Annual Comprehensive Financial Reports ACFR-2010

View the PDF version Google Docs PDF Viewer

City of Muskegon,
Michigan



Comprehensive Annual
Financial Report




For The Six Months Ended June 30, 2010


                    www.shorelinecity.com
                                                  CITY OF MUSKEGON,
                                                       MICHIGAN




                                                COMPREHENSIVE
                                           ANNUAL FINANCIAL REPORT
                                           FOR THE SIX MONTHS ENDED
                                                 JUNE 30, 2010




                                                         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
         Finance & Payroll Coordinator




Cover Photo: The Root Park fountain in downtown Muskegon. Donated to the City in 1902, the fountain was completely refurbished by city
workers in 2010 with the help of Eagle-Alloy, Inc. (Courtesy of Ann Becker)



                                                    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) ....................................................................................................34
   Statement of Activities ......................................................................................................................35
 Fund Financial Statements
   Governmental Funds
      Balance Sheet .................................................................................................................................36
      Reconciliation of the Governmental Funds Balance Sheet
        to the Statement of Net Assets ....................................................................................................37
      Statement of Revenues, Expenditures and Changes
        in Fund Balances.........................................................................................................................38
      Reconciliation of the Governmental Funds Statement of Revenues,
        Expenditures and Changes in Fund Balances to the Statement of
        Activities.....................................................................................................................................39
   Proprietary Funds
      Statement of Net Assets .................................................................................................................40
      Statement of Revenues, Expenses and Changes in Fund Net Assets ............................................. 41
      Statement of Cash Flows................................................................................................................42
   Fiduciary Funds
      Statement of Fiduciary Assets and Liabilities................................................................................43
 Component Units
   Statement of Net Assets (Deficits) ....................................................................................................44
   Statement of Activities ......................................................................................................................45
  Notes to Financial Statements ..............................................................................................................46
Required Supplementary Information
 Budgetary Comparison Schedule—General Fund................................................................................74
 Budgetary Comparison Schedule—Major Street and Trunkline Fund.................................................80
 Schedule of Funding Progress ..............................................................................................................81




                                                                             1
                                                              City of Muskegon

                                                        TABLE OF CONTENTS


Other Supplemental Information
 Other Governmental Funds
   Description of Other Governmental Funds .......................................................................................84
   Combining Balance Sheet .................................................................................................................86
   Combining Statement of Revenues, Expenditures and Changes in
      Fund Balances ................................................................................................................................87
   Other Special Revenue Funds
      Combining Balance Sheet ..............................................................................................................88
      Combining Statement of Revenues, Expenditures and Changes in
        Fund Balances.............................................................................................................................89
      Budgetary Comparison Schedule—Other Special Revenue Funds ...............................................90
   Other Capital Projects Funds
      Combining Balance Sheet ..............................................................................................................92
      Combining Statement of Revenues, Expenditures and Changes in
        Fund Balances (Deficit) ..............................................................................................................93
 Internal Service Funds
   Description of Internal Service Funds...............................................................................................95
   Combining Statement of Net Assets (Deficits) .................................................................................96
   Combining Statement of Revenues, Expenses and
      Changes in Fund Net Assets (Deficits) ..........................................................................................97
   Combining Statement of Cash Flows ................................................................................................ 98
 Fiduciary Funds
   Description of Fiduciary Funds .........................................................................................................99
   Agency Funds
      Combining Statement of Assets and Liabilities ...........................................................................100
      Statement of Changes in Assets and Liabilities ...........................................................................101
 Component Units
   Description of Component Units.....................................................................................................103
   Combining Balance Sheet ...............................................................................................................104
   Reconciliation of the Governmental Funds Balance Sheet
      to the Statement of Net Assets (Deficits) .....................................................................................105
   Combining Statement of Revenues, Expenditures and Changes
      in Fund Balances (Deficit) ...........................................................................................................106
   Reconciliation of the Governmental Funds Statement of Revenues,
      Expenditures and Changes in Fund Balances to the Statement of
      Activities .....................................................................................................................................107
 Schedule of Indebtedness ...................................................................................................................109




                                                                             2
                                                            City of Muskegon

                                                      TABLE OF CONTENTS


STATISTICAL SECTION

Financial Trends
  Net Assets by Component ..................................................................................................................116
  Changes in Net Assets ........................................................................................................................117
  Fund Balances of Governmental Funds.............................................................................................. 118
  Changes in Fund Balances of Governmental Funds...........................................................................119
Revenue Capacity
  Governmental Activities Revenues by Source ...................................................................................120
  Taxable, Assessed and Equalized and Estimated Actual Valuation of Property ................................121
  Principal Property Taxpayers .............................................................................................................122
  Property Tax Rates – Direct and Overlapping Government Units .....................................................123
  Property Tax Levies and Collections..................................................................................................124
  Segmented Data on Income Tax Filers, Rates and Liability ..............................................................125
Debt Capacity
  Ratio of Outstanding Debt by Type....................................................................................................126
  Direct and Overlapping Debt..............................................................................................................127
  Legal Debt Margin Information..........................................................................................................128
  Revenue Bond Coverage ....................................................................................................................129
Demographic and Economic Information
  Demographic and Economic Statistics ............................................................................................... 130
  Principal Employers............................................................................................................................131
Operation Information
  Full-time Equivalent Government Employees ...................................................................................132
  Operating Indicators by Function/Program ........................................................................................133
  Capital Asset Statistics by Function/Program ....................................................................................134

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 ..................................................................................................... 136
Independent Auditors’ Report on Compliance with Requirements Applicable
   to Each Major Program and Internal Control over Compliance in
   Accordance with OMB Circular A-133 .......................................................................................... 138
Schedule of Expenditures of Federal Awards...................................................................................... 140
Schedule of Findings and Questioned Costs........................................................................................ 144
Client Documents
   Summary Schedule of Prior Audit Findings ................................................................................... 148
   Corrective Action Plan.................................................................................................................... 150




                                                                          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
                   November 5, 2010
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
FAX (231)724-      We are pleased to present to you the Comprehensive Annual Financial Report (CAFR) for
6768
                   the City of Muskegon, Michigan, for the six months ended June 30, 2010. In November
Fire Department    2009, voters approved City Charter amendments allowing the City Commission to set a
(231)724-6792
FAX (231)724-      fiscal year other than the calendar year that had been specified in the Charter. The
6985
                   Commission subsequently implemented this authority by setting June 30 as the City’s new
Income Tax         fiscal period end date. This CAFR report covers the six-month period from January 1,
(231)724-6770
FAX (231)724-      2010 through June 30, 2010 that will transition the City to its new fiscal year.
6768

Inspection         This report includes the City’s audited financial statements in accordance with the
Services           requirements of state law. The financial statements are presented in conformity with
(231)724-6715
FAX (231)728-      accounting principles generally accepted in the United States of America (GAAP), and
4371
                   audited in accordance with generally accepted auditing standards by a firm of licensed
Leisure Services   certified public accountants. This annual report is formatted to comply with the financial
(231)724-6704
FAX (231)724-      reporting model developed by the Government Accounting Standards Board (GASB)
1196               Statement 34.
Mayor’s Office
(231)724-6701
FAX (231)722-
                   GAAP requires that management provide a narrative introduction, overview, and analysis
1214               to accompany the basic financial statements in the form of Management’s Discussion and
Planning/Zoning    Analysis (MD&A). This letter of transmittal is designed to complement the MD&A and
(231)724-6702      should be read in conjunction with the financial statements. The City of Muskegon’s
FAX (231)724-
6790               MD&A can be found immediately following the independent auditor’s report.
Police
Department
(231)724-6750      The Comprehensive Annual Financial Report is prepared by the City’s Finance
FAX (231)722-      Department and responsibility for both the accuracy of the data presented and the
5140
                   completeness and fairness of the presentation, including all disclosures, rests with the
Public Works       City. We believe the data as presented is accurate in all material respects; that it is
(231)724-4100
FAX (231)722-      presented in a manner designed to set forth fairly the financial position and results of
4188
                   operation of the City as measured by the financial activity of its various funds and
Treasurer          component units; and that all disclosures necessary to enable the reader to gain the
(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
maximum understanding of the City’s finances have been included. Brickley DeLong, P.C., Certified
Public Accountants, performed the independent audit of all accounts of the City as required by state law
and their report and unqualified opinion is presented as the first component of the financial section of
this report.


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, located north of the city, is the largest amusement park complex in
   Michigan. The City provides water to both the amusement park and the water park located on the
   site.
    Muskegon is the eastern terminus for the high speed cross-lake ferry. Connecting Muskegon
   with Milwaukee, Wisconsin, the Lake Express service ferries 100,000-plus passengers each season
   between the two cities. 2010 marked the ferry service’s seventh successful year of operations.
      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 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
   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 of Muskegon 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) 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 from development within the Authority’s boundaries.
    The Tax Increment Finance Authority (TIFA), 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 (LDFA) 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 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 its 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.
Still, Muskegon has been heavily impacted by the current economic recession. Area unemployment
remains high and the resultant impact in City income tax revenue has been severe. There are signs,
though, that recovery has started. The W.E. Upjohn Institute for Employment Research publishes a
regular local economic forecast. Their most recent quarterly forecast (September 2010) gives an
upbeat assessment of the local economy:

                                                  7
       “(T)he (Muskegon) region’s prospects for continued growth should be good. Initial claims for
       unemployment insurance fell by 14.8 percent during the quarter to a level less than half of that seen
       at the same time last year. This decline clearly indicates that layoff activity has slowed and that local
       firms are feeling more confident about keeping workers. Also, the number of new dwelling units
       under contract grew by 28.9 percent as buyers slowly came out of hiding and ordered new homes.
       Although the number of new-dwelling-unit contracts still remains flat compared to a year ago, it may
       simply mean that the market will be stabilizing at a new, albeit lower, level.”




MAJOR INITIATIVES AND ACCOMPLISHMENTS
Among the City's major initiatives and accomplishments in 2009 were the following:

      The City changed its fiscal year from a December 31 end date to a June 30 end date. The
       change was made to achieve the following:

          Consistency and comparability with the overwhelming majority of Michigan cities that follow a
           June 30 fiscal year.
          Even out workflows for a scaled back finance division staff by moving year-end close and
           audit tasks to a less crowded time of year;
          Realize a significant one-time increase to the City’s General Fund fund balance.


      Development activity in the City’s downtown continued with several additional condominiums in
       the Heritage Square “live-work” development completed or started. A total of twenty-two units
       are planned for this downtown development.

      The City was successful in reaching agreements with several of its bargaining units that include
       significant savings in the area of retiree healthcare costs. Also, the agreement with the
       firefighters union allows the City to hire part-time firefighters to supplement the full-time force.
       The City believes that moving to a combination full-time/part-time fire service will be a big
       contributor to stabilizing City finances and services levels.

      Work continued on a major $12 million auto dealership expansion encompassing GM, Honda
       and Hyundai brands. The GM and Honda facilities are completed and work is underway on the
       Hyundai facility as well as a used vehicle facility. The City assisted in this project with the
       creation of a Brownfield Redevelopment Authority and securing a low-interest state loan to help
       finance environmental work.




                                                         8
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
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.


FINANCIAL POLICIES
The City’s financial policies are reviewed and updated bi-annually. One of the more significant policy
standards provides that the City maintain a General Fund fund balance equal to at least 10% of prior
expenditures. At June 30, 2010, the City’s General Fund fund balance was $6,038,454 or 24.30% of
prior year expenditures. The change in the City’s fiscal year from a December 31 to June 30 year-end
created a significant one-time boost to the fund balance. It should be noted too that the City maintains
a separate Budget Stabilization fund that had a $1.5 million balance at year-end.


DEBT ADMINISTRATION
At June 30, 2010, the total of City bonds and contractual debt outstanding (including discretely
presented component unit debt) was $34,406,886. In April 2010, the City refunded $6,030,000 in
outstanding water system bonds. The refunding achieved net present value savings of $334,200 or,
5.54% of refunded principal.



                                                    9
Standard & Poor’s rates the City’s general obligation debt A+. The City’s water revenue bonds carry a
AA- rating, affirmed in March 2010.


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 $5 billion MERS program offers. All new
employees hired by the City since 2007 are 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
regularly 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.”


SINGLE AUDIT
The City is required to have a 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, 2008. 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
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.




                                                   10
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

                                                June 30, 2010




                                          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


     November 5, 2010


     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 six months ended June 30, 2010,
     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 June 30, 2010, and the respective changes in financial position, and cash flows,
     where applicable, thereof for the six months then ended in conformity with accounting principles generally
     accepted in the United States of America.

     Accounting principles generally accepted in the United States of America require that the management's
     discussion and analysis and required supplementary information on pages 19 - 31 and 74 - 81 be presented
     to supplement the basic financial statements. Such information, although not a part of the basic financial
     statements, is required by the Governmental Accounting Standards Board, who considers it to be an
     essential part of financial reporting for placing the basic financial statements in an appropriate operational,
     economic, or historical context. We have applied certain limited procedures to the required supplementary
     information in accordance with auditing standards generally accepted in the United States of America,
     which consisted of inquiries of management about the methods of preparing the information and comparing
     the information for consistency with management's responses to our inquiries, the basic financial
     statements, and other knowledge we obtained during our audit of the basic financial statements. We do not
     express an opinion or provide any assurance on the information because the limited procedures do not
     provide us with sufficient evidence to express an opinion or provide any assurance.



316 Morris Ave., Suite 500 • P.O. Box 999 • Muskegon, MI 49443                   907 S. State Street • P.O. Box 331 • Hart, MI 49420
     PHONE (231) 726-5800 • FAX (231) 722-0260                                   PHONE (231) 873-1040 • FAX (231) 873-0602
                                                                 17
BRICKLEY DELONG

  City Commission
  November 5, 2010
  Page 2


  Our audit was conducted for the purpose of forming opinions on the financial statements that collectively
  comprise the City of Muskegon’s financial statements as a whole. The introductory section, combining and
  individual nonmajor fund financial statements, budgetary comparison information for nonmajor funds,
  schedule of indebtedness, and statistical section, are presented for purposes of additional analysis and are not
  a required part of the 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 financial statements. The combining and individual nonmajor fund financial statements, budgetary
  comparison information for nonmajor funds, schedule of indebtedness, and the schedule of expenditures of
  federal awards are the responsibility of management and were derived from and relate directly to the
  underlying accounting and other record used to prepare the financial statements. The information has been
  subjected to the auditing procedures applied in the audit of the financial statements and certain additional
  procedures, including comparing and reconciling such information directly to the underlying accounting and
  other record used to prepare the financial statements or to the financial statements themselves, and other
  additional procedures in accordance with auditing standards generally accepted in the United State of
  America. In our opinion, the information is fairly stated in all material respects in relation to the financial
  statements 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 do not express an
  opinion or provide any assurance 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 June 30,
2010. Please read it in conjunction with the City’s financial statements, which follow this
section.

FINANCIAL HIGHLIGHTS

     The City changed its fiscal year end from December 31 to June 30. This financial
      report is for the six-month transition period ended June 30, 2010. The change in
      fiscal years was made to achieve the following benefits:
         consistency with most other Michigan cities
         smooth out finance division workflows
         realize a significant one-time fund balance increase

     The assets of the City of Muskegon exceeded its liabilities by $134,105,204 as of
      June 30, 2010. Of the total net assets, $21,458,627 (16.0%) 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 $4,630,892 (3.6%) during the six-
      month period ended June 30, 2010. This increase is primarily results from the
      fiscal year change noted above.

     The City’s governmental funds reported combined ending fund balance of
      $12,111,798, an increase of $4,229,275 (53.6%) from the prior year.

     The City’s General Fund reported a total fund balance of $6,038,454, an increase
      of $4,399,792 from the prior year. Again, this increase is due to the fiscal year
      change coupled with continued tight budget controls. Recognizing the one-time
      nature of this increase, the City has designated a large portion of the fund balance
      to pay down outstanding liabilities:

         $1.0 million is designated as a supplemental contribution to the City’s defined
          benefit pension program to maintain 100% actuarial funding levels;
        $620,000 is designated for early retirement of an outstanding economic
          development loan from the State of Michigan;
        $334,605 is designated for early retirement of a lease-purchase contract for
          two City fire trucks; and
        $100,000 is designated to pay future debt service on outstanding sidewalk
          assessment bonds.
      These payments were made in October 2010.

     The City maintains a separate Budget Stabilization (or “rainy day”) Fund that
      reported a $1.5 million fund balance of at June 30, 2010, unchanged from the
      previous fiscal period.




                                            19
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.

                                      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 financial statements and provide additional data. The statements are
followed by a section of required supplementary information that further explains and
supports the information in the financial statements. The figure above shows how the
required parts of this annual report are arranged and related to one another.

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




                                            20
of net assets includes all of the government’s assets and liabilities. All of the current
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.

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
      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.




                                             21
     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 four component units: the Downtown Development
      Authority (DDA), the Tax Increment Finance Authority (TIFA), the Local
      Development Finance Authority (LDFA) and, the 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 $134,105,204 as of June 30, 2010. This is
an increase of $4,630,892 from reported net assets for the prior year. An overview of
the City’s net assets follows:




                                             22
                                          City's Net Assets
                                          (In Thousands of Dollars)
                                  Governmental                  Business-Type
                                    Activities                        Activities                 Total             Percentage
                              6/30/2010* 12/31/2009        6/30/2010* 12/31/2009         6/30/2010* 12/31/2009      Change


Current and other assets        $20,026      $23,192          $8,985          $7,510       $29,011       $30,701       -5.51%
Capital assets                   75,306          76,739       58,859          59,912       134,165       136,651       -1.82%
Total Assets                     95,332          99,931       67,844          67,422       163,176       167,353       -2.50%


Long-term liabilities             8,229           8,492       16,702          17,105        24,931        25,597       -2.60%
Other liabilities                 2,406          10,497        1,734           1,785         4,139        12,282      -66.30%
Total Liabilities                10,635          18,989       18,436          18,890        29,070        37,879      -23.26%


Net Assets
Invested in capital assets,
  net of related debt            67,810          69,065       41,106          41,876       108,916       110,941       -1.83%
Restricted                        3,059           2,956          672               672       3,731         3,628        2.84%
Unrestricted                     13,828           8,921        7,630           5,984        21,458        14,905      43.97%
Total Net Assets                $84,697      $80,942         $49,408        $48,532       $134,105   $129,474           3.58%


* Six‐month fiscal period


The bulk of the City’s net assets ($108,915,369 or 81%) 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 2.8% ($3,731,208) of the City’s net assets are legally
restricted as to use. Remaining net assets ($21,458,627) are unrestricted and may be
used to meet the City’s operating needs and ongoing obligations. Significantly, the
City’s unrestricted net assets increased $6,554,071 (44%) due mostly to the change in
fiscal years.

Changes in net assets. The City’s total revenues were $26,275,038 for the six months
ended June 30, 2010. This represents about 60% of total revenues collected during the
City’s last twelve-month fiscal year ended December 31, 2009. About 32% of the City’s
revenue stream came from charges to users of specific services such as water or
sewer. Another thirteen percent came from grants from the state and federal
governments and forty-six percent was from local property and income taxes. The
remainder was comprised of state revenues and other sources such as franchise fees
and investment income.

The total cost of all City programs and services for the six months ended June 30, 2010
was $21,644,146. This represents 46% of total expenses incurred during the City’s last
twelve-month fiscal year ended December 31, 2009. Seventy-four percent of these
costs were for governmental activities such as police and fire protection, streets, parks,
and general administration. The remaining twenty-six percent represents the costs of
the City’s business-type activities, specifically, water, sewer and marina operations.




                                                      23
The difference between the City’s total revenues and expenses ($4,630,892) represents
the increase in total net assets realized in the six-month fiscal period ended June 30,
2010. The following table (Changes in City’s Net Assets) further breaks down the
change in total net assets into period-to-period changes in individual revenue and
expense categories:

                                           Changes in City’s Net Assets
                                                     (In thousands of dollars)
                                             Governmental                 Business-Type
                                               Activities                    Activities                   Total             Percentage
                                        6/30/2010* 12/31/2009        6/30/2010* 12/31/2009        6/30/2010* 12/31/2009      Change

Program revenues
 Charges for services                      $1,964        $3,875          $6,490      $11,846         $8,454       $15,721      -46.22%
 Operating grants and contributions         3,132           6,443                -            -       3,132         6,443      -51.39%
 Capital grants and contributions             255           2,106                -           5          255         2,111      -87.92%
General revenues
 Property taxes                             8,681           8,493                -            -       8,681         8,493        2.21%
 Income taxes                               3,505           6,628                -            -       3,505         6,628      -47.12%
 State shared revenues                      1,832           3,842                -            -       1,832         3,842      -52.32%
 All other                                    400            857             17             24          417          881       -52.65%
Total revenues                             19,769        32,244           6,507       11,875         26,276        44,119      -40.44%


Governmental activities expenses
 Public representation                        445            924                 -            -         445          924       -51.84%
 Administrative services                      318            698                 -            -         318          698       -54.44%
 Financial services                         1,210           2,406                -            -       1,210         2,406      -49.71%
 Public safety                              6,333        13,614                  -            -       6,333        13,614      -53.48%
 Public w orks                              1,641           2,987                -            -       1,641         2,987      -45.06%
 Highw ays, streets and bridges             3,680           7,161                -            -       3,680         7,161      -48.61%
 Community and economic development         1,275           4,140                -            -       1,275         4,140      -69.20%
 Culture and recreation                       760           2,463                -            -         760         2,463      -69.14%
 General administration                       210            452                 -            -         210          452       -53.54%
 Interest on long-term debt                   139            288                 -            -         139          288       -51.74%
Business-type activities expenses
 Water                                           -              -         2,959           6,080       2,959         6,080      -51.33%
 Sew er                                          -              -         2,525           5,427       2,525         5,427      -53.47%
 Marina and Launch Ramp                          -              -           150            311          150          311       -51.77%
Total expenses                             16,011        35,133           5,634       11,818         21,645        46,951      -53.90%


Change in net assets before transfers       3,758       (2,889)             873             57        4,631       (2,832)     -263.50%
Transfers                                      (3)              -                3            -           -             -                -
Change in net assets                        3,755       (2,889)             876             57        4,631       (2,832)     -263.50%


Net assets at beginning of year            80,942        83,831          48,532       48,475        129,474       132,306       -2.14%

Net assets at end of year                 $84,697      $80,942          $49,408      $48,532       $134,105   $129,474           3.58%

* Six‐month fiscal period


Net assets for governmental activities increased $3,755,199 while net assets for
business-type activities increased of $875,693. Both increases can be attributed
primarily to the financial impact of changing the City’s fiscal year.




                                                                24
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 the six months ended
        June 30, 2010 was $16,010,229.
       The net cost that City taxpayers paid for these activities through local property
        taxes and income taxes was $12,186,520, or 75% of the total.
       The remaining cost was paid by user charges to those directly benefitting from the
        programs or by state and federal grants and contributions

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


                                      Total Cost of Services                   Net Cost of Services
                                      6/30/2010* 12/31/2009      % Change     6/30/2010* 12/31/2009     % Change
Governmental activities
 Public safety                            $6,333     $13,614        -53.48%       $5,666     $12,415      -54.36%
 Community and economic development        1,275        4,140       -69.20%        (482)         500     -196.40%
 Culture and recreation                     760         2,463       -69.14%          611        1,996     -69.39%
 Highw ays, streets and bridges            3,680        7,161       -48.61%        1,919        1,964      -2.29%
 Public w orks                             1,641        2,987       -45.06%        1,416        2,561     -44.71%
 All other                                 2,322        4,769       -51.31%        1,529        3,272     -53.27%
Total governmental activities            $16,011     $35,133        -54.43%      $10,659     $22,709      -53.06%


* Six‐month fiscal period



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 the six months ended June 30,
2010, the City’s total business-type activities realized an overall increase in net assets
of $875,693.

Sewer Fund net assets increased $916,527 primarily as result of higher fees for
services and stabilization in wholesale sewage treatment costs paid to Muskegon
County. The Water Fund saw net assets fall $74,154. This falloff is attributable to the
fact the six month fiscal period reported here did not include the summer season,
typically the peak collection period for water revenues Marina and Launch Ramp Fund
net assets increased $10,459 due to lower operating costs brought about by tight
budget controls.




                                                         25
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 the fiscal period ended June 30,
2010 were the General Fund and the Major Street and Trunkline Fund.

General Fund Highlights

The General Fund receives 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
taking into account changing economic conditions and policy priorities. The following
table shows the General Fund year-end fund balance for the last five years.

