "due to/from other funds" (i.e., the current portion of interfund loans)
  or "advances to/from other funds" (i.e., the non-current portion of interfund loans). All other outstanding
  balances between funds are reported as "due to/from other funds". Any residual balances outstanding
  between the governmental activities and business-type activities are reported in the government-wide
  financial statements as "internal balances".

  Advances between funds, as reported in the fund financial statements, are offset by a fund balance reserve
  account in applicable governmental funds to indicate that they are not available for appropriation and are not
  expendable available financial resources.

  All trade and property tax receivables are shown net of allowance for uncollectibles.

  The City bills and collects its own property taxes and also collects taxes for the county, school and State of
  Michigan. Taxes are levied on each December 1 on the taxable valuation of property (as defined by state
  statutes) located in the Local Governmental Unit as of the preceding December 31. Uncollectible real
  property taxes as of the following March 1 are turned over by the City to the County for collection. The
  County advances the City all these delinquent real property taxes. The delinquent personal property taxes
  remain the responsibility of the City. Taxes levied on December 1 are recorded as receivables and deferred
  revenue. Taxes are recognized as revenue (and become available for appropriation) in the calendar year
  following the levy.

  The 2007 state taxable value for real/personal property of the City totaled approximately $711,134,000 of
  which approximately $18,473,000 was captured by the component units. The ad valorem taxes levied
  consisted of 8.5, 2.5, and .0685 mills for the City's general operating, sanitation, and community promotion
  purposes. These amounts are recognized in the General Fund with captured amounts shown in the TIFA,
  LDFA, and DDA component units.

  Inventories and Prepaid Items
  All inventories are valued at cost using the first-in/first-out (FIFO) method. Inventories of governmental
  funds are recorded as expenditures when consumed rather than when purchased.

  Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid
  items in both government-wide and fund financial statements.




                                                        49
                                               City of Muskegon
                        NOTES TO FINANCIAL STATEMENTS—CONTINUED
                                      December 31, 2008


NOTE A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES—Continued

  Assets, Liabilities and Net Assets or Equity—Continued

  Restricted Assets
  Certain proceeds of the Water Fund revenue bonds, as well as certain resources set aside for their repayment,
  are classified as restricted assets on the statement of net assets because their use is limited by applicable bond
  covenants.

  Capital Assets
  Capital assets, which include property, plant, equipment and infrastructure assets (e.g., roads, bridges,
  sidewalks and similar items), are reported in the applicable governmental or business-type activities columns
  in the government-wide financial statements. Capital assets are defined by the government as assets with an
  initial, individual cost of more than $10,000 and an estimated useful life in excess of two years. Such assets
  are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets
  are recorded at estimated fair market value at the date of donation.

  The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend
  assets lives are not capitalized.

  Major outlays for capital assets and improvements are capitalized as projects are constructed. Interest
  incurred during the construction phase of capital assets of business-type activities is included as part of the
  capitalized value of the assets constructed.

  In the case of the initial capitalization of general infrastructure assets (i.e., those reported by governmental
  activities) the City chose to include all such items regardless of their acquisition date or amount. The City
  was able to obtain the historical cost of the initial reporting of these assets by recording the actual costs
  incurred by the City.

  Property, plant and equipment of the primary government, as well as the component units, is depreciated
  using the straight-line method over the following estimated useful lives:

            Assets                                                                             Years
      Land improvements                                                                         5-25
      Leasehold improvements                                                                   10-25
      Buildings and improvements                                                               25-50
      Water and sewage mains                                                                   40-100
      Furniture, vehicles and equipment                                                         5-20
      Infrastructure                                                                           15-50
      Shared improvements                                                                        20




                                                        50
                                             City of Muskegon
                        NOTES TO FINANCIAL STATEMENTS—CONTINUED
                                      December 31, 2008


NOTE A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES—Continued

  Assets, Liabilities and Net Assets or Equity—Continued

  Compensated Absences
  City employees are granted vacation and sick leave in varying amounts based on length of service and
  employee group. Unused vacation and sick leave days are paid to employees upon termination under limits
  that vary by employee group. The liability for these compensated absences is accrued when incurred in the
  government-wide and proprietary fund financial statements. The current portion of this debt is estimated
  based on historical trends. A liability for these amounts is reported in the governmental funds only if they
  have matured, for example, as a result of employee resignations and retirements.

  Long-Term Obligations
  In the government-wide financial statements and proprietary fund types in the fund financial statements, long-
  term debt and other long-term obligations are reported as liabilities in the applicable governmental activities,
  business-type activities or proprietary fund type statement of net assets. Bond premiums and discounts as
  well as issuance costs, are deferred and amortized over the life of the bonds using the effective interest
  method. Bonds payable are reported net of the applicable bond premium or discount. Bond issuance costs
  are reported as deferred charges and amortized over the term of the related debt.

  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.

  Fund Equity
  In the fund financial statements, governmental funds report reservations of fund balance for amounts that
  are not available for appropriation or are legally restricted by outside parties for use for a specific
  purpose. Designations of fund balance represent tentative management plans that are subject to change.

  Use of Estimates
  The preparation of financial statements in conformity with generally accepted accounting principles
  requires management to make estimates and assumptions that affect certain reported amounts and
  disclosures.

  Comparative Data
  Comparative total data for the prior year have been presented in selected sections of the accompanying
  financial statements in order to provide an understanding of changes in the City’s financial position and
  operations. However, comparative (i.e. presentation of prior year’s totals by fund type) data has not been
  presented in each of the statements since its inclusion would make the statements unduly complex and
  difficult to read. Also, certain items in the 2007 financial statements have been reclassified to conform to
  the 2008 presentation.




                                                      51
                                            City of Muskegon
                       NOTES TO FINANCIAL STATEMENTS—CONTINUED
                                     December 31, 2008


NOTE B—STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY

  Budgetary Information
  Annual budgets are adopted on a basis consistent with generally accepted accounting principles for the
  general fund and all special revenue funds. All annual appropriations lapse at fiscal year end.

  The City follows these procedures in establishing the budgetary information provided in the financial
  statements:

      a. Prior to September 1, the City Manager submits to the City Commission a proposed
         operating budget for the fiscal year commencing the following January 1. The
         operating budget includes proposed expenditures and the means of financing them.

      b. Public hearings are conducted at City Hall to obtain public comments.

      c. Prior to September 25, the budget is legally adopted by the City Commission.

      d. Supplemental appropriations, when required to provide for additional expenditures,
         are matched by additional anticipated revenues or an appropriation of available fund
         balance and must be approved by the City Commission.

  The appropriated budget is prepared by fund, function and department. The City Manager may transfer
  line-item budget amounts within departments. Transfers of appropriations between departments require
  the approval of the City Commission. The legal level of budgetary control is the department level for the
  General Fund and the total expenditure or “fund” level for all other funds. The City Commission made
  several supplemental budgetary appropriations throughout the year.

  Excess of Expenditures Over Appropriations
  During the year ended December 31, 2008, actual expenditures exceeded appropriations for city attorney by
  $49,053, police department by $138,620 and fire department by $144,768 in the General Fund. In the Major
  Street and Trunkline and Local Street funds, total actual expenditures exceeded appropriations by $420,135
  and 891,357, respectively. These over-expenditures were funded with available fund balance.

  Fund Deficits
  As of December 31, 2008, the BRA Fund had an unreserved fund deficit of $17,863 and the HOME Fund had
  an unreserved fund deficit of $316,838. The deficits will be eliminated through future operations.




                                                     52
                                                City of Muskegon
                        NOTES TO FINANCIAL STATEMENTS—CONTINUED
                                      December 31, 2008


NOTE C—DEPOSITS AND INVESTMENTS

  As of December 31, 2008, the City had the following investments:

                                                                     Weighted
                                                                      average
                                                                      maturity
                                                     Fair value      (Months)        Moody's        Percent
      Investment Type
      Money market funds                         $   20,060,944            1.7        AAA              73.8 %
      US Agency obligations                           4,073,806           11.9        AAA              15.0
      US Treasury notes                               3,063,594           10.8       not rated         11.3
             Total fair value                    $   27,198,344                                       100.0 %
          Portfolio weighted average maturity                               4.3

  Interest rate risk. The City has a formal investment policy that limits investment maturities as a means of
  managing its exposure to fair value losses arising from increasing interest rates. At least 10% of the City’s
  total portfolio must be in instruments maturing in 30 days or less and the weighted average maturity cannot be
  over three years. US Agency obligations, federal instrumentality securities and time certificates of deposit
  cannot have a final maturity exceeding five years, repurchase agreements cannot have a final maturity
  exceeding one year, commercial paper cannot have a final maturity exceeding 270 days and eligible bankers’
  acceptances cannot have a final maturity exceeding 180 days.

  Credit risk. State law limits investments in commercial paper and corporate bonds to the two highest
  classifications issued by nationally recognized statistical rating organizations. The City has no investment
  policy that would further limit its investment choices.

  Concentration of credit risk. Concentration of credit risk is the risk of loss attributed to the magnitude of
  the City investment in a single issuer, by diversifying the investment portfolio so that the impact of potential
  losses from any one type of security or issuer will be minimized. The City has a concentration of credit risk
  policy that limits investment in commercial paper, eligible bankers acceptances and time certificates of
  deposit to 25% each of the total portfolio. More than 5 percent of the City’s investments are in U.S. Agency
  obligations issued by the Federal Home Loan Bank which comprise 5.61 percent of the City’s investments.




                                                       53
                                                    City of Muskegon
                          NOTES TO FINANCIAL STATEMENTS—CONTINUED
                                        December 31, 2008


NOTE C—DEPOSITS AND INVESTMENTS—Continued

  Custodial credit risk - deposits. In the case of deposits, this is the risk that in the event of a bank failure, the
  City's deposits may not be returned to it. As of December 31, 2008, $245,799 of the City's bank balance of
  $495,799 was exposed to custodial credit risk because it was uninsured and uncollateralized. The City’s
  investment policy sets certain credit requirements that a bank must meet for the City to deposit funds in it.

  Custodial credit risk - investments. This is the risk that, in the event of the failure of the counterparty, the
  City will not be able to recover the value of its investments or collateral securities that are in the possession of
  an outside party. The City has a custodial credit risk policy for investments that requires that all investments
  that are held with a third-party for safekeeping be in the City’s name.

  Foreign currency risk. The City is not authorized to invest in investments which have this type of risk.

  Restricted Assets
  Restrictions are placed on assets by bond ordinance and City Commission action. At December 31, 2008,
  restricted cash and investments in the Water Fund of $822,559 were restricted by bond ordinance.


NOTE D—CAPITAL ASSETS

  Capital asset activity for the year ended December 31, 2008 was as follows:

                                                            Balance                                      Balance
                                                           January 1,                                  December 31,
                                                             2008       Additions     Deductions          2008
   Governmental activities:
     Capital assets, not being depreciated:
        Land                                          $    12,371,063 $    25,650 $          -     $    12,396,713
        Construction in progress                            5,051,872   5,104,722      3,102,589         7,054,005
      Total capital assets, not being depreciated          17,422,935   5,130,372      3,102,589        19,450,718

      Capital assets, being depreciated:
        Land improvements                                   4,118,319         -             -            4,118,319
        Leasehold improvements                                304,365         -             -              304,365
        Buildings and improvements                         20,815,694     150,683           -           20,966,377
        Furniture, vehicles and equipment                  11,605,170     452,203       205,260         11,852,113
        Infrastructure                                     65,331,684   3,102,589       838,403         67,595,870
        Shared improvements                                 5,576,901         -             -            5,576,901
      Total capital assets, being depreciated             107,752,133   3,705,475      1,043,663       110,413,945




                                                            54
                                                   City of Muskegon
                           NOTES TO FINANCIAL STATEMENTS—CONTINUED
                                         December 31, 2008


NOTE D—CAPITAL ASSETS—Continued

                                                         Balance                                        Balance
                                                        January 1,                                    December 31,
                                                          2008         Additions     Deductions          2008
   Governmental activities—Continued
     Less accumulated depreciation:
        Land improvements                           $      383,980 $     136,536 $         -      $       520,516
        Leasehold improvements                              78,153        28,096           -              106,249
        Buildings and improvements                      12,467,262       436,587           -           12,903,849
        Furniture, vehicles and equipment                8,919,960       613,643       198,560          9,335,043
        Infrastructure                                  25,615,612     3,093,063       838,403         27,870,272
        Shared improvements                              1,360,283       278,845           -            1,639,128
     Total accumulated depreciation                     48,825,250     4,586,770      1,036,963        52,375,057
     Total capital assets, being
        depreciated, net                                58,926,883      (881,295)         6,700        58,038,888
     Capital assets, net                            $ 76,349,818 $     4,249,077 $    3,109,289   $    77,489,606

   Business-type activities:
     Capital assets, not being depreciated:
        Land                                        $      142,250 $         -   $          -     $       142,250
        Construction in progress                         2,056,632     2,100,532      1,567,631         2,589,533
     Total capital assets, not being depreciated         2,198,882     2,100,532      1,567,631         2,731,783

     Capital assets, being depreciated:
       Land improvements                                 1,888,965           -              -           1,888,965
       Buildings and systems                            81,641,799     1,567,631            -          83,209,430
       Machinery and equipment                           1,332,845       270,475            -           1,603,320
     Total capital assets, being depreciated            84,863,609     1,838,106            -          86,701,715

     Less accumulated depreciation:
        Land improvements                                1,599,720        37,609            -           1,637,329
        Buildings and systems                           24,850,628     2,195,950            -          27,046,578
        Machinery and equipment                            679,610        69,258            -             748,868
     Total accumulated depreciation                     27,129,958     2,302,817            -          29,432,775
     Total capital assets, being
        depreciated, net                                57,733,651      (464,711)           -          57,268,940
     Capital assets, net                            $ 59,932,533 $     1,635,821 $    1,567,631   $    60,000,723




                                                           55
                                                City of Muskegon
                           NOTES TO FINANCIAL STATEMENTS—CONTINUED
                                         December 31, 2008


NOTE D—CAPITAL ASSETS—Continued

  Depreciation
  Depreciation expense was charged to functions as follows:

   Governmental activities:
     Administrative services                                                                      $         52,978
     Public safety                                                                                         111,910
     Public works                                                                                           74,350
     Highways, streets and bridges                                                                       3,449,023
      Community and economic development                                                                    75,717
      Culture and recreation                                                                               255,663
      General administration                                                                                 7,254
      Internal Service Fund depreciation is charged to the
        various programs based on their usage of the assets                                               559,875

                                                                                                  $      4,586,770
   Business-type activities:
      Water                                                                                       $      1,792,218
      Sewer                                                                                                380,017
      Marina and Launch Ramp                                                                               130,582

                                                                                                  $      2,302,817


                                                     Balance                                            Balance
                                                    January 1,                                        December 31,
                                                      2008           Additions       Deductions          2008
   Component units:
     Capital assets, not being depreciated:
       Land                                     $      400,000   $         -     $          -     $       400,000

     Capital assets, being depreciated:
       Building and improvements                     3,798,258             -                -           3,798,258

     Less accumulated depreciation:
       Buildings and improvements                      704,980        172,648               -             877,628

     Total accumulated depreciation                    704,980        172,648               -             877,628

     Total capital assets, being
       depreciated, net                              3,093,278       (172,648)              -           2,920,630

     Capital assets, net                        $    3,493,278   $   (172,648) $            -     $     3,320,630

  Depreciation
  Depreciation expense was charged to economic development.




                                                          56
                                                     City of Muskegon
                           NOTES TO FINANCIAL STATEMENTS—CONTINUED
                                         December 31, 2008


NOTE E—ACCESS RIGHTS

  Access rights activity for the year ended December 31, 2008 was as follows:

                                                      Balance                                              Balance
                                                     January 1,                                          December 31,
                                                       2008            Additions        Deductions          2008
      Business-type activities
         Access rights                       $       1,679,026     $        -       $    1,679,026   $           -
         Less accumulated amortization               1,526,387          152,639          1,679,026               -

      Access rights, net                     $         152,639     $   (152,639)    $          -     $           -


  Amortization
  Amortization expense was charged to sewer.


NOTE F—BOND ISSUANCE COSTS

  Bond issuance cost activity for the year ended December 31, 2008 was as follows:

                                                       Balance                                             Balance
                                                      January 1,                                         December 31,
                                                        2008           Additions        Deductions          2008
     Governmental activities:
       Bond issuance costs                       $      210,974    $        -       $          -     $       210,974
       Less accumulated amortization                     66,509          11,869                -              78,378

     Bond issuance costs, net                    $      144,465    $     (11,869)   $          -     $       132,596


     Business-type activities:
       Bond issuance costs                       $      270,814    $        -       $          -     $       270,814
       Less accumulated amortization                    184,153          13,963                -             198,116

     Bond issuance costs, net                    $       86,661    $     (13,963)   $          -     $        72,698


  Amortization
  Amortization expense was charged to functions as follows:

     Governmental Activities:
       Interest on long-term debt                                                                    $        11,869


     Business-type Activities:
       Water                                                                                         $        13,963




                                                              57
                                             City of Muskegon
                          NOTES TO FINANCIAL STATEMENTS—CONTINUED
                                        December 31, 2008


NOTE G—INTERFUND RECEIVABLES, PAYABLES AND TRANSFERS

  The composition of interfund balances as of December 31, 2008 is as follows:

    Due to/from other funds:

       Receivable Fund                       Payable Fund                                         Amount

       Budget Stabilization Fund             Major Street and Trunkline Fund                  $    288,986
       Budget Stabilization Fund             Community Development
                                               Block Grant Fund                                    589,072
       Budget Stabilization Fund             HOME Rehabilitation Fund                              404,904
       Budget Stabilization Fund             Lead Abatement Fund                                   189,851
       Budget Stabilization Fund             Sewer Fund                                            249,387
                                                                                              $   1,722,200

  The outstanding balances between funds result from the payable funds having negative positions in the City’s
  cash and investment pool.

  The BRA component unit owes the Budget Stabilization Fund $17,863 as a result of having a negative
  position in the City’s cash and investment pool.

    Interfund transfers:

       Transfers in                           Amount        Transfers out                         Amount

       General Fund                      $     243,904      Public Improvement Fund           $     50,000
                                                            Cemetery Fund                           57,632
                                                            General Insurance Fund                 136,272

                                               243,904                                             243,904

       Major Street and Trunkline Fund         200,000      General Fund                          1,298,046
       Local Street Fund                       480,000
       Budget Stabilization Fund               250,000
       Sidewalk Replacement Fund               150,000
       Public Improvement Fund                 150,000
       Marina and Launch Ramp Fund              40,000
       General Insurance Fund                   28,046

                                             1,298,046                                            1,298,046

       State Grant Fund                          3,813      Major Street and Trunkline Fund           3,813

                                         $   1,545,763                                        $   1,545,763


  Each year, the General Fund transfers funds to the Major Street and Trunkline Fund, Local Street Fund,
  Sidewalk Replacement Fund and Public Improvement Fund to finance capital improvements. Other transfers
  between funds are made to meet grant matching requirements or other operational needs.




                                                       58
                                              City of Muskegon
                        NOTES TO FINANCIAL STATEMENTS—CONTINUED
                                      December 31, 2008


NOTE H—DEFERRED REVENUE

  Governmental funds report deferred revenue in connection with receivables for revenues that are not
  considered to be available to liquidate liabilities of the current period. Governmental funds also defer revenue
  recognition in connection with resources that have been received, but not yet earned. At the end of the current
  fiscal year, the various components of deferred revenue reported in the governmental funds were as follows:

                                                                                Unavailable           Unearned

      Property taxes                                                        $           -       $     8,216,424
      Receivables                                                                   113,066             323,505
      Special assessments                                                         1,834,821                 -

               Total deferred revenue for governmental funds                $     1,947,887     $     8,539,929



NOTE I—LONG-TERM DEBT

  Summary of Changes in Long-Term Liabilities
  The following is a summary of long-term liabilities activity for the City for the year ended December 31,
  2008.

                                         Balance                                        Balance
                                        January 1,                                    December 31,       Due within
                                          2008          Additions       Reductions       2008             one year
  Governmental activities:
    General obligation debt        $    5,383,382 $            -    $      44,025 $       5,339,357 $       50,000
    Intergovernmental
        contractual obligations         1,136,900        500,000          220,000         1,416,900        297,000
    Michigan Transportation
        Fund obligations                  390,000              -          390,000               -              -
    Special assessment obligations      1,545,000              -          290,000         1,255,000        260,000
    Installment purchase
        agreement                         504,118            -             54,148           449,970         56,000
    Compensated absences                1,347,929      1,527,625        1,427,974         1,447,580        246,000

        Governmental activity
          long-term liabilities     $ 10,307,329 $ 2,027,625 $          2,426,147 $       9,908,807 $      909,000




                                                        59
                                                   City of Muskegon
                         NOTES TO FINANCIAL STATEMENTS—CONTINUED
                                       December 31, 2008


NOTE I—LONG-TERM DEBT—Continued

  Summary of Changes in Long-Term Liabilities—Continued

                                       Balance                                         Balance
                                      January 1,                                     December 31,     Due within
                                        2008           Additions       Reductions       2008           one year
  Business-type activities:
    Revenue obligation            $   20,268,590 $            -    $   1,071,790 $     19,196,800 $ 1,110,000
    Intergovernmental
        contractual obligations        1,221,207            -          1,221,207             -              -
    Compensated absences                 176,876        165,036          159,054         182,858         29,000

        Business-type activity
          long-term liabilities   $   21,666,673 $      165,036 $      2,452,051 $     19,379,658 $ 1,139,000


  Component units:
    Revenue obligations           $    1,000,000 $            -    $         -   $      1,000,000 $         -
    General obligation debt            7,543,719              -          289,431        7,254,288       300,000

        Component unit long-
          term liabilities        $    8,543,719 $            -    $     289,431 $      8,254,288 $     300,000


  Governmental activities:
    General obligation debt:
       $5,400,000 Limited Tax General Obligation Bonds of
          2006 payable in annual installments of $45,000 to
          $350,000 through October 1, 2032; interest at 4% to 4.2%                                  $ 5,355,000

        Less bond discount                                                                              (15,643)

    Intergovernmental contractual obligations:
       $1,276,900 Non-interest bearing State of Michigan urban land
          assembly loan of 1999 payable in annual installments of
          $200,000 to $276,900 through October 31, 2009                                                 276,900

        $700,000 Non-interest bearing State of Michigan urban land
           assembly loan of 2005 payable in annual installments of
           $20,000 to $120,000 through September 1, 2015                                                640,000

        $500,000 State of Michigan Brownfield Redevelopment loan
           of 2008 payable in annual installments of $54,572 from
           March 18, 2010 through March 18, 2019; including interest at 2%                              500,000




                                                         60
                                               City of Muskegon
                        NOTES TO FINANCIAL STATEMENTS—CONTINUED
                                      December 31, 2008


NOTE I—LONG-TERM DEBT—Continued

  Summary of Changes in Long-Term Liabilities—Continued
  Governmental activities:—Continued
    Special assessment obligations:
       $1,495,000 Special assessment improvement bonds of
          1998; final payment of $60,000 due April 1, 2009;
          interest at 4%                                              $      60,000

        $825,000 Special assessment improvement bonds of 2000
           payable in annual installments of $70,000 to $85,000
           through April 1, 2010; interest at 4.9% to 5%                    155,000

        $1,575,000 Capital improvement bonds of 2003 payable
           in annual installments of $115,000 to $150,000
           through June 1, 2016; interest at 3.13% to 4.05%                1,040,000

    Installment purchase agreement:
       $605,824 Note payable to bank in annual installments of
           $54,148 to $72,658 through April 1, 2015; interest at
           3.83%                                                             449,970
                                                                           8,461,227
    Compensated absences                                                   1,447,580
                                                                      $    9,908,807
  Business-type activities:
    Revenue obligations:
       $5,465,000 Water supply system bonds of 1993 payable
           in two installments of $450,000 from May 1, 2012 through
           May 1, 2013; interest at 4.5%                              $     900,000

        Less bond discount                                                    (7,833)

        $9,575,000 Water supply system bonds of 1999 payable
           in annual installments of $130,000 to $800,000 through
           May 1, 2019; interest at 4.10% to 4.75%                         6,175,000

        Less bond discount                                                   (40,367)

        $13,900,000 Drinking Water State Revolving Fund loan
           of 2004 payable in annual installments of $600,000 to
           $840,000 through October 1, 2025; interest at 2.13%            12,170,000
                                                                          19,196,800
        Compensated absences                                                 182,858
                                                                      $ 19,379,658




                                                         61
                                              City of Muskegon
                        NOTES TO FINANCIAL STATEMENTS—CONTINUED
                                      December 31, 2008


NOTE I—LONG-TERM DEBT—Continued

  Summary of Changes in Long-Term Liabilities—Continued
  Component units:
    Revenue obligations:
       $1,000,000 Non-interest bearing Downtown Development
          Authority promissory note to Muskegon County payable
          August 30, 2019                                                                 $ 1,000,000

     General obligation debt:
        $4,005,000 Downtown Development Authority tax
           increment refunding bonds of 2001 payable in annual
           installments of $220,000 to $335,000 through June 1, 2018;
           interest at 4.2% to 5%                                                             2,695,000

         $4,725,000 Local Development Finance Authority
            tax increment bonds of 2002 payable in annual installments
            of $80,000 to $400,000 through November 1, 2025; interest
            at 3.63% to 4.85%                                                                 4,565,000
         Less bond discount                                                                      (5,712)
                                                                                          $ 8,254,288

  For governmental activities, claims and judgments and compensated absences are generally liquidated by the
  General Fund.

