Annual Comprehensive Financial Reports ACFR-2011

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City of Muskegon,
Michigan



Comprehensive Annual
Financial Report




For The Fiscal Year Ended June 30, 2011


                    www.shorelinecity.com
                                              CITY OF MUSKEGON,
                                                   MICHIGAN




                                            COMPREHENSIVE
                                        ANNUAL FINANCIAL REPORT
                                          FOR THE YEAR ENDED
                                             JUNE 30, 2011




                                                    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: Hot Rod Magazine’s seven-day Hot Rod Power Tour includes a scheduled stop in Downtown Muskegon. The Power Tour
brings thousands of high-end hot rods, street rods, muscle cars and custom trucks to town. (Photo 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




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

SINGLE AUDIT OF FEDERAL FINANCIAL ASSISTANCE PROGRAMS

Independent Auditors’ Report on Internal Control over Financial
   Reporting and on Compliance and Other Matters Based on an
   Audit of Financial Statements Performed in Accordance with
   Government Auditing Standards ..................................................................................................... 134
Independent Auditors’ Report on Compliance with Requirements
   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 .......................................................................................... 136
Schedule of Expenditures of Federal Awards ...................................................................................... 138
Notes to Schedule of Expenditures of Federal Awards ....................................................................... 141
Schedule of Findings and Responses ................................................................................................... 142
Client Documents
   Summary Schedule of Prior Audit Findings ................................................................................... 146
   Corrective Action Plan .................................................................................................................... 147




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

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

City Manager
(231)724-6724
FAX (231)722-
1214
                   October 21, 2011
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 fiscal year ended June 30, 2011. 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 previously been specified by Charter.
6985
                   The Commission subsequently implemented this authority setting June 30 as the City’s
Income Tax         new fiscal period end date. This CAFR report covers the first full twelve-month period
(231)724-6770
FAX (231)724-      (July 1, 2010 through June 30, 2011) completed since this change was made.
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

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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 2010 census population of 38,401, 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. 2011 marks the ferry service’s eighth 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 several 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

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


The City 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 has a diverse local economy. The manufacturing sector is strong in the areas of aerospace,
chemicals, plastics, defense, 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 2011) gives an
independent assessment of the local economy:

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       “Total employment in Muskegon County increased by 0.4 percent, which marked the second consecutive
       quarter of modest growth. Strong gains in the goods-producing sector and an uptick in government
       employment erased modest losses in the service-providing sector. The job growth helped push the region’s
       unemployment rate down to 10.5 percent from 10.9 percent the previous quarter, although the overall level
       remained higher than for any other metro area in west Michigan. Unfortunately, the region’s limited economic
       indicators suggest that conditions will not be as rosy over the next few months.”


MAJOR INITIATIVES AND ACCOMPLISHMENTS
Among the City's major initiatives and accomplishments in fiscal year 2010-11 were the following:

      Muskegon hosted the Hot Rod Power Tour an event sponsored by Hot Rod Magazine that
       brought nearly 6,000 high-end hot rods, street rods, muscle cars and custom trucks to downtown
       Muskegon in early summer. The event was extremely successful for the community and will
       return in 2012.

      The Lake House Waterfront Grille re-opened capping a very successful comeback of a major
       downtown waterfront development that includes the Shoreline Inn Hotel & Conference Center
       and the Terrace Point Marina. The development had been in foreclosure proceedings.

      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.

      Work progressed on transforming the Russell Block Market building into a downtown market
       hosting eighteen to thirty start-up and small retailers of clothing, artwork and food.

      Work was completed on a major $12 million auto dealership expansion encompassing GM,
       Honda and Hyundai brands. The developer has purchased additional land and plans further
       expansion. 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.

      Significant improvements were made to the LC Walker Arena including installation of a video
       scoreboard, complete renovation of locker and training rooms and installation of new lighting and
       sound systems. These improvements were financed by the private company that operates the
       Arena under contract with the City.

      Mercy Health Partners undertook several renovation and expansion projects at its two Muskegon
       hospital campuses including expansion of the acute care facilities.




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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.


DEBT ADMINISTRATION
At June 30, 2011, the total of City bonds and contractual debt outstanding (including discretely
presented component unit debt) was $31,498,123.
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 $6 billion MERS program offers. All new
employees hired by the City since 2007 are covered by a defined contribution retirement program. As
of the most recent actuarial report (December 31, 2010), the City’s defined benefit retirement program
is 100.5% funded.



                                                    9
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.” As of the
most recent actuarial report (December 31, 2009), the City’s retiree healthcare program is 55.2%
funded.


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 six months ended June 30, 2010. This marked the
twenty-fifth 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




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12
                                                                  Mayor & City
                                                                  Commission




                                                   City Manager                    City Attorney




                                              Various Boards &
                                                Commissions




Administrative Services                                                                                                   Community & Economic
                                Finance Division             Public Safety Division          Public Works Division
       Division                                                                                                            Development Division




                                                                                                                               Planning, Zoning & Code
       City Clerk & Elections     Finance Administration                   Police                       Engineering                  Compliance
                                                                                                                                    Enforcement




                                                                                                      Water & Sewer                Community &
           Civil Service               City Treasurer                       Fire
                                                                                                      Maintenance              Neighborhood Services




                                       Income Tax
                                                                    Building Inspections              Water Filtration           Recreation Services
                                      Administration




                                  Information Technology                                             Streets & Highways




                                    Contract Oversight:
                                     Assessing, Walker
                                                                                                     Parks & Cemeteries
                                    Arena, Fisherman's
                                         Landing




                                                                                                         Sanitation




                                                                                                        Streetlights




                                                                                                   Marina & Launch Ramps




                                                                                                      Farmers' Market




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

                                                June 30, 2011




                                          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
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                                           BRICKLEY DELONG
                                                  CERTIFIED PUBLIC ACCOUNTANTS




                                              INDEPENDENT AUDITORS’ REPORT


     October 21, 2011


     City Commission
     City of Muskegon
     Muskegon, Michigan


     We have audited the accompanying financial statements of the governmental activities, the business-type
     activities, the aggregate discretely presented component units, each major fund, and the aggregate
     remaining fund information of the City of Muskegon as of and for the year ended June 30, 2011, 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, 2011, and the respective changes in financial position, and cash flows,
     where applicable, thereof for the year then ended in conformity with accounting principles generally
     accepted in the United States of America.

     Accounting principles generally accepted in the United States of America require that the management's
     discussion and analysis and required supplementary information on pages XX - XX and XX - XX 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
  October 21, 2011
  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,
2011. Please read it in conjunction with the City’s financial statements, which follow this
section.

FINANCIAL HIGHLIGHTS

     The City completed its first full 12-month fiscal year with a June 30 year-end on
      June 30, 2011. The City changed from a December 31 fiscal year end in 2010
      and the prior financial report was for a six-month transition period ended June 30,
      2010.

     The assets of the City of Muskegon exceeded its liabilities by $134,502,902 as of
      June 30, 2011. Of the total net assets, $21,809,807 (16.2%) was unrestricted and
      may be used to meet the City’s ongoing obligations to citizens and creditors.

     The City’s total combined net assets changed only slightly, increasing by $397,698
      during the year ended June 30, 2011.

     The City’s governmental funds reported combined ending fund balance of
      $10,926,340, a decrease of $1,185,458 (9.8%) from the prior year. The decrease
      is primarily attributable to a $1.0 million, one-time supplemental contribution made
      to the City’s defined benefit program to keep the program at a 100% actuarial
      funding level.

     The City’s General Fund reported a total fund balance of $6,011,382, a decrease
      of $1,527,072 from the prior year restated balance of $7,538,454. A series of one-
      time factors account for the changes in fund balance:

          Compliance with GASB Statement 54 required elimination of the $1.5 million
           Budget Stabilization Fund and recording this amount as part of the City’s
           General Fund. This necessitated restatement of the prior year’s fund balance
           from $6,038,454 to $7,538,454;
          As noted above, $1.0 million was contributed to the City’s defined benefit
           pension program above and beyond the City’s regular annual actuarial
           required contribution;
          $620,000 was used to retire an outstanding economic development loan from
           the State of Michigan; and,
          $334,605 was used to retire an outstanding lease-purchase contract for two
           City fire trucks.




                                            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 $134,502,902 as of June 30, 2011. This is
a slight increase of $397,698 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
                               6/30/2011   6/30/2010*        6/30/2011     6/30/2010*       6/30/2011   6/30/2010*      Change


Current and other assets        $20,011       $20,026          $10,904          $8,985       $30,915         $29,011        6.56%
Capital assets                   74,097           75,306        56,942          58,859       131,038         134,165       -2.33%
Total Assets                     94,108           95,332        67,846          67,844       161,953         163,177       -0.75%


Long-term liabilities             6,919            8,229        15,423          16,702        22,342          24,931      -10.38%
Other liabilities                 2,990            2,406         2,120              1,734      5,110           4,140       23.43%
Total Liabilities                 9,909           10,635        17,543          18,436        27,452          29,071       -5.57%


Net Assets
Invested in capital assets,
  net of related debt            67,945           67,810        40,420          41,106       108,365         108,916       -0.51%
Restricted                        3,656            3,059           672               672       4,328           3,731       16.01%
Unrestricted                     12,598           13,828         9,211              7,630     21,809          21,458        1.64%
Total Net Assets                $84,199       $84,697          $50,303        $49,408       $134,502        $134,105        0.30%




The bulk of the City’s net assets ($108,364,685 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 3.2% ($4,328,410) of the City’s net assets are legally
restricted as to use. Remaining net assets ($21,809,807) are unrestricted and may be
used to meet the City’s operating needs and ongoing obligations. The City’s
unrestricted net assets increased slightly ($351,180) during the year.

Changes in net assets. The City’s total revenues were $45,018,833 for the year ended
June 30, 2011. This represents a 71% increase over total revenues collected during the
six-month fiscal year ended June 30, 2010 and a 2% increase over total revenues
collected during the prior twelve-month reporting period ended December 31, 2009.
About 37% of the City’s revenue stream came from charges to users of specific services
such as water or sewer. Another seventeen percent came from grants from the state
and federal governments and thirty-five percent was from local property and income
taxes. The remainder was comprised of state revenues and other sources such as
franchise fees and investment income.

The total cost of all City programs and services for the year ended June 30, 2011 was
$44,621,135. This represents a 106% increase over total expenses incurred during the
six-month fiscal year ended June 30, 2010 and a five percent decrease from reported
expenses for the last twelve-month fiscal year ended December 31, 2009. Seventy-four
percent of the City’s expenses 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 ($397,698) represents
the decrease in total net assets realized in the fiscal year ended June 30, 2011. 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
                                        6/30/2011   6/30/2010*        6/30/2011       6/30/2010*      6/30/2011   6/30/2010*      Change

Program revenues
 Charges for services                     $4,418        $1,964          $12,302              $6,490    $16,720          $8,454       97.78%
 Operating grants and contributions        5,425            3,132                 -               -      5,425           3,132       73.21%
 Capital grants and contributions          2,257             255                20                -      2,277            255       792.94%
General revenues
 Property taxes                            8,844            8,681                 -               -      8,844           8,681        1.88%
 Income taxes                              6,867            3,505                 -               -      6,867           3,505       95.92%
 State shared revenues                     3,847            1,832                 -               -      3,847           1,832      109.99%
 All other                                 1,014             400                24              17       1,038            417       148.92%
Total revenues                            32,672        19,769           12,346               6,507     45,018          26,276       71.33%


Governmental activities expenses
 Public representation                       854             445                  -               -        854            445        91.91%
 Administrative services                     646             318                  -               -        646            318       103.14%
 Financial services                        2,373            1,210                 -               -      2,373           1,210       96.12%
 Public safety                            13,391            6,333                 -               -     13,391           6,333      111.45%
 Public works                              3,471            1,641                 -               -      3,471           1,641      111.52%
 Highways, streets and bridges             7,013            3,680                 -               -      7,013           3,680       90.57%
 Community and economic development        2,831            1,275                 -               -      2,831           1,275      122.04%
 Culture and recreation                    1,524             760                  -               -      1,524            760       100.53%
 General administration                      794             210                  -               -        794            210       278.10%
 Interest on long-term debt                  273             139                  -               -        273            139        96.40%
Business-type activities expenses
 Water                                          -               -          5,869              2,959      5,869           2,959       98.34%
 Sewer                                          -               -          5,289              2,525      5,289           2,525      109.47%
 Marina and Launch Ramp                         -               -               293            150         293            150        95.33%
Total expenses                            33,170        16,011           11,451               5,634     44,621          21,645      106.15%


Change in net assets before transfers       (498)           3,758               895            873         397           4,631      -91.43%
Transfers                                       -             (3)                 -              3            -              -                -
Change in net assets                        (498)           3,755               895            876         397           4,631      -91.43%


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

Net assets at end of year                $84,199       $84,697          $50,303         $49,408       $134,502        $134,105        0.30%

* Six‐month fiscal period


Net assets for governmental activities decreased $497,505 while net assets for
business-type activities increased by $895,203.




                                                                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 year ended June 30,
        2011 was $33,170,383.
       The net cost that City taxpayers paid for these activities through local property
        taxes and income taxes was $15,710,971, or 47% 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
                                      6/30/2011    6/30/2010*     % Change        6/30/2011    6/30/2010*    % Change
Governmental activities
 Public safety                           $13,391       $6,333        111.45%         $12,046       $5,666      112.60%
 Community and economic development        2,831         1,275       122.04%             106         (482)    -121.99%
 Culture and recreation                    1,524           760       100.53%           1,147          611       87.73%
 Highways, streets and bridges             7,013         3,680           90.57%        1,770        1,919       -7.76%
 Public works                              3,471         1,641       111.52%           2,817        1,416       98.94%
 All other                                 4,940         2,322       112.75%           3,184        1,529      108.24%
Total governmental activities            $33,170      $16,010        107.18%         $21,070      $10,659       97.67%


* 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 fiscal year ended June 30,
2011, the City’s total business-type activities realized an overall increase in net assets
of $895,203.

Sewer Fund net assets increased $1,400,447 primarily as result of lower and more
stable wholesale sewage treatment costs paid to Muskegon County. The Water Fund
saw net assets fall $330,504. This falloff is attributable to reduced consumption levels.
Marina and Launch Ramp Fund net assets decreased $96,735 due to lower operating
revenues resulting from the ongoing economic downturn.




                                                          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 year ended June 30, 2011
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
        6/30/2011           $6,011,382        -0.45%               $24,850,082        24.19%
        6/30/2010*            6,038,454      268.50%                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%
       * 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.

General Fund revenues for the year ended June 30, 2011 were $205,365 higher than
the final amended budget estimate. The positive revenue variance is mostly due to
higher than expected state shared revenues.

General Fund expenditures were $406,489 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.

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. For the year ended June 30, 2011, the fund balance of the Major
Street and Trunkline Fund increased $206,844.




                                                       26
CAPITAL ASSETS AND DEBT ADMINISTRATION

Capital Assets

As of June 30, 2011, the City and its component units had invested $133,927,508 in a
variety of capital assets, including land, streets, equipment, buildings, water and sewer
lines, and vehicles. This is a decrease of $3,298,490 from capital assets reported as of
June 30, 2010. The decrease is due to normal depreciation. 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, 2011, the City had $24,019,442 in bonds and
                                                                                                  The City’s limited full faith and
other long-term obligations outstanding. This represents a                                        credit bonds (bonds guaranteed
ten percent decrease from the prior year. In addition to                                          by the City’s taxing powers)
making all regularly scheduled debt service payments, the                                         were upgraded by Standard &
                                                                                                  Poor’s from a rating of “A” to
City fully retired a $334,605 installment lease purchase                                          “A+” in early 2010. The City’s
contract and $620,000 state economic development loan                                             Water System revenue bonds
during the year.                                                                                  carry the “AA-“ rating.


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
                                  6/30/2011   6/30/2010*             6/30/2011      6/30/2010*   6/30/2011     6/30/2010*       Change
Due within one year                   $421            $527              $1,256         $1,223      $1,677             $1,750       -4.17%

Due in more than one year            6,919            8,230             15,423         16,702      22,342             24,932      -10.39%

Total bonds & other obligations     $7,340        $8,757               $16,679        $17,925     $24,019            $26,682       -9.98%

* Six‐month fiscal period


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 $7,478,681 at year-end as shown in the table below. This represents a
decrease of 3.2% from the prior year. On March 22, 2011, $2,005,000 of outstanding
Downtown Development Authority bonds were refunded with new bonds issued at lower
interest rates. The net present value savings from the refunding are $72,474 or 3.6% of
the refunded principal amount.

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.




                                                                  27
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)

                                  Downtown Development               Local Development
                                                                                                        Total                Percentage
                                    Finance Authority                 Finance Authority

                                   6/30/2011   6/30/2010*           6/30/2011     6/30/2010*     6/30/2011      6/30/2010*      Change
Due within one year                    $265         $240                   $80            $80        $345            $320        7.81%
Due in more than one year             2,813        3,005                 4,321           4,400      7,134           7,405       -3.66%
Total bonds & other obligations      $3,078       $3,245                $4,401          $4,480     $7,479          $7,725       -3.18%

* Six‐month fiscal period



ECONOMIC FACTORS AND NEXT YEAR’S BUDGETS AND RATES

The City’s fiscal year 2011-12 capital budget anticipates spending $6,925,400 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. On September 30, 2011, the City
issued $2.0 million in bonds for the purpose of providing local matching funds for
several significant street projects for which state and federal matching grants are
available.

From an operating standpoint, the City’s 2011-12 budget will entail further program and
position cuts to better balance the City’s operating expenses with recurring revenue
streams:

          Several firefighter positions will be vacated through retirements during the year.
           The City will fill these positions with part-time firefighters under an innovative
           agreement with the firefighters’ union.
          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.


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%




                                                                      28
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 increased from $3,368,057 in the six-month period ended June
30, 2010 to $6,599,753 for the year ended June 30, 2011. The 2011 fiscal year
collections represent a 1.8% increase over the $6,482,200 collected during the most
recent 12-month fiscal period ended December 31, 2009. For 2011-12, the City has
conservatively estimated income tax revenue to be $6,500,000.


                                             City Income Tax       Percent
                                 Year           Revenues           Change
                              6/30/2011             $6,599,753     96.0%
                             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%
                           * 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 2011-12, the City tax levy is 9.5 mills for general operations and 2.5 mills for
sanitation service. We project that $7,968,182 in property tax revenue will be collected
during fiscal year 2011-12.

It should be noted that several significant property tax appeals are pending. The impact
of these appeals on City finances is being monitored closely. At June 30, 2011 the City
has recorded a $500,000 estimated liability for potential refunds resulting from these tax
appeals.


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




                                                  29
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
                            6/30/2011                $3,846,859   110.0%
                            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    -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 the 2011-12 fiscal year, the City has projected $3,050,000 in state shared revenues.
Recent information from the state indicate that this estimate may be able to be
increased 10-15%.


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
                             6/30/2011               $3,256,430    87.0%
                            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%
                          * Six‐month fiscal period


For 2011-12, the City is projecting no material change in street revenues from the State
of Michigan.




                                                      30
Water and Sewer Fees

From a government-wide entity perspective, combined water and sewer fees represent
one of the City’s largest income streams, totaling $12,107,611 during the year ended
June 30, 2011. Charges to customers are based on the amount of metered services
used times rates periodically set by the City Commission. Water rates will be adjusted
in 2011-12.