                                                               Prior Year’s     Fund Balance as a % of
                       Year-End Fund      Year‐to‐Year %
      Year Ended
                         Balance
                                                            Expenditures and    Prior Year Expenditures
                                             Change                               (Policy Target=10%
                                                               Other Uses
       6/30/2010*           $6,038,454       153.32%              $24,850,082          24.30%
      12/31/2009              1,638,662      -31.26%               26,100,530           6.28%
      12/31/2008              2,383,725      -18.38%               24,800,810           9.61%
      12/31/2007              2,920,632       8.57%                24,498,778          11.92%
      12/31/2006              2,690,039       6.76%                23,658,227          11.37%
      * Six‐month fiscal period

The City changed its fiscal year transitioning with a six-month fiscal period ended June
30, 2010. This change resulted in a significant one-time increase to the General Fund
fund balance due to the fact that annual property taxes are collected in full during this
period. The fiscal year change was implemented not only for the positive financial
statement impacts, but also to achieve 1) improved comparability with other Michigan
cities (most of which are already on June 30 fiscal years) and, 2) more level workflows
for the City’s finance staff by moving year-end audit functions away from the heavy
federal and state reporting requirements at the end of each calendar year.

General Fund revenues for the six-month transition period ended June 30, 2010 were
$907,355 higher than the amended budget estimate made at the time it was decided to
implement a new fiscal year. The positive revenue variance is mostly due to higher
than expected income tax revenues and to a one-time industrial facilities tax payment.
Another benefit realized by the City from the change in fiscal years is that it was not
necessary to use Budget Stabilization fund reserves. The original budget anticipated
using $500,000 from the Budget Stabilization fund to help offset declining revenues.

General Fund expenditures were $1,797,641 less than projected in the amended
budget. Almost all city departments spent less than expected due to a combination of
1) tight budget controls, 2) conservative budget projections and, 3) cost savings realized
from budget cuts made in the prior year.




                                                       26
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 the six months ended June 30, 2010, the fund balance of the
Major Street and Trunkline Fund increased $86,311.


CAPITAL ASSETS AND DEBT ADMINISTRATION

Capital Assets

As of June 30, 2010, the City and its component units had invested $137,225,998 in a
variety of capital assets, including land, streets, equipment, buildings, water and sewer
lines, and vehicles. This is a decrease of $2,572,531 from capital assets as of
December 31, 2009. The decrease is due to normal depreciation and to the fact that
capital construction activity during the first six months of the year is generally light. Note
D of the notes to the basic financial statements provides detailed information on the
City’s capital asset investment.


Long-Term Debt
                                                                                                Bond Ratings
At June 30, 2010, the City had $26,681,764 in bonds and
                                                                                                The City’s limited full faith and
other long-term obligations outstanding. This represents a                                      credit bonds (bonds guaranteed
decrease of 6.5% from the prior year. On April 1, 2010                                          by the City’s taxing powers)
$6,030,000 of outstanding Water System Revenue Bonds                                            were upgraded by Standard &
                                                                                                Poor’s from a rating of “A” to
were refunded with new bonds issued at lower interest                                           “A+” in early 2010. The City’s
rates. The net present value savings from the refunding                                         Water System revenue bonds
are $334,200 or 5.54% of the refunded principal amount.                                         carry the “AA-“ rating.
This represents the only significant debt activity during the
six months ended June 30, 2010.

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

                                    City’s Long Term Debt – Bonds and Other Obligations
                                                        (In thousands of dollars)
                                       Governmental                       Business-Type
                                         Activities                         Activities                    Total             Percentage
                                  6/30/2010* 12/31/2009            6/30/2010* 12/31/2009      6/30/2010* 12/31/2009          Change
Due w ithin one year                   $527           $611              $1,223       $1,182      $1,750            $1,793      -2.40%

Due in more than one year             8,230           8,493             16,702       17,106      24,932            25,599      -2.61%

Total bonds & other obligations      $8,757       $9,104               $17,925      $18,288     $26,682           $27,392      -2.59%

* Six‐month fiscal period




                                                                  27
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 $7,725,122 at year-end as shown in the table below. This represents a
decrease of 2.9% from the prior year. No new component unit debt was issued during
the first six months of 2010.

Debt issued by 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
H to the basic financial statements and is summarized as follows:

                                   Component Unit Long Term Debt – Bonds and Other Obligations
                                                           (In thousands of dollars)

                                  Dow ntow n Development            Local Development
                                                                                                       Total            Percentage
                                     Finance Authority              Finance Authority

                                  6/30/2010* 12/31/2009           6/30/2010* 12/31/2009         6/30/2010* 12/31/2009      Change
Due w ithin one year                    $240       $230                    $80           $80         $320       $310        3.23%
Due in more than one year              3,005       3,245               4,400            4,400       7,405       7,645      -3.14%
Total bonds & other obligations       $3,245      $3,475              $4,480           $4,480      $7,725      $7,955      -2.89%

* Six‐month fiscal period



ECONOMIC FACTORS AND NEXT YEAR’S BUDGETS AND RATES

The City’s fiscal year 2010-11 capital budget anticipates spending $7,256,925 for capital
projects, consisting of street improvements, water and sewer system improvements,
and scheduled equipment replacements. These improvements will be funded through
grants and revenues generated from operations. The City may issue bonds during
2010-11 to provide matching funds for several significant street projects for which state
and federal matching grants are available.

From an operating standpoint, the City’s 2010-11 budget will entail further program and
position cuts to better balance the City’s operating expenses with recurring revenue
streams:

         Several positions are scheduled to be eliminated with job functions being
          consolidated with remaining positions;
         Three firefighter positions were scheduled to be cut. However, the City and its
          firefighter’s union were able to reach agreement on an innovative contract that
          will, among other things, allow the City to hire part-time firefighters in the future.
         Other service cuts including elimination of lifeguards at Pere Marquette Beach,
          removal of some mid-block streetlights and reductions in the use of seasonal
          workers in parks and cemeteries are also scheduled.




                                                                      28
City operations depend 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 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 workers at not-for-profit hospitals,
churches, government agencies, colleges and other institutions that are traditionally
exempt from paying local property taxes. This is particularly important for Muskegon
since it is the regional center for many such institutions.

Income tax revenues fell from $6,482,200 in 2009 to $3,368,057 for 2010 due to the
fiscal year change and six month reporting period. For 2010-11, the City has
conservatively estimated income tax revenue to be $6,000,000.


                                               City Income     Percent
                                 Year
                                              Tax Revenues     Change
                              6/30/2010*         $3,368,057    -48.0%
                             12/31/2009            6,482,290   -15.8%
                             12/31/2008            7,694,780    1.0%
                             12/31/2007            7,618,461    2.6%
                             12/31/2006            7,425,173    4.8%

                            * Six‐month fiscal period




Local Property Tax

City charter and state law authorize the City to levy a general operating millage up to 10
mills and 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.

For 2010-11, the City has increased its operating millage from 8.5 to 9.5 mills. The
sanitation millage will remain at 2.5 mills. We project $8,334,919 in property tax
revenue. On the November 2010 ballot is a proposed City Charter amendment that, if




                                                  29
passed, would allow the City to levy 1 mill for street maintenance. If passed, the City
intends to roll back the general operating millage to 8.5 mills.

                                Total Assessed          Percent     Estimated Actual
                  Year
                                     Value              Change           Value
                  2009               $867,330,950          -4.23%       $1,734,661,900
                  2008                905,682,400          2.65%         1,811,364,800
                  2007                882,300,288          3.11%         1,764,600,576
                  2006                855,662,300          2.78%         1,711,324,600
                  2005                832,507,264          0.19%         1,665,014,528
                  2004                830,948,500          -0.97%        1,661,897,000


It should be noted that a major property taxpayer ceased operations in the City within
the last twelve months. The property is currently for sale and the current owner has
agreed to continue paying property taxes at current values for one additional year. The
impact of this plant closure on City finances is being monitored closely.


State Shared Revenues

State shared sales tax revenues represent about sixteen percent of total General Fund
revenue. The City’s state shared revenue allocation is made up of two 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
                                                Revenues
                               Year                                 Change
                            6/30/2010*               $1,832,066     -52.3%
                           12/31/2009                 3,841,922     -14.4%
                           12/31/2008                 4,487,698      0.3%
                           12/31/2007                 4,475,462     -1.8%
                           12/31/2006                 4,556,801     -0.8%

                         * Six‐month fiscal period

Erosion of state shared revenues (both from economic factors and from legislative
action) constitutes a major on-going concern for City finances.

For 2010-11 fiscal year, the City has projected $3,774,813 in state shared revenues and
the most recent information available indicate that this estimate remains viable.




                                                      30
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
                                             from State          Percent
                             Year
                                                                 Change
                          6/30/2010*                $1,741,233   -45.2%
                          12/31/2009                 3,177,862   -0.7%
                          12/31/2008                 3,199,930   -2.7%
                          12/31/2007                 3,288,098   -0.3%
                          12/31/2006                 3,297,183   -0.7%

                        * Six‐month fiscal period


For 2010-11, 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 $6,333,093 during the six month period ended
June 30, 2010. Charges to customers are based on the amount of metered services
used times rates periodically set by the City Commission. During 2009, sewer rates
were increased twelve percent as result of higher wastewater treatment and debt
service charges enacted by Muskegon County. A further sewer rate increases will
likely be needed in 2010-11 due to the shutdown of a major industrial sewer customer.
Water rates are expected to remain stable in 2010-11.


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).




                                                    31
32
FINANCIAL STATEMENTS




         33
                                                                                 City of Muskegon
                                                                       STATEMENT OF NET ASSETS (DEFICITS)
                                                                                  June 30, 2010

                                                                                     ASSETS

                                                                                                        Governmental        Business-type                         Component
                                                                                                          activities          activities          Total             units
     CURRENT ASSETS
       Cash and investments                                                                         $     13,209,870    $       4,261,377   $    17,471,247   $     403,953
       Receivables                                                                                         3,044,677            2,104,819         5,149,496             -
       Due from other governmental units                                                                   2,363,683               69,830         2,433,513             -
       Internal balances                                                                                  (1,504,692)           1,504,692               -               -
       Due from component units                                                                                9,217                  -               9,217             -
       Inventories                                                                                            28,711              128,681           157,392             -
       Prepaid items                                                                                       1,091,959              109,879         1,201,838             -
                  Total current assets                                                                    18,243,425            8,179,278        26,422,703         403,953

     NONCURRENT ASSETS
       Restricted assets                                                                                          -              672,000           672,000               -
       Capital assets, net
          Nondepreciable                                                                                  19,128,717           2,468,044         21,596,761          400,000
          Depreciable                                                                                     56,176,749          56,390,830        112,567,579        2,661,658
       Bond issuance costs, net                                                                              121,150             134,250            255,400           95,673
       Special assessments receivable                                                                      1,345,704                 -            1,345,704              -
       Notes receivable                                                                                      316,231                 -              316,231              -
                  Total noncurrent assets                                                                 77,088,551          59,665,124        136,753,675        3,157,331
                  Total assets                                                                            95,331,976          67,844,402        163,176,378        3,561,284




34
                                                                       LIABILITIES AND NET ASSETS (DEFICITS)
     CURRENT LIABILITIES
       Accounts payable and accrued liabilities                                                             1,361,827             183,166         1,544,993          41,600
       Due to other governmental units                                                                         19,962             328,073           348,035             -
       Due to primary government                                                                                  -                   -                 -             9,217
       Unearned revenue                                                                                       496,382                 -             496,382             -
       Bonds and other obligations, due within one year                                                       527,300           1,223,100         1,750,400         320,000
                  Total current liabilities                                                                 2,405,471           1,734,339         4,139,810         370,817

     NONCURRENT LIABILITIES
       Bonds and other obligations, less amounts due within one year                                        8,229,436         16,701,928         24,931,364        7,405,122
                  Total liabilities                                                                       10,634,907          18,436,267         29,071,174        7,775,939

     NET ASSETS (DEFICITS)
       Invested in capital assets, net of related debt                                                    67,809,630          41,105,739        108,915,369       (1,418,464)
       Restricted for:
          Streets and highways                                                                              1,725,685                -            1,725,685              -
          Debt service                                                                                            -              672,000            672,000              -
          Perpetual care
             Expendable                                                                                       16,979                  -              16,979              -
             Non-expendable                                                                                1,316,544                  -           1,316,544              -
       Unrestricted                                                                                       13,828,231            7,630,396        21,458,627       (2,796,191)
                  Total net assets (deficits)                                                       $     84,697,069    $     49,408,135    $   134,105,204   $   (4,214,655)



     The accompanying notes are an integral part of this statement.
                                                                                                          City of Muskegon
                                                                                                 STATEMENT OF ACTIVITIES
                                                                                               For the six months ended June 30, 2010

                                                                                                                                                                            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                              $      445,251   $      100,177        $         -               $         -         $        (345,074)   $          -     $      (345,074)   $          -
           Administrative services                                            317,873          129,630                2,394                       -                  (185,849)              -            (185,849)              -
           Financial services                                               1,209,694          475,031               25,000                       -                  (709,663)              -            (709,663)              -
           Public safety                                                    6,332,728          536,419              130,770                       -                (5,665,539)              -          (5,665,539)              -
           Public works                                                     1,640,946          209,203                  -                      15,501              (1,416,242)              -          (1,416,242)              -
           Highways, streets and bridges                                    3,680,196          139,009            1,613,077                     9,443              (1,918,667)              -          (1,918,667)              -
           Community and economic development                               1,275,026          186,572            1,340,830                   230,290                 482,666               -             482,666               -
           Culture and recreation                                             759,392          129,025               19,740                       -                  (610,627)              -            (610,627)              -
           General administration                                             210,117           59,373                  -                         -                  (150,744)              -            (150,744)              -
           Interest on long-term debt                                         139,006              -                    -                         -                  (139,006)              -            (139,006)              -
               Total governmental activities                               16,010,229         1,964,439           3,131,811                   255,234             (10,658,745)              -         (10,658,745)              -

        Business-type activities
          Sewer                                                             2,525,067         3,441,924                 -                         -                       -            916,857           916,857                -
          Water                                                             2,958,795         2,891,169                 -                         -                       -            (67,626)          (67,626)               -
          Marina and Launch Ramp                                              150,055           156,767                 -                         -                       -              6,712             6,712                -
               Total business-type activities                               5,633,917         6,489,860                 -                         -                       -            855,943           855,943                -
                     Total primary government                          $   21,644,146   $     8,454,299       $   3,131,811             $     255,234             (10,658,745)         855,943         (9,802,802)              -




35
     Component units
       Local Development Finance Authority III                         $     188,108    $           -         $         -               $      50,000                     -                 -                 -           (138,108)
       Downtown Development Authority                                         57,726                -                   -                         -                       -                 -                 -            (57,726)
       Tax Increment Finance Authority                                        25,000                -                   -                         -                       -                 -                 -            (25,000)
       Brownfield Redevelopment Authority                                     14,920                -                   -                         -                       -                 -                 -            (14,920)
                     Total component units                             $     285,754    $           -         $         -               $      50,000                     -                 -                 -           (235,754)

     General revenues
        Property taxes                                                                                                                                             8,681,256               -            8,681,256          455,284
        Income taxes                                                                                                                                               3,505,264               -            3,505,264              -
        Cable franchises                                                                                                                                             178,239               -              178,239              -
        Grants and contributions not restricted to specific programs                                                                                               1,832,066               -            1,832,066              -
        Unrestricted investment earnings                                                                                                                             104,086            15,990            120,076            1,456
        Miscellaneous                                                                                                                                                 51,638               -               51,638              -
        Gain on sale of capital asset                                                                                                                                 65,155               -               65,155              -
     Transfers                                                                                                                                                        (3,760)            3,760                -                -
               Total general revenues and transfers                                                                                                               14,413,944            19,750         14,433,694          456,740

                  Change in net assets                                                                                                                             3,755,199           875,693          4,630,892          220,986

     Net assets (deficit) at January 1, 2010                                                                                                                      80,941,870         48,532,442       129,474,312        (4,435,641)

     Net assets (deficit) at June 30, 2010                                                                                                                  $     84,697,069     $   49,408,135   $ 134,105,204      $   (4,214,655)



     The accompanying notes are an integral part of this statement.
                                                                      City of Muskegon
                                                                      BALANCE SHEET
                                                                      Governmental Funds
                                                                        June 30, 2010


                                                                                                    Major Street          Other              Total
                                                                                   General         and Trunkline       governmental       governmental
                                                                                    Fund               Fund                funds              funds
     ASSETS
       Cash and investments                                                   $    4,269,650   $            -      $     4,624,184    $     8,893,834
       Receivables
          Accounts and loans                                                         201,136             36,587            723,615            961,338
          Property taxes                                                              70,713                -                  -               70,713
          Income taxes                                                               836,896                -                  -              836,896
          Special assessments                                                            -              712,984            679,720          1,392,704
       Due from other governmental units                                             805,809            440,883          1,116,990          2,363,682
       Due from other funds                                                              -                  -            1,241,916          1,241,916
       Due from component units                                                          -                  -                9,217              9,217
       Prepaid items                                                                 290,969             27,289              6,673            324,931
              Total assets                                                    $    6,475,173   $      1,217,743    $     8,402,315    $    16,095,231

     LIABILITIES AND FUND BALANCES
        Liabilities
           Accounts payable                                                   $      257,029   $         32,547    $       464,916    $       754,492
           Accrued liabilities                                                       119,281              4,674              6,613            130,568
           Due to other governmental units                                            14,109              5,853                -               19,962




36
           Due to other funds                                                            -              102,528          1,040,496          1,143,024
           Deferred revenue                                                           46,300            712,984          1,176,103          1,935,387
              Total liabilities                                                      436,719            858,586          2,688,128          3,983,433

        Fund balances
           Reserved for:
              Prepaid items                                                          290,969             27,289              6,673            324,931
              Long-term loans receivable                                                 -                  -              293,100            293,100
              Capital projects                                                           -                  -            2,253,683          2,253,683
              Perpetual care                                                          10,000                -            1,306,544          1,316,544
           Unreserved
              Designated, reported in
                 General Fund                                                      2,054,605                -                  -            2,054,605
                 Capital projects funds                                                  -                  -              247,439            247,439
              Undesignated, reported in
                 General Fund                                                      3,682,880                -                  -            3,682,880
                 Special revenue funds                                                   -              331,868          1,831,173          2,163,041
                 Capital projects funds                                                  -                  -             (241,404)          (241,404)
                 Permanent funds                                                         -                  -               16,979             16,979
              Total fund balances                                                  6,038,454            359,157          5,714,187         12,111,798
              Total liabilities and fund balances                             $    6,475,173   $      1,217,743    $     8,402,315    $    16,095,231



     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
                                                             June 30, 2010


     Total fund balance—governmental funds                                                                              $   12,111,798

     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                                                                    $   124,291,432
           Accumulated depreciation                                                                      (50,795,949)       73,495,483

        Bond issuance costs are not capitalized and amortized in the governmental funds.
          Bond issuance costs                                                                               160,106
          Accumulated amortization                                                                          (38,956)          121,150

        Other receivables in governmental activities are not reported in the
        governmental funds.                                                                                                   571,300




37
        Accrued interest in governmental activities is not reported in the
        governmental funds.                                                                                                    (59,600)

        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.                                         1,392,704

        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                                                                        (7,495,836)
           Compensated absences                                                                           (1,159,626)       (8,655,462)

        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.                                                         5,719,696
           Net assets of governmental activities in the Statement of Net Assets                                         $   84,697,069



     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 six months ended June 30, 2010


                                                                                                             Major Street          Other              Total
                                                                                          General           and Trunkline       governmental       governmental
                                                                                           Fund                 Fund               funds              funds
     REVENUES
       Taxes                                                                          $   11,855,182    $            -      $           -      $    11,855,182
       Licenses and permits                                                                  584,162                 -                  -              584,162
       Intergovernmental revenues
          Federal                                                                            122,965               9,443            848,127            980,535
          State                                                                            1,839,871           1,280,365            659,723          3,779,959
          Local                                                                               25,000                 -                  -               25,000
       Charges for services                                                                1,206,213               7,961            124,020          1,338,194
       Fines and forfeitures                                                                 296,543                 -                  500            297,043
       Interest and rental income                                                             92,338              44,302             57,233            193,873
       Other                                                                                 118,303              11,211            564,303            693,817
              Total revenues                                                              16,140,577           1,353,282          2,253,906         19,747,765

     EXPENDITURES
       Current
         Public representation services                                                      448,703                 -                  -              448,703
         Administrative services                                                             255,166                 -                  -              255,166
         Financial services                                                                1,241,430                 -                  -            1,241,430
         Public safety                                                                     6,571,096                 -                7,639          6,578,735
         Public works                                                                      1,589,090                 -                  -            1,589,090




38
         Highways, streets and bridges                                                           -             1,166,971            850,168          2,017,139
         Community and economic development                                                  419,534                 -                  -              419,534
         Culture and recreation                                                              636,652                 -                3,200            639,852
         Other governmental functions                                                        200,623                 -                  -              200,623
       Debt service
         Principal                                                                              -                    -              303,466            303,466
         Interest and fees                                                                  109,174                  -               26,839            136,013
       Capital outlay                                                                        13,722                  -            1,732,699          1,746,421
              Total expenditures                                                          11,485,190           1,166,971          2,924,011         15,576,172

     Excess of revenues over (under) expenditures                                          4,655,387            186,311            (670,105)         4,171,593

     OTHER FINANCING SOURCES (USES)
       Proceeds from sale of capital assets                                                      -                   -               75,465             75,465
       Transfers in                                                                            2,188                 -              340,000            342,188
       Transfers out                                                                        (257,783)           (100,000)            (2,188)          (359,971)
              Total other financing sources (uses)                                          (255,595)           (100,000)           413,277             57,682

     Net change in fund balances                                                           4,399,792              86,311           (256,828)         4,229,275

     Fund balances at January 1, 2010                                                      1,638,662            272,846           5,971,015          7,882,523

     Fund balances at June 30, 2010                                                   $    6,038,454    $       359,157     $     5,714,187    $    12,111,798




     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 six months ended June 30, 2010


     Net change in fund balances—total governmental funds                                                                                  $   4,229,275

     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                                                                         $   (2,143,236)
           Capital outlay                                                                                                       980,822        (1,162,414)
        Governmental funds report the entire proceeds from the sale of capital assets as revenue,
        but the Statement of Activities reports only the gain or loss on the sale of the capital assets.                                           (2,488)
        Revenue reported in the Statement of Activities that does not provide current
        financial resources are not reported as revenue in the governmental funds.                                                               (35,000)
        Repayment of principal on long-term debt is an expenditure in the governmental funds, but




39
        the repayment reduces long-term liabilities in the Statement of Net Assets.                                                              302,987
        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.                                                                   1,300
        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.                                                                                                           51,009
        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.                                                          (47,822)
        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.                                                                                                                              418,352
              Change in net assets of governmental activities                                                                              $   3,755,199




     The accompanying notes are an integral part of this statement.
                                                                                        City of Muskegon
                                                                                   STATEMENT OF NET ASSETS
                                                                                        Proprietary Funds
                                                                                          June 30, 2010

                                                                                            ASSETS
                                                                                                                                                                                Governmental
                                                                                                                                                                                 Activities -
                                                                                                           Business-type Activities - Enterprise Funds                            Internal
                                                                                                                                       Marina and                                 Service
                                                                                            Sewer                Water                 Launch Ramp              Total              Funds
     CURRENT ASSETS
       Cash and investments                                                            $    1,585,879      $     2,456,123        $       219,375        $    4,261,377     $      4,316,036
       Accounts receivable                                                                  1,089,868            1,010,843                  4,108             2,104,819              919,963
       Due from other governmental units                                                          -                 64,580                  5,250                69,830                  -
       Inventories                                                                             31,233               97,448                    -                 128,681               28,711
       Prepaid items                                                                           43,388               63,999                  2,492               109,879              767,028
                  Total current assets                                                      2,750,368            3,692,993                231,225             6,674,586            6,031,738
     NONCURRENT ASSETS
       Restricted assets                                                                          -               672,000                      -                672,000                  -
       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                                               19,675,396           62,895,980               2,322,488            84,893,864           1,559,334
         Machinery and equipment                                                               39,722            2,788,156                     -               2,827,878           7,006,260
         Construction in progress                                                             632,904            1,692,890                     -               2,325,794                 -
             Less accumulated depreciation                                                 (7,161,808)         (23,825,376)             (2,232,693)          (33,219,877)         (6,942,259)
                  Net capital assets                                                       13,202,402           43,655,150               2,001,322           58,858,874            1,809,983
         Bond issuance costs, net                                                                 -               134,250                      -                134,250                  -




40
                  Total noncurrent assets                                                  13,202,402           44,461,400               2,001,322           59,665,124            1,809,983
                     Total assets                                                          15,952,770           48,154,393               2,232,547           66,339,710            7,841,721