  The special assessment bonds are backed by the limited full faith and credit of the City.

  In 2005, the County of Muskegon began making improvements to the regional sewer treatment facilities. The
  project was funded with $17,500,000 bonds issued through the State of Michigan Clean Water Revolving
  Fund Loan Program. The County operates the system and makes payments on the bonds with user charges to
  the local units. The City has pledged its limited tax full faith and credit for the payment of its portion of the
  debt should user charges collected by the County be insufficient to make the debt payments. The City’s
  portion of the debt on December 31, 2008 was approximately $5,917,000. The City is unaware of any
  circumstances that would cause a shortfall in the near future.




                                                        62
                                               City of Muskegon
                           NOTES TO FINANCIAL STATEMENTS—CONTINUED
                                         December 31, 2008


NOTE I—LONG-TERM DEBT—Continued

  The $4,725,000 Local Development Finance Authority (LDFA) tax increment bonds of 2002 are partially
  guaranteed by the Community Foundation for Muskegon County. If LDFA tax increment revenues are not
  sufficient to cover debt service costs in any year, the Foundation has agreed to pay one-half of such shortfall,
  up to $75,000 annually. This commitment extends through December 31, 2016.

  The City was in compliance in all material respects with all the revenue bond ordinances at December 31,
  2008.

  Annual debt service requirements to maturity for debt outstanding as of December 31, 2008 follows:

   Year ending              Governmental activites          Business-type activities            Component units
   December 31,            Principal      Interest          Principal       Interest        Principal      Interest

      2009             $     663,371 $       277,183   $    1,110,000   $     567,463   $     300,000   $       320,219
      2010                   393,466         264,040        1,150,000         533,023         310,000           307,811
      2011                   417,083         261,898        1,185,000         496,787         320,000           294,604
      2012                   425,632         251,369        1,220,000         458,514         425,000           280,834
      2013                   434,311         240,350        1,260,000         418,422         500,000           262,268
    2014-2018              1,414,505       1,045,433        6,975,000       1,426,121       3,200,000           931,336
    2019-2023              1,603,502         830,195        4,680,000         446,657       2,595,000           354,156
    2024-2028              1,725,000         503,180        1,665,000          53,231         610,000            44,864
    2029-2032              1,400,000         146,650              -               -               -                 -

                       $   8,476,870 $     3,820,298   $ 19,245,000     $ 4,400,218     $   8,260,000   $ 2,796,092


  Annual debt service requirements to maturity by type of debt as of December 31, 2008 follows:

                                        General Obligation Debt                    Revenue Obligations
        Year ending                Governmental         Component           Business-type       Component
        December 31,                 activities            units              activities            units

           2009                $         267,345   $          620,219   $       1,677,463   $               -
           2010                          285,345              617,811           1,683,023                   -
           2011                          282,545              614,604           1,681,787                   -
           2012                          279,745              705,834           1,678,514                   -
           2013                          276,945              762,268           1,678,422
         2014-2018                     1,342,725            4,131,336           8,401,121                -
         2019-2023                     2,379,125            1,949,156           5,126,657          1,000,000
         2024-2028                     2,228,180              654,864           1,718,231                -
         2029-2032                     1,546,650                  -                   -                  -

                               $       8,888,605   $       10,056,092   $      23,645,218   $      1,000,000




                                                           63
                                                City of Muskegon
                        NOTES TO FINANCIAL STATEMENTS—CONTINUED
                                      December 31, 2008


NOTE I—LONG-TERM DEBT—Continued

                                                                      Installment
                                                                       Purchase            Special
                                             Intergovernmental        Agreement          Assessment
       Year ending                             Governmental          Governmental       Governmental
       December 31,                               activities           activities         activities
           2009                          $           296,900     $        72,624    $       303,685
           2010                                       74,572              72,838            224,751
           2011                                      174,572              73,059            148,805
           2012                                      174,572              73,291            149,393
           2013                                      174,572              73,534            149,610
         2014-2018                                   512,859             147,835            456,519
         2019-2023                                    54,572                 -                  -
         2024-2028                                       -                   -                  -
         2029-2032                                       -                   -                  -
                                         $         1,462,619     $       513,181    $      1,432,763



NOTE J—DESIGNATED FUND BALANCE

  Unreserved fund balances designated for specific purposes as of December 31, 2008 were as follows:

     Public Improvement Fund
        Designated for fire equipment replacement                                   $     807,062
        Designated for Pere Marquette Park improvements                                    35,674
                                                                                          842,736

     State Grants Fund
         Designated for Smither Ryerson grant match                                       150,000
                                                                                    $     992,736




                                                          64
                                               City of Muskegon
                       NOTES TO FINANCIAL STATEMENTS—CONTINUED
                                     December 31, 2008


NOTE K—OTHER INFORMATION

  Risk Management
  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 manages its liability and property
  risk by participating in the Michigan Municipal Risk Management Authority (MMRMA), a public entity risk
  pool providing property and liability coverage to its participating members. The City pays an annual
  premium to MMRMA for its insurance coverage. The MMRMA is self-sustaining through member
  premiums and provides, subject to certain deductibles, occurrence-based casualty coverage for each incident
  and occurrence-based property coverage to its members by internally assuring certain risks and reinsuring
  risks through commercial companies. A $100,000 deductible is maintained to place the responsibility for
  small charges with the City. Settled claims resulting from these risks have not exceeded insurance coverage
  in any of the past three fiscal years. Changes in the fund’s claim liability amount in 2008 and 2007 were as
  follows:

                                                                 Current year
                                            Balance               claims and                            Balance
         Year ended                      at beginning             changes in             Claims          at end
        December 31,                        of year                estimates            payments        of year
             2008                   $        44,125         $        269,792        $    133,564    $ 180,353
             2007                            90,394                  108,961             155,230       44,125

  The City manages its workers' compensation risk by participating in the Michigan Municipal Workers'
  Compensation Fund (MMWCF), a public entity risk pool providing workers' compensation coverage to its
  participating members. The City pays an annual premium to MMWCF for its workers' compensation
  coverage. The MMWCF is self-sustaining through member premiums and provides statutory workers'
  compensation coverage to its members by internally assuring certain risks and reinsuring risks through
  commercial companies. Settled claims resulting from these risks have not exceeded insurance coverage in
  any of the past three fiscal years.

  The City is self-insured for employee health care benefits for those employees selecting the City plan over
  other options. Under this plan, the General Insurance Fund provides coverage for up to a maximum of
  $350,000 per covered individual’s lifetime. As of December 31, 2008, the claims liability including incurred
  but not reported claims was $18,875. A liability was recorded in the accompanying financial statements for
  the estimated claims liability. The claims liability was based on past experience, a review of pending claims
  and other social and economic factors. The above estimate was not discounted and there were no outstanding
  claims for which annuity contracts have been purchased in the claimant’s name. No significant reductions in
  insurance coverage were made in the last fiscal year. Settled claims have not exceeded the commercial
  coverage in any of the past three fiscal years. Changes in the fund’s claim liability amount in 2008 and 2007
  were as follows:

                                                                Current year
                                           Balance               claims and                             Balance
         Year ended                     at beginning             changes in              Claims          at end
        December 31,                       of year                estimates             payments        of year

             2008                  $        20,735      $         1,055,901     $       1,057,761   $    18,875
             2007                          103,901                1,350,547             1,433,713        20,735




                                                        65
                                              City of Muskegon
                         NOTES TO FINANCIAL STATEMENTS—CONTINUED
                                       December 31, 2008


NOTE K—OTHER INFORMATION—Continued

  Contingencies
  Amounts received or receivable from grant agencies are subject to audit and adjustment by grantor
  agencies, principally the federal government. Any disallowed claims, including amounts already
  collected, may constitute a liability to the applicable funds. The amount, if any, of expenditures that may
  be disallowed by the grantor cannot be determined at this time, although the City expects such amounts, if
  any, to be immaterial.

  The City is a defendant in various lawsuits. Although the outcome of these lawsuits is not presently
  determinable, in the opinion of the City's counsel the resolution of these matters will not have a material
  adverse effect on the financial condition of the City.

  Commitments
  At December 31, 2008, the City had entered into various agreements for construction projects and capital
  purchases. Below is a summary of those agreements:

                                                                                                   Remaining
            Fund                             Project                        Spent-to-date         commitment

    General                    Police department men's locker room      $           -         $       92,474
    Public Improvement          Richard's Park building demolition                  -                 82,600
    Water                          Radio meter reading devices                      -              1,240,000
    Equipment                              New backhoe                              -                 65,810

  Leases
  The City leases an office facility under a noncancelable operating lease that expires June 2012 with the
  option by the tenant to renew the term of the lease for five successive periods of five years each. The City
  received rental income of $45,450 for the year ended December 31, 2008. The future minimum rental
  income for this lease is as follows:

             Year ending
             December 31,                                                                   Amount
                 2009                                                                   $    32,171
                 2010                                                                        34,396
                 2011                                                                        34,058
                 2012                                                                        16,860

                                                                                        $   117,485




                                                       66
                                             City of Muskegon
                       NOTES TO FINANCIAL STATEMENTS—CONTINUED
                                     December 31, 2008


NOTE L—PENSION PLANS

  Defined Benefit Pension Plan
  Plan Description. The City has an agent multiple-employer defined benefit pension plan with the
  Municipal Employees Retirement System (MERS). The Plan provides retirement and disability benefits,
  annual cost-of-living adjustments, and death benefits to Plan members and beneficiaries. Act No. 427 of
  the Public Acts of 1984 of the State of Michigan assigns the authority to establish and amend the benefit
  provisions of the plans that participate in MERS to the respective employer entities; that authority rests
  with the City. A copy of the complete financial report and required supplemental information can be
  obtained by writing to:

                                           City of Muskegon
                                           933 Terrace Street
                                           Muskegon, MI 49443

  Funding Policy. City employees are required to contribute 5 to 6 percent to the Plan depending on
  employee contract. The City is required to contribute at an actuarially-determined rate depending upon
  employee group from 4.7 to 10.13 percent of annual covered payroll depending on the plan. The
  contributions requirements of plan members and the City are established and may be amended by MERS.

  Annual Pension Cost. For the year ended December 31, 2008, the City’s annual pension cost was
  approximately $1,167,000 was equal to the City’s required and actual contribution.

                                             Trend Information

                                   Approximate                 Percentage
                                  Annual Pension                of APC                      Net Pension
      Year ended                   Cost (APC)                  Contributed                  Obligation
       12/31/07               $         819,000                        100 %            $            -
       12/31/08                       1,167,000                        100                           -

  The required contribution was determined as part of the December 31, 2006 actuarial valuation using the
  entry age actuarial cost method. The actuarial assumptions included (a) 8 percent investment rate of
  return (net of administrative expenses), (b) projected salary increases ranging from 0 percent to 4.5
  percent, and (c) 4.5 percent per year compounded annually attributable to inflation. The actuarial value of
  plan assets was determined using techniques that smooth the effects of short-term volatility in the market
  value of investments over a five-year period. The plan’s unfunded actuarial accrued liability is being
  amortized as a level percentage of projected payroll on an open basis. The remaining amortization period
  at December 31, 2007 was 28 years which will be reduced by one year in each of the next eight valuations
  until reaching 20 years after which the 20 year period will be reestablished with each annual actuarial
  valuation.




                                                      67
                                              City of Muskegon
                        NOTES TO FINANCIAL STATEMENTS—CONTINUED
                                      December 31, 2008


NOTE L—PENSION PLANS—Continued

  Defined Benefit Pension Plan—Continued
  Funding Status and Funding Progress. As of December 31, 2007, the most recent actuarial valuation
  date, the plan was 104 percent funded. The actuarial accrued liability for benefits was approximately
  $83,118,000, and the actuarial value of assets was approximately $86,157,000, resulting in an unfunded
  actuarial accrued liability (UAAL) of approximately a negative $3,039,000. The covered payroll (annual
  payroll of active employees covered by the plan) was approximately $12,684,000, and the ratio of the
  UAAL to the covered payroll was a negative 24 percent due to the plan being overfunded.

  The schedule of funding progress, presented as RSI following the notes to the financial statements,
  presents multiyear trend information about whether the actuarial value of the plan assets is increasing or
  decreasing over time relative to the actuarial accrued liability for benefits.

  Defined Contribution Pension Plan
  The City also maintains a defined contribution plan offered by MERS and administered by the ICMA
  Retirement Corporation (ICMA), an independent third party. In a defined contribution plan, benefits depend
  solely on amounts contributed to the plan plus investments. Depending on employee group, the Plan covers
  all City employees hired after January 2005 to July 2006 and those hired earlier who elected to convert from
  the defined benefit plan. The City is required to contribute 3 percent to 10 percent of a qualified employees’
  annual compensation each year depending on employee group. Qualified employees are required to
  contribute 0 percent to 6 percent of annual compensation depending on employee group. For the year ended
  December 31, 2008, City and employee contributions were approximately $78,000 and $42,000, respectively.

  Deferred Compensation Plan
  The City offers its employees a deferred compensation plan created in accordance with Internal Revenue
  Code Section 457. The Plan, available to all full-time employees at their option, permits participants to defer
  a portion of their salary until future years. The deferred compensation is not available to participants until
  termination, retirement, death, or unforeseeable emergency.

  The Plan has created a trust for the exclusive benefit of the Plan’s participants and beneficiaries under rules
  provided by Internal Revenue Code Section 401(f).




                                                       68
                                              City of Muskegon
                        NOTES TO FINANCIAL STATEMENTS—CONTINUED
                                      December 31, 2008


NOTE M—OTHER POST-EMPLOYMENT BENEFITS

  Plan Description. The City has a retiree healthcare funding vehicle administered Municipal Employees
  Retirement System (MERS), an agent multiple-employer postemployment healthcare plan (OPEB). The
  retiree healthcare funding vehicle is established under the authority of section 115 of the IRS code and is
  exempt from taxation. The Plan provides health insurance to eligible retirees and their spouses. Act No.
  149 of the Public Acts of 1999 of the State of Michigan assigns the authority to establish and amend the
  benefit provisions of the plans that participate in MERS to the respective employer entities; that authority
  rests with the City. A copy of the complete financial report and required supplemental information can be
  obtained by writing to:

                                            City of Muskegon
                                            933 Terrace Street
                                            Muskegon, MI 49443

  Funding Policy. Plan members are not required to contribute to the Plan. The City is required to
  contribute the annual required contribution of the employer (ARC) at an actuarially-determined rate
  which varies upon employee group from 3.9 to 9.4 percent of covered wages. The ARC represents a
  level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize
  any unfunded liabilities (or funding excess) over a period not to exceed thirty years. The contribution
  requirements of plan members and the City are established and may be amended by MERS.

  Annual OPEB Cost. For the year ended December 31, 2008, the City’s OPEB cost (expense) of
  approximately $1,476,000 was equal to the City’s ARC and actual contribution.

                                              Trend Information


                                    Approximate
                                   Annual Required              Percentage
                                    Contribution                 of ARC                      Net ARC
      Year ended                       (ARC)                    Contributed                  Obligation
       12/31/07                $        1,326,000                       100 %            $            -
       12/31/08                         1,476,000                       100                           -




                                                      69
                                              City of Muskegon
                        NOTES TO FINANCIAL STATEMENTS—CONTINUED
                                      December 31, 2008


NOTE M—OTHER POST-EMPLOYMENT BENEFITS—Continued

  Actuarial Methods and Assumptions. Actuarial valuations of an ongoing plan involve estimates of the value
  of reported amounts and assumptions about the probability of occurrence of events far into the future.
  Examples include assumptions about future employment, mortality, and the healthcare cost trend. Actuarially
  determined amounts are subject to continual revision as actual results are compared with past expectations
  and new estimates are made about the future.

  Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as
  understood by the employer and Plan members) and include the types of benefits provided at the time of each
  valuation and the historical pattern of Plan members not contributing to the Plan. The actuarial methods and
  assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial
  accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the
  calculations.

  The required contribution was determined as part of the December 31, 2006 actuarial valuation using the
  entry age actuarial cost method. The actuarial assumptions included (a) 8 percent investment rate of
  return (net of administrative expenses), (b) an annual healthcare trend rate of 11 percent initially, reduced
  by decrements to an ultimate rate of 4.5 percent after 10 years. Both rates assume include a 4.5 percent
  inflation assumption. The Plan’s unfunded actuarial accrued liability is being amortized as a level
  percentage of projected payroll on a closed basis. The remaining amortization period at December 31,
  2007 is 30 years.

  Funded Status and Progress. As of December 31, 2007, the most recent actuarial valuation date, the plan was
  46.5 percent funded. The actuarial accrued liability for benefits was approximately $29,722,000, and the
  actuarial value of assets was approximately $13,831,000, resulting in an unfunded actuarial liability (UAAL)
  of approximately $15,891,000. The covered payroll (annual payroll of active employees covered by the plan)
  was approximately $13,290,000, and the ratio of the UAAL to the covered payroll was 120 percent.

  The schedule of funding progress, presented as required supplementary information following the notes to the
  financial statements, presents multiyear trend information that shows whether the actuarial value of plan
  assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits.


NOTE N—SUBSEQUENT EVENTS

  Subsequent to year-end, the City approved various contracts for street improvements, vehicle purchases, and
  park improvements for approximately $357,000, $194,000, and $49,000, respectively.




                                                       70
REQUIRED SUPPLEMENTARY INFORMATION




                71
                                                                                      City of Muskegon
                                                                        BUDGETARY COMPARISON SCHEDULE
                                                                                          General Fund
                                                                             For the year ended December 31, 2008
                                                             (with comparative actual amounts for the year ended December 31, 2007)


                                                                                                                         2008                                            2007
                                                                                                                                                   Variance with
                                                                                                                                                   final budget-
                                                                                             Budgeted amounts                                         positive
                                                                                       Original             Final                Actual              (negative)         Actual
     REVENUES
       Taxes
         City income tax                                                          $    6,900,000       $     7,750,000      $    7,694,780     $        (55,220)   $    7,618,461
         Property taxes                                                                7,708,000             7,708,000           7,666,645              (41,355)        7,345,550
         Industrial facilities taxes                                                     270,731               255,455             276,203               20,748           364,628
         Payments in lieu of taxes                                                        89,000                91,225              91,225                  -              91,393
         Delinquent chargeback collected                                                  10,000                 2,000                   6               (1,994)              -
                  Total taxes                                                         14,977,731           15,806,680           15,728,859              (77,821)       15,420,032

       Licenses and permits
          Business licenses                                                               33,000               32,000              32,314                   314           32,025




72
          Liquor licenses                                                                 35,000               38,957              38,957                   -             37,000
          Cable TV fees                                                                  300,000              300,000             304,812                 4,812          297,200
          Rental property registration                                                   100,000               55,000              61,600                 6,600           82,335
          Burial permits                                                                 120,000              105,000              86,515               (18,485)         117,703
          Building permits                                                               250,000              360,000             353,042                (6,958)         348,349
          Electrical permits                                                              95,000               95,000              98,914                 3,914          106,607
          Plumbing permits                                                                40,000               41,000              41,711                   711           34,540
          Mechanical permits                                                              52,500               67,000              68,002                 1,002           56,016
          Cat licenses                                                                     2,500                2,500               3,315                   815            3,740
          Police gun registration                                                            -                    -                     5                     5                3
                  Total licenses and permits                                           1,028,000             1,096,457           1,089,187               (7,270)        1,115,518

       Intergovernmental revenues
          Federal grants                                                                  45,718                46,173                40,622             (5,551)          84,162

          State
             Grants                                                                       28,000                27,702              27,701                   (1)           18,373
             State shared revenue                                                      4,487,972             4,462,634           4,487,698               25,064         4,475,462
                  Total intergovernmental revenues - State                             4,515,972             4,490,336           4,515,399               25,063         4,493,835

          Local                                                                           50,000                50,000                50,000                -             60,000
                                                                              City of Muskegon
                                                                BUDGETARY COMPARISON SCHEDULE
                                                                                  General Fund
                                                                     For the year ended December 31, 2008
                                                     (with comparative actual amounts for the year ended December 31, 2007)


                                                                                                                 2008                                         2007
                                                                                                                                         Variance with
                                                                                                                                         final budget-
                                                                                     Budgeted amounts                                       positive
                                                                               Original             Final                Actual            (negative)        Actual
     Charges for services
       Tax administration fees                                            $      278,634       $       278,634      $      315,261   $         36,627    $     212,530
       Utility administration fees                                               180,000               180,000             180,000                -            180,000
       Reimbursement for elections                                                13,000                12,006              12,006                -             22,042
       Indirect cost reimbursements                                            1,016,979             1,016,979           1,021,500              4,521        1,024,932
       Site plan review fee                                                        4,000                 4,200               4,245                 45            5,870
       Sale of cemetery lots                                                      27,400                26,000              21,233             (4,767)          38,182
       Police miscellaneous                                                       94,000               119,000              97,255            (21,745)         120,470
       Police impound fees                                                        45,000                45,000              39,375             (5,625)          43,234
       Landlord's alert fee                                                          300                   300                 290                (10)             220
       Fire protection-state property                                             80,000                80,000             127,589             47,589           87,601
       Zoning fees                                                                 8,000                 8,300               8,360                 60           10,362




73
       Clerk fees                                                                  3,500                 6,000               5,550               (450)           3,115
       Clerk fees - passport fees                                                 10,000                 7,500               7,830                330            8,240
       Tax abatement application fees                                             10,000                14,000              11,711             (2,289)          16,411
       Treasurer fees                                                             90,000                50,000              43,279             (6,721)          61,277
       False alarm fees                                                           12,000                12,000              10,415             (1,585)          12,525
       Miscellaneous cemetery income                                              22,000                22,000              19,282             (2,718)          20,536
       Senior transit program fees                                                 9,000                10,000              10,149                149            9,254
       Fire miscellaneous                                                          7,000                15,000              14,699               (301)           3,494
       Sanitation stickers                                                        75,000                77,000              81,702              4,702           84,735
       Lot cleanup fees                                                           70,000                82,000              63,733            (18,267)          70,987
       Reimbursements - lot mowing and demolitions                                70,000                70,000              85,905             15,905           55,484
       Special events reimbursements                                             120,000               128,344              15,278           (113,066)          92,041
       Recreation program fees                                                    45,000                45,000              42,960             (2,040)          41,457
             Total charges for services                                        2,290,813             2,309,263           2,239,607            (69,656)       2,224,999
                                                                             City of Muskegon
                                                               BUDGETARY COMPARISON SCHEDULE
                                                                                 General Fund
                                                                    For the year ended December 31, 2008
                                                    (with comparative actual amounts for the year ended December 31, 2007)