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, 2011


                                                                                      ASSETS

                                                                                                Governmental      Business-type                      Component
                                                                                                  activities        activities          Total          units
     CURRENT ASSETS
       Cash and investments                                                                     $   13,652,992    $    6,477,240   $    20,130,232   $     375,287
       Receivables                                                                                   2,507,312         1,926,340         4,433,652               -
       Due from other governmental units                                                             2,030,496            59,604         2,090,100               -
       Internal balances                                                                            (1,426,687)        1,426,687                 -               -
       Inventories                                                                                      29,836           129,887           159,723               -
       Prepaid items                                                                                 1,008,067           103,860         1,111,927               -
                  Total current assets                                                              17,802,016        10,123,618        27,925,634         375,287

     NONCURRENT ASSETS
       Restricted assets                                                                                     -          672,000           672,000                 -
       Capital assets, net
          Nondepreciable                                                                            20,317,545         1,651,982        21,969,527         400,000
          Depreciable                                                                               53,779,017        55,289,954       109,068,971       2,489,010
       Bond issuance costs, net                                                                        113,520           108,619           222,139         140,139
       Special assessments receivable                                                                  743,750                 -           743,750               -
       Net pension asset                                                                             1,000,000                 -         1,000,000               -
       Notes receivable                                                                                352,763                 -           352,763               -
                  Total noncurrent assets                                                           76,306,595        57,722,555       134,029,150       3,029,149
                  Total assets                                                                      94,108,611        67,846,173       161,954,784       3,404,436




34
                                                                       LIABILITIES AND NET ASSETS (DEFICITS)
     CURRENT LIABILITIES
       Accounts payable and accrued liabilities                                                      1,844,129           383,208         2,227,337          37,700
       Due to other governmental units                                                                  65,888           480,266           546,154               -
       Unearned revenue                                                                                658,949                 -           658,949               -
       Bonds and other obligations, due within one year                                                421,000         1,256,000         1,677,000         345,000
                  Total current liabilities                                                          2,989,966         2,119,474         5,109,440         382,700

     NONCURRENT LIABILITIES
       Bonds and other obligations, less amounts due within one year                                 6,919,081        15,423,361        22,342,442       7,133,681
                  Total liabilities                                                                  9,909,047        17,542,835        27,451,882       7,516,381

     NET ASSETS (DEFICITS)
       Invested in capital assets, net of related debt                                              67,944,957        40,419,728       108,364,685       (1,511,657)
       Restricted for:
          Streets and highways                                                                       2,145,116                -          2,145,116                -
          Debt service                                                                                       -          672,000            672,000                -
          Law enforcement                                                                              140,828                -            140,828                -
          Perpetual care
             Expendable                                                                                 19,063                 -            19,063                -
             Non-expendable                                                                          1,346,284                 -         1,346,284                -
          Other purposes                                                                                 5,119                 -             5,119                -
       Unrestricted                                                                                 12,598,197         9,211,610        21,809,807       (2,600,288)
                  Total net assets (deficits)                                                   $   84,199,564    $   50,303,338   $ 134,502,902     $ (4,111,945)

     The accompanying notes are an integral part of this statement.
                                                                                                        City of Muskegon
                                                                                             STATEMENT OF ACTIVITIES
                                                                                              For the year ended June 30, 2011


                                                                                                                                                               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                             $      854,249   $      196,886         $           -      $           -     $      (657,363)   $            -    $      (657,363)   $            -
           Administrative services                                           645,585          263,473                12,005                  -            (370,107)                -           (370,107)                -
           Financial services                                              2,373,141          879,905                75,000                  -          (1,418,236)                -         (1,418,236)                -
           Public safety                                                  13,390,888        1,109,659               235,300                  -         (12,045,929)                -        (12,045,929)                -
           Public works                                                    3,471,051          642,082                     -             12,199          (2,816,770)                -         (2,816,770)                -
           Highways, streets and bridges                                   7,013,216          451,473             3,104,865          1,686,944          (1,769,934)                -         (1,769,934)                -
           Community and economic development                              2,830,867          457,952             1,985,540            493,520             106,145                 -            106,145                 -
           Culture and recreation                                          1,524,331          300,367                12,455             64,500          (1,147,009)                -         (1,147,009)                -
           General administration                                            794,115          116,690                     -                  -            (677,425)                -           (677,425)                -
           Interest on long-term debt                                        272,940                -                     -                  -            (272,940)                -           (272,940)                -
               Total governmental activities                              33,170,383        4,418,487             5,425,165          2,257,163         (21,069,568)                -        (21,069,568)                -

        Business-type activities
          Sewer                                                            5,288,622        6,652,851                     -                 -                    -         1,364,229          1,364,229                 -
          Water                                                            5,869,241        5,454,760                     -            20,074                    -          (394,407)          (394,407)                -
          Marina and Launch Ramp                                             292,889          194,311                     -                 -                    -           (98,578)           (98,578)                -
               Total business-type activities                             11,450,752       12,301,922                     -            20,074                    -          871,244            871,244                  -
                     Total primary government                         $ 44,621,135     $ 16,720,409           $ 5,425,165        $ 2,277,237           (21,069,568)         871,244         (20,198,324)                -




35
     Component units
       Local Development Finance Authority III                        $     374,163    $            -         $           -      $    175,000                    -                 -                  -         (199,163)
       Downtown Development Authority                                       119,555                 -                     -                 -                    -                 -                  -         (119,555)
       Tax Increment Finance Authority                                       75,000                 -                     -                 -                    -                 -                  -          (75,000)
       Brownfield Redevelopment Authority                                         -                 -                     -                 -                    -                 -                  -                -
                      Total component units                           $     568,718    $            -         $           -      $    175,000                    -                 -                  -         (393,718)

     General revenues
       Property taxes                                                                                                                                   8,844,004                 -           8,844,004          494,334
       Income taxes                                                                                                                                     6,866,967                 -           6,866,967                -
       Cable franchises                                                                                                                                   362,103                 -             362,103                -
       Grants and contributions not restricted to specific programs                                                                                     3,846,859                 -           3,846,859                -
       Unrestricted investment earnings                                                                                                                   193,435            23,959             217,394            2,094
       Miscellaneous                                                                                                                                      432,880                 -             432,880                -
       Gain on sale of capital asset                                                                                                                       25,815                 -              25,815                -
               Total general revenues                                                                                                                  20,572,063            23,959          20,596,022          496,428

                  Change in net assets                                                                                                                   (497,505)          895,203            397,698           102,710

     Net assets (deficit) at July 1, 2010                                                                                                              84,697,069         49,408,135        134,105,204        (4,214,655)

     Net assets (deficit) at June 30, 2011                                                                                                         $ 84,199,564       $ 50,303,338      $ 134,502,902      $ (4,111,945)




     The accompanying notes are an integral part of this statement.
                                                                      City of Muskegon
                                                                      BALANCE SHEET
                                                                      Governmental Funds
                                                                        June 30, 2011


                                                                                               Major Street      Other             Total
                                                                                General       and Trunkline   governmental     governmental
                                                                                 Fund             Fund            funds            funds
     ASSETS
       Cash and investments                                                 $ 4,339,329       $    586,839    $ 4,158,343      $    9,084,511
       Receivables
          Accounts and loans                                                      235,655            1,374         737,951            974,980
          Property taxes                                                           79,413                -               -             79,413
          Income taxes                                                            735,302                -               -            735,302
          Special assessments                                                           -          541,538         509,211          1,050,749
       Due from other governmental units                                          872,880          449,182         708,434          2,030,496
       Due from other funds                                                       987,326                -               -            987,326
       Prepaid items                                                              241,173           13,162           5,410            259,745
               Total assets                                                 $ 7,491,078       $ 1,592,095     $ 6,119,349      $ 15,202,522

     LIABILITIES AND FUND BALANCES
       Liabilities
          Accounts payable                                                  $     871,802     $     41,539    $     53,137     $      966,478
          Accrued liabilities                                                     521,469           13,340          22,002            556,811
          Due to other governmental units                                          10,804           55,084               -             65,888
          Due to other funds                                                            -                -         893,906            893,906




36
          Deferred revenue                                                         75,621          916,131         801,347          1,793,099
               Total liabilities                                                1,479,696         1,026,094       1,770,392         4,276,182

        Fund balances
          Nonspendable:
              Prepaid items                                                       241,173           13,162            5,410           259,745
              Long-term loans receivable                                                -                -          349,400           349,400
              Perpetual care                                                       10,000                -        1,336,284         1,346,284
          Restricted for:
              Streets and highways                                                        -        552,839         657,930          1,210,769
              Law enforcement                                                                            -         140,828            140,828
              Perpetual care                                                                             -          19,063             19,063
              Other purposes                                                              -              -           5,119              5,119
          Assigned for:
              Capital projects and public improvements                          1,500,000                 -       2,073,027         3,573,027
              Fiscal year 2012 budget                                             885,728                 -               -           885,728
          Unassigned                                                            3,374,481                 -        (238,104)        3,136,377
               Total fund balances                                              6,011,382          566,001        4,348,957        10,926,340
               Total liabilities and fund balances                          $ 7,491,078       $ 1,592,095     $ 6,119,349      $ 15,202,522


     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, 2011


     Total fund balance—governmental funds                                                                            $ 10,926,340

     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                                                                    $ 127,576,545
           Accumulated depreciation                                                                    (55,147,933)     72,428,612

        Bond issuance costs are not capitalized and amortized in the governmental funds.
          Bond issuance costs                                                                             160,106
          Accumulated amortization                                                                        (46,586)         113,520

        Net pension costs are recorded as expenditures in the fund statements when paid,
        but are recorded as an expense in the government-wide statements when incurred.                                  1,000,000

        Other receivables in governmental activities are not reported in the




37
        governmental funds.                                                                                                675,621

        Accrued interest in governmental activities is not reported in the
        governmental funds.                                                                                                (56,700)

        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.                                     1,048,529

        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                                                                      (6,151,605)
           Compensated absences                                                                         (1,093,700)      (7,245,305)

        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.                                                     5,308,947
           Net assets of governmental activities in the Statement of Net Assets                                       $ 84,199,564



     The accompanying notes are an integral part of this statement.
                                                                              City of Muskegon
                                                     STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES
                                                                               Governmental Funds
                                                                         For the year ended June 30, 2011

                                                                                                  Major Street      Other              Total
                                                                                General          and Trunkline   governmental      governmental
                                                                                 Fund                Fund            funds             funds
     REVENUES
       Taxes                                                                  $ 15,146,430       $           -   $            -    $ 15,146,430
       Licenses and permits                                                      1,179,639                   -                -       1,179,639
       Intergovernmental revenues
          Federal                                                                 192,842            1,457,137       2,143,552        3,793,531
          State                                                                 3,889,317            2,704,187       1,061,214        7,654,718
          Local                                                                    75,000                    -           2,500           77,500
       Charges for services                                                     2,365,018               64,370         339,816        2,769,204
       Fines and forfeitures                                                      432,874                    -          14,380          447,254
       Interest and rental income                                                 315,019               36,626          60,853          412,498
       Other                                                                      431,190              523,552         467,159        1,421,901
              Total revenues                                                   24,027,329            4,785,872       4,089,474       32,902,675

     EXPENDITURES
       Current
         Public representation services                                           851,918                    -               -          851,918
         Administrative services                                                  492,331                    -               -          492,331
         Financial services                                                     2,352,709                    -               -        2,352,709
         Public safety                                                         13,079,620                    -           8,356       13,087,976
         Public works                                                           3,079,342                    -               -        3,079,342
         Highways, streets and bridges                                                  -            4,179,028       1,523,013        5,702,041




38
         Community and economic development                                       845,394                    -               -          845,394
         Culture and recreation                                                 1,178,782                    -          18,238        1,197,020
         Other governmental functions                                           1,775,128                    -               -        1,775,128
       Debt service
         Principal                                                              1,024,605                    -         320,578        1,345,183
         Interest and fees                                                        228,190                    -          39,068          267,258
       Capital outlay                                                                   -                    -       3,183,905        3,183,905
              Total expenditures                                               24,908,019            4,179,028       5,093,158       34,180,205

     Excess of revenues over (under) expenditures                                (880,690)            606,844        (1,003,684)     (1,277,530)

     OTHER FINANCING SOURCES (USES)
       Proceeds from sale of capital assets                                             -                   -          120,118          120,118
       Transfers in                                                                 2,357                   -        1,346,337        1,348,694
       Transfers out                                                             (648,739)           (400,000)        (328,001)      (1,376,740)
              Total other financing sources (uses)                               (646,382)           (400,000)       1,138,454           92,072

     Net change in fund balances                                                (1,527,072)           206,844          134,770       (1,185,458)
     Fund balances at July 1, 2010, as restated                                 7,538,454             359,157        4,214,187       12,111,798
     Fund balances at June 30, 2011                                           $ 6,011,382        $    566,001    $ 4,348,957       $ 10,926,340




     The accompanying notes are an integral part of this statement.
                                                                   City of Muskegon
                RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES
                         AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES
                                           For the year ended June 30, 2011


     Net change in fund balances—total governmental funds                                                                    $ (1,185,458)

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

        Governmental funds report outlays for capital assets and bond issuance costs as expenditures; in
        the Statement of Activities, these costs are depreciated and amortized over their estimated useful
        lives, respectively.
            Depreciation and amortization expense                                                            $ (4,375,774)
            Capital outlay                                                                                      3,301,273        (1,074,501)
        Revenue reported in the Statement of Activities that does not provide current
        financial resources are not reported as revenue in the governmental funds.                                                 104,321
        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.                                              1,344,231




39
        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.                                                     2,900
        Some items are reported on the accrual method in the Statement of Activities and reported
        as expenditures when financial resources are used in the governmental funds.
           Increase in net pension asset                                                                       1,000,000
           Decrease in compensated absences                                                                       65,926         1,065,926
        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.                                           (344,175)
        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.                                                                                                               (410,749)
               Change in net assets of governmental activities                                                               $    (497,505)


     The accompanying notes are an integral part of this statement.
                                                                                                  City of Muskegon
                                                                                          STATEMENT OF NET ASSETS
                                                                                               Proprietary Funds
                                                                                                 June 30, 2011


                                                                                                  ASSETS
                                                                                                                                                                            Governmental
                                                                                                                                                                             Activities -
                                                                                                           Business-type Activities - Enterprise Funds                        Internal
                                                                                                                                       Marina and                              Service
                                                                                          Sewer                  Water                    Ramp                 Total            Funds
      CURRENT ASSETS
        Cash and investments                                                         $    3,320,219           $    2,913,169          $     243,852      $    6,477,240     $ 4,568,483
        Receivables
        Accounts receivable                                                               1,011,405                  910,827                  4,108           1,926,340          173,379
        Due from other governmental units                                                         -                   57,812                  1,792              59,604                -
        Inventories                                                                          32,386                   97,501                      -             129,887           29,836
        Prepaid items                                                                        42,733                   58,510                  2,617             103,860          748,322
                   Total current assets                                                   4,406,743                4,037,819                252,369           8,696,931        5,520,020
      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         190,872
          Buildings, improvements and systems                                            20,282,596                63,802,215              2,322,488          86,407,299       1,559,334
          Machinery and equipment                                                            39,722                 2,788,156                      -           2,827,878       7,186,154
          Construction in progress                                                          310,669                 1,199,063                      -           1,509,732               -
              Less accumulated depreciation                                              (7,568,514)              (25,918,783)            (2,346,891)        (35,834,188)     (7,333,410)
                   Net capital assets                                                    13,080,661               41,974,151              1,887,124          56,941,936        1,667,950




40
         Bond issuance costs, net                                                                  -                 108,619                       -            108,619                -
                   Total noncurrent assets                                               13,080,661               42,754,770              1,887,124          57,722,555        1,667,950
                      Total assets                                                       17,487,404               46,792,589              2,139,493          66,419,486        7,187,970

                                                                                    LIABILITIES AND NET ASSETS
      CURRENT LIABILITIES
        Accounts payable                                                                    44,440                   166,092                 14,861             225,393          213,832
        Accrued liabilities                                                                 15,764                   142,005                     46             157,815           50,308
        Due to other governmental units                                                    380,870                    99,396                      -             480,266                -
        Due to other funds                                                                       -                         -                      -                   -           93,420
        Bonds and other obligations, due within one year                                     9,000                 1,247,000                      -           1,256,000           16,000
                   Total current liabilities                                               450,074                 1,654,493                 14,907           2,119,474          373,560

      NONCURRENT LIABILITIES
        Bonds and other obligations, less amounts due within one year                       46,718                15,376,050                    593          15,423,361           78,776
                      Total liabilities                                                    496,792                17,030,543                 15,500          17,542,835          452,336
      NET ASSETS
        Invested in capital assets, net of related debt                                  13,080,661               25,451,943              1,887,124          40,419,728        1,667,950
        Restricted for debt service                                                               -                  672,000                      -             672,000                -
        Unrestricted                                                                      3,909,951                3,638,103                236,869           7,784,923        5,067,684
                      Total net assets                                               $ 16,990,612             $ 29,762,046            $ 2,123,993            48,876,651     $ 6,735,634
      Adjustment to reflect the consolidation of internal service fund activities
        related to enterprise funds                                                                                                                           1,426,687
      Net assets of business-type activities                                                                                                             $ 50,303,338


     The accompanying notes are an integral part of this statement.
                                                                                            City of Muskegon
                                                        STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS
                                                                                   Proprietary Funds
                                                                           For the year ended June 30, 2011


                                                                                                                                                                     Governmental
                                                                                                                                                                      Activities -
                                                                                                     Business-type Activities - Enterprise Funds                       Internal
                                                                                                                                 Marina and                             Service
                                                                                         Sewer               Water                  Ramp                Total            Funds
     OPERATING REVENUES
       Charges for services                                                         $    6,499,376       $    5,221,839        $    184,394        $ 11,905,609      $ 7,162,116
       Other                                                                               153,475              232,921               9,917             396,313          215,192
                Total operating revenues                                                 6,652,851            5,454,760             194,311            12,301,922       7,377,308

     OPERATING EXPENSES
       Administration                                                                      334,890              541,950              17,376               894,216         360,000
       Insurance premiums and claims                                                             -                    -                   -                     -       3,983,943
       Wastewater treatment                                                              4,520,630                    -                   -             4,520,630               -
       Filtration plant operations                                                               -            1,367,569                   -             1,367,569               -
       Water distribution                                                                        -            1,385,011                   -             1,385,011               -
       Other operations                                                                          -                    -             160,584               160,584       3,058,546
       Depreciation and amortization                                                       406,706            2,119,038             114,198             2,639,942         534,711
                Total operating expenses                                                 5,262,226            5,413,568             292,158            10,967,952       7,937,200




41
                Operating income (loss)                                                  1,390,625              41,192               (97,847)           1,333,970        (559,892)

     NONOPERATING REVENUES (EXPENSES)
       Investment earnings                                                                   9,822               13,025                1,112               23,959          22,093
       Gain on sale of capital assets                                                            -                    -                    -                    -          20,999
       Interest expense                                                                          -             (404,795)                   -             (404,795)              -
                Total nonoperating revenue (expenses)                                        9,822             (391,770)               1,112             (380,836)         43,092

                Income (loss) before contributions and transfers                         1,400,447             (350,578)             (96,735)            953,134         (516,800)

     Capital contributions                                                                       -              20,074                     -              20,074                -
     Transfers in                                                                                -                   -                     -                   -           28,046
                Change in net assets                                                     1,400,447             (330,504)             (96,735)            973,208         (488,754)

     Net assets at July 1, 2010                                                         15,590,165           30,092,550            2,220,728                            7,224,388

     Net assets at June 30, 2011                                                    $ 16,990,612         $ 29,762,046          $ 2,123,993                           $ 6,735,634

     Adjustments to reflect the consolidation of internal service fund activities
       related to enterprise funds                                                                                                                        (78,005)
     Change in net assets of business-type activities                                                                                              $     895,203

     The accompanying notes are an integral part of this statement.
                                                                                     City of Muskegon
                                                                             STATEMENT OF CASH FLOWS
                                                                                      Proprietary Funds
                                                                              For the year ended June 30, 2011


                                                                                                                                                                           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                                                             $    6,711,360        $ 5,482,175          $     197,769        $ 12,391,304    $      495,597
       Receipts from interfund services provided                                                   19,954              79,369                     -              99,323         7,162,116
       Payments to suppliers                                                                   (3,848,244)         (1,313,652)             (116,535)         (5,278,431)       (5,125,868)
       Payments to employees                                                                     (390,071)         (1,169,562)              (47,163)         (1,606,796)       (1,739,210)
       Payments for interfund services used                                                      (483,516)           (595,652)              (10,706)         (1,089,874)         (684,827)
              Net cash provided by operating activities                                        2,009,483             2,482,678               23,365          4,515,526           107,808
     CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES
       Transfers in                                                                                     -                     -                    -                  -           28,046
     CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES
       Capital contributions                                                                           -                 20,074                    -             20,074                -
       Purchases of capital assets                                                              (284,965)              (412,408)                   -           (697,373)        (395,734)
       Principal paid on capital debt                                                                  -             (1,195,000)                   -         (1,195,000)               -
       Interest paid on capital debt                                                                   -               (451,323)                   -           (451,323)               -
       Proceeds from sale of capital assets                                                            -                      -                    -                  -           24,055
              Net cash used for capital and related financing activities                        (284,965)            (2,038,657)                   -         (2,323,622)        (371,679)
     CASH FLOW FROM INVESTING ACTIVITIES




42
       Investment earnings                                                                         9,822                13,025                1,112             23,959            22,093
              Net increase (decrease) in cash and investments                                  1,734,340               457,046               24,477          2,215,863          (213,732)
     Cash and investments July 1, 2010                                                         1,585,879             3,128,123              219,375          4,933,377         4,782,215
     Cash and investments at June 30, 2011                                                 $   3,320,219         $ 3,585,169          $     243,852        $ 7,149,240     $   4,568,483
     Reconciliation of cash and investments to the statement of net assets
       Cash and investments                                                                $   3,320,219         $ 2,913,169          $     243,852        $ 6,477,240     $   4,568,483
       Restricted cash and investments                                                                 -             672,000                      -            672,000                 -
                                                                                           $   3,320,219         $ 3,585,169          $     243,852        $ 7,149,240     $   4,568,483
     Reconciliation of operating income (loss) to net cash provided by
       operating activities
          Operating income (loss)                                                          $   1,390,625         $      41,192        $     (97,847)       $ 1,333,970     $    (559,892)
          Adjustments to reconcile operating income (loss) to net cash provided by
              (used for) operating activities
                  Depreciation and amortization expense                                          406,706             2,119,038              114,198          2,639,942           534,711
                  Bad debt expense                                                                41,609                27,999                    -             69,608                 -
              Change in assets and liabilities
                  Receivables, net                                                                36,854                78,785                3,458            119,097           280,405
                  Inventories                                                                     (1,153)                  (53)                   -             (1,206)           (1,125)
                  Prepaid items                                                                      655                 5,489                 (125)             6,019            18,706
                  Accounts payable                                                               121,326               183,725                5,068            310,119          (192,855)
                  Accrued liabilities                                                             12,861                26,503               (1,387)            37,977            33,330
                  Due to other funds                                                                   -                     -                    -                  -            (5,472)
                     Net cash provided by operating activities                             $   2,009,483         $ 2,482,678          $      23,365        $ 4,515,526     $     107,808