                                                                                   LIABILITIES AND NET ASSETS
     CURRENT LIABILITIES
       Accounts payable                                                                        1,386                56,288                   9,793               67,467             406,687
       Accrued liabilities                                                                     3,978               110,293                   1,428              115,699              10,480
       Due to other governmental units                                                       302,598                25,475                     -                328,073                 -
       Due to other funds                                                                        -                     -                       -                    -                98,892
       Bonds and other obligations, due within one year                                        9,000             1,214,000                     100            1,223,100              17,300
                  Total current liabilities                                                  316,962             1,406,056                  11,321            1,734,339             533,359

     NONCURRENT LIABILITIES
       Bonds and other obligations, less amounts due within one year                           45,643           16,655,787                     498           16,701,928              83,974
                     Total liabilities                                                       362,605            18,061,843                  11,819           18,436,267             617,333
     NET ASSETS
       Invested in capital assets, net of related debt                                     13,202,402           25,902,015               2,001,322           41,105,739            1,809,983
       Restricted for debt service                                                                -                672,000                     -                672,000                  -
       Unrestricted                                                                         2,387,763            3,518,535                 219,406            6,125,704            5,414,405
                     Total net assets                                                  $   15,590,165      $    30,092,550        $      2,220,728           47,903,443     $      7,224,388
     Adjustment to reflect the consolidation of internal service fund activities
       related to enterprise funds                                                                                                                            1,504,692
     Net assets of business-type activities                                                                                                              $   49,408,135


     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 six months ended June 30, 2010

                                                                                                                                                                       Governmental
                                                                                                                                                                        Activities -
                                                                                                     Business-type Activities - Enterprise Funds                         Internal
                                                                                                                                Marina and                                Service
                                                                                         Sewer              Water               Launch Ramp            Total               Funds
     OPERATING REVENUES
       Charges for services                                                         $    3,407,733    $    2,795,713        $       152,416        $   6,355,862   $      4,254,554
       Other                                                                                34,191            95,456                  4,351              133,998             46,579
                Total operating revenues                                                 3,441,924         2,891,169                156,767            6,489,860          4,301,133

     OPERATING EXPENSES
       Administration                                                                      188,402           259,451                 11,268              459,121            160,176
       Insurance premiums and claims                                                           -                 -                      -                    -            1,884,968
       Wastewater treatment                                                              2,136,938               -                      -              2,136,938                -
       Filtration plant operations                                                             -             666,691                    -                666,691                -
       Water distribution                                                                      -             649,133                    -                649,133                -
       Other operations                                                                        -                 -                   82,446               82,446          1,644,498
       Depreciation and amortization                                                       201,736         1,074,308                 57,099            1,333,143            271,813
                Total operating expenses                                                 2,527,076         2,649,583                150,813            5,327,472          3,961,455




41
                Operating income                                                          914,848            241,586                  5,954            1,162,388            339,678

     NONOPERATING REVENUES (EXPENSES)
       Investment earnings                                                                   1,679            13,566                    745              15,990              20,400
       Gain on sale of capital assets                                                          -                 -                      -                   -                67,112
       Interest expense                                                                        -            (329,306)                   -              (329,306)                -
                Total nonoperating revenue (expenses)                                        1,679          (315,740)                   745            (313,316)             87,512

                Income (loss) before transfers                                            916,527             (74,154)                6,699             849,072             427,190

     Transfers in                                                                              -                  -                   3,760               3,760              14,023
                Change in net assets                                                      916,527             (74,154)               10,459             852,832             441,213

     Net assets at January 1, 2010                                                      14,673,638        30,166,704              2,210,269                               6,783,175

     Net assets at June 30, 2010                                                    $   15,590,165    $   30,092,550        $     2,220,728                        $      7,224,388

     Adjustments to reflect the consolidation of internal service fund activities
       related to enterprise funds                                                                                                                       22,861
     Change in net assets of business-type activities                                                                                              $    875,693


     The accompanying notes are an integral part of this statement.
                                                                                                City of Muskegon
                                                                                      STATEMENT OF CASH FLOWS
                                                                                                Proprietary Funds
                                                                                     For the six months ended June 30, 2010

                                                                                                                                                                                        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                                                                 $     3,514,365      $     2,781,819       $        155,862        $    6,452,046    $         49,456
       Receipts from interfund services provided                                                         6,304               17,869                    -                  24,173           3,993,626
       Payments to suppliers                                                                        (1,926,569)            (772,714)               (53,563)           (2,752,846)         (3,014,539)
       Payments to employees                                                                          (221,909)            (594,368)               (30,592)             (846,869)           (665,819)
       Payments for interfund services used                                                           (245,455)            (317,728)                (6,833)             (570,016)           (520,771)
              Net cash provided by (used for) operating activities                                   1,126,736            1,114,878                 64,874            2,306,488             (158,047)
     CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES
       Transfers in                                                                                        -                       -                 3,760                3,760               14,023
     CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES
       Proceeds from refunding debt                                                                        -              5,995,000                     -              5,995,000                 -
       Premium on refunding debt                                                                           -                188,136                     -                188,136                 -
       Issuance costs of refunding debt                                                                    -               (134,250)                    -               (134,250)                -
       Purchases of capital assets                                                                     (64,016)            (185,979)                    -               (249,995)                -
       Principal paid on capital debt                                                                      -             (6,565,000)                    -             (6,565,000)                -
       Interest paid on capital debt                                                                       -               (271,522)                    -               (271,522)                -
       Proceeds from sale of capital assets                                                                -                    -                       -                    -                67,404
              Net cash provided by (used for) capital and related financing activities                 (64,016)               (973,615)                 -             (1,037,631)             67,404




42
     CASH FLOW FROM INVESTING ACTIVITIES
       Investment earnings                                                                               1,679                 13,566                  745               15,990               20,400
              Net increase (decrease) in cash and investments                                        1,064,399                154,829               69,379            1,288,607              (56,220)
     Cash and investments at January 1, 2010                                                           521,480            2,973,294                149,996            3,644,770            4,372,256
     Cash and investments at June 30, 2010                                                     $     1,585,879      $     3,128,123       $        219,375        $   4,933,377     $      4,316,036
     Reconciliation of cash and investments to the statement of net assets
       Cash and investments                                                                    $     1,585,879      $     2,456,123       $        219,375        $   4,261,377     $      4,316,036
       Restricted cash and investments                                                                     -                672,000                    -                672,000                  -
                                                                                               $     1,585,879      $     3,128,123       $        219,375        $   4,933,377     $      4,316,036
     Reconciliation of operating income to net cash provided by (used for)
       operating activities
          Operating income                                                                     $       914,848      $         241,586     $          5,954        $   1,162,388     $        339,678
          Adjustments to reconcile operating income to net cash provided by
              (used for) operating activities
                  Depreciation and amortization expense                                                201,736            1,074,308                 57,099            1,333,143              271,813
                  Bad debt expense                                                                       6,254                7,960                    -                 14,214                  -
              Change in assets and liabilities
                  Receivables, net                                                                      72,491                 (99,441)                (905)            (27,855)            (347,004)
                  Inventories                                                                           15,386                  (5,259)                 -                10,127               (4,961)
                  Prepaid items                                                                        (32,828)                (49,951)              (1,923)            (84,702)            (569,673)
                  Accounts payable                                                                     (24,187)                (57,086)               3,496             (77,777)              97,426
                  Accrued liabilities                                                                  (26,964)                  2,761                1,153             (23,050)               4,118
                  Due to other funds                                                                       -                       -                    -                   -                 50,556
                     Net cash provided by (used for) operating activities                      $     1,126,736      $     1,114,878       $         64,874        $   2,306,488     $       (158,047)


     The accompanying notes are an integral part of this statement.
                                                         City of Muskegon
                                  STATEMENT OF FIDUCIARY ASSETS AND LIABILITIES
                                                  Fiduciary Funds
                                                   June 30, 2010




                                                                                      Agency
                                                                                       Funds
     ASSETS
       Cash and investments                                                       $    725,123
       Accounts receivable                                                               1,867
              Total assets                                                        $    726,990

     LIABILITIES
       Accounts payable                                                           $     71,071
       Due to other governmental units                                                 396,210




43
       Deposits held for others                                                        259,709
              Total liabilities                                                   $    726,990




     The accompanying notes are an integral part of this statement.
                                                                                   City of Muskegon
                                                                      STATEMENT OF NET ASSETS (DEFICITS)
                                                                         Discretely Presented Component Units
                                                                                     June 30, 2010

                                                                                        ASSETS

                                                                                           Local                                   Tax
                                                                                        Development         Downtown           Increment     Brownfield
                                                                                          Finance           Development          Finance    Redevelopment
                                                                                        Authority III        Authority          Authority     Authority          Total
     CURRENT ASSETS
       Cash and investments                                                         $         36,834    $      329,585     $      37,534    $       -       $     403,953

     NONCURRENT ASSETS
       Capital assets, net
         Nondepreciable                                                                      400,000                -                 -             -             400,000
         Depreciable                                                                       2,661,658                -                 -             -           2,661,658
                  Net capital assets                                                       3,061,658                -                 -             -           3,061,658

        Bond issuance costs, net                                                              95,673                -                 -             -              95,673
                  Total noncurrent assets                                                  3,157,331                -                 -             -           3,157,331




44
                     Total assets                                                          3,194,165           329,585            37,534                -       3,561,284

                                                                      LIABILITIES AND NET ASSETS (DEFICITS)
     CURRENT LIABILITIES
       Accrued liabilities                                                                    32,800             8,800                -             -              41,600
       Due to primary government                                                                 -                 -                  -           9,217             9,217
       Bonds and other obligations, due within one year                                       80,000           240,000                -             -             320,000
                  Total current liabilities                                                  112,800           248,800                -           9,217           370,817

     NONCURRENT LIABILITIES
       Bonds and other obligations, less amounts due
         within one year                                                                   4,400,122          3,005,000               -             -           7,405,122
                     Total liabilities                                                     4,512,922          3,253,800               -           9,217         7,775,939

     NET ASSETS (DEFICITS)
       Invested in capital assets, net of related debt                                    (1,418,464)               -                -              -           (1,418,464)
       Unrestricted                                                                           99,707         (2,924,215)          37,534         (9,217)        (2,796,191)
                     Total net assets (deficits)                                    $     (1,318,757)   $    (2,924,215)   $      37,534    $    (9,217)    $   (4,214,655)



     The accompanying notes are an integral part of this statement.
                                                                                        City of Muskegon
                                                                               STATEMENT OF ACTIVITIES
                                                                             Discretely Presented Component Units
                                                                             For the six months ended June 30, 2010


                                                                                       Program
                                                                                       Revenue                              Net (Expense) Revenue and Changes in Net Assets
                                                                                                             Local                                 Tax
                                                                                     Capital grants       Development        Downtown          Increment      Brownfield
                                                                                          and               Finance          Development         Finance    Redevelopment
     Functions/Programs                                               Expenses       contributions        Authority III       Authority         Authority      Authority           Total
     Local Development Finance Authority III
       Economic development                                     $       89,410   $           -        $        (89,410) $            -      $        -      $        -        $     (89,410)
       Interest on long-term debt                                       98,698            50,000               (48,698)              -               -               -              (48,698)
           Total Local Development Finance Authority III               188,108            50,000              (138,108)              -               -               -             (138,108)

     Downtown Development Authority
       Interest on long-term debt                                       57,726                -                    -             (57,726)            -               -              (57,726)

     Tax Increment Finance Authority
       Economic development                                             25,000                -                    -                 -           (25,000)            -              (25,000)

     Brownfield Redevelopment Authority




45
        Economic development                                            14,920                -                    -                 -               -           (14,920)           (14,920)
           Total discretely presented component units           $      285,754   $        50,000              (138,108)          (57,726)        (25,000)        (14,920)          (235,754)

     General revenues
       Property taxes                                                                                           71,360           327,373          40,634          15,917            455,284
       Unrestricted investment income                                                                              133             1,212             111             -                1,456
           Total general revenues                                                                               71,493           328,585          40,745          15,917            456,740

                  Change in net assets                                                                         (66,615)          270,859          15,745             997            220,986

     Net assets (deficits) at January 1, 2010                                                               (1,252,142)       (3,195,074)         21,789         (10,214)         (4,435,641)

     Net assets (deficits) at June 30, 2010                                                           $     (1,318,757) $     (2,924,215) $       37,534    $      (9,217) $      (4,214,655)




     The accompanying notes are an integral part of this statement.
                                             City of Muskegon
                                NOTES TO FINANCIAL STATEMENTS
                                           June 30, 2010


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.

  Effective January 1, 2010, the City changed its fiscal year end from December 31 to June 30.

  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 June 30 fiscal
  year end.

  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.




                                                      46
                                              City of Muskegon
                                 NOTES TO FINANCIAL STATEMENTS
                                            June 30, 2010


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 June 30, 2010, 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, 2009, the date
  of its latest audited financial statements is as follows:

      Total assets                                                                     $    5,850,136
      Total liabilities                                                                      (202,226)
      Total net assets                                                                 $    5,647,910

      Total operating income                                                           $    1,982,819
      Total operating expenses                                                             (2,025,888)
      Total nonoperating revenues                                                              52,921
      Capital contributions                                                                   452,531
      Change in net assets                                                             $      462,383




                                                       47
                                              City of Muskegon
                                 NOTES TO FINANCIAL STATEMENTS
                                            June 30, 2010


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.




                                                       48
                                             City of Muskegon
                                NOTES TO FINANCIAL STATEMENTS
                                           June 30, 2010


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.




                                                      49
                                              City of Muskegon
                                  NOTES TO FINANCIAL STATEMENTS
                                             June 30, 2010


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.




                                                        50
                                               City of Muskegon
                                  NOTES TO FINANCIAL STATEMENTS
                                             June 30, 2010


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. The City recognizes all available revenue from the current tax levy.
  Available means collected within the current period or expected to be collected soon enough thereafter to be
  used to pay liabilities of the current period (60 days).

  The 2009 state taxable value for real/personal property of the City totaled approximately $728,408,000 of
  which approximately $11,634,000 was captured by the component units. The ad valorem taxes levied
  consisted of 8.9, 2.1, and .068 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, DDA, and BRA component units.

  Inventories and Prepaid Items
  All inventories are valued at cost using the first-in/first-out (FIFO) method. Inventories of business-type
  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.




                                                         51
                                               City of Muskegon
                                  NOTES TO FINANCIAL STATEMENTS
                                             June 30, 2010


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




                                                        52
                                             City of Muskegon
                                 NOTES TO FINANCIAL STATEMENTS
                                            June 30, 2010


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 2009 financial statements have been reclassified to conform to
  the 2010 presentation.




                                                       53
                                            City of Muskegon
                                NOTES TO FINANCIAL STATEMENTS
                                           June 30, 2010


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. On or before the second regular City Commission meeting in May, the City Manager
         submits to the City Commission a proposed operating budget for the fiscal year
         commencing the following July 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. Not later than the last regular City Commission meeting in June, 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 six months ended June 30, 2010, actual expenditures exceeded appropriations for the street
  lighting department by $38,615 in the General Fund. These over-expenditures were funded with available
  fund balance.

  Fund Deficits
  As of June 30, 2010, the BRA Fund had an unreserved fund deficit of $9,217, the Engineering Services Fund
  had an unreserved fund deficit of $102,318, and the HOME Fund had an unreserved fund deficit of $241,404.
  The deficits will be eliminated through future operations.




                                                     54
                                               City of Muskegon
                                 NOTES TO FINANCIAL STATEMENTS
                                            June 30, 2010


NOTE C—DEPOSITS AND INVESTMENTS

  As of June 30, 2010, the City had the following investments:

                                                                    Weighted
                                                                     average
                                                                     maturity
                                                    Fair value      (Months)        Moody's        Percent
      Investment Type
      Money market funds                        $    1,656,521            1.5        AAA              22.8 %
      US Agency obligations                          4,595,931          107.2        AAA              63.3
      US Treasury notes                              1,004,450            3.0       not rated         13.9
            Total fair value                    $    7,256,902                                       100.0 %
         Portfolio weighted average maturity                             68.6

  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 Mortgage Corporation, the Federal National Mortgage
  Association and the Federal Home Loan Bank. These investments are 10.41 percent, 25.23 percent and 27.69
  percent, respectively, of the City’s investments.




                                                       55
                                                   City of Muskegon
                                   NOTES TO FINANCIAL STATEMENTS
                                              June 30, 2010


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 June 30, 2010, the City's bank balance of $13,364,343 was not
  exposed to custodial credit risk because it was fully insured. Effective July 1, 2010, the unlimited deposit
  insurance program that the City was part of expired leaving $13,114,343 of the City’s bank balance of
  $13,364,343 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 June 30, 2010, restricted
  cash and investments in the Water Fund of $672,000 were restricted by bond ordinance.


NOTE D—CAPITAL ASSETS

  Capital asset activity for the six months ended June 30, 2010 was as follows:

                                                           Balance                                      Balance
                                                          January 1,                                    June 30,
                                                            2010         Additions    Deductions          2010
  Governmental activities:
    Capital assets, not being depreciated:
       Land                                          $    12,424,174 $        -   $          -     $    12,424,174
       Construction in progress                            6,231,059      473,484            -           6,704,543
     Total capital assets, not being depreciated          18,655,233      473,484            -          19,128,717

     Capital assets, being depreciated:
       Land improvements                                   4,118,319          -             -            4,118,319
       Leasehold improvements                                343,614          -             -              343,614
       Buildings and improvements                         21,078,437       13,722           -           21,092,159
       Furniture, vehicles and equipment                  11,842,600      493,616       433,465         11,902,751
       Infrastructure                                     70,890,542          -           9,329         70,881,213
       Shared improvements                                 5,576,901          -             -            5,576,901
     Total capital assets, being depreciated             113,850,413      507,338       442,794        113,914,957




                                                            56
                                                   City of Muskegon
                                   NOTES TO FINANCIAL STATEMENTS
                                              June 30, 2010


NOTE D—CAPITAL ASSETS—Continued

                                                         Balance                                        Balance
                                                        January 1,                                      June 30,
                                                          2010         Additions       Deductions         2010
   Governmental activities—Continued
     Less accumulated depreciation:
        Land improvements                           $      657,144 $      68,817 $           -      $      725,961
        Leasehold improvements                             135,981        16,011             -             151,992
        Buildings and improvements                      13,345,141       220,814             -          13,565,955
        Furniture, vehicles and equipment                9,484,710       295,874         433,173         9,347,411
        Infrastructure                                  30,226,039     1,670,296           6,841        31,889,494
        Shared improvements                              1,917,973       139,422             -           2,057,395
     Total accumulated depreciation                     55,766,988     2,411,234         440,014        57,738,208
     Total capital assets, being
        depreciated, net                                58,083,425     (1,903,896)          2,780       56,176,749
     Capital assets, net                            $ 76,738,658 $     (1,430,412) $        2,780   $   75,305,466

   Business-type activities:
     Capital assets, not being depreciated:
        Land                                        $      142,250 $         -   $           -      $      142,250
        Construction in progress                         2,445,555       249,995         369,756         2,325,794
     Total capital assets, not being depreciated         2,587,805       249,995         369,756         2,468,044

     Capital assets, being depreciated:
       Land improvements                                 1,888,965           -                -          1,888,965
       Buildings and systems                            84,524,108       369,756              -         84,893,864
       Machinery and equipment                           2,827,878           -                -          2,827,878
     Total capital assets, being depreciated            89,240,951       369,756              -         89,610,707

     Less accumulated depreciation:
        Land improvements                                1,665,428        10,612              -          1,676,040
        Buildings and systems                           29,280,614     1,132,238              -         30,412,852
        Machinery and equipment                            970,825       160,160              -          1,130,985
     Total accumulated depreciation                     31,916,867     1,303,010              -         33,219,877
     Total capital assets, being
        depreciated, net                                57,324,084      (933,254)             -         56,390,830
     Capital assets, net                            $ 59,911,889 $      (683,259) $      369,756    $   58,858,874




                                                           57
                                                City of Muskegon
                                   NOTES TO FINANCIAL STATEMENTS
                                              June 30, 2010


NOTE D—CAPITAL ASSETS—Continued

  Depreciation
  Depreciation expense was charged to functions as follows:

   Governmental activities:
     Administrative services                                                                         $      26,227
     Public safety                                                                                          53,268
     Public works                                                                                           37,725
     Highways, streets and bridges                                                                       1,850,168
      Community and economic development                                                                    37,859
      Culture and recreation                                                                               124,681
      General administration                                                                                 9,493
      Internal Service Fund depreciation is charged to the
        various programs based on their usage of the assets                                                271,813

                                                                                                     $   2,411,234
   Business-type activities:
      Water                                                                                          $   1,044,175
      Sewer                                                                                                201,736
      Marina and Launch Ramp                                                                                57,099

                                                                                                     $   1,303,010


                                                     Balance                                             Balance
                                                    January 1,                                           June 30,
                                                      2010             Additions        Deductions         2010
   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                    1,050,276           86,324                -         1,136,600

     Total capital assets, being
       depreciated, net                              2,747,982           (86,324)              -         2,661,658

     Capital assets, net                        $    3,147,982     $     (86,324) $            -     $   3,061,658

  Depreciation
  Depreciation expense was charged to economic development.




                                                              58
                                                   City of Muskegon
                                    NOTES TO FINANCIAL STATEMENTS
                                               June 30, 2010


NOTE E—BOND ISSUANCE COSTS

  Bond issuance cost activity for the six months ended June 30, 2010 was as follows:

                                                    Balance                                                  Balance
                                                   January 1,                                                June 30,
                                                     2010              Additions        Deductions             2010
     Governmental activities:
       Bond issuance costs                     $     160,106       $        -       $          -     $         160,106
       Less accumulated amortization                  35,141              3,815                -                38,956

     Bond issuance costs, net                  $     124,965       $      (3,815)   $          -     $         121,150

     Business-type activities:
       Bond issuance costs                     $     270,814       $    134,250     $     270,814    $         134,250
       Less accumulated amortization                 211,662             59,152           270,814                  -

     Bond issuance costs, net                  $      59,152       $     75,098     $          -     $         134,250

  Amortization
  Amortization expense was charged to functions as follows:

     Governmental Activities:
       Interest on long-term debt                                                                    $           3,815

     Business-type Activities:
       Water                                                                                         $          59,152



NOTE F—INTERFUND RECEIVABLES, PAYABLES AND TRANSFERS

  The composition of interfund balances as of June 30, 2010 is as follows:

    Due to/from other funds:
       Receivable Fund                             Payable Fund                                                Amount

       Budget Stabilization Fund                   Major Street and Trunkline Fund                       $       102,528
       Budget Stabilization Fund                   Neighborhood Stabilization Fund                               312,895
       Budget Stabilization Fund                   Lead Abatement Fund                                            32,306
       Budget Stabilization Fund                   Community Development Block Grant Fund                        378,292
       Budget Stabilization Fund                   HOME Rehabilitation Fund                                      297,901
       Budget Stabilization Fund                   Engineering Services Fund                                      98,892
       Lead Abatement Fund                         HOME Rehabilitation Fund                                       19,102
                                                                                                         $     1,241,916




                                                              59
                                             City of Muskegon
                                NOTES TO FINANCIAL STATEMENTS
                                           June 30, 2010


NOTE F—INTERFUND RECEIVABLES, PAYABLES AND TRANSFERS—Continued

  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 $9,217 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                      $       2,188      Nonmajor Governmental Funds
                                                              Cemetery Fund                   $      2,188

       Marina and Launch Ramp                    3,760      General Fund                             3,760

       Nonmajor Governmental Funds                          General Fund                           240,000
          Local Street Fund                    340,000      Major Street and Trunkline Fund        100,000

                                               340,000                                             340,000

       Internal Service Fund                                General Fund                            14,023
           General Insurance Fund               14,023

                                         $     359,971                                        $    359,971


  The General Fund and Major Street and Trunkline Fund transferred funds to the Local Street Fund to finance
  capital improvements. Other transfers between funds are made to meet grant matching requirements or other
  operational needs.




                                                       60
                                             City of Muskegon
                                  NOTES TO FINANCIAL STATEMENTS
                                             June 30, 2010


NOTE G—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 period, the various components of deferred revenue reported in the governmental funds were as follows:

                                                                             Unavailable         Unearned
      Receivables                                                        $       61,300     $     481,383
      Special assessments                                                     1,392,704               -
               Total deferred revenue for governmental funds             $    1,454,004     $     481,383


NOTE H—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 six months ended June 30,
  2010.

