View the PDF version Google Docs PDF Viewer
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 2 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 3 4 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 5 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 6 • 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: 7 • 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 8 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. 9 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 10 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 11 12 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 15 16 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 17 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 Statement of net assets Balance sheet Statement of net assets Statement of fiduciary supplementary net assets Statement Statement 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 Statement 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
Sign up for City of Muskegon Emails