     The accompanying notes are an integral part of this statement.
                                                        City of Muskegon
                                   STATEMENT OF FIDUCIARY ASSETS AND LIABILITIES
                                                   Fiduciary Funds
                                                    June 30, 2011


                                                                                       Agency
                                                                                       Funds
     ASSETS
       Cash and investments                                                        $    742,906
       Accounts receivable                                                                1,867
               Total assets                                                        $    744,773

     LIABILITIES
       Accounts payable                                                            $    213,981
       Due to other governmental units                                                  462,345
       Deposits held for others                                                          68,447
               Total liabilities                                                   $    744,773




43
     The accompanying notes are an integral part of this statement.
                                                                                  City of Muskegon
                                                                       STATEMENT OF NET ASSETS (DEFICITS)
                                                                          Discretely Presented Component Units
                                                                                      June 30, 2011


                                                                                     ASSETS

                                                                                        Local                                Tax
                                                                                     Development        Downtown         Increment     Brownfield
                                                                                       Finance         Development         Finance    Redevelopment
                                                                                     Authority III      Authority         Authority     Authority          Total
     CURRENT ASSETS
       Cash and investments                                                          $      21,348     $     272,145     $ 16,445       $   65,349    $     375,287

     NONCURRENT ASSETS
       Capital assets, net
         Nondepreciable                                                                    400,000                  -             -              -          400,000
         Depreciable                                                                     2,489,010                  -             -              -        2,489,010
                  Net capital assets                                                     2,889,010                  -             -              -        2,889,010

        Bond issuance costs, net                                                            89,500            50,639              -              -          140,139
                  Total noncurrent assets                                                2,978,510            50,639              -              -        3,029,149




44
                     Total assets                                                        2,999,858           322,784        16,445          65,349        3,404,436

                                                                      LIABILITIES AND NET ASSETS (DEFICITS)
     CURRENT LIABILITIES
       Accrued liabilities                                                                  32,300             5,400              -              -           37,700
       Bonds and other obligations, due within one year                                     80,000           265,000              -              -          345,000
                  Total current liabilities                                                112,300           270,400              -              -          382,700

     NONCURRENT LIABILITIES
       Bonds and other obligations, less amounts due
         within one year                                                                 4,320,667         2,813,014              -              -        7,133,681
                     Total liabilities                                                   4,432,967         3,083,414              -              -        7,516,381

     NET ASSETS (DEFICITS)
       Invested in capital assets, net of related debt                                   (1,511,657)                -            -               -        (1,511,657)
       Unrestricted                                                                          78,548        (2,760,630)      16,445          65,349        (2,600,288)
                     Total net assets (deficits)                                     $ (1,433,109)     $ (2,760,630)     $ 16,445       $   65,349    $ (4,111,945)




     The accompanying notes are an integral part of this statement.
                                                                                      City of Muskegon
                                                                             STATEMENT OF ACTIVITIES
                                                                            Discretely Presented Component Units
                                                                              For the year ended June 30, 2011


                                                                                   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                                      $ 178,821        $         -    $    (178,821)      $            -    $         -    $        -     $    (178,821)
       Interest on long-term debt                                  195,342            175,000          (20,342)                   -              -             -           (20,342)
           Total Local Development Finance Authority III              374,163         175,000         (199,163)                   -              -             -          (199,163)

     Downtown Development Authority
       Interest on long-term debt                                     119,555                -                -           (119,555)              -             -          (119,555)

     Tax Increment Finance Authority
       Economic development                                            75,000                -                -                   -        (75,000)            -           (75,000)

     Brownfield Redevelopment Authority




45
        Economic development                                                -                -                -                   -              -             -                  -
           Total discretely presented component units            $ 568,718        $ 175,000           (199,163)           (119,555)        (75,000)            -          (393,718)

     General revenues
       Property taxes                                                                                    84,658            281,424         53,769         74,483           494,334
       Unrestricted investment income                                                                       153              1,716            142             83             2,094
           Total general revenues                                                                        84,811            283,140         53,911         74,566           496,428

                  Change in net assets                                                                (114,352)            163,585         (21,089)       74,566           102,710

     Net assets (deficit) at July 1, 2010                                                            (1,318,757)         (2,924,215)       37,534         (9,217)        (4,214,655)

     Net assets (deficit) at June 30, 2011                                                       $ (1,433,109)       $ (2,760,630)     $   16,445     $   65,349     $ (4,111,945)




     The accompanying notes are an integral part of this statement.
                                             City of Muskegon
                                NOTES TO FINANCIAL STATEMENTS
                                           June 30, 2011


NOTE A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

  Reporting Entity
  The City of Muskegon was incorporated October 6, 1919, under the provisions of the Home Rule Act of the
  State of Michigan. The City is a municipal corporation governed by an elected mayor and six-member City
  Commission and is administered by a city manager appointed by the City Commission. The accompanying
  financial statements present the government and its component units, entities for which the government is
  considered to be financially accountable. Blended component units, although legally separate entities, are, in
  substance, part of the government's operations. Each discretely presented component unit is reported in a
  separate column in the government-wide financial statements (see note below for description) to emphasize
  that it is legally separate from the government. Each discretely presented component unit has a 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, 2011


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, 2011, 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, 2010, the date
  of its latest audited financial statements is as follows:

      Total assets                                                                     $     5,608,614
      Total liabilities                                                                       (259,484)
      Total net assets                                                                 $     5,349,130

      Total operating income                                                           $     1,736,893
      Total operating expenses                                                              (1,996,901)
      Total nonoperating revenues                                                               44,464
      Capital contributions                                                                     99,359
      Change in net assets                                                             $      (116,185)




                                                       47
                                              City of Muskegon
                                 NOTES TO FINANCIAL STATEMENTS
                                            June 30, 2011


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, 2011


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, 2011


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.

  In the government-wide financial statements and proprietary fund types in the fund financial statements, 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.

  In the fund financial statements, when expenditures are incurred in governmental fund types for purposes for
  which both restricted and unrestricted (committed, assigned, or unassigned) amounts are available, it is the
  City’s policy to consider that restricted amounts have been reduced first. When an expenditure is incurred for
  purposes for which amounts in any of the unrestricted fund balance classification could be used, it is the
  City’s policy that committed amounts would be reduced first, followed by assigned amounts and then
  unassigned amounts.

  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, 2011


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 2010 state taxable value for real/personal property of the City totaled approximately $702,096,000 of
  which approximately $7,494,000 was captured by the component units. The ad valorem taxes levied
  consisted of 9.5, 2.5, 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, 2011


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

  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.




                                                        52
                                             City of Muskegon
                                 NOTES TO FINANCIAL STATEMENTS
                                            June 30, 2011


NOTE A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES—Continued

  Assets, Liabilities and Net Assets or Equity—Continued

  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 fund balance is presented in five possible categories:

    a. Nonspendable—resources which cannot be spent because they are either 1) not in spendable form or; 2)
       legally or contractually required to be maintained intact.

    b. Restricted—resources with constraints placed on the use of resources which are either 1) externally
       imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of
       other governments; or 2) imposed by law through constitutional provisions or enabling legislation.

    c. Committed—resources which are subject to limitations the City imposes upon itself by action of the
       City Commission, and that remain binding unless the limitations are removed in the same manner.

    d. Assigned—resources neither restricted nor committed for which a City has a stated intended use as
       established by the City Commission or the City Manager to which the City Commission has delegated
       the authority to assign amounts for specific purposes.

    e. Unassigned—resources which cannot be properly classified in one of the other four categories. The
       General Fund is the only fund that reports a positive unassigned fund balance amount. Unassigned
       balances also include negative balances in the governmental funds reporting resources restricted for
       specific programs.

  The City has a minimum fund balance policy requiring unassigned fund balance be at least 13% of prior year
  actual revenues.

  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.




                                                      53
                                              City of Muskegon
                                 NOTES TO FINANCIAL STATEMENTS
                                            June 30, 2011


NOTE A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES—Continued

  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 2010 financial statements have been reclassified to conform to
  the 2011 presentation.


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.




                                                       54
                                            City of Muskegon
                               NOTES TO FINANCIAL STATEMENTS
                                          June 30, 2011


NOTE B—STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY—Continued

  Excess of Expenditures Over Appropriations
  During the year ended June 30, 2011, actual expenditures exceeded appropriations for:

                                                                     Amended
                                                                      budget               Actual
  General Fund
     Financial services
        Arena administration                                       $ 176,855              $ 242,923
        City treasurer                                               463,707                492,185
     Public safety
        Fire department                                              3,667,567            3,711,381
     Public works
        Street lighting                                               750,000               784,399
     Community and economic development
        Environmental services                                        374,422               411,784
     Other governmental functions
        Other                                                         250,000               515,221
     Transfers out                                                    408,046               648,739

  These over-expenditures were funded with available fund balance.

  Fund Deficits
  As of June 30, 2011, the Engineering Services Fund had an unrestricted fund deficit of $35,132, the HOME
  Fund had an unassigned fund deficit of $166,174, and the State Grants Fund had an unassigned fund deficit of
  $71,930. The deficits will be eliminated through future operations.




                                                     55
                                              City of Muskegon
                                 NOTES TO FINANCIAL STATEMENTS
                                            June 30, 2011


NOTE C—DEPOSITS AND INVESTMENTS

  As of June 30, 2011, the City had the following investments:

                                                                   Weighted
                                                                    average
                                                                   maturity
                                                   Fair value      (Months)         Moody's         Percent
      Investment Type
      Money market funds                       $     1,970,653             1.4       AAA               13.7%
      US Agency obligations                          4,465,116            166         AA+              30.9%
      CDARs                                          8,002,533               2      not rated          55.4%
             Total fair value                 $ 14,438,302                                           100.0%
          Portfolio weighted average maturity                             52.9



  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.

  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 National Mortgage Association which are 27.49 percent of the City’s
  investments.




                                                         56
                                                   City of Muskegon
                                   NOTES TO FINANCIAL STATEMENTS
                                              June 30, 2011


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, 2011, $7,146,916 of the City’s bank balance of
  $7,653,918 was exposed to custodial credit risk because it was uninsured and uncollateralized. The City’s
  investment policy sets certain credit requirements that a bank must meet for the City to deposit funds in it.

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

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

  Restricted Assets
  Restrictions are placed on assets by bond ordinance and City Commission action. At June 30, 2011, 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 year ended June 30, 2011 was as follows:

                                                     Balance                                              Balance
                                                     July 1,                                              June 30,
                                                      2010             Additions      Deductions            2011
  Governmental activities:
    Capital assets, no being depreciated:
       Land                                        $ 12,424,174    $            -     $           -    $ 12,424,174
       Construction in progress                       6,704,543         2,931,696         1,742,868       7,893,371

     Total capital assets, not being depreciated     19,128,717         2,931,696         1,742,868       20,317,545

     Capital assets, being depreciated:
       Land improvements                              4,118,319            69,224                -         4,187,543
       Leasehold improvements                           343,614           129,500                -           473,114
       Buildings and improvements                    21,092,159           240,077                -        21,332,236
       Furniture, vehicle and equipement             11,902,751           326,510          162,776        12,066,485
       Infrastructure                                70,881,213         1,742,868                -        72,624,081
       Shared improvements                            5,576,901                 -                -         5,576,901

     Total capital assets, being depreciated        113,914,957         2,508,179          162,776       116,260,360




                                                          57
                                                    City of Muskegon
                                    NOTES TO FINANCIAL STATEMENTS
                                               June 30, 2011


NOTE D—CAPITAL ASSETS—Continued

                                                        Balance                                             Balance
                                                        July 1,                                             June 30,
                                                         2010            Additions      Deductions            2011
   Governmental activities─ Continued
     Less accumulated depreciation:
        Land improvements                           $      725,961   $      140,712     $          -    $      866,673
        Leasehold improvements                             151,992           43,749                -           195,741
        Buildings and improvements                      13,565,955          451,099                -        14,017,054
        Furniture, vehicle and equipement                9,347,411          622,145          159,720         9,809,836
        Infrastructure                                  31,889,494        3,366,305                -        35,255,799
        Shared improvements                              2,057,395          278,845                -         2,336,240
      Total accumulated depreciation                    57,738,208        4,902,855          159,720        62,481,343
      Total capital assets, being
         depreciated, net                               56,176,749        (2,394,676)          3,056        53,779,017
      Capital assets, net                           $ 75,305,466     $      537,020     $ 1,745,924     $ 74,096,562

   Business-type activities:
     Capital assets, not being depreciated:
         Land                                       $      142,250   $            -     $           -   $      142,250
         Construction in progress                        2,325,794          668,867         1,484,929        1,509,732
      Total capital assets, not being depreciated        2,468,044          668,867         1,484,929        1,651,982

      Capital assets, being depreciated:
        Land improvements                                1,888,965                -                 -        1,888,965
        Buildings and improvements                      84,893,864        1,513,435                 -       86,407,299
        Machinery and equipment                          2,827,878                -                 -        2,827,878
      Total capital assets, being depreciated           89,610,707        1,513,435                 -       91,124,142

      Less accumulated depreciation:
         Land improvements                               1,676,040           21,225                 -        1,697,265
         Buildings and improvements                     30,412,852        2,273,532                 -       32,686,384
         Machinery and equipment                         1,130,985          319,554                 -        1,450,539
      Total accumulated depreciation                    33,219,877        2,614,311                 -       35,834,188
      Total capital assets, being
         depreciated, net                               56,390,830        (1,100,876)               -       55,289,954
      Capital assets, net                           $ 58,858,874     $     (432,009)    $ 1,484,929     $ 56,941,936




                                                             58
                                              City of Muskegon
                                    NOTES TO FINANCIAL STATEMENTS
                                               June 30, 2011


NOTE D—CAPITAL ASSETS—Continued

  Depreciation
  Depreciation expense was charged to functions as follows:

   Governmental activities:
     Adminstrative services                                                                    $       52,454
     Public safety                                                                                    144,743
     Public works                                                                                      75,449
     Highways, streets and bridges                                                                  3,726,050
     Community and economic development                                                                75,717
     Culture and recreation                                                                           274,744
     General administration                                                                            18,987
     Internal Service Fund depreciation                                                               534,711
                                                                                               $    4,902,855
   Business-type activities:
     Water                                                                                     $    2,093,407
     Sewer                                                                                            406,706
     Marina and Launch Ramp                                                                           114,198
                                                                                               $    2,614,311

                                                  Balance                                          Balance
                                                  July 1,                                          June 30,
                                                   2010           Additions       Deductions         2011
   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:
         Building and improvements                1,136,600          172,648               -        1,309,248
      Total capital assets, being
         depreciated, net                         2,661,658         (172,648)              -        2,489,010
      Capital assets, net                     $   3,061,658   $     (172,648)     $        -   $    2,889,010

  Depreciation
  Depreciation expense was charged to economic development.




                                                       59
                                              City of Muskegon
                                 NOTES TO FINANCIAL STATEMENTS
                                            June 30, 2011


NOTE E—BOND ISSUANCE COSTS

  Bond issuance cost activity for the year ended June 30, 2011 was as follows:

                                              Balance                                             Balance
                                              July 1,                                             June 30,
                                               2010               Additions      Deductions        2011
     Governmental activities:
       Bond issuance costs                $     160,106       $            -     $        -   $     160,106
       Less accumulated amortization             38,956                7,630              -          46,586

     Bond issuance costs, net             $     121,150       $       (7,630)    $        -   $     113,520

     Business-type activities:
       Bond issuance costs                $     134,250       $            -     $        -   $     134,250
       Less accumulated amortization                  -               25,631              -          25,631

     Bond issuance costs, net             $     134,250       $      (25,631)    $        -   $     108,619

  Amortization
  Amortization expense was charge to functions as follows:

     Governmental Activities:
       Interest on long-term debt                                                             $        7,630

     Business-type Activities:
       Water                                                                                  $       25,631


NOTE F—INTERFUND RECEIVABLES, PAYABLES AND TRANSFERS

  The composition of interfund balances as of June 30, 2011 is as follows:

    Due to/from other funds:
             Receivable Fund                   Payable Fund                                         Amount
             General Fund                      Community Development Block Grant Fund         $     231,980
             General Fund                      State Grants Fund                                    137,913
             General Fund                      HOME Rehabilitiation Fund                            178,118
             General Fund                      Neighborhood Stabilization Fund                      345,895
             General Fund                      Engineering Services Fund                             93,420
                                                                                              $     987,326




                                                        60
                                             City of Muskegon
                                NOTES TO FINANCIAL STATEMENTS
                                           June 30, 2011


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.

   Interfund transfers:

      Transfers in                          Amount          Transfers out                           Amount

      General Fund                      $      2,357        Nonmajor Governmental Funds
                                                              Cemetery Fund                     $      2,357
      Nonmajor Governmental Funds
        Farmers' Market                                     General Fund                             140,693
          Improvement Fund                        18
        Sidewalk Replacement Fund            100,000
        State Grants Fund                     34,675
        Arena Capital
          Improvements Fund                    6,000
                                             140,693                                                 140,693
      Nonmajor Governmental Funds                           General Fund                             480,000
        Local Street Fund                    880,000        Major Street and Trunkline Fund          400,000
                                             880,000                                                 880,000
      Nonmajor Governmental Funds                           Nonmajor Governmental Funds
        Public Improvement Fund               54,572          Public Improvement Fund                202,429
        State Grants Fund                    202,429          CDBG Fund                                3,643
        Arena Capital                                         State Grants Fund                      119,572
          Improvements Fund                   65,000
        Lead Abatement Fund                    3,643
                                             325,644                                                 325,644
      Internal Service Fund
          General Insurance Fund              28,046        General Fund                              28,046
                                        $ 1,376,740                                             $ 1,376,740

  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.




                                                       61
                                                    City of Muskegon
                                     NOTES TO FINANCIAL STATEMENTS
                                                June 30, 2011


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                                                            $          85,621        $     658,949
      Special assessments                                                            1,048,529                    -
          Total deferred revenue for governmental funds                      $       1,134,150        $     658,949


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 year ended June 30, 2011.

                                          Balance                                                     Balance
                                          July 1,                                                     June 30,        Due within
                                           2010              Additions           Deductions             2011           one year
  Governmental activities:
    General obligation debt           $   5,290,803      $               -       $       69,048   $    5,221,755      $     70,000
    Intergovernmental
        contractual obligations           1,065,428                      -              820,578           244,850           29,000
    Special assessment obligations          805,000                      -              120,000           685,000          125,000
    Installment purchase
        agreement                           334,605                   -                 334,605                -                 -
    Compensated absences                  1,260,900           1,232,764               1,305,188        1,188,476           197,000
        Governmental activity
          long-term liabilities       $   8,756,736      $    1,232,764          $    2,649,419   $    7,340,081      $    421,000

  Business-type activities:
    Revenue obligations               $ 17,753,136       $               -       $ 1,230,928      $ 16,522,208        $   1,230,000
    Compensated absences                   171,892                 112,380           127,119           157,153               26,000
        Business-type activity
           long-term liabilities      $ 17,925,028       $         112,380       $    1,358,047   $ 16,679,361        $   1,256,000

  Component units:
    Revenue obligations               $   1,000,000      $            -          $            -   $    1,000,000      $          -
    General obligation debt               6,725,122           2,078,014               2,324,455        6,478,681           345,000
        Component unit long-
          term liabilities            $   7,725,122      $    2,078,014          $    2,324,455   $    7,478,681      $    345,000




                                                              62
                                                   City of Muskegon
                                    NOTES TO FINANCIAL STATEMENTS
                                               June 30, 2011


NOTE H—LONG-TERM DEBT—Continued

  Summary of Changes in Long-Term Liabilities—Continued

  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%        $    5,235,000
        Less bond discount                                                    (13,245)

     Intergovernmental contractual obligations:
        $500,000 State of Michigan Brownfield Redevelopment loan
           of 2008 payable in annual installments of $33,424 through
           March 2019; including interest at 2%                              244,850

     Special assessment obligations:
        $1,575,000 Capital improvement bonds of 2003 payable
           in annual installments of $125,000 to $150,000
           through June 2016; interest at 3.7% to 4.05%                       685,000
                                                                            6,151,605
     Compensated absences                                                   1,188,476
                                                                       $    7,340,081

  Business-type activities:
    Revenue obligations:
        $5,995,000 Water supply system refunding bonds of 2010
           payable in annual installments of $600,000 to $770,000
           through May 2019; interest at 2.00% to 4.25%                $    5,415,000
        Add bond premium                                                     152,208

        $13,900,000 Drinking Water State Revolving Fund loan
           of 2004 payable in annual installments of $630,000 to
           $840,000 through October 2025; interest at 2.13%                10,955,000
                                                                           16,522,208
        Compensated absences                                                  157,153
                                                                       $ 16,679,361




                                                              63
                                                   City of Muskegon
                                    NOTES TO FINANCIAL STATEMENTS
                                               June 30, 2011


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:
       $2,045,000 Downtown Development Authority tax increment
          refunding bonds of 2011 payable in annual installments of
          $265,000 to $330,000 through June 2018; interest at 2% to 4%                                  2,045,000
        Add bond premium                                                                                  33,014

        $4,725,000 Local Development Finance Authority tax
           increment bonds of 2002 payable in annual installments of
           $240,000 to $335,000 through November 2025; interest
           at 3.88% to 4.85%                                                                            4,405,000
        Less bond discount                                                                                 (4,333)

                                                                                                    $   7,478,681

  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 March 22, 2011, the City issued $2,045,000 of Downtown Development Authority Refunding Bonds of
  2011 to refund the outstanding balance of the Downtown Development Authority Refunding Bonds 2002.
  The City refunded the Downtown Development Authority Refunding Bonds 2002 to reduce its total debt
  service payments over the next 7 years by $82,384 and to obtain an economic gain (difference between the
  present values of the debt service payments on the old and new debt) of $72,474.