                                       Balance                                       Balance
                                      January 1,                                     June 30,      Due within
                                        2010         Additions       Reductions        2010         one year
  Governmental activities:
    General obligation debt      $ 5,290,324 $             -     $        (479) $    5,290,803 $      70,000
    Intergovernmental
       contractual obligations     1,120,000               -           54,572        1,065,428        65,600
    Special assessment obligations   995,000               -          190,000          805,000       120,000
    Installment purchase
       agreement                     393,499              -            58,894          334,605        61,400
    Compensated absences           1,304,331          626,362         669,793        1,260,900       210,300
        Governmental activity
          long-term liabilities    $ 9,103,154 $      626,362 $       972,780 $      8,756,736 $     527,300




                                                      61
                                         City of Muskegon
                              NOTES TO FINANCIAL STATEMENTS
                                         June 30, 2010


NOTE H—LONG-TERM DEBT—Continued

  Summary of Changes in Long-Term Liabilities—Continued

                                 Balance                                        Balance
                                January 1,                                      June 30,       Due within
                                  2010          Additions       Reductions        2010          one year
  Business-type activities:
    Revenue obligations       $ 18,094,535 $    6,183,136 $      6,524,535 $ 17,753,136 $      1,195,000
    Compensated absences           193,196         51,964           73,268      171,892           28,100

       Business-type activity
         long-term liabilities$ 18,287,731 $    6,235,100 $      6,597,803 $ 17,925,028 $      1,223,100

  Component units:
    Revenue obligations     $    1,000,000 $           -    $           -   $   1,000,000 $          -
    General obligation debt      6,954,848             -            229,726     6,725,122        320,000

       Component unit long-
         term liabilities   $    7,954,848 $           -    $       229,726 $   7,725,122 $      320,000

  Governmental activities:
    General obligation debt:
      $5,400,000 Limited Tax General Obligation Bonds of
         2006 payable in annual installments of $70,000 to
         $350,000 through October 2032; interest at 4% to 4.2%                             $   5,305,000

       Less bond discount                                                                        (14,197)

    Intergovernmental contractual obligations:
       $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 2015                                             620,000

       $500,000 State of Michigan Brownfield Redevelopment loan
         of 2008 payable in annual installments of $54,572 through
         March 2019; including interest at 2%                                                    445,428




                                                  62
                                          City of Muskegon
                              NOTES TO FINANCIAL STATEMENTS
                                         June 30, 2010


NOTE H—LONG-TERM DEBT—Continued

  Summary of Changes in Long-Term Liabilities—Continued
  Governmental activities:—Continued
    Special assessment obligations:
      $1,575,000 Capital improvement bonds of 2003 payable
         in annual installments of $120,000 to $150,000
         through June 2016; interest at 3.5% to 4.05%              $     805,000

    Installment purchase agreement:
       $605,824 Note payable to bank in annual installments of
          $61,420 to $72,658 through April 2015; interest at
          3.83%                                                           334,605
                                                                        7,495,836
    Compensated absences                                                1,260,900
                                                                   $    8,756,736
  Business-type activities:
    Revenue obligations:
       $5,995,000 Water supply system refunding bonds of 2010
          payable in annual installments of $580,000 to $770,000
          through May 2019; interest at 2.00% to 4.25%             $    5,995,000

       Add bond premium                                                  188,136

       $13,900,000 Drinking Water State Revolving Fund loan
         of 2004 payable in annual installments of $615,000 to
         $840,000 through October 2025; interest at 2.13%              11,570,000
                                                                       17,753,136
       Compensated absences                                               171,892
                                                                   $   17,925,028




                                                   63
                                             City of Muskegon
                                 NOTES TO FINANCIAL STATEMENTS
                                            June 30, 2010


NOTE H—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 2019                                                              $ 1,000,000

      General obligation debt:
        $4,005,000 Downtown Development Authority tax
           increment refunding bonds of 2001 payable in annual
           installments of $240,000 to $335,000 through June
           2018; interest at 4.35% to 5%                                                      2,245,000

         $4,725,000 Local Development Finance Authority
            tax increment bonds of 2002 payable in annual
            installments of $80,000 to $400,000 through
            November 2025; interest at 3.88% to 4.85%                                         4,485,000

         Less bond discount                                                                       (4,878)
                                                                                           $ 7,725,122

  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.

  On April 1, 2010, the City issued $5,995,000 of Water Supply System Refunding Bonds of 2010 to advance
  refund the outstanding balance of the Water Supply System Bonds of 1993 and 1999. The proceeds from the
  refunding bonds were used to purchase U.S. government securities. Those securities were deposited in an
  irrevocable trust with an escrow agent to provide for principal redemption and interest on the Water Supply
  System Bonds of 1993 and 1999 through May 2019. As a result, the Water Supply System Bonds of 1993
  and 1999 are considered to be defeased and the liability for those bonds has been removed from long-term
  obligations.

  The City refunded the Water Supply System Revenue Bonds of 1993 and 1999 to reduce its total debt service
  payments over the next 10 years by $389,669 and to obtain an economic gain (difference between the present
  values of the debt service payments on the old and new debt) of approximately $334,200.

  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 June 30, 2010 was approximately $5,050,000. The City is unaware of any
  circumstances that would cause a shortfall in the near future.




                                                       64
                                              City of Muskegon
                                 NOTES TO FINANCIAL STATEMENTS
                                            June 30, 2010


NOTE H—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 June 30, 2010.

  Annual debt service requirements to maturity for debt outstanding as of June 30, 2010 follows:

    Year ending           Governmental activites            Business-type activities           Component units
     June 30,             Principal     Interest            Principal       Interest       Principal     Interest
       2011           $     317,083 $      266,574 $        1,195,000 $   451,323 $   320,000 $             301,376
       2012                 425,632        256,308          1,230,000     410,188     325,000               287,835
       2013                 434,311        245,499          1,250,000     384,694     440,000               271,783
       2014                 443,127        234,250          1,295,000     352,635     510,000               251,673
       2015                 457,085        222,548          1,330,000     320,857     585,000               228,261
     2016-2020            1,052,795        983,793          6,465,000   1,001,075   3,740,000               725,384
     2021-2025            1,595,000        735,225          3,960,000     303,133   1,495,000               245,571
     2026-2030            1,735,000        398,263            840,000       8,925     315,000                 7,639
     2031-2033            1,050,000         66,150                -           -           -                     -
                      $ 7,510,033 $ 3,408,610 $ 17,565,000 $ 3,232,830 $ 7,730,000 $ 2,319,522

  Annual debt service requirements to maturity by type of debt as of June 30, 2010 follows:

                                    General Obligation Debt                     Revenue Obligations
        Year ending              Governmental      Component              Business-type     Component
         June 30,                  activities         units                 activities          units

           2011              $        283,945 $          621,376      $      1,646,323 $             -
           2012                       281,145            612,835             1,640,188               -
           2013                       278,345            711,783             1,634,694               -
           2014                       275,545            761,673             1,647,635               -
           2015                       272,745            813,261             1,650,857               -
         2016-2020                  1,542,225          3,465,384             7,466,075         1,000,000
         2021-2025                  2,330,225          1,740,571             4,263,133               -
         2026-2030                  2,133,263            322,639               848,925               -
         2031-2033                  1,116,150                -                     -                 -

                             $      8,513,588 $        9,049,522      $    20,797,830 $        1,000,000




                                                       65
                                            City of Muskegon
                                NOTES TO FINANCIAL STATEMENTS
                                           June 30, 2010


NOTE H—LONG-TERM DEBT—Continued

                                                                 Installment
                                                                  Purchase                        Special
                                      Intergovernmental          Agreement                      Assessment
        Year ending                     Governmental            Governmental                   Governmental
         June 30,                          activities             activities                     activities
          2011                    $            74,572       $           74,235             $         150,905
          2012                                174,572                   74,518                       151,705
          2013                                174,572                   74,813                       152,080
          2014                                174,572                   75,120                       152,140
          2015                                174,572                   75,441                       156,875
        2016-2020                             338,288                      -                         156,075
        2021-2025                                 -                        -                             -
        2026-2030                                 -                        -                             -
        2031-2033                                 -                        -                             -
                                  $          1,111,148      $         374,127              $         919,780



NOTE I—DESIGNATED FUND BALANCE

  Unreserved fund balances designated for specific purposes as of June 30, 2010 were as follows:

     General Fund
       Designated for contribution to MERS                                         $           1,000,000
       Designated for early retirement of Urban Land Assembly loan                               620,000
       Designated for early retirement of installment purchase agreement                         334,605
       Designated for transfer to Sidewalk Fund                                                  100,000
                                                                                               2,054,605

     Public Improvement Fund
        Designated for fire equipment replacement                                               211,631
        Designated for Pere Marquette Park improvements                                          35,808
                                                                                                247,439
                                                                                       $       2,302,044




                                                     66
                                                City of Muskegon
                                NOTES TO FINANCIAL STATEMENTS
                                           June 30, 2010


NOTE J—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 $150,000 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 2010 and 2009 were as
  follows:

                                                                  Current year
                                              Balance              claims and                            Balance
                                           at beginning            changes in              Claims         at end
           Year ended                         of year               estimates             payments       of year
       June 30, 2010*                  $      186,566         $        73,015        $      81,029   $    178,552
      December 31, 2010                       180,353                 138,790              132,577        186,566
    * Six month fiscal period

  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 June 30, 2010, the claims liability including incurred but
  not reported claims was $7,040. 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 2010 and 2009
  were as follows:

                                                              Current year
                                          Balance              claims and                                Balance
                                       at beginning            changes in             Claims              at end
           Year ended                     of year               estimates            payments            of year
       June 30, 2010*              $          50,267      $         410,382      $         453,609   $     7,040
      December 31, 2010                       18,875              1,165,505              1,134,113        50,267
    * Six month fiscal period




                                                          67
                                              City of Muskegon
                                 NOTES TO FINANCIAL STATEMENTS
                                            June 30, 2010


NOTE J—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.

  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 $20,879 for the six months ended June 30, 2010. The future minimum rental
  income for this lease is as follows:

              Year ending
               June 30,                                                                Amount

                 2011                                                              $     34,227
                 2012                                                                    33,889

                                                                                   $     68,116


NOTE K—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 5.37 to 18.25 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.




                                                       68
                                              City of Muskegon
                                   NOTES TO FINANCIAL STATEMENTS
                                              June 30, 2010


NOTE K—PENSION PLANS—Continued

  Defined Benefit Pension Plan—Continued
  Annual Pension Cost. For the six months ended June 30, 2010, the City’s annual pension cost was
  approximately $605,000 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
   December 31, 2008           $       1,167,000                       100 %            $            -
   December 31, 2009                     888,000                       100                           -
    June 30, 2010*                       605,000                       100                           -
   * Six month fiscal period


  The required contribution was determined as part of the December 31, 2008 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 8.4
  percent, and (c) 2 percent to 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 a closed basis. The
  remaining amortization period at December 31, 2009 was 7 years which will be reduced by two years in
  the next valuation until reaching 5 years after which the 5 year period will be reestablished with each
  annual actuarial valuation.

  Funding Status and Funding Progress. As of December 31, 2009, the most recent actuarial valuation
  date, the plan was 99 percent funded. The actuarial accrued liability for benefits was approximately
  $87,395,000, and the actuarial value of assets was approximately $86,682,000, resulting in an unfunded
  actuarial accrued liability (UAAL) of approximately $713,000. The covered payroll (annual payroll of
  active employees covered by the plan) was approximately $12,614,000, and the ratio of the UAAL to the
  covered payroll was 6 percent.

  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.




                                                      69
                                              City of Muskegon
                                 NOTES TO FINANCIAL STATEMENTS
                                            June 30, 2010


NOTE K—PENSION PLANS—Continued

  Defined Contribution Pension Plan
  The City also maintains a defined contribution plan offered by MERS and administered by the ICMA
  Retirement Corporation, 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 authority for establishing or amending the plan’s provisions
  and for establishing or amending contribution requirements rests with the City Commission as determined
  by negotiated labor contracts. 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 six months ended June 30, 2010, City and employee contributions were approximately $57,000 and
  $32,000, 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).


NOTE L—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 3.4 to 12.5 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.




                                                       70
                                              City of Muskegon
                                 NOTES TO FINANCIAL STATEMENTS
                                            June 30, 2010


NOTE L—OTHER POST-EMPLOYMENT BENEFITS—Continued

  Annual OPEB Cost. For the six months ended June 30, 2010, the City’s OPEB cost (expense) of
  approximately $530,000 was equal to the City’s ARC and actual contribution.

                                               Trend Information


                                        Approximate
                                       Annual Required             Percentage
                                        Contribution                of ARC                     Net ARC
        Period ended                       (ARC)                   Contributed                 Obligation
   December 31, 2008               $        1,476,000                      100 %           $            -
   December 31, 2009                        1,698,000                      100                          -
    June 30, 2010*                            530,000                      100                          -
   * Six month fiscal period

  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, 2009 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 9 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,
  2009 is 28 years.
  Funded Status and Progress. As of December 31, 2009, the most recent actuarial valuation date, the plan was
  55.2 percent funded. The actuarial accrued liability for benefits was approximately $24,024,000, and the
  actuarial value of assets was approximately $13,260,000, resulting in an unfunded actuarial liability (UAAL)
  of approximately $10,764,000. The covered payroll (annual payroll of active employees covered by the plan)
  was approximately $13,293,000, and the ratio of the UAAL to the covered payroll was 81 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 M—SUBSEQUENT EVENTS

  Subsequent to year-end, the City approved contracts for parking lot improvements, vehicle purchases and
  improvements to the Arena Annex for approximately $59,000, $268,000 and $56,000, respectively.




                                                         71
72
REQUIRED SUPPLEMENTARY INFORMATION




                73
                                                                                      City of Muskegon
                                                                        BUDGETARY COMPARISON SCHEDULE
                                                                                          General Fund
                                                                             For the six months ended June 30, 2010
                                                             (with comparative actual amounts for the year ended December 31, 2009)


                                                                                                                         2010                                            2009
                                                                                                                                                   Variance with
                                                                                                                                                   final budget-
                                                                                             Budgeted amounts                                         positive
                                                                                       Original             Final                Actual              (negative)         Actual
     REVENUES
       Taxes
         City income tax                                                          $    6,200,000       $     3,000,000      $    3,368,057     $       368,057     $    6,482,290
         Property taxes                                                                8,034,944             7,900,000           7,927,575              27,575          7,882,325
          Industrial facilities taxes                                                    183,072               186,322             468,369             282,047            216,962
          Payments in lieu of taxes                                                       91,000                91,000              91,181                 181             91,435
          Delinquent chargeback collected                                                  5,000                 5,000                 -                (5,000)               -
                  Total taxes                                                         14,514,016           11,182,322           11,855,182             672,860         14,673,012

       Licenses and permits
          Business licenses                                                               32,500               32,500              25,934                (6,566)          31,573




74
          Liquor licenses                                                                 59,000               18,000              22,739                 4,739           54,235
          Cable TV fees                                                                  310,000              155,000             178,239                23,239          321,852
          Rental property registration                                                   100,000               15,000              47,367                32,367          112,110
          Burial permits                                                                 110,000               55,000              39,624               (15,376)         105,616
          Building permits                                                               225,000              150,000             135,155               (14,845)         232,797
          Electrical permits                                                              85,000               40,000              43,576                 3,576           73,940
          Plumbing permits                                                                35,000               20,000              20,254                   254           28,966
          Mechanical permits                                                              50,000               30,000              26,204                (3,796)          45,452
          Cat licenses                                                                       -                    -                   -                     -              2,390
          Vacant building fees                                                            25,000               27,000              45,070                18,070           23,750
                  Total licenses and permits                                           1,031,500              542,500             584,162                41,662         1,032,681

       Intergovernmental revenues
          Federal grants                                                                  40,000                91,465            122,965                31,500           64,613

          State
             Grants                                                                       28,000                   -                 7,805                7,805            16,363
             State shared revenue                                                      4,071,393             1,760,021           1,832,066               72,045         3,841,922
                  Total intergovernmental revenues - State                             4,099,393             1,760,021           1,839,871               79,850         3,858,285

          Local                                                                           50,000                25,000                25,000                -             60,347
                                                                              City of Muskegon
                                                                BUDGETARY COMPARISON SCHEDULE
                                                                                  General Fund
                                                                     For the six months ended June 30, 2010
                                                     (with comparative actual amounts for the year ended December 31, 2009)


                                                                                                                 2010                                         2009
                                                                                                                                         Variance with
                                                                                                                                         final budget-
                                                                                     Budgeted amounts                                       positive
                                                                               Original             Final                Actual            (negative)        Actual
     Charges for services
       Tax administration fees                                            $      306,400       $      192,744       $     194,131    $          1,387    $     301,784
       Utility administration fees                                               225,000              112,500             110,000              (2,500)         200,000
       Reimbursement for elections                                                   -                    -                    79                  79           14,409
       Indirect cost reimbursements                                            1,171,979              585,990             582,084              (3,906)       1,140,720
       Site plan review fee                                                        4,000                1,000               1,500                 500            3,400
       Sale of cemetery lots                                                      27,400               12,000              12,914                 914           24,895
       Police miscellaneous                                                       80,000               53,000              31,375             (21,625)          82,882
       Police impound fees                                                        40,000               20,000              23,300               3,300           43,629
       Landlord's alert fee                                                          300                  150                 155                   5              175
       Fire protection-state property                                             99,000                  -                35,212              35,212          110,079
       Zoning fees                                                                 8,000                4,000               3,290                (710)           5,697




75
       Clerk fees                                                                  3,500                1,500                 197              (1,303)           1,098
       Clerk fees - passport fees                                                  5,000                3,000               3,555                 555            3,827
       Tax abatement application fees                                             10,000                  -                   -                   -              2,211
       Treasurer fees                                                             60,000               25,000              62,523              37,523           61,033
       False alarm fees                                                           10,000                4,000               6,125               2,125           10,500
       Miscellaneous cemetery income                                              22,000               11,000               6,571              (4,429)          18,108
       Senior transit program fees                                                 9,000                4,500               5,082                 582            9,572
       Fire miscellaneous                                                          3,000                1,000                 560                (440)           1,889
       Sanitation stickers                                                        80,000               40,000              38,809              (1,191)          83,254
       Lot cleanup fees                                                           70,000               25,000              18,349              (6,651)          42,244
       Reimbursements - lot mowing and demolitions                                70,000               25,000              20,102              (4,898)          59,447
       Special events reimbursements                                             100,000               25,000              30,546               5,546          164,966
       Recreation program fees                                                    45,000               20,000              19,754                (246)          50,642
             Total charges for services                                        2,449,579             1,166,384           1,206,213             39,829        2,436,461
                                                                             City of Muskegon
                                                               BUDGETARY COMPARISON SCHEDULE
                                                                                 General Fund
                                                                    For the six months ended June 30, 2010
                                                    (with comparative actual amounts for the year ended December 31, 2009)


                                                                                                                2010                                             2009
                                                                                                                                           Variance with
                                                                                                                                           final budget-
                                                                                    Budgeted amounts                                          positive
                                                                              Original             Final                Actual               (negative)         Actual
     Fines and forfeitures
        Income tax - penalty and interest                                $      225,000       $       90,000       $     109,441       $         19,441    $     219,490
        Late fees on current taxes                                               40,000               30,000              42,766                 12,766           36,585
        Interest on late invoices                                                 2,000                1,000                 247                   (753)           1,717
        Parking fines                                                           100,000               50,000              71,160                 21,160          111,022
        Court fines                                                             170,000               75,000              72,929                 (2,071)         154,801
              Total fines and forfeitures                                       537,000              246,000             296,543                 50,543          523,615

     Interest and rental income
        Investment earnings                                                      84,000               15,000                 (2,349)            (17,349)          47,181
        Flea market                                                              29,000               10,000                 11,346               1,346           27,262




76
        Farmers' market                                                          35,000               12,000                 18,484               6,484           41,629
        City right of way rental                                                  6,800                6,800                  6,800                 -              6,881
        Fire station lease - Central Dispatch                                    42,000               21,000                 20,879                (121)          44,166
        Parking rentals                                                             -                    -                      -                   -              1,400
        Great Lakes Naval Memorial lease                                         15,000                7,500                    -                (7,500)           4,958
        McGraft park rentals                                                     45,000               10,000                 13,844               3,844           61,585
        Other park rentals                                                       30,000               21,200                 23,334               2,134           35,330
              Total interest and rental income                                  286,800              103,500                 92,338             (11,162)         270,392
     Other
        Sale of land and assets                                                   1,000                 1,000                   500                (500)             -
        Police sale and auction proceeds                                            -                     -                   1,823               1,823              503
        CDBG program reimbursements                                             335,000                50,000                48,030              (1,970)         386,164
        Fisherman's Landing reimbursement                                        14,500                   -                     -                   -                -
        Sanitation reimbursements                                                   -                  43,030                43,030                 -                -
        Contributions                                                            14,000                11,000                19,740               8,740           21,561
        Contribution - Veteran's Park maintenance                                18,500                   -                     -                   -             15,757
        Community Foundation for Muskegon County                                  1,500                   500                 2,394               1,894            7,920
        Miscellaneous reimbursements                                              1,000                   500                   -                  (500)             -
        Miscellaneous and sundry                                                 25,000                10,000                 2,786              (7,214)         120,940
               Total other                                                      410,500              116,030             118,303                  2,273          552,845
               Total revenues                                                23,418,788           15,233,222           16,140,577              907,355         23,472,251
                                                                                 City of Muskegon
                                                                   BUDGETARY COMPARISON SCHEDULE
                                                                                     General Fund
                                                                        For the six months ended June 30, 2010
                                                        (with comparative actual amounts for the year ended December 31, 2009)


                                                                                                                    2010                                          2009
                                                                                                                                            Variance with
                                                                                                                                            final budget-
                                                                                        Budgeted amounts                                       positive
                                                                                  Original             Final                Actual            (negative)         Actual
     EXPENDITURES
       Current
         Public representation services
             City commission                                                 $       86,213   $           46,467       $      44,724    $          1,743    $      84,426
             City promotions and public relations                                    11,350                5,200               3,044               2,156           11,107
             City manager                                                           265,114              146,450             142,878               3,572          266,023
             Contributions to outside agencies                                      155,824               99,695              98,026               1,669          213,481
             City attorney                                                          352,508              177,254             160,031              17,223          348,886
                 Total public representation services                               871,009              475,066             448,703              26,363          923,923
           Administrative services
             City clerk                                                             303,793              169,540             123,748              45,792          275,738




77
             Civil service                                                          189,807              105,750              91,460              14,290          190,104
             Julia Hackley internships                                                  -                    -                   -                   -              2,861
             Affirmative action                                                      82,728               45,714              39,958               5,756           81,130
                 Total administrative services                                      576,328              321,004             255,166              65,838          549,833

           Financial services
              Finance administration                                                436,494              233,805             233,852                 (47)         451,766
              Assessing                                                             465,665              232,833             240,136              (7,303)         467,854
              Arena administration                                                  235,000              105,000             101,867               3,133          254,262
              Income tax administration                                             419,527              235,050             217,821              17,229          405,182
              Information systems                                                   386,304              217,639             196,816              20,823          380,699
              City treasurer                                                        452,194              255,678             250,938               4,740          446,860
                 Total financial services                                         2,395,184             1,280,005           1,241,430             38,575         2,406,623
           Public safety
             Police department                                                    8,462,045             4,706,676           4,338,742           367,934          8,835,302
             Fire department                                                      3,608,449             2,020,948           1,860,345           160,603          3,794,329
             Fire safety inspections                                                757,085               428,425             372,009            56,416            932,967
                 Total public safety                                             12,827,579             7,156,049           6,571,096           584,953         13,562,598
                                                                             City of Muskegon
                                                               BUDGETARY COMPARISON SCHEDULE
                                                                                 General Fund
                                                                    For the six months ended June 30, 2010
                                                    (with comparative actual amounts for the year ended December 31, 2009)


                                                                                                               2010                                          2009
                                                                                                                                        Variance with
                                                                                                                                        final budget-
                                                                                    Budgeted amounts                                       positive
                                                                              Original             Final                Actual            (negative)        Actual
     Public works
       Street lighting                                                   $      635,000   $          390,000       $     428,615    $       (38,615)    $     735,479
       Community event support                                                   31,314               24,814              14,560             10,254            40,596
       Senior citizen transit                                                    68,103               37,249              31,899              5,350            62,903
       General sanitation                                                     1,603,347              944,174             789,587            154,587         1,624,899
       Recycling                                                                    -                    -                   -                  -              92,784
       Storm water management                                                    17,786               10,000               4,000              6,000            16,991
       City hall maintenance                                                    311,086              204,640             136,435             68,205           286,858
       Cemeteries maintenance                                                   456,194              236,514             183,994             52,520           482,352
           Total public works                                                 3,122,830            1,847,391            1,589,090           258,301         3,342,862
     Community and economic development