                                                                                                               2008                                           2007
                                                                                                                                        Variance with
                                                                                                                                        final budget-
                                                                                    Budgeted amounts                                       positive
                                                                              Original             Final                Actual            (negative)         Actual
     Fines and forfeitures
        Income tax - penalty and interest                                $      200,000       $      275,000       $     284,629    $          9,629    $     240,315
        Late fees on current taxes                                               75,000               40,000              28,158             (11,842)          38,931
        Interest on late invoices                                                 2,000                2,000               1,774                (226)           2,151
        Parking fines                                                           120,000              120,000              90,360             (29,640)         113,354
        Court fines                                                             175,000              185,000             154,765             (30,235)         190,651
              Total fines and forfeitures                                       572,000              622,000             559,686             (62,314)         585,402

     Interest and rental income
        Investment earnings                                                     305,000              260,000             374,527            114,527           456,224
        Flea market                                                              29,000               29,000              27,880             (1,120)           22,064




74
        Farmers' market                                                          32,000               41,000              39,519             (1,481)           40,325
        City right of way rental                                                  4,400                6,800               6,800                -               4,400
        Advertising                                                               2,000                  123                 123                -                 -
        Fire station lease - Central Dispatch                                    35,000               43,000              45,450              2,450             6,180
        Parking rentals                                                           2,500                2,800               2,800                -               2,800
        McGraft park rentals                                                     45,000               45,000              39,043             (5,957)           42,114
        Other park rentals                                                       29,000               35,000              33,795             (1,205)           30,920
              Total interest and rental income                                  483,900              462,723             569,937            107,214           605,027
     Other
        Sale of land and assets                                                   1,000               17,500              14,488              (3,012)             -
        Police sale and auction proceeds                                          1,500                  300                 277                 (23)             -
        CDBG program reimbursements                                             339,169              334,669             329,756              (4,913)         225,149
        Fisherman's Landing reimbursement                                        10,000               14,900              15,066                 166              -
        Contributions                                                            11,000               51,000              50,224                (776)          50,499
        Contribution - Veteran's Park maintenance                                17,250               18,000              15,400              (2,600)          18,328
        Community Foundation for Muskegon County                                    -                 34,857              37,543               2,686            3,000
        Miscellaneous reimbursements                                              1,000                  -                   -                   -                -
        Miscellaneous and sundry                                                 15,000               51,000              63,677              12,677           53,794
               Total other                                                      395,919              522,226             526,431               4,205          350,770
               Total revenues                                                24,360,053           25,405,858           25,319,728            (86,130)       24,939,745
                                                                                 City of Muskegon
                                                                   BUDGETARY COMPARISON SCHEDULE
                                                                                     General Fund
                                                                        For the year ended December 31, 2008
                                                        (with comparative actual amounts for the year ended December 31, 2007)


                                                                                                                    2008                                          2007
                                                                                                                                            Variance with
                                                                                                                                            final budget-
                                                                                        Budgeted amounts                                       positive
                                                                                  Original             Final                Actual            (negative)         Actual
     EXPENDITURES
       Current
         Public representation services
             City commission                                                 $       83,128       $       88,500       $      86,777    $          1,723    $      80,462
             City promotions and public relations                                    10,935               11,235               8,183               3,052           11,696
             City manager                                                           218,527              229,024             225,563               3,461          213,848
             Contributions to outside agencies                                      184,324              189,403             186,153               3,250          180,880
             City attorney                                                          426,338              431,500             480,553             (49,053)         440,434
                 Total public representation services                               923,252              949,662             987,229             (37,567)         927,320
           Administrative services
             Administration                                                         130,461               46,416              38,672               7,744          126,444




75
             City clerk                                                             333,051              333,251             319,548              13,703          277,610
             Civil service                                                          180,555              187,777             186,372               1,405          163,761
             Julia Hackley internships                                                  -                  8,000               7,988                  12            5,374
             Affirmative action                                                      77,924               81,441              79,933               1,508           71,724
                 Total administrative services                                      721,991              656,885             632,513              24,372          644,913

           Financial services
              Finance administration                                                431,098              439,804             445,660              (5,856)         423,512
              Assessing                                                             431,366              466,366             470,280              (3,914)         459,837
              Arena administration                                                  235,000              241,850             241,602                 248          269,434
              Income tax administration                                             380,443              404,971             404,309                 662          373,433
              Information systems                                                   358,656              368,688             347,762              20,926          364,246
              City treasurer                                                        418,156              411,522             389,217              22,305          341,057
                 Total financial services                                         2,254,719             2,333,201           2,298,830             34,371         2,231,519
           Public safety
             Police department                                                    8,412,756             8,667,000           8,805,620           (138,620)        8,235,772
             Fire department                                                      3,471,316             3,691,836           3,836,604           (144,768)        3,652,524
             Fire safety inspections                                              1,011,807             1,048,408           1,041,507              6,901           966,136
                 Total public safety                                             12,895,879           13,407,244           13,683,731           (276,487)       12,854,432
                                                                             City of Muskegon
                                                               BUDGETARY COMPARISON SCHEDULE
                                                                                 General Fund
                                                                    For the year ended December 31, 2008
                                                    (with comparative actual amounts for the year ended December 31, 2007)


                                                                                                                2008                                         2007
                                                                                                                                        Variance with
                                                                                                                                        final budget-
                                                                                    Budgeted amounts                                       positive
                                                                              Original             Final                Actual            (negative)        Actual
     Public works
       Street lighting                                                   $      634,000       $       634,000      $      643,477   $         (9,477)   $     593,486
       Community event support                                                   31,100                38,600              32,345              6,255           28,837
       Senior citizen transit                                                    61,368                61,368              59,621              1,747           59,824
       General sanitation                                                     1,653,479             1,656,864           1,628,953             27,911        1,649,488
       Recycling                                                                168,179               168,179             164,568              3,611          163,699
       Storm water management                                                    16,991                17,827              17,754                 73           16,991
       City hall maintenance                                                    267,714               283,375             284,459             (1,084)         256,581
           Total public works                                                 2,832,831            2,860,213            2,831,177             29,036        2,768,906
     Community and economic development
       Planning, zoning and economic development                                505,274              528,250             523,927               4,323         462,113




76
       Environmental services                                                   391,382              413,500             403,385              10,115         332,766
       Edison Landing subsidy                                                   150,000              150,000             150,000                 -           100,000
           Total community and economic development                           1,046,656            1,091,750            1,077,312             14,438         894,879
     Culture and recreation
       Parks maintenance                                                      1,321,663            1,434,182            1,455,040            (20,858)       1,340,824
       McGraft park maintenance                                                  55,200               53,750               58,134             (4,384)          46,376
       General and inner city recreation programs                               276,612              299,648              314,042            (14,394)         264,522
       Cemeteries maintenance                                                   527,196              527,196              498,350             28,846          545,975
       Graffiti removal                                                           4,644                6,144                3,940              2,204            3,213
        Parking operations                                                        7,269                7,269                5,431              1,838            6,605
        Farmers' market and flea market                                          46,500               44,700               43,835                865           43,578
           Total culture and recreation                                       2,239,084             2,372,889           2,378,772             (5,883)       2,251,093

     Other governmental functions
        Insurance premiums                                                      368,834              391,978             386,191              5,787          350,385
        Other                                                                   400,000              200,000              76,150            123,850              -
           Total other governmental functions                                   768,834              591,978             462,341            129,637          350,385
                                                                                   City of Muskegon
                                                                    BUDGETARY COMPARISON SCHEDULE
                                                                                      General Fund
                                                                         For the year ended December 31, 2008
                                                         (with comparative actual amounts for the year ended December 31, 2007)


                                                                                                                        2008                                           2007
                                                                                                                                                 Variance with
                                                                                                                                                 final budget-
                                                                                           Budgeted amounts                                         positive
                                                                                     Original             Final                 Actual             (negative)         Actual
        Debt service
          Principal                                                            $        45,000       $        45,000       $      45,000     $            -      $         -
          Interest and fees                                                            219,145               230,833             230,833                  -            208,859
              Total debt service                                                       264,145               275,833             275,833                  -            208,859

        Capital outlay                                                                 134,000               177,572             174,755                2,817           65,578
                 Total expenditures                                                 24,081,391            24,717,227           24,802,493             (85,266)       23,197,884

     Excess of revenues over expenditures                                              278,662               688,631             517,235             (171,396)        1,741,861

     OTHER FINANCING SOURCES (USES)




77
       Transfers in                                                                    345,000               246,272              243,904              (2,368)           91,658
       Transfers out                                                                  (698,046)           (1,298,046)          (1,298,046)                -          (1,602,926)
                 Total other financing sources (uses)                                 (353,046)           (1,051,774)          (1,054,142)             (2,368)       (1,511,268)

     Net change in fund balance                                                $        (74,384)     $      (363,143)            (536,907)   $       (173,764)         230,593

     Fund balance at beginning of year                                                                                          2,920,632                             2,690,039

     Fund balance at end of year                                                                                           $    2,383,725                        $    2,920,632



     Note: Both budgets and actual figures are prepared in accordance with generally accepted accounting principles.
                                                                               City of Muskegon
                                                                 BUDGETARY COMPARISON SCHEDULE
                                                                      Major Street and Trunkline Fund
                                                                    For the year ended December 31, 2008

                                                                                                                                                         Variance with
                                                                                                                                                         final budget-
                                                                                                  Budgeted amounts                                          positive
                                                                                            Original              Final                 Actual             (negative)
     REVENUES
       Intergovernmental revenues
          Federal                                                                      $    1,623,000          $   1,623,000       $   1,662,437     $        39,437
          State                                                                             2,930,818              3,240,818           3,002,489            (238,329)
       Charges for services                                                                    40,000                 75,000              87,620              12,620
       Investment earnings                                                                    100,000                 50,000              70,691              20,691
       Other                                                                                  250,000                250,000             248,582              (1,418)
              Total revenues                                                                4,943,818              5,238,818           5,071,819            (166,999)

     EXPENDITURES
       Current
         Highways, streets and bridges                                                      4,714,904              5,336,000           5,756,135            (420,135)
       Debt service
         Principal                                                                            390,000                  390,000           390,000                 -




78
         Interest and fees                                                                      6,093                    6,093             6,093                 -
              Total expenditures                                                            5,110,997              5,732,093           6,152,228            (420,135)

     Excess of revenues under expenditures                                                   (167,179)                 (493,275)       (1,080,409)          (587,134)

     OTHER FINANCING SOURCES (USES)
       Transfers in                                                                                -                   200,000           200,000                 -
       Transfers out                                                                               -                       -              (3,813)             (3,813)
              Total other financing sources (uses)                                                 -                   200,000           196,187              (3,813)

     Net change in fund balance                                                        $     (167,179)         $       (293,275)        (884,222)    $      (590,947)

     Fund balance at January 1, 2008                                                                                                   1,169,134

     Fund balance at December 31, 2008                                                                                             $     284,912




     Note: Both budgets and actual figures are prepared in accordance with generally accepted accounting principles.
                                                          City of Muskegon
                                                   Required Supplemental Information
                                                SCHEDULE OF FUNDING PROGRESS
                                                  For the year ended December 31, 2008

                             MUNICIPAL EMPLOYEES RETIREMENT SYSTEM (MERS) PENSION PLAN
                                           SCHEDULE OF FUNDING PROGRESS

     (Dollar amounts in thousands)


                                           Actuarial                                                            UAAL as a
                                            Accrued                                                             percentage
      Actuarial            Actuarial        Liability        Unfunded                                               of
      valuation            value of          (AAL)             AAL               Funded               Covered    covered
        date                assets         Entry Age         (UAAL)               ratio               payroll     payroll

      12/31/07         $     86,157    $     83,118      $       (3,039)           104 %       $       12,684         (24) %




79
          MUNICIPAL EMPLOYEES RETIREMENT SYSTEM (MERS) OTHER POSTEMPLOYMENT BENEFITS PLAN
                                    SCHEDULE OF FUNDING PROGRESS

     (Dollar amounts in thousands)


                                           Actuarial                                                            UAAL as a
                                            Accrued                                                             percentage
      Actuarial            Actuarial        Liability        Unfunded                                               of
      valuation            value of          (AAL)             AAL               Funded               Covered    covered
        date                assets         Entry Age         (UAAL)               ratio               payroll     payroll

      12/31/07         $     13,831    $     29,722      $      15,891            46.5 %       $       13,290        120 %



     Additional actuarial data is not available from MERS and will be provided in subsequent years.
80
OTHER SUPPLEMENTAL INFORMATION




              81
                                 DESCRIPTION OF
                           OTHER GOVERNMENTAL FUNDS

                                     Special Revenue Funds

The special revenue funds are used to account for the proceeds of special revenue sources that are
legally restricted to expenditures for specific purposes.

Local Street – to account for gas and weight allocations to the City by the Michigan Department
of Transportation for construction and maintenance of local streets within the City.

Criminal Forfeitures – to account for receipts generated through the sale of assets seized through
criminal court proceedings.

Budget Stabilization – to account for funds appropriated from the City’s General Fund for the
purpose of mitigating adverse affects on the City's budget from downturns in the business cycle.

Farmers’ Market Improvement – to account for funds allocated for maintenance and
improvements to the City’s farmers’ market facility.

Tree Replacement – to account for contributions and other revenues earmarked for tree
replacement throughout the City.


                                     Capital Projects Funds

Capital projects funds are used to account for financial resources to be used for the acquisition or
construction of major capital facilities other than those financed by proprietary funds and trust
funds.

Public Improvement – to account for grants, private contributions, sale of property and other
resources used to finance various capital projects.

Sidewalk Replacement – to account for resources allocated for a multi-year city-wide sidewalk
replacement program.

Michcon Remediation – to account for reimbursements received from Michcon Gas Company for
environmental remediation of their former downtown site.

EDC Revolving Loan – to account for funds received upon repayment of Urban Development
Action Grant loans and subsequently reloaned to small business enterprises.

Community Development Block Grant – to account for categorical grants received from the U. S.
Department of Housing and Urban Development for the construction of major city public
improvements and the rehabilitation of residential housing and other qualifying expenditures.

State Grants – to account for grant revenues received from the State of Michigan and earmarked
for the purpose of improvements and/or rehabilitation of City property, environmental
remediation at lakeshore sites or new infrastructure in the City’s downtown.




                                                 82
                            DESCRIPTION OF
                 OTHER GOVERNMENTAL FUNDS—CONTINUED


                              Capital Projects Funds—Continued

HOME Rehabilitation – to account for grant revenues received from the U. S. Department of
Housing and Urban Development for the purpose of providing housing assistance to low and
moderate income households in the City.

Arena Capital Improvements – to account for ticket revenue collections earmarked for large
capital improvements and repairs to the L.C. Walker Arena.

Lead Abatement – to account for grant revenues received from the U. S. Department of Housing
and Urban Development for the purpose of abatement of lead from homes in the City.


                                        Permanent Funds

Permanent funds are used to report resources that are legally restricted to the extent that only
earnings, not principal, may be used for purposes that support the reporting government’s
programs.

Cemetery Perpetual Care – to account for charges for services collected and investment income
earned and to account for transfers to the General Fund to partially cover cemetery care expenses.




                                                 83
                                                                            City of Muskegon
                                                                     COMBINING BALANCE SHEET
                                                                        Other Governmental Funds
                                                                           December 31, 2008

                                                                                                                                       Permanent
                                                                                   Total other       Special         Capital             Fund -
                                                                                  governmental       Revenue         Projects          Cemetery
                                                                                     funds            Funds           Funds          Perpetual Care
     ASSETS
       Cash and investments                                                   $     5,355,891    $     455,945   $   3,591,005   $      1,308,941
       Receivables
          Accounts and loans (net of allowance for uncollectibles)                    628,619              -           606,275             22,344
          Special assessments                                                       1,059,199          655,473         403,726                -
       Due from other governmental units                                            1,352,318          378,360         973,958                -
       Due from other funds                                                         1,722,200        1,722,200             -                  -
       Due from component units                                                        17,863           17,863             -                  -
       Prepaid items                                                                    7,025            7,025             -                  -
                 Total assets                                                 $    10,143,115    $   3,236,866   $   5,574,964   $      1,331,285

     LIABILITIES AND FUND BALANCES
       Liabilities
          Accounts payable                                                    $        88,118    $      59,795   $      28,323   $             -




84
          Accrued liabilities                                                          46,312           35,651          10,661                 -
          Due to other funds                                                        1,183,827              -         1,183,827                 -
          Deferred revenue                                                          1,222,055          635,551         586,504                 -
                 Total liabilities                                                  2,540,312          730,997       1,809,315                 -

        Fund balances
          Reserved for:
              Prepaid items                                                             7,025            7,025             -                  -
              Long-term loans receivable                                              192,199              -           192,199                -
              Capital projects                                                      2,580,714              -         2,580,714                -
              Perpetual care                                                        1,270,472              -               -            1,270,472
          Unreserved
              Designated, reported in capital projects funds                          992,736              -           992,736                 -
              Undesignated, reported in
                 Special revenue funds                                              2,498,844        2,498,844              -                 -
                 Permanent funds                                                       60,813              -                -              60,813
                 Total fund balances                                                7,602,803        2,505,869       3,765,649          1,331,285
                 Total liabilities and fund balances                          $    10,143,115    $   3,236,866   $   5,574,964   $      1,331,285
                                                                   City of Muskegon
                                     COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES
                                                                   Other Governmental Funds
                                                             For the year ended December 31, 2008

                                                                                                                                       Permanent
                                                                               Total other        Special           Capital              Fund -
                                                                              governmental        Revenue           Projects           Cemetery
                                                                                 funds             Funds             Funds           Perpetual Care
     REVENUES
       Intergovernmental revenues
          Federal                                                         $     2,744,798     $     750,927     $   1,993,871    $            -
          State                                                                   996,290           967,402            28,888                 -
       Charges for services                                                       136,748             1,045           115,396              20,307
       Fines and forfeitures                                                       10,840            10,840               -                   -
       Investment earnings                                                        220,887            47,655           139,201              34,031
       Other                                                                      328,338            82,547           245,791                 -
              Total revenues                                                    4,437,901         1,860,416         2,523,147              54,338

     EXPENDITURES
       Current
         Public safety                                                             70,663            70,663               -                    -
         Highways, streets and bridges                                          3,312,558         3,312,558               -                    -
         Culture and recreation                                                    15,259            15,259               -                    -




85
         Other governmental functions                                             100,000               -             100,000                  -
       Debt service
         Principal                                                                564,148                -            564,148                  -
         Interest and fees                                                         73,506                -             73,506                  -
       Capital outlay                                                           2,644,833                -          2,644,833                  -
              Total expenditures                                                6,780,967         3,398,480         3,382,487                  -

     Excess of revenues over (under) expenditures                               (2,343,066)       (1,538,064)        (859,340)             54,338

     OTHER FINANCING SOURCES (USES)
       Proceeds from sale of capital assets                                       375,723               -             375,723                 -
       Long-term debt issued                                                      500,000               -             500,000                 -
       Transfers in                                                             1,033,813           730,000           303,813                 -
       Transfers out                                                             (107,632)              -             (50,000)            (57,632)
              Total other financing sources (uses)                              1,801,904           730,000         1,129,536             (57,632)

     Net change in fund balances                                                 (541,162)         (808,064)          270,196               (3,294)

     Fund balances at January 1, 2008                                           8,143,965         3,313,933         3,495,453           1,334,579

     Fund balances at December 31, 2008                                   $     7,602,803     $   2,505,869     $   3,765,649    $      1,331,285
                                                                          City of Muskegon
                                                                   COMBINING BALANCE SHEET
                                                                     Other Special Revenue Funds
                                                                         December 31, 2008




                                                         Total other                                                                  Farmers'
                                                       special revenue        Local            Criminal            Budget             Market             Tree
                                                            funds             Street          Forfeitures       Stabilization       Improvement       Replacement
     ASSETS
       Cash and investments                        $         455,945     $      81,632    $        86,769   $       259,937     $       17,565    $        10,042
       Special assessments receivable                        655,473           655,473                -                 -                  -                  -
       Due from other governmental units                     378,360           378,360                -                 -                  -                  -
       Due from other funds                                1,722,200               -                  -           1,722,200                -                  -
       Due from component units                               17,863               -                  -              17,863                -                  -
       Prepaid items                                           7,025             7,025                -                 -                  -                  -
             Total assets                          $       3,236,866     $    1,122,490   $        86,769   $     2,000,000     $       17,565    $        10,042

     LIABILITIES AND FUND BALANCES
       Liabilities
          Accounts payable                         $          59,795     $      54,882    $         4,913   $            -      $          -      $           -
          Accrued liabilities                                 35,651            35,651                -                  -                 -                  -




86
          Deferred revenue                                   635,551           635,551                -                  -                 -                  -
             Total liabilities                               730,997           726,084              4,913                -                 -                  -

       Fund balances
         Reserved for prepaid items                            7,025             7,025                -                 -                  -                  -
         Unreserved                                        2,498,844           389,381             81,856         2,000,000             17,565             10,042
             Total fund balances                           2,505,869           396,406             81,856         2,000,000             17,565             10,042
             Total liabilities and fund balances   $       3,236,866     $    1,122,490   $        86,769   $     2,000,000     $       17,565    $        10,042
                                                                              City of Muskegon
                                        COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES
                                                                     Other Special Revenue Funds
                                                                For the year ended December 31, 2008




                                                          Total other                                                                    Farmers'
                                                        special revenue         Local             Criminal            Budget             Market             Tree
                                                             funds              Street           Forfeitures       Stabilization       Improvement       Replacement
     REVENUES
       Intergovernmental revenues
          Federal                                   $         750,927     $       747,927    $          -      $            -      $          -      $        3,000
          State                                               967,402             965,402               -                   -                 -               2,000
       Charges for services                                     1,045                 -                 -                   -                 -               1,045
       Fines and forfeitures                                   10,840                 -              10,840                 -                 -                 -
       Investment earnings                                     47,655              43,178             3,518                 -                 710               249
       Other                                                   82,547              82,547               -                   -                 -                 -
              Total revenues                                1,860,416           1,839,054            14,358                 -                 710             6,294

     EXPENDITURES
       Current
         Public safety                                         70,663                 -              70,663                 -                 -                 -




87
         Highways, streets and bridges                      3,312,558           3,312,558               -                   -                 -                 -
         Culture and recreation                                15,259                 -                 -                   -               9,900             5,359
              Total expenditures                            3,398,480           3,312,558            70,663                 -               9,900             5,359

     Excess of revenues over (under) expenditures          (1,538,064)         (1,473,504)          (56,305)                -              (9,190)              935

     OTHER FINANCING SOURCES
       Transfers in                                           730,000             480,000                -             250,000                -                 -

     Net change in fund balances                             (808,064)           (993,504)          (56,305)           250,000             (9,190)              935

     Fund balances at January 1, 2008                       3,313,933           1,389,910           138,161          1,750,000             26,755             9,107

     Fund balances at December 31, 2008             $       2,505,869     $       396,406    $       81,856    $     2,000,000     $       17,565    $       10,042
                                                                                               City of Muskegon
                                                                                  BUDGETARY COMPARISON SCHEDULE
                                                                                          Other Special Revenue Funds
                                                                                     For the year ended December 31, 2008




                                                                          Local Street                                     Criminal Forfeitures                                Budget Stabilization
                                                                                             Variance -                                           Variance -                                          Variance -
                                                          Final                               positive          Final                              positive          Final                             positive
                                                         budget              Actual          (negative)        budget            Actual           (negative)        budget           Actual           (negative)
     REVENUES
       Intergovernmental revenues
          Federal                                   $      71,927     $       747,927    $     676,000     $        -       $         -       $          -      $        -      $          -     $           -
          State                                           818,344             965,402          147,058              -                 -                  -               -                 -                 -
       Charges for services                                 5,000                 -             (5,000)             -                 -                  -               -                 -                 -
       Fines and forfeitures                                  -                   -                -             16,000            10,840             (5,160)            -                 -                 -
       Investment earnings                                 25,000              43,178           18,178            3,000             3,518                518             -                 -                 -
       Other                                              120,000              82,547          (37,453)             -                 -                  -               -                 -                 -
              Total revenues                            1,040,271           1,839,054          798,783           19,000            14,358             (4,642)            -                 -                 -