  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, 2011 was approximately $5,345,000. The City is unaware of any
  circumstances that would cause a shortfall in the near future.

  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, 2011.




                                                             64
                                                  City of Muskegon
                                   NOTES TO FINANCIAL STATEMENTS
                                              June 30, 2011


NOTE H—LONG-TERM DEBT—Continued

  Annual debt service requirements to maturity for debt outstanding as of June 30, 2011 follow:

   Year ending        Governmental activites                  Business-type activities                     Component units
    June 30,         Principal      Interest                 Principal         Interest                Principal      Interest
     2012        $     223,527     $   242,747           $    1,230,000      $   410,188           $     345,000     $   256,659
     2013              229,098         234,751                1,250,000          384,694                 455,000         246,210
     2014              234,680         226,429                1,295,000          352,635                 520,000         231,056
     2015              245,274         217,771                1,330,000          320,857                 590,000         212,499
     2016              250,879         208,565                1,370,000          283,360                 625,000         190,480
   2017-2021           906,392         943,406                5,855,000          811,640               3,505,000         588,241
   2022-2026         1,635,000         670,625                4,040,000          218,133               1,410,000         176,925
   2027-2031         1,740,000         327,368                        -                -                       -               -
   2032-2033           700,000          29,400                        -                -                       -               -
                 $ 6,164,850       $ 3,101,062           $ 16,370,000        $ 2,781,507           $ 7,450,000       $ 1,902,070

  Annual debt service requirements to maturity by type of debt as of June 30, 2011 follow:

                          General Obligation Debt                    Revenue Obligations
   Year ending         Governmental     Component               Business-type    Component
    June 30,             activities         units                 activities         units
     2012              $     281,145    $     601,659           $   1,640,188      $           -
     2013                    278,345          701,210               1,634,694                  -
     2014                    275,545          751,056               1,647,635                  -
     2015                    272,745          802,499               1,650,857                  -
     2016                    269,945          815,480               1,653,360                  -
   2017-2021               1,749,525        3,093,241               6,666,640          1,000,000
   2022-2026               2,305,625        1,586,925               4,258,133                  -
   2027-2031               2,067,368                -                       -                  -
   2032-2033                 729,400                -                       -                  -
                       $   8,229,643    $ 8,352,070             $ 19,151,507       $ 1,000,000

                                         Special
                     Intergovernmental Assessment
   Year ending         Governmental   Governmental
    June 30,              activities    activities
     2012              $     33,424     $      151,705
     2013                    33,424            152,080
     2014                    33,424            152,140
     2015                    33,425            156,875
     2016                    33,424            156,075
   2017-2021                100,273                  -
   2022-2026                      -                  -
   2027-2031                      -                  -
   2032-2033                      -                  -
                       $    267,394     $      768,875




                                                               65
                                                       City of Muskegon
                                           NOTES TO FINANCIAL STATEMENTS
                                                      June 30, 2011


NOTE I—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 2011 and 2010 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, 2011                    $ 178,552      $ 61,897         $ 156,704   $ 83,745
       June 30, 2010*                     186,566        73,015            81,029    178,552
       * 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, 2011, the claims liability including incurred but
  not reported claims was $15,462. 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 2011 and 2010
  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, 2011                   $    7,040       $ 970,245         $ 961,823    $ 15,462
    June 30, 2010*                      50,267         410,382           453,609       7,040
    * Six month fiscal period




                                                                  66
                                              City of Muskegon
                                 NOTES TO FINANCIAL STATEMENTS
                                            June 30, 2011


NOTE I—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 with the exception of a tax appeal. The City’s
  management and counsel estimate a loss of $500,000 for this tax appeal which has been recorded as a
  liability on the City’s financial statements.

  Commitments
  The City has various contract agreements for street projects as of June 30, 2011 of approximately
  $1,477,000. Approximately $1,064,000 of these costs are being financed by grants with the remainder
  coming from the Major Streets Fund. The City also has a contract agreement for water and sewer
  improvements for approximately $137,000 which with the costs being paid for by the Water and Sewer
  funds.

  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 $47,895 for the year ended June 30, 2011. The future minimum rental income
  for this lease for the year ended June 30, 2012 is $33,889.


NOTE J—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 6.53 to 18.19 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.




                                                       67
                                                 City of Muskegon
                                    NOTES TO FINANCIAL STATEMENTS
                                               June 30, 2011


NOTE J—PENSION PLANS—Continued

  Defined Benefit Pension Plan—Continued
  Annual Pension Cost. For the year ended June 30, 2011, the City’s annual pension cost of approximately
  $1,228,000 was equal to the City’s required contribution. The City’s actual contribution was $1,000,000
  greater than the required contribution.

                                                 Trend Information

                                 Approximate         Percentage
                                Annual Pension         of APC                Net Pension
         Year ended               Cost (APC)         Contributed             Obligation
     December 31, 2009          $      888,000               100 %           $           -
      June 30, 2010*                   605,000               100                         -
       June 30, 2011                 1,228,000               181                         -
    * 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) 1 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, 2010 was 5 years.

  Funding Status and Funding Progress. As of December 31, 2010, the most recent actuarial valuation
  date, the plan was 100 percent funded. The actuarial accrued liability for benefits was approximately
  $88,391,000, and the actuarial value of assets was approximately $88,810,000, resulting in an unfunded
  actuarial accrued liability (UAAL) of approximately a negative $419,000. The covered payroll (annual
  payroll of active employees covered by the plan) was approximately $11,533,000, and the ratio of the
  UAAL to the covered payroll was a negative 4 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.




                                                        68
                                              City of Muskegon
                                 NOTES TO FINANCIAL STATEMENTS
                                            June 30, 2011


NOTE J—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 year ended June 30, 2011, City and employee contributions were approximately $127,000 and
  $71,000, 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 K—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.




                                                       69
                                              City of Muskegon
                                 NOTES TO FINANCIAL STATEMENTS
                                            June 30, 2011


NOTE K—OTHER POST-EMPLOYMENT BENEFITS—Continued

  Annual OPEB Cost. For the year ended June 30, 2011, the City’s OPEB cost (expense) of approximately
  $1,079,000 was equal to the City’s ARC and actual contribution.

                                              Trend Information

                                    Approximate
                                      Annual
                                     Required                  Percentage of
                                    Contribution                   ARC                         Net ARC
     Period Ended                     (ARC)                    Contributed                     Obligaion
   December 31, 2009                $   1,698,000                         100 %            $               -
    June 30, 2010*                        530,000                         100                              -
     June 30, 2011                      1,079,000                         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 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.




                                                       70
                                               City of Muskegon
                                NOTES TO FINANCIAL STATEMENTS
                                           June 30, 2011


NOTE L—PRIOR PERIOD ADJUSTMENT

  On July 1, 2010, the City adopted Governmental Accounting Standards Board (GASB) Statement No. 54,
  Fund Balance Reporting and Governmental Fund Type Definitions. Under GASB 54, the Budget
  Stabilization Fund no longer qualifies as a special revenue fund type and all Budget Stabilization revenues
  and expenditures are reported in the General Fund. The June 30, 2010 Budget Stabilization Fund fund
  balance is required to be reclassified to the General Fund. The City's restated General Fund and Other
  governmental funds beginning fund balances are as follows:

                                                                                              Other
                                                                                           governmental
                                                                       General Fund           funds
      Fund balance at July 1, 2010                                     $ 6,038,454         $ 1,500,000
      Reclassification of Budget Stabilization Fund fund balance           1,500,000           (1,500,000)
      Fund balance at July 1, 2010, restated                           $ 7,538,454         $            -


NOTE M—SUBSEQUENT EVENT

  On September 30, 2011, the City issued $2,000,000 of capital improvement bonds to finance various street
  improvements throughout the City. The bonds have an interest rate of 2.98 percent.




                                                      71
72
REQUIRED SUPPLEMENTARY INFORMATION




                73
                                                                                   City of Muskegon
                                                                     BUDGETARY COMPARISON SCHEDULE
                                                                                       General Fund
                                                                             For the year ended June 30, 2011
                                                         (with comparative actual amounts for the six months ended June 30, 2010)


                                                                                                                    2011                                    2010
                                                                                                                                         Variance with
                                                                                                                                         final budget-
                                                                                       Budgeted amounts                                     positive
                                                                                  Original           Final                   Actual        (negative)      Actual
     REVENUES
       Taxes
         City income tax                                                        $ 6,000,000         $ 6,700,000            $ 6,599,753   $   (100,247)   $ 3,368,057
         Property taxes                                                           8,334,919           8,334,919              8,357,640         22,721      7,927,575
         Industrial facilities taxes                                                289,960              93,000                 93,618            618        468,369
         Payments in lieu of taxes                                                   91,000              91,000                 95,402          4,402         91,181
         Delinquent chargeback collected                                              5,000               5,000                     17         (4,983)             -
                  Total taxes                                                     14,720,879           15,223,919           15,146,430        (77,489)    11,855,182

       Licenses and permits
          Business licenses                                                           32,500              26,000                31,110          5,110        25,934
          Liquor licenses                                                             47,000              67,000                61,955         (5,045)       22,739




74
          Cable TV fees                                                              320,000             340,000               362,103         22,103       178,239
          Rental property registration                                               100,000             110,000               115,598          5,598        47,367
          Burial permits                                                             110,000             110,000                93,483        (16,517)       39,624
          Building permits                                                           225,000             225,000               255,906         30,906       135,155
          Electrical permits                                                          85,000              72,000                78,852          6,852        43,576
          Plumbing permits                                                            35,000              28,000                29,961          1,961        20,254
          Mechanical permits                                                          50,000              60,000                61,611          1,611        26,204
          Vacant building fees                                                        27,000              75,000                89,060         14,060        45,070
                  Total licenses and permits                                       1,031,500            1,113,000            1,179,639         66,639       584,162

       Intergovernmental revenues
          Federal grants                                                              77,713             180,626               192,842         12,216       122,965

          State
             Grants                                                                   28,000               20,894               42,458         21,564          7,805
             State shared revenue                                                  3,774,813            3,594,813            3,846,859        252,046      1,832,066
                  Total intergovernmental revenues - State                         3,802,813            3,615,707            3,889,317        273,610      1,839,871

          Local                                                                       75,000               75,000               75,000              -         25,000
                                                                            City of Muskegon
                                                     BUDGETARY COMPARISON SCHEDULE—CONTINUED
                                                                               General Fund
                                                                     For the year ended June 30, 2011
                                                 (with comparative actual amounts for the six months ended June 30, 2010)


                                                                                                             2011                                        2010
                                                                                                                                    Variance with
                                                                                                                                    final budget-
                                                                                 Budgeted amounts                                      positive
                                                                            Original           Final                    Actual        (negative)        Actual
     Charges for services
       Tax administration fees                                          $     298,300        $     295,000          $     297,326   $      2,326    $    194,131
       Utility administration fees                                            225,000              225,000                225,000              -         110,000
       Reimbursement for elections                                                  -               12,600                 12,672             72              79
       Indirect cost reimbursements                                         1,152,992            1,152,992              1,144,020         (8,972)        582,084
       Site plan review fee                                                     4,000                3,000                  2,800           (200)          1,500
       Sale of cemetery lots                                                   27,400               25,950                 32,290          6,340          12,914
       Police miscellaneous                                                    99,000               80,185                 84,553          4,368          31,375
       Police impound fees                                                     40,000               40,000                 39,100           (900)         23,300
       Landlord's alert fee                                                       300                   40                     40              -             155
       Fire protection-state property                                          80,000              120,210                120,210              -          35,212
       Zoning fees                                                              8,000                8,000                  6,158         (1,842)          3,290




75
       Clerk fees                                                               3,500                2,000                  2,039             39             197
       Clerk fees - passport fees                                               5,000                3,500                  4,115            615           3,555
       Tax abatement application fees                                          10,000                2,000                    810         (1,190)              -
       Treasurer fees                                                          90,000               65,000                 60,358         (4,642)         62,523
       False alarm fees                                                        10,000               13,000                 12,960            (40)          6,125
       Miscellaneous cemetery income                                           22,000               18,000                 20,398          2,398           6,571
       Senior transit program fees                                              9,000                9,000                 10,401          1,401           5,082
       Fire miscellaneous                                                       3,000                2,000                  4,985          2,985             560
       Sanitation stickers                                                     80,000               80,000                 79,762           (238)         38,809
       Lot cleanup fees                                                        70,000               50,000                 29,493        (20,507)         18,349
       Reimbursements - lot mowing and demolitions                             70,000               60,000                 49,760        (10,240)         20,102
       Special events reimbursements                                          100,000              118,760                104,937        (13,823)         30,546
       Recreation program fees                                                 35,000               19,156                 20,831          1,675          19,754
             Total charges for services                                     2,442,492            2,405,393              2,365,018        (40,375)       1,206,213
                                                                            City of Muskegon
                                                     BUDGETARY COMPARISON SCHEDULE—CONTINUED
                                                                               General Fund
                                                                     For the year ended June 30, 2011
                                                 (with comparative actual amounts for the six months ended June 30, 2010)


                                                                                                              2011                                          2010
                                                                                                                                      Variance with
                                                                                                                                      final budget-
                                                                                 Budgeted amounts                                        positive
                                                                            Original           Final                     Actual         (negative)         Actual
     Fines and forfeitures
        Income tax - penalty and interest                               $     200,000        $     180,000           $     156,339    $    (23,661)   $     109,441
        Late fees on current taxes                                             40,000               40,000                  30,875          (9,125)          42,766
        Interest on late invoices                                               2,000                2,500                   2,011            (489)             247
        Parking fines                                                         100,000              110,000                 100,885          (9,115)          71,160
        Court fines                                                           170,000              170,000                 142,764         (27,236)          72,929
              Total fines and forfeitures                                     512,000              502,500                 432,874         (69,626)         296,543

     Interest and rental income
        Investment earnings                                                    50,000               50,000                  85,120          35,120           (2,349)
        Flea market                                                            29,000               29,000                  27,233          (1,767)          11,346
        Farmers' market                                                        35,000               35,000                  43,471           8,471           18,484




76
        City right of way rental                                                8,561                8,561                   6,800          (1,761)           6,800
        Fire station lease - Central Dispatch                                  42,000               42,000                  47,895           5,895           20,879
        Great Lakes Naval Memorial lease                                       15,000                5,000                   2,500          (2,500)               -
        McGraft park rentals                                                   45,000               49,995                  52,475           2,480           13,844
        Other park rentals                                                     37,200               45,200                  49,525           4,325           23,334
              Total interest and rental income                                261,761              264,756                 315,019          50,263           92,338
     Other
        Sale of land and assets                                                 1,000                1,000                       -          (1,000)             500
        Police sale and auction proceeds                                            -                    -                       -               -            1,823
        CDBG program reimbursements                                           393,534              332,387                 324,393          (7,994)          48,030
        Fisherman's Landing reimbursement                                      14,500               16,106                  16,106               -                -
        Sanitation reimbursements                                                   -                    -                       -               -           43,030
        Contributions                                                          14,000               11,000                  12,455           1,455           19,740
        Contribution - Veteran's Park maintenance                              18,500               19,402                  19,402               -                -
        Community Foundation for Muskegon County                                1,500                1,500                  12,005          10,505            2,394
        Miscellaneous reimbursements                                            1,000                1,000                       -          (1,000)               -
        Miscellaneous and sundry                                               59,000               58,668                  46,829         (11,839)           2,786
              Total other                                                     503,034              441,063                 431,190          (9,873)         118,303
              Total revenues                                                23,427,192           23,821,964              24,027,329        205,365        16,140,577
                                                                                   City of Muskegon
                                                            BUDGETARY COMPARISON SCHEDULE—CONTINUED
                                                                                      General Fund
                                                                            For the year ended June 30, 2011
                                                        (with comparative actual amounts for the six months ended June 30, 2010)


                                                                                                                     2011                                         2010
                                                                                                                                             Variance with
                                                                                                                                             final budget-
                                                                                        Budgeted amounts                                        positive
                                                                                   Original           Final                     Actual         (negative)        Actual
     EXPENDITURES
       Current
         Public representation services
             City commission                                                   $      79,739        $      83,539           $      84,146    $       (607)   $     44,724
             City promotions and public relations                                     11,350               11,650                   4,191           7,459           3,044
             City manager                                                            274,945              274,945                 264,410          10,535         142,878
             Contributions to outside agencies                                       165,824              168,024                 167,296             728          98,026
             City attorney                                                           322,508              322,508                 331,875          (9,367)        160,031
                 Total public representation services                                854,366              860,666                 851,918           8,748         448,703

           Administrative services
             City clerk                                                              305,247              308,859                 286,050          22,809         123,748




77
             Civil service                                                            87,123              121,000                 126,050          (5,050)         91,460
             Affirmative action                                                       84,484               84,484                  80,231           4,253          39,958
                 Total administrative services                                       476,854              514,343                 492,331          22,012         255,166

           Financial services
              Finance administration                                                 399,605              403,190                 412,551          (9,361)        233,852
              Assessing                                                              465,723              438,423                 420,148          18,275         240,136
              Arena administration                                                   235,000              176,855                 242,923         (66,068)        101,867
              Income tax administration                                              425,244              421,684                 407,907          13,777         217,821
              Information systems                                                    394,350              393,322                 376,995          16,327         196,816
              City treasurer                                                         461,128              463,707                 492,185         (28,478)        250,938
                 Total financial services                                           2,381,050            2,297,181               2,352,709        (55,528)       1,241,430

           Public safety
             Police department                                                      9,013,330            8,896,024               8,711,831        184,193        4,289,770
             Fire department                                                        3,467,928            3,667,567               3,711,381        (43,814)       1,860,345
             Fire safety inspections                                                  705,015              705,015                 656,408         48,607          372,009
                 Total public safety                                               13,186,273           13,268,606              13,079,620        188,986        6,522,124
                                                                               City of Muskegon
                                                        BUDGETARY COMPARISON SCHEDULE—CONTINUED
                                                                                  General Fund
                                                                        For the year ended June 30, 2011
                                                    (with comparative actual amounts for the six months ended June 30, 2010)


                                                                                                                2011                                        2010
                                                                                                                                       Variance with
                                                                                                                                       final budget-
                                                                                    Budgeted amounts                                      positive
                                                                               Original           Final                    Actual        (negative)        Actual
     Public works
       Street lighting                                                     $     775,000        $     750,000          $     784,399   $    (34,399)   $    428,615
       Community event support                                                    17,466               23,600                 20,205          3,395          14,560
       Senior citizen transit                                                     68,287               69,287                 68,341            946          31,899
       General sanitation                                                      1,830,278            1,873,347              1,609,780        263,567         789,587
       Storm water management                                                     17,786               17,786                 17,029            757           4,000
       City hall maintenance                                                     269,847              286,115                243,582         42,533         136,435
       Cemeteries maintenance                                                    384,215              384,215                336,006         48,209         183,994
           Total public works                                                  3,362,879            3,404,350              3,079,342        325,008        1,589,090

     Community and economic development
       Planning, zoning and economic development                                 376,765             376,765                333,610          43,155         203,414




78
       Environmental services                                                    317,424             374,422                411,784         (37,362)        166,120
       Edison Landing subsidy                                                    100,000             100,000                100,000               -          50,000
           Total community and economic development                              794,189             851,187                845,394           5,793         419,534