78
       Planning, zoning and economic development                                449,129              207,316             203,414               3,902         513,812
       Environmental services                                                   316,359              172,777             166,120               6,657         306,083
       Edison Landing subsidy                                                   100,000               50,000              50,000                 -           120,000
           Total community and economic development                             865,488              430,093             419,534              10,559         939,895
     Culture and recreation
       Parks maintenance                                                      1,315,021              711,490             495,147            216,343         1,264,433
       McGraft park maintenance                                                  53,946               31,600              14,396             17,204            65,522
       General and inner city recreation programs                               255,755              123,450             101,357             22,093           325,116
       Graffiti removal                                                           4,861                2,000               2,454               (454)              535
        Parking operations                                                        3,054                2,500               2,445                 55             5,116
        Farmers' market and flea market                                          51,997               29,076              20,853              8,223            49,986
           Total culture and recreation                                       1,684,634              900,116             636,652            263,464         1,710,708

     Other governmental functions
        Insurance premiums                                                      309,642              286,933             133,527            153,406          311,636
        Other                                                                   300,000              400,000              67,096            332,904          126,656
           Total other governmental functions                                   609,642              686,933             200,623            486,310          438,292
                                                                                   City of Muskegon
                                                                    BUDGETARY COMPARISON SCHEDULE
                                                                                      General Fund
                                                                         For the six months ended June 30, 2010
                                                         (with comparative actual amounts for the year ended December 31, 2009)


                                                                                                                        2010                                           2009
                                                                                                                                                 Variance with
                                                                                                                                                 final budget-
                                                                                           Budgeted amounts                                         positive
                                                                                     Original             Final                 Actual             (negative)         Actual
        Debt service
          Principal                                                            $           -         $           -         $         -       $            -      $      50,000
          Interest and fees                                                            285,345               109,174             109,174                  -            220,063
              Total debt service                                                       285,345               109,174             109,174                  -            270,063

        Capital outlay                                                                  20,000                77,000              13,722               63,278          167,239
                 Total expenditures                                                 23,258,039            13,282,831           11,485,190           1,797,641        24,312,036

     Excess of revenues over (under) expenditures                                      160,749             1,950,391            4,655,387           2,704,996          (839,785)

     OTHER FINANCING SOURCES (USES)




79
       Transfers in                                                                    550,000                25,000                2,188             (22,812)          632,768
       Transfers out                                                                  (666,548)             (154,023)            (257,783)           (103,760)         (538,046)
                 Total other financing sources (uses)                                 (116,548)             (129,023)            (255,595)           (126,572)          94,722

     Net change in fund balance                                                $        44,201       $     1,821,368            4,399,792    $      2,578,424          (745,063)

     Fund balance at beginning of year                                                                                          1,638,662                             2,383,725

     Fund balance at end of year                                                                                           $    6,038,454                        $    1,638,662



     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 six months ended June 30, 2010

                                                                                                                                                       Variance with
                                                                                                                                                       final budget-
                                                                                                  Budgeted amounts                                        positive
                                                                                            Original              Final                Actual            (negative)
     REVENUES
       Intergovernmental revenues
          Federal                                                                      $      866,000          $     150,250       $       9,443   $      (140,807)
          State                                                                             2,686,841              1,343,420           1,280,365           (63,055)
       Charges for services                                                                    75,000                 30,000               7,961           (22,039)
       Investment earnings                                                                     25,000                  5,000              44,302            39,302
       Other                                                                                  200,000                 25,000              11,211           (13,789)
              Total revenues                                                                3,852,841              1,553,670           1,353,282          (200,388)

     EXPENDITURES
       Current
         Highways, streets and bridges                                                      3,575,085              1,516,725           1,166,971           349,754
              Total expenditures                                                            3,575,085              1,516,725           1,166,971           349,754




80
     Excess of revenues over expenditures                                                     277,756                   36,945          186,311            149,366

     OTHER FINANCING USES
       Transfers out                                                                         (200,000)                 (100,000)       (100,000)               -

     Net change in fund balance                                                        $       77,756          $        (63,055)         86,311    $       149,366

     Fund balance at January 1, 2010                                                                                                    272,846

     Fund balance at June 30, 2010                                                                                                 $    359,157




     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 six months ended June 30, 2010

                             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) %
      12/31/08               86,928          86,794                (134)           100                 13,107          (1)
      12/31/09               86,682          87,395                 713             99                 12,614           6




81
          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 %
      12/31/09               13,260          24,024              10,764            55.2                13,293         81

     Additional actuarial data is not available from MERS and will be provided in subsequent years.
82
OTHER SUPPLEMENTAL INFORMATION




              83
                                 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.




                                                 84
                            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.

Neighborhood Stabilization Fund – to account for grant revenues received from the US
Department of Housing and Urban Development for the purpose of stabilizing neighborhoods that
have suffered from foreclosure and abandonment.

Economic Development - Sappi Fund – to account for funds contributed to the City for economic
redevelopment of vacated industrial property sites.


                                        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.




                                                 85
                                                                            City of Muskegon
                                                                     COMBINING BALANCE SHEET
                                                                        Other Governmental Funds
                                                                              June 30, 2010

                                                                                                                                        Permanent
                                                                                   Total other       Special         Capital              Fund -
                                                                                  governmental       Revenue         Projects           Cemetery
                                                                                     funds            Funds           Funds           Perpetual Care
     ASSETS
       Cash and investments                                                   $     4,624,184    $     544,746   $   2,760,555    $      1,318,883
       Receivables
          Accounts and loans (net of allowance for uncollectibles)                    723,615            2,207         716,768               4,640
          Special assessments                                                         679,720          473,064         206,656                 -
       Due from other governmental units                                            1,116,990          100,806       1,016,184                 -
       Due from other funds                                                         1,241,916        1,222,814          19,102                 -
       Due from component units                                                         9,217            9,217             -                   -
       Prepaid items                                                                    6,673            6,673             -                   -
                 Total assets                                                 $     8,402,315    $   2,359,527   $   4,719,265    $      1,323,523

     LIABILITIES AND FUND BALANCES
       Liabilities
          Accounts payable                                                    $       464,916    $       8,386   $     456,530    $             -




86
          Accrued liabilities                                                           6,613            3,484           3,129                  -
          Due to other funds                                                        1,040,496              -         1,040,496                  -
          Deferred revenue                                                          1,176,103          509,811         666,292                  -
                 Total liabilities                                                  2,688,128          521,681       2,166,447                  -

        Fund balances
          Reserved for:
              Prepaid items                                                             6,673            6,673             -                   -
              Long-term loans receivable                                              293,100              -           293,100                 -
              Capital projects                                                      2,253,683              -         2,253,683                 -
              Perpetual care                                                        1,306,544              -               -             1,306,544
          Unreserved
              Designated, reported in capital projects funds                          247,439              -           247,439                  -
              Undesignated, reported in
                 Special revenue funds                                              1,831,173        1,831,173             -                   -
                 Capital projects funds                                              (241,404)             -          (241,404)                -
                 Permanent funds                                                       16,979              -               -                16,979
                 Total fund balances                                                5,714,187        1,837,846       2,552,818           1,323,523
                 Total liabilities and fund balances                          $     8,402,315    $   2,359,527   $   4,719,265    $      1,323,523
                                                                    City of Muskegon
                                      COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES
                                                                    Other Governmental Funds
                                                              For the six months ended June 30, 2010

                                                                                                                                      Permanent
                                                                                Total other       Special          Capital              Fund -
                                                                               governmental       Revenue          Projects           Cemetery
                                                                                  funds            Funds            Funds           Perpetual Care
     REVENUES
       Intergovernmental revenues
          Federal                                                          $       848,127    $         -      $     848,127    $            -
          State                                                                    659,723          460,868          198,855                 -
       Charges for services                                                        124,020           41,285           70,990              11,745
       Fines and forfeitures                                                           500              500              -                   -
       Investment earnings                                                          57,233           22,921           30,759               3,553
       Other                                                                       564,303           31,887          532,416                 -
              Total revenues                                                     2,253,906          557,461        1,681,147              15,298

     EXPENDITURES
       Current
         Public safety                                                               7,639            7,639               -                   -
         Highways, streets and bridges                                             850,168          850,168               -                   -
         Culture and recreation                                                      3,200            3,200               -                   -




87
       Debt service
         Principal                                                                 303,466              -            303,466                  -
         Interest and fees                                                          26,839              -             26,839                  -
       Capital outlay                                                            1,732,699              -          1,732,699                  -
              Total expenditures                                                 2,924,011          861,007        2,063,004                  -

     Excess of revenues over (under) expenditures                                 (670,105)        (303,546)        (381,857)             15,298

     OTHER FINANCING SOURCES (USES)
       Proceeds from sale of capital assets                                         75,465              -             75,465                  -
       Transfers in                                                                340,000          340,000              -                    -
       Transfers out                                                                (2,188)             -                -                 (2,188)
              Total other financing sources (uses)                                 413,277          340,000           75,465               (2,188)

     Net change in fund balances                                                  (256,828)          36,454         (306,392)             13,110

     Fund balances at January 1, 2010                                            5,971,015        1,801,392        2,859,210           1,310,413

     Fund balances at June 30, 2010                                        $     5,714,187    $   1,837,846    $   2,552,818    $      1,323,523
                                                                                  City of Muskegon
                                                                           COMBINING BALANCE SHEET
                                                                             Other Special Revenue Funds
                                                                                    June 30, 2010




                                                                 Total other                                                                   Farmers'
                                                               special revenue        Local            Criminal             Budget             Market             Tree
                                                                    funds             Street          Forfeitures        Stabilization       Improvement       Replacement
     ASSETS
       Cash and investments                                $         544,746     $     119,411    $        134,116   $       267,969     $       17,814    $         5,436
       Receivables (net of allowance for uncollectibles)
          Accounts                                                     2,207             2,207                 -                 -                  -                  -
          Special assessments                                        473,064           473,064                 -                 -                  -                  -
       Due from other governmental units                             100,806           100,806                 -                 -                  -                  -
       Due from other funds                                        1,222,814               -                   -           1,222,814                -                  -
       Due from component units                                        9,217               -                   -               9,217                -                  -
       Prepaid items                                                   6,673             6,673                 -                 -                  -                  -
              Total assets                                 $       2,359,527     $     702,161    $        134,116   $     1,500,000     $       17,814    $         5,436

     LIABILITIES AND FUND BALANCES
       Liabilities




88
          Accounts payable                                 $           8,386     $       8,386    $            -     $            -      $          -      $           -
          Accrued liabilities                                          3,484             3,484                 -                  -                 -                  -
          Deferred revenue                                           509,811           509,811                 -                  -                 -                  -
              Total liabilities                                      521,681           521,681                 -                  -                 -                  -

        Fund balances
          Reserved for prepaid items                                   6,673             6,673                 -                 -                  -                  -
          Unreserved                                               1,831,173           173,807             134,116         1,500,000             17,814              5,436
              Total fund balances                                  1,837,846           180,480             134,116         1,500,000             17,814              5,436
              Total liabilities and fund balances          $       2,359,527     $     702,161    $        134,116   $     1,500,000     $       17,814    $         5,436
                                                                              City of Muskegon
                                        COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES
                                                                     Other Special Revenue Funds
                                                                For the six months ended June 30, 2010




                                                          Total other                                                                     Farmers'
                                                        special revenue         Local             Criminal             Budget             Market               Tree
                                                             funds              Street           Forfeitures        Stabilization       Improvement         Replacement
     REVENUES
       Intergovernmental revenues - State           $         460,868     $       460,868    $          -       $            -      $          -        $          -
       Charges for services                                    41,285              41,285               -                    -                 -                   -
       Fines and forfeitures                                      500                 -                 500                  -                 -                   -
       Investment earnings                                     22,921              22,171               615                  -                     89                  46
       Other                                                   31,887              31,887               -                    -                 -                   -
              Total revenues                                  557,461             556,211              1,115                 -                     89                  46

     EXPENDITURES
       Current
         Public safety                                          7,639                 -                7,639                 -                 -                   -
         Highways, streets and bridges                        850,168             850,168                -                   -                 -                   -
         Culture and recreation                                 3,200                 -                  -                   -                 -                 3,200




89
              Total expenditures                              861,007             850,168              7,639                 -                 -                 3,200

     Excess of revenues over (under) expenditures            (303,546)           (293,957)            (6,524)                -                     89           (3,154)

     OTHER FINANCING SOURCES
       Transfers in                                           340,000             340,000                -                   -                 -                   -

     Net change in fund balances                               36,454              46,043             (6,524)                -                  89              (3,154)

     Fund balances at January 1, 2010                       1,801,392             134,437           140,640           1,500,000             17,725               8,590

     Fund balances at June 30, 2010                 $       1,837,846     $       180,480    $      134,116     $     1,500,000     $       17,814      $        5,436
                                                                                             City of Muskegon
                                                                                BUDGETARY COMPARISON SCHEDULE
                                                                                       Other Special Revenue Funds
                                                                                  For the six months ended June 30, 2010




                                                                        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 - State           $    545,590    $       460,868    $      (84,722)   $        -       $         -       $          -      $        -    $          -     $           -
       Charges for services                                  -               41,285            41,285             -                 -                  -               -               -                 -
       Fines and forfeitures                                 -                  -                 -             5,000               500             (4,500)            -               -                 -
       Investment earnings                                 2,000             22,171            20,171             250               615                365             -               -                 -
       Other                                               9,500             31,887            22,387             -                 -                  -               -               -                 -
              Total revenues                             557,090            556,211              (879)          5,250              1,115            (4,135)            -               -                 -

     EXPENDITURES
       Current
         Public safety                                       -                  -                -             22,500              7,639            14,861             -               -                 -
         Highways, streets and bridges                   970,358            850,168          120,190              -                  -                 -               -               -                 -
         Culture and recreation                              -                  -                -                -                  -                 -               -               -                 -
              Total expenditures                         970,358            850,168          120,190           22,500              7,639            14,861             -               -                 -




90
     Excess of revenues over (under) expenditures       (413,268)          (293,957)         119,311          (17,250)            (6,524)           10,726             -               -                 -

     OTHER FINANCING SOURCES
       Transfers in                                      340,000            340,000               -               -                  -                 -               -               -                 -

     Net change in fund balances                    $    (73,268)            46,043    $     119,311     $    (17,250)            (6,524) $         10,726    $        -               -     $           -

     Fund balances at January 1, 2010                                       134,437                                             140,640                                         1,500,000

     Fund balances at June 30, 2010                                 $       180,480                                       $     134,116                                     $   1,500,000
                                                                        City of Muskegon
                                                    BUDGETARY COMPARISON SCHEDULE—CONTINUED
                                                                 Other Special Revenue Funds
                                                            For the six months ended June 30, 2010




                                                                   Farmers' Market Improvement                             Tree Replacement
                                                                                            Variance -                                            Variance -
                                                             Final                            positive          Final                              positive
                                                            budget           Actual          (negative)        budget          Actual             (negative)
     REVENUES
       Intergovernmental revenues - State               $       -         $        -       $        -      $        -      $         -        $          -
       Charges for services                                     -                  -                -                20              -                   (20)
       Fines and forfeitures                                    -                  -                -               -                -                   -
       Investment earnings                                      100                 89              (11)             50               46                   (4)
       Other                                                    -                  -                -               -                -                   -
              Total revenues                                    100                89               (11)            70                  46               (24)

     EXPENDITURES
       Current
         Public safety                                           -                 -                -               -                -                   -




91
         Highways, streets and bridges                           -                 -                -               -                -                   -
         Culture and recreation                                5,000               -              5,000           1,850            3,200              (1,350)
              Total expenditures                               5,000               -              5,000           1,850            3,200              (1,350)

     Excess of revenues over (under) expenditures             (4,900)              89             4,989          (1,780)          (3,154)             (1,374)

     OTHER FINANCING SOURCES
       Transfers in                                              -                 -                -               -                -                   -

     Net change in fund balances                        $     (4,900)              89      $      4,989    $     (1,780)          (3,154)     $       (1,374)

     Fund balances at January 1, 2010                                           17,725                                             8,590

     Fund balances at June 30, 2010                                       $     17,814                                     $       5,436
                                                                                                                                        City of Muskegon
                                                                                                                                 COMBINING BALANCE SHEET
                                                                                                                                   Other Capital Projects Funds
                                                                                                                                          June 30, 2010




                                                                    Total other                                                                   EDC           Community                                                Arena                                                   Economic
                                                                  capital projects          Public           Sidewalk          Michcon          Revolving       Development       State            HOME                  Capital           Lead           Neighborhood         Development -
                                                                       funds             Improvement        Replacement       Remediation         Loan          Block Grant       Grants         Rehabilitation       Improvements       Abatement         Stabilization           Sappi
     ASSETS
       Cash and investments                                   $       2,760,555      $      1,115,276   $      631,996    $      215,079    $     123,360   $          -      $     97,785   $             -      $        76,955    $          -     $             -      $        500,104
       Receivables
         Accounts and loans (net of
             allowance for uncollectibles)                              716,768               24,031               -                 -             43,407          376,117        249,693                 -                   -              23,520                -                    -
         Special assessments                                            206,656                  -             206,656               -                -                -              -                   -                   -                 -                  -                    -
       Due from other governmental units                              1,016,184                  -                 -                 -                -            286,757        324,934              76,901                 -                 938            326,654                  -
       Due from other funds                                              19,102                  -                 -                 -                -                -              -                   -                   -              19,102                -                    -
              Total assets                                    $       4,719,265      $      1,139,307   $      838,652    $      215,079    $     166,767   $      662,874    $   672,412    $         76,901     $        76,955    $       43,560   $        326,654     $        500,104

     LIABILITIES AND FUND BALANCES (DEFICIT)
       Liabilities
          Accounts payable                                    $         456,530      $       426,676    $          -      $          -      $         -     $        1,273    $     9,542    $          1,021     $         4,704    $          -     $         13,314     $            -
          Accrued liabilities                                             3,129                  -                 -                 -                -              2,403            -                   281                 -                 -                  445                  -
          Due to other funds                                          1,040,496                  -                 -                 -                -            378,292            -               317,003                 -              32,306            312,895                  -
          Deferred revenue                                              666,292               16,000           206,656               -                -            280,906        162,730                 -                   -                 -                  -                    -
              Total liabilities                                       2,166,447              442,676           206,656               -                -            662,874        172,272             318,305               4,704            32,306            326,654                  -

        Fund balances (deficit)
          Reserved for:
              Long-term loans receivable                                293,100                  -                 -                 -             43,407              -          249,693                  -                  -                 -                   -                   -
              Capital projects                                        2,253,683              449,192           631,996           215,079          123,360              -          250,447                  -               72,251            11,254                 -               500,104
          Unreserved




92
              Designated for approved projects                          247,439              247,439               -                 -                -                -               -                  -                   -                 -                   -                   -
              Undesignated                                             (241,404)                 -                 -                 -                -                -               -             (241,404)                -                 -                   -                   -
              Total fund balances (deficit)                           2,552,818              696,631           631,996           215,079          166,767              -          500,140            (241,404)             72,251            11,254                 -               500,104
              Total liabilities and fund balances (deficit)   $       4,719,265      $      1,139,307   $      838,652    $      215,079    $     166,767   $      662,874    $   672,412    $         76,901     $        76,955    $       43,560   $        326,654     $        500,104
                                                                                                                                       City of Muskegon
                                                                                COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES (DEFICIT)
                                                                                                                 Other Capital Projects Funds
                                                                                                           For the six months ended June 30, 2010




                                                          Total other                                                                     EDC           Community                                                 Arena                                                   Economic
                                                        capital projects          Public            Sidewalk          Michcon           Revolving       Development       State             HOME                  Capital           Lead           Neighborhood         Development -
                                                             funds             Improvement         Replacement       Remediation          Loan          Block Grant       Grants          Rehabilitation       Improvements       Abatement         Stabilization           Sappi
     REVENUES
       Intergovernmental revenues
          Federal                                   $         848,127      $           -       $          -      $          -      $          -     $      420,169    $    18,551     $        143,912     $           -      $          -     $        265,495     $            -
          State                                               198,855                  -                  -                 -                 -                -          198,855                  -                   -                 -                  -                    -
       Charges for services                                    70,990               48,211                -                 -                 -                -              -                    -                22,779               -                  -                    -
       Investment earnings                                     30,759                8,557             19,395             1,100             1,024                96             37                 -                   446               -                  -                    104
       Other                                                  532,416                  -                5,117               -              12,885            2,340            -                    -                   -              11,254                820              500,000
              Total revenues                                1,681,147               56,768             24,512             1,100            13,909          422,605        217,443              143,912              23,225            11,254            266,315              500,104

     EXPENDITURES
       Debt service
         Principal                                            303,466              113,466            190,000               -                 -                -              -                    -                   -                 -                  -                    -
         Interest and fees                                     26,839                7,536             19,303               -                 -                -              -                    -                   -                 -                  -                    -
       Capital outlay                                       1,732,699              558,892              2,296               203               -            422,605        316,478              143,912              21,998               -              266,315                  -
              Total expenditures                            2,063,004              679,894            211,599               203               -            422,605        316,478              143,912              21,998               -              266,315                  -

     Excess of revenues over (under) expenditures            (381,857)             (623,126)         (187,087)              897            13,909              -           (99,035)                 -                1,227            11,254                 -               500,104

     OTHER FINANCING SOURCES
       Proceeds from sale of capital assets                    75,465                    31               -                 -                 -                -               -                75,434                 -                 -                   -                   -

     Net change in fund balances                             (306,392)             (623,095)         (187,087)              897            13,909              -           (99,035)             75,434               1,227            11,254                 -               500,104

     Fund balances (deficit) at January 1, 2010             2,859,210             1,319,726           819,083           214,182           152,858              -          599,175             (316,838)             71,024               -                   -                   -




93
     Fund balances (deficit) at June 30, 2010       $       2,552,818      $       696,631     $      631,996    $      215,079    $      166,767   $          -      $   500,140     $       (241,404) $           72,251    $       11,254   $             -      $        500,104
94
                                   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.