     EXPENDITURES
       Current
         Public safety                                        -                   -                 -            63,000            70,663             (7,663)            -                 -                 -
         Highways, streets and bridges                  2,421,201           3,312,558          (891,357)            -                 -                  -               -                 -                 -
         Culture and recreation                               -                   -                 -               -                 -                  -               -                 -                 -




88
              Total expenditures                        2,421,201           3,312,558          (891,357)         63,000            70,663             (7,663)            -                 -                 -

     Excess of revenues over (under) expenditures       (1,380,930)        (1,473,504)          (92,574)        (44,000)           (56,305)          (12,305)            -                 -                 -

     OTHER FINANCING SOURCES
       Transfers in                                       480,000             480,000               -               -                  -                 -           250,000          250,000                -

     Net change in fund balances                    $    (900,930)           (993,504) $        (92,574)   $    (44,000)           (56,305) $        (12,305)   $    250,000          250,000    $           -

     Fund balances at January 1, 2008                                       1,389,910                                             138,161                                           1,750,000

     Fund balances at December 31, 2008                               $       396,406                                       $      81,856                                       $   2,000,000
                                                                        City of Muskegon
                                                    BUDGETARY COMPARISON SCHEDULE—CONTINUED
                                                                 Other Special Revenue Funds
                                                            For the year ended December 31, 2008




                                                                   Farmers' Market Improvement                           Tree Replacement
                                                                                            Variance -                                          Variance -
                                                             Final                            positive         Final                             positive
                                                            budget           Actual          (negative)       budget         Actual             (negative)
     REVENUES
       Intergovernmental revenues
          Federal                                       $       -         $       -        $        -     $      3,000   $       3,000      $          -
          State                                                 -                 -                 -            2,000           2,000                 -
       Charges for services                                     -                 -                 -              400           1,045                 645
       Fines and forfeitures                                    -                 -                 -              -               -                   -
       Investment earnings                                      700               710                10            500             249                (251)
       Other                                                    -                 -                 -              -               -                   -
              Total revenues                                    700               710                10          5,900           6,294                394

     EXPENDITURES




89
       Current
         Public safety                                           -                 -                -              -               -                  -
         Highways, streets and bridges                           -                 -                -              -               -                  -
         Culture and recreation                               13,000             9,900            3,100          5,900           5,359                541
              Total expenditures                              13,000             9,900            3,100          5,900           5,359                541

     Excess of revenues over (under) expenditures            (12,300)           (9,190)           3,110            -               935                935

     OTHER FINANCING SOURCES
       Transfers in                                              -                 -                -              -               -                   -

     Net change in fund balances                        $    (12,300)           (9,190)    $      3,110   $        -               935      $         935

     Fund balances at January 1, 2008                                           26,755                                           9,107

     Fund balances at December 31, 2008                                   $     17,565                                   $      10,042
                                                                                                                     City of Muskegon
                                                                                                              COMBINING BALANCE SHEET
                                                                                                                Other Capital Projects Funds
                                                                                                                    December 31, 2008




                                                                    Total other                                                                   EDC           Community                                               Arena
                                                                  capital projects          Public           Sidewalk          Michcon          Revolving       Development       State           HOME                  Capital           Lead
                                                                       funds             Improvement        Replacement       Remediation         Loan          Block Grant       Grants        Rehabilitation       Improvements       Abatement
     ASSETS
       Cash and investments                                   $       3,591,005      $      1,981,268   $      885,515    $      216,137    $     117,957   $          -      $   289,535   $             -      $       100,593    $          -
       Receivables
         Accounts and loans (net of
             allowance for uncollectibles)                              606,275                 6,267              -                 -             20,946          405,123        171,253                -                 2,686               -
         Special assessments                                            403,726                   -            403,726               -                -                -              -                  -                   -                 -
       Due from other governmental units                                973,958                   -                -                 -                -            478,803        188,759             88,727                 -             217,669
              Total assets                                    $       5,574,964      $      1,987,535   $    1,289,241    $      216,137    $     138,903   $      883,926    $   649,547   $         88,727     $       103,279    $      217,669

     LIABILITIES AND FUND BALANCES (DEFICIT)
       Liabilities
          Accounts payable                                    $          28,323      $          1,409   $          -      $          -      $         -     $          467    $        -    $            153     $           -      $       26,294
          Accrued liabilities                                            10,661                   -                -                 -                -              8,629             -                 508                 -               1,524
          Due to other funds                                          1,183,827                   -                -                 -                -            589,072             -             404,904                 -             189,851
          Deferred revenue                                              586,504                 1,000          299,746               -                -            285,758             -                 -                   -                 -
              Total liabilities                                       1,809,315                 2,409          299,746               -                -            883,926             -             405,565                 -             217,669

        Fund balances (deficit)




90
          Reserved for:
              Long-term loans receivable                                192,199                   -                -                 -             20,946              -          171,253                -                   -                 -
              Capital projects                                        2,580,714             1,142,390          989,495           216,137          117,957              -          328,294           (316,838)            103,279               -
          Unreserved
              Designated for approved projects                          992,736               842,736              -                 -                -                -          150,000                 -                  -                 -
              Total fund balances (deficit)                           3,765,649             1,985,126          989,495           216,137          138,903              -          649,547           (316,838)            103,279               -
              Total liabilities and fund balances (deficit)   $       5,574,964      $      1,987,535   $    1,289,241    $      216,137    $     138,903   $      883,926    $   649,547   $         88,727     $       103,279    $      217,669
                                                                                                             City of Muskegon
                                                     COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES (DEFICIT)
                                                                                      Other Capital Projects Funds
                                                                                 For the year ended December 31, 2008




                                                            Total other                                                                 EDC           Community                                                 Arena
                                                          capital projects          Public            Sidewalk          Michcon       Revolving       Development       State             HOME                  Capital           Lead
                                                               funds             Improvement         Replacement       Remediation      Loan          Block Grant       Grants          Rehabilitation       Improvements       Abatement
     REVENUES
       Intergovernmental revenues
          Federal                                     $       1,993,871      $           -       $          -      $          -   $         -     $      870,951    $       -       $        219,254     $           -      $     903,666
          State                                                  28,888                  -                  -                 -             -                -           28,888                  -                   -                -
       Charges for services                                     115,396               80,087                -                 -             -                -              -                    -                35,309              -
       Investment earnings                                      139,201               76,446             50,225             6,034         2,921            1,118            -                    -                 2,457              -
       Other                                                    245,791                  -              120,301               -          37,592           11,473         50,000                  -                   -             26,425
              Total revenues                                  2,523,147              156,533            170,526             6,034        40,513          883,542         78,888              219,254              37,766          930,091

     EXPENDITURES
       Current
         Other governmental functions                           100,000              100,000                -                 -             -                -               -                    -                  -                 -
       Debt service
         Principal                                              564,148              274,148            290,000               -             -                -              -                    -                   -                -
         Interest and fees                                       73,506               18,271             55,235               -             -                -              -                    -                   -                -
       Capital outlay                                         2,644,833              310,056              3,381               -          22,866          943,038         83,256              340,934              11,211          930,091
              Total expenditures                              3,382,487              702,475            348,616               -          22,866          943,038         83,256              340,934              11,211          930,091

     Excess of revenues over (under) expenditures              (859,340)             (545,942)         (178,090)            6,034        17,647          (59,496)         (4,368)           (121,680)             26,555               -




91
     OTHER FINANCING SOURCES (USES)
       Proceeds from sale of capital assets                     375,723              280,031                -                 -             -             59,496            -                 36,196                 -                 -
       Long-term debt issued                                    500,000                  -                  -                 -             -                -          500,000                  -                   -                 -
       Transfers in                                             303,813              150,000            150,000               -             -                -            3,813                  -                   -                 -
       Transfers out                                            (50,000)             (50,000)               -                 -             -                -              -                    -                   -                 -
              Total other financing sources (uses)            1,129,536              380,031            150,000               -             -             59,496        503,813               36,196                 -                 -

     Net change in fund balances                                270,196              (165,911)          (28,090)            6,034        17,647              -          499,445              (85,484)             26,555              -

     Fund balances (deficit) at January 1, 2008               3,495,453             2,151,037         1,017,585           210,103       121,256              -          150,102             (231,354)             76,724               -

     Fund balances (deficit) at December 31, 2008     $       3,765,649      $      1,985,126    $      989,495    $      216,137 $     138,903   $          -      $   649,547     $       (316,838) $          103,279    $          -
92
                                   DESCRIPTION OF
                               INTERNAL SERVICE FUNDS


Internal service funds are used to account for the financing of goods or services provided by one
department to other departments of a governmental unit or to other governments on a cost-
reimbursement basis.

A list and description of internal service funds maintained by the City follows:

Engineering Services – to account for salary, benefit and other costs related to the provision of
internal engineering services for City projects; to account for charges to the user funds and
projects to cover those expenses.

Equipment – to account for the purchase, operation, maintenance and depreciation of all City-
owned vehicles and equipment; to account for charges to the user funds and departments to cover
those expenses.

General Insurance – to account for the payment of claims and benefits, excess liability premiums
and operating expenses; to account for charges to other funds and departments to cover the
expenses.

Public Service Building – to account for the operation, maintenance and depreciation of the City's
Public Service Building; to account for charges to the user funds and departments to cover these
expenses.




                                                93
                                                                                  City of Muskegon
                                                                       COMBINING STATEMENT OF NET ASSETS
                                                                                Internal Service Funds
                                                                                 December 31, 2008

                                                                                         ASSETS

                                                                                 Total internal       Engineering                           General         Public Service
                                                                                 service funds         Services          Equipment         Insurance          Building
     CURRENT ASSETS
       Cash and investments                                                  $      3,405,050     $      132,074     $    2,472,676    $      325,669   $        474,631
       Accounts receivable                                                          1,592,669              3,290             15,701         1,573,678                -
       Due from other governmental units                                               16,519                -                  -              16,519                -
       Inventories                                                                     11,552                -               11,552               -                  -
       Prepaid items                                                                  178,762              1,312             19,612           156,282              1,556
                  Total current assets                                              5,204,552            136,676          2,519,541         2,072,148            476,187

     NONCURRENT ASSETS
       Capital assets
         Land                                                                          65,000                 -                 -                 -               65,000
         Land improvements                                                            121,648                 -                 -                 -              121,648
         Buildings and improvements                                                 1,559,334                 -                 -                 -            1,559,334
         Machinery and equipment                                                    7,417,363              26,355         7,356,319               -               34,689
             Less accumulated depreciation                                         (6,947,231)            (26,355)       (5,888,067)              -           (1,032,809)




94
                  Total noncurrent assets                                           2,216,114                 -           1,468,252               -              747,862
                     Total assets                                                   7,420,666            136,676          3,987,793         2,072,148          1,224,049

                                                                            LIABILITIES AND NET ASSETS
     CURRENT LIABILITIES
       Accounts payable                                                               300,622              2,447            71,708           199,688              26,779
       Accrued liabilities                                                             41,345             10,972            21,272             1,037               8,064
       Bonds and other obligations, due within one year                                16,000              3,800             8,000               200               4,000
                  Total current liabilities                                           357,967             17,219           100,980           200,925              38,843

     NONCURRENT LIABILITIES
       Bonds and other obligations, less amounts due within one year                   82,256             17,763            42,369              1,088             21,036
                     Total liabilities                                                440,223             34,982           143,349           202,013              59,879

     NET ASSETS
       Invested in capital assets                                                   2,216,114                -            1,468,252               -              747,862
       Unrestricted                                                                 4,764,329            101,694          2,376,192         1,870,135            416,308
                     Total net assets                                        $      6,980,443     $      101,694     $    3,844,444    $    1,870,135   $      1,164,170
                                                                            City of Muskegon
                                            COMBINING STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS
                                                                          Internal Service Funds
                                                                  For the year ended December 31, 2008




                                                                      Total internal       Engineering                          General          Public Service
                                                                      service funds         Services          Equipment        Insurance           Building
     OPERATING REVENUES
       Charges for services                                       $      7,803,575     $       457,581    $    2,703,727   $    4,060,997    $        581,270
       Other                                                                92,824               2,979            82,079              450               7,316
           Total operating revenues                                      7,896,399             460,560         2,785,806        4,061,447             588,586

     OPERATING EXPENSES
       Administration                                                      300,360              81,564           102,708           73,212              42,876
       Insurance premiums and claims                                     3,832,770                 -                 -          3,832,770                 -
       Other operations                                                  3,000,115             421,904         2,072,302           46,398             459,511
       Depreciation                                                        559,875                 -             489,712              -                70,163
           Total operating expenses                                      7,693,120             503,468         2,664,722        3,952,380             572,550

           Operating income (loss)                                         203,279             (42,908)          121,084          109,067              16,036




95
     NONOPERATING REVENUES
       Investment earnings                                                 103,129               3,693            57,756           30,784              10,896
       Gain on sale of capital assets                                       28,529                 -              28,529              -                   -
           Total nonoperating revenues                                     131,658               3,693            86,285           30,784              10,896

           Income (loss) before transfers                                  334,937             (39,215)          207,369          139,851              26,932

     Transfers in                                                           28,046                 -                 -             28,046                  -
     Transfers out                                                        (136,272)                -                 -           (136,272)                 -
           Change in net assets                                            226,711             (39,215)          207,369           31,625              26,932

     Net assets at January 1, 2008                                       6,753,732             140,909         3,637,075        1,838,510           1,137,238

     Net assets at December 31, 2008                              $      6,980,443     $       101,694    $    3,844,444   $    1,870,135    $      1,164,170
                                                                                              City of Muskegon
                                                                                COMBINING STATEMENT OF CASH FLOWS
                                                                                            Internal Service Funds
                                                                                    For the year ended December 31, 2008


                                                                                                     Total internal       Engineering                         General           Public Service
                                                                                                     service funds          Services        Equipment         Insurance           Building
     CASH FLOWS FROM OPERATING ACTIVITIES
       Receipts from customers                                                                   $         161,274    $       71,814    $       81,694    $          450    $          7,316
       Receipts from interfund services provided                                                         7,803,575           457,581         2,703,727         4,060,997             581,270
       Payments to suppliers                                                                            (6,372,465)         (139,188)       (1,423,381)       (4,543,119)           (266,777)
       Payments to employees                                                                              (961,276)         (279,287)         (466,648)          (24,512)           (190,829)
       Payments for interfund services used                                                               (679,326)          (78,966)         (260,848)         (296,954)            (42,558)
              Net cash provided by (used for) operating activities                                         (48,218)           31,954          634,544          (803,138)              88,422

     CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES
       Transfers in                                                                                         28,046               -                 -             28,046                   -
       Transfers out                                                                                      (136,272)              -                 -           (136,272)                  -
              Net cash used for noncapital financing activities                                           (108,226)              -                 -           (108,226)                  -

     CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES
       Purchases of capital assets                                                                        (259,430)              -            (259,430)              -                    -
       Proceeds from sale of capital assets                                                                 35,229               -              35,229               -                    -
              Net cash used for capital and related financing activities                                  (224,201)              -            (224,201)              -                    -




96
     CASH FLOW FROM INVESTING ACTIVITIES
       Investment earnings                                                                                 103,129             3,693           57,756            30,784               10,896

              Net increase (decrease) in cash and investments                                             (277,516)           35,647          468,099          (880,580)              99,318

     Cash and investments at January 1, 2008                                                             3,682,566            96,427         2,004,577        1,206,249              375,313

     Cash and investments at December 31, 2008                                                   $       3,405,050    $      132,074    $    2,472,676    $     325,669     $        474,631

     Reconciliation of operating income (loss) to net cash provided by (used for)
       operating activities
          Operating income (loss)                                                                $         203,279    $      (42,908)   $     121,084     $     109,067     $         16,036
          Adjustments to reconcile operating income (loss) to net cash provided by
              (used for) operating activities
                  Depreciation expense                                                                     559,875               -            489,712                -                70,163
              Change in assets and liabilities
                  Receivables, net                                                                        (958,397)           68,835             (385)        (1,026,847)                -
                  Inventories                                                                               11,783               -             11,783                -                   -
                  Prepaid items                                                                            (18,649)              (74)           1,510            (19,995)                (90)
                  Accounts payable                                                                         138,205               260            2,061            134,828               1,056
                  Accrued liabilities                                                                       15,686             5,841            8,779               (191)              1,257
                    Net cash provided by (used for) operating activities                         $         (48,218)   $       31,954    $     634,544     $    (803,138)    $         88,422
                                     DESCRIPTION OF
                                    FIDUCIARY FUNDS

Fiduciary funds are used to account for assets held by a government in a trustee capacity for
individuals, private organizations, other governments or other funds.

A list and description of the fiduciary funds maintained by the City follows:

AGENCY FUNDS are used to account for assets held as an agent for another organization or
individual.

Collector – to account for the collections and disbursement of funds to other entities and
individuals and to account for payroll withholdings and their remittance to the appropriate
governmental agencies.

Current Tax – to account for levy, collection and payment of taxes levied for the general and
other funds of the City, county and public school districts.

Rehab Loan Escrow – to account for deposits made by housing rehabilitation program
participants and their expenditures for the intended purposes.




                                                97
                                                     City of Muskegon
                                    COMBINING STATEMENT OF ASSETS AND LIABILITIES
                                                     Agency Funds
                                                   December 31, 2008




                                                       Total                             Current         Rehab Loan
                                                    agency funds        Collector          tax             Escrow
     ASSETS
       Cash and investments                     $    11,120,832    $    1,163,589   $    9,957,243   $          -
       Receivables
          Accounts                                        2,767             2,767              -                -
          Property taxes                             14,393,066               -         14,393,066              -
              Total assets                      $    25,516,665    $    1,166,356   $   24,350,309   $          -

     LIABILITIES
        Accounts payable                        $       193,101    $      193,101   $          -     $          -




98
        Due to other governmental units              25,141,666           822,530       24,319,136              -
        Deposits held for others                        181,898           150,725           31,173              -
              Total liabilities                 $    25,516,665    $    1,166,356   $   24,350,309   $          -
                                                         City of Muskegon
                                         STATEMENT OF CHANGES IN ASSETS AND LIABILITIES
                                                             Agency Funds
                                                 For the year ended December 31, 2008

                                                               Balance                                                 Balance
                                                              January 1,                                             December 31,
     COLLECTOR FUND                                             2008               Additions        Deductions          2008
     ASSETS
       Cash and investments                               $    1,062,271       $   16,469,530   $   16,368,212   $     1,163,589
       Accounts receivable                                         2,767              283,976          283,976             2,767
           Total assets                                   $    1,065,038       $   16,753,506   $   16,652,188   $     1,166,356

     LIABILITIES
       Accounts payable                                   $      179,063       $   11,786,985   $   11,772,947   $       193,101
       Due to other governmental units                           715,267            2,045,096        1,937,833           822,530
       Deposits held for others                                  170,708            2,951,589        2,971,572           150,725
           Total liabilities                              $    1,065,038       $   16,783,670   $   16,682,352   $     1,166,356

     CURRENT TAX FUND
     ASSETS
       Cash and investments                               $    5,198,237       $   34,172,795   $   29,413,789   $     9,957,243
       Property taxes receivable                              13,913,118           26,310,204       25,830,256        14,393,066
           Total assets                                   $   19,111,355       $   60,482,999   $   55,244,045   $    24,350,309

     LIABILITIES
       Due to other governmental units                    $   19,086,166       $   26,310,204   $   21,077,234   $    24,319,136
       Due to other funds                                            -              7,789,825        7,789,825               -
       Due to component units                                        -                447,884          447,884               -




99
       Deposits held for others                                   25,189              104,830           98,846            31,173
           Total liabilities                              $   19,111,355       $   34,652,743   $   29,413,789   $    24,350,309

     REHAB LOAN ESCROW FUND
     ASSETS
       Cash and investments                               $          -         $        1,687   $        1,687   $           -

     LIABILITIES
       Accounts payable                                   $          -         $        1,687   $        1,687   $           -

     ALL AGENCY FUNDS
     ASSETS
       Cash and investments                               $    6,260,508       $   50,644,012   $   45,783,688   $    11,120,832
       Receivables
          Accounts                                                 2,767              283,976          283,976             2,767
          Property taxes                                      13,913,118           26,310,204       25,830,256        14,393,066
           Total assets                                   $   20,176,393       $   77,238,192   $   71,897,920   $    25,516,665

     LIABILITIES
       Accounts payable                                   $      179,063       $   11,788,672   $   11,774,634   $       193,101
       Due to other governmental units                        19,801,433           28,355,300       23,015,067        25,141,666
       Due to other funds                                            -              7,789,825        7,789,825               -
       Due to component units                                        -                447,884          447,884               -
       Deposits held for others                                  195,897            3,056,419        3,070,418           181,898
           Total liabilities                              $   20,176,393       $   51,438,100   $   46,097,828   $    25,516,665
100
                              DESCRIPTION OF
                  DISCRETELY PRESENTED COMPONENT UNITS

A list and description of the discretely presented component units maintained by the City are as
follows:

Downtown Development Authority – to account for the collection of tax increment revenues, the
issuance and repayment of debt and the construction of public facilities to promote and facilitate
economic growth in the downtown.

Local Development Finance Authority – to account for the collection of tax increment revenues
and the construction of public facilities. Three separate local development finance authority
districts have been created:

        Local Development Finance Authority I – to promote and facilitate economic growth in
        the Port City Industrial Park.

        Local Development Finance Authority II – to promote and facilitate economic growth in
        the Medendorp Industrial Park.

        Local Development Finance Authority III – to promote and facilitate economic growth
        in the SmartZone Hi-Tech Park.

Tax Increment Finance Authority – to account for the collection of tax increment revenues, the
issuance and repayment of debt to promote and facilitate economic growth in a sub section of the
downtown.

Brownfield Redevelopment Authority – to account for the collection of tax increment revenues
for environmental remediation in designated brownfield areas.