     Culture and recreation
       Parks maintenance                                                       1,076,452            1,075,256               979,028          96,228         495,147
       McGraft park maintenance                                                   54,197               54,197                47,132           7,065          14,396
       General and inner city recreation programs                                 75,000              117,835                90,962          26,873         101,357
       Graffiti removal                                                            4,861                6,861                 3,247           3,614           2,454
       Parking operations                                                          3,000                5,500                 7,204          (1,704)          2,445
       Farmers' market and flea market                                            52,242               52,242                51,209           1,033          20,853
           Total culture and recreation                                        1,265,752            1,311,891              1,178,782        133,109         636,652

     Other governmental functions
        Insurance premiums                                                       300,000              273,489                259,907         13,582         133,527
        Other                                                                    250,000              250,000                515,221       (265,221)         67,096
        Contribution to MERS pension plan                                              -            1,000,000              1,000,000              -               -
           Total other governmental functions                                    550,000            1,523,489              1,775,128       (251,639)        200,623
                                                                                   City of Muskegon
                                                            BUDGETARY COMPARISON SCHEDULE—CONTINUED
                                                                                      General Fund
                                                                            For the year ended June 30, 2011
                                                        (with comparative actual amounts for the six months ended June 30, 2010)


                                                                                                                    2011                                        2010
                                                                                                                                          Variance with
                                                                                                                                          final budget-
                                                                                        Budgeted amounts                                     positive
                                                                                   Original           Final                  Actual         (negative)         Actual
        Debt service
          Principal                                                            $      90,000        $ 1,024,605            $ 1,024,605    $          -    $           -
          Interest and fees                                                          203,945            228,190                228,190               -          109,174
              Total debt service                                                     293,945           1,252,795             1,252,795               -          109,174

        Capital outlay                                                                      -             30,000                      -         30,000           13,722
                 Total expenditures                                                23,165,308         25,314,508            24,908,019         406,489        11,436,218

     Excess of revenues over (under) expenditures                                    261,884          (1,492,544)             (880,690)        611,854         4,704,359

     OTHER FINANCING SOURCES (USES)
       Transfers in                                                                    50,000             50,000                 2,357         (47,643)            2,188




79
       Transfers out                                                                 (308,046)          (408,046)             (648,739)       (240,693)         (257,783)
                 Total other financing sources (uses)                                (258,046)          (358,046)             (646,382)       (288,336)         (255,595)

     Net change in fund balance                                                $        3,838       $ (1,850,590)           (1,527,072)   $    323,518         4,448,764

     Fund balance at beginning of year, as restated                                                                          7,538,454                         3,138,662

     Fund balance at end of year                                                                                           $ 6,011,382                    $ 7,587,426
                                                                              City of Muskegon
                                                               BUDGETARY COMPARISON SCHEDULE
                                                                   Major Street and Trunkline Fund
                                                                   For the year ended June 30, 2011


                                                                                                                                                 Variance with
                                                                                                                                                 final budget-
                                                                                                 Budgeted amounts                                   positive
                                                                                           Original              Final               Actual        (negative)
     REVENUES
       Intergovernmental revenues
          Federal                                                                        $ 2,592,000             $ 1,639,000       $ 1,457,137    $ (181,863)
          State                                                                            2,686,841               2,686,841         2,704,187        17,346
       Charges for services                                                                        -                       -            64,370        64,370
       Investment earnings                                                                    25,000                  25,000            36,626        11,626
       Other                                                                                 240,000                 204,514           523,552       319,038
              Total revenues                                                                5,543,841                  4,555,355    4,785,872        230,517

     EXPENDITURES
       Current
         Highways, streets and bridges                                                      5,786,057                  4,447,057    4,179,028        268,029




80
     Excess of revenues over (under) expenditures                                            (242,216)                  108,298       606,844        498,546

     OTHER FINANCING SOURCES (USES)
       Long-term debt issued                                                                2,000,000                         -             -              -
       Transfers out                                                                         (400,000)                 (400,000)     (400,000)             -
              Total other financing sources (uses)                                          1,600,000                  (400,000)     (400,000)             -
     Net change in fund balance                                                          $ 1,357,784             $ (291,702)          206,844     $ 498,546
     Fund balance at July 1, 2010                                                                                                     359,157
     Fund balance at June 30, 2011                                                                                                 $ 566,001




     Note: Both budgets and actual figures are prepared in accordance with generally accepted accounting principles.
                                                           City of Muskegon
                                                  Required Supplemental Information
                                                SCHEDULE OF FUNDING PROGRESS
                                                   For the year ended June 30, 2011


                               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

      12/31/08            $ 86,928        $ 86,794         $      (134)            100 %          $ 13,107              (1) %
      12/31/09              86,682          87,395                 713              99              12,614               6
      12/31/10              88,810          88,391                (419)            100              11,533              (4)




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.

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, 2011


                                                                                                                                     Permanent
                                                                                 Total other          Special         Capital          Fund -
                                                                                governmental          Revenue         Projects       Cemetery
                                                                                    funds              Funds           Funds       Perpetual Care
     ASSETS
       Cash and investments                                                     $ 4,158,343       $     740,039   $ 2,065,863       $ 1,352,441
       Receivables
          Accounts and loans (net of allowance for uncollectibles)                   737,951              2,207         732,838            2,906
          Special assessments                                                        509,211            374,644         134,567                -
       Due from other governmental units                                             708,434            100,792         607,642                -
       Prepaid items                                                                   5,410              5,410               -                -
                 Total assets                                                   $ 6,119,349       $ 1,223,092     $ 3,540,910       $ 1,355,347

     LIABILITIES AND FUND BALANCES
       Liabilities
          Accounts payable                                                      $     53,137      $      25,554   $      27,583     $           -
          Accrued liabilities                                                         22,002             13,607           8,395                 -
          Due to other funds                                                         893,906                  -         893,906                 -




86
          Deferred revenue                                                           801,347            374,644         426,703                 -
                 Total liabilities                                                  1,770,392           413,805       1,356,587                 -

        Fund balances
          Nonspendable
              Prepaid items                                                             5,410             5,410               -                 -
              Long-term loans receivable                                              349,400                 -         349,400                 -
              Perpetual care                                                        1,336,284                 -               -         1,336,284
          Restricted for:
              Streets and highways                                                    657,930           657,930               -                -
              Law enforcement                                                         140,828           140,828               -                -
              Perpetual care                                                           19,063                 -               -           19,063
              Other purposes                                                            5,119             5,119               -                -
          Assigned for capital projects                                             2,073,027                 -       2,073,027                -
          Unassigned                                                                 (238,104)                -        (238,104)               -
                 Total fund balances                                                4,348,957           809,287       2,184,323         1,355,347
                 Total liabilities and fund balances                            $ 6,119,349      $ 1,223,092      $ 3,540,910       $ 1,355,347
                                                          City of Muskegon
                            COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES
                                                        Other Governmental Funds
                                                      For the year ended June 30, 2011


                                                                                                                      Permanent
                                                                   Total other        Special        Capital            Fund -
                                                                  governmental        Revenue        Projects         Cemetery
                                                                      funds            Funds          Funds         Perpetual Care
     REVENUES
       Intergovernmental revenues
          Federal                                                  $ 2,143,552    $           -     $ 2,143,552      $          -
          State                                                      1,061,214          761,426         299,788                 -
          Local                                                          2,500                -           2,500                 -
       Charges for services                                            339,816          197,011         113,065            29,740
       Fines and forfeitures                                            14,380           14,380               -                 -
       Investment earnings                                              60,853           30,188          26,224             4,441
       Other                                                           467,159          138,025         329,134                 -
              Total revenues                                         4,089,474        1,141,030       2,914,263            34,181

     EXPENDITURES
       Current
         Public safety                                                   8,356            8,356                 -                -




87
         Highways, streets and bridges                               1,523,013        1,523,013                 -                -
         Culture and recreation                                         18,238           18,238                 -                -
       Debt service
         Principal                                                     320,578                  -       320,578                  -
         Interest and fees                                              39,068                  -        39,068                  -
       Capital outlay                                                3,183,905                  -     3,183,905                  -
              Total expenditures                                     5,093,158        1,549,607       3,543,551                  -
     Excess of revenues over (under) expenditures                   (1,003,684)        (408,577)       (629,288)           34,181

     OTHER FINANCING SOURCES (USES)
       Proceeds from sale of capital assets                            120,118                -         120,118                  -
       Transfers in                                                  1,346,337          880,018         466,319                  -
       Transfers out                                                  (328,001)               -        (325,644)            (2,357)
              Total other financing sources (uses)                   1,138,454          880,018         260,793             (2,357)
     Net change in fund balances                                       134,770          471,441        (368,495)           31,824
     Fund balances at July 1, 2010, as restated                      4,214,187          337,846       2,552,818          1,323,523
     Fund balances at June 30, 2011                                $ 4,348,957    $     809,287     $ 2,184,323      $ 1,355,347
                                                                      City of Muskegon
                                                               COMBINING BALANCE SHEET
                                                                 Other Special Revenue Funds
                                                                        June 30, 2011


                                                             Total other                                       Farmers'
                                                           special revenue        Local         Criminal        Market        Tree
                                                                funds             Street       Forfeitures   Improvement   Replacement
     ASSETS
       Cash and investments                                $      740,039     $    594,004     $   140,828   $        -    $     5,207
       Receivables
          Accounts (net of allowance for uncollectibles)            2,207            2,207               -            -              -
          Special assessments                                     374,644          374,644               -            -              -
       Due from other governmental units                          100,792          100,792               -            -              -
       Prepaid items                                                5,410            5,410               -            -              -
              Total assets                                 $    1,223,092     $   1,077,057    $   140,828   $        -    $     5,207

     LIABILITIES AND FUND BALANCES
       Liabilities
          Accounts payable                                 $       25,554     $     25,466     $         -   $        -    $       88
          Accrued liabilities                                      13,607           13,607               -            -             -
          Deferred revenue                                        374,644          374,644               -            -             -




88
              Total liabilities                                   413,805          413,717               -            -            88

        Fund balances
          Nonspendable - prepaid items                              5,410             5,410              -            -              -
          Restricted for:
              Streets and highways                                657,930          657,930               -            -              -
              Law enforcement                                     140,828                -         140,828            -              -
              Other purposes                                        5,119                -               -            -          5,119
              Total fund balances                                 809,287          663,340         140,828            -          5,119
              Total liabilities and fund balances          $    1,223,092     $   1,077,057    $   140,828   $        -    $     5,207
                                                                City of Muskegon
                        COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES
                                                   Other Special Revenue Funds
                                                  For the year ended June 30, 2011


                                                      Total other                                       Farmers'
                                                    special revenue        Local         Criminal        Market         Tree
                                                         funds             Street       Forfeitures   Improvement    Replacement
     REVENUES
       Intergovernmental revenues - State           $     761,426      $     761,426    $         -   $        -     $        -
       Charges for services                               197,011            197,011              -            -              -
       Fines and forfeitures                               14,380                  -         14,380            -              -
       Investment earnings                                 30,188             29,411            688           65             24
       Other                                              138,025            138,025              -            -              -
              Total revenues                            1,141,030          1,125,873         15,068           65             24

     EXPENDITURES
       Current
         Public safety                                      8,356                  -          8,356            -              -
         Highways, streets and bridges                  1,523,013          1,523,013              -            -              -
         Culture and recreation                            18,238                  -              -       17,897            341
              Total expenditures                        1,549,607          1,523,013          8,356       17,897            341




89
     Excess of revenues over (under) expenditures        (408,577)          (397,140)         6,712       (17,832)         (317)

     OTHER FINANCING SOURCES
       Transfers in                                       880,018            880,000              -           18              -
     Net change in fund balances                          471,441            482,860          6,712       (17,814)         (317)

     Fund balances at July 1, 2010, as restated           337,846            180,480        134,116       17,814          5,436
     Fund balances at June 30, 2011                 $     809,287      $     663,340    $   140,828   $         -    $    5,119
                                                                     City of Muskegon
                                                        BUDGETARY COMPARISON SCHEDULE
                                                             Other Special Revenue Funds
                                                            For the year ended June 30, 2011


                                                                       Local Street                                    Criminal Forfeitures
                                                                                        Variance -                                            Variance -
                                                         Final                           positive          Final                               positive
                                                        budget              Actual      (negative)        budget               Actual         (negative)
     REVENUES
       Intergovernmental revenues
          Federal                                   $    120,000        $          -    $ (120,000)   $          -         $          -       $        -
          State                                          764,181             761,426        (2,755)              -                    -                -
       Charges for services                                    -             197,011       197,011               -                    -                -
       Fines and forfeitures                                   -                   -             -          10,000               14,380            4,380
       Investment earnings                                10,000              29,411        19,411             500                  688              188
       Other                                              93,143             138,025        44,882               -                    -                -
              Total revenues                             987,324            1,125,873       138,549         10,500               15,068            4,568

     EXPENDITURES
       Current
         Public safety                                          -                   -             -         45,000                8,356           36,644
         Highways, streets and bridges                  1,685,556           1,523,013       162,543              -                    -                -




90
         Culture and recreation                                 -                   -             -              -                    -                -
              Total expenditures                        1,685,556           1,523,013       162,543         45,000                8,356           36,644

     Excess of revenues over (under) expenditures        (698,232)          (397,140)       301,092        (34,500)               6,712           41,212

     OTHER FINANCING SOURCES
       Transfers in                                      880,000             880,000              -                -                    -              -

     Net change in fund balances                    $    181,768             482,860    $   301,092   $    (34,500)               6,712       $   41,212

     Fund balances at July 1, 2010                                           180,480                                            134,116

     Fund balances at June 30, 2011                                     $    663,340                                       $    140,828
                                                                        City of Muskegon
                                                    BUDGETARY COMPARISON SCHEDULE─CONTINUED
                                                               Other Special Revenue Funds
                                                             For the year ended June 30, 2011


                                                                 Farmers' Market Improvement                              Tree Replacement
                                                                                         Variance -                                           Variance -
                                                             Final                        positive            Final                            positive
                                                            budget         Actual        (negative)          budget             Actual        (negative)
     REVENUES
       Intergovernmental revenues
          Federal                                       $         -       $        -       $        -    $         -        $             -   $        -
          State                                                   -                -                -              -                      -            -
       Charges for services                                       -                -                -            400                      -         (400)
       Fines and forfeitures                                      -                -                -              -                      -            -
       Investment earnings                                      100               65              (35)           100                     24          (76)
       Other                                                      -                -                -              -                      -            -
              Total revenues                                    100               65              (35)           500                     24         (476)

     EXPENDITURES
       Current
         Public safety                                             -               -               -                -                  -               -
         Highways, streets and bridges                             -               -               -                -                  -               -




91
         Culture and recreation                               22,000          17,897           4,103            3,900                341           3,559
              Total expenditures                              22,000          17,897           4,103            3,900                341           3,559

     Excess of revenues over (under) expenditures            (21,900)         (17,832)         4,068           (3,400)              (317)          3,083

     OTHER FINANCING SOURCES
       Transfers in                                            4,086              18           (4,068)                -                   -            -

     Net change in fund balances                        $    (17,814)         (17,814)     $        -    $     (3,400)              (317)     $    3,083

     Fund balances at July 1, 2010                                            17,814                                               5,436

     Fund balances at June 30, 2011                                       $         -                                       $      5,119
                                                                                                                           City of Muskegon
                                                                                                                 COMBINING BALANCE SHEET
                                                                                                                   Other Capital Projects Funds
                                                                                                                          June 30, 2011


                                                                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                                   $    2,065,863     $   546,155   $ 663,728     $ 215,981       $ 136,611     $         -   $            -   $           -    $       779    $           -   $          -    $    502,609
       Receivables
         Accounts and loans (net of
             allowance for uncollectibles)                           732,838          21,555             -             -          40,031       357,965        309,369                -               -                -          3,918               -
         Special assessments                                         134,567               -       134,567             -               -             -              -                -               -                -              -               -
       Due from other governmental units                             607,642               -             -             -               -       171,102         65,983           16,619               -                -        353,938               -
              Total assets                                    $    3,540,910     $   567,710   $ 798,295     $ 215,981       $ 176,642     $   529,067   $ 375,352        $     16,619     $       779    $           -   $    357,856    $    502,609

     LIABILITIES AND FUND BALANCES (DEFICIT)
       Liabilities
          Accounts payable                                    $       27,583     $       204   $         -   $         -     $         -   $    15,577   $          -     $      3,407     $         -    $           -   $      8,395    $          -
          Accrued liabilities                                          8,395               -             -             -               -         3,561              -            1,268               -                -          3,566               -
          Due to other funds                                         893,906               -             -             -               -       231,980        137,913          178,118               -                -        345,895               -
          Deferred revenue                                           426,703          16,000       132,754             -               -       277,949              -                -               -                -              -               -
              Total liabilities                                    1,356,587          16,204       132,754             -               -       529,067        137,913          182,793               -                -        357,856               -

        Fund balances (deficit)
          Nonspendable - long-term loans receivable                  349,400               -             -             -          40,031             -        309,369                -               -                -              -               -
          Assigned for capital projects                            2,073,027         551,506       665,541       215,981         136,611             -              -                -             779                -              -         502,609
          Unassigned                                                (238,104)              -             -             -               -             -        (71,930)        (166,174)              -                -              -               -
              Total fund balances (deficit)                        2,184,323         551,506       665,541       215,981         176,642             -        237,439         (166,174)            779                -              -         502,609




92
              Total liabilities and fund balances (deficit)   $    3,540,910     $   567,710   $ 798,295     $ 215,981       $ 176,642     $   529,067   $ 375,352        $     16,619     $       779    $           -   $    357,856    $    502,609
                                                                                                                     City of Muskegon
                                                                 COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES (DEFICIT)
                                                                                                Other Capital Projects Funds
                                                                                              For the year ended June 30, 2011


                                                       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                                     $   2,143,552     $         -     $         -    $         -   $         -   $   922,014    $    162,729    $    139,524     $         -     $        -     $    919,285     $         -
          State                                             299,788               -               -              -             -             -         299,788               -               -              -                -               -
          Local                                               2,500           2,500               -              -             -             -               -               -               -              -                -               -
       Charges for services                                 113,065          94,428               -              -             -             -               -               -          18,637              -                -               -
       Investment earnings                                   26,224           6,974          13,596          1,080         1,098           141             613               -             217              -                -           2,505
       Other                                                329,134           3,305          75,715              -        28,502        28,172               -               -          64,500         27,743          101,197               -
              Total revenues                              2,914,263         107,207          89,311          1,080        29,600       950,327         463,130         139,524          83,354         27,743         1,020,482          2,505

     EXPENDITURES
       Debt service
         Principal                                          320,578               -         120,000             -              -             -         200,578               -               -              -                 -              -
         Interest and fees                                   39,068               -          30,905             -              -             -           8,163               -               -              -                 -              -
       Capital outlay                                     3,183,905         109,292           4,861           178         19,725       986,755         634,622         139,524         225,826         42,640         1,020,482              -
              Total expenditures                          3,543,551         109,292         155,766           178         19,725       986,755         843,363         139,524         225,826         42,640         1,020,482              -
     Excess of revenues over (under) expenditures         (629,288)           (2,085)       (66,455)          902          9,875       (36,428)       (380,233)               -        (142,472)       (14,897)               -          2,505

     OTHER FINANCING SOURCES (USES)
       Proceeds from sale of capital assets                120,118             4,817              -              -             -        40,071               -          75,230               -              -                 -              -
       Transfers in                                        466,319            54,572        100,000              -             -             -         237,104               -          71,000          3,643                 -              -
       Transfers out                                      (325,644)         (202,429)             -              -             -        (3,643)       (119,572)              -               -              -                 -              -




93
              Total other financing sources (uses)         260,793          (143,040)       100,000              -             -        36,428         117,532          75,230          71,000          3,643                 -              -
     Net change in fund balances                          (368,495)         (145,125)        33,545           902          9,875             -        (262,701)         75,230          (71,472)       (11,254)               -          2,505

     Fund balances (deficit) at July 1, 2010              2,552,818         696,631         631,996        215,079       166,767             -         500,140        (241,404)         72,251         11,254                 -        500,104
     Fund balances (deficit) at June 30, 2011         $   2,184,323     $   551,506     $   665,541    $   215,981   $   176,642   $         -    $    237,439    $   (166,174)    $       779     $         -    $           -    $   502,609
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, 2011


                                                                                  ASSETS

                                                                          Total internal   Engineering                     General        Public Service
                                                                          service funds     Services       Equipment      Insurance         Building
     CURRENT ASSETS
       Cash and investments                                               $ 4,568,483      $          -    $ 2,880,251    $ 1,420,174     $     268,058
       Accounts receivable                                                    173,379            91,025          6,130         76,224                 -
       Inventories                                                             29,836                 -         29,836              -                 -
       Prepaid items                                                          748,322             1,729         61,735        679,410             5,448
                 Total current assets                                        5,520,020           92,754      2,977,952      2,175,808           273,506