                                                 95
                                                                            City of Muskegon
                                                             COMBINING STATEMENT OF NET ASSETS (DEFICITS)
                                                                          Internal Service Funds
                                                                              June 30, 2010

                                                                                    ASSETS

                                                                            Total internal       Engineering                           General         Public Service
                                                                            service funds         Services          Equipment         Insurance          Building
     CURRENT ASSETS
       Cash and investments                                             $      4,316,036     $          -       $    2,755,881    $    1,115,224   $        444,931
       Accounts receivable                                                       919,963             18,023              4,851           897,089                -
       Inventories                                                                28,711                -               28,711               -                  -
       Prepaid items                                                             767,028              2,893             54,130           705,601              4,404
                  Total current assets                                         6,031,738             20,916          2,843,573         2,717,914            449,335

     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                                               7,006,260              26,355         6,945,216               -               34,689
             Less accumulated depreciation                                    (6,942,259)            (26,355)       (5,782,714)              -           (1,133,190)
                  Total noncurrent assets                                      1,809,983                 -           1,162,502               -              647,481




96
                     Total assets                                              7,841,721             20,916          4,006,075         2,717,914          1,096,816

                                                                       LIABILITIES AND NET ASSETS
     CURRENT LIABILITIES
       Accounts payable                                                          406,687                687            31,584           372,511                1,905
       Accrued liabilities                                                        10,480              2,530             2,995               250                4,705
       Due to other funds                                                         98,892             98,892               -                 -                    -
       Bonds and other obligations, due within one year                           17,300              4,000             5,000               300                8,000
                  Total current liabilities                                      533,359            106,109            39,579           373,061              14,610

     NONCURRENT LIABILITIES
       Bonds and other obligations, less amounts due within one year              83,974             17,125            25,732              1,253             39,864
                     Total liabilities                                           617,333            123,234            65,311           374,314              54,474

     NET ASSETS (DEFICITS)
       Invested in capital assets                                              1,809,983                 -           1,162,502               -              647,481
       Unrestricted                                                            5,414,405            (102,318)        2,778,262         2,343,600            394,861
                     Total net assets (deficits)                        $      7,224,388     $      (102,318)   $    3,940,764    $    2,343,600   $      1,042,342
                                                                           City of Muskegon
                                      COMBINING STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS (DEFICITS)
                                                                         Internal Service Funds
                                                                For the six months ended June 30, 2010




                                                                     Total internal       Engineering                          General         Public Service
                                                                     service funds         Services          Equipment        Insurance          Building
     OPERATING REVENUES
       Charges for services                                      $      4,254,554     $       160,307    $    1,181,728   $    2,427,849   $        484,670
       Other                                                               46,579              17,467            23,075            6,037                -
           Total operating revenues                                     4,301,133             177,774         1,204,803        2,433,886            484,670

     OPERATING EXPENSES
       Administration                                                     160,176              37,026            62,562           35,820             24,768
       Insurance premiums and claims                                    1,884,968                 -                 -          1,884,968                -
       Other operations                                                 1,644,498             181,218           902,244           15,667            545,369
       Depreciation                                                       271,813                 -             239,112              -               32,701
           Total operating expenses                                     3,961,455             218,244         1,203,918        1,936,455            602,838

           Operating income (loss)                                        339,678             (40,470)              885          497,431           (118,168)




97
     NONOPERATING REVENUES
       Investment earnings                                                  20,400                103            13,150            4,577               2,570
       Gain on sale of capital assets                                       67,112                -              67,112              -                   -
           Total nonoperating revenues                                      87,512                103            80,262            4,577               2,570

           Income (loss) before transfers                                 427,190             (40,367)           81,147          502,008           (115,598)

     Transfers in                                                           14,023                -                 -             14,023                 -
           Change in net assets                                           441,213             (40,367)           81,147          516,031           (115,598)

     Net assets (defict) at January 1, 2010                             6,783,175             (61,951)        3,859,617        1,827,569          1,157,940

     Net assets (deficit) at June 30, 2010                       $      7,224,388     $      (102,318)   $    3,940,764   $    2,343,600   $      1,042,342
                                                                                              City of Muskegon
                                                                                COMBINING STATEMENT OF CASH FLOWS
                                                                                            Internal Service Funds
                                                                                   For the six months ended June 30, 2010


                                                                                                      Total internal       Engineering                         General           Public Service
                                                                                                      service funds          Services        Equipment         Insurance           Building
     CASH FLOWS FROM OPERATING ACTIVITIES
       Receipts from customers                                                                    $          49,456    $       17,337    $       26,082    $        6,037    $            -
       Receipts from interfund services provided                                                          3,993,626           210,863         1,181,728         2,116,365             484,670
       Payments to suppliers                                                                             (3,014,539)          (73,769)         (603,145)       (2,184,542)           (153,083)
       Payments to employees                                                                               (665,819)         (127,054)         (179,562)          (13,424)           (345,779)
       Payments for interfund services used                                                                (520,771)          (27,480)         (269,218)         (167,048)            (57,025)
              Net cash provided by (used for) operating activities                                         (158,047)             (103)         155,885          (242,612)             (71,217)

     CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES
       Transfers in                                                                                          14,023               -                 -             14,023                   -

     CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES
       Proceeds from sale of capital assets                                                                  67,404               -             67,404                -                    -

     CASH FLOW FROM INVESTING ACTIVITIES
       Investment earnings                                                                                   20,400               103           13,150             4,577                2,570




98
              Net increase (decrease) in cash and investments                                               (56,220)              -            236,439          (224,012)             (68,647)

     Cash and investments at January 1, 2010                                                              4,372,256               -           2,519,442        1,339,236              513,578

     Cash and investments at June 30, 2010                                                        $       4,316,036    $          -      $    2,755,881    $   1,115,224     $        444,931

     Reconciliation of operating income (loss) to net cash provided by (used for)
       operating activities
          Operating income (loss)                                                                 $         339,678    $      (40,470)   $         885     $     497,431     $       (118,168)
          Adjustments to reconcile operating income (loss) to net cash provided by
              (used for) operating activities
                  Depreciation expense                                                                      271,813               -            239,112                -                32,701
              Change in assets and liabilities
                  Receivables, net                                                                         (347,004)             (130)            3,007         (349,881)                 -
                  Inventories                                                                                (4,961)              -              (4,961)             -                    -
                  Prepaid items                                                                            (569,673)           (2,029)          (38,656)        (525,734)              (3,254)
                  Accounts payable                                                                           97,426            (2,169)          (22,585)         135,678              (13,498)
                  Accrued liabilities                                                                         4,118            (5,861)          (20,917)            (106)              31,002
                  Due to other funds                                                                         50,556            50,556               -                -                    -
                    Net cash provided by (used for) operating activities                          $        (158,047)   $         (103)   $     155,885     $    (242,612)    $        (71,217)
                                     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.




                                                99
                                                      City of Muskegon
                                     COMBINING STATEMENT OF ASSETS AND LIABILITIES
                                                     Agency Funds
                                                     June 30, 2010




                                                        Total                            Current       Rehab Loan
                                                     agency funds        Collector         tax           Escrow
      ASSETS
        Cash and investments                     $       725,123    $      724,878   $         -   $          245
        Accounts receivable                                1,867             1,867             -              -
               Total assets                      $       726,990    $      726,745   $         -   $          245

      LIABILITIES
         Accounts payable                        $        71,071    $       70,826   $         -   $          245
         Due to other governmental units                 396,210           396,210             -              -
         Deposits held for others                        259,709           259,709             -              -




100
               Total liabilities                 $       726,990    $      726,745   $         -   $          245
                                                          City of Muskegon
                                          STATEMENT OF CHANGES IN ASSETS AND LIABILITIES
                                                               Agency Funds
                                                  For the six months ended June 30, 2010

                                                                Balance                                               Balance
                                                               January 1,                                             June 30,
      COLLECTOR FUND                                             2010               Additions        Deductions        2010
      ASSETS
        Cash and investments                               $      707,927       $   10,245,217   $   10,228,266   $     724,878
        Accounts receivable                                         1,868              218,075          218,076           1,867
            Total assets                                   $      709,795       $   10,463,292   $   10,446,342   $     726,745

      LIABILITIES
        Accounts payable                                   $      204,587       $    7,448,167   $    7,581,928   $      70,826
        Due to other governmental units                           314,374            1,305,293        1,223,457         396,210
        Deposits held for others                                  190,834            2,955,082        2,886,207         259,709
            Total liabilities                              $      709,795       $   11,708,542   $   11,691,592   $     726,745

      CURRENT TAX FUND
      ASSETS
        Cash and investments                               $    4,705,073       $   21,477,923   $   26,182,996   $         -
        Property taxes receivable                              15,016,716                  -         15,016,716             -
            Total assets                                   $   19,721,789       $   21,477,923   $   41,199,712   $         -

      LIABILITIES
        Due to other governmental units                    $   19,682,873       $          -     $   19,682,873   $         -
        Due to other funds                                            -              5,742,126        5,742,126             -
        Due to component units                                        -                668,785          668,785             -




101
        Deposits held for others                                   38,916               50,296           89,212             -
            Total liabilities                              $   19,721,789       $    6,461,207   $   26,182,996   $         -

      REHAB LOAN ESCROW FUND
      ASSETS
        Cash and investments                               $          -         $        1,287   $        1,042   $         245

      LIABILITIES
        Accounts payable                                   $          -         $        1,853   $        1,608   $         245

      ALL AGENCY FUNDS
      ASSETS
        Cash and investments                               $    5,413,000       $   31,724,427   $   36,412,304   $     725,123
        Receivables
           Accounts                                                 1,868             218,075           218,076           1,867
           Property taxes                                      15,016,716                 -          15,016,716             -
            Total assets                                   $   20,431,584       $   31,942,502   $   51,647,096   $     726,990

      LIABILITIES
        Accounts payable                                   $      204,587       $    7,450,020   $    7,583,536   $      71,071
        Due to other governmental units                        19,997,247            1,305,293       20,906,330         396,210
        Due to other funds                                            -              5,742,126        5,742,126             -
        Due to component units                                        -                668,785          668,785             -
        Deposits held for others                                  229,750            3,005,378        2,975,419         259,709
            Total liabilities                              $   20,431,584       $   18,171,602   $   37,876,196   $     726,990
102
                              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 III – to account for the collection of tax increment
revenues and the construction of public facilities 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.




                                               103
                                                                              City of Muskegon
                                                                    COMBINING BALANCE SHEET
                                                                    Discretely Presented Component Units
                                                                                June 30, 2010




                                                                   Total discretely          Local
                                                                      presented           Development          Downtown          Tax Increment        Brownfield
                                                                     component              Finance            Development          Finance          Redevelopment
                                                                        units             Authority III         Authority          Authority           Authority
      ASSETS
        Cash and investments                                   $          403,953     $         36,834     $       329,585   $         37,534    $             -

      LIABILITIES AND FUND BALANCES (DEFICITS)
        Liabilities
           Due to primary government                           $            9,217     $            -       $           -     $             -     $          9,217

        Fund balances (deficits)
          Unreserved                                                      394,736               36,834             329,585             37,534               (9,217)
              Total liabilities and fund balances (deficits)   $          403,953     $         36,834     $       329,585   $         37,534    $             -




104
                                                            City of Muskegon
                                  RECONCILIATION OF THE GOVERNMENTAL FUNDS
                             BALANCE SHEET TO THE STATEMENT OF NET ASSETS (DEFICITS)
                                          Discretely Presented Component Units
                                                      June 30, 2010




      Total fund balance—governmental funds                                                                     $     394,736

      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                                                              (1,136,600)       3,061,658




105
         Bond issuance costs are not capitalized and amortized in the
         governmental funds.
            Bond issuance costs                                                                     141,966
            Accumulated amortization                                                                (46,293)           95,673

         Accrued interest in governmental activities is not reported in the
         governmental funds.                                                                                          (41,600)

         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.                                                                  (7,725,122)

            Net assets of governmental activities in the Statement of Net Assets (Deficits)                     $   (4,214,655)
                                                                City of Muskegon
                        COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES (DEFICIT)
                                                    Discretely Presented Component Units
                                                   For the six months ended June 30, 2010




                                                       Total discretely          Local
                                                          presented           Development          Downtown         Tax Increment        Brownfield
                                                         component              Finance           Development          Finance          Redevelopment
                                                            units             Authority III        Authority          Authority           Authority
      REVENUES
        Property taxes                             $          455,284     $        71,360     $      327,373    $         40,634    $         15,917
        Intergovernmental revenues - Local                     50,000              50,000                -                   -                   -
        Investment earnings                                     1,456                 133              1,212                 111                 -
               Total revenues                                 506,740             121,493            328,585              40,745              15,917

      EXPENDITURES
        Current
          Community and economic development                   39,920                  -                 -                25,000              14,920
        Debt service
          Principal                                           230,000                 -              230,000                 -                    -




106
          Interest and fees                                   156,950              98,424             58,526                 -                    -
               Total expenditures                             426,870              98,424            288,526             25,000               14,920

      Net change in fund balances                              79,870              23,069             40,059             15,745                  997

      Fund balances (deficit) at January 1, 2010              314,866              13,765            289,526             21,789               (10,214)

      Fund balances (deficit) at June 30, 2010     $          394,736     $        36,834     $      329,585    $         37,534    $          (9,217)
                                                           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 six months ended June 30, 2010




      Net change in fund balances—total governmental funds                                       $    79,870

      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                                                    (89,410)




107
         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.             229,726

         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

               Change in net assets of governmental activities                                   $   220,986
108
SCHEDULE OF INDEBTEDNESS




           109
                                                                 City of Muskegon

                                                      SCHEDULE OF INDEBTEDNESS

                                                                  June 30, 2010

                                                                                                                                              Annual
                                         Date         Amount           Interest     Date of                                                   Interest
                                       of Issue       of Issue           Rate       Maturity         12/31/2009           6/30/2010           Payable

Business-Type Activities Bonds and Loans Payable:


Water supply system bonds               10/1/1993 $      5,465,000        0.00%       05/01/10 $                  -   $               -   $              -
                                                                          0.00%       05/01/11                    -                   -                  -
                                                                          4.50%       05/01/12              450,000                   -                  -
                                                                          4.50%       05/01/13              450,000                   -                  -
                                                                                                            900,000                   -                  -

Water supply system bonds                3/2/1999 $      9,575,000        4.20%       05/01/10              535,000                   -                  -
                                                                          4.30%       05/01/11              555,000                   -                  -
                                                                          4.35%       05/01/12              130,000                   -                  -
                                                                          4.40%       05/01/13              155,000                   -                  -
                                                                          4.50%       05/01/14              635,000                   -                  -
                                                                          4.55%       05/01/15              665,000                   -                  -
                                                                          4.60%       05/01/16              695,000                   -                  -
                                                                          4.65%       05/01/17              730,000                   -                  -
                                                                          4.75%       05/01/18              765,000                   -                  -
                                                                          4.75%       05/01/19              800,000                   -                  -
                                                                                                          5,665,000                   -                  -

Water supply system bonds                4/1/2010 $      5,995,000        2.00%       05/01/11                    -             580,000            211,995
 ($188,136 unamortized premium)                                           2.00%       05/01/12                    -             600,000            184,088
                                                                          3.00%       05/01/13                    -             610,000            172,088
                                                                          2.77%       05/01/14                    -             640,000            153,788
                                                                          3.50%       05/01/15                    -             660,000            136,088
                                                                          3.25%       05/01/16                    -             685,000            112,988
                                                                          4.00%       05/01/17                    -             710,000             90,725
                                                                          4.00%       05/01/18                    -             740,000             62,325
                                                                          4.25%       05/01/19                    -             770,000             32,725
                                                                                                                  -           5,995,000          1,156,807


Drinking Water State Revolving           3/2/2004 $     13,900,000        2.13%       10/01/10              615,000             615,000            239,328
 Fund (DWSRF)                                                             2.13%       10/01/11              630,000             630,000            226,100
                                                                          2.13%       10/01/12              640,000             640,000            212,606
                                                                          2.13%       10/01/13              655,000             655,000            198,847
                                                                          2.13%       10/01/14              670,000             670,000            184,769
                                                                          2.13%       10/01/15              685,000             685,000            170,372
                                                                          2.13%       10/01/16              695,000             695,000            155,709
                                                                          2.13%       10/01/17              710,000             710,000            140,781
                                                                          2.13%       10/01/18              725,000             725,000            125,534
                                                                          2.13%       10/01/19              745,000             745,000            109,916
                                                                          2.13%       10/01/20              760,000             760,000             93,925
                                                                          2.13%       10/01/21              775,000             775,000             77,616
                                                                          2.13%       10/01/22              790,000             790,000             60,988
                                                                          2.13%       10/01/23              810,000             810,000             43,988
                                                                          2.13%       10/01/24              825,000             825,000             26,616
                                                                          2.13%       10/01/25              840,000             840,000              8,925
                                                                                                         11,570,000          11,570,000          2,076,019




TOTAL BUSINESS-TYPE ACTIVITIES BONDS AND LOANS PAYABLE                                           $       18,135,000   $      17,565,000   $      3,232,826




                                                                      110
                                                                  City of Muskegon

                                                  SCHEDULE OF INDEBTEDNESS - CONTINUED

                                                                   June 30, 2010

                                                                                                                                             Annual
                                         Date          Amount           Interest     Date of                                                 Interest
                                       of Issue        of Issue           Rate       Maturity       12/31/2009           6/30/2010           Payable

Governmental Activities Bonds and Loans Payable:


Installment purchase contract           7/26/2005 $         605,824        3.83%       04/01/10 $           58,894   $               -   $              -
 of 2005 (firetrucks)                                                      3.83%       04/01/11             61,420              61,420             12,816
                                                                           3.83%       04/01/12             64,055              64,055             10,462
                                                                           3.83%       04/01/13             66,803              66,803              8,010
                                                                           3.83%       04/01/14             69,669              69,669              5,452
                                                                           3.83%       04/01/15             72,658              72,658              2,782
                                                                                                           393,499             334,605             39,522



Special assessment improvement          12/1/2000 $         825,000        5.00%       04/01/10             70,000                   -                  -
 bonds of 2000 (sidewalks)                                                                                  70,000                   -                  -


Capital improvement bonds                3/1/2003 $       1,575,000        3.50%       06/01/10            120,000                   -                  -
 of 2003 (sidewalks)                                                       3.50%       06/01/11            120,000             120,000             30,905
                                                                           3.70%       06/01/12            125,000             125,000             26,705
                                                                           3.80%       06/01/13            130,000             130,000             22,080
                                                                           3.90%       06/01/14            135,000             135,000             17,140
                                                                           4.00%       06/01/15            145,000             145,000             11,875
                                                                           4.05%       06/01/16            150,000             150,000              6,075
                                                                                                           925,000             805,000            114,780


Capital improvement bonds              10/24/2006 $       5,400,000        4.00%       10/01/10             70,000              70,000            213,945
 of 2006 (fire station, recreation)                                        4.00%       10/01/11             70,000              70,000            211,145
  ($14,197 unamortized discount)                                           4.00%       10/01/12             70,000              70,000            208,345
                                                                           4.00%       10/01/13             70,000              70,000            205,545
                                                                           4.00%       10/01/14             70,000              70,000            202,745
                                                                           4.00%       10/01/15             70,000              70,000            199,945
                                                                           4.00%       10/01/16             70,000              70,000            197,145
                                                                           4.00%       10/01/17             70,000              70,000            194,345
                                                                           4.00%       10/01/18             70,000              70,000            191,545
                                                                           4.00%       10/01/19            295,000             295,000            184,245
                                                                           4.00%       10/01/20            305,000             305,000            172,245
                                                                           4.00%       10/01/21            315,000             315,000            159,845
                                                                           4.00%       10/01/22            315,000             315,000            147,245
                                                                           4.00%       10/01/23            320,000             320,000            134,545
                                                                           4.00%       10/01/24            340,000             340,000            121,345
                                                                           4.00%       10/01/25            345,000             345,000            107,645
                                                                           4.00%       10/01/26            345,000             345,000             93,845
                                                                           4.10%       10/01/27            345,000             345,000             79,873
                                                                           4.10%       10/01/28            350,000             350,000             65,625
                                                                           4.10%       10/01/29            350,000             350,000             51,275
                                                                           4.20%       10/01/30            350,000             350,000             36,750
                                                                           4.20%       10/01/31            350,000             350,000             22,050
                                                                           4.20%       10/01/32            350,000             350,000              7,350
                                                                                                         5,305,000           5,305,000          3,208,588




                                                                       111
                                                                  City of Muskegon

                                                  SCHEDULE OF INDEBTEDNESS - CONTINUED

                                                                   June 30, 2010

                                                                                                                                               Annual
                                         Date          Amount           Interest     Date of                                                   Interest
                                       of Issue        of Issue           Rate       Maturity         12/31/2009           6/30/2010           Payable

Governmental Activities Bonds and Loans Payable:



State of Michigan urban land             8/1/2005 $         700,000        0.00%       09/01/10               20,000              20,000                  -
 assembly loan                                                             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                  -
                                                                                                             620,000             620,000                  -


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              45,663              8,909
                                                                           2.00%       03/18/12               46,577              46,577              7,995
                                                                           2.00%       03/18/13               47,508              47,508              7,064
                                                                           2.00%       03/18/14               48,458              48,458              6,114
                                                                           2.00%       03/18/15               49,427              49,427              5,144
                                                                           2.00%       03/18/16               50,416              50,416              4,156
                                                                           2.00%       03/18/17               51,424              51,424              3,148
                                                                           2.00%       03/18/18               52,453              52,453              2,119
                                                                           2.00%       03/18/19               53,502              53,502              1,070
                                                                                                             500,000             445,428             45,718



TOTAL GOVERNMENTAL ACTIVITIES BONDS AND LOANS PAYABLE                                             $        7,813,499   $       7,510,033   $      3,408,608


TOTAL PRIMARY GOVERNMENT BONDS AND LOANS PAYABLE                                                  $       25,948,499   $      25,075,033   $      6,641,434




                                                                       112
                                                                 City of Muskegon

                                                 SCHEDULE OF INDEBTEDNESS - CONTINUED

                                                                  June 30, 2010

                                                                                                                                              Annual
                                        Date          Amount           Interest     Date of                                                   Interest
                                      of Issue        of Issue           Rate       Maturity         12/31/2009           6/30/2010           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        4.25%       06/01/10              230,000                   -                  -
 refunding bonds                                                          4.35%       06/01/11              240,000             240,000            106,078
                                                                          4.45%       06/01/12              245,000             245,000             95,638
                                                                          4.55%       06/01/13              260,000             260,000             84,735
                                                                          4.65%       06/01/14              270,000             270,000             72,905
                                                                          4.75%       06/01/15              280,000             280,000             60,350
                                                                          4.85%       06/01/16              300,000             300,000             47,050
                                                                          5.00%       06/01/17              315,000             315,000             32,500
                                                                          5.00%       06/01/18              335,000             335,000             16,750
                                                                                                          2,475,000           2,245,000            516,005


Local Development Finance Authority     11/1/2002 $      4,725,000        3.88%       11/01/10               80,000              80,000            195,298
Smartzone Bonds                                                           3.88%       11/01/11               80,000              80,000            192,197
($4,878 unamortized discount)                                             4.00%       11/01/12              180,000             180,000            187,048
                                                                          3.90%       11/01/13              240,000             240,000            178,768
                                                                          4.05%       11/01/14              305,000             305,000            167,911
                                                                          4.05%       11/01/15              325,000             325,000            155,154
                                                                          4.15%       11/01/16              340,000             340,000            141,518
                                                                          4.25%       11/01/17              355,000             355,000            126,919
                                                                          4.35%       11/01/18              375,000             375,000            111,219
                                                                          4.45%       11/01/19              395,000             395,000             94,274
                                                                          4.60%       11/01/20              400,000             400,000             76,285
                                                                          4.60%       11/01/21              255,000             255,000             61,220
                                                                          4.60%       11/01/22              265,000             265,000             49,260
                                                                          4.85%       11/01/23              280,000             280,000             36,375
                                                                          4.85%       11/01/24              295,000             295,000             22,431
                                                                          4.85%       11/01/25              315,000             315,000              7,639
                                                                                                          4,485,000           4,485,000          1,803,513
TOTAL DISCRETELY PRESENTED COMPONENT UNIT BONDS AND LOANS PAYABLE                                $        7,960,000   $       7,730,000   $      2,319,518


TOTAL REPORTING ENTITY BONDS AND LOANS PAYABLE                                                   $       33,908,499   $      32,805,033   $      8,960,952




                                                                      113
114
                                       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.                                  116


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.                                         120


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.                                                                                  126


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.                                   130


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.                                          132



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.