                                               101
                                                                                                     City of Muskegon
                                                                                           COMBINING BALANCE SHEET
                                                                                           Discretely Presented Component Units
                                                                                                    December 31, 2008




                                                                    Total discretely          Local                Local                 Local
                                                                       presented           Development          Development           Development         Downtown          Tax Increment        Brownfield
                                                                      component              Finance              Finance               Finance           Development          Finance          Redevelopment
                                                                         units              Authority I          Authority II         Authority III        Authority          Authority           Authority
      ASSETS
        Cash and investments                                    $          62,794      $            347     $         25,092      $          8,753    $        14,619   $         13,983    $            -
        Property taxes receivable                                         645,170                   -                    -                  68,380            518,996             53,773               4,021
               Total assets                                     $         707,964      $            347     $         25,092      $         77,133    $       533,615   $         67,756    $          4,021

      LIABILITIES AND FUND BALANCES (DEFICITS)
        Liabilities
           Due to primary government                            $          17,863      $            -       $             -       $            -      $           -     $            -      $         17,863
           Deferred revenue                                               645,170                   -                     -                 68,380            518,996             53,773               4,021
               Total liabilities                                          663,033                   -                     -                 68,380            518,996             53,773              21,884

         Fund balances (deficits)
           Unreserved                                                       44,931                  347               25,092                 8,753             14,619             13,983              (17,863)
               Total liabilities and fund balances (deficits)   $         707,964      $            347     $         25,092      $         77,133    $       533,615   $         67,756    $          4,021




102
                                                            City of Muskegon
                                  RECONCILIATION OF THE GOVERNMENTAL FUNDS
                             BALANCE SHEET TO THE STATEMENT OF NET ASSETS (DEFICITS)
                                          Discretely Presented Component Units
                                                    December 31, 2008




      Total fund balance—governmental funds                                                                    $      44,931

      Amounts reported for governmental activities in the Statement of Net Assets
      are different because:

         Capital assets used in governmental activities are not financial resources
         and therefore are not reported as assets in the governmental funds.
            Capital assets                                                                    $   4,198,258
            Accumulated depreciation                                                               (877,628)       3,320,630




103
         Bond issuance costs are not capitalized and amortized in the
         governmental funds.
            Bond issuance costs                                                                    141,966
            Accumulated amortization                                                               (37,035)          104,931

         Accrued interest in governmental activities is not reported in the
         governmental funds.                                                                                         (43,700)

         Long-term liabilities, including bonds and notes payable, are not due
         and payable in the current period and therefore are not reported
         as liabilities in the governmental funds.                                                                 (8,254,288)

            Net assets of governmental activities in the Statement of Net Assets (Deficits)                    $   (4,827,496)
                                                                                         City of Muskegon
                                           COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES (DEFICIT)
                                                                       Discretely Presented Component Units
                                                                       For the year ended December 31, 2008




                                                             Total discretely          Local              Local              Local
                                                                presented           Development        Development        Development          Downtown          Tax Increment        Brownfield
                                                               component              Finance            Finance            Finance           Development           Finance          Redevelopment
                                                                  units              Authority I       Authority II       Authority III        Authority           Authority           Authority
      REVENUES
        Property taxes                                   $          601,404     $           -      $           -      $        38,249     $      505,697     $        57,458     $             -
        Intergovernmental revenues - Local                          250,000                 -                  -              150,000            100,000                 -                     -
        Investment earnings                                           2,936                  12                699              1,126                926                 173                   -
        Other                                                       359,787                 -                  -               75,000            284,787                 -                     -
               Total revenues                                     1,214,127                  12                699            264,375            891,410              57,631                   -

      EXPENDITURES
        Current
          Community and economic development                        536,504                 -                  -                   -             468,641              50,000               17,863
        Debt service
          Principal                                                 290,000                 -                  -               80,000            210,000                  -                    -
          Interest and fees                                         342,439                 -                  -              202,897            139,542                  -                    -
               Total expenditures                                 1,168,943                 -                  -              282,897            818,183              50,000               17,863




104
      Net change in fund balances                                    45,184                  12                699            (18,522)            73,227                7,631              (17,863)

      Fund balances (deficit) at January 1, 2008                       (253)                335             24,393             27,275             (58,608)              6,352                  -

      Fund balances (deficit) at December 31, 2008       $           44,931     $           347    $        25,092    $          8,753    $       14,619     $         13,983    $         (17,863)
                                                           City of Muskegon
          RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES
                   AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES
                                    Discretely Presented Component Units
                                    For the year ended December 31, 2008




      Net change in fund balances—total governmental funds                                       $    45,184

      Amounts reported for governmental activities in the Statement of Activities are
      different because:

         Governmental funds report outlays for capital assets and bond issuance costs as
         expenditures; in the Statement of Activities, these costs are depreciated and
         amortized over their estimated useful lives, respectively.
            Depreciation and amortization expense                                                    (178,821)




105
         Repayment of principal on long-term debt is an expenditure in the governmental funds,
         but the repayment reduces long-term liabilities in the Statement of Net Assets.             289,431

         Interest expense on long-term debt is recorded in the Statement of Activities when
         incurred, but is not reported in the governmental funds until paid.                            1,200

               Change in net assets of governmental activities                                   $   156,994
106
SCHEDULE OF INDEBTEDNESS




          107
                                                                 City of Muskegon

                                                      SCHEDULE OF INDEBTEDNESS

                                                                 December 31, 2008

                                                                                                                                           Annual
                                         Date         Amount           Interest      Date of                                               Interest
                                       of Issue       of Issue           Rate        Maturity         2007              2008               Payable

Business-Type Activities Bonds and Loans Payable:


Water supply system bonds               10/1/1993 $      5,465,000         0.00%       05/01/08 $              -    $             -    $              -
 ($7,833 unamortized discount)                                             0.00%       05/01/09                -                  -              40,500
                                                                           0.00%       05/01/10                -                  -              40,500
                                                                           0.00%       05/01/11                -                  -              40,500
                                                                           4.50%       05/01/12          450,000            450,000              30,375
                                                                           4.50%       05/01/13          450,000            450,000              10,121
                                                                                                         900,000            900,000             161,996


Water supply system bonds                3/2/1999 $      9,575,000         4.05%       05/01/08           490,000                 -                   -
 ($40,367 unamortized discount)                                            4.10%       05/01/09           510,000           510,000             268,350
                                                                           4.20%       05/01/10           535,000           535,000             246,660
                                                                           4.30%       05/01/11           555,000           555,000             223,493
                                                                           4.35%       05/01/12           130,000           130,000             208,733
                                                                           4.40%       05/01/13           155,000           155,000             202,495
                                                                           4.50%       05/01/14           635,000           635,000             184,798
                                                                           4.55%       05/01/15           665,000           665,000             155,381
                                                                           4.60%       05/01/16           695,000           695,000             124,268
                                                                           4.65%       05/01/17           730,000           730,000              91,310
                                                                           4.75%       05/01/18           765,000           765,000              56,169
                                                                           4.75%       05/01/19           800,000           800,000              19,000
                                                                                                        6,665,000         6,175,000           1,780,657

Drinking Water State Revolving           3/2/2004 $     13,900,000         2.13%       10/01/08           590,000                  -                  -
 Fund (DWSRF)                                                              2.13%       10/01/09           600,000           600,000             258,613
                                                                           2.13%       10/01/10           615,000           615,000             245,863
                                                                           2.13%       10/01/11           630,000           630,000             232,794
                                                                           2.13%       10/01/12           640,000           640,000             219,406
                                                                           2.13%       10/01/13           655,000           655,000             205,806
                                                                           2.13%       10/01/14           670,000           670,000             191,888
                                                                           2.13%       10/01/15           685,000           685,000             177,650
                                                                           2.13%       10/01/16           695,000           695,000             163,094
                                                                           2.13%       10/01/17           710,000           710,000             148,325
                                                                           2.13%       10/01/18           725,000           725,000             133,238
                                                                           2.13%       10/01/19           745,000           745,000             117,831
                                                                           2.13%       10/01/20           760,000           760,000             102,000
                                                                           2.13%       10/01/21           775,000           775,000              85,850
                                                                           2.13%       10/01/22           790,000           790,000              69,382
                                                                           2.13%       10/01/23           810,000           810,000              52,594
                                                                           2.13%       10/01/24           825,000           825,000              35,381
                                                                           2.13%       10/01/25           840,000           840,000              17,850
                                                                                                       12,760,000        12,170,000           2,457,565


Contractual obligation for              11/6/2002 $      6,990,000
 County wastewater debt retirement                                         5.00%       07/01/08         1,221,207                  -                  -
                                                                                                        1,221,207                  -                  -

TOTAL BUSINESS-TYPE ACTIVITIES BONDS AND LOANS PAYABLE                                            $    21,546,207   $    19,245,000    $      4,400,218




                                                                      108
                                                                  City of Muskegon

                                                  SCHEDULE OF INDEBTEDNESS - CONTINUED

                                                                  December 31, 2008

                                                                                                                                           Annual
                                         Date          Amount           Interest      Date of                                              Interest
                                       of Issue        of Issue           Rate        Maturity       2007              2008                Payable

Governmental Activities Bonds and Loans Payable:


Installment purchase contract           7/26/2005 $         605,824         3.83%       04/01/08 $       54,148    $            -      $              -
 of 2005 (firetrucks)                                                       3.83%       04/01/09         56,471            56,471                16,153
                                                                            3.83%       04/01/10         58,894            58,894                13,944
                                                                            3.83%       04/01/11         61,420            61,420                11,639
                                                                            3.83%       04/01/12         64,055            64,055                 9,236
                                                                            3.83%       04/01/13         66,803            66,803                 6,731
                                                                            3.83%       04/01/14         69,669            69,669                 4,117
                                                                            3.83%       04/01/15         72,658            72,658                 1,391
                                                                                                        504,118           449,970                63,211



Special assessment improvement          10/1/1998 $       1,495,000         4.00%       04/01/08         95,000                    -                  -
 bonds of 1998 (sidewalks)                                                  4.00%       04/01/09         60,000               60,000              1,200
                                                                                                        155,000               60,000              1,200



Special assessment improvement          12/1/2000 $         825,000         4.80%       04/01/08         85,000                 -                     -
 bonds of 2000 (sidewalks)                                                  4.90%       04/01/09         85,000            85,000                 5,583
                                                                            5.00%       04/01/10         70,000            70,000                 1,746
                                                                                                        240,000           155,000                 7,329


Capital improvement bonds                3/1/2003 $       1,575,000         2.88%       06/01/08         110,000                 -                    -
 of 2003 (sidewalks)                                                        3.13%       06/01/09         115,000           115,000               36,902
                                                                            3.50%       06/01/10         120,000           120,000               33,005
                                                                            3.50%       06/01/11         120,000           120,000               28,805
                                                                            3.70%       06/01/12         125,000           125,000               24,393
                                                                            3.80%       06/01/13         130,000           130,000               19,610
                                                                            3.90%       06/01/14         135,000           135,000               14,508
                                                                            4.00%       06/01/15         145,000           145,000                8,975
                                                                            4.05%       06/01/16         150,000           150,000                3,038
                                                                                                       1,150,000         1,040,000              169,234

Capital improvement bonds              10/24/2006 $       5,400,000         4.00%       10/01/08          45,000                 -                    -
 of 2006 (fire station, recreation)                                         4.00%       10/01/09          50,000            50,000              217,345
  ($15,643 unamortized discount)                                            4.00%       10/01/10          70,000            70,000              215,345
                                                                            4.00%       10/01/11          70,000            70,000              212,545
                                                                            4.00%       10/01/12          70,000            70,000              209,745
                                                                            4.00%       10/01/13          70,000            70,000              206,945
                                                                            4.00%       10/01/14          70,000            70,000              204,145
                                                                            4.00%       10/01/15          70,000            70,000              201,345
                                                                            4.00%       10/01/16          70,000            70,000              198,545
                                                                            4.00%       10/01/17          70,000            70,000              195,745
                                                                            4.00%       10/01/18          70,000            70,000              192,945
                                                                            4.00%       10/01/19         295,000           295,000              190,145
                                                                            4.00%       10/01/20         305,000           305,000              178,345
                                                                            4.00%       10/01/21         315,000           315,000              166,145
                                                                            4.00%       10/01/22         315,000           315,000              153,545
                                                                            4.00%       10/01/23         320,000           320,000              140,945
                                                                            4.00%       10/01/24         340,000           340,000              128,145
                                                                            4.00%       10/01/25         345,000           345,000              114,545
                                                                            4.00%       10/01/26         345,000           345,000              100,745
                                                                            4.10%       10/01/27         345,000           345,000               86,945
                                                                            4.10%       10/01/28         350,000           350,000               72,800
                                                                            4.10%       10/01/29         350,000           350,000               58,450
                                                                            4.20%       10/01/30         350,000           350,000               44,100
                                                                            4.20%       10/01/31         350,000           350,000               29,400
                                                                            4.20%       10/01/32         350,000           350,000               14,700
                                                                                                       5,400,000         5,355,000            3,533,605




                                                                       109
                                                                         City of Muskegon

                                                         SCHEDULE OF INDEBTEDNESS - CONTINUED

                                                                         December 31, 2008

                                                                                                                                                  Annual
                                                Date          Amount           Interest      Date of                                              Interest
                                              of Issue        of Issue           Rate        Maturity         2007              2008              Payable

Governmental Activities Bonds and Loans Payable:


State of Michigan urban land                  12/15/1999 $       1,276,900         0.00%       10/31/08          200,000                 -                   -
 assembly loan                                                                     0.00%       10/31/09          276,900           276,900                   -
                                                                                                                 476,900           276,900                   -

State of Michigan urban land                    8/1/2005 $         700,000         0.00%       09/01/08           20,000                 -                   -
 assembly loan                                                                     0.00%       09/01/09           20,000            20,000                   -
                                                                                   0.00%       09/01/10           20,000            20,000                   -
                                                                                   0.00%       09/01/11          120,000           120,000                   -
                                                                                   0.00%       09/01/12          120,000           120,000                   -
                                                                                   0.00%       09/01/13          120,000           120,000                   -
                                                                                   0.00%       09/01/14          120,000           120,000                   -
                                                                                   0.00%       09/01/15          120,000           120,000                   -
                                                                                                                 660,000           640,000                   -


State of Michigan                               8/1/2005 $         500,000         0.00%       03/18/10                 -           54,572                   -
 environmental assessment loan                                                     2.00%       03/18/11                 -           45,663               8,909
                                                                                   2.00%       03/18/12                 -           46,577               7,995
                                                                                   2.00%       03/18/13                 -           47,508               7,064
                                                                                   2.00%       03/18/14                 -           48,458               6,114
                                                                                   2.00%       03/18/15                 -           49,427               5,144
                                                                                   2.00%       03/18/16                 -           50,416               4,156
                                                                                   2.00%       03/18/17                 -           51,424               3,148
                                                                                   2.00%       03/18/18                 -           52,453               2,119
                                                                                   2.00%       03/18/19                 -           53,502               1,070
                                                                                                                        -          500,000              45,718


Michigan transportation fund refunding bond    10/1/2002 $       2,245,000         3.13%       06/01/08           390,000                 -                  -
                                                                                                                  390,000                 -                  -
TOTAL GOVERNMENTAL ACTIVITIES BONDS AND LOANS PAYABLE                                                     $     8,976,018   $     8,476,870   $      3,820,298


TOTAL PRIMARY GOVERNMENT BONDS AND LOANS PAYABLE                                                          $    30,522,225   $    27,721,870   $      8,220,516




                                                                              110
                                                                 City of Muskegon

                                                 SCHEDULE OF INDEBTEDNESS - CONTINUED

                                                                 December 31, 2008

                                                                                                                                          Annual
                                        Date          Amount           Interest      Date of                                              Interest
                                      of Issue        of Issue           Rate        Maturity         2007              2008              Payable

Discretely Presented Component Unit Bonds and Loans Payable:


Downtown Development Authority          8/10/1989 $      1,000,000         0.00%       08/30/19 $       1,000,000   $     1,000,000   $              -
 promissory note to Muskegon County                                                                     1,000,000         1,000,000                  -



Downtown Development Authority           9/1/2001 $      4,005,000         4.00%       06/01/08           210,000                 -                  -
 refunding bonds                                                           4.20%       06/01/09           220,000           220,000            120,472
                                                                           4.25%       06/01/10           230,000           230,000            110,964
                                                                           4.35%       06/01/11           240,000           240,000            100,857
                                                                           4.45%       06/01/12           245,000           245,000             90,187
                                                                           4.55%       06/01/13           260,000           260,000             78,821
                                                                           4.65%       06/01/14           270,000           270,000             66,628
                                                                           4.75%       06/01/15           280,000           280,000             53,700
                                                                           4.85%       06/01/16           300,000           300,000             39,775
                                                                           5.00%       06/01/17           315,000           315,000             24,625
                                                                           5.00%       06/01/18           335,000           335,000              8,375
                                                                                                        2,905,000         2,695,000            694,404

Local Development Finance Authority     11/1/2002 $      4,725,000         3.50%       11/01/08            80,000                 -                  -
Smartzone Bonds                                                            3.63%       11/01/09            80,000            80,000            199,747
($5,712 unamortized discount)                                              3.88%       11/01/10            80,000            80,000            196,847
                                                                           3.88%       11/01/11            80,000            80,000            193,747
                                                                           4.00%       11/01/12           180,000           180,000            190,647
                                                                           3.90%       11/01/13           240,000           240,000            183,447
                                                                           4.05%       11/01/14           305,000           305,000            174,087
                                                                           4.05%       11/01/15           325,000           325,000            161,736
                                                                           4.15%       11/01/16           340,000           340,000            148,572
                                                                           4.25%       11/01/17           355,000           355,000            134,462
                                                                           4.35%       11/01/18           375,000           375,000            119,376
                                                                           4.45%       11/01/19           395,000           395,000            103,062
                                                                           4.60%       11/01/20           400,000           400,000             85,486
                                                                           4.60%       11/01/21           255,000           255,000             67,086
                                                                           4.60%       11/01/22           265,000           265,000             55,356
                                                                           4.85%       11/01/23           280,000           280,000             43,166
                                                                           4.85%       11/01/24           295,000           295,000             29,586
                                                                           4.85%       11/01/25           315,000           315,000             15,278
                                                                                                        4,645,000         4,565,000          2,101,688
TOTAL DISCRETELY PRESENTED COMPONENT UNIT BONDS AND LOANS PAYABLE                                 $     8,550,000   $     8,260,000   $      2,796,092


TOTAL REPORTING ENTITY BONDS AND LOANS PAYABLE                                                    $    39,072,225   $    35,981,870   $     11,016,608




                                                                      111
112
                                       Statistical Section
This part of the City of Muskegon’s Comprehensive Annual Financial Report presents detailed
information as a context for understanding what the information in the financial statements,
note disclosures, and required supplementary information says about the City’s overall
financial health.


Contents                                                                                            Page

Financial Trends

These schedules contain trend information to help the reader understand how the
City’s financial performance and well-being have changed over time.                                  114


Revenue Capacity

These schedules contain information to help the reader assess the factors affecting
the City’s ability to generate its property and sales taxes.                                         118


Debt Capacity

These schedules present information to help the reader assess the affordability of
the City’s current levels of outstanding debt and the City’s ability to issue additional
debt in the future.                                                                                  124


Demographic and Economic Information

These schedules offer demographic and economic indicators to help the reader
understand the environment within which the City’s financial activities take place
and to help make comparisons over time and with other governments.                                   128


Operating Information

These schedules contain information about the City’s operations and resources to help
the reader understand how the City’s financial information relates to the services the
City provides and the activities it performs.                                          130



Sources: Unless otherwise noted, the information in these schedules is derived form the Comprehensive Annual
Financial Reports for the relevant year. The City implemented Statement 34 in 2002; schedules presenting
government-wide information include information beginning in that year.




                                                    113
                                                                                City of Muskegon

                                                                     NET ASSETS BY COMPONENT

                                                                             Last Six Fiscal Years




                                                                         2003            2004            2005 (a)         2006             2007             2008

      Governmental Activities
      Invested in Capital Assets, net of related debt                $ 32,120,134    $ 40,663,844    $   67,119,658   $   68,189,021   $   68,059,626   $   69,564,935
      Restricted                                                        5,674,787       5,209,654         5,420,482        5,378,669        5,485,703        3,557,678
      Unrestricted                                                      9,286,551       7,407,355         7,811,489        8,778,786       10,162,425       10,708,529
      Total Governmental Net Assets                                  $ 47,081,472    $ 53,280,853    $   80,351,629   $   82,346,476   $   83,707,754   $   83,831,142



      Business-type Activities
      Invested in Capital Assets, net of related debt                $ 27,808,792    $ 31,609,016    $   36,742,669   $   39,441,912   $   39,356,966   $   40,876,621
      Restricted                                                          822,559         822,559           822,559          822,559          822,559          822,559
      Unrestricted                                                     10,488,022       8,647,716         6,663,563        6,910,247        7,980,823        6,775,508




114
      Total Business-type Activities Net Assets                      $ 39,119,373    $ 41,079,291    $   44,228,791   $   47,174,718   $   48,160,348   $   48,474,688



      Primary Government
      Invested in Capital Assets, net of related debt                $ 59,928,926    $ 72,272,860    $ 103,862,327    $ 107,630,933    $ 107,416,592    $ 110,441,556
      Restricted                                                        6,497,346       6,032,213        6,243,041        6,201,228        6,308,262        4,380,237
      Unrestricted                                                     19,774,573      16,055,071       14,475,052       15,689,033       18,143,248       17,484,037
      Total Primary Government Net Assets                            $ 86,200,845    $ 94,360,144    $ 124,580,420    $ 129,521,194    $ 131,868,102    $ 132,305,830




      (a) In 2005, the City began reporting historic infrastructure assets as required by GASB 34.

      SOURCE: The information in these schedules (unless otherwise noted) is derived from the comprehensive annual financial
      reports for the relevant year. The City implemented GASB Statement 34 in 2002; schedules presenting government-wide
      information include information start that year. Certain other information has not been presented previously. Reported numbers
      begin with the year for which information believed to be accurate is available.
                                                                                         City of Muskegon

                                                                                 CHANGES IN NET ASSETS

                                                                                        Last Six Fiscal Years




                                                                          2003                  2004                  2005                 2006               2007             2008

EXPENSES
Governmental Activities
Public representation                                              $          887,496    $          866,669     $         885,365   $           904,109   $      925,124   $      986,696
Administrative services                                                     1,227,407             1,132,229               803,783               732,715          783,713          782,362
Financial services                                                          1,842,653             1,809,136             1,872,159             2,061,836        2,205,041        2,292,430
Public safety                                                              11,583,282            12,164,389            12,481,826            13,059,358       12,802,488       13,955,811
Public works                                                                2,947,194             2,847,755             2,853,497             3,089,522        2,989,433        3,019,411
Highways, streets and bridges                                               3,483,032             3,879,462             5,910,307             5,672,590        7,272,288        7,265,438
Community and economic development                                          3,371,472             2,652,497             3,693,187             3,383,157        3,054,087        3,174,508
Culture and recreation                                                      3,042,315             2,468,059             2,504,692             2,464,567        2,433,020        2,623,501
General administration                                                      1,601,112             1,725,225             1,608,108             1,143,963          358,225          574,955
Interest on long-term debt                                                    223,717               193,021               170,814               206,768          343,106          324,076
Total Governmental Activities Expenses                                     30,209,680            29,738,442            32,783,738            32,718,585       33,166,525       34,999,188

Business-type Activities
Water                                                                       4,538,186             4,122,822             4,181,855             4,500,578        5,795,279        5,800,977
Sewer                                                                       3,416,372             3,745,156             3,953,838             5,006,594        5,066,693        5,503,144
Marina and launch ramp                                                        325,401               351,705               343,599               332,826          392,994          347,642
Total Business-type Activities Expenses                                     8,279,959             8,219,683             8,479,292             9,839,998       11,254,966       11,651,763
Total Primary Government Expenses                                  $       38,489,639    $       37,958,125     $      41,263,030   $        42,558,583   $   44,421,491   $   46,650,951


PROGRAM REVENUES
Governmental Activities
Charges for Services
   Public representation                                           $          204,435    $          210,238     $         195,316   $           202,939   $      199,759   $      188,467
   Administrative services                                                    292,665               314,028               311,529               306,964          287,011          257,850
   Financial services                                                         591,174               645,166               537,445               728,332          744,109          726,572
   Public safety                                                            1,162,175             1,098,793             1,116,755             1,134,686        1,224,062        1,217,616
   Public works                                                               266,045               452,606               467,849               588,566          407,569          382,072
   Highways, streets and bridges                                              273,893               555,018               267,689               263,423          372,133          301,955
   Community and economic development                                         977,448               414,543               815,980               762,220          356,051          297,854
   Culture and recreation                                                   1,026,822             1,151,687             1,141,865               809,228          454,154          405,520
   General administration                                                     122,447               200,434               314,658               170,240           64,366           99,494
Operating grants and contributions                                          5,613,628             6,008,978             6,017,421             5,093,355        5,229,279        5,367,152
Capital grants and contributions                                           10,494,617             5,785,604             5,894,358             5,360,014        3,347,680        3,444,957
Total Governmental Program Revenues                                        21,025,349            16,837,095            17,080,865            15,419,967       12,686,173       12,689,509

Business-type Activities
Water                                                                       4,131,126             4,977,320             6,912,719             6,342,110        6,569,228        6,240,060
Sewer                                                                       4,057,743             4,083,591             4,149,187             4,803,702        5,179,095        5,326,787
Marina and launch ramp                                                        274,258               266,981               248,460               267,412          281,679          250,266
Operating grants and contributions                                                  -                     -                     -                     -                -                -
Capital grants and contributions                                              256,612               657,521               100,373               710,641                -                -
Total Business-type program revenues                                        8,719,739             9,985,413            11,410,739            12,123,865       12,030,002       11,817,113
Total Primary Government program revenues                          $       29,745,088    $       26,822,508     $      28,491,604   $        27,543,832   $   24,716,175   $   24,506,622

NET (EXPENSE) REVENUE
Governmental Activities                                                     (9,184,331)         (12,901,347)          (15,702,873)          (17,298,618)      (20,480,352)     (22,309,679)
Business-type Activities                                                       439,780            1,765,730             2,931,447             2,283,867           775,036          165,350
Total Primary Government net expense                               $        (8,744,551) $       (11,135,617) $        (12,771,426) $        (15,014,751) $    (19,705,316) $   (22,144,329)


GENERAL REVENUES AND OTHER CHANGES IN NET ASSETS
Governmental Activities
Property taxes                                                $             7,029,393    $        6,962,453 $           7,670,384 $           7,846,707 $      8,014,102 $      8,349,341
Income taxes                                                                6,644,708             7,326,811             7,238,552             7,673,696        7,757,707        8,117,566
Franchise fees                                                                265,532                     -               286,265               285,124          297,200          304,812
Grants and contributions not restricted for specific programs               4,938,861             4,645,348             4,627,915             4,674,157        4,475,462        4,487,698
Unrestricted investment earnings                                              281,492               170,094               420,595               832,300        1,247,520          730,142
Miscellaneous                                                                 109,620                68,405                70,402                64,645           88,035          160,460
Gain on sale of capital asset                                                  62,992                70,886               300,037                81,372            1,604          323,048
Transfers                                                                           -              (142,420)              (80,000)             (540,000)         (40,000)         (40,000)
Total Governmental Program Revenues                                        19,332,598            19,101,577            20,534,150            20,918,001       21,841,630       22,433,067

Business-type Activities
Unrestricted investment earnings                                               71,628                51,768               138,053               122,060          170,594          108,990
Gain on sale of capital asset                                                 (88,767)                    -                     -                     -                -                -
Transfers                                                                           -               142,420                80,000               540,000           40,000           40,000
Total Business-type program revenues                                          (17,139)              194,188               218,053               662,060          210,594          148,990
Total Primary Government program revenues                          $       19,315,459 $          19,295,765     $      20,752,203   $        21,580,061   $   22,052,224   $   22,582,057

CHANGE IN NET ASSETS
Governmental Activities                                                    10,148,267             6,200,230             4,831,277             3,619,383        1,361,278          123,388
Business-type Activities                                                      422,641             1,959,918             3,149,500             2,945,927          985,630          314,340
Total Primary Government                                           $       10,570,908    $        8,160,148     $       7,980,777   $         6,565,310   $    2,346,908   $      437,728



SOURCE: The information in these schedules (unless otherwise noted) is derived from the comprehensive annual financial reports for the relevant year.
The City implemented GASB Statement 34 in 2002; schedules presenting government-wide information include information start that year. Certain other
information has not been presented previously. Reported numbers begin with the year for which information believed to be accurate is available.