     NONCURRENT ASSETS
       Capital assets
         Land                                                                    65,000               -              -                -           65,000
         Land improvements                                                      190,872               -              -                -          190,872
         Buildings and improvements                                           1,559,334               -              -                -        1,559,334
         Machinery and equipment                                              7,186,154          26,355      7,125,110                -           34,689
             Less accumulated depreciation                                   (7,333,410)        (26,355)    (6,105,386)               -       (1,201,669)




96
                 Total noncurrent assets                                     1,667,950                -      1,019,724                -         648,226
                    Total assets                                             7,187,970           92,754      3,997,676      2,175,808           921,732

                                                                       LIABILITIES AND NET ASSETS
     CURRENT LIABILITIES
       Accounts payable                                                        213,832              846        79,882         112,375            20,729
       Accrued liabilities                                                      50,308           11,465        14,339           1,237            23,267
       Due to other funds                                                       93,420           93,420             -               -                 -
       Bonds and other obligations, due within one year                         16,000            4,000         4,000               -             8,000
                 Total current liabilities                                     373,560          109,731        98,221         113,612            51,996

     NONCURRENT LIABILITIES
       Bonds and other obligations, less amounts due within one year            78,776           18,155        18,778           1,649            40,194
                    Total liabilities                                          452,336          127,886       116,999         115,261            92,190

     NET ASSETS (DEFICITS)
       Invested in capital assets                                            1,667,950                -      1,019,724              -           648,226
       Unrestricted                                                          5,067,684          (35,132)     2,860,953      2,060,547           181,316
                    Total net assets (deficits)                           $ 6,735,634      $    (35,132)   $ 3,880,677    $ 2,060,547     $     829,542
                                                                           City of Muskegon
                                       COMBINING STATEMENT OF REVENUE, EXPENSES AND CHANGES IN FUND NET ASSETS (DEFICITS)
                                                                        Internal Service Funds
                                                                   For the year ended June 30, 2011


                                                                   Total internal      Engineering                             General      Public Service
                                                                   service funds        Services         Equipment            Insurance       Building
     OPERATING REVENUES
       Charges for services                                        $   7,162,116      $       410,022    $   2,211,835    $    3,770,919    $    769,340
       Other                                                             215,192              128,631           75,412            11,081              68
           Total operating revenues                                    7,377,308              538,653        2,287,247         3,782,000         769,408

     OPERATING EXPENSES
       Administration                                                    360,000               96,000          126,108            81,096          56,796
       Insurance premiums and claims                                   3,983,943                    -                -         3,983,943               -
       Other operations                                                3,058,546              375,467        1,789,815            34,117         859,147
       Depreciation                                                      534,711                    -          466,232                 -          68,479
           Total operating expenses                                    7,937,200              471,467        2,382,155         4,099,156         984,422
           Operating income (loss)                                      (559,892)              67,186          (94,908)         (317,156)       (215,014)

     NONOPERATING REVENUES




97
       Investment earnings                                                22,093                    -          13,822              6,057            2,214
       Gain on sale of capital assets                                     20,999                    -          20,999                  -                -
           Total nonoperating revenues                                    43,092                    -          34,821              6,057            2,214

           Income (loss) before transfers                               (516,800)              67,186          (60,087)         (311,099)       (212,800)

     Transfers in                                                         28,046                    -                -            28,046                -
           Change in net assets                                         (488,754)              67,186          (60,087)         (283,053)       (212,800)

     Net assets (deficit) at July 1, 2010                              7,224,388          (102,318)          3,940,764         2,343,600        1,042,342
     Net assets (deficit) at June 30, 2011                         $   6,735,634      $       (35,132)   $   3,880,677    $    2,060,547    $    829,542
                                                                                        City of Muskegon
                                                                             COMBINING STATEMENT OF CASH FLOWS
                                                                                        Internal Service Funds
                                                                                   For the year ended June 30, 2011


                                                                                               Total internal    Engineering                        General          Public Service
                                                                                               service funds       Services      Equipment         Insurance           Building
     CASH FLOWS FROM OPERATING ACTIVITIES
       Receipts from customers                                                                 $      495,597    $     55,629    $       74,133    $      365,767    $         68
       Receipts from interfund services provided                                                    7,162,116         410,022         2,211,835         3,770,919         769,340
       Payments to suppliers                                                                       (5,125,868)        (59,740)       (1,022,031)       (3,885,128)       (158,969)
       Payments to employees                                                                       (1,739,210)       (288,983)         (388,948)         (442,379)       (618,900)
       Payments for interfund services used                                                          (684,827)       (116,928)         (461,986)           (4,511)       (101,402)
              Net cash provided by (used for) operating activities                                   107,808                -          413,003          (195,332)        (109,863)

     CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES
       Transfers in                                                                                   28,046                -                 -           28,046                 -

     CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES
       Purchases of capital assets                                                                  (395,734)               -         (326,510)                 -         (69,224)
       Proceeds from sale of capital assets                                                           24,055                -           24,055                  -               -
              Net cash used for capital and related financing activities                            (371,679)               -         (302,455)                 -         (69,224)

     CASH FLOW FROM INVESTING ACTIVITIES
       Investment earnings                                                                            22,093                -           13,822             6,057            2,214




98
              Net increase (decrease) in cash and investments                                       (213,732)               -          124,370          (161,229)        (176,873)

     Cash and investments at July 1, 2010                                                          4,782,215                -        2,755,881         1,581,403          444,931
     Cash and investments at June 30, 2011                                                     $   4,568,483     $          -    $ 2,880,251       $ 1,420,174       $    268,058

     Reconciliation of operating income (loss) to net cash provided by (used for)
       operating activities
          Operating income (loss)                                                              $    (559,892)    $    67,186     $     (94,908)    $ (317,156)       $   (215,014)
          Adjustments to reconcile operating income (loss) to net cash provided by
              (used for) operating activities
                  Depreciation expense                                                               534,711                -          466,232                  -          68,479
              Change in assets and liabilities
                  Receivables, net                                                                   280,405          (73,002)          (1,279)          354,686                -
                  Inventories                                                                         (1,125)               -           (1,125)                -                -
                  Prepaid items                                                                       18,706            1,164           (7,605)           26,191           (1,044)
                  Accounts payable                                                                  (192,855)             159           48,298          (260,136)          18,824
                  Accrued liabilities                                                                 33,330            9,965            3,390             1,083           18,892
                  Due to other funds                                                                  (5,472)          (5,472)               -                 -                -
                    Net cash provided by (used for) operating activities                       $     107,808     $          -    $     413,003     $ (195,332)       $   (109,863)
                                          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, 2011


                                                      Total                             Current       Rehab Loan
                                                      funds             Collector         tax           Escrow
      ASSETS
        Cash and investments                      $   742,906       $     742,906   $             -   $        -
        Accounts receivable                             1,867               1,867                 -            -
              Total assets                        $   744,773       $     744,773   $             -   $        -

      LIABILITIES
        Accounts payable                          $   213,981       $     213,981   $             -   $        -
        Due to other governmental units               462,345             462,345                 -            -
        Deposits held for others                       68,447              68,447                 -            -
              Total liabilities                   $   744,773       $     744,773   $             -   $        -




100
                                                          City of Muskegon
                                          STATEMENT OF CHANGES IN ASSETS AND LIABILITIES
                                                              Agency Funds
                                                     For the year ended June 30, 2011


                                                               Balance                                               Balance
                                                               July 1,                                               June 30,
      COLLECTOR FUND                                            2010              Additions        Deductions         2011
      ASSETS
        Cash and investments                               $     724,878      $ 15,840,497     $ 15,822,469      $     742,906
        Accounts receivable                                        1,867           125,612          125,612              1,867
           Total assets                                    $     726,745      $ 15,966,109     $ 15,948,081      $     744,773

      LIABILITIES
        Accounts payable                                   $      70,826      $ 10,700,913     $ 10,557,758      $     213,981
        Due to other governmental units                          396,210         1,939,668        1,873,533            462,345
        Deposits held for others                                 259,709         2,689,796        2,881,058             68,447
           Total liabilities                               $     726,745      $ 15,330,377     $ 15,312,349      $     744,773

      CURRENT TAX FUND
      ASSETS
        Cash and investments                               $             -    $ 31,893,215     $ 31,893,215      $              -

      LIABILITIES
        Due to other governmental units                    $             -    $ 22,522,095     $ 22,522,095      $              -
        Due to other funds                                               -       8,748,563        8,748,563                     -
        Due to component units                                           -         494,334          494,334                     -
        Deposits held for others                                         -         128,223          128,223                     -




101
           Total liabilities                               $             -    $ 31,893,215     $ 31,893,215      $              -

      REHAB LOAN ESCROW FUND
      ASSETS
        Cash and investments                               $         245      $        1,274   $         1,519   $              -

      LIABILITIES
        Accounts payable                                   $         245      $        1,274   $         1,519   $              -

      ALL AGENCY FUNDS
      ASSETS
        Cash and investments                               $     725,123      $ 47,734,986     $ 47,717,203      $     742,906
        Accounts receivable                                        1,867           125,612          125,612              1,867
           Total assets                                    $     726,990      $ 47,860,598     $ 47,842,815      $     744,773

      LIABILITIES
        Accounts payable                                   $      71,071      $ 10,702,187     $ 10,559,277      $     213,981
        Due to other governmental units                          396,210        24,461,763       24,395,628            462,345
        Due to other funds                                             -         8,748,563        8,748,563                  -
        Due to component units                                         -           494,334          494,334                  -
        Deposits held for others                                 259,709         2,818,019        3,009,281             68,447
           Total liabilities                               $     726,990      $ 47,224,866     $ 47,207,083      $     744,773
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, 2011


                               Total discretely         Local
                                  presented          Development        Downtown        Tax Increment    Brownfield
                                 component             Finance         Development         Finance      Redevelopment
                                    units            Authority III      Authority         Authority       Authority
      ASSETS
        Cash and investments   $      375,287        $     21,348      $      272,145   $     16,445    $     65,349

      FUND BALANCES
        Unassigned             $      375,287        $     21,348      $      272,145   $     16,445    $     65,349




104
                                                               City of Muskegon
                                     RECONCILIATION OF THE GOVERNMENTAL FUNDS
                                BALANCE SHEET TO THE STATEMENT OF NET ASSETS (DEFICITS)
                                             Discretely Presented Component Units
                                                         June 30, 2011


      Total fund balance—governmental funds                                                                   $     375,287

      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                                                            (1,309,248)       2,889,010

         Bond issuance costs are not capitalized and amortized in the
         governmental funds.
            Bond issuance costs                                                                   192,605




105
            Accumulated amortization                                                               (52,466)         140,139

         Accrued interest in governmental activities is not reported in the
         governmental funds.                                                                                        (37,700)

         Long-term liabilities, including bonds and notes payable, are not due
         and payable in the current period and therefore are not reported
         as liabilities in the governmental funds.                                                                (7,478,681)

            Net assets of governmental activities in the Statement of Net Assets (Deficits)                   $ (4,111,945)
                                                                City of Muskegon
                  COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES (DEFICITS)
                                              Discretely Presented Component Units
                                                For the year ended June 30, 2011


                                                      Total discretely      Local
                                                         presented       Development      Downtown         Tax Increment    Brownfield
                                                        component          Finance       Development          Finance      Redevelopment
                                                           units         Authority III    Authority          Authority       Authority
      REVENUES
        Property taxes                                $      494,334     $     84,658    $     281,424      $    53,769    $     74,483
        Intergovernmental revenues - Local                   100,000          100,000                -                -               -
        Investment earnings                                    2,094              153            1,716              142              83
        Other                                                 75,000           75,000                -                -               -
               Total revenues                                671,428          259,811          283,140           53,911          74,566

      EXPENDITURES
        Current
          Community and economic development                  75,000                -                 -          75,000                -
        Debt service
          Principal                                          320,000           80,000          240,000                -                -
          Interest and fees                                  318,252          195,297          122,955                -                -




106
          Bond issuance costs                                 50,639                -           50,639                -                -
               Total expenditures                            763,891          275,297          413,594           75,000                -

      Excess of revenues over (under) expenditures           (92,463)         (15,486)        (130,454)         (21,089)         74,566

      OTHER FINANCING SOURCES (USES)
        Refunding long-term debt issued                    2,045,000                -         2,045,000               -                -
        Premium on refunding long-term debt issued            33,014                -            33,014               -                -
        Payment on refunding of long-term debt            (2,005,000)               -        (2,005,000)              -                -
               Total other financing sources (uses)           73,014                -           73,014                -                -

      Net change in fund balances                            (19,449)         (15,486)         (57,440)         (21,089)         74,566

      Fund balances (deficit) at July 1, 2010                394,736           36,834          329,585           37,534           (9,217)

      Fund balances at June 30, 2011                  $      375,287     $     21,348    $     272,145      $    16,445    $     65,349
                                                             City of Muskegon
           RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES
                     AND CHANGE IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES
                                     Discretely Presented Component Units
                                       For the year ended June 30, 2011


      Net change in fund balances—total governmental funds                                                       $     (19,449)

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

         Governmental funds report outlays for capital assets and bond issuance costs as
         expenditures; in the Statement of Activities, these costs are depreciated and
         amortized over their estimated useful lives, respectively.
            Depreciation and amortization expense                                                $   (178,821)
            Bond issuance costs                                                                        50,639        (128,182)

         Debt proceeds are other financing sources in the governmental funds, but the proceeds
         increase long-term debt in the Statement of Net Assets                                                  (2,078,014)




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.                             2,324,455

         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.                                            3,900
               Change in net assets of governmental activities                                                   $    102,710
108
SCHEDULE OF INDEBTEDNESS




           109
                                                                 City of Muskegon

                                                      SCHEDULE OF INDEBTEDNESS

                                                                  June 30, 2011

                                                                                                                                             Annual
                                         Date         Amount           Interest     Date of                                                  Interest
                                       of Issue       of Issue           Rate       Maturity         6/30/2010           6/30/2011           Payable

Business-Type Activities Bonds and Loans Payable:



Water supply system bonds                4/1/2010 $      5,995,000        2.00%       05/01/11 $           580,000   $               -   $              -
 ($152,208 unamortized premium)                                           2.00%       05/01/12             600,000             600,000            184,088
                                                                          3.00%       05/01/13             610,000             610,000            172,088
                                                                          2.77%       05/01/14             640,000             640,000            153,788
                                                                          3.50%       05/01/15             660,000             660,000            136,088
                                                                          3.25%       05/01/16             685,000             685,000            112,988
                                                                          4.00%       05/01/17             710,000             710,000             90,725
                                                                          4.00%       05/01/18             740,000             740,000             62,325
                                                                          4.25%       05/01/19             770,000             770,000             32,725
                                                                                                         5,995,000           5,415,000            944,813


Drinking Water State Revolving           3/2/2004 $     13,900,000        2.13%       10/01/10             615,000                   -                  -
 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          10,955,000          1,836,691




TOTAL BUSINESS-TYPE ACTIVITIES BONDS AND LOANS PAYABLE                                           $      17,565,000   $      16,370,000   $      2,781,503




                                                                      110
                                                                  City of Muskegon

                                                  SCHEDULE OF INDEBTEDNESS - CONTINUED

                                                                   June 30, 2011

                                                                                                                                              Annual
                                         Date          Amount           Interest     Date of                                                  Interest
                                       of Issue        of Issue           Rate       Maturity         6/30/2010           6/30/2011           Payable

Governmental Activities Bonds and Loans Payable:


Installment purchase contract           7/26/2005 $         605,824        3.83%       04/01/11 $            61,420   $               -   $              -
 of 2005 (firetrucks)                                                      3.83%       04/01/12              64,055                   -                  -
                                                                           3.83%       04/01/13              66,803                   -                  -
                                                                           3.83%       04/01/14              69,669                   -                  -
                                                                           3.83%       04/01/15              72,658                   -                  -
                                                                                                            334,605                   -                  -



Capital improvement bonds                3/1/2003 $       1,575,000        3.50%       06/01/11             120,000                   -                  -
 of 2003 (sidewalks)                                                       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
                                                                                                            805,000             685,000             83,875


Capital improvement bonds              10/24/2006 $       5,400,000        4.00%       10/01/10              70,000                   -                  -
 of 2006 (fire station, recreation)                                        4.00%       10/01/11              70,000              70,000            211,145
  ($13,245 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           5,235,000          2,994,643




State of Michigan urban land             8/1/2005 $         700,000        0.00%       09/01/10              20,000                   -                  -
 assembly loan                                                             0.00%       09/01/11             120,000                   -                  -
                                                                           0.00%       09/01/12             120,000                   -                  -
                                                                           0.00%       09/01/13             120,000                   -                  -
                                                                           0.00%       09/01/14             120,000                   -                  -
                                                                           0.00%       09/01/15             120,000                   -                  -
                                                                                                            620,000                   -                  -


State of Michigan                       6/18/2010 $         500,000        2.00%       03/18/11              45,663                   -                  -
 environmental assessment loan                                             2.00%       03/18/12              46,577              28,527              4,897
                                                                           2.00%       03/18/13              47,508              29,098              4,326
                                                                           2.00%       03/18/14              48,458              29,680              3,744
                                                                           2.00%       03/18/15              49,427              30,274              3,151
                                                                           2.00%       03/18/16              50,416              30,879              2,545
                                                                           2.00%       03/18/17              51,424              31,497              1,928
                                                                           2.00%       03/18/18              52,453              32,126              1,298
                                                                           2.00%       03/18/19              53,502              32,769                655
                                                                                                            445,428             244,850             22,544



TOTAL GOVERNMENTAL ACTIVITIES BONDS AND LOANS PAYABLE                                             $       7,510,033   $       6,164,850   $      3,101,062


TOTAL PRIMARY GOVERNMENT BONDS AND LOANS PAYABLE                                                  $      25,075,033   $      22,534,850   $      5,882,565




                                                                       111
                                                                 City of Muskegon

                                                 SCHEDULE OF INDEBTEDNESS - CONTINUED

                                                                  June 30, 2011

                                                                                                                                             Annual
                                        Date          Amount           Interest     Date of                                                  Interest
                                      of Issue        of Issue           Rate       Maturity         6/30/2010           6/30/2011           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        4.35%       06/01/11             240,000                   -                  -
 refunding bonds                                                          4.45%       06/01/12             245,000                   -                  -
                                                                          4.55%       06/01/13             260,000                   -                  -
                                                                          4.65%       06/01/14             270,000                   -                  -
                                                                          4.75%       06/01/15             280,000                   -                  -
                                                                          4.85%       06/01/16             300,000                   -                  -
                                                                          5.00%       06/01/17             315,000                   -                  -
                                                                          5.00%       06/01/18             335,000                   -                  -
                                                                                                         2,245,000                   -                  -


Downtown Development Authority         3/22/2011 $       2,045,000        2.00%       06/01/12                   -             265,000             64,462
 refunding bonds                                                          2.50%       06/01/13                   -             275,000             59,162
($33,014 unamortized premium)                                             2.75%       06/01/14                   -             280,000             52,288
                                                                          3.25%       06/01/15                   -             285,000             44,588
                                                                          3.50%       06/01/16                   -             300,000             35,326
                                                                          3.75%       06/01/17                   -             310,000             24,826
                                                                          4.00%       06/01/18                   -             330,000             13,200
                                                                                                                 -           2,045,000            293,852


Local Development Finance Authority    11/1/2002 $       4,725,000        3.88%       11/01/10              80,000                   -                  -
Smartzone Bonds                                                           3.88%       11/01/11              80,000              80,000            192,197
($4,333 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           4,405,000          1,608,216
TOTAL DISCRETELY PRESENTED COMPONENT UNIT BONDS AND LOANS PAYABLE                                $       7,730,000   $       7,450,000   $      1,902,068

TOTAL REPORTING ENTITY BONDS AND LOANS PAYABLE                                                   $      32,805,033   $      29,984,850   $      7,784,632




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


Contents                                                                                            Page

Financial Trends

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


Revenue Capacity

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


Debt Capacity

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


Demographic and Economic Information

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


Operating Information

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



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




                                                    113
                                                                                                           City of Muskegon

                                                                                                NET ASSETS BY COMPONENT

                                                                                                         Last Nine Fiscal Years




                                                                                                                           December 31                                                                  June 30
                                                                         2003            2004             2005 (a)          2006              2007             2008             2009             2010              2011

      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   $    67,944,957
      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         3,656,410
      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        12,598,197
      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   $    84,199,564


      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   $    40,419,728
      Restricted                                                          822,559         822,559            822,559          822,559           822,559          822,559          672,000          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         9,211,610
      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   $    50,303,338


      Primary Government
      Invested in Capital Assets, net of related debt                $ 59,928,926    $ 72,272,860    $ 103,862,327     $ 107,630,933 $ 107,416,592 $ 110,441,556 $ 110,941,307              $ 108,915,369 $ 108,364,685
      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     4,328,410
      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    21,809,807




114
      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 $ 134,502,902




      (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 Nine Fiscal Years




                                                                                                                                                                                                                     Period Ended    Year Ended June
                                                                                                                                 Year Ended December 31                                                                June 30              30
                                                                          2003                  2004                 2005                 2006                  2007             2008             2009                   2010              2011