                                                    115
                                                                                                     City of Muskegon

                                                                                        NET ASSETS BY COMPONENT

                                                                                                 Last Eight Fiscal Years




                                                                                                                             December 31                                                          June 30
                                                                          2003            2004              2005 (a)          2006             2007             2008             2009              2010

      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   $   69,064,800   $   67,809,630
      Restricted                                                        5,674,787       5,209,654            5,420,482        5,378,669         5,485,703        3,557,678        2,956,449        3,059,208
      Unrestricted                                                      9,286,551       7,407,355            7,811,489        8,778,786        10,162,425       10,708,529        8,920,621       13,828,231
      Total Governmental Net Assets                                  $ 47,081,472    $ 53,280,853       $   80,351,629   $   82,346,476    $   83,707,754   $   83,831,142   $   80,941,870   $   84,697,069



      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   $   41,876,507   $   41,105,739
      Restricted                                                          822,559         822,559              822,559          822,559           822,559          822,559          672,000          672,000
      Unrestricted                                                     10,488,022       8,647,716            6,663,563        6,910,247         7,980,823        6,775,508        5,983,935        7,630,396
      Total Business-type Activities Net Assets                      $ 39,119,373    $ 41,079,291       $   44,228,791   $   47,174,718    $   48,160,348   $   48,474,688   $   48,532,442   $   49,408,135


      Primary Government




116
      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    $ 110,941,307    $ 108,915,369
      Restricted                                                        6,497,346       6,032,213           6,243,041        6,201,228         6,308,262        4,380,237        3,628,449        3,731,208
      Unrestricted                                                     19,774,573      16,055,071          14,475,052       15,689,033        18,143,248       17,484,037       14,904,556       21,458,627
      Total Primary Government Net Assets                            $ 86,200,845    $ 94,360,144       $ 124,580,420    $ 129,521,194     $ 131,868,102    $ 132,305,830    $ 129,474,312    $ 134,105,204




      (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 Eight Fiscal Years


                                                                                                                                                                                                                  Period Ended
                                                                                                                                 Year Ended December 31                                                             June 30
                                                                          2003                 2004                   2005                2006               2007             2008             2009                   2010

EXPENSES
Governmental Activities
Public representation                                             $           887,496   $           866,669    $          885,365    $         904,109   $      925,124   $      986,696   $      923,911     $          445,251
Administrative services                                                     1,227,407             1,132,229               803,783              732,715          783,713          782,362          698,022                317,873
Financial services                                                          1,842,653             1,809,136             1,872,159            2,061,836        2,205,041        2,292,430        2,406,517              1,209,694
Public safety                                                              11,583,282            12,164,389            12,481,826           13,059,358       12,802,488       13,955,811       13,614,112              6,332,728
Public works                                                                2,947,194             2,847,755             2,853,497            3,089,522        2,989,433        3,019,411        2,986,747              1,640,946
Highways, streets and bridges                                               3,483,032             3,879,462             5,910,307            5,672,590        7,272,288        7,265,438        7,160,797              3,680,196
Community and economic development                                          3,371,472             2,652,497             3,693,187            3,383,157        3,054,087        3,174,508        4,139,765              1,275,026
Culture and recreation                                                      3,042,315             2,468,059             2,504,692            2,464,567        2,433,020        2,623,501        2,463,375                759,392
General administration                                                      1,601,112             1,725,225             1,608,108            1,143,963          358,225          574,955          451,651                210,117
Interest on long-term debt                                                    223,717               193,021               170,814              206,768          343,106          324,076          288,073                139,006
Total Governmental Activities Expenses                                     30,209,680            29,738,442            32,783,738           32,718,585       33,166,525       34,999,188       35,132,970             16,010,229

Business-type Activities
Water                                                                       4,538,186             4,122,822             4,181,855            4,500,578        5,795,279        5,800,977        6,080,230              2,958,795
Sewer                                                                       3,416,372             3,745,156             3,953,838            5,006,594        5,066,693        5,503,144        5,426,321              2,525,067
Marina and launch ramp                                                        325,401               351,705               343,599              332,826          392,994          347,642          310,773                150,055
Total Business-type Activities Expenses                                     8,279,959             8,219,683             8,479,292            9,839,998       11,254,966       11,651,763       11,817,324              5,633,917
Total Primary Government Expenses                                 $        38,489,639   $        37,958,125    $       41,263,030    $      42,558,583   $   44,421,491   $   46,650,951   $   46,950,294     $       21,644,146


PROGRAM REVENUES
Governmental Activities
Charges for Services
  Public representation                                           $           204,435   $           210,238    $          195,316    $         202,939   $      199,759   $      188,467   $      213,885     $          100,177
  Administrative services                                                     292,665               314,028               311,529              306,964          287,011          257,850          271,117                129,630
  Financial services                                                          591,174               645,166               537,445              728,332          744,109          726,572          818,845                475,031
  Public safety                                                             1,162,175             1,098,793             1,116,755            1,134,686        1,224,062        1,217,616        1,117,476                536,419
  Public works                                                                266,045               452,606               467,849              588,566          407,569          382,072          383,733                209,203
  Highways, streets and bridges                                               273,893               555,018               267,689              263,423          372,133          301,955          251,840                139,009
  Community and economic development                                          977,448               414,543               815,980              762,220          356,051          297,854          249,241                186,572
   Culture and recreation                                                   1,026,822             1,151,687             1,141,865              809,228          454,154          405,520          445,891                129,025
   General administration                                                     122,447               200,434               314,658              170,240           64,366           99,494          123,426                 59,373
Operating grants and contributions                                          5,613,628             6,008,978             6,017,421            5,093,355        5,229,279        5,367,152        6,443,223              3,131,811
Capital grants and contributions                                           10,494,617             5,785,604             5,894,358            5,360,014        3,347,680        3,444,957        2,105,557                255,234
Total Governmental Program Revenues                                        21,025,349            16,837,095            17,080,865           15,419,967       12,686,173       12,689,509       12,424,234              5,351,484

Business-type Activities
Water                                                                       4,131,126             4,977,320             6,912,719            6,342,110        6,569,228        6,240,060        5,883,830              2,891,169
Sewer                                                                       4,057,743             4,083,591             4,149,187            4,803,702        5,179,095        5,326,787        5,720,171              3,441,924
Marina and launch ramp                                                        274,258               266,981               248,460              267,412          281,679          250,266          242,055                156,767
Operating grants and contributions                                                  -                     -                     -                    -                -                -                -                      -
Capital grants and contributions                                              256,612               657,521               100,373              710,641                -                -            5,179                      -
Total Business-type program revenues                                        8,719,739             9,985,413            11,410,739           12,123,865       12,030,002       11,817,113       11,851,235              6,489,860
Total Primary Government program revenues                         $        29,745,088   $        26,822,508    $       28,491,604    $      27,543,832   $   24,716,175   $   24,506,622   $   24,275,469     $       11,841,344

NET (EXPENSE) REVENUE
Governmental Activities                                                    (9,184,331)          (12,901,347)           (15,702,873)        (17,298,618)      (20,480,352)     (22,309,679)     (22,708,736)           (10,658,745)
Business-type Activities                                                      439,780             1,765,730              2,931,447           2,283,867           775,036          165,350           33,911                855,943
Total Primary Government net expense                              $        (8,744,551) $        (11,135,617) $         (12,771,426) $      (15,014,751) $    (19,705,316) $   (22,144,329) $   (22,674,825)   $        (9,802,802)


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 $      8,492,507     $        8,681,256
Income taxes                                                                6,644,708             7,326,811             7,238,552            7,673,696        7,757,707        8,117,566        6,628,365              3,505,264
Franchise fees                                                                265,532                     -               286,265              285,124          297,200          304,812          321,852                178,239
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        3,841,922              1,832,066
Unrestricted investment earnings                                              281,492               170,094               420,595              832,300        1,247,520          730,142          185,436                104,086
Miscellaneous                                                                 109,620                68,405                70,402               64,645           88,035          160,460          226,124                 51,638
Gain on sale of capital asset                                                  62,992                70,886               300,037               81,372            1,604          323,048          123,258                 65,155
Transfers                                                                           -              (142,420)              (80,000)            (540,000)         (40,000)         (40,000)               -                 (3,760)
Total Governmental Program Revenues                                        19,332,598            19,101,577            20,534,150           20,918,001       21,841,630       22,433,067       19,819,464             14,413,944

Business-type Activities
Unrestricted investment earnings                                               71,628                51,768               138,053              122,060          170,594          108,990           23,843                 15,990
Gain on sale of capital asset                                                 (88,767)                    -                     -                    -                -                -                -                      -
Transfers                                                                           -               142,420                80,000              540,000           40,000           40,000                -                  3,760
Total Business-type program revenues                                          (17,139)              194,188               218,053              662,060          210,594          148,990           23,843                 19,750
Total Primary Government program revenues                         $        19,315,459 $          19,295,765    $       20,752,203    $      21,580,061   $   22,052,224   $   22,582,057   $   19,843,307     $       14,433,694

CHANGE IN NET ASSETS
Governmental Activities                                                    10,148,267             6,200,230              4,831,277           3,619,383        1,361,278          123,388        (2,889,272)            3,755,199
Business-type Activities                                                      422,641             1,959,918              3,149,500           2,945,927          985,630          314,340            57,754               875,693
Total Primary Government                                          $        10,570,908   $         8,160,148    $         7,980,777   $       6,565,310   $    2,346,908   $      437,728   $    (2,831,518)   $        4,630,892




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.




                                                                                                                   117
                                                                                                     City of Muskegon

                                                                                  FUND BALANCE OF GOVERNMENTAL FUNDS

                                                                                                    Last Ten Fiscal Years




                                                                                                                         December 31                                                                         June 30
                                                             2001            2002            2003            2004           2005             2006            2007            2008            2009             2010

      General fund
      Reserved                                           $      75,337   $     173,696   $     110,642   $      74,349   $      79,356   $     177,076   $     180,410   $     214,819   $     187,633   $     300,969
      Unreserved                                             3,087,031       2,634,300       2,320,776       2,370,842       2,440,249       2,512,963       2,740,222       2,168,906       1,451,029       5,737,485
      Total general fund                                 $   3,162,368   $   2,807,996   $   2,431,418   $   2,445,191   $   2,519,605   $   2,690,039   $   2,920,632   $   2,383,725   $   1,638,662   $   6,038,454

      All other governmental funds
      Reserved                                           $   2,533,419   $   2,309,214   $   1,159,364   $   1,187,662   $   2,915,106   $   7,044,394   $   4,130,995   $   4,382,118   $   3,613,858   $   3,887,289
      Unreserved, reported in:
       Special revenue funds                                 4,579,430       3,785,857       3,254,746       2,692,431       2,910,285      3,030,096        4,462,015       2,768,886       2,060,117       2,163,041
       Debt service                                                  -               -         153,955               -               -              -                -               -               -               -
       Capital project funds                                 2,143,770       1,614,636       3,849,868       2,187,667       1,239,763        390,282          635,676         675,898         554,273           6,035
       Permanent funds                                          91,707         102,837          63,798          22,896          22,890         77,300           84,413          60,813          15,613          16,979
      Total all other governmental funds                 $   9,348,326   $   7,812,544   $   8,481,731   $   6,090,656   $   7,088,044   $ 10,542,072    $   9,313,099   $   7,887,715   $   6,243,861   $   6,073,344



      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




118
      include information start that year.
                                                                                                      City of Muskegon

                                                                           CHANGES IN FUND BALANCE OF GOVERNMENTAL FUNDS

                                                                                                     Last Ten Fiscal Years


                                                                                                                                                                                                               Period Ended
                                                                                                                   Year Ended December 31                                                                        June 30
                                                              2001            2002            2003            2004         2005          2006                     2007            2008            2009             2010

      Revenues
      Taxes                                              $ 12,996,607      $ 13,607,863    $ 13,306,798    $ 13,767,040    $ 14,521,769    $ 15,052,708      $ 15,420,032      $ 15,728,859    $ 14,673,012    $ 11,855,182
      Intergovernmental                                    15,847,954        15,473,320      18,879,071      15,448,865      15,445,949      14,703,371        12,752,363        13,012,035      12,400,408       4,785,494
      Charges for services                                  2,847,201         3,010,798       3,307,607       3,437,220       3,147,066       2,938,246         2,722,894         2,463,975       2,620,372       1,338,194
      Other                                                 4,965,889         3,872,459       3,629,983       3,828,223       4,134,604       3,758,956         4,618,149         3,624,579       3,177,522       1,768,895
      Total revenues                                       36,657,651        35,964,440      39,123,459      36,481,348      37,249,388      36,453,281        35,513,438        34,829,448      32,871,314      19,747,765

      Expenditures
      Public representation                                     903,378         985,107         889,188         869,342         886,717           903,895           927,320         987,229         923,923           448,703
      Administrative services                                   717,680         816,581         785,966         704,667         748,588           669,789           644,913         632,513         549,833           255,166
      Financial services                                      1,679,979       1,797,662       1,846,558       1,829,276       1,905,714         2,056,580         2,231,519       2,298,830       2,406,623         1,241,430
      Public safety                                          11,136,752      11,514,151      11,439,487      12,277,677      12,624,532        13,002,233        12,902,815      13,754,394      13,567,101         6,578,735
      Public works                                            2,678,089       2,680,695       2,731,241       2,543,512       2,661,073         2,730,415         2,768,906       2,831,177       2,860,510         1,589,090
      Highways, streets and bridges                           8,309,998       8,816,305      11,800,017       8,654,931       9,531,840         8,023,539         6,504,915       6,414,453       6,562,964         2,017,139
      Community and economic development                        948,756         971,335         987,097         797,072         784,396           763,211           894,879       1,077,312         939,895           419,534
      Culture and recreation                                  2,637,586       2,610,935       2,624,275       2,259,699       2,197,276         2,190,835         2,254,117       2,394,031       2,196,186           639,852
      Other governmental functions                            1,441,234       1,798,345       1,589,572       1,708,868       1,603,292         1,139,148           350,385         562,341         438,292           200,623




119
      Debt service
       Principal                                              1,425,741       1,345,000       1,270,000       1,335,000       1,115,000         1,189,785         1,241,921         999,148         663,371           303,466
       Interest and issuance costs                              367,317         316,255         230,907         201,447         166,071           271,233           324,577         310,432         282,174           136,013
      Capital outlay                                          5,338,105       4,721,155       4,496,631       6,139,597       3,734,082         6,066,783         5,683,657       5,473,828       3,987,509         1,746,421
      Total expenditure                                      37,584,615      38,373,526      40,690,939      39,321,088      37,958,581        39,007,446        36,729,924      37,735,688      35,378,381        15,576,172

      Excess of revenues over (under) expenditures             (926,964)     (2,409,086)     (1,567,480)     (2,839,740)       (709,193)       (2,554,165)       (1,216,486)     (2,906,240)     (2,507,067)        4,171,593

      Other financing sources (uses)
      Transfers in                                            2,713,591       2,059,336       2,740,742       3,342,612       1,839,631         2,358,509         1,926,538       1,477,717       1,359,608           342,188
      Transfers out                                          (2,403,591)     (2,047,491)     (2,740,742)     (3,233,369)     (1,947,677)       (2,926,554)       (1,994,584)     (1,409,491)     (1,309,910)         (359,971)
      Bonds issued                                                    -         106,807       1,578,009               -       1,061,900         5,626,331                 -         500,000               -                 -
      Sale of capital assets                                    289,786         400,280         282,080         483,544         827,141         1,120,341           286,152         375,723          68,452            75,465
      Total other financing sources (uses)                      599,786         518,932       1,860,089         592,787       1,780,995         6,178,627           218,106         943,949         118,150            57,682

      Net change in fund balances                        $     (327,178) $ (1,890,154) $       292,609     $ (2,246,953) $    1,071,802    $    3,624,462    $     (998,380) $ (1,962,291) $ (2,388,917)       $    4,229,275

      Debt service as a percentage of noncapital
      expenditures                                                5.56%           4.94%           4.15%           4.63%           3.74%             4.44%            5.05%            4.06%           3.01%             3.18%




      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

      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%
      2009      8,190,722     24.9%   6,482,290      19.7%   12,400,408      37.7%   2,620,372       8.0%   1,032,681       3.1%       582,394    1.8%     400,900    1.2%   1,161,547      3.5%       32,871,314        -5.6%
      2010*     8,487,125     43.0%   3,368,057      17.1%    4,785,494      24.2%   1,338,194       6.8%     584,162       3.0%       297,043    1.5%     193,873    1.0%     693,817      3.5%       19,747,765       -39.9%


      * The City changed its fiscal year end from December 31 to June 30. 2010 figures are for six months.



      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.




120
                                                                                                                             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

         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%
         2009        376,545,791           157,682     147,276,887        114,185,691      638,166,051     111,493,852      749,659,903               5,259,649          25,616,400                    -          30,876,049          780,535,952               91.48%




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




121
                                                                                            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

         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
         2009        426,002,850           191,100     161,996,600        122,301,800      710,492,350     111,497,300      821,989,650               5,606,100          25,616,400                    -          31,222,500          853,212,150        1,706,424,300




      Property is assessed at 50% of true cash value. The assessed and equalized valuation of taxable property is determined as of December 31st of each year and is the basis upon which taxes are levied during the succeeding fiscal year. The passage of
      Proposal A in May, 1994 altered how tax values are determined. Beginning in the 1995-1996 fiscal year, property taxes are based on taxable value instead of state equalized value. Proposal A also capped taxable value of each parcel of property, adjusted for
      additions and losses, at the previous year's rate of inflation or 5% whichever is less, until the property is sold or transferred. When ownership of a parcel of property is transferred, the taxable value becomes 50% of true cash value, or the state equalized
      valuation. The industrial and Commercial Facilities Tax Acts permit certain property to be taxed at one-half the tax rate for a period up to twelve years.
                                                                      City of Muskegon

                                                             Principal Property Taxpayers

                                                                       June 30, 2010


                                                             12/31/2009                                           12/31/2000
                                                                              Percent of                                         Percent of
                                              Taxable                      Total Taxable            Taxable                    Total Taxable
                  Taxpayer                   Valuation          Rank          Valuation            Valuation         Rank         Valuation

      Consumers Energy                   $     78,615,856         1                    10.1%   $    67,248,351         1                10.2%
      Sappi/S.D. Warren Company                31,205,687         2                     4.0%        54,094,785         2                 8.2%
      Johnson Technology                        7,679,263         3                     1.0%         8,950,262         4                 1.4%
      ADAC Plastics Inc                         7,379,563         4                     0.9%         7,147,253         8                 1.1%
      ESCO Company                              6,578,855         5                     0.8%                  -                          0.0%
      DTE Energy (formerly MichCon)             5,852,200         6                     0.7%         9,142,300         3                 1.4%
      Glen Oaks Apartments LLC                  4,776,500         7                     0.6%                  -                          0.0%




122
      Honeywell Inc                             4,738,900         8                     0.6%                  -                          0.0%
      Faram Muskegon LLC                        4,570,300        9                      0.6%                  -                          0.0%
      Lorin Industries                          4,318,889        10                     0.6%         8,564,530        6                  1.3%
      Brunswick Corp                                     -                              0.0%         8,634,000        5                  1.3%
      Neway Anchorlok International                     -                               0.0%         8,370,668        7                  1.3%
      Anglo-American Clays Corporation                   -                              0.0%         6,876,300        9                  1.0%
      Muskegon Properties Company                        -                              0.0%         6,392,900        10                 1.0%

      Total - 10 Largest                     155,716,013                            19.9%          185,421,349                         28.2%
      Total - All Other                      624,819,939                            80.1%          472,356,912                         71.8%
                                         $   780,535,952                           100.0%      $   657,778,261                        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

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
2009       8.9000        0.0680            2.1000           11.0680       2.4000

                        Overlapping - County-Wide Rates

       Muskegon     Intermediate      Special           Vocational    Community
Year    County         School        Education          Education      College

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
2009       6.6957        0.4597            2.2987            0.9996       2.2037


           Overlapping - School District                                                Grand Total

                                                          State                                   Non-
Year   Operating       Debt             Total           Education                  Homestead    Homestead

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
2009      18.0000        5.6000          23.6000             6.0000                   37.7254         55.7254




                                                  123
                                                                             City of Muskegon

                                                             PROPERTY TAX LEVIES AND COLLECTIONS

                                                                         Last Ten Fiscal Years




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

       2001    $   7,449,191   $   6,625,670       88.9% $      88,768   $    6,714,438          90.1% $         24,866   $   184,894   $     5,496          2.89%
       2002        7,922,898       7,036,846       88.8%       123,906        7,160,752          90.4%           30,056       168,666        15,700          2.71%
       2003        8,095,194       7,201,599       89.0%       710,353        7,911,952          97.7%           27,338       154,843        20,856          2.51%
       2004        8,292,451       7,230,231       87.2%       772,545        8,002,776          96.5%           36,179        82,305        22,655          1.70%
       2005        8,121,734       6,920,960       85.2%     1,027,932        7,948,892          97.9%           28,156        78,641        21,100          1.57%
       2006        8,207,019       7,231,508       88.1%       885,675        8,117,183          98.9%           13,461        65,297        24,539          1.26%
       2007        8,542,477       7,509,102       87.9%       949,754        8,458,856          99.0%                -        67,586        20,748          1.03%
       2008        8,466,096       7,219,540       85.3%     1,135,738        8,355,278          98.7%           36,917        73,430        37,388          1.75%
       2009        8,700,017       7,522,462       86.5%     1,102,891        8,625,353          99.1%           25,755        73,440        34,758          1.54%




124
      SOURCE: City of Muskegon Treasurer' Office
                                                                                                          City of Muskegon
                                                                         SEGMENTED DATA ON INCOME TAX FILERS, RATES AND LIABILITY

                                                                                              Most recent Year and Ten Years Previous




                                                             Period Ended June 30, 2010                                                                    Period Ended December 31, 2010
      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                                1,210                 6% $         511,340    $         5,113                  0%                  1,179                 5% $       1,029,474    $        10,295                  0%
      $2,501-$7,500                                   782                 4%         2,899,922             28,999                  1%                  1,169                 5%         6,827,297             68,273                  1%
      $7,501-$25,000                                1,909                10%        22,609,665            226,097                  7%                  2,704                10%        52,426,935            524,269                  7%
      $25,001-$50,000                               1,475                 7%        40,001,838            400,018                 12%                  2,394                 9%       101,907,814          1,019,078                 14%
      $50,001-$100,000                                839                 4%        42,561,878            425,619                 13%                    986                 4%        88,566,998            885,670                 13%
      More than $100,000                              151                 1%        19,067,457            190,675                  6%                    142                 1%        40,253,382            402,534                  6%

      Subtotal                                      6,366                32% $     127,652,100    $     1,276,521                 38%                  8,574                33% $     291,011,900    $     2,910,119                 41%



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




125
      $2,500 or less                                1,791                 9% $         995,800    $         4,006                  0%                  1,939                 8% $       1,428,558    $         9,525                  0%
      $2,501-$7,500                                 1,069                 5%         5,073,800             20,412                  1%                  1,665                 6%         7,901,142             52,677                  1%
      $7,501-$25,000                                2,838                14%        45,984,600            185,001                  5%                  4,208                16%        68,958,300            459,742                  6%
      $25,001-$50,000                               3,289                16%       120,403,000            484,394                 14%                  4,917                19%       177,165,226          1,181,151                 17%
      $50,001-$100,000                              2,366                12%       157,034,800            631,767                 19%                  2,102                 8%       135,900,236            906,039                 13%
      More than $100,000                              444                 2%        58,316,200            234,612                  7%                    527                 2%       118,501,368            790,042                 11%

      Subtotal                                     11,797                59% $     387,808,200    $     1,560,192                 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                                      1,800                 9%                      $       530,956                 16%                  1,850                 7%                      $       769,276                 11%

      Total                                         19,963              100%                      $     3,367,669                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



      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
      2009               6,623,499          70,000       1,120,000        7,813,499         6,565,000                   -       11,570,000     18,135,000     25,948,499          3.8%      659
      2010*              6,444,605               -       1,065,428        7,510,033         5,995,000                   -       11,570,000     17,565,000     25,075,033          3.7%      639




126
      * The City changed its fiscal year end from December 31 to June 30. 2010 figures are for six months.

      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

                                                 June 30, 2010*




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

Direct Debt
 City of Muskegon:
   Revenue Bonds                                     $         17,565,000 $      17,565,000 $                   -
   Special Assessment Bonds                                             -                 -                     -
   Capital Improvement Bonds                                    6,110,000                 -             6,110,000
   Intergovernmental Bonds                                      1,065,428                 -             1,065,428
   Act 99 Installment Purchase                                    334,605                 -               334,605
 Component Unit Debt:
   Downtown Development Authority                               3,245,000         3,245,000                       -
   Local Development Finance Authority                          4,485,000         4,485,000                       -

Total City Direct Debt                               $         32,805,033 $      25,295,000 $           7,510,033


                                                                             City Share as
                                                             Gross          Percent of Gross           Net
Overlapping Debt
 Muskegon School Distict                             $         34,891,459            94.48% $          32,965,450
 Orchard View School Distict                                   46,404,704            25.95%            12,042,021
 Reeths Puffer School Distict                                  67,227,033            10.65%             7,159,679
 Muskegon Intermediate School District                                  -             0.00%                     -
 Muskegon County                                               20,519,000            15.66%             3,213,275
 Muskegon Community College                                    14,920,000            15.66%             2,336,472

Total Overlapping Debt                               $       183,962,196                               57,716,898

Total City Direct and Overlapping Debt                                                         $       65,226,931

* The City changed its fiscal year end from December 31 to June 30. 2010 figures are for six months.

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

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.




                                                    127
                                                                                                                    City of Muskegon

                                                                                                   LEGAL DEBT MARGIN INFORMATION

                                                                                                                  Last Ten Fiscal Years




                                                              2001            2002            2003               2004             2005              2006             2007               2008              2009             2010*


      Debt Limit                                          $ 73,312,880    $ 74,726,405    $ 76,377,881       $ 75,663,530   $    76,252,738     $   78,773,640   $   84,174,359     $    85,933,940   $   82,198,965   $   82,198,965

      Total net debt applicable to limit                      7,232,900     11,066,900       9,726,900          9,191,900         9,918,800         16,142,939       15,591,018          15,481,870       14,778,499       14,435,033

      Legal debt margin                                   $ 66,079,980    $ 63,659,505    $ 66,650,981       $ 66,471,630   $    66,333,938     $   62,630,701   $   68,583,341     $    70,452,070   $   67,420,466   $   67,763,932




      Total net debt applicable to the limit as                   9.87%          14.81%          12.74%            12.15%              13.01%           20.49%           18.52%             18.02%           17.98%            17.56%
      a percentage of debt limit

                                                                                                             Legal Debt Margin Calculation for 2010*:

                                                                                                             Assessed Valuation:                                                    $   821,989,650
                                                                                                             Legal Debt Limit (10% )                                                     82,198,965

                                                                                                             Total Indebtedness:                                 $   32,805,033
                                                                                                             Debt not Subject to Limitation:
                                                                                                                Paid by Special Assessment                              (805,000)




128
                                                                                                                Revenue Bonds                                        (17,565,000)
                                                                                                             Debt Subject to Limitation                                                  14,435,033

                                                                                                             Legal Debt Margin                                                      $    67,763,932



      * The City changed its fiscal year end from December 31 to June 30. 2010 figures are for six months.