                                                                                             115
                                                                                                     City of Muskegon

                                                                                  FUND BALANCE OF GOVERNMENTAL FUNDS

                                                                                                   Last Ten Fiscal Years




                                                              1999            2000            2001            2002            2003            2004            2005            2006            2007            2008

      General fund
      Reserved                                            $      38,993   $      78,998   $      75,337   $     173,696   $     110,642   $      74,349   $      79,356   $     177,076   $     180,410   $     214,819
      Unreserved                                              1,459,883       2,872,737       3,087,031       2,634,300       2,320,776       2,370,842       2,440,249       2,512,963       2,740,222       2,168,906
      Total general fund                                  $   1,498,876   $   2,951,735   $   3,162,368   $   2,807,996   $   2,431,418   $   2,445,191   $   2,519,605   $   2,690,039   $   2,920,632   $   2,383,725

      All other governmental funds
      Reserved                                            $   2,265,315   $   2,562,867   $   2,533,419   $   2,309,214   $   1,159,364   $   1,187,662   $   2,915,106   $   7,044,394   $   4,130,995   $   4,065,280
      Unreserved, reported in:
       Special revenue funds                                 5,361,411        4,900,500       4,579,430       3,785,857       3,254,746       2,692,431       2,910,285      3,030,096        4,462,015       2,768,886
       Debt service                                                  -                -               -               -         153,955               -               -              -                -               -
       Capital project funds                                 2,848,138        2,361,991       2,143,770       1,614,636       3,849,868       2,187,667       1,239,763        390,282          635,676         992,736
       Permanent funds                                          26,834           60,779          91,707         102,837          63,798          22,896          22,890         77,300           84,413          60,813
      Total all other governmental funds                  $ 10,501,698    $   9,886,137   $   9,348,326   $   7,812,544   $   8,481,731   $   6,090,656   $   7,088,044   $ 10,542,072    $   9,313,099   $   7,887,715




      SOURCE: The information in these schedules (unless otherwise noted) is derived from the comprehensive annual financial reports for the relevant year. The City




116
      implemented GASB Statement 34 in 2002; schedules presenting government-wide information include information start that year.
                                                                                                       City of Muskegon

                                                                           CHANGES IN FUND BALANCE OF GOVERNMENTAL FUNDS

                                                                                                     Last Ten Fiscal Years




                                                              1999            2000              2001            2002            2003            2004            2005              2006              2007            2008

      Revenues
      Taxes                                               $ 12,090,941     $ 12,969,769    $ 12,996,607      $ 13,607,863    $ 13,306,798    $ 13,767,040    $ 14,521,769    $ 15,052,708      $ 15,420,032      $ 15,728,859
      Intergovernmental                                     10,070,273       16,045,805      15,847,954        15,473,320      18,879,071      15,448,865      15,445,949      14,703,371        12,752,363        13,012,035
      Charges for services                                   2,706,390        3,149,195       2,847,201         3,010,798       3,307,607       3,437,220       3,147,066       2,938,246         2,722,894         2,463,975
      Other                                                  3,848,561        4,528,702       4,965,889         3,872,459       3,629,983       3,828,223       4,134,604       3,758,956         4,618,149         3,624,579
      Total revenues                                        28,716,165       36,693,471      36,657,651        35,964,440      39,123,459      36,481,348      37,249,388      36,453,281        35,513,438        34,829,448

      Expenditures
      Public representation                                    727,900          807,496           903,378         985,107         889,188         869,342         886,717           903,895           927,320         987,229
      Administrative services                                  727,016          759,653           717,680         816,581         785,966         704,667         748,588           669,789           644,913         632,513
      Financial services                                     1,549,115        1,585,890         1,679,979       1,797,662       1,846,558       1,829,276       1,905,714         2,056,580         2,231,519       2,298,830
      Public safety                                         10,343,279       11,110,085        11,136,752      11,514,151      11,439,487      12,277,677      12,624,532        13,002,233        12,902,815      13,754,394
      Public works                                           2,738,257        2,668,788         2,678,089       2,680,695       2,731,241       2,543,512       2,661,073         2,730,415         2,768,906       2,831,177
      Highways, streets and bridges                          4,896,257        7,894,893         8,309,998       8,816,305      11,800,017       8,654,931       9,531,840         8,023,539         6,504,915       6,414,453
      Community and economic development                     1,338,643          931,336           948,756         971,335         987,097         797,072         784,396           763,211           894,879       1,077,312
      Culture and recreation                                 2,329,065        2,345,712         2,637,586       2,610,935       2,624,275       2,259,699       2,197,276         2,190,835         2,254,117       2,394,031
      Other governmental functions                           1,698,394        1,252,351         1,441,234       1,798,345       1,589,572       1,708,868       1,603,292         1,139,148           350,385         562,341




117
      Debt service
       Principal                                             2,186,334        1,420,462         1,425,741       1,345,000       1,270,000       1,335,000       1,115,000         1,189,785         1,241,921         999,148
       Interest and issuance costs                             502,852          380,123           367,317         316,255         230,907         201,447         166,071           271,233           324,577         310,432
      Capital outlay                                         2,754,575        6,212,205         5,338,105       4,721,155       4,496,631       6,139,597       3,734,082         6,066,783         5,683,657       5,473,828
      Total expenditure                                     31,791,687       37,368,994        37,584,615      38,373,526      40,690,939      39,321,088      37,958,581        39,007,446        36,729,924      37,735,688

      Excess of revenues over (under) expenditures           (3,075,522)       (675,523)         (926,964)     (2,409,086)     (1,567,480)     (2,839,740)       (709,193)       (2,554,165)       (1,216,486)     (2,906,240)

      Other financing sources (uses)
      Transfers in                                            1,799,463       2,367,561         2,713,591       2,059,336       2,740,742       3,342,612       1,839,631         2,358,509         1,926,538       1,477,717
      Transfers out                                          (1,964,092)     (2,336,039)       (2,403,591)     (2,047,491)     (2,740,742)     (3,233,369)     (1,947,677)       (2,926,554)       (1,994,584)     (1,409,491)
      Bonds issued                                            1,276,900         825,000                 -         106,807       1,578,009               -       1,061,900         5,626,331                 -         500,000
      Sale of capital assets                                    247,361         356,299           289,786         400,280         282,080         483,544         827,141         1,120,341           286,152         375,723
      Total other financing sources (uses)                    1,359,632       1,212,821           599,786         518,932       1,860,089         592,787       1,780,995         6,178,627           218,106         943,949

      Net change in fund balances                         $ (1,715,890) $      537,298     $     (327,178) $ (1,890,154) $       292,609     $ (2,246,953) $    1,071,802    $    3,624,462    $     (998,380) $ (1,962,291)

      Debt service as a percentage of noncapital
      expenditures                                                9.26%           5.78%             5.56%           4.94%           4.15%           4.63%           3.74%             4.44%             5.05%           4.06%




      SOURCE: The information in these schedules (unless otherwise noted) is derived from the comprehensive annual financial reports for the relevant year. The City
      implemented GASB Statement 34 in 2002; schedules presenting government-wide information include information start that year.
                                                                                                         City of Muskegon

                                                                               GOVERNMENTAL ACTIVITIES REVENUES BY SOURCE

                                                                                                      Last Ten Fiscal Years




                Property     % of      Income      % of      Intergo-      % of    Charges for   % of     Licenses     % of       Fines      % of       Interest     % of                  % of                       %
      Year        Tax        Total       Tax       Total    vernmental     Total     Service     Total   and Permits   Total     and Fees    Total     and Rent      Total     Other       Total        Total       Change

      1999    $ 5,665,792    19.7% $ 6,425,149      22.4% $ 10,070,273     35.1% $ 2,706,390      9.4% $ 1,015,777      3.5% $     277,369     1.0% $ 1,035,556       3.6% $ 1,519,859      5.3% $     28,716,165          -
      2000      5,891,198    16.1%   7,078,571      19.3%   16,045,805     43.7%   3,149,195      8.6%   1,030,830      2.8%       338,677     0.9%   1,142,700       3.1%   2,016,495      5.5%       36,693,471       27.8%
      2001      6,176,436    16.8%   6,820,171      18.6%   15,847,954     43.2%   2,847,201      7.8%   1,014,598      2.8%       350,557     1.0%     914,214       2.5%   2,686,520      7.3%       36,657,651       -0.1%
      2002      6,915,254    19.2%   6,692,609      18.6%   15,473,320     43.0%   3,010,798      8.4%     947,428      2.6%       393,314     1.1%     662,513       1.8%   1,869,204      5.2%       35,964,440       -1.9%
      2003      6,764,443    17.3%   6,542,355      16.7%   18,879,071     48.3%   3,307,607      8.5%   1,108,780      2.8%       471,682     1.2%     516,482       1.3%   1,533,039      3.9%       39,123,459        8.8%
      2004      6,733,653    18.5%   7,033,387      19.3%   15,448,865     42.3%   3,437,220      9.4%   1,139,014      3.1%       622,165     1.7%     435,152       1.2%   1,631,892      4.5%       36,481,348       -6.8%
      2005      7,438,382    20.0%   7,083,023      19.0%   15,445,949     41.5%   3,147,066      8.4%   1,047,981      2.8%       648,300     1.7%     684,165       1.8%   1,754,158      4.7%       37,249,024        2.1%
      2006      7,627,535    20.9%   7,425,173      20.4%   14,703,371     40.3%   2,938,246      8.1%   1,009,023      2.8%       544,902     1.5%   1,139,466       3.1%   1,065,565      2.9%       36,453,281       -2.1%
      2007      7,801,571    22.0%   7,618,461      21.5%   12,752,363     35.9%   2,722,894      7.7%   1,115,518      3.1%       606,545     1.7%   1,348,819       3.8%   1,547,267      4.4%       35,513,438       -2.6%
      2008      8,034,079    23.1%   7,694,780      22.1%   13,012,035     37.4%   2,463,975      7.1%   1,089,187      3.1%       570,526     1.6%     861,515       2.5%   1,103,351      3.2%       34,829,448       -1.9%



      SOURCE: The information in these schedules (unless otherwise noted) is derived from the comprehensive annual financial reports for the relevant year. The City implemented GASB Statement 34 in 2002; schedules
      presenting government-wide information include information start that year.




118
                                                                                                                City of Muskegon

                                                                             Taxable, Assessed and Equalized and Estimated Actual Valuation of Property

                                                                                                              Last Ten Fiscal Years




                                                                                                     Taxable Valuation of Property
                                             Ad Valorem Assessment Roll                                                                    Industrial and Commercial Facilities Assessment Roll

                                                                                 Total                                                Industrial         Industrial         Commercial                                 Total        Taxable Value
                                                                                 Real           Personal         Total                   Real             Personal             Real                 Total            Taxable          As a Percent
      Year    Residential    Agriculture   Commercial          Industrial       Property        Property       Ad Valorem              Property           Property           Property            IFT and CFT         Valuation           Actual

      1999   $ 228,357,868   $    90,793   $ 102,769,542   $   105,450,555    $ 436,668,758   $ 117,367,700   $ 554,036,458     $       19,540,064   $     62,560,600   $                -   $      82,100,664   $    636,137,122             94.06%
      2000     239,166,390        86,218     111,996,740       105,150,150      456,399,498     125,766,500     582,165,998             20,340,926         54,398,400                    -          74,739,326        656,905,324             90.85%
      2001     259,245,700       160,831     117,380,175       104,812,046      481,598,752     150,081,900     631,680,652             15,928,671         61,421,700                    -          77,350,371        709,031,023             87.40%
      2002     277,504,213       163,166     129,199,142       103,473,256      510,339,777     125,589,450     635,929,227             10,786,400         61,521,500                    -          72,307,900        708,237,127             86.36%
      2003     295,311,699       163,844     124,679,713       101,987,394      522,142,650     124,833,198     646,975,848              9,114,034         51,183,000                    -          60,297,034        707,272,882             85.80%
      2004     309,291,380       167,357     123,303,933       103,175,554      535,938,224     115,456,493     651,394,717              7,564,826         51,056,856                    -          58,621,682        710,016,399             87.00%
      2005     322,359,014       164,935     126,046,550       104,163,650      552,734,149     109,273,769     662,007,918              7,235,276         47,458,411                    -          54,693,687        716,701,605             87.62%
      2006     341,365,730             -     132,415,743       105,982,619      579,764,092     103,282,670     683,046,762              6,062,774         44,389,891                    -          50,452,665        733,499,427             87.46%
      2007     364,789,125             -     143,991,195       109,089,684      617,870,004     111,824,925     729,694,929              5,433,443         31,408,300                    -          36,841,743        766,536,672             87.21%
      2008     376,414,856       160,219     140,833,691       109,931,336      627,340,102     114,100,484     741,440,586              5,747,358         24,617,400                    -          30,364,758        771,805,344             86.71%




                                                                                           Assessed and Equalized Valuation of Property
                                             Ad Valorem Assessment Roll                                                                    Industrial and Commercial Facilities Assessment Roll




119
                                                                                 Total                                                Industrial         Industrial         Commercial                                 Total            Estimated
                                                                                 Real           Personal         Total                   Real             Personal             Real                 Total            Assessed            Actual
      Year    Residential    Agriculture   Commercial          Industrial       Property        Property       Ad Valorem              Property           Property           Property            IFT and CFT         Valuation            Value

      1999   $ 263,233,400   $   100,700   $ 107,881,200   $   105,577,900    $ 476,793,200   $ 117,367,700   $ 594,160,900     $       19,589,800   $     62,560,600   $                -   $      82,150,400   $    676,311,300   $   1,352,622,600
      2000     292,740,000       110,700     122,567,000       106,499,200      521,916,900     125,766,500     647,683,400             20,988,600         54,398,400                    -          75,387,000        723,070,400       1,446,140,800
      2001     336,150,700       173,600     136,833,700       109,888,900      583,046,900     150,081,900     733,128,800             16,676,500         61,421,700                    -          78,098,200        811,227,000       1,622,454,000
      2002     358,727,850       173,600     152,324,900       110,440,500      621,666,850     125,597,200     747,264,050             11,272,200         61,521,500                    -          72,793,700        820,057,750       1,640,115,500
      2003     383,845,613       181,300     144,310,700       110,600,499      638,938,112     124,840,700     763,778,812              9,333,500         51,183,000                    -          60,516,500        824,295,312       1,648,590,624
      2004     384,783,400       184,800     141,579,300       114,496,500      641,044,000     115,591,300     756,635,300              7,717,000         51,785,000                    -          59,502,000        816,137,300       1,632,274,600
      2005     397,915,080       200,800     142,436,699       112,694,600      653,247,179     109,280,200     762,527,379              7,481,500         47,924,200                    -          55,405,700        817,933,079       1,635,866,158
      2006     420,608,600             -     149,948,800       113,890,900      684,448,300     103,288,100     787,736,400              6,454,200         44,470,600                    -          50,924,800        838,661,200       1,677,322,400
      2007     448,120,317             -     160,361,200       121,432,880      729,914,397     111,829,191     841,743,588              5,850,600         31,408,300                    -          37,258,900        879,002,488       1,758,004,976
      2008     466,633,100       194,800     156,596,000       121,810,900      745,234,800     114,104,600     859,339,400              6,162,900         24,617,400                    -          30,780,300        890,119,700       1,780,239,400
                                                                      City of Muskegon

                                                             Principal Property Taxpayers

                                                                     December 31, 2008


                                                               2008                                             1999
                                                                              Percent of                                 Percent of
                                              Taxable                      Total Taxable          Taxable              Total Taxable
                  Taxpayer                   Valuation          Rank          Valuation          Valuation      Rank      Valuation

      Consumers Energy                   $     75,043,646        1                    9.7%   $    62,900,184      1              9.9%
      Sappi/S.D. Warren Company                31,731,470        2                    4.1%        58,596,490      2              9.2%
      Johnson Technology                        8,459,248        3                    1.1%         8,043,400      5              1.3%
      ADAC Plastics Inc                         7,002,406        4                    0.9%         6,769,252      8              1.1%
      ESCO Company                              6,662,507        5                    0.9%         5,949,800      9              0.9%
      DTE Energy (formerly MichCon).            5,170,300        6                    0.7%         8,315,526      3              1.3%
      Coles Quality Foods                       5,011,120        7                    0.6%         5,886,935     10              0.9%




120
      Honeywell Inc                             4,988,400        8                    0.6%                  -                    0.0%
      Lorin Industries                          4,685,934       9                     0.6%                  -                    0.0%
      Faram Muskegon LLC                        4,675,500       10                    0.6%                  -                    0.0%
      Brunswick Corp                                     -                            0.0%         7,887,267      6              1.2%
      Muskegon Properties                                -                            0.0%         8,100,139      4              1.3%
      Bekaert Steel Wire                                 -                            0.0%         6,935,016      7              1.1%

      Total - 10 Largest                     153,430,531                            19.9%        179,384,009                   28.2%
      Total - All Other                      618,374,813                            80.1%        456,753,113                   71.8%
                                         $   771,805,344                           100.0%    $   636,137,122                  100.0%


      Source: Muskegon County Equalization Department; City of Muskegon Treasurer's Office
                                        City of Muskegon

           Property Tax Rates - Direct and Overlapping Government Units
                       Property Tax Rates Per $1,000 Taxable Valuation
                                    Last Ten Fiscal Years




                                   City-Wide Rates
                                                        Total        Library
Year   Operating    Promotion        Sanitation         City         District

1999       7.0000        0.0880            3.0000         10.0880       0.9947
2000       7.0000        0.0859            3.0000         10.0859       0.9947
2001       7.0000        0.0792            3.0000         10.0792       2.4000
2002       7.0000        0.0786            3.0000         10.0786       2.4000
2003       7.5000        0.0774            2.5000         10.0774       2.4000
2004       8.5000        0.0768            2.5000         11.0768       2.4000
2005       8.5000        0.0755            2.5000         11.0755       2.4000
2006       8.5000        0.0732            2.5000         11.0732       2.4000
2007       8.5000        0.0685            2.5000         11.0685       2.4000
2008       8.5000        0.0682            2.5000         11.0682       2.4000

                        Overlapping - County-Wide Rates

       Muskegon     Intermediate      Special         Vocational    Community
Year    County         School        Education        Education      College

1999       6.6550        0.4698            2.3486           -           2.2523
2000       6.6256        0.4675            2.3374           -           2.2417
2001       6.5799        0.4640            2.3202           -           2.2233
2002       6.6957        0.4599            2.2997          1.0000       2.2037
2003       6.7957        0.4597            2.2983          1.0000       2.2037
2004       6.7957        0.4597            2.2983          1.0000       2.2037
2005       6.7757        0.4597            2.2983          1.0000       2.2037
2006       6.7557        0.4597            2.2987          0.9996       2.2037
2007       6.7357        0.4597            2.2987          0.9996       2.2037
2008       6.6957        0.4597            2.2987          0.9996       2.2037


           Overlapping - School District                                              Grand Total

                                                        State                                   Non-
Year   Operating       Debt             Total         Education                  Homestead    Homestead

1999      18.0000        7.0000          25.0000           6.0000                   35.8084         53.8084
2000      18.0000        7.0000          25.0000           6.0000                   35.7528         53.7528
2001      18.0000        7.0000          25.0000           6.0000                   37.0666         55.0666
2002      18.0000        7.0000          25.0000           6.0000                   38.1376         56.1376
2003      18.0000        7.0000          25.0000           5.0000                   37.2348         55.2348
2004      18.0000        7.0000          25.0000           6.0000                   39.2342         57.2342
2005      18.0000        7.0000          25.0000           6.0000                   39.2129         57.2129
2006      18.0000        7.0000          25.0000           6.0000                   39.1906         57.1906
2007      18.0000        7.0000          25.0000           6.0000                   39.1659         57.1659
2008      18.0000        5.5000          23.5000           6.0000                   37.6256         55.6256




                                                121
                                                                   City of Muskegon

                                                      PROPERTY TAX LEVIES AND COLLECTIONS

                                                                 Last Ten Fiscal Years




                                                                                         Charge backs
                   Total        Current         Percent    Delinquent                    On Uncollected   Outstanding   Outstanding    Percent of
      Fiscal        Tax            Tax          Of Levy        Tax        Total Tax       Delinquent      Delinquent    Delinquent     Delinquent
      Year         Levy        Collections     Collected   Collections   Collections         Taxes         Personal      Specific     Taxes to Levy

       1999    $   6,925,862   $   6,185,473       89.3% $     632,875   $   6,818,348   $       46,219   $    89,309   $    10,148          2.10%
       2000        7,378,653       6,631,358       89.9%       382,839       7,014,197           47,117        60,847         7,845          1.57%
       2001        7,449,191       6,625,670       88.9%        88,768       6,714,438           24,866       184,894         5,496          2.89%
       2002        7,922,898       7,036,846       88.8%       123,906       7,160,752           30,056       168,666        15,700          2.71%
       2003        8,095,194       7,201,599       89.0%       710,353       7,911,952           27,338       154,843        20,856          2.51%
       2004        8,292,451       7,230,231       87.2%       772,545       8,002,776           36,179        82,305        22,655          1.70%
       2005        8,121,734       6,920,960       85.2%     1,027,932       7,948,892           28,156        78,641        21,100          1.57%
       2006        8,207,019       7,231,508       88.1%       885,675       8,117,183           13,461        65,297        24,539          1.26%




122
       2007        8,542,477       7,509,102       87.9%       949,754       8,458,856                -        67,586        20,748          1.03%
       2008        8,466,096       7,219,540       85.3%     1,135,738       8,355,278           36,917        73,430        37,388          1.75%


      SOURCE: City of Muskegon Treasurer' Office
                                                                                                          City of Muskegon
                                                                         SEGMENTED DATA ON INCOME TAX FILERS, RATES AND LIABILITY

                                                                                             Most recent Year and Eight Years Previous




                                                                        Fiscal Year 2008                                                                                   Fiscal Year 2000
      Taxable Income per Return                # of            % of Total        Total Taxable                         % of Total                 # of            % of Total        Total Taxable                         % of Total
      Individual and Joint Returns            Returns         Returns Filed         Income       Tax Dollars            Tax Dollars              Returns         Returns Filed         Income       Tax Dollars            Tax Dollars
      Resident Taxpayers:
      (City resident income, after exemptions, exclusions and deductions is taxed at a flat rate of 1%.)