EXPENSES
Governmental Activities
Public representation                                             $           887,496   $           866,669   $           885,365   $            904,109    $      925,124   $      986,696   $      923,911     $         445,251 $        854,249
Administrative services                                                     1,227,407             1,132,229               803,783                732,715           783,713          782,362          698,022               317,873          645,585
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        2,373,141
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       13,390,888
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        3,471,051
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        7,013,216
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        2,830,867
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        1,524,331
General administration                                                      1,601,112             1,725,225             1,608,108              1,143,963           358,225          574,955          451,651               210,117          794,115
Interest on long-term debt                                                    223,717               193,021               170,814                206,768           343,106          324,076          288,073               139,006          272,940
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       33,170,383

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        5,869,241
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        5,288,622
Marina and launch ramp                                                        325,401               351,705               343,599                332,826           392,994          347,642          310,773               150,055          292,889
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       11,450,752
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 $     44,621,135


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 $        196,886
  Administrative services                                                     292,665               314,028               311,529                306,964           287,011          257,850          271,117               129,630          263,473
   Financial services                                                         591,174               645,166               537,445                728,332           744,109          726,572          818,845               475,031          879,905
   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        1,109,659
   Public works                                                               266,045               452,606               467,849                588,566           407,569          382,072          383,733               209,203          642,082
   Highways, streets and bridges                                              273,893               555,018               267,689                263,423           372,133          301,955          251,840               139,009          451,473
   Community and economic development                                         977,448               414,543               815,980                762,220           356,051          297,854          249,241               186,572          457,952
   Culture and recreation                                                   1,026,822             1,151,687             1,141,865                809,228           454,154          405,520          445,891               129,025          300,367
   General administration                                                     122,447               200,434               314,658                170,240            64,366           99,494          123,426                59,373          116,690
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        5,425,165
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        2,257,163
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       12,100,815

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        5,454,760
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        6,652,851
Marina and launch ramp                                                        274,258               266,981               248,460                267,412           281,679          250,266          242,055               156,767          194,311
Operating grants and contributions                                                  -                     -                     -                      -                 -                -                -                     -                -
Capital grants and contributions                                              256,612               657,521               100,373                710,641                 -                -            5,179                     -           20,074
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       12,321,996
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 $     24,422,811

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)     (21,069,568)
Business-type Activities                                                      439,780             1,765,730             2,931,447             2,283,867             775,036          165,350           33,911               855,943          871,244
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) $   (20,198,324)


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 $      8,844,004
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        6,866,967
Franchise fees                                                                265,532                     -               286,265                285,124           297,200          304,812          321,852               178,239          362,103
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        3,846,859
Unrestricted investment earnings                                              281,492               170,094               420,595                832,300         1,247,520          730,142          185,436               104,086          193,435
Miscellaneous                                                                 109,620                68,405                70,402                 64,645            88,035          160,460          226,124                51,638          432,880
Gain on sale of capital asset                                                  62,992                70,886               300,037                 81,372             1,604          323,048          123,258                65,155           25,815
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       20,572,063

Business-type Activities
Unrestricted investment earnings                                               71,628                51,768               138,053                122,060           170,594          108,990           23,843                15,990           23,959
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           23,959
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   $   20,596,022

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         (497,505)
Business-type Activities                                                      422,641             1,959,918             3,149,500              2,945,927           985,630          314,340            57,754              875,693          895,203
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   $      397,698




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




                                                                                                                          115
                                                                                                         City of Muskegon

                                                                                    FUND BALANCE OF GOVERNMENTAL FUNDS

                                                                                                        Last Ten Fiscal Years




                                                                                                                    December 31                                                                         June 30
                                                               2002            2003              2004            2005         2006               2007            2008            2009            2010          2011 (a)

      General fund
      Reserved                                             $    173,696    $    110,642    $       74,349    $     79,356    $    177,076    $    180,410    $    214,819    $    187,633    $    300,969    $          -
      Nonspendable                                                                                                                                                                                                251,173
      Restricted
      Assigned                                                                                                                                                                                                   2,385,728
      Unassigned                                                                                                                                                                                                 3,374,481
      Unreserved                                               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                                   $   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   $   6,011,382

      All other governmental funds
      Reserved                                             $   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   $           -
      Nonspendable                                                                                                                                                                                               1,704,256
      Restricted                                                                                                                                                                                                 1,375,779
      Assigned                                                                                                                                                                                                   2,073,027
      Unassigned                                                                                                                                                                                                  (238,104)
      Unreserved, reported in:
       Special revenue funds                                   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                 -               -              -                -               -               -               -               -




116
       Capital project funds                                   1,614,636       3,849,868         2,187,667       1,239,763        390,282          635,676         675,898         554,273           6,035               -
       Permanent funds                                           102,837          63,798            22,896          22,890         77,300           84,413          60,813          15,613          16,979               -
      Total all other governmental funds                   $   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   $   4,914,958

      (a) In fiscal 2011, the City adopted GASB 54 which changed fund balance classifications.

      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

                                                                          CHANGES IN FUND BALANCE OF GOVERNMENTAL FUNDS

                                                                                                    Last Ten Fiscal Years


                                                                                                                                                                                              Period Ended      Year Ended
                                                                                                            Year Ended December 31                                                              June 30          June 30
                                                             2002            2003            2004             2005         2006                  2007            2008            2009             2010             2011

      Revenues
      Taxes                                              $ 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      $ 15,146,430
      Intergovernmental                                    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        11,525,749
      Charges for services                                  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         2,769,204
      Other                                                 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         3,461,292
      Total revenues                                       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        32,902,675

      Expenditures
      Public representation                                   985,107          889,188         869,342         886,717           903,895           927,320         987,229         923,923           448,703         851,918
      Administrative services                                 816,581          785,966         704,667         748,588           669,789           644,913         632,513         645,704           303,555         586,328
      Financial services                                    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       2,352,709
      Public safety                                        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      13,087,976
      Public works                                          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       3,079,342
      Highways, streets and bridges                         8,816,305       11,800,017       8,654,931       9,531,840         8,023,539         6,504,915       6,414,453       3,436,069         1,823,089       3,226,377
      Community and economic development                      971,335          987,097         797,072         784,396           763,211           894,879       1,077,312       4,440,687         1,330,794       3,109,693
      Culture and recreation                                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       1,197,020
      Other governmental functions                          1,798,345        1,589,572       1,708,868       1,603,292         1,139,148           350,385         562,341         438,292           200,623       1,775,128
      Debt service




117
       Principal                                            1,345,000        1,270,000       1,335,000       1,115,000         1,189,785         1,241,921         999,148         663,371           303,466       1,345,183
       Interest and issuance costs                            316,255          230,907         201,447         166,071           271,233           324,577         310,432         282,174           136,013         267,258
      Capital outlay                                        4,721,155        4,496,631       6,139,597       3,734,082         6,066,783         5,683,657       5,473,828       3,517,741           980,822       3,301,273
      Total expenditure                                    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      34,180,205

      Excess of revenues over (under) expenditures          (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      (1,277,530)

      Other financing sources (uses)
      Transfers in                                           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       1,348,694
      Transfers out                                         (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)     (1,376,740)
      Bonds issued                                             106,807       1,578,009               -       1,061,900         5,626,331                 -         500,000               -                 -               -
      Sale of capital assets                                   400,280         282,080         483,544         827,141         1,120,341           286,152         375,723          68,452            75,465         120,118
      Total other financing sources (uses)                     518,932       1,860,089         592,787       1,780,995         6,178,627           218,106         943,949         118,150            57,682          92,072

      Net change in fund balances                        $ (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    $ (1,185,458)

      Debt service as a percentage of noncapital
      expenditures                                               4.94%           4.15%           4.63%           3.74%             4.44%             5.05%           4.06%           2.97%             3.01%           5.22%




      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




      Fiscal    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

      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%
      2011       8,546,677    26.0%   6,599,753      20.1%   11,525,749      35.0%   2,769,204       8.4%  1,179,639        3.6%       447,254    1.4%     412,498    1.3%   1,421,901      4.3%       32,902,675        66.6%


      * 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.




118
                                                                                                                                   City of Muskegon

                                                                                            Taxable, Assessed and Equalized and Estimated Actual Valuation of Property

                                                                                                                                 Last Ten Fiscal Years




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

                                                                                            Total                                                Industrial         Industrial        Commercial                                    Total                            Taxable Value
                                                                                           Real           Personal          Total                   Real            Personal             Real                Total                Taxable              Total          As a Percent
         Year        Residential      Agriculture    Commercial         Industrial        Property        Property        Ad Valorem              Property           Property          Property           IFT and CFT             Valuation            City              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             10.0792          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             10.0786          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             10.0774          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             11.0768          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             11.0755          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             11.0732          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             11.0685          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             11.0682          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             11.0680          91.48%
         2010        332,105,030                -   144,721,736          109,507,141   586,333,907   104,029,037   690,362,944                      4,111,154           9,129,000                   -        13,240,154            703,603,098             12.0680          94.04%



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

                                                                                            Total                                                Industrial         Industrial        Commercial                                    Total            Estimated
                                                                                           Real           Personal          Total                   Real            Personal             Real                Total                Assessed            Actual




119
         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
         2010        354,044,700                -   154,185,000          122,703,400   630,933,100   104,020,200   734,953,300                      4,120,400           9,129,000                   -        13,249,400            748,202,700   1,496,405,400




      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, 2011


                                                             6/30/2011                                            12/31/2001
                                                                             Percent of                                          Percent of
                                              Taxable                     Total Taxable             Taxable                    Total Taxable
                  Taxpayer                   Valuation          Rank         Valuation             Valuation         Rank         Valuation

      Consumers Energy                   $     83,566,362       1                      11.9%   $    75,994,362         1               10.5%
      ADAC Plastics Inc                         7,312,700        2                      1.0%                  -                         0.0%
      ESCO Company                              6,793,300        3                      1.0%         6,269,963        10                0.9%
      GE Aviation                               6,695,200        4                      1.0%         7,886,862         5                1.1%
      DTE Energy (formerly MichCon)             6,387,800        5                      0.9%         9,889,104         4                1.4%
      Sappi/S.D. Warren Company                 5,786,779        6                      0.8%        61,860,841         2                8.6%
      Muskegon SC Holdings LLC                  4,503,400        7                      0.6%                  -                         0.0%
      Michigan Electric Transmission            4,381,900        8                      0.6%                  -                         0.0%




120
      Glen Oaks Apartments LLC                  4,280,600        9                      0.6%                  -                         0.0%
      Faram Muskegon LLC                        3,927,000       10                      0.6%                  -                         0.0%
      Anglo-American Clays Corporation                   -                              0.0%        15,005,200         3                2.1%
      Terrace Partners LLC                               -                              0.0%         7,514,367         7                1.0%
      Brunswick Corp                                     -                              0.0%         7,491,320         8                1.0%
      Lorin Industries                                   -                              0.0%         7,805,275         6                1.1%
      Neway Anchorlok International                      -                              0.0%         6,726,295         9                0.9%

      Total - 10 Largest                     133,635,041                            19.0%          206,443,589                         28.6%
      Total - All Other                      569,968,057                            81.0%          514,953,537                         71.4%
                                         $   703,603,098                           100.0%      $   721,397,126                        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
2010       9.5000        0.0680            2.5000           12.0680       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
2010       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
2010      18.0000        5.7500          23.7500             6.0000                   38.8754         56.8754




                                                  121
                                                                             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%
       2010        8,945,500       7,784,052       87.0%     1,077,056        8,861,108          99.1%           58,027        70,745        13,647          1.59%




122
      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




                                                               Year Ended June 30, 2011                                                                      Year Ended December 31, 2001
      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                                 1,211                6% $         879,100    $         8,791                  0%                   1,179                5% $       1,029,474    $        10,295                  0%
      $2,501-$7,500                                    779                4%         5,882,700             58,827                  1%                   1,169                5%         6,827,297             68,273                  1%
      $7,501-$25,000                                 1,834                9%        43,197,400            431,974                  7%                   2,704               10%        52,426,935            524,269                  7%
      $25,001-$50,000                                1,487                8%        81,324,900            813,249                 12%                   2,394                9%       101,907,814          1,019,078                 14%
      $50,001-$100,000                                 850                4%        85,743,500            857,435                 13%                     986                4%        88,566,998            885,670                 13%
      More than $100,000                               165                1%        39,592,200            395,922                  6%                     142                1%        40,253,382            402,534                  6%

      Subtotal                                       6,326               32% $     256,619,800    $     2,566,198                 39%                   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.)




123
      $2,500 or less                                 1,770                9% $       1,000,800    $         7,246                  0%                   1,939                8% $       1,428,558    $         9,525                  0%
      $2,501-$7,500                                  1,122                6%         5,458,800             39,523                  1%                   1,665                6%         7,901,142             52,677                  1%
      $7,501-$25,000                                 2,684               14%        43,704,000            316,426                  5%                   4,208               16%        68,958,300            459,742                  6%
      $25,001-$50,000                                3,219               16%       117,950,960            853,989                 13%                   4,917               19%       177,165,226          1,181,151                 17%
      $50,001-$100,000                               2,229               11%       148,571,800          1,075,298                 16%                   2,102                8%       135,900,236            906,039                 13%
      More than $100,000                               588                3%       116,569,000            843,982                 13%                     527                2%       118,501,368            790,042                 11%

      Subtotal                                     11,612                59% $     433,255,360    $     3,136,464                 48%                 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                                       1,750                9%                      $       897,091                 14%                   1,850                7%                      $       769,276                 11%

      Total                                         19,688              100%                      $     6,599,753               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



      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
      2011               5,920,000               -         244,850        6,164,850         5,415,000                  -        10,955,000     16,370,000     22,534,850          3.3%      587




124
      * 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, 2011




                                                                                             Debt Supported by
                                                           Total Debt                          City General
Name of Governmental Unit                                 Outstanding        Self Supporting    Revenues

Direct Debt
 City of Muskegon:
   Revenue Bonds                                     $         16,370,000 $      16,370,000 $                   -
   Special Assessment Bonds                                             -                 -                     -
   Capital Improvement Bonds                                    5,920,000                 -             5,920,000
   Intergovernmental Bonds                                        244,850                 -               244,850
   Act 99 Installment Purchase                                                            -                     -
 Component Unit Debt:
   Downtown Development Authority                               3,045,000         3,045,000                     -
   Local Development Finance Authority                          4,405,000         4,405,000                     -

Total City Direct Debt                               $         29,984,850 $      23,820,000 $           6,164,850



                                                                             City Share as
                                                             Gross          Percent of Gross           Net
Overlapping Debt
 Muskegon School Distict                             $         31,620,000            94.43% $          29,858,766
 Orchard View School Distict                                   46,225,659            26.22%            12,120,368
 Reeths Puffer School Distict                                  63,789,840            10.97%             6,997,745
 Muskegon Intermediate School District                                  -            15.44%                     -
 Muskegon County                                               26,445,000            15.46%             4,088,397
 Muskegon Community College                                    14,090,000            15.46%             2,178,314

Total Overlapping Debt                               $       182,170,499                               55,243,590

Total City Direct and Overlapping Debt                                                         $       61,408,440


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.




                                                    125
                                                                                                                      City of Muskegon

                                                                                                     LEGAL DEBT MARGIN INFORMATION

                                                                                                                    Last Ten Fiscal Years




                                                               2002            2003           2004                2005             2006               2007               2008              2009             2010*            2011


      Debt Limit                                          $ 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   $   78,308,925

      Total net debt applicable to limit                     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       12,929,850

      Legal debt margin                                   $ 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   $   65,379,075




      Total net debt applicable to the limit as                  14.81%          12.74%          12.15%             13.01%               20.49%           18.52%             18.02%           17.98%            17.56%          16.51%
      a percentage of debt limit

                                                                                          Legal Debt Margin Calculation for 2011:

                                                                                          Assessed Valuation:                                                        $   783,089,250
                                                                                          Legal Debt Limit (10% )                                                         78,308,925

                                                                                          Total Indebtedness:                                     $   29,984,850
                                                                                          Debt not Subject to Limitation:
                                                                                             Paid by Special Assessment                                  (685,000)
                                                                                             Revenue Bonds                                            (16,370,000)




126
                                                                                          Debt Subject to Limitation                                                      12,929,850

                                                                                          Legal Debt Margin                                                          $    65,379,075


      * 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

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
2011               5,467,785          3,294,530         2,173,255          1,195,000            451,323          1,646,323           1.32



                                                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

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
2011                                                         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.




                                                              127
                                                                          City of Muskegon
                                                          DEMOGRAPHIC AND ECONOMIC STATISTICS

                                                                        Last Ten Fiscal Years




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

      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%
      2011           38,401             737,646,617         19,209       34.1                5,162                835                  18,829,825        13.8%




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


                                                                 Current Year and Ten Years Ago



                                                                         2011                                          2002
                                                                                     Percentage                                    Percentage
                                                                                       of total                                      of total
                                                                                        City                                          City
      Employer                                       Employees          Rank         employment          Employees     Rank        employment

      Mercy General Health Partners                          3,532               1          23.9%              1,300           1          7.6%
      County of Muskegon                                     1,211               2           8.2%                650           4          3.8%
      State of Michigan                                      1,064               3           7.2%                  -           -          0.0%
      Muskegon Public Schools                                  931               4           6.3%                555           7          3.3%
      ADAC Plastics                                            500               5           3.4%                480           8          2.8%
      Johnson Technology                                       425               6           2.9%                560           6          3.3%
      Frontier                                                 350               8           2.4%                350          10          2.1%




129
      City of Muskegon                                         243               9           1.6%                  -           -          0.0%
      Michigan Steel                                           208              10           1.4%                  -           -          0.0%
      Baker College                                            355               7           2.4%                  -           -          0.0%
      Hackley Hospital                                           -               -           0.0%              1,000           2          5.9%
      Brunswick                                                  -               -           0.0%                400           9          2.3%
      Holland Neway                                              -               -           0.0%                565           5          3.3%
      Sappi/S.D. Warren Company                                  -               -           0.0%                740           3          4.3%

      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                                                  2002            2003            2004           2005        2006     2007     2008     2009    2010*     2011
      Administration                                              1.50            1.50            1.50           1.50        1.50     1.50     1.50      -        -       0.40
      Affirmative Action                                          1.50            1.50            1.50           1.50        1.50     1.50     1.50     1.50     1.50     1.10
      Cemetaries                                                  3.52            3.52            3.52           3.25        3.00     3.25     3.25     3.25     2.50     2.20
      City Assessors Office                                        -               -               -              -           -        -        -        -        -        -
      City Clerk & Elections                                      4.00            4.00            4.00           4.00        4.00     4.00     4.00     4.00     3.00     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                                       1.25            1.20            1.00           1.00        1.00     1.00     1.00     1.00     1.00     0.55
      City Manager's Office                                       2.75            1.75            1.75           1.75        1.75     1.75     1.75     3.25     2.25     2.25
      City Treasurer's Office                                     6.00            6.00            5.00           5.00        5.00     4.00     5.00     5.00     5.00     5.00
      Civil Service                                               3.00            3.00            2.00           2.00        2.00     2.00     2.00     2.00     2.00     1.00
      Community Event Support                                     0.20            0.20             -              -           -        -        -        -        -        -
      Environmental Services                                      4.00            4.00            3.50           2.00        2.00     2.00     2.00     2.00     2.00     2.00
      Farmers Market                                              0.12            0.12            0.12            -           -        -        -       0.05     0.05     0.05
      Finance Administration                                      4.00            4.00            4.00           4.00        4.00     4.00     4.00     4.00     3.00     3.00
      Fire                                                       44.00           43.00           41.00          40.00       38.00    38.00    38.00    38.00    36.00    33.00
      Fire Safety Inspections                                    12.00           13.00           12.00          10.00       12.00    12.00    12.00    12.00     9.00     8.00
      Forestry                                                    2.18            1.93            0.93            -           -        -        -        -        -        -
      General Recreation                                          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




