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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 1 City of Muskegon TABLE OF CONTENTS Other Supplemental Information Other Governmental Funds Description of Other Governmental Funds ....................................................................................... 84 Combining Balance Sheet ................................................................................................................. 86 Combining Statement of Revenues, Expenditures and Changes in Fund Balances ................................................................................................................................ 87 Other Special Revenue Funds Combining Balance Sheet .............................................................................................................. 88 Combining Statement of Revenues, Expenditures and Changes in Fund Balances ............................................................................................................................. 89 Budgetary Comparison Schedule—Other Special Revenue Funds ............................................... 90 Other Capital Projects Funds Combining Balance Sheet .............................................................................................................. 92 Combining Statement of Revenues, Expenditures and Changes in Fund Balances (Deficit) .............................................................................................................. 93 Internal Service Funds Description of Internal Service Funds ............................................................................................... 95 Combining Statement of Net Assets (Deficits) ................................................................................. 96 Combining Statement of Revenues, Expenses and Changes in Fund Net Assets (Deficits) .......................................................................................... 97 Combining Statement of Cash Flows ................................................................................................ 98 Fiduciary Funds Description of Fiduciary Funds ......................................................................................................... 99 Agency Funds Combining Statement of Assets and Liabilities ........................................................................... 100 Statement of Changes in Assets and Liabilities ........................................................................... 101 Component Units Description of Component Units ..................................................................................................... 103 Combining Balance Sheet ............................................................................................................... 104 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Assets (Deficits) ..................................................................................... 105 Combining Statement of Revenues, Expenditures and Changes in Fund Balances (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 3 4 Affirmative Action (231)724-6703 FAX (231)722- 1214 Cemetery (231)724-6783 FAX (231)726- 5617 City Manager (231)724-6724 FAX (231)722- 1214 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 5 maximum understanding of the City’s finances have been included. Brickley DeLong, P.C., Certified Public Accountants, performed the independent audit of all accounts of the City as required by state law and their report and unqualified opinion is presented as the first component of the financial section of this report. THE CITY AND THE REGION The City of Muskegon is located in Western Michigan on the shores of Lake Michigan. The City covers eighteen square miles and, with a 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 6 Milwaukee Clipper, a Great Lakes passenger ship built before the Titanic that for many years served as a cross-lake ferry between Muskegon and Milwaukee. The City of Muskegon operates under a Commission-Manager form of government and provides a full range of traditional municipal services. These include police and fire protection, parks and recreation activities, public works operations, water and sewer services, solid waste collection, community development and general administrative support services. The City also provides treated water to several surrounding communities on a wholesale basis. COMPONENT UNITS The City has four discretely presented component unit types. These entities are discretely presented in the financial statements as the governing boards of the component units are appointed and approved by the City’s governing board: The Downtown Development Authority (DDA) exists primarily for the purpose of financing redevelopment activities in the City’s downtown area. The DDA has issued bonds that are repaid through tax increment revenues generated from development within the Authority’s boundaries. The Tax Increment Finance Authority (TIFA) exists primarily for the purpose of financing redevelopment activities in a sub-section of the City’s downtown area. The TIFA generates tax increment revenues through development within the Authority’s boundaries. The Local Development Finance Authority (LDFA) issues bonds for development activities in the City’s industrial park and high-tech park areas. Bonds are repaid through tax increment revenues generated by development within the Authority’s boundaries. The Brownfield Redevelopment Authority (BRA), which exists primarily for the purpose of financing redevelopment of designated environmental brownfields. The BRA generates tax increment revenues through development within its boundaries. LOCAL ECONOMIC CONDITION AND OUTLOOK Muskegon 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: 7 “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. 8 OTHER INFORMATION INTERNAL ACCOUNTING CONTROLS The City’s management is responsible for establishing and maintaining an internal control structure that is designed to ensure adequate protection of the City’s assets from loss, theft, or misuse, and adequate accounting data to allow for preparation of financial statements in conformity with generally accepted accounting principles. The internal control structure is designed to provide reasonable, but not absolute assurance that these objectives are met. The concept of reasonable assurance recognizes that (1) the costs of a control should not exceed the benefits likely to be derived; and (2) the valuation of costs and benefits requires estimates and judgments by management. All internal control evaluations occur within the above framework. We believe that the City’s internal accounting controls adequately safeguard assets and provide reasonable assurances of proper recording of financial transactions. BUDGETARY CONTROL Budgetary control is maintained through an annual budget resolution passed by the City Commission. Budgetary control at the functional level is maintained by review of estimated expenditures prior to making purchases. Encumbrances are not recorded in the City’s funds. The City does, however, utilize an informal monitoring system to facilitate budgetary control over proposed purchases. Essentially, this system entails the use of on-line budgetary information that details year-to-date “actual versus budgeted” expenditure comparisons by budget category. This information is accessible to appropriate personnel to enable them to ascertain the budget status of an expenditure category prior to authorizing additional purchases. 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 11 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 16 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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