      $2,500 or less                                1,070                 5% $         975,237    $         9,752                  0%                  1,179                 5% $       1,029,474    $        10,295                  0%
      $2,501-$7,500                                   878                 4%         5,977,332             59,773                  1%                  1,169                 5%         6,827,297             68,273                  1%
      $7,501-$25,000                                2,237                10%        49,146,862            491,469                  6%                  2,704                10%        52,426,935            524,269                  7%
      $25,001-$50,000                               1,904                 8%        96,344,230            963,442                 13%                  2,394                 9%       101,907,814          1,019,078                 14%
      $50,001-$100,000                                997                 4%        92,426,073            924,261                 12%                    986                 4%        88,566,998            885,670                 13%
      More than $100,000                              180                 1%        45,729,965            457,300                  6%                    142                 1%        40,253,382            402,534                  6%

      Subtotal                                      7,266                32% $     290,599,699    $     2,905,997                 38%                  8,574                33% $     291,011,900    $     2,910,119                 41%



      Non-Residents Taxpayers:




123
      (Non-residents are taxed at a rate of 0.5% on income earned within the City.)

      $2,500 or less                                2,084                 9% $       1,197,966    $         8,521                  0%                  1,939                 8%         1,428,558    $         9,525                  0%
      $2,501-$7,500                                 1,346                 6%         6,389,890             45,446                  1%                  1,665                 6%         7,901,142             52,677                  1%
      $7,501-$25,000                                3,179                14%        51,410,002            365,645                  5%                  4,208                16%        68,958,300            459,742                  6%
      $25,001-$50,000                               3,759                17%       137,600,200            978,659                 13%                  4,917                19%       177,165,226          1,181,151                 17%
      $50,001-$100,000                              2,495                11%       163,822,200          1,165,159                 15%                  2,102                 8%       135,900,236            906,039                 13%
      More than $100,000                              619                 3%       138,961,800            988,343                 13%                    527                 2%       118,501,368            790,042                 11%

      Subtotal                                     13,482                60% $     499,382,058    $     3,551,773                 46%                 15,358                60% $     509,854,830    $     3,399,176                 48%

      All Other Returns
      (Mostly corporate returns which pay at a rate of 1% on income earned in City and partnerships which pay based on partners residence status.)

      Subtotal                                      1,850                 8%                      $     1,237,009                 16%                  1,850                 7%                      $       769,276                 11%

      Total                                         22,598              100%                      $     7,694,779               100%                   25,782              100%                      $     7,078,571               100%



      NOTE: Due to confidentiality issues, the names of the ten largest income tax payers are not available. The categories presented are intended to provide alternative information regarding sources of the City's revenue.



      SOURCE: City of Muskegon Income Tax Department. The information in these schedules (unless otherwise noted) is derived from the comprehensive annual financial reports for the relevant year. The City implemented GASB
      Statement 34 in 2002; schedules presenting government-wide information include information starting that year. Certain other information has not been presented previously. Reported numbers begin with the year for which
      information believed to be accurate is available.
                                                                                          City of Muskegon

                                                                         RATIO OF OUTSTANDING DEBT BY TYPE

                                                                                        Last Ten Fiscal Years




                                         Governmental Activities                                             Business-Type Activities
                        General
                       Obligation       Special                         Total                                                                                                 Percent of
                      Limited Tax     Assessment                     Governmental          Revenue      Intergovernmental                     Total Business- Total Primary   Personal      Per
      Year              Bonds           Bonds         State Loans      Activities           Bonds        Contactual Debt     State Loans      Type Activities Government       Income      Capita



      1999           $   6,281,203   $   2,560,000   $   1,276,900   $ 10,118,103        $ 10,860,000   $       10,551,497   $            -   $ 21,411,497   $ 31,529,600          5.5%      783
      2000               5,335,741       2,910,000       1,276,900      9,522,641          10,510,000            9,235,090                -     19,745,090     29,267,731          5.0%      730
      2001               4,425,000       2,395,000       1,276,900      8,096,900          10,140,000            8,262,203                -     18,402,203     26,499,103          4.4%      661
      2002               3,735,000       1,835,000       1,276,900      6,846,900           9,750,000            7,038,014                -     16,788,014     23,634,914          3.8%      589
      2003               4,565,000       1,460,000       1,126,900      7,151,900           9,345,000            5,886,923                -     15,231,923     22,383,823          3.6%      562
      2004               3,700,000       1,140,000         976,900      5,816,900           8,925,000            4,779,656        8,483,766     22,188,422     28,005,322          4.4%      703
      2005               3,615,824         865,000       1,282,976      5,763,800           8,490,000            3,606,017       13,900,000     25,996,017     31,759,817          4.8%      797
      2006               8,246,039         615,000       1,356,900     10,217,939           8,035,000            2,454,101       13,335,000     23,824,101     34,042,040          5.0%      855
      2007               7,444,118         395,000       1,136,900      8,976,018           7,565,000            1,221,207       12,760,000     21,546,207     30,522,225          4.5%      766
      2008               6,844,970         215,000       1,416,900      8,476,870           7,075,000                    -       12,170,000     19,245,000     27,721,870          4.1%      696




124
      NOTE: None of the debt issued by the City is payable through the levy of property tax millages.

      SOURCE: The information in these schedules (unless otherwise noted) is derived from the comprehensive annual financial reports for the relevant year. The City implemented GASB
      Statement 34 in 2002; schedules presenting government-wide information include information start that year.
                                               City of Muskegon

                                  DIRECT AND OVERLAPPING DEBT

                                              December 31, 2008




                                                           Total Debt                              City General
Name of Governmental Unit                                 Outstanding        Self Supporting          Taxes

Direct Debt
 City of Muskegon:
   Revenue Bonds                                      $        19,245,000 $      19,245,000 $                   -
   Special Assessment Bonds                                       215,000           215,000                     -
   Capital Improvement Bonds                                    6,395,000                 -             6,395,000
   Intergovernmental Bonds                                      1,416,900                 -             1,416,900
   Act 99 Installment Purchase                                    449,970                 -               449,970
 Component Unit Debt:
   Downtown Development Authority                               3,695,000          3,695,000                      -
   Local Development Finance Authority                          4,565,000          4,565,000                      -

Total City Direct Debt                                $        35,981,870 $      27,720,000 $           8,261,870


                                                                             City Share as
                                                             Gross          Percent of Gross           Net
Overlapping Debt
 Muskegon School Distict                              $        26,914,736             94.51% $         25,437,117
 Orchard View School Distict                                   45,714,667             26.26%           12,004,672
 Reeths Puffer School Distict                                  64,854,053             10.35%            6,712,394
 Muskegon Intermediate School District                                  -             15.70%                    -
 Muskegon County                                               23,615,000             15.72%            3,712,278
 Muskegon Community College                                    16,490,000             15.72%            2,592,228

Total Overlapping Debt                                $       177,588,456                              50,458,689

Total City Direct and Overlapping Debt                                                         $       58,720,559


Details regarding the city's outstanding debt can be found in the notes to the financial statements.



SOURCE: Municipal Advisory Council of Michigan and City of Muskegon Finance Department. The information
in these schedules (unless otherwise noted) is derived from the comprehensive annual financial reports for the
relevant year. The City implemented GASB Statement 34 in 2002; schedules presenting government-wide
information include information start that year.




                                                    125
                                                                                                          City of Muskegon

                                                                                            LEGAL DEBT MARGIN INFORMATION

                                                                                                        Last Ten Fiscal Years




                                                             1999            2000           2001            2002            2003           2004               2005            2006               2007              2008


      Debt Limit                                         $ 59,416,090    $ 64,768,340   $ 73,312,880    $ 74,726,405   $ 76,377,881    $ 75,663,530      $   76,252,738   $   78,773,640     $    84,174,359   $   85,933,940

      Total net debt applicable to limit                     4,122,747      3,502,641       7,232,900     11,066,900       9,726,900       9,191,900          9,918,800       16,142,939          15,591,018       15,481,870

      Legal debt margin                                  $ 55,293,343    $ 61,265,699   $ 66,079,980    $ 63,659,505   $ 66,650,981    $ 66,471,630      $   66,333,938   $   62,630,701     $    68,583,341   $   70,452,070




      Total net debt applicable to the limit as                  6.94%          5.41%           9.87%         14.81%          12.74%         12.15%             13.01%            20.49%             18.52%           18.02%
      a percentage of debt limit

                                                                                                                       Legal Debt Margin Calculation for 2008:

                                                                                                                       Assessed Valuation:                                                   $   859,339,400
                                                                                                                       Legal Debt Limit (10% )                                                    85,933,940

                                                                                                                       Total Indebtedness:                                    35,981,870




126
                                                                                                                       Debt not Subject to Limitation:
                                                                                                                          Paid by Special Assessment                           (1,255,000)
                                                                                                                          Revenue Bonds                                       (19,245,000)
                                                                                                                       Debt Subject to Limitation                                                 15,481,870

                                                                                                                       Legal Debt Margin                                                     $    70,452,070



      SOURCE: The information in these schedules (unless otherwise noted) is derived from the comprehensive annual financial reports for the relevant year. The City implemented GASB
      Statement 34 in 2002; schedules presenting government-wide information include information start that year. Certain other information has not been presented previously. Reported
      numbers begin with the year for which information believed to be accurate is available.
                                                        City of Muskegon
                                             REVENUE BOND COVERAGE
                                                Water Supply System

                                                      Last Ten Fiscal Years



                                    Direct            Net Revenue                    Debt Service Requirements
Fiscal             Gross         Operating         Available For
Year             Revenue (a)    Expenses (b)       Debt Service          Principal          Interest            Total         Coverage


1999         $      3,579,929   $    2,463,597    $      1,116,332   $       215,000    $      409,391    $       624,391           1.79
2000                3,936,337        2,576,864           1,359,473           350,000           494,206            844,206           1.61
2001                4,263,107        3,203,080           1,060,027           370,000           471,301            841,301           1.26
2002                4,051,015        3,030,959           1,020,056           390,000           453,666            843,666           1.21
2003                4,183,015        3,539,690             643,325           405,000           417,559            822,559           0.78
2004                5,016,267        3,186,067           1,830,200           420,000           411,867            831,867           2.20
2005                7,017,844        3,197,232           3,820,612           435,000           418,549            853,549           4.48
2006                6,424,971        3,172,882           3,252,089         1,020,000           662,774          1,682,774           1.93
2007                6,705,739        3,404,649           3,301,090         1,045,000           632,036          1,677,036           1.97
2008                6,336,135        3,407,903           2,928,232         1,080,000           600,377          1,680,377           1.74



                                                 Sewage Disposal System

                                    Direct            Net Revenue                    Debt Service Requirements
Fiscal             Gross         Operating         Available For
Year             Revenue (a)    Expenses (b)       Debt Service          Principal          Interest            Total         Coverage


1999         $      3,740,179   $    2,417,775    $      1,322,404   $        495,963   $      237,636    $       733,599           1.80
2000                4,089,381        2,236,111           1,853,270            421,516          216,776            638,292           2.90
2001                3,991,295        2,656,382           1,334,913            399,933          197,169            597,102           2.24
2002                4,039,448        2,726,975           1,312,473            458,918          137,622            596,540           2.20
2003                4,077,482        2,649,454           1,428,028            473,329          132,214            605,543           2.36
2004                4,096,412        3,038,939           1,057,473            455,179          110,520            565,699           1.87
2005                4,182,115        3,128,119           1,053,996            522,956          114,388            637,344           1.65
2006                4,842,901        4,270,296             572,605            511,626           63,233            574,859           1.00
2007                5,213,140        4,435,211             777,929            506,822           25,221            532,043           1.46
2008                5,338,647        4,979,343             359,304            546,278           12,550            558,828           0.64



For years in which "revenue bond coverage" is less than 1.00, the shortfall was made up either by use of net assets or by transfer in.

(a) "Gross Revenue" equals total operating revenues plus interest income.
(b) "Direct Operating Expenses" equal total operating expenses net of depreciation expense.



SOURCE: The information in these schedules (unless otherwise noted) is derived from the comprehensive annual financial reports for
the relevant year. The City implemented GASB Statement 34 in 2002; schedules presenting government-wide information include
information start that year. Certain other information has not been presented previously. Reported numbers begin with the year for
which information believed to be accurate is available.




                                                              127
                                                                          City of Muskegon
                                                          DEMOGRAPHIC AND ECONOMIC STATISTICS

                                                                        Last Ten Fiscal Years




      Fiscal                          Pesonal         Per Capita       Median          Public School               Building Permits
      Year         Population         Income           Income           Age             Enrollment             Number              Value        Unemployment


      1999           40,283      $      575,362,089   $     14,283      30.8                 6,954               886         $     18,913,173       6.2%
      2000           40,105             587,140,208         14,640      32.3                 6,788               859               39,494,923       6.1%
      2001           40,105             601,818,713         15,006      32.3                 6,761               893               26,052,549       9.3%
      2002           40,105             616,864,181         15,381      32.3                 6,603              1,008              39,705,174      12.1%
      2003           39,825             627,871,373         15,766      32.3                 6,327              1,061              21,369,545      13.9%
      2004           39,825             643,568,157         16,160      32.3                 6,088              1,152              37,963,075      11.1%
      2005           39,825             659,657,361         16,564      32.3                 5,862               966               30,041,025       9.0%
      2006           39,825             676,148,795         16,978      32.3                 5,625              1,063              27,328,144       8.6%
      2007           39,825             693,052,515         17,402      32.3                 5,534               941               36,129,064       9.5%
      2008           39,825             710,378,828         17,838      32.3                 5,361               946               23,001,998      11.5%




128
      SOURCE: US Census Bureau, Muskegon Area Intermediate School Distrct (MAISD), City of Muskegon Inspections Department
                                                                        City of Muskegon
                                                                    PRINCIPAL EMPLOYERS


                                                                 Current Year and Nine Years Ago



                                                                        2008                                          1999
                                                                                    Percentage                                    Percentage
                                                                                      of total                                      of total
                                                                                       City                                          City
      Employer                                       Employees          Rank        employment          Employees     Rank        employment


      Mercy General Health Partners                         1,714               1            9.5%             1,458           1          8.0%
      State of Michigan                                     1,064               2            5.9%               901           5          4.9%
      County of Muskegon                                      852               3            4.7%             1,000           3          5.5%
      Muskegon Public Schools                                 743               4            4.1%               975           4          5.3%
      ADAC Plastics                                           494               5            2.7%               231          10          1.3%
      Johnson Technology                                      481               6            2.7%                 -           -          0.0%
      Verizon                                                 350               7            1.9%               763           6          4.2%




129
      City of Muskegon                                        270               8            1.5%                 -           -          0.0%
      Sappi Fine Paper (Formerly SD Warren)                   200               9            1.1%               348           8          1.9%
      Brunswick                                               174              10            1.0%               553           7          3.0%
      Hackley Hospital                                          -               -            0.0%             1,183           2          6.5%
      SPX                                                       -               -            0.0%               300           9          1.6%




      SOURCE: City of Muskegon; Muskegon Area First; Michigan Department of Energy,
                                                                            Energy Labor & Economic Growth
                                                                           City of Muskegon

                                                    BUDGETED FULL-TIME CITY GOVERNMENT POSITIONS BY DEPARTMENT

                                                                         Last Ten Fiscal Years




      Department                                      1999      2000      2001         2002        2003     2004     2005     2006     2007     2008
      Administration                                  1.70      1.70      1.70         1.50        1.50     1.50     1.50     1.50     1.50     1.50
      Affirmative Action                              1.00      1.00      1.00         1.50        1.50     1.50     1.50     1.50     1.50     1.50
      Cemetaries                                      3.52      3.52      3.52         3.52        3.52     3.52     3.25     3.00     3.25     3.25
      City Assessors Office                           5.50       -         -            -           -        -        -        -        -        -
      City Clerk & Elections                          4.00      4.00      4.00         4.00        4.00     4.00     4.00     4.00     4.00     4.00
      City Commission                                 0.25      0.25      0.25         0.25        0.25     0.25     0.25     0.25     0.25     0.25
      City Hall Maintenance                           1.23      1.20      1.20         1.25        1.20     1.00     1.00     1.00     1.00     1.00
      City Manager's Office                           2.05      2.05      3.05         2.75        1.75     1.75     1.75     1.75     1.75     1.75
      City Treasurer's Office                         6.50      6.00      6.00         6.00        6.00     5.00     5.00     5.00     4.00     5.00
      Civil Service                                   2.00      2.00      2.00         3.00        3.00     2.00     2.00     2.00     2.00     2.00
      Community Event Support                          -         -        0.60         0.20        0.20      -        -        -        -        -
      Environmental Services                         16.00      5.00      4.00         4.00        4.00     3.50     2.00     2.00     2.00     2.00
      Farmers Market                                  0.12      0.12      0.12         0.12        0.12     0.12      -        -        -        -
      Finance Administration                          4.00      4.00      4.00         4.00        4.00     4.00     4.00     4.00     4.00     4.00
      Fire                                           46.00     44.00     44.00        44.00       43.00    41.00    40.00    38.00    38.00    38.00
      Fire Safety Inspections                          -       13.00     13.00        12.00       13.00    12.00    10.00    12.00    12.00    12.00
      Forestry                                        2.68      2.68      2.68         2.18        1.93     0.93      -        -        -        -
      General Recreation                              0.78      0.78      0.78         0.78        2.24     1.24     1.00     1.17     1.33     1.66




130
      Income Tax Administration                       5.00      5.00      5.00         5.00        5.00     5.00     5.00     5.00     5.00     5.00
      Information Systems                             2.00      3.00      3.00         4.00        4.00     4.00     3.00     3.00     3.00     3.00
      Inner City Recreation                           1.46      1.46      1.46         1.46         -        -        -        -        -        -
      Parking                                         0.30      0.30      0.30         0.30        0.30      -        -        -        -        -
      Parks                                          10.03     10.03     11.53        11.53       10.53     9.68     8.48     8.25     8.15     8.15
      Planning, Zoning & Economic Development         8.00      8.00      7.50         7.50        7.50     6.50     6.00     6.00     6.00     6.00
      Police                                        102.00    102.00    102.00       102.00       96.00    94.00    94.00    94.00    94.00    94.00
      Sanitation                                      2.10      2.10      1.10         1.25        1.25     1.10     1.10     1.00     1.00     1.00
      MVH-Major Streets                              13.35     13.35     13.75        14.70       15.30    15.45    15.25    16.00    17.75    15.75
      MVH-Local Streets                               7.20      7.20      7.40         7.20        7.20     7.00     7.00     7.00     7.00     6.00
      MVH-State Trunklines                            1.60      1.60      1.60         1.60        1.60     2.00     2.00     2.00      -        -
      Highway Non-Chargeables                         0.20      0.20       -            -           -        -        -        -        -        -
      Street Lighting                                 0.10      0.10      0.10         0.10         -        -        -        -        -        -
      Walker Arena                                    0.12      0.12      0.12         0.12        0.12     0.12      -        -        -        -
      Community Development                           6.00      6.00      5.00         5.00        5.00     5.00     4.00     4.00     4.00     4.00
      Home Program                                    1.00      1.00      1.00         1.00        1.00     1.00     1.00     1.00     1.00     1.00
      Sewer Maintenance                              14.40     14.40     14.40        14.40       15.15    14.55    15.05    16.00    16.20    15.20
      Water Filtration                               10.00     10.00     10.00        10.00       10.00    10.00    10.00    10.00    10.00    10.00
      Water Maintenance                              16.15     16.15     15.65        15.65       15.65    15.15    14.65    13.00    12.50    13.50
      Hartshorn Marina Fund                           0.79      0.79      0.79         0.79        0.79     0.79     0.67     0.73     0.67     0.34
      Public Service Building                         3.30      3.30      3.30         3.30        3.30     3.65     3.85     3.45     3.45     3.45
      Engineering                                     8.90      8.90      9.40         9.35        9.40     7.70     7.70     7.45     7.45     7.45
      Equipment                                       8.67      7.70      7.70         7.70        7.70     8.00     8.00     8.95     8.25     8.25
                                                    320.00    314.00    314.00       315.00      308.00   294.00   284.00   284.00   282.00   280.00


      SOURCE: City of Muskegon Finance Department
                                                                                      City of Muskegon

                                                                      OPERATING INDICATORS BY FUNCTION/PROGRAM

                                                                                   Last Ten Fiscal Years



      Function/Program                               1999         2000         2001           2002         2003         2004         2005         2006         2007         2008



      Administrative Services
      Elections
      Number of registered voters                      23,369       23,100       23,457         23,931       23,904       25,261       25,918       26,028       26,345       27,678
      Number of votes cast:
       Last general election                            9,029       12,054       12,054          8,916        8,916       14,169       14,169       10,410       10,410       15,271
       Last city election                               3,069        3,069        3,840          3,840        4,325        4,325        4,022        4,022        1,101        1,101
      Percentage of registered voters voting:
       Last general election                                39%          52%          51%            37%          37%          56%          55%          40%          40%          55%
       Last city election                                   13%          13%          16%            16%          18%          17%          16%          15%           4%           4%



      Financial Services
      Property Tax Bills                                  N/A       15,854       15,804         15,586       15,428       15,403       15,404       15,354       15,376       15,350
      Income Tax Returns                                  N/A          N/A          N/A         25,135       25,043       24,378       23,884       23,493       23,141       22,598
      Paper Check Issued to Vendors                     3,957        3,850        3,922          4,012        3,784        3,405        3,205        3,248        3,347        3,346
      Electronic Payments to Vendors                      496          571          662            651          746          752          828          800          772          763




131
      Public Safety
      Fire Protection
       Number of firefighter and officer positions         45           45           45             44           42           41           41           41           41           41
       Number of emergency calls                        3,823        3,693        3,818          3,878        3,656        4,116        4,206        4,092        4,171        4,298
      Police Protection
       Number of sworn officer positions                   91           91           91             85           83           83           83           84           84           84
       Part I (Major) Crimes                            4,011        3,537        3,429          3,504        2,971        3,360        3,303        3,495        2,997        3,107



      Public Works
       Refuse Collected (Tons per Year)                12,078       12,211       11,718         11,420       11,780       11,925       11,074       11,192       10,375       10,401
       Recyclables Collected (Tons per Year)              815          897          838            808          775          779          588          559          629          626



      Water & Sewer
      Number of consumers                               14,917       14,917       14,917        14,917        14,917       14,917       14,455       14,412       14,364       13,131
      Average daily water consumption (GPD)          9,269,000    8,498,000    9,877,000     9,453,000     9,453,000    8,870,000    9,582,000    8,998,000    9,314,000    8,879,000
      Water main breaks repaired                            11           13           12            12            19           10            5           13           21           34
      Sewer flows (Millions Gallons per Year)            2,070        1,718        1,994         1,477         1,387        1,475        1,700        2,040        1,945        2,181
      Sewer Service Calls                                  716          925          799           661           624          568          638          605          598          533



      SOURCE: City of Muskegon Departments
                                                                                     City of Muskegon

                                                             CAPITAL ASSET STATISTICS BY FUNCTION/PROGRAM

                                                                                    Last Ten Fiscal Years




      Function/Program                       1999         2000         2001               2002              2003         2004         2005         2006         2007         2008


      Public Safety
      Fire Protection
        Number of stations                           3            3            3                  3                 3            3            3            3            3            3
      Police Protection
        Number of stations                           1            1            1                  1                 1            1            1            1            1            1

      Highways, Streets and Bridges
      Miles of Streets                         197.56       197.51       197.52              197.39           197.96       196.95       196.95       197.48       197.79       197.79
      Number of streetlights                    3,085        3,115        3,111               3,114            3,123        3,111        3,159        3,159        3,134        3,134

      Culture and Recreation
      Number of parks (acres)                       611          611          612                612               701          701          701          701          701          701
      Lake Michigan beaches (acres)                 119          119          119                119               119          119          119          119          119          119
      Hockey/Entertainment Arena                      1            1            1                  1                 1            1            1            1            1            1

      Sewer
      Sanitary sewers (miles)                  174.16       174.97       175.01              175.33           175.33       178.02       179.41       175.74       177.04       177.04




132
      Storm sewers (miles)                     177.30       177.97       178.29              178.57           178.57       178.61       179.23       180.48       183.25       183.60

      Water
      Water mains (miles)                      191.62       192.30       192.60              193.09           193.66       194.14       194.14       194.15       195.63       195.58


      SOURCE: City of Muskegon Departments
SINGLE AUDIT OF FEDERAL FINANCIAL ASSISTANCE PROGRAMS




                         133
                                         BRICKLEY DELONG
                                                CERTIFIED PUBLIC ACCOUNTANTS




                    INDEPENDENT AUDITORS’ 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

   April 8, 2009


   City Commission
   City of Muskegon
   Muskegon, Michigan

   We have audited the financial statements of the City of Muskegon as of and for the year ended December 31,
   2008 and have issued our report thereon dated April 8, 2009. We conducted our audit in accordance with
   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.