130
      Information Systems                                         4.00            4.00            4.00           3.00        3.00     3.00     3.00     3.00     3.00     3.00
      Inner City Recreation                                       1.46             -               -              -           -        -        -        -        -        -
      Parking                                                     0.30            0.30             -              -           -        -        -        -        -        -
      Parks                                                      11.53           10.53            9.68           8.48        8.25     8.15     8.15     7.99     7.15     6.00
      Planning, Zoning & Economic Development                     7.50            7.50            6.50           6.00        6.00     6.00     6.00     6.00     5.00     4.00
      Police                                                    102.00           96.00           94.00          94.00       94.00    94.00    94.00    94.00    88.00    88.00
      Sanitation                                                  1.25            1.25            1.10           1.10        1.00     1.00     1.00     1.00      -       0.30
      MVH-Major Streets                                          14.70           15.30           15.45          15.25       16.00    17.75    15.75    13.75    12.00    12.00
      MVH-Local Streets                                           7.20            7.20            7.00           7.00        7.00     7.00     6.00     8.00     7.00     7.00
      MVH-State Trunklines                                        1.60            1.60            2.00           2.00        2.00      -        -        -        -        -
      Street Lighting                                             0.10             -               -              -           -        -        -        -        -        -
      Walker Arena                                                0.12            0.12            0.12            -           -        -        -        -        -        -
      Community Development                                       5.00            5.00            5.00           4.00        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     0.25     0.25
      Lead Program                                                 -               -               -              -           -        -        -        -       0.75     0.75
      Sewer Maintenance                                          14.40           15.15           14.55          15.05       16.00    16.20    15.20    13.20    10.20    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           15.15          14.65       13.00    12.50    13.50    15.40    12.40    12.40
      Hartshorn Marina Fund                                       0.79            0.79            0.79           0.67        0.73     0.67     0.34     0.05     0.05     0.05
      Public Service Building                                     3.30            3.30            3.65           3.85        3.45     3.45     3.45     3.70     8.95     8.05
      Engineering                                                 9.35            9.40            7.70           7.70        7.45     7.45     7.45     7.45     5.45     4.95
      Equipment                                                   7.70            7.70            8.00           8.00        8.95     8.25     8.25     8.50     7.25     6.25
                                                                315.00          308.00          294.00         284.00      284.00   282.00   280.00   280.00   256.00   244.00


      * 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                                        2002          2003         2004          2005          2006         2007         2008         2009         2010*       2011



      Administrative Services
      Elections
      Number of registered voters                               23,931        23,904       25,261        25,918        26,028       26,345       27,678       26,136       26,136      26,330
      Number of votes cast:
       Last general election                                     8,916         8,916       14,169        14,169        10,410       10,410       15,271       15,271       15,271       8,106
       Last city election                                        3,840         4,325        4,325         4,022         4,022        1,101        1,101        2,254        2,254       8,106
      Percentage of registered voters voting:
       Last general election                                         37%           37%          56%           55%           40%          40%          55%          58%        58%           31%
       Last city election                                            16%           18%          17%           16%           15%           4%           4%           9%         9%           31%



      Financial Services
      Property Tax Bills                                        15,586        15,428       15,403        15,404        15,354       15,376       15,350       15,435            -      15,351
      Income Tax Returns                                        25,135        25,043       24,378        23,884        23,493       23,141       22,598       21,071       19,963      19,688
      Paper Check Issued to Vendors                              4,012         3,784        3,405         3,205         3,248        3,347        3,346        3,113        1,486       2,986
      Electronic Payments to Vendors                               651           746          752           828           800          772          763          963          450         884




131
      Public Safety
      Fire Protection
       Number of firefighter and officer positions                  44            42           41            41            41           41           41           37           37          37
       Number of emergency calls                                 3,878         3,656        4,116         4,206         4,092        4,171        4,298        4,220        2,062       4,402
      Police Protection
       Number of sworn officer positions                            85            83           83            83            84           84           84           79           79          79
       Part I (Major) Crimes                                     3,504         2,971        3,360         3,303         3,495        2,997        3,107        3,071        1,305       2,859



      Public Works
       Refuse Collected (Tons per Year)                         11,420        11,780       11,925        11,074        11,192       10,375       10,401       10,526        6,042      12,703
       Recyclables Collected (Tons per Year)                       808           775          779           588           559          629          626          309            -           -



      Water & Sewer
      Number of consumers                                       14,917         14,917       14,917        14,455        14,412       14,364       13,131       12,987       12,966      13,037
      Average daily water consumption (GPD)                  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   8,417,000
      Water main breaks repaired                                    12             19           10             5            13           21           34           17            6          12
      Sewer flows (Millions Gallons per Year)                    1,477          1,387        1,475         1,700         2,040        1,945        2,181        1,979          965       1,625
      Sewer Service Calls                                          661            624          568           638           605          598          533          508          263         591


      * 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                                    2002             2003             2004               2005              2006         2007         2008         2009         2010*         2011


      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                                       197.39           197.96           196.95            196.95            197.48       197.79       197.79       196.95       196.95        196.95
      Number of streetlights                                  3,114            3,123            3,111             3,159             3,159        3,134        3,134        3,192        3,125         3,065

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




132
      Storm sewers (miles)                                   178.57           178.57           178.61            179.23            180.48       183.25       183.60       184.35       184.35        184.35

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




                         133
                                         BRICKLEY DELONG
                                                CERTIFIED PUBLIC ACCOUNTANTS




                 INDEPENDENT AUDITORS’ REPORT ON INTERNAL CONTROL OVER
                FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS
                   BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED
                    IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS


October 21, 2011


City Commission
City of Muskegon
Muskegon, Michigan

We have audited the financial statements of the City of Muskegon as of and for the year ended June 30, 2011 and
have issued our report thereon dated October 21, 2011. We conducted our audit in accordance with auditing
standards generally accepted in the United States of America and the standards applicable to financial audits
contained in Government Auditing Standards issued by the Comptroller General of the United States.

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

Our consideration of internal control over financial reporting was for the limited purpose described in the
preceding paragraph and was not designed to identify all deficiencies in internal control over financial reporting
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 described in the
accompanying Schedule of Findings and Responses, we identified a certain deficiency in internal control over
financial reporting that we consider to be a material weakness.

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. We consider the deficiency
described in the accompanying Schedule of Findings and Responses to be a material weakness, as Finding
2011-1.




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

                                                                     134
BRICKLEY DELONG


City Commission
October 21, 2011
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.

The City of Muskegon’s response to the finding 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.




                                                       135
                                         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


October 21, 2011


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
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 year ended June 30, 2011. The City of Muskegon’s major federal
programs are identified in the Summary of Auditors’ Results section of the accompanying Schedule of Findings
and Responses. Compliance with the requirements of laws, regulations, contracts, and grants applicable to each
of its major federal programs is the responsibility of the City of Muskegon’s management. Our responsibility is
to express an opinion on the City of Muskegon’s compliance based on our audit.

We conducted our audit of compliance in accordance with auditing standards generally accepted in the United
States of America; the standards applicable to financial audits contained in Government Auditing Standards
issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local
Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and
perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance
requirements referred to above that could have a direct and material effect on a major federal program occurred.
An audit includes examining, on a test basis, evidence about the City of Muskegon’s compliance with those
requirements and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination 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 year
ended June 30, 2011.




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

                                                                     136
BRICKLEY DELONG


City Commission
October 21, 2011
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.

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.

Our consideration of internal control over compliance 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 compliance that might be
deficiencies, significant deficiencies, or material weaknesses. We did not identify any deficiencies in internal
control over compliance that we consider to be material weaknesses, as defined above. However, we identified a
deficiency in internal control over compliance that we consider to be a significant deficiency as described in the
accompanying Schedule of Findings and Responses, as Finding 2011-2. A significant deficiency in internal
control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with
a type of compliance requirement of a federal program that is less severe than a material weakness in internal
control over compliance, yet important enough to merit attention by those charged with governance.

The City of Muskegon’s response to the finding 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.




                                                       137
                                                                                      City of Muskegon
                                                               SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
                                                                         For the year ended June 30, 2011


                                                                                                          Accrued                                       Accrued
                                                                                           Entitlement   (deferred)       Cash or                      (deferred)
                                                                               Federal     program or     revenue       payments in     Amount of       revenue
      Federal grantor/pass-through                                              CFDA          award        July 1,     kind received      grant         June 30,
        grantor/program title                                                  number        amount         2010        (cash basis)   expenditures       2011          Notes

      U.S. Department of Housing and Urban Development
      Direct programs
         CDBG - Entitlement Cluster
             Community Development Block Grant                                  14.218
                B-09-MC-26-0026                                                           $ 1,001,885    $    24,582   $     24,582    $          -    $         -
                B-10-MC-26-0026                                                             1,086,413        143,898        793,388         820,592        171,102
                Program Income                                                                 68,384              -         68,384          68,384              -
                   Total Community Development Block Grant                                  2,156,682        168,480        886,354         888,976        171,102       4

            ARRA - Community Development Block Grant - Recovery                 14.253
              B-09-MY-26-0026                                                                 267,182        118,277        219,699         101,422                 -    4

                      Total CDBG - Entitlement Cluster                                       2,423,864       286,757       1,106,053        990,398        171,102

         Home Investment Partnership Program                                    14.239




138
           M-09-MC-26-0215                                                                    322,469         70,016         70,016               -              -
           M-10-MC-26-0215                                                                    320,710              -        122,905         139,524         16,619
           Program Income                                                                      82,114          6,884         82,114          75,230              -
                 Total Home Investment Partnership Program                                    725,293         76,900        275,035         214,754         16,619

         Lead-Based Paint Hazard Control in Privately-Owned Housing              14.900
            FR-5100-N-20A                                                                    2,079,492          938             938               -                 -
            Program Income                                                                      42,640            -          42,640          42,640                 -
                  Total Lead-Based Paint Hazard Control in Privately-Owned Housing           2,122,132          938          43,578          42,640                 -

                      Total direct programs                                                  5,271,289       364,595       1,424,666       1,247,792       187,721

      Passed through Michigan Department of Housing Development Authority
         Community Development Block Grant                                      14.218
            Neighborhood Stabilization Program
                NSP-2008-0280-ENT                                                            1,450,000       326,655        892,001          919,285       353,939
                Program Income                                                                 101,197             -         97,279          101,197         3,918
                   Total Neighborhood Stabilization Program                                  1,551,197       326,655        989,280        1,020,482       357,857       4

                      Total U.S. Department of Housing and
                       Urban Development                                                     6,822,486       691,250       2,413,946       2,268,274       545,578
                                                                               City of Muskegon
                                                          SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS─CONTINUED
                                                                          For the year ended June 30, 2011


                                                                                                   Accrued                                         Accrued
                                                                                   Entitlement    (deferred)          Cash or                     (deferred)
                                                                         Federal   program or      revenue          payments in     Amount of      revenue
      Federal grantor/pass-through                                        CFDA        award         July 1,        kind received      grant        June 30,
        grantor/program title                                            number      amount          2010           (cash basis)   expenditures      2011          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            5,561             82                 -
             2009 Grant                                                                  4,851               -            2,962          2,962                 -
                                                                                        18,202           5,532            8,576          3,044                 -

         Justice Assistance Grant                                         16.738
            2009-DJ-BX-0692                                                             81,109                 -          5,329          5,329                 -
            2010-DJ-BX-0887                                                             72,866                 -         46,759         46,759                 -
                                                                                       153,975                 -         52,088         52,088                 -

                  Total direct programs                                                172,177           5,532           60,664         55,132                 -

      Passed through Ottawa County




139
         WEMET Multi-Jurisdictional Drug
            Enforcement CO-OP                                             16.738
                70834-210B                                                              36,799           9,130           10,484          1,354             -
                70834-311B                                                              34,911               -           28,638         34,911         6,273
                                                                                        71,710           9,130           39,122         36,265         6,273

      Passed through Muskegon County
         ARRA - Justice Assistance Grant                                  16.804
            2009-SB-B9-1824                                                            218,169           3,536           46,960         57,860        14,436

                      Total U.S. Department of Justice                                 462,056         18,198          146,746         149,257        20,709

      U.S. Department of Energy
      Direct programs
         Energy Efficiency and Conservation Block Grant                   81.128
             041714125                                                                 181,600        (162,729)               -        162,729                 -
                                                                                City of Muskegon
                                                       SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS─CONTINUED
                                                                       For the year ended June 30, 2011


                                                                                                    Accrued                                          Accrued
                                                                                    Entitlement    (deferred)          Cash or                      (deferred)
                                                                      Federal       program or      revenue         payments in      Amount of       revenue
      Federal grantor/pass-through                                     CFDA            award         July 1,        kind received      grant         June 30,
        grantor/program title                                         number          amount          2010           (cash basis)   expenditures       2011          Notes

      U.S. Department of Homeland Security
      Direct programs
         Assistance to Firefighters                                   97.044
             EMW-2009-FO-09926                                                     $     29,815    $            -   $     29,815    $     29,815    $            -

         Fire Prevention and Safety                                   97.083
            EMW-2007-FP-01502                                                            13,770              -            13,770          13,770                 -
            EMW-2009-FP-00389                                                             9,000          9,000             9,000               -                 -
                                                                                         22,770          9,000            22,770          13,770                 -

                      Total U.S. Department of Homeland Security                         52,585          9,000            52,585          43,585                 -

                      TOTAL FEDERAL ASSISTANCE                                     $   7,518,727   $   555,719      $   2,613,277   $   2,623,845   $   566,287




140
      The accompanying notes are an integral part of this schedule.
                                                                                      City of Muskegon
                                                     NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
                                                                    For the year ended June 30, 2011


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

      2.   The following is a reconciliation of federal revenues as reported on the Statement of Revenues, Expenditures and Changes in Fund Balances of the City of Muskegon
           financial statements for the year ended June 30, 2011 and federal expenditures per the Schedule of Expenditures of Federal Awards.

              Federal revenues per City of Muskegon financial statements
                 General Fund                                                                                                                  $      192,842
                 Major Street and Trunkline Fund                                                                                                    1,457,137
                 Other governmental funds                                                                                                           2,143,552
                                                                                                                                                    3,793,531

              Plus program income                                                                                                                      287,451
              Less MDOT contracted projects as shown below                                                                                          (1,457,137)

              Federal expenditures per the Schedule of Expenditures of Federal Awards                                                          $    2,623,845

      3.   The Michigan Department of Transportation (MDOT) requires that cities report all federal and state grants pertaining to their city. During the year ended June 30, 2011,
           the federal aid received and expended by the City was $1,457,137 for contracted projects as shown below. Contracted projects are defined as projects performed by
           private contractors and paid for and administrated by MDOT (they are included in MDOT's single audit). Negotiated projects are projects where the City administers
           the grant and either performs the work or contracts it out.




141
                                                                                                                               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(334) Fed Item HH6583 Contract 10-5473                                                                           $      495,500      $      495,500
                 Proj STP 1061 (321) Fed Item HH6430 Contract 10-5305                                                                                 310,500             310,500
                 Proj ARRA 1061(349) Fed Item JJ49292 Contract 10-5654                                                                                102,632             102,632
                 Proj STP 0761 (011) Fed Item HH4997 Contract 07-5131                                                                                   3,502               3,502
                 Proj CMG 0761 (024) Fed Item RR5822 Contract 07-5379                                                                                     125                 125
                 Proj CMG 0761 (025) Fed Item JJ2804 Contract 07-5379                                                                                     957                 957
                 Proj CMG 0961 (127) Fed Item JJ3202 Contract 09-5110                                                                                  29,338              29,338
                 Proj STP 1061(323) Fed Item RR7175 Contract 10-5473                                                                                  303,583             303,583
                 Proj STP 1061(348) Fed Item RR7391 Contract 10-5320                                                                                  211,000             211,000
                     Total U.S. Department of Transportation,
                        Federal Highway Administration (contracted projects)                                                                    $   1,457,137       $   1,457,137

      4.   Community Development Block Grant cluster
                                               City of Muskegon
                               SCHEDULE OF FINDINGS AND RESPONSES
                                      Year ended June 30, 2011


SECTION I—SUMMARY OF AUDITORS’ RESULTS
A. Financial Statements
     1.   Type of auditors' report issued: Unqualified
     2.   Internal control over financial reporting:
          •   Material weakness(es) identified?                                      X yes        no
          •   Significant deficiency(ies) identified that are not considered to
              be material weaknesses?                                                  yes     X none reported
     3.   Noncompliance material to financial statements noted?                        yes     X no
B.   Federal Awards
     1.   Internal control over major programs:
          •   Material weakness(es) identified?                                        yes     X no
          •   Significant deficiency(ies) identified that are not considered to
              be material weaknesses?                                                X yes            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


     5.   Dollar threshold used to distinguish between type A and type B programs: $300,000
     6.   Auditee qualified as low-risk auditee?                                       yes     X no




                                                         142
                                            City of Muskegon
                             SCHEDULE OF FINDINGS AND RESPONSES
                                    Year ended June 30, 2011


SECTION II – FINANCIAL STATEMENT FINDINGS

   Finding 2011-1: MATERIAL WEAKNESS—Year-end Procedures Should be Improved to Enhance
   Year-end Financial Reporting

   Criteria: The City’s general ledger should be in agreement with detailed balances and other supporting
   documentation at year-end.

   Condition: Several material audit adjustments were required to correct general ledger balances at year-end.

   Cause: City personnel did not record all of the adjustments necessary to have the general ledger in
   agreement with detailed balances and other supporting documentation at year-end.

   Effect: The City records required material year-end audit adjustments.

   Recommendation: The City should improve its year-end procedures to ensure that its general ledger is
   properly adjusted.

   Views of Responsible Officials and Planned Corrective Actions: The City agrees with this finding and will
   implement a better review process to ensure better year-end accuracy. Several of the needed adjustments
   arose from staff reductions/turnover and resulting unfamiliarity with year-end procedures.




                                                     143
                                             City of Muskegon
                              SCHEDULE OF FINDINGS AND RESPONSES
                                     Year ended June 30, 2011


SECTION III – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

   Finding 2011-2: Eligibility Documented Review and Approval Procedures
   U.S. Department of Housing and Urban Development
   CDBG Entitlement Grant Cluster
   CFDA: 14.218 and 14.253
   Award Number: B-10-MC-26-0026, NSP-2008-0280-ENT
   Award Year End: June 30, 2011

   Criteria: Per OMB Circular A-133 §           .105 Definitions, internal control is a process, affected by an
   entity’s management and other personnel, designed to provide reasonable assurance regarding the
   achievement of objectives in the following categories: 1) Effectiveness and efficiency of operations, 2)
   Reliability of financial reporting, and 3) Compliance with applicable laws and regulations.

   Condition: Internal control procedures requiring a documented review and approval of eligibility
   determination were not performed for the CDBG Entitlement Grant cluster programs.

   Context: Eight of eighteen files tested for eligibility lacked documented review and approval. However, the
   auditor found no instances of individuals not being eligible for participation in the program.

   Cause: Turnover in the Community and Neighborhood Services Department caused this control procedure
   to be overlooked.

   Effect: The lack of documented review and approval could allow errors in eligibility determination to go
   undetected.

   Questioned Costs: None.

   Recommendation: Documented review and approval procedures should be implemented for the CDBG
   Entitlement Grant cluster programs eligibility function.

   Views of Responsible Officials and Planned Corrective Actions: The City agrees with this finding.
   Documented review and approval procedures will be implemented for the CDBG Entitlement Grant cluster
   eligibility function.




                                                       144
CLIENT DOCUMENTS




      145
City of Muskegon
                                                                                         933 Terrace Street
                                                                                      Muskegon, MI 49440
                                                                                     Phone: (231) 724-6709



                          SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS


  October 21, 2011


  U.S. Department of Housing and Urban Development
  Washington D.C.


  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 June 30, 2010 dated November 5, 2010.

  SECTION II – FINANCIAL STATEMENT FINDINGS

      There were no findings in relation to the financial statements.

  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-26-0215, B-09-MY-26-0215, NSP-2008-0280-ENT
      Award Year End: June 30, 2010

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

      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.

      Current Status: This recommendation was implemented during the year ended June 30, 2011. No similar
      finding was reported during the single audit for the year ended June 30, 2011.

  Sincerely,




  Timothy J. Paul
  Finance Director




                                                      146
City of Muskegon
                                                                                        933 Terrace Street
                                                                                     Muskegon, MI 49440
                                                                                    Phone: (231) 724-6709




                                    CORRECTIVE ACTION PLAN



  October 21, 2011



  U.S. Department of Housing and Urban Development
  Washington D.C.


  City of Muskegon respectfully submits the following Corrective Action Plan for the year ended June 30,
  2011.

  Name and address of independent public accounting firm:
                  Brickley DeLong, P.C.
                  P.O. Box 999
                  Muskegon, Michigan 49443
  Audit period:   June 30, 2011

  The findings from the Schedule of Findings and Responses for the year ended June 30, 2011 are discussed
  below. The findings are numbered consistently with the numbers assigned in the schedule.

  SECTION II – FINANCIAL STATEMENT FINDINGS

     Finding 2011-1: MATERIAL WEAKNESS─ Year-end Procedures Should be Improved to
     Enhance Year-end Financial Reporting

     Recommendation: The City should improve its year-end procedures to ensure that its general ledger is
     properly adjusted.

     Action Taken: The City is making changes to its closing procedures to better ensure that accounts are
     properly adjusted in future year-end closings.




                                                    147
U.S. Department of Housing and Urban Development
October 21, 2011
Page 2


SECTION III – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

    Finding 2011-2: Eligibility Documented Review and Approval Procedures
    U.S. Department of Housing and Urban Development
    CDBG Entitlement Grant Cluster
    CFDA: 14.218 and 14.253
    Award Number: B-10-MC-26-0026, NSP-2008-0280-ENT
    Award Year End: June 30, 2011

    Recommendation: Documented review and approval procedures should be implemented for the CDBG
    Entitlement Grant cluster programs eligibility function.

    Action Taken: The City is changing its procedures to ensure that reviews of eligibility are properly
    documented.

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




                                                   148

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