      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


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
2009                5,906,313        3,498,263           2,408,050         1,110,000           567,462          1,677,462           1.44
2010*               2,904,735        1,575,275           1,329,460           535,000           271,522            806,522           1.65



                                                 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


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
2009                                                          No System Indebtedness
2010*                                                         No System Indebtedness



* The City changed its fiscal year end from December 31 to June 30. 2010 figures are for six months.

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.




                                                              129
                                                                         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


      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%
      2009           39,401             720,386,117         18,283      32.8                5,931                909               18,417,289      16.2%
      2010           39,259             735,734,614         18,741      32.8                5,931                374               11,900,915      17.8%




130
      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



                                                                         2010                                          2001
                                                                                     Percentage                                   Percentage
                                                                                       of total                                     of total
                                                                                        City                                         City
      Employer                                       Employees           Rank        employment          Employees     Rank       employment


      Mercy General Health Partners                          3,227               1          17.9%              1,300          1          7.1%
      County of Muskegon                                       980               2           5.4%                650          5          3.6%
      State of Michigan                                        772               3           4.3%                901          3          4.9%
      Muskegon Public Schools                                  697               4           3.9%                550          6          3.0%
      Johnson Technology                                       474               5           2.6%                550          6          3.0%
      Knoll Group                                              450               6           2.5%                  -          -          0.0%
      Baker College                                            430               7           2.4%                  -          -          0.0%




131
      ADAC Plastics                                            400               8           2.2%                480          7          2.6%
      Verizon                                                  325               9           1.8%                350          9          1.9%
      City of Muskegon                                         281              10           1.6%                  -          -          0.0%
      Brunswick                                                180               -           0.0%                400          8          2.2%
      Hackley Hospital                                           -               -           0.0%              1,000          2          5.5%
      Sappi Fine Paper                                           -               -           0.0%                740          4          4.1%




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

                                                               BUDGETED FULL-TIME CITY GOVERNMENT POSITIONS BY DEPARTMENT

                                                                                                  Last Ten Fiscal Years




      Department                                                  2001            2002            2003          2004        2005     2006     2007     2008     2009    2010*
      Administration                                              1.70            1.50            1.50          1.50        1.50     1.50     1.50     1.50      -        -
      Affirmative Action                                          1.00            1.50            1.50          1.50        1.50     1.50     1.50     1.50     1.50     1.50
      Cemetaries                                                  3.52            3.52            3.52          3.52        3.25     3.00     3.25     3.25     3.25     2.50
      City Assessors Office                                        -               -               -             -           -        -        -        -        -        -
      City Clerk & Elections                                      4.00            4.00            4.00          4.00        4.00     4.00     4.00     4.00     4.00     3.00
      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                                       1.20            1.25            1.20          1.00        1.00     1.00     1.00     1.00     1.00     1.00
      City Manager's Office                                       3.05            2.75            1.75          1.75        1.75     1.75     1.75     1.75     3.25     2.25
      City Treasurer's Office                                     6.00            6.00            6.00          5.00        5.00     5.00     4.00     5.00     5.00     5.00
      Civil Service                                               2.00            3.00            3.00          2.00        2.00     2.00     2.00     2.00     2.00     2.00
      Community Event Support                                     0.60            0.20            0.20           -           -        -        -        -        -        -
      Environmental Services                                      4.00            4.00            4.00          3.50        2.00     2.00     2.00     2.00     2.00     2.00
      Farmers Market                                              0.12            0.12            0.12          0.12         -        -        -        -       0.05     0.05
      Finance Administration                                      4.00            4.00            4.00          4.00        4.00     4.00     4.00     4.00     4.00     3.00
      Fire                                                       44.00           44.00           43.00         41.00       40.00    38.00    38.00    38.00    38.00    36.00
      Fire Safety Inspections                                    13.00           12.00           13.00         12.00       10.00    12.00    12.00    12.00    12.00     9.00
      Forestry                                                    2.68            2.18            1.93          0.93         -        -        -        -        -        -
      General Recreation                                          0.78            0.78            2.24          1.24        1.00     1.17     1.33     1.66     1.66     2.00
      Income Tax Administration                                   5.00            5.00            5.00          5.00        5.00     5.00     5.00     5.00     5.00     5.00




132
      Information Systems                                         3.00            4.00            4.00          4.00        3.00     3.00     3.00     3.00     3.00     3.00
      Inner City Recreation                                       1.46            1.46             -             -           -        -        -        -        -        -
      Parking                                                     0.30            0.30            0.30           -           -        -        -        -        -        -
      Parks                                                      11.53           11.53           10.53          9.68        8.48     8.25     8.15     8.15     7.99     7.15
      Planning, Zoning & Economic Development                     7.50            7.50            7.50          6.50        6.00     6.00     6.00     6.00     6.00     5.00
      Police                                                    102.00          102.00           96.00         94.00       94.00    94.00    94.00    94.00    94.00    88.00
      Sanitation                                                  1.10            1.25            1.25          1.10        1.10     1.00     1.00     1.00     1.00      -
      MVH-Major Streets                                          13.75           14.70           15.30         15.45       15.25    16.00    17.75    15.75    13.75    12.00
      MVH-Local Streets                                           7.40            7.20            7.20          7.00        7.00     7.00     7.00     6.00     8.00     7.00
      MVH-State Trunklines                                        1.60            1.60            1.60          2.00        2.00     2.00      -        -        -        -
      Street Lighting                                             0.10            0.10             -             -           -        -        -        -        -        -
      Walker Arena                                                0.12            0.12            0.12          0.12         -        -        -        -        -        -
      Community Development                                       5.00            5.00            5.00          5.00        4.00     4.00     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     0.25
      Lead Program                                                 -               -               -             -           -        -        -        -        -       0.75
      Sewer Maintenance                                          14.40           14.40           15.15         14.55       15.05    16.00    16.20    15.20    13.20    10.20
      Water Filtration                                           10.00           10.00           10.00         10.00       10.00    10.00    10.00    10.00    10.00    10.00
      Water Maintenance                                          15.65           15.65           15.65         15.15       14.65    13.00    12.50    13.50    15.40    12.40
      Hartshorn Marina Fund                                       0.79            0.79            0.79          0.79        0.67     0.73     0.67     0.34     0.05     0.05
      Public Service Building                                     3.30            3.30            3.30          3.65        3.85     3.45     3.45     3.45     3.70     8.95
      Engineering                                                 9.40            9.35            9.40          7.70        7.70     7.45     7.45     7.45     7.45     5.45
      Equipment                                                   7.70            7.70            7.70          8.00        8.00     8.95     8.25     8.25     8.50     7.25
                                                                314.00          315.00          308.00        294.00      284.00   284.00   282.00   280.00   280.00   256.00



      * The City changed its fiscal year end from December 31 to June 30. 2010 figures are for six months.

      SOURCE: City of Muskegon Finance Department
                                                                                                City of Muskegon

                                                                               OPERATING INDICATORS BY FUNCTION/PROGRAM

                                                                                             Last Ten Fiscal Years



      Function/Program                                        2001          2002         2003          2004          2005         2006         2007         2008         2009         2010*



      Administrative Services
      Elections
      Number of registered voters                               23,457        23,931       23,904        25,261        25,918       26,028       26,345       27,678       26,136       26,136
      Number of votes cast:
       Last general election                                    12,054         8,916        8,916        14,169        14,169       10,410       10,410       15,271       15,271       15,271
       Last city election                                        3,840         3,840        4,325         4,325         4,022        4,022        1,101        1,101        2,254        2,254
      Percentage of registered voters voting:
       Last general election                                         51%           37%          37%           56%           55%          40%          40%          55%          58%        58%
       Last city election                                            16%           16%          18%           17%           16%          15%           4%           4%           9%         9%



      Financial Services
      Property Tax Bills                                        15,804        15,586       15,428        15,403        15,404       15,354       15,376       15,350       15,435            -
      Income Tax Returns                                           N/A        25,135       25,043        24,378        23,884       23,493       23,141       22,598       21,071       19,963
      Paper Check Issued to Vendors                              3,922         4,012        3,784         3,405         3,205        3,248        3,347        3,346        3,113        1,486
      Electronic Payments to Vendors                               662           651          746           752           828          800          772          763          963          450




133
      Public Safety
      Fire Protection
       Number of firefighter and officer positions                  45            44           42            41            41           41           41           41           37           37
       Number of emergency calls                                 3,818         3,878        3,656         4,116         4,206        4,092        4,171        4,298        4,220        2,062
      Police Protection
       Number of sworn officer positions                            91            85           83            83            83           84           84           84           79           79
       Part I (Major) Crimes                                     3,429         3,504        2,971         3,360         3,303        3,495        2,997        3,107        3,071        1,305



      Public Works
       Refuse Collected (Tons per Year)                         11,718        11,420       11,780        11,925        11,074       11,192       10,375       10,401       10,526        6,042
       Recyclables Collected (Tons per Year)                       838           808          775           779           588          559          629          626          309            -



      Water & Sewer
      Number of consumers                                       14,917         14,917       14,917        14,917        14,455       14,412       14,364       13,131       12,987       12,966
      Average daily water consumption (GPD)                  9,877,000      9,453,000    9,453,000     8,870,000     9,582,000    8,998,000    9,314,000    8,879,000    7,976,000    7,163,000
      Water main breaks repaired                                    12             12           19            10             5           13           21           34           17            6
      Sewer flows (Millions Gallons per Year)                    1,994          1,477        1,387         1,475         1,700        2,040        1,945        2,181        1,979          965
      Sewer Service Calls                                          799            661          624           568           638          605          598          533          508          263


      * The City changed its fiscal year end from December 31 to June 30.

      SOURCE: City of Muskegon Departments
                                                                                                          City of Muskegon

                                                                               CAPITAL ASSET STATISTICS BY FUNCTION/PROGRAM

                                                                                                         Last Ten Fiscal Years




      Function/Program                                    2001             2002             2003               2004              2005         2006         2007         2008         2009         2010*


      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                                       197.52           197.39           197.96             196.95           196.95       197.48       197.79       197.79       196.95       196.95
      Number of streetlights                                  3,111            3,114            3,123              3,111            3,159        3,159        3,134        3,134        3,192        3,125

      Culture and Recreation
      Number of parks (acres)                                    612              612              701                701               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)                                175.01           175.33           175.33             178.02           179.41       175.74       177.04       177.04       177.04       177.04




134
      Storm sewers (miles)                                   178.29           178.57           178.57             178.61           179.23       180.48       183.25       183.60       184.35       184.35

      Water
      Water mains (miles)                                    192.60           193.09           193.66             194.14           194.14       194.15       195.63       195.58       195.69       195.69


      * The City changed its fiscal year end from December 31 to June 30. 2010 figures are for six months.

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




                         135
                                          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


November 5, 2010


City Commission
City of Muskegon
Muskegon, Michigan


We have audited the financial statements of the City of Muskegon as of and for the six months ended June 30,
2010 and have issued our report thereon dated November 5, 2010. 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.

A deficiency in internal control exists when the design or operation of a control does not allow management or
employees, in the normal course of performing their assigned functions, to prevent, or detect and correct
misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal
control such that there is a reasonable possibility that a material misstatement of the entity's financial statements
will not be prevented, or detected and corrected on a timely basis.

Our consideration of internal control over financial reporting was for the limited purpose described in the first
paragraph of this section and was not designed to identify all deficiencies in internal control over financial
reporting that might be deficiencies, significant deficiencies, or material weaknesses. We did not identify any
deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined
above.




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
City Commission
November 5, 2010
Page 2


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.

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
                                          BRICKLEY DELONG
                                             CERTIFIED PUBLIC ACCOUNTANTS




            INDEPENDENT AUDITORS’ REPORT ON COMPLIANCE WITH REQUIREMENTS
              THAT COULD HAVE A DIRECT AND MATERIAL EFFECT ON EACH MAJOR
                  PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE
                        IN ACCORDANCE WITH OMB CIRCULAR A-133

November 5, 2010


City Commission
City of Muskegon
Muskegon, Michigan


Compliance
We have audited the City of Muskegon's compliance with the types of compliance requirements described in the
U.S. Office of Management and Budget (OMB) Circular A-133 Compliance Supplement that could have a direct
and material effect on each of the City of Muskegon's major federal programs for the six months ended June 30,
2010. 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 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 of the
City of Muskegon’s compliance with those requirements.

In our opinion, the City of Muskegon complied, in all material respects, with the compliance requirements
referred to above that could have a direct and material effect on each of its major federal programs for the six
months ended June 30, 2010. 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 2010-1 in Section III of the accompanying Schedule of Findings and
Responses.




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


                                                                 138
City Commission
November 5, 2010
Page 2


Internal Control Over Compliance
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 to determine the auditing
procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over
compliance in accordance with OMB Circular A-133, 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.

Our consideration of internal control over compliance was for the limited purpose described in the preceding
paragraph and was not designed to identify all deficiencies in internal control over compliance that might be
significant deficiencies or material weaknesses and therefore, there can be no assurance that all deficiencies,
significant deficiencies, or material weaknesses have been identified. However, as discussed below, we identified
a certain deficiency in internal control over compliance that we consider to be a material weakness.

A deficiency in internal control over compliance exists when the design or operation of a control over compliance
does not allow management or employees, in the normal course of performing their assigned functions, to
prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a
timely basis. A material weakness in internal control over compliance is a deficiency, or combination of
deficiencies, in internal control over compliance, such that there is a reasonable possibility that material
noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and
corrected, on a timely basis. We consider the deficiency in internal control over compliance described in the
accompanying Schedule of Findings and Responses, as Finding 2010-1 to be a material weakness.

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

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.




                                                       139
                                                                                     City of Muskegon
                                                                     SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
                                                                             For the six months ended June 30, 2010

                                                                                                                      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            June 30,
        grantor/program title                                                        number          amount             2010           (cash basis)       expenditures          2010      Notes

      U.S. Department of Housing and Urban Development
      Direct programs
         Community Development Block Grant                                           14.218
             B-09-MC-26-0026                                                                   $       999,433   $      484,867   $       570,796     $       254,409    $      168,480
             Program Income                                                                              2,436              -               2,436               2,436               -
                   Total Community Development Block Grant                                           1,001,869          484,867           573,232             256,845           168,480    4

         ARRA - Community Development Block Grant - Recovery                         14.253
           B-09-MY-26-0026                                                                            267,182               -               47,483            165,760           118,277    4

         Home Investment Partnership Program                                         14.239
           M-06-MC-26-0215                                                                            301,767             2,100             2,100                 -                 -
           M-08-MC-26-0215                                                                            290,049            63,537            63,537                 -                 -
           M-09-MC-26-0215                                                                            322,469           135,885           202,897             143,912            76,900
           Program Income                                                                              75,434               -              75,434              75,434               -




140
                 Total Home Investment Partnership Program                                            989,719           201,522           343,968             219,346            76,900

         Lead-Based Paint Hazard Control in Privately-Owned Housing                  14.900
            FR-5100-N-20A                                                                            2,079,492              938                -                  -                 938
            Program Income                                                                              11,254              -               11,254             11,254               -
                  Total Lead-Based Paint Hazard Control in Privately-Owned Housing                   2,090,746              938             11,254             11,254               938

                   Total direct programs                                                             4,349,516          687,327           975,937             653,205           364,595

      Passed through Michigan Department of Housing Development Authority
         Community Development Block Grant                                           14.218
            Neighborhood Stabilization Program
                NSP-2008-0280-ENT                                                                     570,460           195,642           134,482             265,495           326,655
                Program Income                                                                            820               -                 820                 820               -
                   Total Neighborhood Stabilization Program                                           571,280           195,642           135,302             266,315           326,655    4

                   Total U.S. Department of Housing and
                      Urban Development                                                              4,920,796          882,969          1,111,239            919,520           691,250
                                                                              City of Muskegon
                                                          SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
                                                                  For the six months ended June 30, 2010

                                                                                                         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            June 30,
        grantor/program title                                        number             amount             2010            (cash basis)       expenditures          2010       Notes
      U.S. Department of Justice
      Direct programs
         Bulletproof Vest Partnership Grant                          16.607
             2007 Grant                                                           $         7,788   $          -      $            -      $            53    $           53
             2008 Grant                                                                     5,563              -                   -                5,479             5,479
                                                                                           13,351              -                   -                5,532             5,532

         Justice Assistance Grant                                    16.738
            2009-DJ-BX-0692                                                                81,109           36,088              75,780             39,692                -

                   Total direct programs                                                   94,460           36,088              75,780             45,224             5,532

      Passed through Grand Valley State University
         Project Safe Neighborhood                                   16.609
            2009-GP-GX-0041                                                                 5,000              -                 5,000              5,000                -




141
      Passed through Ottawa County
         WEMET Multi-Jurisdictional Drug
            Enforcement CO-OP                                        16.738
                70834-210B                                                                 36,799              -               26,315              35,445             9,130

      Passed through Muskegon County
         ARRA - Justice Assistance Grant                             16.804
            2009-SB-B9-1824                                                              218,169               -               24,760              28,296             3,536

                   Total U.S. Department of Justice                                      354,428            36,088            131,855             113,965            18,198


      U.S. Department of Energy
      Direct programs
         Energy Efficiency and Conservation Block Grant              81.128
             041714125                                                                   181,600          (181,280)                -               18,551          (162,729)
                                                                                       City of Muskegon
                                                                      SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
                                                                              For the six months ended June 30, 2010

                                                                                                               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            June 30,
        grantor/program title                                                number          amount              2010           (cash basis)       expenditures          2010       Notes

      U.S. Department of Health and Human Services
      Passed through the Michigan Department of State
         Voting Access for Individuals with Disabilities Program             93.617    $        16,750    $       16,750   $          16,750   $           -      $           -


      U.S. Department of Homeland Security
      Direct programs
         Assistance to Firefighters
             EMW-2009-FP-00389                                               97.044               9,000               -                  -               9,000              9,000


                   TOTAL FEDERAL ASSISTANCE                                            $      5,482,574   $      754,527   $       1,259,844   $     1,061,036    $       555,719




142
      The accompanying notes are an integral part of this schedule.
                                                                                      City of Muskegon
                                                                SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
                                                                        For the six months ended June 30, 2010

      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 six months ended June 30, 2010 and federal expenditures per the Schedule of Expenditures of Federal Awards.

              Federal revenues per City of Muskegon financial statements
                 General Fund                                                                                                                $        122,965
                 Major Street and Trunkline Fund                                                                                                        9,443
                 Other governmental funds                                                                                                             848,127
                                                                                                                                                      980,535

              Plus program income                                                                                                                      89,944
              Less MDOT contracted projects as shown below                                                                                             (9,443)

              Federal expenditures per the Schedule of Expenditures of Federal Awards                                                        $      1,061,036

      3.   The Michigan Department of Transportation (MDOT) requires that cities report all federal and state grants pertaining to their city. During the six months ended June 30,
           2010, the federal aid received and expended by the City was $9,443 for contracted projects as shown below. Contracted projects are defined as projects performed by




143
           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 STP 1061 (309) Fed Item RR7077 Contract 10-5009                                                                        $           9,443   $           9,443
                     Total U.S. Department of Transportation,
                        Federal Highway Administration (contracted projects)                                                                 $           9,443   $           9,443

      4.   Community Development Block Grant cluster
                                               City of Muskegon
                               SCHEDULE OF FINDINGS AND RESPONSES
                                    Six months ended June 30, 2010


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?                                           yes   X 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?                                    X yes            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/Cluster

                                                       U.S. Department of Housing and Urban Development
              14.218 and 14.253                           CDBG Entitlement Grant Cluster
              14.239                                      Home Investment Partnership Program

     5.   Dollar threshold used to distinguish between type A and type B programs: $150,000 (6-month period)

     6.   Auditee qualified as low-risk auditee?                                          yes   X no




                                                         144
                                            City of Muskegon
                             SCHEDULE OF FINDINGS AND RESPONSES
                                  Six months ended June 30, 2010


SECTION II – FINANCIAL STATEMENT FINDINGS

  NONE


SECTION III – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

   U.S. Department of Housing and Urban Development
   Finding 2010-1: CDBG Entitlement Grant Cluster
   CFDA: 14.218 and 14.253
   Award Number: B-09-MC-26-0026, B-09-MY-26-0215, NSP-2008-0280-ENT
   Award Year End: June 30, 2010
   Home Investment Partnership Program
   CFDA: 14.239
   Award Number: M-09-MC-26-0215
   Award Year End: June 30, 2010

   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 that none of the employees whose wages and benefits were
   charged to either grant had proper time and effort documentation.
   Questioned Costs: $140,316 and $19,647 for CDBG Entitlement Grant Cluster and Home Investment
   Partnership Program, respectively, which represents the portion of salaries and benefits charged to the grants
   for all employees who did not have adequate documentation.
   Context: None of the employees, for which personnel activity reports or semi-annual certifications were
   required, had adequate documentation.
   Effect: The salaries and benefits charged to the CDBG Entitlement Grant Cluster and Home Investment
   Partnership Program could be disallowed.
   Cause: The City became aware of time documentation requirements during the six month period under
   audit, but did not fully implement the requirements.
   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.

  Views of Responsible Officials and Planned Corrective Actions: The City agrees with this finding. The City
  recognizes this federal requirement and has put in place procedures to better document employee time
  allocations.




                                                      145
146
CLIENT DOCUMENTS




      147
City of Muskegon
                                                                                     933 Terrace Street
                                                                                     Muskegon, MI 49440
                                                                                     Phone: (231) 724-6709




                          SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS



  November 5, 2010



  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, 2009 dated April 5, 2010.

  SECTION II – FINANCIAL STATEMENT FINDINGS

      2009 Finding No. 1:     MATERIAL WEAKNESS—Grant Revenue Recognition Procedures

      Condition: Grant revenues were not properly recorded which caused grant revenues and receivables to be
      misstated as of the year end.

      Recommendation: Year end procedures for reconciling grant receivables and associated revenues should
      be improved.

      Current Status: The City implemented this recommendation during the period under audit. No similar
      finding was reported for the single audit for the six months ended June 30, 2010.




                                                     148
U.S. Department of Housing and Urban Development
November 5, 2010
Page 2


SECTION III – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

    U.S. Department of Housing and Urban Development
    2009 Finding No. 2: Community Development Block Grant
                          CFDA: 14.218
                          Award Number: B-08-MC-26-0026, B-09-MC-0026, NSP-2008-0280-ENT
                          Award Year End: December 31, 2009
                           Lead-Based Paint Hazard Control in Privately-Owned Housing Grant
                           CFDA: 14.900
                           Award Number: FR-5100-N-20A
                           Award Year End: December 31, 2009

    Specific Requirement: Allowable Costs/Cost Principles
    Condition: During our detailed testing, we noted that none of the employees whose wages and benefits
    were charged to either grant had proper time and effort documentation.
    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: See Finding 2010-1 in the Schedule of Findings and Responses for the six months ended
    June 30, 2010 for a similar finding reported.


Sincerely,




Timothy J. Paul
Finance Director




                                                 149
City of Muskegon
                                                                             933 Terrace Street
                                                                             Muskegon, MI 49440
                                                                             Phone: (231) 724-6709




                                   CORRECTIVE ACTION PLAN



November 5, 2010




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 June 30,
2010.

Name and address of independent public accounting firm:
              Brickley DeLong, P.C.
              P.O. Box 999
              Muskegon, Michigan 49443
Audit period: June 30, 2010

The finding from the Schedule of Findings and Responses for the six months ended June 30, 2010 is
discussed below. The finding is numbered consistently with the numbers assigned in the schedule.

SECTION II – FINANCIAL STATEMENT FINDINGS

   There were no findings in relation to the financial statements.




                                                   150
U.S. Department of Housing and Urban Development
November 5, 2010
Page 2


SECTION III – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

     U.S. Department of Housing and Urban Development
     Finding 2010-1: CDBG Entitlement Grant Cluster
     CFDA: 14.218 and 14.253
     Award Number: B-09-MC-26-0026, B-09-MY-26-0215, NSP-2008-0280-ENT
     Award Year End: June 30, 2010

     Home Investment Partnership Program
     CFDA: 14.239
     Award Number: M-09-MC-26-0215
     Award Year End: June 30, 2010

     Specific Requirement: Allowable Costs/Cost Principles

     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: The City recognizes this federal requirement and has put in place procedures to
    better document employee time allocation.

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




                                                  151

Go to the top of the page.


Sign up for City of Muskegon Emails