   Internal Control Over Financial Reporting
   In planning and performing our audit, we considered the City of Muskegon’s internal control over financial
   reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on the
   financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City of
   Muskegon’s internal control over financial reporting. Accordingly, we do not express an opinion on the
   effectiveness of the City of Muskegon’s internal control over financial reporting.

   Our consideration of internal control over financial reporting was for the limited purpose described in the
   preceding paragraph and would not necessarily identify all deficiencies in internal control over financial
   reporting that might be significant deficiencies or material weaknesses. However, as discussed below, we
   identified certain deficiencies in internal control over financial reporting that we consider to be significant
   deficiencies.

   A control deficiency exists when the design operation of a control does not allow management or employees,
   in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely
   basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely
   affects the entity’s ability to initiate, authorize, record, process or report financial data reliably in accordance
   with generally accepted accounting principles such that there is more than a remote likelihood that a
   misstatement of the entity’s financial statements that is more than inconsequential will not be prevented or
   detected by the entity’s internal control. We consider the deficiencies described in the accompanying
   Schedule of Findings and Responses, as Findings 1 - 2, to be significant deficiencies in internal control over
   financial reporting.

   A material weakness is a significant deficiency, or combination of significant deficiencies, that results in
   more than a remote likelihood that a material misstatement of the financial statements will not be prevented or
   detected by the entity’s internal control.




316 Morris Ave., Suite 500 • P.O. Box 999 • Muskegon, MI 49443                 907 S. State St. • P.O. Box 331 • Hart, MI 49420
     PHONE (231) 726-5800 • FAX (231) 722-0260                                  PHONE (231) 873-1040 • FAX (231) 873-0602
                                                                 134
BRICKLEY DELONG


   City Commission
   April 8, 2009
   Page 2


   Internal Control Over Financial Reporting—Continued
   Our consideration of the internal control over financial reporting was for the limited purpose described in the
   first paragraph of this section and would not necessarily identify all deficiencies in the internal control that
   might be significant deficiencies and, considered to be material weaknesses. However, of the significant
   deficiencies described above, we consider Findings 1 and 2 to be material weaknesses.

   Compliance
   As part of obtaining reasonable assurance about whether the City of Muskegon’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.

   The City of Muskegon’s responses to the findings identified in our audit are described in the accompanying
   Schedule of Findings and Responses. We did not audit the City of Muskegon’s responses and, accordingly,
   we express no opinion on them.

   This report is intended solely for the information and use of the City Commission, management, and federal
   awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other
   than these specified parties.




                                                       135
                                            BRICKLEY DELONG
                                                   CERTIFIED PUBLIC ACCOUNTANTS




             INDEPENDENT AUDITORS’ REPORT ON COMPLIANCE WITH REQUIREMENTS
            APPLICABLE TO EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER
                   COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133

   April 8, 2009


   City Commission
   City of Muskegon
   Muskegon, Michigan


   Compliance
   We have audited the compliance of the City of Muskegon with the types of compliance requirements
   described in the U.S. Office of Management and Budget (OMB) Circular A-133 Compliance Supplement that
   are applicable to each of its major federal programs for the year ended December 31, 2008. The City of
   Muskegon’s major federal programs are identified in the Summary of Auditors’ Results section of the
   accompanying Schedule of Findings and Responses. Compliance with the requirements of laws, regulations,
   contracts, and grants applicable to each of its major federal programs is the responsibility of the City of
   Muskegon’s management. Our responsibility is to express an opinion on the City of Muskegon’s compliance
   based on our audit.

   We conducted our audit of compliance in accordance with auditing standards generally accepted in the United
   States of America; the standards applicable to financial audits contained in Government Auditing Standards
   issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local
   Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan
   and perform the audit to obtain reasonable assurance about whether noncompliance with the types of
   compliance requirements referred to above that could have a direct and material effect on a major federal
   program occurred. An audit includes examining, on a test basis, evidence about the City of Muskegon’s
   compliance with those requirements and performing such other procedures as we considered necessary in the
   circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not
   provide a legal determination on the City of Muskegon’s compliance with those requirements.

   In our opinion, the City of Muskegon complied, in all material respects, with the requirements referred to
   above that are applicable to each of its major federal programs for the year ended December 31, 2008.
   However, the results of our auditing procedures disclosed an instance of noncompliance with those
   requirements, which is required to be reported in accordance with OMB Circular A-133 and which is
   described as Finding 3 in the accompanying Schedule of Findings and Responses.

   Internal Control Over Compliance
   The management of the City of Muskegon is responsible for establishing and maintaining effective internal
   control over compliance with requirements of laws, regulations, contracts, and grants applicable to federal
   programs. In planning and performing our audit, we considered the City of Muskegon’s internal control over
   compliance with requirements that could have a direct and material effect on a major federal program in order
   to determine our auditing procedures for the purpose of expressing our opinion on compliance, but not for the
   purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we
   do not express an opinion on the effectiveness of the City of Muskegon’s internal control over compliance.



316 Morris Ave., Suite 500 • P.O. Box 999 • Muskegon, MI 49443               907 S. State St. • P.O. Box 331 • Hart, MI 49420
     PHONE (231) 726-5800 • FAX (231) 722-0260                                PHONE (231) 873-1040 • FAX (231) 873-0602

                                                                 136
BRICKLEY DELONG


   City Commission
   April 8, 2009
   Page 2


   Internal Control Over Compliance—Continued
   A control deficiency in an entity’s internal control over compliance 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 noncompliance with a type of compliance requirement of a federal program on
   a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that
   adversely affects the entity’s ability to administer a federal program such that there is more than a remote
   likelihood that noncompliance with a type of compliance requirement of a federal program that is more than
   inconsequential will not be prevented or detected by the entity’s internal control.

   A material weakness is a significant deficiency, or combination of significant deficiencies, that results in
   more than a remote likelihood that material noncompliance with a type of compliance requirement of a
   federal program will not be prevented or detected by the entity’s internal control.

   Our consideration of internal control over compliance was for the limited purpose described in the first
   paragraph and would not necessarily identify all deficiencies in the entity’s internal control that might be
   significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over
   compliance that we consider to be material weaknesses, as defined above.

   The City of Muskegon’s responses to the findings identified in our audit are described in the accompanying
   Schedule of Findings and Responses. We did not audit the City of Muskegon’s responses and, accordingly,
   we express no opinion on them.

   Schedule of Expenditures of Federal Awards
   We have audited the financial statements of the City of Muskegon as of and for the year ended December 31,
   2008 and have issued our report thereon dated April 8, 2009. Our audit was performed for the purpose of
   forming an opinion on the financial statements taken as a whole. The accompanying Schedule of
   Expenditures of Federal Awards is presented for purposes of additional analysis as required by OMB
   Circular A-133 and is not a required part of the financial statements. Such information has been subjected to
   the auditing procedures applied in the audit of the financial statements and, in our opinion, is fairly stated, in
   all material respects, in relation to the financial statements taken as a whole.

   This report is intended solely for the information and use of the City Commission, management, and federal
   awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other
   than these specified parties.




                                                        137
                                                                               City of Muskegon
                                                                SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
                                                                        For the year ended December 31, 2008


                                                                                                               Accrued                                                  Accrued
                                                                                            Entitlement       (deferred)          Cash or                              (deferred)
                                                                              Federal       program or         revenue          payments in         Amount of           revenue
      Federal grantor/pass-through                                            CFDA             award          January 1,       kind received          grant           December 31,
        grantor/program title                                                 number          amount            2008            (cash basis)       expenditures          2008
      U.S Department of Agriculture
      Passed through Michigan Department of Natural Resources
         Urban & Community Forestry Program                                   10.664
            08-19                                                                       $         3,000   $           -    $          3,000    $         3,000    $           -

      U.S. Department of Housing and Urban Development
      Direct programs
         Community Development Block Grant                                    14.218
             B-07-MC-26-0026                                                                  1,018,704          472,725           721,382             248,657                -
             B-08-MC-26-0026                                                                    984,207              -             143,492             622,294            478,802
             Program Income                                                                      72,087              -              72,087              72,087                -
                   Total Community Development Block Grant                                    2,074,998          472,725           936,961             943,038            478,802




138
      Direct programs
         Home Investment Partnership Program                                  14.239
             M-04-MC-26-0215                                                                    337,937            1,638             1,638                 -                  -
             M-05-MC-26-0215                                                                    320,839              -               3,811               3,811                -
             M-06-MC-26-0215                                                                    301,767            7,000            21,027              24,817             10,790
             M-07-MC-26-0215                                                                    298,923           98,591           208,365             109,774                -
             M-08-MC-26-0215                                                                    290,049              -               2,915              80,852             77,937
             Program Income                                                                      36,196              -              36,196              36,196                -
                   Total Home Investment Partnership Program                                  1,585,711          107,229           273,952             255,450             88,727

      Direct programs
         Lead-Based Paint Hazard Control in Privately-Owned Housing           14.900
             FR-5100-N-20A                                                                    2,079,492            7,655           693,652             903,666            217,669

                   Total U.S. Department of Housing and
                      Urban Development                                                       5,740,201          587,609          1,904,565          2,102,154            785,198
                                                                             City of Muskegon
                                                          SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS—CONTINUED
                                                                         For the year ended December 31, 2008


                                                                                                             Accrued                                                  Accrued
                                                                                          Entitlement       (deferred)          Cash or                              (deferred)
                                                                            Federal       program or         revenue          payments in         Amount of           revenue
      Federal grantor/pass-through                                          CFDA             award          January 1,       kind received          grant           December 31,
        grantor/program title                                               number          amount            2008            (cash basis)       expenditures          2008
      U.S. Department of Justice
      Direct programs
         Bulletproof Vest Partnership Grant                                  16.607
             2006 Grant                                                               $         2,821   $           -    $          2,821    $         2,821    $           -
             2007 Grant                                                                         7,788               -               1,648              1,648                -
                   Total Bulletproof Vest Partnership Grant                                    10,609               -               4,469              4,469                -

      Passed through the Ottawa County
         WEMET Multi-Jurisdictional Drug                                     16.738
            Enforcement CO-OP
                70834-908B                                                                     36,825           10,578             36,824             26,246                -
                70834-109B                                                                     31,188              -                  -                9,907              9,907




139
                   Total WEMET Multi-Jurisdictional
                      Drug Enforcement CO-OP                                                   68,013           10,578             36,824             36,153              9,907

                   Total U.S. Department of Justice                                            78,622           10,578             41,293             40,622              9,907


      U.S Department of Transportation, Federal Highway Administration
      Passed through the Michigan Department of Transportation
         Highway Planning and Construction Program                           20.205
            Proj HPSL0661 (016) Fed Item RR5086 Contract 06-5195                             960,000           396,474           396,474                 -                  -

                   TOTAL FEDERAL ASSISTANCE                                           $     6,781,823   $      994,661   $      2,345,332    $     2,145,776    $       795,105
                                                                                         City of Muskegon
                                                           NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
                                                                        For the year ended December 31, 2008




      1.      See the notes to the financial statements for significant accounting policies used in preparing this schedule.

      2.      The following is a reconciliation of federal revenues as reported on the Statement of Revenues, Expenditures and Changes in Fund Balances of the City of Muskegon
              financial statements for the year ended December 31, 2008 and federal expenditures per the Schedule of Expenditures of Federal Awards.

                 Federal revenues per City of Muskegon financial statements
                 for the year ended December 31, 2008
                     General Fund                                                                                                             $         40,622
                     Major Street and Trunkline Fund                                                                                                 1,662,437
                     Other governmental funds                                                                                                        2,744,798
                                                                                                                                                     4,447,857

                 Plus program income                                                                                                                   108,283
                 Less MDOT contracted projects as shown below                                                                                       (2,410,364)

                 Federal expenditures per the Schedule of Expenditures of Federal Awards                                                      $      2,145,776

      3.




140
              The Michigan Department of Transportation (MDOT) requires that cities report all federal and state grants pertaining to their city. During the year ended December 31,
              2008, the federal aid received and expended by the City was $2,410,364 for contracted projects as shown below. The City also received $396,474 for expenditures in the
              prior year on negotiated projects. Contracted projects are defined as projects performed by private contractors and paid for and administrated by MDOT (they are
              included in MDOT's single audit). Negotiated projects are projects where the City administers the grant and either performs the work or contracts it out.

                                                                                                                                  Federal
                                                                                                                                  CFDA             Revenue              Federal
                                                                                                                                  number          Recognized          Expenditures
           U.S Department of Transportation, Federal Highway Administration (contracted projects)
           Passed through the Michigan Department of Transportation
              Highway Planning and Construction Program                                                                           20.205
                 Proj CM0861 (386) Fed Item RR6338/RR6026 Contract 07-5722                                                                    $        197,100    $        197,100
                 Proj STP0761 (018) Fed Item RR5750 Contract 07-5303                                                                                   197,558             197,558
                 Proj STP0761 (026) Fed Item RR5836 Contract 07-5402                                                                                   252,875             252,875
                 Proj STP0761 (029) Fed Item RR5931 Contract 07-5474                                                                                   209,800             209,800
                 Proj STP0861 (377) Fed Item RR6169 Contract 07-5693                                                                                   230,026             230,026
                 Proj HPSL0861 (383) Fed Item RR6325 Contract 08-5123                                                                                  575,078             575,078
                 Proj HPSL0761 (012) Fed Item RR5629 Contract 07-5158                                                                                  747,927             747,927
                     Total U.S. Department of Transportation,
                        Federal Highway Administration (contracted projects)                                                                  $      2,410,364    $      2,410,364
                                                City of Muskegon
                               SCHEDULE OF FINDINGS AND RESPONSES
                                     Year ended December 31, 2008


SECTION I—SUMMARY OF AUDITORS’ RESULTS
A. Financial Statements
     1.   Type of auditors' report issued: Unqualified
     2.   Internal control over financial reporting:
          •   Material weakness(es) identified?                                   X   yes         no
          •   Significant deficiency(ies) identified that are not considered to
              be material weaknesses?                                                 yes     X   none reported
     3.   Noncompliance material to financial statements noted?                       yes     X   no
B.   Federal Awards
     1.   Internal control over major programs:
          •   Material weakness(es) identified?                                       yes     X   no
          •   Significant deficiency(ies) identified that are not considered to
              be material weaknesses?                                                 yes     X   none reported
     2.   Type of auditors' report issued on compliance for major programs: Unqualified
     3.   Any audit findings disclosed that are required to be reported in
          accordance with section 510(a) of OMB Circular A-133?                   X   yes         no
     4.   Identification of major programs:
              CFDA Number(s)                               Name of Federal Program
                                            U.S. Department of Housing and Urban Development
                   14.900                     Lead-Based Paint Hazard Control in Privately-Owned Housing
     5.   Dollar threshold used to distinguish between type A and type B programs: $300,000
     6.   Auditee qualified as low-risk auditee?                                  X   yes         no




                                                        141
                                              City of Muskegon
                    SCHEDULE OF FINDINGS AND RESPONSES—CONTINUED
                                Year ended December 31, 2008


SECTION II – FINANCIAL STATEMENT FINDINGS

  COMPLIANCE

  NONE

  SIGNIFICANT DEFICIENCIES

  2008 Finding No. 1:     MATERIAL WEAKNESS—Capital Asset Recordkeeping Procedures

  Criteria: Capital asset additions should be identified and maintained in detailed capital asset records.

  Condition: During our detailed testing of capital outlay expenditures, we noted items which qualified as
  capital assets within the City’s capitalization policy, which were not recorded in the City’s detailed capital
  asset records. We also noted that some street infrastructure managed by the Michigan Department of
  Transportation (MDOT) was not recorded in the City’s detailed capital asset records.

  Cause: The City personnel inadvertently overlooked capital assets within capital outlay expenditure general
  ledger accounts and did not record all MDOT projects.

  Effect: Capital assets reported in the government-wide (full accrual) financial statements would have been
  understated. However, after the assets were identified, the City properly reported the additional capital assets.

  Recommendation: Capital assets for governmental activities should be more carefully identified and included
  in the government-wide (full accrual) financial statements.

  City Response: We concur with this finding and will train staff to further improve capital expenditure
  recording and review procedures.

  2008 Finding No. 2:      MATERIAL WEAKNESS—Investment Function Segregation of Duties

  Criteria: Effective segregation of duties is an important part of controls for investment transactions to ensure
  that errors and misappropriation of assets are timely detected.

  Condition: During our testing of investment procedures, we noted that the same individual is responsible for
  oversight of investments, making day-to-day investment decisions, opening and reviewing investment
  statements, transferring funds between accounts, and participating in recording of investment activity in the
  City’s accounting records.

  Cause: The City’s current alignment of responsibilities affords uninterrupted processing of transactions, if
  performed by one individual.

  Effect: An error or misappropriation of assets could occur and not be detected in a timely manner by City
  staff.

  Recommendation: Responsibilities within the investment function should be further segregated.

  City Response: The City believes adequate controls are in place for the investment function, given the limited
  staffing resources available. Investments are regularly reviewed and reconciled by a second individual.




                                                      142
                                             City of Muskegon
                    SCHEDULE OF FINDINGS AND RESPONSES—CONTINUED
                                Year ended December 31, 2008


SECTION III – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

   COMPLIANCE

   U.S. Department of Housing and Urban Development
   2008 Finding No. 3: Lead-Based Paint Hazard Control in Privately-Owned Housing
                        CFDA: 14.900
                        Award Number: FR-5100-N-20A
                        Award Year End: December 31, 2008

   Specific Requirement: Allowable Costs/Cost Principles

   Criteria: The cost principle of OMB Circular A-87 requires, “…Where employees are expected to work
   solely on a single federal award or cost objective, charges for their salaries and wages will be supported by
   periodic certifications that the employees worked solely on that program for the period covered by the
   certification. These certifications will be prepared at least semi-annually and will be signed by the employee
   or supervisory official having first hand knowledge of the work performed by the employee. …Where
   employees work on multiple activities or cost objectives, a distribution of their salaries or wages will be
   supported by personnel activity reports or equivalent documentation. Personnel activity reports must be
   prepared at least monthly and must coincide with one or more pay periods and they must be signed by the
   employee.”

   Condition: During our detailed testing, we noted one employee whose wages and benefits were charged
   partially to the grant that did not have proper time and effort documentation.

   Cause: The City was unaware of the time documentation requirements.

   Questioned Costs: $34,985, which represents the portion of salaries and benefits charged to the grant for all
   employees that did not have adequate documentation.

   Context: One employee, for which personnel activity reports or semi-annual certifications were required, did
   not have adequate documentation.

   Effect: The salaries and benefits charged to the Lead-Based Paint grant for the one employee could be
   disallowed.

   Recommendation: The City should require all employees, who fall under OMB Circular A-87 requirements
   for documenting time charged to federal award programs, to prepare the required documentation.

   City Response: The City recognizes this federal requirement and will put in place procedures to better
   document employee time allocations.

   SIGNIFICANT DEFICIENCIES

   NONE




                                                     143
City of Muskegon
                                                                                933 Terrace Street
                                                                                Muskegon, MI 49440
                                                                                Phone: (231) 724-6709


                      SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS

  April 8, 2008


  U.S. Department of Housing and Urban Development
  Washington, D.C.


  The City of Muskegon respectfully submits the following summary of the current status of prior audit
  findings contained in the single audit report for the year ended December 31, 2007 dated June 24,
  2008.

  SECTION II – FINANCIAL STATEMENT FINDINGS

      COMPLIANCE

      There were no compliance findings in relation to the financial statement audit.

      SIGNIFICANT DEFICIENCIES

      Fiscal 2007 Finding No. 1: Capital Asset Recordkeeping Procedures

      Condition: During the year ended December 31, 2007, we noted items which qualified as capital
      assets within the City’s capitalization policy which were not recorded in the City’s detailed
      capital asset records.

      Recommendation: Capital assets for governmental activities should be more carefully identified
      and included in the government-wide (full accrual) financial statements.

      Current Status: See 2008 Finding No. 1 for a similar finding noted during the single audit for the
      year ended December 31, 2008.

   SECTION III – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

      COMPLIANCE

      There were no compliance findings reported in relation to major federal award programs.

      SIGNIFICANT DEFICIENCIES

      There were no significant deficiencies reported in relation to major federal award programs.


  Sincerely,




  Timothy J. Paul
  Finance Director


                                                 144
City of Muskegon
                                                                                 933 Terrace Street
                                                                                 Muskegon, MI 49440
                                                                                 Phone: (231) 724-6709



                                   CORRECTIVE ACTION PLAN



April 8, 2009



U.S. Department of Housing and Urban Development
Washington, D.C.


The City of Muskegon respectfully submits the following Corrective Action Plan for the year ended
December 31, 2008.

Name and address of independent public accounting firm:
                   Brickley DeLong, P.C.
                   P.O. Box 999
                   Muskegon, Michigan 49443
Audit period:      December 31, 2008

The findings from the Schedule of Findings and Responses for the year ended December 31, 2008 are
discussed below. The findings are numbered consistently with the numbers assigned in the schedule.

SECTION II – FINANCIAL STATEMENT FINDINGS

   COMPLIANCE

   There were no compliance findings in relation to the financial statement audit.

   SIGNIFICANT DEFICIENCIES

   2008 Finding No. 1:     MATERIAL WEAKNESS—Capital Asset Recordkeeping Procedures

   Recommendation: Capital assets for governmental activities should be more carefully identified and
   included in the government-wide (full accrual) financial statements.

   Action Taken: We concur with this finding and will train staff to further improve capital expenditure
   recording and review procedures.




                                                  145
U.S. Department of Housing and Urban Development
April 8, 2009
Page 2


SECTION II – FINANCIAL STATEMENT FINDINGS—Continued

    SIGNIFICANT DEFICIENCIES—Continued

    2008 Finding No. 2:     MATERIAL WEAKNESS—Investment Function Segregation of Duties

    Recommendation: Responsibilities within the investment function should be further segregated.

    Action Taken: The City believes adequate controls are in place for the investment function, given the
    limited staffing resources available. Investments are regularly reviewed and reconciled by a second
    individual. Nonetheless, opportunities for further segregation will be explored.

SECTION III – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

    COMPLIANCE

    U.S. Department of Housing and Urban Development
    2008 Finding No. 3: Lead-Based Paint Hazard Control in Privately-Owned Housing

    Recommendation: The City should require all employees, who fall under OMB Circular A-87 requirements
    for documenting time charged to federal award programs, to prepare the required documentation.

    Action Taken: Procedures have been put in place to document employee time in accordance with the
    federal regulation.

    SIGNIFICANT DEFICIENCIES

    There were no significant deficiencies reported in relation to major federal award programs.

If the U.S. Department of Housing and Urban Development has questions regarding this plan, please call
Timothy J. Paul at (231) 724-6709.


Sincerely,




Timothy J. Paul
Finance Director




                                                  146

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